AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 20, 1999
REGISTRATION NO. 333-__________
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or (g) of The Securities Exchange Act of 1934
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PACIFIC MAGTRON INTERNATIONAL CORP.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEVADA 88-0353141
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(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
1600 CALIFORNIA CIRCLE
MILPITAS, CALIFORNIA 95035
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(Address of principal executive (zip code)
offices)
(408) 956-8888
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(Registrant's telephone number, including area code)
Securities to be registered pursuant to 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
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n/a n/a
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Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock; $.001 per share
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(Title of Class)
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(Title of Class)
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TABLE OF CONTENTS
ITEM 1. BUSINESS..............................................................1
ITEM 2. FINANCIAL INFORMATION................................................13
ITEM 3. DESCRIPTION OF PROPERTY..............................................18
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT................................................18
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS.....................................19
ITEM 6. EXECUTIVE COMPENSATION...............................................19
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................22
ITEM 8. LEGAL PROCEEDINGS....................................................22
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND RELATED STOCKHOLDER MATTERS........................22
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES..............................22
ITEM 11. DESCRIPTION OF SECURITIES...........................................23
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS............................23
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..........................24
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE...............................24
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS....................................24
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ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF THE COMPANY'S BUSINESS.
Pacific Magtron International Corp., a Nevada corporation, is an
integrated solutions provider of computer related equipment and services. The
Company's primary business is the wholesale distribution of computer and related
hardware components and software for personal computers to value added
resellers, retailers, systems integrators, original equipment manufacturers,
independent hardware and software vendors, consultants, and contractors. In May
1998, the Company formed its FrontLine Network Consulting ("FrontLine")
division, a corporate information systems group, with the goal of serving the
networking and personal computer requirements of corporate customers. As used in
this document and unless otherwise indicated, the terms "Company," "we," and
"our" refer to Pacific Magtron International Corp. and its operating divisions
and subsidiaries.
The Company was incorporated as Wildfire Capital Corporation
("Wildfire") in Nevada on January 8, 1996 with the stated purpose of engaging in
the business of providing a national retail market for premium wines on the
Internet. The Internet site was intended to provide advertising for wine
retailers and boutique wineries. Wildfire was initially capitalized with a
$5,000 investment by its founder, for which 500,000 shares of common stock were
issued. On August 27, 1996, Wildfire commenced a Rule 504 offering of 1,000,000
shares of its common stock at a price of $.05 per share. Gross proceeds from the
offering were $50,000 in cash.
Due primarily to regulatory issues, the business of Wildfire did not
develop as expected, and as a result, Wildfire closed its marketing operations
in the fall of 1997. At that time, Wildfire began searching for new business
opportunities, and on July 16, 1998, the Board of Directors of Wildfire
recommended the acquisition of Pacific Magtron, Inc. ("PMI") to Wildfire's
shareholders. PMI, a California corporation incorporated on August 11, 1989, had
established itself in the computer products wholesale distribution industry as a
privately held company. The shareholders of Wildfire and PMI approved the
transaction, and Wildfire issued 9,000,000 shares of its common stock in
consideration for all of the outstanding shares of PMI. As a result, the former
shareholders of PMI became the controlling shareholders of Wildfire. No
securities were registered in connection with the transaction. Upon consummation
of the acquisition, Wildfire changed its name to Pacific Magtron International
Corp., and PMI continued its business operations as a wholly owned subsidiary of
the Company.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
We operate in only one business segment.
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NARRATIVE DESCRIPTION OF OUR BUSINESS.
OVERVIEW OF THE INDUSTRY
WHOLESALE DISTRIBUTION
The microcomputer products distribution industry generally consists of
suppliers, wholesalers, resellers, and end-users. Wholesale distributors
typically sell only to resellers and purchase a wide range of products in bulk
directly from manufacturers. Different types of resellers are defined and
distinguished by the end-user market they serve, such as large corporate
accounts, small and medium-sized businesses or home users, and by the level of
value that they add to the basic products they sell.
- - INCREASED RELIANCE ON WHOLESALE DISTRIBUTION
We believe that the growth of the microcomputer products wholesale distribution
industry exceeds that of the microcomputer industry as a whole. In our view,
suppliers, vendors, and resellers are relying to a greater extent on wholesale
distributors for their distribution needs.
Suppliers are faced with the pressures of declining product prices and the
increasing costs of selling directly to a large and diverse group of resellers,
and they therefore are increasingly relying upon wholesale distribution channels
for a greater proportion of their sales. Many suppliers outsource a growing
portion of certain functions, such as distribution, service, technical support,
and final assembly, to the wholesale distribution channel in order to minimize
costs and focus on their core capabilities in manufacturing, product
development, and marketing. Likewise, vendors are finding it more cost efficient
to rely on wholesale distributors that can leverage distribution costs across
multiple vendors, each of whom outsources a portion of their distribution,
credit, marketing, and support services.
On the reseller side, growing product complexity, shorter product life cycles,
an increasing number of microcomputer products, the emergence of open systems
architectures, and the recognition of certain industry standards have led
resellers to depend upon wholesale distributors for more of their product,
marketing, and technical support needs. Due to the large number of vendors and
products, resellers often cannot or choose not to establish direct purchasing
relationships with suppliers. Instead, they rely on wholesale distributors that
can leverage purchasing costs across multiple resellers to satisfy a significant
portion of their product procurement and delivery, financing, marketing, and
technical support needs. Rather than stocking large inventories themselves and
maintaining credit lines to finance working capital needs, resellers are also
increasingly relying on wholesale distributors for product availability and
flexible financing alternatives.
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- - OPEN SOURCING
Another apparent reason for the growth of the wholesale distribution industry is
the evolution of open sourcing during the past several years, a phenomenon
specific to the U.S. microcomputer products wholesale distribution market.
Historically, branded computer systems from large suppliers were sold in the
United States only through authorized master resellers. Under this single
sourcing model, resellers were required to purchase these products exclusively
from one master reseller. Competitive pressures led some of the major computer
suppliers to authorize second sourcing, in which resellers could purchase a
supplier's product from a source other than their primary master reseller,
subject to certain restrictive terms and conditions. More recently, all major
manufacturers have authorized open sourcing, under which resellers can purchase
the supplier's product from any source on equal terms and conditions. Open
sourcing has thus blurred the distinction between wholesale distributors and
master resellers, which are increasingly able to serve the same reseller base.
The Company believes that open sourcing enables those distributors of
microcomputer products which provide the highest value through superior service
and pricing in the best position to compete for reseller customers.
- - INTERNET SERVICES
One final industry trend, the emergence of the Internet, provides wholesale
distributors with an additional means to serve both suppliers and reseller
customers through the development and use of effective electronic commerce
tools. The increasing utilization of electronic ordering and information
delivery systems, including the ability to transact business over the World Wide
Web, has had, and is expected to continue to have, a significant impact on the
cost efficiency of the wholesale distribution industry. Distributors with the
financial and technical resources to develop, implement and operate state of the
art management information systems have been able to reduce both their customers
and their own transaction costs through more efficient purchasing and lower
selling costs. The growing presence and importance of such electronic commerce
capabilities also provide distributors with new business opportunities as new
categories of products, customers, and suppliers develop.
CORPORATE INFORMATION SYSTEMS CONSULTING
Because of factors similar to those encouraging the increased reliance by target
clients on wholesale distributors, corporations are increasingly looking to
specialist service organizations such as our FrontLine division to support the
development and maintenance of their information technology systems.
Accelerating technological advancement, migration of organizations toward multi-
vendor distributed networks, and increased globalization of corporate activity
have contributed to an increase in the sophistication and interdependency of
corporate computing systems. The desire by corporations to focus upon their core
activities while enjoying the benefits of such multi-vendor distributed
networks, together with increasing skill shortages within the information
technology industry, have led businesses to increasingly outsource the
development and maintenance of their computing systems to network consulting
professionals.
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PRODUCTS AND SERVICES
We currently operate in two business divisions. Our computer products
group operates under the name Pacific Magtron, Inc., our wholly owned
subsidiary, and our corporate information systems group operates as a corporate
division known as FrontLine Network Consulting ("FrontLine") within our PMI
subsidiary.
PACIFIC MAGTRON, INC.
PMI distributes a wide range of computer products, including components and
multimedia and systems networking products. Through PMI we also provide
vertical solutions for systems integrators and Internet resellers by combining
or "kitting" our products.
Our computer products group offers our customers a broad inventory of more than
1,800 products from approximately 30 manufacturers. This wide assortment of
vendors and products meets our customers' needs for a cost effective link to
multiple vendors' products through a single source. Among the products that we
distribute are systems and networking peripherals, and components such as high
capacity storage devices, CD-ROMs and CD recorders, sound cards, small computer
systems interface components, video phone solutions, floppy and hard disk
drives, and other miscellaneous items such as audio cabling devices and zip
drives for desktop and notebook computers.
FRONTLINE NETWORK CONSULTING
Our FrontLine division was formed in May 1998 to serve the growing needs of our
corporate customers with respect to their computer systems and networking needs.
We provide a wide range of services to our customers through this division
including advanced enterprise consulting, LAN/WAN design, hardware and software
troubleshooting and testing, and complete Internet business solutions. Our
corporate customers engage us to provide them with network and computing
solutions through the following types of services:
INTEGRATION SERVICES:
Our integration center provides a static free environment where customized
hardware testing and peripheral installations are performed. The expertise of
our integration team, along with the flexibility of the monorail system used in
the integration center, gives us the capability to create completely integrated
networking schemes on any available topology.
INTERNET/ENTHRONED SERVICES:
Our Internet business consultants help our customers solve business problems
with Internet based solutions. Among the services provided in this area are web
site content selection and design, development of Internet usage polices,
browser customization, software support, development of risk management
processes with respect to security concerns, Internet training, and return on
investment studies.
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IT CONSULTING:
In order to assist our clients in making the most of their technology
investments, we help develop and implement strategic technology plans that allow
clients to maximize the use of their technology dollars. Among the areas
addressed in such plans are life cycle management, network analysis, and
business continuity planning in the event of an information flow interruption.
PROCUREMENT:
By taking advantage of the relationships established between manufacturers and
our wholesale distribution business, our FrontLine division is able to provide
specialty procurement services to our corporate customers. FrontLine
professionals manage the details of receiving, configuring, testing, and
shipping integrated systems for our customers, and assist them in dealing with
issues such as product availability forecasting, redeployment and disposal of
technology assets, warehousing, and packaging, tracking, and confirmation of
shipments. Our procurement services afford an additional benefit to our
customers by providing a single source for software and hardware orders, and by
making available volume discounts which might otherwise be unavailable to them.
TECHNICAL SERVICES:
Many of our customers technical service needs go beyond merely fixing hardware.
Our technicians provide a range of technical support from on-site service to
carry in depot service. Among the technical services we provide are: asset
management with inventory tracking and virus check services; on site desktop
support; warranty verification and tracking; and desktop deployment and
installation.
STRATEGIC PARTNERSHIPS
One of the factors that permits us to provide our FrontLine corporate customers
with a high level of service is the development of strategic partnerships with
leading manufacturers such as Intel, CISCO Systems, Cabletron, BayNetworks,
Microsoft, Wyse Technology, Compaq, Hewlitt-Packard, IBM, Novell, and 3Com.
Certification from these manufacturers is based on their recognition of our
expertise at implementing their client computing solutions, and allows us to
offer our customers the products that they are currently using, along with
continuous education regarding each product and the applications for which it is
used.
We believe that forming relationships with suppliers is important in providing
us with credibility in contacting large corporate clients. These relationships
also provide us with access to the resources and support of these suppliers in
FrontLine's initial sales and marketing efforts, and in the post-sale and
installation stages.
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PLANS FOR EXPANSION
Our plans to expand our wholesale distribution business include:
+ enhancing existing relationships and establishing additional strategic
relationships with master distributors and manufacturers, both
domestically and abroad;
+ adding additional branded product lines and offering a wider range of
products, such as networking and high end 3-D graphics products; and
+ actively focusing on building our international sales through
advertising in international markets.
Our strategy for developing our FrontLine division includes:
+ applying monetary and human resources to increase the division's
economic contribution over the next several years;
+ continuing to seek certification from additional suppliers, and
actively contacting potential corporate customers that need to
implement, enhance, or replace their management information systems;
and
+ increasing our partnering relationships with independent technology
consultants, which will expose us to a new customer base and provide
us with additional consulting talent.
In addition to expanding our computer products and FrontLine groups, we also
intend to utilize our management's extensive network of industry contacts to
explore possible acquisition candidates and opportunities. There can be no
assurance that we will identify any acquisition opportunities, or if such
opportunities are presented, that they can be acquired on acceptable terms and
conditions.
VENDORS
DIRECT PURCHASING
Our strong financial and industry positions have enabled us to obtain contracts
with many leading manufacturers, including Creative Labs, Logitech, Toshiba,
Sony, TEAC, and Labtech. We purchase our products directly from such
manufacturers, generally on a non-exclusive basis. We believe that our
agreements with the manufacturers are in forms customarily used by each
manufacturer. The agreements typically contain provisions allowing termination
by either party without prior notice, and generally do not require us to sell a
specific quantity of products or restrict us from selling products manufactured
by competitors. As a result, we generally have the
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flexibility to terminate or curtail sales of one product line in favor of
another product line if we consider it appropriate to do so because of
technological change, pricing considerations, product availability, customer
demand, or vendor distribution policies.
DISTRIBUTION
From our central warehouse facility in Milpitas, California, we distribute
microcomputer products throughout the United States and foreign countries,
including Canada, the United Kingdom, France, Russia and Israel. A minority of
our distribution agreements are limited by territory. In those cases, however,
North America is usually the territory granted to us. We will continue to seek
to expand the geographical scope of our distributor arrangements.
CUSTOMERS
WHOLESALE DISTRIBUTION CUSTOMERS
Approximately 80% of our wholesale distribution customer base consists of
customers that integrate systems or subsystems or upgrade kits. Approximately 5%
are wholesalers, and the rest are value added resellers ("VARs"). The VAR market
segment is attractive because VARs generally rely on distributors as their
principal source of computer products and financing as they typically do not
have the resources to establish a large number of direct purchasing
relationships or stock significant product inventories. Corporate resellers,
retailers and direct marketers may establish direct relationships with
manufacturers for their more popular products, but like VARs, rely on
distributors as the primary source for other product requirements and as an
alternative source for directly acquired products.
We target customers by addressing their specific needs relative to product
knowledge and technology, including the special needs of resellers doing
business over the Internet or the electronic commerce market. These customers
have Internet websites where orders, order acknowledgments, invoices, customized
pricing information and other industry standard and electronic commerce
transactions are consummated. We provide inventory and product support for such
customers, and also provide resellers with a high level of service through our
pre and post sale technical support, electronic commerce tools, customized
shipping documents, product configuration services, and financing programs.
FRONTLINE CUSTOMERS
Our corporate information system group targets a very wide range of customers,
including almost any entity that uses network system services. Since the
formation of the division, we have completed projects for clients in industries
ranging from manufacturing to financial services to government agencies.
SALES AND MARKETING
Our sales are generated by a telemarketing sales force, which consisted
of approximately 30 persons as of November 1, 1998 in sales offices located in
Milpitas, California.
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Members of the sales staff are trained through intensive in-house sales
training programs, along with vendor-sponsored product seminars. This training
allows sales personnel to provide our customers with product information and use
their marketing expertise to answer our customers' questions about important new
product considerations, such as compatibility and capability, while offering
advice on which products meet specific performance and price criteria. Our
salespeople are able to analyze quickly our extensive inventory through a
sophisticated management information system and recommend the most appropriate
cost-effective systems and hardware for each customer--whether a full-line
retailer or an industry-specific reseller.
The sales force is organized in teams generally consisting of a minimum
of three people. We believe that teams provide superior customer service because
customers can contact one of several people. Moreover, the long-term nature of
our customer relationships is better served by teams that increase the depth of
the relationship and improve the consistency of service. It has been our
experience that the team approach results in superior customer service and
better employee morale.
We provide compensation incentives to our salespeople, thus encouraging
them to increase their product knowledge and to establish long-term
relationships with existing and new customers. Customers can telephone their
salespersons using a toll-free number. Salespeople initiate calls to introduce
our existing customers to new products and to solicit orders. In addition,
salespeople seek to develop new customer relationships by using targeted mailing
lists, vendor leads and telephone directories of various cities.
The telemarketing salespersons are supported by a variety of marketing
programs. For example, we regularly sponsor shows for our resellers where we
demonstrate new product offerings and discusses industry developments. Also, our
in-house marketing staff prepares catalogs that list available products and
routinely produces marketing materials and advertisements.
We pride ourselves on being service oriented and have a number of
on-going value-added services intended to benefit both our vendors and its
resellers. For example, we are committed to training our salespeople to be
technically knowledgeable about the products they sell. This core competency
supplements the sophisticated technical support and configuration services also
provided. Salespeople who are knowledgeable about the products they sell often
can assist in the configuration of microcomputer systems according to
specifications given by the resellers. We believe that our salespersons' ability
to listen to a reseller's needs and recommend a cost-efficient solution
strengthens the relationship between the salesperson and his or her reseller and
promotes customer loyalty to a vendor's products. In addition, we provide such
other value-added services as new product descriptions and technical education
programs for resellers.
Our management continually evaluates our product mix and the needs of
our customers in order to minimize inventory obsolescence and carrying costs.
Our rapid delivery terms are available to all of our customers, and we seek to
pass through our cost effective shipping and handling expenses to our customers.
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COMPETITION
WHOLESALE DISTRIBUTION
We operate in a market characterized by intense competition, both in the United
States and internationally. Competition within the wholesale distribution
industry is based on product availability, credit availability, price, speed and
accuracy of delivery, effectiveness of sales and marketing programs, ability to
tailor specific solutions to customer needs, quality and breadth of product
lines and services, and the availability of product and technical support
information. We believe that we are equipped to compete effectively with other
distributors in these areas. Principal regional competitors in the wholesale
distribution industry include Greenleaf Distribution, Asia Source and Cynnex
Information Technology, Inc., all of which are privately held companies. Among
our principal regional and multi-regional publicly held competitors are Ingram
Micro Inc., and Tech Data Corporation. We also compete with manufacturers that
sell directly to resellers and end-users.
FRONTLINE
Competition within the corporate information systems industry is based primarily
on flexibility in providing customized network solutions, resources and
contracts to provide products for integrated systems and consultant and employee
expertise needed to optimize network performance and stability. Our principal
competitors in the corporate information systems industry include MicroAge and
SARCOM. We believe that we are equipped to compete effectively with our
competitors in this industry; however, most of our competitors have far greater
resources of capital, marketing and personnel than we have.
ASSET MANAGEMENT
INVENTORY LEVELS
We maintain sufficient quantities of product inventories to achieve high order
fill rates, and believe that price protection and stock return privileges
provided by suppliers substantially mitigate the risks associated with slow
moving and obsolete inventory. We also operate a computerized inventory system
that allows us to look at and deal with slow moving inventory. If a supplier
reduces its prices on certain products, we generally receive a credit for such
products in our inventory. In addition, we have the right to return a certain
percentage of purchases, subject to certain limitations. Historically, price
protection, stock return privileges, and inventory management procedures have
helped to reduce the risk of a significant decline in the value of inventory.
We have established reserves for estimated losses due to obsolete inventory in
the normal course of business, and historically, we have not experienced losses
materially in excess of our established reserves. Inventory levels may vary from
period to period due in part to the addition of new suppliers or large purchases
of inventory due to favorable terms offered by suppliers.
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CREDIT TERMS
We offer various credit terms including open account, flooring arrangements, and
credit card payment to qualifying customers. We closely monitor our customers'
creditworthiness, and in most markets, utilize various levels of credit
insurance to control credit risks and enable us to extend higher levels of
credit. We also established reserves for estimated credit losses in the normal
course of business.
RISK FACTORS
ABILITY TO RESPOND TO TECHNOLOGY CHANGES
The market for computer systems and products is characterized by constant
technological change, frequent new product introductions and evolving industry
standards. Our future success is dependent upon the continuation of a number of
trends in the computer industry, including the migration by end-users to multi-
vendor and multi-system computing environments, the overall increase in the
sophistication and interdependency of computing technology, and a focus by
managers on cost-efficient information technology management. We believe these
trends have resulted in a movement toward outsourcing and an increased demand
for product and support service providers that have the ability to provide a
broad range of multi-vendor product and support services. There can be no
assurance these trends will continue into the future. Any failure to anticipate
or respond adequately to technological developments and customer requirements
could have a material adverse effect on our business, operating results and
financial condition.
INVENTORY VALUE
As a distributor, we incur the risk that the value of our inventory will be
affected by industry wide forces. Rapid technology change is commonplace in the
industry and can quickly diminish the marketability of certain items, whose
functionality and demand decline with the appearance of new products. These
changes and price reductions by vendors may cause rapid obsolescence of
inventory and corresponding valuation reductions in that inventory. Accordingly,
we seek provisions in our vendor agreements common to industry practice which
provide price protections or credits for declines in inventory value, and the
right to return unsold inventory. No assurance can be given, however, that we
can negotiate such provisions in each of our contracts or that such industry
practice will continue.
WARRANTIES
Our suppliers generally warrant the products we distribute and allow us to
return defective products, including those that have been returned to us by our
customers. We do not independently warrant the products which we distribute,
except that we do warrant our services with regard to the products which we
configure for our customers, and products that we build to order from components
purchased from other sources. Historically, our warranty costs have been
insignificant.
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COMPETITION
The computer services industry is intensely competitive and many of our
competitors have capital, marketing expertise and personnel resources far
superior to that of ours. There can be no assurance that we will be able to
compete successfully in the future or that competitive pressures will not result
in price reductions or other developments in our market which could have a
material adverse effect on our business.
RECRUITMENT AND RETENTION OF TECHNICAL PERSONNEL
We depend upon an ability to attract, hire and retain technical personnel who
possess the skills and experience necessary to meet our personnel needs and the
staffing requirements of our clients. Competition for individuals with proven
technical skills is intense, and the computer industry in general experiences a
high rate of attrition of such personnel. We compete for such individuals with
other systems integrators and providers of outsourcing services as well as
temporary personnel agencies, computer systems consultants, clients and
potential clients. Failure to attract and retain sufficient technical personnel
would have a material adverse effect on our business, operating results and
financial condition.
YEAR 2000 RISKS
The Year 2000 problem concerns the inability of certain computer systems to
appropriately recognize the year 2000 when the last two digits of the year are
entered in the date field. We have assessed our Year 2000 requirements and
believe that expenditures necessary to make our major computer systems and some
non-critical programs Year 2000 compliant will be immaterial. There can be no
assurance at this point, however, that the Year 2000 problem will not have a
material adverse effect upon our operating results and financial condition. For
more information on our assessment of the Year 2000 risk, please see "Year 2000"
in the section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operation" in this Registration Statement.
DEPENDENCE ON CONTINUED MANUFACTURER CERTIFICATION
The future success of our FrontLine business depends in part on our continued
certification from leading manufacturers. Without such authorizations, we would
be unable to provide the range of services currently offered. There can be no
assurance that such manufacturers will continue to certify us as an approved
service provider, and the loss of one or more of such authorizations could have
a material adverse effect on our FrontLine business, operating results or
financial condition
DEPENDENCE ON SUPPLIERS
One supplier accounted for approximately 14%, 20% and 30% of our total purchases
for the nine month period ended September 30, 1998 and the years ended December
31, 1997 and 1996, respectively. During the nine month period ended September
30, 1998, two additional suppliers accounted for approximately 12% and 11% of
our total purchases. Although we have not experienced significant problems with
suppliers, there can be no assurance that such relationships will continue or,
in the event of a termination of our relationship with any given supplier, that
we would be able to obtain alternative sources of supply on comparable terms
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without a material disruption in our ability to provide products and services to
our clients. This may cause a possible loss of sales that could adversely affect
our operating results.
PROJECT RISKS
The nature of our engagements exposes us to a variety of risks. Many of our
engagements involve projects that are critical to the operations of our clients'
businesses. Our failure or inability to meet a client's expectations in the
performance of our services or to do so in the time frame required by such
client could result in a claim for substantial damages, regardless of whether we
were responsible for such failure. We are in the business of employing people
and placing them in the workplace of other businesses. Therefore, we are also
exposed to liability with respect to actions taken by our employees while on
assignment, such as damages caused by employee errors and omissions, misuse of
client proprietary information, misappropriation of funds, discrimination and
harassment, theft of client property, other criminal activity or torts and other
claims. Although we maintain general liability insurance coverage in the
aggregate amount of $4,000,000, there can be no assurance that such coverage
will continue to be available on reasonable terms or in sufficient amounts to
cover one or more large claims, or that the insurer will not disclaim coverage
as to any future claim. The successful assertion of one or more large claims
against us that exceed available insurance coverage or changes in our insurance
policies, including premium increases or the imposition of large deductible or
co-insurance requirements, could have a material adverse effect on our business,
operating results and financial condition.
DEPENDENCE ON KEY PERSONNEL
Our continued success will depend to a significant extent upon our senior
management, including Theodore Li, our President. The loss of the services of
Mr. Li, or one or more other key employees could have a material adverse effect
on our business, financial condition or operating results.
EMPLOYEES
At November 1, 1998, we had approximately 75 full time employees, all
of whom are non-union, and three executive officers.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES.
The Company has no foreign operations. While we distribute computer
products abroad, we do not segregate export sales from domestic sales.
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ITEM 2.FINANCIAL INFORMATION
SELECTED FINANCIAL DATA.
The following table contains certain selected financial data of the
Company and is qualified by the more detailed financial statements and the notes
thereto provided in this Registration Statement. The financial data as of and
for the years ended December 31, 1996 and 1997, have been derived from the
Company's financial statements, which statements were audited by Meredith,
Cardozo, Lanz and Chiu LLP. The financial data as of and for the nine- month
period ended September 30, 1998, has been derived from the Company's financial
statements, which were audited by BDO Seidman, LLP. The financial statements are
included elsewhere in this Registration Statement. The financial data as of and
for the years ended December 31, 1995 and 1994 have been derived from the
Company's unaudited financial statements.
<TABLE>
<CAPTION>
STATEMENT OF Nine Months Ended Fiscal Year Ended
OPERATIONS DATA September 30, December 31,
------------------------- -----------------------------------------------------
1998 1997 1997 1996 1995 1994
---- ---- ---- ---- ---- ----
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net Sales $77,922,000 $69,564,400 $96,388,500 $94,256,600 $58,714,600 $30,427,300
Net Income 1,528,800 959,900 1,238,900 2,363,100 1,497,800 780,200
Net Income per share to 0.15 0.10 0.12 0.25 0.17 0.09
Common Shareholders-
Basic and Diluted
BALANCE SHEET DATA September 30, December 31,
------------------------- -----------------------------------------------------
1998 1997 1997 1996 1995 1994
---- ---- ---- ---- ---- ----
(unaudited) (unaudited) (unaudited)
Current Assets $14,615,400 $13,526,300 $10,681,800 $ 9,951,600 $ 8,692,500 $ 4,701,800
Current Liabilities 7,439,300 8,036,000 5,119,900 5,652,900 8,063,300 2,897,900
Total Assets 19,093,000 17,691,300 15,057,800 10,929,100 8,820,800 4,807,500
Long-Term Debt 3,396,000 3,622,300 3,428,400 -- -- 803,000
Total Liabilities 10,845,700 11,658,300 8,579,300 5,842,600 6,216,400 3,700,900
Shareholders' Equity 8,247,300 6,033,000 6,478,500 5,086,500 2,604,400 1,106,600
</TABLE>
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
COMPANY OVERVIEW
Pacific Magtron International Corp., a Nevada corporation (the
"Company" or "Pacific Magtron") is an integrated solutions provider of computer
related equipment and services. The Company's primary business is the wholesale
distribution of computer and related hardware components and software for
personal computers to value added resellers, retailers, systems integrators,
original equipment manufacturers, independent hardware and software vendors,
consultants, and contractors. In May 1998, the Company formed a corporate
information systems group called FrontLine Network Consulting ("FrontLine") with
the goal of serving the networking and personal computer requirements of
corporate customers. As used herein and unless otherwise indicated, the terms
"Company" "we" and "our" refer to Pacific Magtron International Corp. and each
of its operating divisions and subsidiaries.
OPERATING RESULTS
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1997
Revenues for the nine months ended September 30, 1998 were $77,922,000,
an increase of $8,357,600 or approximately 12%, compared to $69,564,400 for the
nine months ended September 30, 1997. Revenues increased primarily due to
increased market share achieved through expanded marketing efforts.
Gross profit for the nine months ended September 30, 1998 was
$5,224,700, an increase of $1,355,600 or 35%, compared to $3,869,100 for the
nine months ended September 30, 1997. Gross margin increased from 5.6% for the
nine months ended September 30, 1997 to 6.7% for the nine months ended September
30, 1998. This increase in gross margin arose primarily as a result of better
cost controls.
Selling, general and administrative expenses for the nine months ended
September 30, 1998 were $2,611,000, an increase of $422,000 or 19%, compared to
$2,189,000 for the nine months ended September 30, 1997. As a percentage of
revenues, selling, general and administrative expenses increased to 3.35% in the
nine months ended September 30, 1998 as compared to 3.15% in the corresponding
period in 1997. Selling, general and administrative expenses increased primarily
as a result of expansion of the Company's business.
Income from operations for the nine months ended September 30, 1998 was
$2,613,700, an increase of $933,600 or 56%, as compared to $1,680,100 for the
nine months ended September 30, 1997. As a percentage of revenues, income from
operations increased to 3.35% in the nine months ended September 30, 1998 as
compared to 2.42% for the nine months ended September 30, 1997. This increase
was primarily due to normal business growth and the addition of product lines.
Interest expense for the nine months ended September 30, 1998 was
$210,300, an increase of $56,600, or 37%, compared to $153,700 for the nine
months ended September 30, 1997, arising from mortgage interest paid for the
Company's new office building. Interest income increased from $112,000 for the
14
<PAGE>
nine months ended September 30, 1997 to $138,800 in the corresponding period in
1997, an increase of $26,800, arising from better cash management.
FISCAL YEAR ENDED DECEMBER 31, 1997 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1996
Revenue for fiscal 1997 was $96,388,500, an increase of $2,131,900 or
approximately 2.3%, compared to $94,256,600 for fiscal 1996. Revenues increased
chiefly as a result of expanded marketing efforts.
Gross profit for fiscal 1997 was $6,023,800, a decrease of $371,500 or
5.8%, compared to $6,395,300 for fiscal 1996. This decrease in gross margin to
6.2% for fiscal 1997 from 6.8% for fiscal 1996 was primarily the result of
pressures on sales prices due to increased competition.
Selling, general and administrative expenses for fiscal 1997 were
$3,859,600, an increase of $1,347,600, or 53.6% compared to $2,512,000 for
fiscal 1996. As a percentage of revenue, selling, general and administrative
expenses increased to 4% in fiscal 1997 from 2.7% in fiscal 1996, primarily as a
result of expansion of the Company's business.
Income from operations for fiscal 1997 was $2,164,200, a decrease of
$1,719,100, compared to $3,883,300 for fiscal 1996. As a percentage of revenue,
income from operations decreased to 2.2% in fiscal 1997 as compared to 4.1% for
fiscal 1996. The decrease resulted primarily from a narrowing of profit margins
due to competition and an increase of selling, general and administrative
expenses resulting from the expansion of the Company's business.
Interest expense for fiscal 1997 was $238,600, an increase of $200,700,
or 530%, compared to $37,900 for fiscal 1996. This increase resulted primarily
from mortgage interest paid for the new office building. Interest income
increased from $129,800 for fiscal 1996 to $158,800 for fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities during the nine months ended
September 30, 1998 was $1,268,500, which reflected the net effect of increases
in accounts receivable and inventories and was partially offset by the net
income for the period and increase in accounts payable. Net cash provided by
operating activities during fiscal 1997 was $314,300, a decrease of $2,073,400
compared to $2,387,700 in fiscal 1996. The net cash provided by operating
activities in fiscal 1997 reflects net income for the year and a decrease in
inventories that was mostly offset by the decrease in accounts payable and
income tax payable and increase in accounts receivable.
Net cash used in investing activities was $76,600 for the nine months
ended September 30, 1998, primarily reflecting cash used for the acquisition of
property and equipment and advances made on a note receivable. Net cash provided
by investing activities in fiscal 1997 was $24,400, primarily resulting from a
decrease in other assets compared to a use of net cash for investing activities
in fiscal 1996 of $686,300, which was due mainly to a deposit made on the new
office building.
Net cash used by financing activities was $29,800 for the nine months
ended September 30, 1998, primarily from payment of the mortgage loan for the
office building. Net cash provided by financing activities was $3,426,400 for
fiscal
15
<PAGE>
1997, an increase of $3,401,800 from fiscal 1996. The increase is due primarily
to the loan received from a bank for the office building. The cash provided in
fiscal 1997 reflects primarily bank borrowing for the mortgage.
The Company believes that the cash flow from operations and borrowing
availability under its credit facilities will satisfy the Company's anticipated
working capital requirements through at least the next 12 months.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1998, the FASB issued SFAS No. 132, "Employer's Disclosures
about Pensions and Other Postretirement Benefits," which standardizes the
disclosure requirements for pension and other postretirement benefits. The
adoption of SFAS No. 132 is not expected to impact the Company's Current
disclosures.
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 requires companies to recognize
all derivatives contracts as either assets or liabilities in the balance sheet
and to measure them at fair value. If certain conditions are met, a derivative
may be specifically designated as a hedge, the objective of which is to match
the timing of gain or loss recognition on the hedging derivative with the
recognition of (i) the changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk or (ii) the earnings effect
of the hedged forecasted transaction. For a derivative not designated as a
hedging instrument, the gain or loss is recognized in income in the period of
change. SFAS 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999.
Historically, the Company has not entered into derivatives contracts
either to hedge existing risks or for speculative purposes. Accordingly, the
Company does not expect adoption of the new standard on January 1, 2000 to
affect its financial statements.
INFLATION
Inflation has not had a material effect upon the Company's results of
operations to date. In the event the rate of inflation should accelerate in the
future, it is expected that costs in connection with the provision by the
Company of its services and products will increase, and, to the extent such
increased costs are not offset by increased revenues, the operations of the
Company may be adversely affected.
YEAR 2000
The Year 2000 problem concerns the inability of certain computer
systems to appropriately recognize the Year 2000 when the last two digits of the
year are entered in the date field. The Company's date critical functions
related to the Year 2000 and beyond, such as sales, distribution, purchasing,
inventory control, merchandise, planning and replenishment, facilities, and
financial systems, may be adversely affected unless these computer systems are
or become Year 2000 complaint. The Company's management has assessed the Year
2000 requirements and believes that expenditures necessary to make the Company's
major computer systems and some non-critical programs Year 2000 compliant will
be immaterial. However, no assurance can be given at this point that the
Company's computer system will be Year 2000 compliant in a timely manner or that
16
<PAGE>
the Company will not incur significant additional expenses pursuing Year 2000
compliance. Furthermore, the Company could be adversely affected by the Year
2000 problem if computer systems of third parties such as banks, suppliers and
others with whom the Company does business fail to address the Year 2000 problem
successfully. For example, the Company may be adversely affected by, among other
things, warranty and other claims made by the Company's suppliers related to
product failures caused by the Year 2000 problem, the disruption or inaccuracy
of data provided to the Company by non-Year 2000 compliant third parties, and
the failure of the Company's service providers to become Year 2000 compliant. In
an effort to evaluate and reduce its exposure in this area, the Company intends
to make an inquiry of its vendors and other partners about their progress in
identifying and addressing problems that their computer systems may face in
correctly processing date information related to the Year 2000. In particular,
the Company will seek to obtain statements from a substantial majority of its
suppliers that certain of their products are Year 20000 compliant, can be
upgraded to meet Year 2000 demands, or do not affect "date sensitive"
information. however, despite the Company's efforts to date, there can be no
assurance that the Year 2000 problem will not have a material adverse effect on
the Company in the future.
The Company's management believes that the purchasing patterns of
customers and prospective customers might be affected by Year 2000 issues. Many
companies may need to modify or upgrade their information systems to address the
Year 2000 problem. The effects of this issue and of the efforts by other
companies to address it are unclear. Many companies are expending significant
resources to correct their current software systems for Year 2000 compliance.
These expenditures might result in reduced funds available to purchase services
and products such as those that the Company offers.
FORWARD LOOKING INFORMATION
This Registration Statement contains certain forward-looking statements
and information. The cautionary statements made herein should be read as being
applicable to all related forward- looking statements wherever they appear.
Forward-looking statements, by their very nature, include risks and
uncertainties. Accordingly, our actual results could differ materially from
those discussed herein. A wide variety of factors could cause or contribute to
such differences and could adversely impact revenues, profitability, cash flows
and capital needs. Such factors, many of which are beyond our control, include
the following: our success in obtaining new contracts; the volume and type of
work orders that are received under such contracts; the accuracy of the cost
estimates for the projects; our ability to complete the project on time and
within budget; levels of, and ability to collect accounts receivable;
availability of trained personnel and utilization of our capacity to complete
work; competition and competitive pressures on pricing; and economic conditions
in the United States and in the regions served.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is not exposed to material risk based on interest rate
fluctuation, exchange rate fluctuation, or commodity price fluctuation.
17
<PAGE>
ITEM 3. DESCRIPTION OF PROPERTY
The Company owns property located at 1600 California Circle, Milpitas,
California 95035, subject to mortgages in the amount of $3,438,600 at September
30, 1998. This property is the location of our executive office and warehouse
and is suitable for the current size and nature of the Company's operations.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth information, as of December 1, 1998,
with respect to the number of shares of Common Stock of the Company beneficially
owned by individual directors, by all directors and officers of the Company as a
group, and by persons known to own more than 5% of the Company's Common Stock.
The Company has no other class of voting stock outstanding.
NAME OF BENEFICIAL PERCENT OF
OWNER AND ADDRESS NUMBER OF SHARES COMMON STOCK OWNED
- ----------------- ---------------- ------------------
Theodore S. Li 4,500,000 45%
1600 California Circle
Milpitas, California 95035
Hui "Cynthia" Lee 4,500,000 45%
1600 California Circle
Milpitas, California 95035
Betty Li (1) -0- -0-
1600 California Circle
Milpitas, California 95035
Jey Hsin Yao (2) -0- -0-
1600 California Circle
Milpitas, California 95035
All Directors and Officers as a 9,000,000 90%
Group (four persons)
- ----------
(1) Betty Li is the wife of Theodore S. Li.
(2) Jey Hsin Yao is the husband of Cynthia Lee.
18
<PAGE>
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
The following sets forth certain information with respect to directors
and executive officers of the Company with the year in which each director's
term expires in parentheses.
NAME AGE POSITION WITH THE COMPANY AND TENURE
---- --- ------------------------------------
Theodore S. Li 41 Director, President and Treasurer since 1998.
(1999)
Hui "Cynthia" Lee 36 Director and Secretary since 1998. (1999)
Betty Li (1) 37 Director since 1998. (1999)
Jey Hsin Yao (2) 36 Director since 1998. (1999)
- ----------
(1) Betty Li is the wife of Theodore S. Li.
(2) Jey Hsin Yao is the husband of Cynthia Lee.
THEODORE S. LI has served as the President, Treasurer and a Director of
the Company since 1998 and as the President and a Director of PMI since 1995. He
is responsible for the Company's operations, technical functions and finance.
HUI "CYNTHIA" LEE has served as the Secretary and a Director of the
Company since 1998, and as a Director and Vice President, Sales and Purchasing
of PMI since 1994. She is responsible for the Company's sales and purchasing
functions.
BETTY LI has served as a Director of the Company since 1998, and as a
Director of PMI since 1995. She has been an engineer with Motorola since 1988.
JEY HSIN YAO has served as a Director of the Company since 1998, and as
the Secretary and a Director of PMI since 1995. He has been employed at Fujitsu
as a senior researcher since 1992.
ITEM 6. EXECUTIVE COMPENSATION
The following table sets forth all cash compensation paid by the
Company to the chief executive officer and the most highly compensated executive
officers and key employees whose total remuneration exceeded $100,000 for
services rendered in all capacities to the Company during the last three
completed fiscal years.
19
<PAGE>
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
--------------------------- -------------------------------
Awards Payouts
Other --------------------- ------- All
Name and Annual Restricted Other
Principal Compen- Stock Options/ LTIP Compen-
Positions Year(1) Salary Bonus sation Award(s) SARs Payouts sation (2)
- --------------- ------- -------- -------- ------- ---------- -------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Theodore S. Li 1998 $120,000 -- -- -- -- -- $19,000
President, 1997 120,000 $250,000 -- -- -- -- 19,000
Treasurer 1996 120,000 -- -- -- -- -- 19,000
and Director
Hui "Cynthia" 1998 97,500 -- -- -- -- -- 19,000
Lee, Secretary 1997 75,540 250,000 -- -- -- -- 19,000
and Director 1996 -- -- -- -- -- -- 19,000
</TABLE>
- ----------
(1) The amounts set forth for the fiscal years 1997 and 1996 reflect
compensation as executive officers of PMI. The amounts set forth for 1998
represent compensation paid by PMI from January 1, 1998 to July 17, 1998,
and compensation paid by the Company from July 18, 1998 through December
31, 1998.
(2) The amounts set forth in this column are the estimated automobile
allowances received by the persons in the table.
STOCK OPTION PLAN
The Company adopted the 1998 Stock Option Plan (the "1998 Plan") on
July 16, 1998. Under the 1998 Plan, 1,000,000 shares of the Company's Common
Stock are reserved for issuance. The 1998 Plan authorizes the Company to grant
to key employees and directors of the Company incentive stock options and
non-qualified stock options to purchase shares of Common Stock.
The objectives of the 1998 Plan are to provide incentives to key
employees and to directors to achieve financial results aimed at increasing
shareholder value and attracting talented individuals to the Company. The Board
of Directors, or a Compensation Committee that may be formed by the Board and
comprised of non-employee directors, will administer the 1998 Plan and make the
initial determinations and recommendations to the Board as to the persons to
whom options will be granted and the amount, terms, conditions, and restrictions
of such awards. Although the 1998 Plan does not specify what portion of the
shares may be awarded in the form of incentive stock options or non-statutory
options, it is anticipated that a substantially greater number of incentive
stock options will be awarded under the 1998 Plan. Incentive stock options
awarded to employees of the Company are qualified stock options under the
Internal Revenue Code. Further, the 1998 Plan is a stock option plan meeting the
requirements of Rule 16b-3 ("Rule 16b-3") promulgated under the Securities and
Exchange Act of 1934, as amended ("Exchange Act"). Persons eligible to be
granted incentive stock options under the 1998 Plan will be those employees of
the Company whose performance, in the judgment of the Board or Compensation
Committee, can have significant effect on the success of the Company.
The 1998 Plan will be administered by the Board of Directors or by a
Compensation Committee established by the Board. The Board or the Committee will
have authority to interpret the Plan's provisions, to establish and amend rules
20
<PAGE>
for its administration and to make decisions or recommendations to the Board, in
the case of the Committee, as to the types and amounts of awards to be made
pursuant to the Plan, subject to the Plan's limitations.
Incentive stock options may be granted under the Plan for terms of up
to ten years and at exercise prices at least equal to 100% of the fair market
value of the Common Stock as of the date of grant, except that incentive stock
options granted to any person who owns, immediately after such grant, stock
possessing more than 10% of the combined voting power of all classes of the
Company's stock or of any parent or subsidiary corporation must have an exercise
price at least equal to 110% of the fair market value of the Common Stock on the
date of grant. Non-Statutory stock options will have exercise prices as
determined by the Compensation Committee or the Board. The aggregate fair market
value, determined as of the time an incentive stock option is granted, of the
Common Stock with respect to which incentive stock options are exercisable by an
employee for the first time during any calendar year, shall not exceed $100,000.
There is no aggregate dollar limitation on the amount of non-statutory stock
options which may be exercisable for the first time by an optionee during any
calendar year. Payment of the exercise price for any option may be in cash, by
withheld shares which upon exercise of an option having a fair market value at
the time the option is exercised equal to the option price (plus applicable
withholding tax) or in the form of shares of the Company's Common Stock. Any
option granted under the Plan will expire at the time fixed by the Board or the
Committee, which will not be more than ten years after the date it is granted
or, in the case of any person who owns more than 10% of the combined voting
power of all classes of the Company's stock or of any subsidiary corporation,
not more than five years after the date of grant. The Board or the Compensation
Committee may also specify when all or part of an option becomes exercisable,
but in the absence of such specification, the option will ordinarily be
exercisable in whole or part at any time during its term. Subject to the
foregoing, the Board or the Compensation Committee may accelerate the
exercisability of any option in its discretion.
Options granted under the Plan are not assignable. Incentive Stock
Options may be exercised only while the optionee is employed by the Company or
within twelve months after termination by reason of death, within twelve months
after the date of disability, or within three months after termination for any
other reason.
As of the date of this Registration Statement, 169,674 options to
purchase shares have been granted by the Company under the Plan to employees,
none of whom are officers or directors. Of the options granted, 37,800 are
exercisable at $2.00 per share for a term of three years commencing March 1998,
53,550 are exercisable at $2.00 per share for a term of four years commencing
March 1998, 32,411 are exercisable at $4.00 per share for a term of three years
commencing November 1998, and 45,913 are exercisable at $4.00 per share for a
term of four years commencing November 1998.
DIRECTOR COMPENSATION
Directors currently receive no cash compensation for their services in
that capacity. Reasonable out of pocket expenses may be reimbursed to directors
in connection with attendance at meetings.
21
<PAGE>
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has two notes receivable outstanding, each in the original
principal amount of $90,000, payable by Theodore Li and Cynthia Lee. The notes
bear interest at an annual rate of six percent (6%) and had an original term of
three years, which has been extended to a term of four years. The principal and
interest balance on the two notes combined as of September 30, 1998 was
$235,000.
ITEM 8. LEGAL PROCEEDINGS
None.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our Common Stock was not traded until July 10, 1998. From such date to
the present our Common Stock has been trading on the Nasdaq OTC Bulletin Board.
MARKET INFORMATION
YEAR ENDED 1998 LOW HIGH
--- ----
Third Quarter (commencing July 10, 1998) $3.00 $7.875
Fourth Quarter 4.00 6.00
NUMBER OF SHAREHOLDERS
The number of beneficial holders of the Common Stock of the Company as
of the close of business on December 1, 1998 was approximately 288.
DIVIDEND POLICY
To date, the Company has declared no cash dividends on its Common
Stock, and does not expect to pay cash dividends in the next term. The Company
intends to retain future earnings, if any, to provide funds for operation of its
business.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
On July 16, 1998, the Company issued 9,000,000 restricted shares of its
Common Stock in exchange for 100% of the issued and outstanding capital stock of
PMI. Theodore S. Li and Hui "Cynthia" Lee were the sole shareholders of PMI,
and were each issued 4,500,000 shares of the Company's Common Stock in exchange
for their interest in PMI. The transaction was structured as a tax-free
reorganization.
22
<PAGE>
ITEM 11. DESCRIPTION OF SECURITIES
COMMON STOCK
The Company is authorized to issue 25,000,000 shares of Common Stock,
$.001 par value per share, of which 10,100,000 are outstanding as of the date of
this Registration Statement.
Holders of the Common Stock are entitled to one vote for each share
owned for all matters to be voted on by the shareholders. Holders of the Common
Stock are entitled to receive dividends as may be declared from time to time by
the Board of Directors, and in the event of any liquidation, dissolution, or
winding up of the affairs of the Corporation, are entitled to receive a pro rata
share of any assets of the corporation legally available for distribution. There
are no redemption or sinking fund provisions applicable to the Common Stock. The
rights of the holders of the Common Stock are subject to any rights that may be
fixed for the holders of preferred stock, if and when any preferred stock is
issued. The Common Stock currently outstanding is validly issued, fully paid and
nonassessable.
PREFERRED STOCK
The Company is authorized to issue 5,000,000 shares of preferred stock,
par value $.001 per share, of which no shares are currently outstanding. The
Preferred Stock may be issued from time to time as authorized by the Board of
Directors in one or more series for such consideration and with such relative
rights, privileges and preferences as the Board may determine. Accordingly, the
Board has the power to fix the dividend rate and to establish the provisions, if
any, relating to voting rights, redemption rate, sinking fund, liquidation,
preferences and conversion rights for any series of preferred stock issued in
the future. It is not possible to state the actual effect of the authorization
of additional preferred stock upon the rights of holders of the Common Stock
until the Board determines the specific rights of the holders of any additional
series of preferred stock. The Board's authority to issue preferred stock
provides a convenient vehicle in connection with possible acquisitions and other
corporate purposes.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Articles of Incorporation of the Company allow for the
indemnification of directors and officers to the fullest extent permitted by
Nevada law. Under a provision in the Articles of Incorporation, the Company will
indemnify and pay the expenses of any person who is or was made, or threatened
to be made, a party to an action or proceeding by reason of the fact that such
person is or was a director or officer of the Company or is or was serving at
the request or with the prior approval of the Company as a director or officer
of another corporation, against any liability asserted against such person and
incurred by such person in any capacity arising out of that person's status as
such.
Insofar as indemnification for liabilities arising out of the
Securities Act may be permitted to directors, officers and controlling persons
of the Company pursuant to the foregoing provision, or otherwise, the Company
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. If a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
23
<PAGE>
by a director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with any securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to the Consolidated Financial Statements, together with the
notes thereto and the reports thereon of BDO Seidman, LLP and Meredith, Cardozo,
Lanz and Chiu LLP appearing on pages F-1 through F-17 of this Form 10.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
(a) INDEX TO FINANCIAL STATEMENTS
Report of Independent Certified Public
Accountants, BDO Seidman, LLP F-1
Report of Independent Certified Public
Accountants, Meredith, Cardozo, Lanz and Chiu LLP F-2
Consolidated Financial Statements:
Consolidated balance sheets September 30, 1998
and December 31, 1997 and 1996 F-3
Consolidated statements of income for the nine
month periods ended September 30, 1998 and
September 30, 1997 (unaudited) and the years
ended December 31, 1997 and 1996 F-4
Consolidated statement of shareholders' equity
for the nine month period ended September 30,
1998 and the years ended December 31, 1997 and
1996 F-5
Consolidated statements of cash flows for the
nine month periods ended September 30, 1998 and
September 30, 1997 (unaudited) and the years
ended December 31, 1997 and 1996 F-6
Notes to consolidated financial statements F-7 - F-17
24
<PAGE>
(b) EXHIBITS
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
2.1 Stock Purchase Agreement, dated July 17, 1998, by
and between Pacific Magtron, Inc., the Shareholders
of Pacific Magtron, Inc., and Wildfire Capital
Corporation
3.1 Articles of Incorporation, as Amended and Restated
3.2 Bylaws, as Amended and Restated
10.1 1998 Stock Option Plan
10.2 Sony Electronics Inc. Value Added Reseller
Agreement, dated May 1, 1996
10.3 Logitech, Inc. Distribution and Installation
Agreement, dated March 26, 1997
10.4 Wells Fargo Term Note, dated February 4, 1997
10.5 Colson Services Corp. Servicing Agent Agreement
10.6 Creative Labs, Inc. Mutual Confidentiality and Non-
Disclosure Agreement, dated September 10, 1997
21.1 Subsidiaries
27.1 Financial Data Schedule
25
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
PACIFIC MAGTRON INTERNATIONAL CORP.,
a Nevada corporation
Date: January 20, 1999 By: /s/ Theodore S. Li
----------------------------------
Theodore S. Li, President
Chief Executive Officer
26
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
Pacific Magtron International Corp.
We have audited the accompanying consolidated balance sheet of Pacific Magtron
International Corp. and subsidiary (the Company) as of September 30, 1998, and
the related consolidated statements of income, shareholders' equity, and cash
flows for the nine month period then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit. The consolidated financial statements of Pacific
Magtron International Corp. and subsidiary as of December 31, 1997 and 1996 and
for each of the years then ended, were audited by Meredith, Cardozo, Lanz, and
Chiu LLP, whose practice has been combined with our Firm and whose report dated
August 20, 1998 expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform our audit to obtain reasonable
assurance about whether the consolidated 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 audit provides a reasonable basis for our
opinion.
In our opinion, the 1998 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Pacific Magtron International Corp. and subsidiary as of September 30, 1998, and
the results of their operations and their cash flows for the nine month period
then ended, in conformity with generally accepted accounting principles.
BDO Seidman, LLP
Milpitas, California
October 27, 1998
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
Pacific Magtron International Corp.
We have audited the accompanying consolidated balance sheets of Pacific Magtron
International Corp. and subsidiary (the Company) as of December 31, 1997 and
1996, and the related consolidated statements of income, shareholders' equity,
and cash flows for the years ended December 31, 1997 and 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 our audits to obtain
reasonable assurance about whether the consolidated 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Pacific
Magtron International Corp. and subsidiary as of December 31, 1997 and 1996, and
the results of their operations and their cash flows for the years ended
December 31, 1997 and 1996, in conformity with generally accepted accounting
principles.
Meredith, Cardozo, Lanz
and Chiu LLP
Milpitas, California
August 20, 1998
F-2
<PAGE>
PACIFIC MAGTRON INTERNATIONAL CORP.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
ASSETS
December 31,
September 30, -------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents (Note 9) $ 1,888,000 $ 3,262,900 $ 2,995,800
Accounts receivable, net of allowance
for doubtful accounts of $113,100,
$113,100 and $56,900, respectively (Note 9) 7,830,700 5,140,900 4,118,400
Inventories 4,492,100 2,066,800 2,680,800
Prepaid expenses and other current assets 259,200 83,500 --
Deferred income taxes (Note 5) 145,400 127,700 156,600
----------- ----------- -----------
Total current assets 14,615,400 10,681,800 9,951,600
Property, plant and equipment, net (Notes 3 and 4) 4,040,400 4,114,800 145,400
Notes receivable (Note 2) 268,100 204,300 193,500
Deposits and other assets (Note 3) 169,100 56,900 638,600
----------- ----------- -----------
$19,093,000 $15,057,800 $10,929,100
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,278,500 $ 4,986,500 $ 5,133,000
Current portion of notes payable (Note 4) 42,600 40,000 --
Accrued expenses 91,200 93,400 54,400
Income taxes payable (Note 5) 27,000 -- 465,500
----------- ----------- -----------
Total current liabilities 7,439,300 5,119,900 5,652,900
Notes payable, less current portion (Note 4) 3,396,000 3,428,400 --
Notes payable to shareholders (Note 10) -- -- 153,100
Deferred income taxes (Note 5) 10,400 31,000 36,600
----------- ----------- -----------
Total liabilities 10,845,700 8,579,300 5,842,600
----------- ----------- -----------
Commitments and contingencies (Notes 4, 6, 7, and 8)
Shareholders' equity (Note 10):
Common stock, $.001 par value; 25,000,000
shares authorized; 10,100,000, 10,000,000
and 9,978,640 shares issued and outstanding,
respectively 10,000 10,000 10,000
Additional paid-in capital 1,057,000 817,000 663,900
Retained earnings 7,180,300 5,651,500 4,412,600
----------- ----------- -----------
Total shareholders' equity 8,247,300 6,478,500 5,086,500
----------- ----------- -----------
$19,093,000 $15,057,800 $10,929,100
=========== =========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-3
<PAGE>
PACIFIC MAGTRON INTERNATIONAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1998 AND
SEPTEMBER 30, 1997 (UNAUDITED) AND
THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
September 30, December 31,
September 30, 1997 --------------------------
1998 (unaudited) 1997 1996
---- ----------- ---- ----
<S> <C> <C> <C> <C>
Sales $77,922,000 $69,564,400 $96,388,500 $94,256,600
Cost of sales (Note 7) 72,697,300 65,695,300 90,364,700 87,861,300
----------- ----------- ----------- -----------
Gross margin 5,224,700 3,869,100 6,023,800 6,395,300
Selling, general and
administrative expenses 2,611,000 2,189,000 3,859,600 2,512,000
----------- ----------- ----------- -----------
Income from operations 2,613,700 1,680,100 2,164,200 3,883,300
----------- ----------- ----------- -----------
Other expense (income):
Related party interest income (8,100) (8,100) (10,800) (13,500)
Interest income (130,700) (103,900) (148,000) (116,300)
Interest expense 210,300 153,700 238,600 37,900
Other -- (1,100) (1,600) (4,800)
----------- ----------- ----------- -----------
Total other expense (income) 71,500 40,600 78,200 (96,700)
----------- ----------- ----------- -----------
Income before income taxes 2,542,200 1,639,500 2,086,000 3,980,000
Income taxes (Note 5) 1,013,400 679,600 847,100 1,616,900
----------- ----------- ----------- -----------
Net income $ 1,528,800 $ 959,900 $ 1,238,900 $ 2,363,100
=========== =========== =========== ===========
Basic and diluted earnings
per share $ 0.15 $ 0.10 $ 0.12 $ 0.25
=========== =========== =========== ===========
Weighted average common
shares outstanding 10,000,000 9,988,498 9,988,498 9,337,614
=========== =========== =========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE>
PACIFIC MAGTRON INTERNATIONAL CORP.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998 AND
THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Common Stock Additional Total
--------------------- Paid-in Retained Shareholders'
Shares Amount Capital Earnings Equity
------ ------ ------- -------- ------
<S> <C> <C> <C> <C> <C>
Balances as of December 31, 1995 8,978,640 $ 9,000 $ 621,300 $2,049,500 $2,679,800
Issuance of common stock for
cash in January, 1996 333,333 300 4,700 -- 5,000
Issuance of common stock for
cash in public stock offering
completed in December, 1996 666,667 700 37,900 -- 38,600
Net income -- -- -- 2,363,100 2,363,100
---------- ------- ---------- ---------- ----------
Balances as of December 31, 1996 9,978,640 10,000 663,900 4,412,600 5,086,500
Issuance of common stock in
debt conversion (Note 10) 21,360 -- 153,100 -- 153,100
Net income -- -- -- 1,238,900 1,238,900
---------- ------- ---------- ---------- ----------
Balances as of December 31, 1997 10,000,000 10,000 817,000 5,651,500 6,478,500
Issuance of common shares for
consulting services 100,000 -- 240,000 -- 240,000
Net income -- -- -- 1,528,800 1,528,800
---------- ------- ---------- ---------- ----------
Balances as of September 30, 1998 10,100,000 $10,000 $1,057,000 $7,180,300 $8,247,300
========== ======= ========== ========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-5
<PAGE>
PACIFIC MAGTRON INTERNATIONAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1998
AND SEPTEMBER 30, 1997 (UNAUDITED) AND
THE YEARS ENDED DECEMBER 31, 1997 AND 1996
(Note 11)
<TABLE>
<CAPTION>
September 30, December 31,
September 30, 1997 ---------------------------
1998 (unaudited) 1997 1996
---- ----------- ---- ----
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,528,800 $ 959,900 $ 1,238,900 $ 2,363,100
Adjustments to reconcile net income to
net cash (used in) provided by
operating activities:
Depreciation and amortization 103,100 93,600 128,000 37,300
Allowance for doubtful accounts -- -- 56,200 33,800
Deferred income taxes (38,300) 74,700 23,300 (44,500)
Changes in current assets and
liabilities:
Accounts receivable (2,689,800) (1,361,400) (1,078,800) 735,300
Interest receivable (8,100) -- (10,800) (13,500)
Inventories (2,425,300) (718,300) 614,000 (325,500)
Prepaid expenses and
other current assets (55,700) (152,200) (83,500) (6,800)
Accounts payable 2,292,000 2,766,100 (146,500) (161,400)
Accrued expenses (2,200) 43,200 39,000 9,900
Income taxes payable 27,000 (465,500) (465,500) (240,000)
----------- ----------- ----------- -----------
Net cash (used in) provided
by operating activities (1,268,500) 1,240,100 314,300 2,387,700
----------- ----------- ----------- -----------
Cash flows from investing activities:
Notes receivable (55,700) -- -- --
Deposits and other assets 7,800 636,000 623,800 (621,700)
Acquisition of property and equipment (28,700) (585,100) (599,400) (64,600)
----------- ----------- ----------- -----------
Net cash (used in) provided by
investing activities (76,600) 50,900 24,400 (686,300)
----------- ----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock -- -- -- 43,600
Payment of loan fee -- (29,400) (42,000) --
Principal payments on SBA loan (17,400) (12,400) (18,100) --
Principal payments on bank loan (12,400) (7,700) (11,500) --
Payment on equipment loan -- -- -- (19,000)
----------- ----------- ----------- -----------
Net cash (used in) provided by
financing activities (29,800) (49,500) (71,600) 24,600
----------- ----------- ----------- -----------
Net (decrease) increase
in cash and cash equivalents (1,374,900) 1,241,500 267,100 1,726,000
Cash and cash equivalents, beginning
of period 3,262,900 2,995,800 2,995,800 1,269,800
----------- ----------- ----------- -----------
Cash and cash equivalents, end of
period $ 1,888,000 $ 4,237,300 $ 3,262,900 $ 2,995,800
=========== =========== =========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-6
<PAGE>
PACIFIC MAGTRON INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998 AND
THE YEARS ENDED DECEMBER 31, 1997 AND 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) THE COMPANY
Pacific Magtron International Corp. (formerly Wildfire Capital
Corporation, a publicly traded shell corporation) (the Company), a
Nevada Corporation, was incorporated on January 8, 1996.
On July 17, 1998 the Company completed the acquisition of 100% of the
outstanding common stock of Pacific Magtron, Inc. (PMI), in exchange
for 9,000,000 shares of the Company's $.001 par value common stock.
For accounting purposes, the acquisition has been treated as the
acquisition of the Company by PMI with PMI as the acquiror (reverse
acquisition). The historical financial statements prior to July 17,
1998 are those of PMI. Since the Company prior to the reverse
acquisition was a public shell corporation with no significant
operations, pro-forma information giving effect to the acquisition is
not presented. All shares and per share data have been restated to
reflect the stock issuance and related three for two stock split.
PMI, a California corporation, was incorporated on August 11, 1989.
PMI's principal activity consists of importing and wholesale
distribution of electronics products, computer components, and
computer peripheral equipment to various companies throughout the
United States.
(b) NEW ACCOUNTING PRONOUNCEMENTS
In February 1998, the FASB issued SFAS No. 132, "Employer's
Disclosures about Pensions and Other Postretirement Benefits", which
standardizes the disclosure requirements for pension and other
postretirement benefits. The adoption of SFAS No. 132 is not expected
to impact the Company's current disclosures.
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 requires companies to
recognize all derivatives contracts as either assets or liabilities in
the balance sheet and to measure them at fair value. If certain
conditions are met, a derivative may be specifically designated as a
hedge, the objective of which is to match the timing of gain or loss
recognition on the hedging derivative with the recognition of (i) the
changes in the fair value of the hedged asset or liability that are
attributable to the hedged risk or (ii) the earnings effect of the
hedged forecasted transaction. For a derivative not designated as a
hedging instrument, the gain or loss is recognized in income in the
period of change. SFAS 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999.
Continued
F-7
<PAGE>
PACIFIC MAGTRON INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
(b) NEW ACCOUNTING PRONOUNCEMENTS - CONTINUED
Historically, the Company has not entered into derivatives contracts
either to hedge existing risks or for speculative purposes.
Accordingly, the Company does not expect adoption of the new standard
on January 1, 2000 to affect its financial statements.
(c) 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 reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
(d) CONSOLIDATION
The accompanying consolidated financial statements include the
accounts of Pacific Magtron International Corp. and its wholly-owned
subsidiary, Pacific Magtron Incorporated. All intercompany accounts
and transactions have been eliminated in the consolidated financial
statements.
(e) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments having original
maturities of 90 days or less to be cash equivalents.
(f) ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company grants credit to its customers after undertaking an
investigation of credit risk for all significant amounts. An allowance
for doubtful accounts is provided for estimated credit losses at a
level deemed appropriate to adequately provide for known and inherent
risks related to such amounts. The allowance is based on reviews of
loss, adjustment history, current economic conditions and other
factors that deserve recognition in estimating potential losses. While
management uses the best information available in making its
determination, the ultimate recovery of recorded accounts receivable
is also dependent upon future economic and other conditions that may
be beyond management's control.
Continued
F-8
<PAGE>
PACIFIC MAGTRON INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
(g) INVENTORIES
Inventories, consisting primarily of finished goods, are stated at the
lower of cost (moving weighted average method) or market.
(h) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation is
provided using the straight-line method over the related estimated
useful lives, as follows:
Estimated useful lives
----------------------
Building 39 years
Furniture and fixtures 7 years
Computers and equipment 5 years
Automobiles 5 years
(i) OTHER ASSETS
Other assets include loan origination fees which are being amortized
on a method which approximates the interest method.
(j) ADVERTISING
The Company's policy is to charge all advertising costs to expense as
incurred. Advertising costs were $9,200, $18,200 and $57,400 for the
nine month period ended September 30, 1998 and the years ended
December 31, 1997 and 1996, respectively.
(k) REVENUE RECOGNITION
The Company recognizes sales upon shipment.
(l) WARRANTY REPAIRS
The Company is a distributor of numerous electronics products, for
which the original equipment manufacturer is responsible and liable
for product repairs and service.
Continued
F-9
<PAGE>
PACIFIC MAGTRON INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
(m) INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, ACCOUNTING FOR INCOME
TAXES, which requires an asset and liability approach. This approach
results in the recognition of deferred tax assets (future tax
benefits) and liabilities for the expected future tax consequences of
temporary differences between the book carrying amounts and the tax
basis of assets and liabilities. The deferred tax assets and
liabilities represent the future tax return consequences of those
differences, which will either be deductible or taxable when the
assets and liabilities are recovered or settled. Future tax benefits
are subject to a valuation allowance when management believes it is
more likely than not that the deferred tax assets will not be
realized.
(n) LONG-LIVED ASSETS
The Company periodically reviews its long-lived assets for impairment.
When events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable, the Company writes the
asset down to its net realizable value.
(o) FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
CASH AND CASH EQUIVALENTS: The carrying amounts reported in the
balance sheets, accounts receivable and accounts payable approximate
fair value because of the short maturity of these instruments.
LONG-TERM DEBT: The fair value of long-term debt is estimated based on
current interest rates available to the Company for debt instruments
with similar terms and remaining maturities.
RELATED PARTY NOTES RECEIVABLE AND PAYABLE: The fair value of the
notes receivable and notes payable to shareholders cannot be
determined.
As of September 30, 1998 and December 31, 1997 and 1996, the fair
values of the Company's financial instruments approximate their
historical carrying amounts.
(p) EARNINGS PER SHARE
Basic earnings per share are computed using the weighted average
number of common stock shares outstanding.
(q) BASIS OF PRESENTATION
The accompanying statements of income and cash flows for the nine
month period ended September 30, 1997 have not been audited. However,
in the opinion of management, they include all adjustments necessary
for a fair presentation of the results of operations for the period
presented.
Continued
F-10
<PAGE>
PACIFIC MAGTRON INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(2) RELATED PARTY TRANSACTIONS
At September 30, 1998 and December 31, 1997 and 1996, notes receivable
from two shareholders aggregated $235,000, $180,000, and $180,000
respectively. These notes bear interest at 6% and are unsecured.
Principal and interest were due on October 9, 1998 and are expected to
be extended. The accrued interest receivable pertaining to these notes
was $33,100, $24,300 and $13,500 as of September 30, 1998 and December
31, 1997 and 1996, respectively.
(3) PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant and equipment at September 30, 1998 and
December 31, 1997 and 1996 follows:
December 31,
September 30, ---------------------
1998 1997 1996
---- ---- ----
Building (Note 4) $2,826,600 $2,826,600 $ --
Land 1,158,600 1,158,600 --
Furniture and fixtures 213,000 193,700 95,200
Computers and equipment 64,100 54,700 41,000
Automobiles 91,000 91,000 91,000
---------- ---------- --------
4,353,300 4,324,600 227,200
Less accumulated depreciation 312,900 209,800 81,800
---------- ---------- --------
$4,040,400 $4,114,800 $145,400
========== ========== ========
At December 31, 1996, deposits and other assets included a deposit of
$615,000 on the land and building acquired in 1997.
(4) NOTES PAYABLE
In 1997, the Company obtained financing of $3,498,000 for the purchase
of its office facility. Of the amount financed, $2,500,000 was in the
form of a 10-year bank loan utilizing a 30-year amortization period.
This loan bears interest at the bank's 90-day LIBOR rate (5.69% at
September 30, 1998) plus 2.5%, and is secured by a deed of trust on
the property. The balance of the financing was obtained through a
$998,000 Small Business Administration (SBA) loan. The SBA loan bears
interest at 7.569% and is secured by the underlying property. Both
loans are collateralized by personal guarantees of one of the
Company's officers and principal shareholder.
Under the bank loan, the Company is required to maintain minimum debt
service coverage and a maximum debt to tangible net worth. As of
September 30, 1998, the Company was in compliance with all debt
covenants.
Continued
F-11
<PAGE>
PACIFIC MAGTRON INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(4) NOTES PAYABLE - CONTINUED
The balances of the notes as of September 30, 1998 and December 31,
1997 are as follows:
September 30, December 31,
1998 1997
---- ----
Bank loan $2,476,100 $2,488,400
SBA loan 962,500 980,000
---------- ----------
3,438,600 3,468,400
Less current portion 42,600 40,000
---------- ----------
$3,396,000 $3,428,400
========== ==========
The aggregate amount of future maturities for notes payable are as
follows:
Years ending
December 31, Amount
------------ ----------
1998 (3 months) $ 22,400
1999 43,500
2000 47,300
2001 51,400
2002 55,900
Thereafter 3,218,100
---------
$3,438,600
=========
(5) INCOME TAXES
For the nine month period ended September 30, 1998 and the years ended
December 31, 1997 and 1996, income tax expense comprises:
September 30,
1998 Current Deferred Total
------------- ----------- ----------- -----------
Federal $ 824,700 $ (33,800) $ 790,900
State 227,000 (4,500) 222,500
----------- ----------- -----------
$ 1,051,700 $ (38,300) $ 1,013,400
=========== =========== ===========
December 31,
1997 Current Deferred Total
------------ ----------- ----------- -----------
Federal $ 627,900 $ 30,800 $ 658,700
State 195,900 (7,500) 188,400
----------- ----------- -----------
$ 823,800 $ 23,300 $ 847,100
=========== =========== ===========
December 31,
1996 Current Deferred Total
------------ ----------- ----------- -----------
Federal $ 1,285,700 $ (43,700) $ 1,242,000
State 375,700 (800) 374,900
----------- ----------- -----------
$ 1,661,400 $ (44,500) $ 1,616,900
=========== =========== ===========
Continued
F-12
<PAGE>
PACIFIC MAGTRON INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(5) INCOME TAXES - CONTINUED
The following summarizes the difference between the income tax expense
and the amount computed by applying the Federal income tax rate of 34%
in 1998, 1997 and 1996 to income before income taxes:
December 31,
September 30, ---------------------
1998 1997 1996
---- ---- ----
Federal income tax at
statutory rate $ 868,600 $709,200 $1,353,200
State income taxes, net of
Federal benefit 144,800 137,900 263,700
---------- -------- ----------
$1,013,400 $847,100 $1,616,900
========== ======== ==========
Deferred tax assets and liabilities as of September 30, 1998 and
December 31, 1997 and 1996 were comprised of the following:
December 31,
September 30, --------------------
1998 1997 1996
---- ---- ----
Deferred tax assets:
State income taxes $ 77,200 $ 66,600 $127,800
Reserves not currently deductible 55,900 50,700 28,800
Accrued compensation and benefit 12,300 10,400 --
-------- --------- ---------
145,400 127,700 156,600
-------- --------- ---------
Deferred tax liabilities:
Deferred interest income 10,400 10,500 5,800
Tax depreciation in excess of book -- 20,500 30,800
--------- --------- --------
10,400 31,000 36,600
--------- --------- --------
Net deferred tax asset $ 135,000 $ 96,700 $120,000
========= ========= ========
(6) LEASE COMMITMENTS
During 1998, 1997 and 1996, the Company leased two automobiles under
operating leases due to terminate in March 1999.
Future minimum obligations under these lease agreements are as
follows:
Years ending
December 31, Amount
------------ ------
1998 $ 7,500
1999 7,500
------
$15,000
Continued
F-13
<PAGE>
PACIFIC MAGTRON INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(6) LEASE COMMITMENTS - CONTINUED
During 1996, the Company leased its facilities under a non-cancelable
operating lease which terminated in December 1996. The Company
extended the lease on a month-to-month basis through February 1997. In
addition to the stated lease payments, the lease terms required the
Company to pay common area maintenance, property taxes, insurance, and
certain other costs.
Total rent expense for nine month period ended September 30, 1998 and
the years ended December 31, 1997 and 1996 was $22,200, $47,900 and
$113,900, respectively.
(7) MAJOR VENDORS
One vendor accounted for approximately 14%, 20% and 30% of the total
purchases for the nine month period ended September 30, 1998 and the
years ended December 31, 1997 and 1996, respectively. During the nine
month period ended September 30, 1998, two additional vendors
accounted for approximately 12% and 11% of total purchases. No other
vendors accounted for more than 10% of purchases for any period
presented. Management believes other vendors could supply similar
products on comparable terms. A change in suppliers however could
cause a delay in availability of products and a possible loss of
sales, which could affect operating results adversely.
(8) EMPLOYEE BENEFIT PROGRAM - 401 (k) PLAN
The Company has a 401 (k) plan (the Plan) for its employees. The Plan
is available to all employees who have reached the age of twenty-one
and who have completed three months of service with the Company. Under
the Plan, eligible employees defer a portion of their salaries as
their contributions to the Plan. The Company may make contributions
equal to 25% of each participant's contribution up to the lesser of
$9,500 or 6% of employee's salary. Contributions to the Plan totaled
$9,500, $14,300 and $12,900, for the nine month period ended September
30, 1998 and the years ended December 31, 1997 and 1996, respectively.
(9) CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentration of credit risk consist principally of cash and cash
equivalents and trade receivables. The Company places its cash and
investments with high quality financial institutions. At September 30,
1998 and December 31, 1997 and 1996, the Company had deposits at one
financial institution, which aggregated $1,724,700, $2,828,300 and
$2,948,500 respectively. Such funds are insured by the Federal Deposit
Insurance Company up to $100,000.
Continued
F-14
<PAGE>
PACIFIC MAGTRON INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(9) CONCENTRATION OF CREDIT RISK - CONTINUED
A significant portion of the Company's revenues and accounts
receivable are derived from sales made primarily to unrelated
companies in the computer industry and related fields principally
throughout the United States, as well as some foreign countries,
including Canada, the United Kingdom, France, Russia and Israel. For
the nine month period ended September 30, 1998 and the years ended
December 31, 1997 and 1996, no individual customer comprised more than
10% of sales. The Company believes any risk of accounting loss is
significantly reduced due to the diversity in end customers,
geographic sales areas and the Company extending credit based on
established limits or terms. The Company performs credit evaluations
of its customers' financial condition whenever necessary, and
generally does not require cash collateral.
(10) CAPITAL STOCK
(a) DEBT CONVERSION
In 1997, the two shareholders/officers of the Company converted their
loans in the amount of $153,100 into 21,360 shares of PMI's common
stock, based on the fair value of PMI, at the time of conversion.
(b) CONSULTING AGREEMENT
On July 17, 1998 the Company issued 100,000 restricted shares of its
common stock to an unrelated party under terms of a consulting
agreement. The agreement requires the consultant to provide
introductions to a predetermined number of investment banking contacts
and provide certain financial advice to the Company over a two year
period. If the services are provided the shares will vest 50% on July
17, 1999 and 50% on July 17, 2000. If the services are not provided as
required the consultant will forfeit those shares not vested. If the
Company makes an underwritten offering prior to either of the vesting
dates and the consultant has provided services in connection with such
offering all of the shares not previously forfeited will vest on the
close of the offering.
Continued
F-15
<PAGE>
PACIFIC MAGTRON INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(10) CAPITAL STOCK-CONTINUED
(c) STOCK OPTION PLAN
On July 16, 1998 the Company adopted the 1998 Stock Option Plan and
reserved 1,000,000 shares of Common Stock for issuance under the Plan.
Activity under the Plan is as follows:
Shares Weighted
Available Options Average
For Grant Outstanding Exercise Price
--------- ----------- --------------
July 16, 1998 1,000,000 -- $ --
Conversion of PMI
options to Plan options (91,350) 91,350 2.00
--------- ----------- --------
Balances,
September 30, 1998 908,650 91,350 $ 2.00
========= =========== ========
Options exercisable
At September 30, 1998 None
===========
Under the terms of the Plan, options are exercisable as determined by
the Board of Directors on the date of grant and expire five years from
the date of grant.
FASB Statement 123, "Accounting for Stock-Based Compensation",
requires the Company to provide pro forma information regarding net
(loss) income and (loss) earnings per share as if compensation cost
for the Company's stock option plans had been determined in accordance
with the fair value based method prescribed in FASB Statement 123. The
Company estimates the fair value of stock options at the grant date by
using the Black-Scholes option pricing-model with the following
weighted average assumptions used for grants in 1998: dividend yield
of 0; expected volatility of 54 percent; risk-free interest rates of
5.7 percent; and expected lives of 4 years for all plan options.
Continued
F-16
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PACIFIC MAGTRON INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(10) CAPITAL STOCK-CONTINUED
(c) STOCK OPTION PLAN-CONTINUED
Under the accounting provisions of FASB Statement 123, the Company's
net (loss) income and (loss) earnings per share would have been
reduced to the pro forma amounts indicated below:
1998
----
Net Income:
As reported $1,528,800
==========
Pro forma $1,477,400
==========
Basic earnings per share:
As reported $ 0.15
==========
Pro forma $ 0.15
==========
(11) STATEMENTS OF CASH FLOWS
Cash was paid during the nine month period ended September 30, 1998
and the years ended December 31, 1997 and 1996 for:
December 31,
September 30, ----------------------
1998 1997 1996
---- ---- ----
Income taxes $992,500 $1,345,400 $1,823,500
======== ========== ==========
Interest $210,300 $ 238,600 $ 37,900
======== ========== ==========
As discussed in Note 10, non-cash financing activities in 1997
resulted from the conversion of shareholder notes in the amount of
$153,100 and in 1998 from the issuance of common stock for consulting
services.
As discussed in Note 4, non-cash investing and financing activities in
1997 resulted from obtaining financing of $3,498,000 for the purchase
of the Company's office facility and applying a deposit made in 1996
to the purchase price.
F-17
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is made and entered into this 25th
day of June, 1998, by and among WILDFIRE CAPITAL CORPORATION, a corporation
incorporated under the laws of the State of Nevada (the "Purchaser"), PACIFIC
MAGTRON, INC., a corporation incorporated under the laws of the State of
California ("Company") and THEODORE S. LI, a married man, and HUI LEE, a married
woman, collectively, (the "Selling Shareholders").
W I T N E S S E T H :
WHEREAS, the Purchaser desires to acquire from the Selling
Shareholders all of the issued and outstanding capital stock of the Company on
the terms and conditions hereinafter set forth; and
WHEREAS, the Company and the Selling Shareholders deem it advisable
and for their benefit to sell their shares of capital stock of the Company to
the Purchaser, believing that it will contribute materially to the growth and
profitability of the Company.
NOW, THEREFORE, in consideration of the premises and the agreements
and covenants contained herein, the parties hereto, intending to be legally
bound hereby, agree as follows:
ARTICLE 1
DEFINITIONS
For all purposes of this Agreement:
1.1 "PURCHASER SHARES" means the shares of common stock, par value
$.001 per share, of the Purchaser.
1.2 "FISCAL YEAR" means the period from January 1 through December
31 for each year referenced.
The parties contemplate that (i) after the Closing the
Purchaser will own one hundred percent (100%) of the Company, and (ii) the
Company, as a new member of the Purchaser's
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consolidated group, will have its financial results included in the Purchaser's
financial results and have its federal income tax returns consolidated with the
federal income tax returns of the Purchaser covering the appropriate periods as
a result of its joining the Purchaser's consolidated group. The parties agree
that accountants of the Company may be requested to perform such review as may
be necessary to have financial results sufficient to prepare a consolidated
federal income tax return for the Company for any years required by the Internal
Revenue Code. The Purchaser shall have the right to have such tax return
reviewed by a representative of an accounting firm designated by the Purchaser.
However, the Company shall retain all responsibility and authority with respect
to such tax return.
At the appropriate times, the Purchaser may require the
auditors of the Company to prepare (i) reviewed financial statements for the
Company for the 1996 and 1997 Fiscal Years and for the nine months ended
September 30, 1998 and (ii) such financial statements regarding the Company as
the Purchaser reasonably requests for use in preparing its consolidated federal
income tax returns.
1.3 "COMPANY FINANCIAL STATEMENTS" means the (i) unaudited
financial statements of the Company for its fiscal years ended December 31, 1996
and 1997, (ii) the unaudited financial statements of the Company for the
three-month period ended March 31, 1998 and (iii) the audited financial
statements of the Company which will be prepared for the fiscal years ended
December 31, 1996 and 1997 and the nine months ended September 30, 1998. The
Company will prepare the items in (i) and (ii) above, include them in Schedule
1.3 and deliver them prior to the Closing. The Company will prepare the items in
(iii) above, include them in Schedule 1.3 and deliver them on or before December
31, 1998 or at the Closing, whichever is later.
1.4 "COMPANY SHARES" means the shares of the common stock of the
Company, no par value per share, which have been issued and which are held by
the Selling Shareholders.
1.5 "PURCHASER FINANCIAL STATEMENTS" means the audited consolidated
financial statements of the Purchaser for the 1996 and 1997 Fiscal Years and its
unaudited financial statements for the six months ended June 30, 1998. The
Purchaser has previously delivered the consolidated financial statements for the
1996 and 1997 Fiscal Years to the Selling Shareholders, which are included in
Schedule 1.5. The Purchaser will prepare its unaudited financial statements for
the six months ended June 30, 1998, include them in Schedule 1.5 and deliver
them to the Selling Shareholders prior to the Closing.
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<PAGE>
1.6 "CONFIDENTIAL INFORMATION" means (i) any proprietary or
confidential information or know-how whether or not in written form and refers
to any information, not generally known in the relevant trade or industry, which
was obtained from one of the parties to this Agreement, or which was learned,
discovered, developed, conceived, originated or prepared by one of the parties
or its employees or agents or representatives in the scope of their employment
or consultancy; (ii) customer lists and related data base information, vendor
lists and related data base information, including existing and after acquired
vendors, product lines, including, but not limited to, any new lines or vendors
brought in by any employee, invoices, purchase orders, and related documents
containing customer and vendor information, marketing strategy, buying strategy,
including names and lists of buyers, cost structures, methods and strategies on
approaching vendors and suppliers, software, technical and business information
relating to a party's inventions or products, research and development,
production processes, manufacturing and engineering processes, machines and
equipment, finances, marketing and production and future plans and any other
information which is identified by a party as confidential; and (iii)
information related to pricing, commissions, methods, processes, suppliers,
financial data, lists, computer programs, software or procedures, discoveries,
improvements, inventions, ideas, lists, apparatus, statistics, programs,
research, development, or related information of the Purchaser or the Company
and the Selling Shareholders.
ARTICLE 2
PURCHASE AND SALE
2.1 PURCHASE AND SALE. Upon the terms and subject to the conditions
contained herein, the Selling Shareholders, agree to sell and transfer the
Company Shares to the Purchaser, and the Purchaser agrees to purchase and pay
for the Company Shares by issuing restricted Purchaser Shares to the Selling
Shareholders in accordance with Schedule 2.1. Such purchase and sale shall take
place at a closing (the "Closing") to be held at the offices of the Purchaser,
1600 California Circle, Milpitas, California, 95035 on the date established
pursuant to Section 11.1, "Closing Date" (the "Closing Date"). The parties
intend that the exchange of the Company Shares for the Purchaser Shares
contemplated by this Agreement will be a tax-free reorganization under Section
368(a)(1)(B) of the Internal Revenue Code, as amended.
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<PAGE>
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
Except as disclosed in the Disclosure Schedules noted in this
Article 3 to be delivered by the Purchaser to the Selling Shareholders on or
before June 25, 1998 and subsequently disclosed in any Supplemental Disclosure
Schedules to be delivered by the Purchaser to the Selling Shareholders on or
before the Closing Date, or thereafter in the case of certain Purchaser
Financial Statements, the Purchaser represents and warrants to the Selling
Shareholders as of the date hereof and as of the Closing Date as follows:
3.1 AUTHORITY AND VALIDITY. This Agreement is valid and binding
upon the Purchaser and neither the execution nor the delivery of this Agreement
by the Purchaser, nor the performance by it of any of the covenants or
obligations to be performed by the Purchaser hereunder, after the conditions
precedent to its obligations set forth in Article 9, "Conditions Precedent to
Obligations of the Purchaser," have been satisfied, will result in any violation
of any order, decree or judgment of any court or other governmental body, or
statute or law applicable to the Purchaser, or in any breach of any terms or
provisions of the Purchaser's Articles of Incorporation or Bylaws, or constitute
a default under any indenture, mortgage, deed of trust or other contract to
which the Purchaser is a party or by which it is bound, or cause the creation of
a lien or encumbrance on any properties owned by it or leased to it.
3.2 GOVERNMENT APPROVALS. No consent, approval or authorization of,
or notification to or registration with, any governmental authority is required
in connection with the execution, delivery and performance of this Agreement by
the Purchaser.
3.3 ORGANIZATION. The Purchaser is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Nevada and
has full corporate power and authority to carry on its business as now being
conducted and to execute, deliver and perform its obligations under this
Agreement.
3.4 FINANCIAL STATEMENTS. The Purchaser Financial Statements, with
accompanying notes, made available by the Purchaser to the Selling Shareholders
and the Company, fairly present the financial position of the Purchaser at the
dates of the Purchaser Financial Statements and the results of
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<PAGE>
its operations and changes in its financial position for the years and periods
ended on such dates, in conformity with accounting principles as generally
accepted and consistently applied.
3.5 ABSENCE OF CHANGE. There has been no material adverse change in
the business, properties or the consolidated condition, financial or otherwise,
of the Purchaser since December 31, 1997.
3.6 CAPITALIZATION. The authorized capital stock of the Purchaser
consists of 25,000,000 shares, par value $.001 per share, of which 1,500,000
shares are issued and outstanding. The Purchaser Shares are validly issued,
fully paid and nonassessable. The Purchase Shares constitute the only
outstanding shares of the capital stock of the Purchaser of any nature
whatsoever, voting and nonvoting. The records of the Purchaser's transfer agent,
Colonial Stock Transfer, 4455 East 400 S., Suite 100, Salt Lake City, Utah
84111, as set forth on Schedule 3.6, are accurate in all respects and reflect
all of the issued and outstanding shares of capital stock of the Company. All
shares of capital stock of the Purchaser are required to be certificated, and
the Purchaser has not executed and delivered any certificates for shares in
excess of the number of issued shares of the Purchaser set forth in Schedule
3.6. There are, and at the closing will be, no outstanding options, warrants or
other rights for the purchase of, or any securities convertible into, capital
stock of the Company, whether issued, unissued or held in its treasury.
3.7 DISCLOSURE STATEMENT. Set forth as Schedule 3.7 is a Disclosure
Statement constituting the Purchaser's filings in compliance with the disclosure
requirements of Rule 15c2-11 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). The information with respect to the Purchaser
contained in the Disclosure Statement does not contain any untrue statement of
material fact or omit to state a material fact necessary in order to make the
statements made in the Disclosure Statement and the Schedules thereto not
misleading.
3.8 NO SUBSIDIARIES. The Purchaser does not own five percent (5%)
or more of the voting securities of any corporation (or would own such
securities in such amount upon the closing of any existing purchase obligations
for securities).
3.9 FINANCIAL STATEMENTS. The Purchaser Financial Statements that
have been provided to the Selling Shareholders (i) have been prepared from the
books and records of the Purchaser
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<PAGE>
and (ii) fairly and accurately present the financial condition of the Purchaser
as of the date thereof and, except as disclosed therein, were prepared in
accordance with generally accepted accounting principles, and (iii) contain and
reflect all necessary adjustments for a fair and accurate presentation of the
financial condition as of such date. Except as and to the extent reflected or
reserved against in such Purchaser Financial Statements, otherwise expressly
disclosed therein or as disclosed in Schedule 3.11, the Purchaser has no
liabilities or obligations, contingent or otherwise, of a nature required to be
reflected in the Purchaser Financial Statements, in accordance with generally
accepted accounting principles.
3.10 ABSENCE OF CERTAIN CHANGES. Except as set forth in Schedule
3.10 or as otherwise provided herein, the Purchaser has not since December 31,
1997:
3.10.1 Suffered any material change adversely affecting
its assets, liabilities, financial condition or business;
3.10.2 Made a material change in the compensation
payable or to become payable to any of its employees or agents, or in any bonus
payments or arrangements made to or with any of its employees or agents;
3.10.3 Paid or declared any dividends or distributed
any of its assets of any kind whatsoever to any of its shareholders;
3.10.4 Issued any stock, or granted any stock options
or warrants to purchase stock;
3.10.5 Sold or transferred any of its assets or
canceled any indebtedness or claims owing to it except in the ordinary course of
business, consistent with its past practices;
3.10.6 Sold, assigned or transferred any formulas,
inventions, patents, patent applications, trademarks, trade names, copyrights,
licenses, computer programs or software, know-how or other intangible assets;
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<PAGE>
3.10.7 Amended or terminated any contract, agreement or
license to which it is a party otherwise than in the ordinary course of business
or as may be necessary or appropriate for the consummation of the transactions
described in this Agreement;
3.10.8 Borrowed any money or incurred, directly or
indirectly (as a guarantor or otherwise), any indebtedness except in the
ordinary course of business, consistent with its past practices;
3.10.9 Discharged or satisfied any lien or encumbrance
or paid any obligation or liability (absolute or contingent), other than current
liabilities shown on the Purchaser Financial Statements or current liabilities
incurred since such date in the ordinary course of business, consistent with its
past practices;
3.10.10 Mortgaged, pledged or subjected to lien, charge
or other encumbrance any of its assets; or
3.10.11 Entered into or committed to any transaction
other than transactions in the ordinary course of business, consistent with past
practices.
3.11 CONTRACTS AND OTHER DOCUMENTS. Attached hereto as Schedule
3.11 is a complete schedule listing all documents to which the Purchaser is a
party or under which it has any liability in excess of $5,000 per annum. All
such contracts, documents and agreements listed on Schedule 3.11 are valid and
enforceable and accurate and complete copies of such contracts, documents and
agreements (or, with the consent of the Selling Shareholders forms thereof) as
have been requested by the Selling Shareholders have been provided to the
Selling Shareholders. Except as disclosed on Schedule 3.11 hereof, the Purchaser
is not or will not be, merely with the passage of time, in default under any
such contract, including those listed on Schedule 3.11. Except as specified on
Schedule 3.11, there is no requirement for any contract or agreement to which
the Purchaser is a party to be novated or to have the consent of the other
contracting party in order for the contract or agreement to be valid, effective
and enforceable by the Purchaser after the Closing as it was immediately prior
thereto.
3.12 TITLE TO PROPERTIES AND ASSETS. Except as set forth in
Schedule 3.12, the Purchaser does not presently own or lease any real property.
The Purchaser has good title to all tangible
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personal property reflected on its books and records as owned by it, free and
clear of all liens and encumbrances, except (i) liens for current taxes and (ii)
other liens or encumbrances that do not materially impair the use of the
property subject thereto. Such tangible personal property is in satisfactory
condition and suitable for the purpose for which it is being used, subject in
each case to consumption in the ordinary course, ordinary wear and tear and
ordinary repair, maintenance and periodic replacement.
3.13 ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth in
Schedule 3.13, the Purchaser is not subject to any liabilities, including
contingent liabilities, liabilities for unperformed obligations, and liabilities
for unasserted claims.
3.14 ABSENCE OF PENSION LIABILITY.
3.14.1 The Purchaser has no liability of any nature to
any person or entity for pension or retirement obligations, vested or unvested,
to or for the benefit of any of its existing or former employees.
3.14.2 The consummation of the transactions
contemplated by this Agreement will not entitle any employee of the Purchaser to
severance pay, unemployment compensation or any other payment, except as
expressly provided in this Agreement, including the Schedules, or accelerate the
time of payment or increase the amount of compensation due to any such employee.
3.14.3 Except as set forth on Schedule 3.14, the
Purchaser presently has no employee benefit plans and has no announced plan or
legally binding commitment to create any employee benefit plans.
3.15 ABSENCE OF LIENS. There are no outstanding mechanics',
materialmen's', laborers' or other liens or encumbrances filed or enforceable
against any property owned by or in the possession of the Purchaser, or, to the
best knowledge of the Purchaser, threatened to be filed against any property
owned by the Purchaser or in its possession, which properly may be filed against
such property or which are the subject of any lawsuit against the Purchaser.
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<PAGE>
3.16 TAX RETURNS. The Purchaser (and any predecessor corporation or
partnership as to which either of them is the transferee or successor) has
filed, or has secured an extension and will (within the permitted extension)
file, all tax returns, including federal, state, local and foreign tax returns,
tax reports and forms, as to which the due date for filing is prior to the
Closing Date; has reported all reportable income on such returns; has adopted
and followed in the preparation of such returns methods of accounting accepted
by law, and has not changed any methods of accounting without compliance with
procedures required by law; has not deducted any expenses or charges or claimed
any credits which are not allowable; and has paid, or accrued and reserved for,
all taxes, penalties and interest shown to be due or required to be paid
pursuant to the returns as filed, or as adjusted pursuant to amendment or
correction. The Purchaser has no knowledge of any claim for taxes, penalties or
interest thereon in addition to those for which such taxes, penalties or
interest have been paid or accrued.
3.17 SECURITIES LAW MATTERS.
3.17.1 The Purchaser is a publicly owned company whose
shares of capital stock are not actively traded. The Purchaser is not a
reporting company under the Exchange Act;
3.17.2 The Purchaser has :
3.17.2.1 offered and sold 1,000,000 shares
of its Common Stock in an offering exempt from registration under Section 5 in
compliance with the Securities Act of 1933, as amended (the "Securities Act") by
virtue of Rule 504 under Regulation D under the Securities Act, and offered and
sold such shares within the State of Nevada in compliance with the applicable
securities laws of such state, and the purchasers of such shares are set forth
in Schedule 3.17.2.1;
3.17.2.2 offered and sold 500,000 shares
of its Common Stock in an offering exempt from registration under Section 5 of
the Securities Act by virtue of Section 4(2) of the Securities Act and offered
and sold such shares within the State of Nevada in compliance with the
applicable securities of such state;
3.17.2.3 and the officers and directors of
the Purchaser have, to the best of the knowledge of Thomas Hofer ("Hofer"), made
no statements to the Purchaser's shareholders
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or third parties respecting the Purchaser's acquisition of the Company or any
particular return that a shareholder may expect on such shareholder's investment
in the Purchaser's Common Stock;
3.17.2.4 met all applicable requirements
to have its Common Stock traded, and its Common Stock does trade, on the Nasdaq
Bulletin Board;
3.17.2.5 prepared the disclosures to be
included in the filing made by Alpine Securities Corporation to comply with Rule
15c2-11 of the Exchange Act;
3.17.2.6 made all filings and reports
required under all local, state and federal laws with respect to its business or
any predecessor entity or partnership; and
3.17.2.7 made all filings and reports
required by the Securities and Exchange Commission ("SEC").
3.17.3 The Purchaser is purchasing the Company Shares
for its own account and for investment and not with a view to, or for sale in
connection with, any distribution of the Company Shares.
3.18 LITIGATION. There are no lawsuits, arbitration actions or
other proceedings (equitable, legal, administrative or otherwise) pending or (to
the best of the Purchaser's knowledge) threatened, or any customer complaints
which have not been resolved or settled, and there are no investigations pending
or threatened against the Purchaser (or involving the industry in which they are
members) which relate to and could have a material adverse effect on the
properties, businesses or assets of the Purchaser or which could adversely
affect the validity or enforceability of this Agreement or the obligation or
ability of the Purchaser to perform its obligations under this Agreement or to
carry out the transactions contemplated by this Agreement.
3.19 COMPLIANCE WITH LAWS. The Purchaser has conducted, and is
continuing to conduct, its business in material compliance with, and is in
material compliance with, all applicable statutes, orders, rules and regulations
promulgated by governmental authorities relating in any material respect to its
operations, conduct of business or use of properties, including, without
limitation, any applicable statute, order, rule or regulation relating to (i)
wages, hours, hiring, nondiscrimination,
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retirement, benefits, pensions, working conditions, and worker safety and
health; (ii) air, water, toxic substances, noise, or solid, gaseous or liquid
waste generation, handling, storage, disposal or transportation; (iii) zoning
and building codes; (iv) the production, storage, processing, advertising, sale,
distribution, transportation, disposal, use and warranty of products; or (v)
trade and antitrust regulations. The execution, delivery and performance of this
Agreement by the Purchaser and the consummation by the Purchaser of the
transactions contemplated by this Agreement will not, separately or jointly,
violate, contravene or constitute a default under any applicable statutes,
orders, rules and regulations promulgated by governmental authorities or cause a
lien on any property used, owned or leased by the Purchaser to be created
thereunder. There are no proposed changes in any applicable statutes, orders,
rules and regulations promulgated by governmental authorities that would cause
any representation or warranty contained in this Section to be untrue.
3.20 CERTAIN ACTIVITIES. The Purchaser has not, directly or
indirectly, engaged in or been a party to any of the following activities:
3.20.1 Bribes, kickbacks or gratuities to any person or
entity, including domestic or foreign government officials or any other payments
to any such persons or entity, whether legal or not legal, to obtain or retain
business or to receive favorable treatment of any nature with regard to business
(excluding commissions or gratuities paid or given in full compliance with
applicable law and constituting ordinary and necessary expenses incurred in
carrying on its business in the ordinary course);
3.20.2 Contributions (including gifts), whether legal
or not legal, made to any domestic or foreign political party, political
candidate or holder of political office;
3.20.3 Holding of or participation in bank accounts,
funds or pools of funds created or maintained in the U.S. or any foreign
country, without being reflected on the corporate books of account, or as to
which receipts or disbursements therefrom have not been reflected on such books,
the purpose of which is to obtain or retain business or to receive favorable
treatment with regard to business;
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<PAGE>
3.20.4 Receiving or disbursing monies, the actual
nature of which has been improperly disguised or intentionally misrecorded on or
improperly omitted from the corporate books of account;
3.20.5 Paying fees to domestic or foreign consultants
or commercial agents which exceed the reasonable value of the ordinary and
customary consulting and agency services purported to have been rendered;
3.20.6 Paying or reimbursing (including gifts)
personnel of the Purchaser for the purpose of enabling them to expend time or to
make contributions or payments of the kind or for the purposes referred to in
Paragraphs 3.20.1 through 3.20.5 above;
3.20.7 Participating in any manner in any activity
which is illegal under the international boycott provisions of the Export
Administration Act, as amended, or the international boycott provisions of the
Internal Revenue Code, or guidelines or regulations thereunder; and
3.20.8 Making or permitting unlawful charges,
mischarges or defective or fraudulent pricing under any contract or subcontract
under a contract with any department, agency or subdivision thereof, of the
United States government, state or municipal government or foreign government.
3.21 INSURANCE COVERAGE. All policies of fire, liability or other
forms of insurance which the Purchaser has obtained are set forth on Schedule
3.21. All of the insurance represented by such policies is in full force and
effect.
3.22 ARTICLES OF INCORPORATION AND BY-LAWS. The Purchaser has
delivered to the Selling Shareholders true, accurate and complete copies of the
Articles of Incorporation and By-Laws of the Purchaser, together with all
amendments to each of the same as of the date of this Agreement.
3.23 CORPORATE MINUTES. The minute books of the Purchaser made
available for inspection by the Selling Shareholders prior to the Closing are
the correct and only such minute books and contain complete and accurate records
of any and all proceedings and actions at all meetings (including written
consents executed in lieu of meetings) of its shareholder and Board of Directors
and
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committees thereof, through the Closing Date. The stock records of the Purchaser
made available for inspection by the Selling Shareholders prior to the Closing
are the correct and only such stock records and each accurately reflect all
issues and transfers of record of the capital stock of the Purchaser.
3.24 DEFAULT ON INDEBTEDNESS. The Purchaser is not in default in
any respect under any evidence of indebtedness for borrowed money.
3.25 CONSENTS. The Purchaser does not require any authorizations,
consents, approvals and waivers or other actions in order to make any license,
lease, contract or agreement listed under Schedule 3.13 valid and fully
enforceable by the Purchaser and effective after the issuance of the Purchaser
Shares to the Selling Shareholders as such license, lease, contract or agreement
was immediately prior thereto.
3.26 INDEBTEDNESS TO PURCHASER. No employee, officer or director of
the Purchaser or any third party is indebted to the Purchaser.
3.27 COMPLETENESS OF REPRESENTATIONS AND SCHEDULES. The Schedules
hereto, where applicable to the Purchaser, completely and correctly present in
all material respects the information required by this Agreement. This
Agreement, the certificates to be delivered by the Purchaser at the Closing, the
Schedules and the provisions of this Article 3, and the documents and written
information pertaining to the Purchaser furnished to the Selling Shareholders or
their agents by or on behalf of the Purchaser, do not contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make this Agreement, or such certificates, schedules, documents or written
information not misleading.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLING SHAREHOLDERS
Except as disclosed in the Disclosure Schedules noted in this
Article 4 and Article 5, "Representations and Warranties of the Company," to be
delivered by the Selling Shareholders and the Company to the Purchaser on or
before June 25, 1998 and subsequently disclosed in any Supplemental Disclosure
Schedules to be delivered by the Selling Shareholders and the Company to the
Purchaser on the Closing Date, or thereafter in the case of certain Company
Financial Statements, the
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Selling Shareholders hereby represent and warrant to the Purchaser as of the
date hereof and as of the Closing Date as follows:
4.1 AUTHORITY AND VALIDITY.
4.1.1 This Agreement is valid and binding upon the
Selling Shareholders and neither the execution nor delivery of this Agreement by
the Selling Shareholders nor the performance by the Selling Shareholders of any
of their respective covenants or obligations hereunder will constitute a default
under any contract, agreement or obligation to which the Selling Shareholders
are a party or by which the Selling Shareholders or any of their respective
properties is bound. This Agreement is enforceable severally against the Selling
Shareholders in accordance with its terms.
4.1.2 The execution, delivery and performance of this
Agreement by the Company have been duly authorized by its Board of Directors.
This Agreement is valid and binding upon the Company, and is enforceable against
the Company in accordance with its terms. The execution, delivery and
performance of this Agreement by the Company will not result in the violation or
breach of any term or provision of charter instruments applicable to the Company
or constitute a default under any indenture, mortgage, deed of trust or other
contract or agreement to which the Company is a party or by which it or any of
its properties is bound, or cause the creation of a lien or encumbrance on any
properties owned by or leased to or by it.
4.2 GOVERNMENTAL APPROVALS. No consent, approval or authorization
of, or notification to or registration with, any governmental authority, either
federal, state or local, is required in connection with the execution, delivery
and performance of this Agreement by the Selling Shareholders or the Company.
4.3 TITLE. Each of the Selling Shareholders has full right and
title to the number of the Company Shares set forth opposite his or her name in
Schedule 4.3; such Company Shares constitute all the Company Shares which are
owned, directly or indirectly, by the Selling Shareholders; and at the time of
transfer thereof to the Purchaser, all of the Company Shares to be transferred
by the Selling Shareholders will be free of all liens, claims or encumbrances of
any kind, and will be fully transferable to the Purchaser.
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4.4 ORGANIZATION AND GOOD STANDING. The Company is a corporation
duly organized and existing in good standing under the laws of the State of
California. The Company has full corporate power and authority to carry on its
business as now conducted and to own or lease and operate the properties and
assets now owned or leased and operated by it. The Company is duly qualified to
transact business in all states and jurisdictions in which the business or
ownership of its property makes it necessary so to qualify (other than
jurisdictions in which the nature of the property owned or business conducted,
when considered in relation to the absence of serious penalties, renders
qualification as a foreign corporation unnecessary as a practical matter).
4.5 CAPITALIZATION. The authorized capital stock of the Company
consists solely of Company Shares, as set forth in Schedule 4.5. The Company
Shares are validly issued, are fully paid and nonassessable, and subject to no
restrictions on transfer. The Company Shares constitute the only outstanding
shares of the capital stock of the Company of any nature whatsoever, voting and
non-voting. All shares of capital stock of the Company are required to be
certificated, and the Company has executed and delivered no certificates for
shares in excess of the number of issued shares of the Company set forth above.
There are, and at Closing will be, no outstanding options, warrants or other
rights for the purchase of, or any securities convertible into, capital stock of
the Company, whether issued, unissued or held in its treasury.
4.6 NO SUBSIDIARIES. The Company does not own five percent (5%) or
more of the voting securities of any corporation (or would own such securities
in such amount upon the closing of any existing purchase obligations for
securities).
4.7 FINANCIAL STATEMENTS. The Company Financial Statements which
have been provided to the Purchaser (i) have been prepared from the books and
records of the Company and (ii) fairly and accurately presents the financial
condition of the Company as of the date thereof and, except as disclosed
therein, were prepared in accordance with generally accepted accounting
principles, and (iii) contain and reflect all necessary adjustments for a fair
and accurate presentation of the financial condition as of such date. Except as
and to the extent reflected or reserved against in such Company Financial
Statements, or otherwise expressly disclosed therein, the Company has no
liabilities or obligations, contingent or otherwise, of a nature required to be
reflected in the Company Financial Statements, in accordance with generally
accepted accounting principles.
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4.8 DISCLOSURE STATEMENT. Set forth as Exhibit 4.8 is a disclosure
statement ("Disclosure Statement") of the Company. The information with respect
to the Company is contained in the Disclosure Statement and does not contain an
untrue statement of material fact or omit to state a material fact necessary in
order to make the statements made in the Disclosure Statement and the exhibits
thereto not misleading.
4.9 ABSENCE OF CERTAIN CHANGES. Except as set forth in Schedule 4.9
or otherwise provided herein, the Company has not since December 31, 1997:
4.9.1 Suffered any material change adversely affecting
its assets, liabilities, financial condition or business;
4.9.2 Made a material change in the compensation
payable or to become payable to any of its employees or agents, or in any bonus
payments or arrangements made to or with any of its employees or agents;
4.9.3 Paid or declared any dividends or distributed any
of its assets of any kind whatsoever to any of its shareholders;
4.9.4 Issued any stock, or granted any stock options or
warrants to purchase stock;
4.9.5 Sold or transferred any of its assets or canceled
any indebtedness or claims owing to it except in the ordinary course of
business, consistent with its past practices;
4.9.6 Sold, assigned or transferred any formulas,
inventions, patents, patent applications, trademarks, trade names, copyrights,
licenses, computer programs or software, know-how or other intangible assets;
4.9.7 Amended or terminated any contract, agreement or
license to which it is a party otherwise than in the ordinary course of business
or as may be necessary or appropriate for the consummation of the transactions
described in this Agreement;
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4.9.8 Borrowed any money or incurred, directly or
indirectly (as a guarantor or otherwise), any indebtedness except in the
ordinary course of business, consistent with its past practices;
4.9.9 Discharged or satisfied any lien or encumbrance
or paid any obligation or liability (absolute or contingent), other than current
liabilities shown on the Company Financial Statements or current liabilities
incurred since such date in the ordinary course of business, consistent with its
past practices;
4.9.10 Mortgaged, pledged or subjected to lien, charge
or other encumbrance any of its assets; or
4.9.11 Entered into or committed to any transaction
other than transactions in the ordinary course of business, consistent with past
practices.
4.10 CONTRACTS AND OTHER DOCUMENTS. Attached hereto as Schedule
4.10 is a complete schedule listing of all documents to which the Company is a
party or under which it has any liability. All such contracts, documents and
agreements listed on Schedule 4.10 are valid and enforceable and accurate and
complete copies of such contracts, documents and agreements (or, with the
consent of the Purchaser, forms thereof) as have been requested by the Purchaser
have been provided to the Purchaser. Except as disclosed on Schedule 4.10
hereof, the Company is not or will not be, merely with the passage of time, in
default under any such contract, including those listed on Schedule 4.10. Except
as specified on Schedule 4.10, there is no requirement for any contract or
agreement to which the Company is a party to be novated or to have the consent
of the other contracting party in order for the contract or agreement to be
valid, effective and enforceable by the Company after the Closing as it was
immediately prior thereto.
4.11 TITLE TO PROPERTIES AND ASSETS. Except as set forth in
Schedule 4.11, the Company does not presently own or lease any real property.
The Company has good title to all tangible personal property reflected on its
books and records as owned by it, free and clear of all liens and encumbrances,
except (i) liens for current taxes, and (ii) other liens or encumbrances that do
not materially impair the use of the property subject thereto. Such tangible
personal property is in satisfactory condition and suitable for the purpose for
which it is being used, subject in each case to
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consumption in the ordinary course, ordinary wear and tear and ordinary repair,
maintenance and periodic replacement.
4.12 ABSENCE OF UNDISCLOSED LIABILITIES. The Company is not subject
to any liabilities, including contingent liabilities, liabilities for
unperformed obligations, and liabilities for unasserted claims, other than
liabilities and obligations incurred in the ordinary course of business, none of
which is materially adverse.
4.13 ABSENCE OF PENSION LIABILITY.
4.13.1 The Company has no liability of any nature to
any person or entity for pension or retirement obligations, vested or unvested,
to or for the benefit of any of its existing or former employees.
4.13.2 The consummation of the transactions
contemplated by this Agreement will not entitle any employee of the Company to
severance pay, unemployment compensation or any other payment, except as
expressly provided in this Agreement, including the Schedules, or accelerate the
time of payment or increase the amount of compensation due to any such employee.
4.13.3 Except as set forth on Schedule 4.13, the
Company presently has no employee benefit plans and has no announced plan or
legally binding commitment to create any employee benefit plans.
4.14 ABSENCE OF LIENS. Except as set forth in Schedule 4.14, there
are no outstanding mechanics', materialmens', laborers' or other liens or
encumbrances filed or enforceable against any property owned by or in the
possession of the Company, or, to the best knowledge of the Selling
Shareholders, threatened to be filed against any property owned by the Company
or in its possession, which properly may be filed against such property or which
are the subject of any lawsuit against the Company.
4.15 TAX RETURNS. The Company (and any predecessor corporation or
partnership as to which either of them is the transferee or successor) has
timely filed, or has timely secured an
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extension and will (within the permitted extension) file, all tax returns,
including federal, state, local and foreign tax returns, tax reports and forms,
as to which the due date for filing is prior to the Closing Date; has reported
all reportable income on such returns; has adopted and followed in the
preparation of such returns methods of accounting accepted by law, and has not
changed any methods of accounting without compliance with procedures required by
law; has not deducted any expenses or charges or claimed any credits which are
not allowable; and has paid, or accrued and reserved for, all taxes, penalties
and interest shown to be due or required to be paid pursuant to the returns as
filed, or as adjusted pursuant to amendment or correction. The Selling
Shareholders have no knowledge of any claim for taxes, penalties or interest
thereon in addition to those for which such taxes, penalties or interest have
been paid or accrued.
4.16 LITIGATION. Except as set forth on Schedule 4.16, there are no
lawsuits, arbitration actions or other proceedings (equitable, legal,
administrative or otherwise) pending or (to the best of the Selling
Shareholders' knowledge) threatened, or any customer complaints which have not
been resolved or settled, and there are no investigations pending or threatened,
against the Selling Shareholders or the Company (or involving the industry in
which they are members) which relate to and could have a material adverse effect
on the properties, businesses or assets of the Company or which could adversely
affect the validity or enforceability of this Agreement or the obligation or
ability of the Selling Shareholders or the Company to perform their respective
obligations under this Agreement or to carry out the transactions contemplated
by this Agreement.
4.17 COMPLIANCE WITH LAWS. The Company has conducted, and is
continuing to conduct, its business in material compliance with, and is in
material compliance with, all applicable statutes, orders, rules and regulations
promulgated by governmental authorities relating in any material respect to its
operations, conduct of business or use of properties, including, without
limitation, any applicable statute, order, rule or regulation relating to (i)
wages, hours, hiring, nondiscrimination, retirement, benefits, pensions, working
conditions, and worker safety and health; (ii) air, water, toxic substances,
noise, or solid, gaseous or liquid waste generation, handling, storage, disposal
or transportation; (iii) zoning and building codes; (iv) the production,
storage, processing, advertising, sale, distribution, transportation, disposal,
use and warranty of products; or (v) trade and antitrust regulations. The
execution, delivery and performance of this Agreement by the Selling
Shareholders and the Company and the consummation by the Selling Shareholders
and the Company of the transactions contemplated by this Agreement will not,
separately or jointly, violate, contravene or constitute a default
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under any applicable statutes, orders, rules and regulations promulgated by
governmental authorities or cause a lien on any property used, owned or leased
by the Company to be created thereunder. There are no proposed changes in any
applicable statutes, orders, rules and regulations promulgated by governmental
authorities that would cause any representation or warranty contained in this
Section to be untrue.
4.18 CERTAIN ACTIVITIES. The Company has not, directly or
indirectly, engaged in or been a party to any of the following activities:
4.18.1 Bribes, kickbacks or gratuities to any person or
entity, including domestic or foreign government officials or any other payments
to any such persons or entity, whether legal or not legal, to obtain or retain
business or to receive favorable treatment of any nature with regard to business
(excluding commissions or gratuities paid or given in full compliance with
applicable law and constituting ordinary and necessary expenses incurred in
carrying on its business in the ordinary course).
4.18.2 Contributions (including gifts), whether legal
or not legal, made to any domestic or foreign political party, political
candidate or holder of political office;
4.18.3 Holding of or participation in bank accounts,
funds or pools of funds created or maintained in the U.S. or any foreign
country, without being reflected on the corporate books of account, or as to
which receipts or disbursements therefrom have not been reflected on such books,
the purpose of which is to obtain or retain business or to receive favorable
treatment with regard to business;
4.18.4 Receiving or disbursing monies, the actual
nature of which has been improperly disguised or intentionally misrecorded on or
improperly omitted from the corporate books of account;
4.18.5 Paying fees to domestic or foreign consultants
or commercial agents which exceed the reasonable value of the ordinary and
customary consulting and agency services purported to have been rendered;
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4.18.6 Paying or reimbursing (including gifts)
personnel of the Company for the purpose of enabling them to expend time or to
make contributions or payments of the kind or for the purposes referred to in
Paragraphs 4.18.1 through 4.18.5 above;
4.18.7 Participating in any manner in any activity
which is illegal under the international boycott provisions of the Export
Administration Act, as amended, or the international boycott provisions of the
Internal Revenue Code, or guidelines or regulations thereunder; and
4.18.8 Making or permitting unlawful charges,
mischarges or defective or fraudulent pricing under any contract or subcontract
under a contract with any department, agency or subdivision thereof, of the
United States government, state or municipal government or foreign government.
4.19 INSURANCE COVERAGE. All policies of fire, liability or other
forms of insurance which the Company has obtained are set forth on Schedule
4.19. All of the insurance represented by such policies is in full force and
effect.
4.20 ARTICLES OF INCORPORATION AND BY-LAWS. The Company has
delivered to the Purchaser true, accurate and complete copies of the Articles of
Incorporation and By-Laws of the Company, together with all amendments to each
of the same as of the date of this Agreement.
4.21 CORPORATE MINUTES. The minute books of the Company delivered
to the Purchaser at the Closing are the correct and only such minute books and
do and will contain complete and accurate records of any and all proceedings and
actions at all meetings (including written consents executed in lieu of
meetings) of its shareholder and Board of Directors and committees thereof,
through the Closing Date. The stock records of the Company delivered to the
Purchaser at the Closing are the correct and only such stock records and each
accurately reflect all issues and transfers of record of the capital stock of
the Company.
4.22 DEFAULT ON INDEBTEDNESS. The Company is not in default in any
respect under any evidence of indebtedness for borrowed money.
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4.23 CONSENTS. The Company does not require any authorizations,
consents, approvals and waivers or other actions in order to make any license,
lease, contract or agreement listed under Schedule 4.23 valid and fully
enforceable by the Selling Shareholders and the Company and effective after the
issuance of the Company Shares to the Purchaser as such license, lease, contract
or agreement was immediately prior thereto.
4.24 SATISFACTION OF INDEBTEDNESS. Schedule 4.24 sets forth the
indebtedness of the Selling Shareholders, any employee of the Selling
Shareholders, any employee of the Company, or any other party, to the Company.
4.25 COMPLETENESS OF REPRESENTATIONS AND SCHEDULES. The Schedules
hereto, where applicable to the Selling Shareholders and the Company, completely
and correctly present in all material respects the information required by this
Agreement. This Agreement, the certificates to be delivered by the Selling
Shareholders at the Closing, the Schedules and the provisions of this Article 4,
and the documents and written information pertaining to the Company furnished to
the Purchaser or its agents by or on behalf of the Selling Shareholders or the
Company, do not contain any untrue statement of a material fact or omit to state
a material fact necessary in order to make this Agreement, or such certificates,
schedules, documents or written information not misleading.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
5.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Independent of
the representations and warranties of the Selling Shareholders in Article 4,
"Representations and Warranties of Selling Shareholders," the Company represents
and warrants to the Purchaser all of the matters regarding the Company set forth
in Sections 4.1, 4.2 and 4.4 through 4.25, and matters regarding the Company
specifically represented and warranted in those Sections to the knowledge of the
Selling Shareholders are represented and warranted in this Section to the
knowledge of the Company.
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ARTICLE 6
PRE-CLOSING COVENANTS OF THE SELLING SHAREHOLDERS AND THE COMPANY
The Selling Shareholders and the Company independently covenant and
agree, pending the Closing of the transactions contemplated by this Agreement,
to comply with and perform, and hereby independently represent and warrant that
as of the Closing they will have complied with and performed, the following
covenants and undertakings.
6.1 NO DISTRIBUTIONS TO SELLING SHAREHOLDERS. The Company will not
pay or declare any dividend on, or make any other distribution of, any of its
assets of any kind whatsoever to the Selling Shareholders, or redeem, purchase
or otherwise acquire any of its capital stock.
6.2 ISSUANCE OF CAPITAL STOCK. The Company will not issue any
stock, or grant any stock options or warrants to purchase stock, or issue any
securities convertible into its capital stock, for consideration or otherwise,
except as provided for in this Agreement.
6.3 ARTICLES OF INCORPORATION AND BY-LAWS. The Company will not
amend or alter in any way its Articles of Incorporation or By-Laws, except to
change the name of the Company, without the prior written consent of the
Purchaser.
6.4 OPERATIONS OF THE COMPANY. Except as contemplated by this
Agreement, the Company will conduct its business and operations only in the
ordinary course. Without limiting the generality of the foregoing, and except as
contemplated by this Agreement, prior to the Closing Date, without the prior
written consent of the Purchaser, the Company will not take any action which
would result in a breach of any representation or warranty contained in Article
4, "Representations and Warranties of Selling Shareholders," and Article 5,
"Representations and Warranties of the Company," as if such representations and
warranties were by their terms applicable to such period.
6.5 TERMINATION OF INTEREST IN THE COMPANY SHARES. The Selling
Shareholders shall take such actions as are necessary to ensure that as of the
Closing Date they have full right and title to, and rights to convey, all the
issued and outstanding shares of the capital stock of the Company and there
shall be no outstanding options on, rights to or claims regarding the capital
stock of the Company.
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ARTICLE 7
POST-CLOSING COVENANTS BY THE SELLING SHAREHOLDERS
7.1 RESALE OF PURCHASER SHARES. The Selling Shareholders hereby
agree that for a period of one (1) year after the receipt of the Purchaser
Shares, the Selling Shareholders will not offer or sell any of Purchaser Shares,
except with the prior written consent of the Purchaser, pursuant to an available
exemption under the Securities Act or to a registration statement. If the
Purchaser has registered the sale of the Purchaser Shares held by the Selling
Shareholders with the SEC. In the case of such registration, the Purchaser's
consent for any such offer and sale shall not be unreasonably withheld, even if
such sale is made before the first anniversary of the issuance of the Purchase
Shares. After expiration of said one-year period, any sale of the Purchaser
Shares must be pursuant to an available exemption from the Securities Act and
shall also be subject to the Purchaser's consent, which consent shall not be
unreasonably withheld. The Selling Shareholders agree to retain a copy of any
letter referenced above for a reasonable period and to furnish a copy thereof to
the Purchaser within ten (10) days after completion of any sale. As used herein,
"U.S.A." and "U.S. Person" shall have the same meanings as in the certificate
legend set forth in Section 8.1.
ARTICLE 8
SECURITIES LAWS
8.1 CERTIFICATES EVIDENCING PURCHASER SHARES. The Purchaser Shares
delivered to the Selling Shareholders pursuant to Section 2.1, "Purchase and
Sale," shall be in registered form and bear the following legend:
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933 AND, EXCEPT PURSUANT TO AN
EXEMPTION THEREFROM OR REGISTRATION OF THE SHARES UNDER SUCH ACT,
MAY NOT BE OFFERED OR SOLD, DIRECTLY OR INDIRECTLY, IN THE UNITED
STATES OF AMERICA, INCLUDING THE STATES AND POSSESSIONS AND OTHER
AREAS SUBJECT TO ITS JURISDICTION (THE "U.S.A."), OR TO CITIZENS OR
RESIDENTS OF THE U.S.A., CORPORATIONS, PARTNERSHIPS OR OTHER
ENTITIES CREATED OR ORGANIZED IN OR UNDER THE LAWS OF THE U.S.A. OR
ESTATES OR TRUSTS THE INCOME OF WHICH IS SUBJECT TO UNITED STATES
FEDERAL INCOME TAXATION REGARD LESS OF ITS SOURCE ("U.S. PERSONS").
SPECIFIC RESTRICTIONS ON REOFFERS AND RESALES OF THE SHARES ARE SET
FORTH IN
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SECTION 7.1 OF THE STOCK PURCHASE AGREEMENT UNDER WHICH THESE
SHARES WERE ISSUED, TO WHICH THE OWNER OF SUCH SHARES, BY
ACCEPTANCE HEREOF, ASSENTS. COPIES OF THE FORM OF SECTION 7.1 OF
SUCH STOCK PURCHASE AGREEMENT CAN BE OBTAINED FROM THE SECRETARY OF
THE CORPORATION UPON REQUEST."
8.2 REPRESENTATION AND WARRANTY BY THE SELLING SHAREHOLDERS. The
Selling Shareholders, represent and warrant to the Purchaser that:
8.2.1 The Selling Shareholders have been furnished
information concerning the Purchaser in the Disclosure Statement, including the
Purchaser's Financial Statements, have had an opportunity to discuss the
Purchaser's business and affairs with its executives in order to secure such
further information about the Purchaser as the Selling Shareholders have desired
to receive and have not looked to the Purchaser, or any agents or employees of
the Purchaser, to provide them with any information except for such documents as
have been specifically requested and delivered prior to the date of this
Agreement;
8.2.2 The Selling Shareholders have knowledge and
experience in financial and business matters such that they are capable of
evaluating the merits and risks of the prospective investment in the Purchaser
Shares to be received hereunder;
8.2.3 The Selling Shareholders are and will be
accepting the Purchaser Shares for their respective own accounts for investment
and not with a view to, or for sale in connection with, any distribution of the
Purchaser Shares; and
8.2.4 The Selling Shareholders acknowledge that they
are aware that the Purchaser Shares have not been registered under the
Securities Act, that the Purchaser Shares may not be offered or sold within the
U.S.A. or to U.S. Persons (as defined in the legend contained in Section 8.1)
unless an exemption from such registration is available or that the Purchaser
has registered the Purchaser Shares under the Securities Act, and that,
accordingly, it must bear the economic risk of the investment in the Purchaser
Shares for an indefinite period of time.
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ARTICLE 9
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PURCHASER
The obligations of the Purchaser under this Agreement shall be
subject to the satisfaction, on or prior to the Closing Date, of all of the
following conditions, any one or more of which may be waived by the Purchaser:
9.1 REPRESENTATIONS AND WARRANTIES ACCURATE. All representations
and warranties of the Selling Shareholders and the Company contained in this
Agreement shall have been true in all material respects when made, and also at
and as of the Closing Date as if such representations and warranties were made
at and as of the Closing Date. The Selling Shareholders shall furnish the
Purchaser with a certificate, dated the Closing Date and signed on behalf of the
Company by a duly authorized officer thereof, and by the Selling Shareholders,
stating the above in such form as the Purchaser may reasonably request.
Acceptance of the Purchaser Shares by the Selling Shareholders shall constitute
an affirmation by the Selling Shareholders of the truth, as of the Closing Date,
of the representations and warranties made by them in this Agreement. Any
Supplemental Disclosure Schedules prepared by the Selling Shareholders and
delivered to the Purchaser after June 25, 1998 shall be subject to review and
acceptance by the Purchaser as of the Closing Date, in its sole discretion.
9.2 PERFORMANCE BY THE SELLING SHAREHOLDERS AND THE COMPANY.
9.2.1 The Selling Shareholders and the Company shall
have performed and complied in all material respects with all agreements,
covenants and conditions required by this Agreement to be performed and complied
with by them, and the Selling Shareholders shall deliver a certificate to that
effect, dated the Closing Date and signed in the manner set forth in Section
9.1, "Representations and Warranties Accurate."
9.2.2 The Selling Shareholders shall deliver to the
Purchaser evidence that they have full right and title to, and rights to convey,
the Company Shares and that there are no outstanding options on, rights to or
claims regarding the capital stock of the Company.
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9.3 LEGAL PROHIBITION. On the Closing Date, there shall exist no
injunction or final judgment, law or regulation prohibiting the consummation of
the transactions contemplated by this Agreement.
9.4 TENDER OF ALL OUTSTANDING THE COMPANY SHARES. The Selling
Shareholders shall, pursuant to this Agreement, tender the Company Shares to the
Purchaser at the Closing in transferrable form acceptable to the Purchaser in
accordance with Article 2, "Purchase and Sale."
9.5 FINANCIAL CONDITIONS. The review of the Company Financial
Statements shall not have revealed any matter which, in the reasonable business
judgment of the Purchaser, makes the transactions contemplated by this Agreement
on the terms herein set forth inadvisable for the Purchaser.
ARTICLE 10
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLING SHAREHOLDERS AND THE COMPANY
The obligations of the Selling Shareholders and the Company under
this Agreement shall be subject to the satisfaction, on or prior to the Closing
Date, of all of the following conditions, any one or more of which may be waived
by the Selling Shareholders and the Company:
10.1 REPRESENTATIONS AND WARRANTIES ACCURATE. All representations
and warranties of the Purchaser contained in this Agreement shall have been true
in all material respects when made, and also at and as of the Closing Date as if
such representations and warranties were made at and as of the Closing Date. The
Purchaser shall deliver to the Selling Shareholders a certificate, dated as of
the Closing Date and signed by an officer of the Purchaser, stating the above in
such form as the Selling Shareholders may reasonably request. Acceptance of the
Company Shares by the Purchaser shall constitute an affirmation by the Purchaser
of the truth, as of the Closing Date, of the representations and warranties made
by the Purchaser in this Agreement. Any Supplemental Disclosure Schedules
prepared by the Purchaser and delivered to the Selling Shareholders after June
26, 1998 shall be subject to review and acceptance by the Selling Shareholders
as of the Closing Date, in their sole discretion.
10.2 REVERSE STOCK SPLIT AND POST-CLOSING CAPITALIZATION. The
Purchaser shall effect a reverse split of its shares of Common Stock outstanding
immediately prior to the Closing on a three for two basis so that for every
three shares a shareholder owns prior to the split, the shareholder
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will receive two shares. Accordingly, immediately prior to the Closing the
Purchaser will have 1,000,000 of Common Stock issued and outstanding and will
issue 9,000,000 shares of its Common Stock to the Selling Shareholders at the
Closing. Therefore, the ownership of the Purchaser's issued and outstanding
Common Stock immediately after the Closing will be as set forth in Schedule 10.2
10.3 PERFORMANCE BY THE PURCHASER. The Purchaser shall have
performed and complied in all material respects with all agreements, covenants
and conditions required by this Agreement to be performed and complied with by
it prior to or on the Closing Date, and there shall be delivered to the Selling
Shareholders a certificate to that effect, dated the Closing Date and signed in
the manner set forth in Section 10.1, "Representations and Warranties Accurate."
10.4 LEGAL PROHIBITION. On the Closing Date, there shall exist no
injunction or final judgment, law or regulation prohibiting the consummation of
the transactions contemplated by this Agreement.
10.5 LEGAL OPINION. On the Closing Date, the Purchaser shall
deliver an opinion to the Selling Shareholders from its legal counsel in form
attached as Exhibit 10.4 hereto.
10.6 ISSUANCE OF THE PURCHASER SHARES. The Purchaser shall,
pursuant to this Agreement, issue the Purchaser Shares to the Selling
Shareholders at the Closing in accordance with Article 2, "Purchase and Sale."
10.7 APPROVAL OF SHAREHOLDERS. The shareholders of the Purchaser
shall have approved the transactions contemplated in this Agreement in
accordance with Nevada law.
10.8 FINANCIAL CONDITIONS. The review of the Purchaser Financial
Statements shall not have revealed any matter which, in the reasonable business
judgment of the Selling Shareholders, makes the transactions contemplated by
this Agreement on the terms herein set forth inadvisable for the Selling
Shareholders.
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ARTICLE 11
CLOSING
11.1 CLOSING DATE. The Closing Date shall be July 10, 1998, or such
later date as the Purchaser and Selling Shareholders may mutually select, but in
no event later than July 30, 1998. No extension of the Closing Date beyond July
30, 1998 shall be made unless mutually agreed between the parties to this
Agreement. Such agreement to extend the Closing Date shall be deemed sufficient
if executed by the Purchaser, the Selling Shareholders and the Company.
11.2 DELIVERIES BY THE PURCHASER ON THE CLOSING DATE. The Purchaser
shall deliver to the Selling Shareholders at Closing:
11.2.1 The certificates contemplated by Sections 10.1,
"Representations and Warranties Accurate," and 10.2, "Performance by the
Purchaser";
11.2.2 The share certificates representing the
Purchaser Shares; and
11.2.3 The resignations of the directors and officers
of the Purchaser effective immediately upon the Closing and appointment of the
new directors as specified in Article 14, "Post-Closing Covenants by the
Purchaser."
11.3 DELIVERIES BY THE SELLING SHAREHOLDERS ON THE CLOSING DATE.
The Selling Shareholders shall deliver to the Purchaser at Closing:
11.3.1 The certificates contemplated by Sections 9.1,
"Representations and Warranties Accurate," and 9.2, "Performance by the Selling
Shareholders and the Company";
11.3.2 The original minute book, stock record book,
seal of the Company and all books and records of the Company; and
11.3.3 The share certificates representing all of the
Company Shares held by the Selling Shareholders, with attached stock powers duly
executed by the Selling Shareholders.
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ARTICLE 12
TERMINATION
12.1 TERMINATION EVENTS. This Agreement may be terminated and
abandoned, by notice given by the Purchaser, or by the Selling Shareholders and
the Company, as the case may be, in the manner hereinafter provided:
12.1.1 By the Purchaser, if without fault of the
Purchaser all of the conditions set forth in Article 9, "Conditions Precedent to
Obligations of the Purchaser," shall not have been satisfied (or are incapable
of being satisfied) on or before the Closing Date and have not been waived by
the Purchaser on or before such date;
12.1.2 By the Selling Shareholders and the Company, if
without their fault all of the conditions set forth in Article 10, "Conditions
Precedent to Obligations of the Selling Shareholders and the Company,"shall not
have been satisfied (or are incapable of being satisfied) on or before the
Closing Date and have not been waived by the Selling Shareholders and the
Company on or before such Date;
12.1.3 By the mutual consent and agreement of the
Purchaser, the Selling Shareholders and the Company; and
12.1.4 By either the Purchaser or by the Selling
Shareholders and the Company if after completion of their respective due
diligence of each other either the Purchaser or the Selling Shareholders and the
Company for any reason are not satisfied with the results of their respective
due diligence investigations of the other party and give notice to the other
party to such effect. The parties shall complete their respective due diligence
investigations on or before the Closing Date and if the Selling Shareholders and
the Company or the Purchaser fail to give such notice on or before the foregoing
date, they shall be deemed to be satisfied with their respective due diligence
examinations for purposes of this Paragraph 12.1.4.
12.2 RELATIONSHIPS WITH THIRD PARTIES. In consideration of the
undertaking by the parties of the substantial legal, accounting and other
expenses incident to their entering into this Agreement and proceeding toward
the Closing, the parties agree that until the Closing Date or upon
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earlier termination of this Agreement, they will not enter into or pursue any
arrangements or negotiations with any other party relative to the sale or merger
of the Company into any other party or any sale of assets for control relative
to any extraordinary transaction involving the Company without the consent of
the Purchaser.
12.3 EFFECT OF TERMINATION. If this Agreement is terminated
pursuant to Section 12.1, "Termination Events," this Agreement shall forthwith
become void, and there shall be no liability or continuing obligations on the
part of the parties hereunder.
ARTICLE 13
INDEMNIFICATION
13.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND CERTAIN COVENANTS.
The representations and warranties made by the parties in this Agreement and in
the certificates delivered at the Closing, and all of the covenants of the
parties in this Agreement, shall survive the execution and delivery of this
Agreement and the Closing Date and (except for those contained in Sections 3.6,
4.3, 4.5, 4.15 and 7.1 and any substantially identical representations,
warranties and covenants effectively made in Article 5 or in any certificate
delivered at the Closing) shall expire on the last day of the thirtieth full
calendar month following the Closing Date. Any claim for indemnification (other
than a claim based upon Sections 3.6, 4.3 or 4.5, which can be asserted at any
time, or based upon Section 4.15, which can be asserted within the limit
provided therein, or based on Section 7.1, which can be asserted prior to the
last day of the thirtieth full calendar month following the Closing Date) shall
be effective only if notice of such claim is given by the party claiming
indemnification or other relief to the party against whom such indemnification
or other relief is claimed before said expiration date.
13.2 INDEMNIFICATION BY THE PURCHASER AND HOFER.
13.2.1 The Purchaser and Hofer agree to indemnify and
hold the Selling Shareholders harmless, from and after the Closing Date, against
and in respect of all matters in connection with any losses, liabilities or
damages (including reasonable attorneys' fees) incurred by the Selling
Shareholders that result from any misrepresentation or breach of the warranties
by the Purchaser in Article 3, "Representations and Warranties of the
Purchaser,"or any breach or nonfulfillment of any agreement or covenant on the
part of the Purchaser contained in this Agreement, and all suits, actions,
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proceedings, demands, judgments, costs and expenses incident to the foregoing
matters, including reasonable attorneys' fees.
13.2.2 In no event shall liability of the Purchaser or
Hofer under Section 13.2.1 above to the Selling Shareholders (other than for
costs and reasonable attorneys' fees incurred by such Selling Shareholders to
which they may be entitled pursuant to Section 13.5, "Arbitration," or Section
15.2.3)(i) exceed the total value of the Company Shares which have been (and
will, pursuant to the formula of Article 2 hereof, be required to be) delivered
to the Purchaser, which value shall be deemed to be $7,000,000 for purposes of
this Paragraph 13.2.2. or (ii) exceed, in the case of Hofer, $750,000 if the
loss, liability or damage arises from a matter addressed in the legal opinion
attached as Exhibit 10.4 hereto. Further, Hofer shall have no liability under
Paragraph 13.2.1 above to the Selling Shareholders for the failure of the
Purchaser to satisfy any post-closing covenant.
13.2.3 Notwithstanding the provisions of Paragraph
13.2.1 above, the Selling Shareholders shall be entitled to seek indemnification
from the Purchaser pursuant to Paragraph 13.2.1 of this Section 13.2 only to the
extent that the aggregate of the losses, liabilities, costs and damages
(including reasonable attorneys' fees) incurred by the Selling Shareholders
which they would be entitled to claim under such Paragraph 13.2.1 exceeds
$25,000.
13.3 INDEMNIFICATION BY THE SELLING SHAREHOLDERS.
13.3.1 The Selling Shareholders, on a joint and not a
several basis, agree to indemnify and hold the Purchaser harmless, from and
after the Closing Date, against and in respect of all matters in connection with
any losses, liabilities, costs or damages (including reasonable attorneys' fees)
incurred by the Purchaser resulting from (i) any breach of its representations
and warranties in Section 4.3, "Title,"or (ii) any breach or nonfulfillment of
their covenants in Article 7, "Post-Closing Covenants By the Selling
Shareholders."
13.3.2 The Selling Shareholders, on a joint and not a
several basis, agree to indemnify and hold the Purchaser harmless, from and
after the Closing Date, against and in respect of all matters in connection with
any losses, liabilities or damages (including reasonable attorneys' fees)
incurred by the Purchaser resulting from any misrepresentation or breach of its
warranties in Article 4, "Representations and Warranties of Selling
Shareholders," Article 5, "Representations and Warranties
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of the Company," or Article 8, "Securities Laws," (other than Section 4.3), or
any breach or nonful fillment of any agreement or covenant on the part of the
Selling Shareholders contained in this Agreement (other than those in Article 7,
"Post-Closing Covenants By the Selling Shareholders") and all suits, actions,
proceedings, demands, judgments, costs and expenses incident to the foregoing
matters, including reasonable attorneys' fees. In addition, in the event that
any matter covered by indemnification is clearly also covered by insurance held
by the Company, the Purchaser shall cause the Company to make reasonable efforts
to recover on such insurance in mitigation of its indemnification claim.
13.3.3 Notwithstanding the provisions of Paragraph
13.3.2 above, the Purchaser shall be entitled to seek indemnification from the
Selling Shareholders pursuant to Para graph 13.3.2 of this Section 13.3 only to
the extent that the aggregate of the losses, liabilities, costs and damages
(including reasonable attorneys' fees) incurred by the Purchaser which it would
be entitled to claim under such Paragraph 13.3.2 exceeds $25,000. In no event
shall the liability of the Selling Shareholders under Paragraph 13.3.1 and
13.3.2 above to the Purchaser (other than for costs and reasonable attorneys'
fees incurred by the Purchaser to which the Purchaser may be entitled pursuant
to Section 13.5, "Arbitration"or Section 15.2.3) exceed $750,000 in aggregate to
the Selling Shareholders.
13.4 INDEMNIFICATION BY THE COMPANY. The Company agrees to
indemnify and hold the Purchaser harmless, from and after the Closing Date,
against and in respect of all matters in connection with any losses, liabilities
or damages (including reasonable attorneys' fees) incurred by the Purchaser
resulting from any misrepresentation or breach of its warranties in Article 5,
and all suits, actions, proceedings, demands, judgments, costs and expenses
incident to the foregoing matters, including reasonable attorneys' fees;
provided, however, that the Purchaser shall not be entitled to make a claim
against the Company (i) to the extent that such claim could not be asserted
against the Selling Shareholders because excluded from indemnification under the
provisions in Paragraph 13.3.2 or (ii) if resolved against the Purchaser
pursuant to the procedures provided in Section 13.5, "Arbitration." Subject to
the foregoing, the liability of the Company hereunder is separate and
independent of any liability of the Selling Shareholders. Nothing herein shall
require the Purchaser to assert its indemnification rights against the Company
prior to asserting its indemnification rights against the Selling Shareholders,
and either or both rights may be pursued by the Purchaser independently, in such
priority as the Purchaser may in its discretion decide, or jointly. No agreement
between the Purchaser
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and the Company shall be binding upon or have any evidentiary value in any
dispute between the Purchaser and the Selling Shareholders.
13.5 ARBITRATION. If the Purchaser believes that a matter has
occurred that entitles it to indemnification under Section 13.3,
"Indemnification by the Selling Shareholders," or Section 13.4, "Indemnification
by the Company,"or the Selling Shareholders believe that a matter has occurred
that entitles them to indemnification under Section 13.2, "Indemnification by
the Purchaser," it (the "Indemnified Party") shall give notice to the party or
parties against whom indemnification is sought (each, an "Indemnifying Party")
describing such matter in reasonable detail. The Indemnifying Party shall be
entitled to give such notice prior to the establishment of the amount of its
losses, liabilities, costs or damages, and to supplement its claim from time to
time thereafter by further notices as they are established. The Indemnifying
Party shall respond to such claim for indemnification within thirty (30) days
after receipt of the claim stating its acceptance or objection to the
indemnification claim, and explaining its position in respect thereto in
reasonable detail. If such Indemnifying Party does not timely so respond, it
will be deemed to have accepted the Indemnified Party's indemnification claim as
specified in the notice given by the Indemnified Party. If the Indemnifying
Party gives a timely objection notice, then the parties will negotiate in good
faith to attempt to resolve the dispute, and upon the expiration of an
additional thirty (30) day period from the objection notice or such longer
period as to which the Indemnified and Indemnifying Parties may agree, any such
dispute may be submitted to arbitration in Santa Clara County, California to a
member of the American Arbitration Association mutually appointed by the
Indemnified and Indemnifying Parties (or, in the event the Indemnified and
Indemnifying Parties cannot agree on a single such member, to a panel of three
(3) members of such Association selected in accordance with the rules of such
Association), who may promptly arbitrate such dispute in accordance with the
rules of such Association and report to the parties upon such disputed items,
and such report shall be final, binding and conclusive on the parties. Judgment
upon .the award by the arbitrator(s) may be entered in any court having
jurisdiction. The prevailing party in any such arbitration shall be entitled to
recover from, and have paid by, the other party hereto all fees and
disbursements of such arbitrator or arbitrators. For this purpose, a party shall
be deemed to be the prevailing party only if such party would be deemed to be a
prevailing party under Section 15.2.3.
13.6 NO FINDERS. Except as set forth in Schedule 13.6, the
Purchaser represents and warrants to the Selling Shareholders, and the Selling
Shareholders represent and warrant to the Purchaser, respectively, that they
have not become obligated to pay any fee or commission to any
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broker, finder or intermediary for or on account of the transactions
contemplated by this Agreement. The Purchaser agrees to indemnify and hold the
Selling Shareholders harmless from any breach of the Purchaser's representation
in the previous sentence, and the Selling Shareholders agree to indemnify and
hold the Purchaser harmless from any breach of their representation in the
previous sentence.
13.7 THIRD PERSON CLAIM PROCEDURES. If a third person asserts a
claim against a party to this Agreement, and it is intended to seek
indemnification against another party or parties (the "Indemnifying Party")
under the provisions of this Article 13 in connection with the matter involved
in such claim, the party intending to seek such indemnification (the
"Indemnified Party") shall promptly, but in no event later than ten (10) days
prior to the time at which an answer or other responsive pleading or notice with
respect to the claim is required, notify the Indemnifying Party of such claim.
The Indemnifying Party shall have the right at its election to take over the
defense or settlement of such claim by giving prompt notice to the Indemnified
Party that it will do so, such election to be made and notice given in any event
at least 24 hours prior to the time at which an answer or other responsive
pleading or notice with respect thereto is required. If the Indemnifying Party
makes such election, it may conduct the defense of such claim through counsel of
its choosing (subject to the Indemnified Party's approval, not to be
unreasonably withheld), will be responsible for the expenses of such defense,
and shall be bound by the results of its defense or settlement of the claim to
the extent it produces damage or loss to the Indemnified Party. The Indemnifying
Party shall not settle such claims without prior notice to and consultation with
the Indemnified Party, and no such settlement involving any injunction or
material and adverse effect on the Indemnified Party may be agreed to without
its consent. So long as the Indemnifying Party is diligently contesting any such
claim in good faith, the Indemnified Party shall not pay or settle any such
claim. If the Indemnifying Party does not make such election, or having made
such election does not proceed diligently to defend such claim prior to the time
at which an answer or other responsive pleading or notice with respect thereto
is required, or does not continue diligently to contest such claim, then the
Indemnified Party may take over defense and proceed to handle such claim in its
exclusive discretion, and the Indemnifying Party shall be bound by any defense
or settlement that the Indemnified Party may make in good faith with respect to
such claim. The parties agree to cooperate in defending such third party claims,
and the defending party shall have access to records, information and personnel
in control of the other part which are pertinent to the defense thereof. The
Purchaser, the Company, the Selling Shareholders and Hofer do not know of any
such third party or any pending or threatened third party claim.
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13.8 LIMITATION OF REMEDIES.
13.8.1 Except as provided in Paragraph 13.8.2 of this
Section 13.8, if the parties choose to arbitrate, the parties understand that
this requires that all disputed claims will be submitted to arbitration in
accordance with Section 13.5, "Arbitration." In such case, no party to this
Agreement shall be liable to any other party or parties or have any remedies
against any other party or parties under this Agreement other than through
arbitration as provided in this Article 13. If the parties choose not to
arbitrate under Section 13.5, "Arbitration," except as provided in Paragraph
13.8.2 of this Section 13.8, they may pursue any remedy at law or equity.
13.8.2 Notwithstanding the provisions of Paragraph
13.8.1 of this Section 13.8, the Purchaser shall, in addition to rights to
indemnification provided in this Article 13, be entitled to such equitable
remedies for any breach of Article 7 of this Agreement as are available under
applicable law. Such remedies shall not be subject to arbitration, except that
if the Purchaser elects to submit any dispute over a claim for equitable relief
to arbitration in accordance with California law, such dispute will be submitted
for and decided by arbitration. In such event, arbitrators shall be chosen in
the manner set forth in Section 13.5, "Arbitration."
ARTICLE 14
POST-CLOSING COVENANTS BY THE PURCHASER
With respect to its post-Closing operation of the Company, the
Purchaser covenants to and agrees with the Selling Shareholders as follows:
14.1 ELECTION OF DIRECTORS OF THE PURCHASER. The Purchaser and its
directors shall nominate and vote for the election Theodore S. Li, Betty Li, Hui
Lee and Jey Hsin Yao as directors of the Purchaser and shall not vote for the
removal of, and vote for the reappointment through the 1999 Fiscal Year of, such
individuals as directors. Accordingly, after the Closing the directors of the
Purchaser will be Theodore S. Li, Betty Li, Hui Lee and Jey Hsin Yao.
14.2 ELECTION OF DIRECTORS OF THE COMPANY. The Purchaser and its
directors shall nominate and vote for the election of Theodore S. Li, Betty Li,
Hui Lee and Jey Hsin Yao as directors of the Company and shall not vote for the
removal of, and vote for the reappointment through the 1999
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Fiscal Year, of such individuals as directors. Accordingly, after the Closing
the directors of the Company will be Theodore S. Li, Betty Li, Hui Lee and Jey
Hsin Yao.
14.3 LISTING IN STANDARD & POOR'S CORPORATE REPORTS. The Purchaser
shall use its best efforts in listing the Purchaser in Standard & Poor's
Corporate Reports "(Standard & Poor") and qualify its Common Stock for trading
in the states listed in Schedule 14.3 through the listing of the Company through
Standard & Poor's.
14.4 CONSULTING SERVICES. Hofer will use his best efforts to
introduce the Purchaser to an investment banking relationship and advise and
assist the Company in connection with a secondary public offering of its equity
securities.
ARTICLE 15
MISCELLANEOUS
15.1 ACCESS AND INFORMATION.
15.1.1 The Company and the Purchaser shall provide to
each other and their respective counsel, accountants and other representatives
reasonable access upon reasonable notice during normal business hours during the
period between the date hereof and the Closing Date, to all of the properties,
books, records, contracts and commitments of each other, and shall furnish, or,
authorize their respective counsel and accountants to furnish, to the Purchaser
or the Company, as the case may be, and their respective representatives all
such information as the parties may reasonably request of each other. The
Purchaser hereby has the permission of the Company to contact and carry on
discussions with the customers, prospective customers, suppliers, employees and
all persons and entities under contract with the Company upon reasonable notice.
Both the Purchaser and the Company and Selling Shareholders will cooperate with
all reasonable requests by the other party for information and shall use their
best efforts to secure the cooperation of third parties who may be reasonably
requested to furnish such information to each other.
15.1.2 The Purchaser and the Company and the Selling
Shareholders shall keep all Confidential Information derived from the other
party relating to their respective businesses confidential pending the Closing
of the transaction contemplated by this Agreement. The Purchaser and
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Selling Shareholders shall, and the Purchaser and Selling Shareholders shall
cause their respective officers, directors, agents and representatives to, keep
all Confidential Information derived from the other party relating to the
business of the Purchaser and the Company confidential until the Confidential
Information is made public by the party owning or controlling the Confidential
Information or the Confidential Information otherwise becomes publicly known.
15.1.3 If this Agreement should be terminated pursuant
to Article 12, the Purchaser and the Selling Shareholders shall return all such
Confidential Information which they have received from the other party and shall
not disclose or use such information in any manner, except to the extent
required to so disclose the same by law and except for information already
publicly available.
15.2 EXPENSES.
15.2.1 The Purchaser shall be solely responsible for
paying its own expenses and costs incident to the preparation of this Agreement
and to the consummation of the transactions contemplated by this Agreement, and
shall have no obligation for paying such expenses or costs of the other parties.
15.2.2 The Company shall be solely responsible for
paying its own expenses and costs, and those of the Selling Shareholders,
incident to the preparation of this Agreement and to the consummation of the
transactions contemplated by this Agreement. The Selling Shareholders shall have
no obligation to reimburse the expenses or costs of the Purchaser.
15.2.3 Notwithstanding any of the other provisions
hereof, in the event of arbitration and/or litigation with respect to the
interpretation or enforcement of this Agreement or any provisions hereof, the
prevailing party in any such matter shall be entitled to recover from the other
party his or its reasonable costs and expense, including reasonable attorneys'
fees, incurred in such arbitration and/or litigation. For purposes of this
Paragraph 15.2.3, a party shall be deemed to be the prevailing party only if
such party (A)(i) receives an award or judgment in such arbitration or (ii) is
ordered to pay the other party or (B)(i) succeeds in having imposed a material
equitable remedy on the other party (such as an injunction or order compelling
specific performance), or (ii) succeeds in defeating the other party's request
for such an equitable remedy.
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15.3 ASSIGNMENT. The rights and obligations of any party under this
Agreement may not be assigned or transferred without the prior written consent
of the Purchaser or the Selling Shareholders, as the case may be. Any assignment
in violation of this paragraph shall be void.
15.4 CHOICE OF LAWS. This Agreement shall be governed, construed
and enforced in accordance with the laws of the State of California.
15.5 JURISDICTION; AGENTS FOR SERVICE OF PROCESS. Any judicial
proceeding brought against any of the parties to this Agreement on any dispute
arising out of this Agreement or any matter related hereto brought in the courts
of the State of California, Santa Clara County, or in the appropriate United
States District Court for such County and, by execution and delivery of the
Agreement, each of the parties to this Agreement accepts for himself or itself
the exclusive jurisdiction of the aforesaid courts, and irrevocably agrees to be
bound by any judgment rendered thereby in connection with this Agreement.
15.6 CAPTIONS. Captions and headings used herein are for
convenience only and shall not be used in construing or interpreting this
Agreement.
15.7 GENDER AND NUMBER. Whenever the context of this Agreement so
requires, the masculine gender includes the feminine or neuter, the neuter
includes the masculine or feminine, and the singular number includes the plural.
15.8 SEVERABILITY. Each provision hereof is severable from this
Agreement, and if one or more provisions hereof are declared invalid, the
remaining provisions shall nevertheless remain in full force and effect. If
Section 7.1, "Resale of Purchaser Shares," is declared excessively broad, as to
time, area or otherwise, it shall be construed as limited to the broadest time,
area or other scope permitted by applicable law.
15.9 NO THIRD-PARTY BENEFICIARIES. Each of the provisions of this
Agreement is for the sole and exclusive benefit of the parties thereto,
respectively, as their interests appear, and shall not be deemed for the benefit
of any other person.
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15.10 AMENDMENT. This Agreement may be amended only by the mutual
written agreement of the Purchaser, the Selling Shareholders and the Company.
Any such written amendment executed as set forth in the preceding sentence shall
be binding upon all parties hereto. The failure of any party to enforce at any
time any of the provisions of this Agreement shall in no way be deemed a waiver
of any such provision, nor in any way affect the validity of this Agreement or
any part thereof.
15.11 SUCCESSORS AND ASSIGNS. Subject to Section 15.3,
"Assignment," this Agreement shall be binding upon and inure to the benefit of
the successors and assigns and heirs of the parties hereto.
15.12 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, and by the different parties hereto on separate counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
15.13 ENTIRE AGREEMENT. This Agreement and its Schedules constitute
the entire contract among the parties hereto with respect to the subject matter
thereof, superseding all prior communications and discussions, and no party
hereto shall be bound by any communication on the subject matter hereof unless
such is in writing signed by any necessary party thereto and bears a date
subsequent to the date hereof. The exhibits and schedules shall be construed
with and deemed as an integral part of this Agreement to the same extent as if
the same had been set forth verbatim herein. Information set forth in any
exhibit, schedule or provision of this Agreement shall be deemed to be set forth
in every other exhibit, schedule or provision of this Agreement and therefore
shall be deemed to be disclosed for all purposes of this Agreement.
15.14 PUBLIC ANNOUNCEMENTS. Through the Closing Date no party shall
issue any press release or public announcement in connection with this Agreement
or the transactions contemplated hereby without prior notice to and written
consent of the other party.
15.15 FURTHER ASSURANCES. Each of the parties hereto shall use
commercially practicable efforts to fulfill all of the conditions set forth in
this Agreement over which it has control or influence (including obtaining any
consents necessary for the performance of such party'S obligations hereunder)
and to consummate the transactions contemplated hereby, and shall execute and
deliver such further instruments and provide such documents as are necessary to
effect this Agreement.
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15.16 NOTICES. All notices or other communications required or
permitted hereunder shall be in writing and shall be validly given if delivered
personally, or if delivered by courier, or if delivered by telex or telecopier
with receipt confirmed, or if sent by certified or registered air mail return
receipt requested, addressed, if to the Purchaser to:
Wildfire Capital Corporation
Gainey Ranch Corporate Center
8800 North Gainey Center Drive
Suite 256
Scottsdale, Arizona 85258
with a copy to: Gary R. Henrie, Esq.
Lehman, Jensen & Donahue, L.C.
620 Judge Building
8 East Broadway
Salt Lake City, Utah 84111-2204
or to such other person or at such other place as the Purchaser shall furnish to
the Selling Shareholders in writing; if to the Selling Shareholders or the
Company to them at:
Pacific Magtron, Inc.
Attn: Theodore S. Li
1600 California Circle
Milpitas, California 94035
with a copy to: Christian J. Hoffmann, III, Esq.
Streich Lang, P.A.
Renaissance One
Two North Central Avenue
Phoenix, Arizona 85004
or to such other person or at such other place as the Selling Shareholders shall
furnish the Purchaser in writing. Notice given by telex shall be deemed
delivered when received as evidenced by their answer back. Notice given by
telecopier shall be deemed delivered when receipt thereof is confirmed by
subsequent telephone call. Notice given by certified or registered air mail as
set out above shall be deemed delivered at the earlier of (i) actual receipt as
evidenced by the return receipts, or (ii) five (5) business days after the date
the same is postmarked (if postmarked in the United States and addressed to a
recipient in the United States) or seven (7) business days after the date the
same is postmarked (if postmarked outside the United States or addressed to a
recipient outside the United States).
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IN WITNESS WHEREOF, the parties have duly executed this Agreement
as of the day and year first above written.
SELLING SHAREHOLDERS:
/s/ Theodore S. Li
------------------------------------
THEODORE S. LI
/s/ Hui Lee
------------------------------------
HUI LEE
COMPANY:
PACIFIC MAGTRON, INC.,
a California corporation
By /s/ Theodore S. Li
----------------------------------
Theodore S. Li
Its President
PURCHASER:
WILDFIRE CAPITAL CORPORATION,
a Nevada corporation
By /s/ Tom Hofer
----------------------------------
Tom Hofer
Its President
AS TO SECTIONS 3.17.2.3 AND 13.2 AND
ARTICLE 14 ABOVE:
/s/ Thomas Hofer
------------------------------------
Thomas Hofer
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AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
PACIFIC MAGTRON INTERNATIONAL CORP.
Pursuant to the provisions of Section 78.403 of the Nevada Revised
Statutes, the undersigned corporation adopts the following Amended and Restated
Articles of Incorporation as of this date:
FIRST: The name of the corporation is Pacific Magtron International
Corp.
SECOND: The corporation was originally incorporated under the name of
Wildfire Capital Corporation and the original Articles of Incorporation of the
corporation were filed by the Secretary of State on January 8, 1996.
We the undersigned Theodore S. Li and Hui Lee of Pacific Magtron
International Corp. do hereby certify that the Board of Directors of said
corporation at a meeting duly convened, held on the 16th day of July, 1998,
adopted a resolution to amend and restate the original articles in their
entirety as follows:
1. NAME. The name of the Corporation is:
PACIFIC MAGTRON INTERNATIONAL CORP.
2. STATUTORY PLACE OF BUSINESS. The statutory place of business of the
Corporation in the State of Nevada is located at 7604 Delaware Bay Drive, Las
Vegas, Nevada 89128.
3. STATUTORY AGENT. The name and address of its resident agent is the
Corporation Trust Company of Nevada, One East First Street, Reno, Nevada 89501.
4. PURPOSE. The purpose for which the Corporation is organized is the
transaction of any and all lawful activities for which corporations may be
incorporated under the laws of the State of Nevada, as the same may be amended
from time to time.
5. CAPITAL STOCK. The aggregate number of shares of capital stock that
the Corporation shall be authorized to issue is Thirty Million (30,000,000)
shares which shall consist of the following:
(a) COMMON STOCK. The authorized common stock of the
Corporation shall be Twenty-Five Million (25,000,000) shares of Common Stock
with a par value of $.001 per share. The holders of the Common Stock shall be
entitled to one vote for each share held by them of record on the books of the
Corporation. Such shares of Common Stock may be issued by the corporation from
time to time for such consideration greater than or equal to par value as may be
fixed from time to time by the Board of Directors. The designations and
preferences of the Common Stock are as follows:
(1) Dividends; Distributions. Each share of Common
Stock shall be entitled to receive dividends and other distribution paid in
cash, securities, property or otherwise, when and if declared by the board of
the Corporation.
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(2) Liquidation. In the event of any liquidation,
dissolution, or winding up of the affairs of the Corporation, voluntarily or
involuntarily, the holders of shares of Common Stock shall be entitled to
receive out of any remaining assets of the corporation legally available for
distribution which shall be distributed pro rata among the holders of Common
Stock in proportion to the number of shares of Common Stock held by such
holders.
(b) SERIAL PREFERRED STOCK. The authorized preferred stock of
the Corporation shall be Five Million (5,000,000) shares of serial preferred
stock with a par value of $.001 per share. Subject to the terms and provisions
of this Article 5, the Board of Directors of the Corporation is authorized to
provide, from time to time, for the issuance of shares of serial preferred stock
in series and to fix from time to time before issuance the designation,
preferences, privileges and voting powers of the shares of each series of serial
preferred stock and the restrictions or qualifications thereof, including,
without limiting the generality of the foregoing, the following:
(1) The serial designation and authorized number of
shares;
(2) The dividend rate, the date or dates on which
such dividends will be payable and the extent to which such dividends may be
cumulative;
(3) The amount or amounts to be received by the
holders in the event of voluntary or involuntary dissolution or liquidation of
the Corporation;
(4) The voting rights, if any, of the holders; (5)
The price or prices at which shares may be redeemed and any terms, conditions
and limitations upon such redemption;
(6) Any sinking fund provisions for redemption or
purchase of shares of such series; and
(7) The terms and conditions, if any, on which shares
may be converted at the election of holders thereof into shares or other capital
stock, or of other series of serial preferred stock of the Corporation.
Each series of serial preferred stock, in preference to the Common
Stock, will be entitled to dividends from funds or other assets legally
available therefor, at such rates, payable at such times and cumulative to the
extent as may be fixed by the Board of Directors of the Corporation pursuant to
the authority herein conferred upon it. In the event of dissolution or
liquidation of the Corporation, voluntary or involuntary, the holders of serial
preferred stock, in preference to the Common Stock, will be entitled to receive
such amount or amounts as may be fixed by the Board of Directors of the
Corporation pursuant to the authority herein conferred upon it. Preference stock
of any series redeemed, converted, exchanged, purchased or otherwise acquired by
the Corporation shall be canceled by the Corporation and returned to the status
of authorized but unissued preference stock. All shares of any series of serial
preferred stock, as between
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themselves, shall rank equally and be identical; and all series of serial
preferred stock, as between themselves, shall rank equally and be identical
except as set forth in resolutions of the Board of Directors authorizing the
issuance of the series.
6. GOVERNING BOARD. The governing board of the Corporation shall be
known as directors, and the number of directors may from time to time be
increased or decreased in such manner as shall be provided by the Bylaws of this
corporation, providing that the number of directors shall not be reduced to
fewer than one (1). The names and addresses of the first Board of Directors are
as follows:
NAME POST OFFICE ADDRESS
---- -------------------
Stanley K. Stilwell 7604 Delaware Bay Drive
Las Vegas, Nevada 89128
7. PAYMENT FOR STOCK. The capital stock, after the amount of the
subscription price or par value has been paid in, shall not be subject to
assessment to pay the debts of the corporation.
8. INCORPORATOR. The name and post office address of the incorporator
signing the Articles of Incorporation is as follows:
NAME POST OFFICE ADDRESS
---- -------------------
Stanley K. Stilwell 7604 Delaware Bay Drive
Las Vegas, Nevada 89128
9. PERPETUAL EXISTENCE. The Corporation is to have perpetual existence.
10. AMENDMENT, ALTERATION OR CHANGE OF THESE ARTICLES OF INCORPORATION.
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in the Articles of Incorporation, in the manner now or
hereafter prescribed by statute, or by Articles of Incorporation, and all rights
conferred upon stockholders herein are granted subject to this reservation.
11. MEETINGS OF STOCKHOLDERS. Meetings of stockholders may be held
within or without the State of Nevada, as the Bylaws may provide. The books of
the corporation may be kept (subject to any provision contained in the statutes)
outside the State of Nevada at such place or places as may be designated from
time to time by the Board of Directors or in the Bylaws of the corporation.
12. ELIMINATION OF DIRECTOR LIABILITY. No director or officer of the
corporation shall be personally liable to the corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director or officer;
provided, however, that nothing contained herein shall eliminate or limit the
liability of a director or officer of the corporation to the fullest extent
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<PAGE>
provided by applicable laws (i) for acts or omissions which involve intentional
misconduct, fraud or knowing violation of law or (ii) for authorizing the
payment of dividends in violation of NRS 78.300, as amended, or any successor to
such section. The limitation of liability provided herein shall continue after a
director or officer has ceased to occupy such position as to acts or omissions
occurring during such director's or officer's term or terms of office.
13. INDEMNIFICATION. To the fullest extent permitted by Nevada law, the
Corporation shall indemnify and pay the expenses of any person who is or was
made, or threatened to be made, a party to an action or proceeding (whether
civil, criminal, administrative or investigative) by reason of the fact that
such person is or was a director, officer, employee, trustee or agent of or for
the Corporation or is or was serving at the request or with the prior approval
of the Corporation as a director, officer, employee, trustee or agent of another
corporation, trust or enterprise, against any liability asserted against such
person and incurred by such person in any capacity arising out of that persons
status as such, whether or not the Corporation would have the power to indemnify
that person against such liability under the provisions of the Bylaws of the
Corporation. Further, the Corporation will pay the expenses of such persons as
they are incurred in advance of the final disposition of the action or
proceeding, upon the receipt of an undertaking by or on behalf of such person to
repay the amount if it is ultimately determined by a court of competent
jurisdiction that such person is not entitled to be indemnified by the
Corporation.
14. ACQUISITION OF CONTROLLING INTEREST. The Corporation elects not to
be governed by NRS 78.378, ET SEQ. - Acquisition of Controlling Interest, as
amended, and NRS 78.411 to 78.444, inclusive, dealing with business
combinations, as amended, and any successors to any of such sections.
The number of shares of the corporation outstanding and entitled to
vote on an amendment to the Articles of Incorporation is 1,500,000; that the
said change(s) and amendment have been consented to and approved by a majority
vote of the stockholders holding at least a majority of each class of stock
outstanding and entitled to vote thereon.
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<PAGE>
THEODORE S. LI is the President of PACIFIC MAGTRON INTERNATIONAL CORP.
and that HUI LEE is the Secretary of the corporation; that they have been
authorized to execute the foregoing certificate by resolution of the Board of
Directors, adopted at a meeting of the Directors duly called and that such
meeting was held on the 16th day of July, 1998 and that the foregoing
certificate sets forth the text of the Articles of Incorporation as amended and
restated to the date of the certificate.
Dated: October 15, 1998.
PACIFIC MAGTRON INTERNATIONAL CORP.,
a Nevada corporation
/s/ Theodore S. Li
------------------------------------
Theodore S. Li, President
/s/ Hui Lee
------------------------------------
Hui Lee, Secretary
-5-
AMENDED AND RESTATED BYLAWS
OF
PACIFIC MAGTRON INTERNATIONAL CORP.
ARTICLE I
OFFICES
SECTION 1. PRINCIPAL OFFICE. The principal office of the Corporation
shall be located in the City of Reno, Washoe County, State of Nevada.
SECTION 2. OTHER OFFICES. In addition to the principal office, other
offices may also be maintained at such other place or places, either within or
without the State of Nevada, as may be designated from time to time by the Board
of Directors, where any and all business of the Corporation may be transacted,
and where meetings of the stockholders and of the Directors may be held with the
same effect as though done or held at said principal office.
ARTICLE II
MEETING OF THE STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS. The annual meeting of the shareholders,
commencing with the year 1996, shall be held at the registered office of the
corporation, or at such other place as may be specified or fixed in the notice
of said meetings in the month of or the month preceding the due date of the
annual list of the officers and directors of the corporation at such time as the
shareholders shall decide, for the election of directors and for the transaction
of such other business as may properly come before said meeting.
SECTION 2. NOTICE OF ANNUAL MEETING. The Secretary shall mail, in the
manner provided in Section 5 of Article 11 of these Bylaws, or deliver a written
or printed notice of each annual meeting to each stockholder of record, entitled
to vote thereat, or may notify by telegram, at least ten (10) and not more than
sixty (60) days before the date of such meeting.
SECTION 3. PLACE OF MEETINGS. The Board of Directors may designate any
place either within or without the State of Nevada as the place of meeting for
annual meeting or for any special meeting called by the Board of Directors. A
waiver of notice signed by all stockholders may designate any place either
within or without the State of Nevada, as the place for holding of such meeting.
If no designation is made, or if a special meeting is otherwise called, the
place of
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<PAGE>
meeting shall be the principal office of Corporation in the State of Nevada,
except as otherwise provided in Section 6, Article II of these Bylaws, entitled
"Meeting of All Stockholders".
SECTION 4. SPECIAL MEETINGS. Special meetings of the stockholders shall
be held at the principal office of the Corporation or at such other place as
shall be specified or fixed in a notice hereof. Such meetings of the
stockholders may be called at any time by the President or Secretary, or by a
majority of the Board of Directors then in office, and shall be called by the
President with or without Board approval on the written request of the holders
of record of at least fifty percent (50%) of the number of shares of the
Corporation then outstanding and entitled to vote, which written request shall
state the object of such meeting.
SECTION 5. NOTICE OF MEETING. Written or printed notice stating the
place, day and hour of the meeting and, in case of special meeting, the purpose
for which the meeting is called, shall be delivered not less than ten (10) nor
more than sixty (60) days before the date of the meeting, either personally or
by mail, by or at the direction of the President or the Secretary to each
stockholder of record entitled to vote at such meeting. If mailed, such notice
shall be deemed to be delivered when deposited in the United States mail,
addressed to the stockholder at his/her address as it appears on the records of
the Corporation, with postage prepaid.
Any stockholder may at any time, by duly signed statement in writing to
that effect, waive any statutory or other notice of any meeting, whether such
statement be signed before or after such meeting.
SECTION 6. MEETING OF ALL STOCKHOLDERS. If all the stockholders shall
meet at any time and place, either within or without the State of Nevada, and
consent to the holding of the meeting at such time and place, such meeting shall
be valid without call or notice and at such meeting any corporate action may be
taken.
SECTION 7. QUORUM. At all stockholders' meetings, the presence in
person or by proxy of the holders of a majority of the outstanding stock
entitled to vote shall be necessary to constitute a quorum for the transaction
of business, but a lesser number may adjourn to some future time not less than
seven (7) nor more than twenty-one (21) days later, and the Secretary shall
thereupon give at least three (3) days' notice by mail to each stockholders
entitled to vote who is absent from such meeting.
SECTION 8. MODE OF VOTING. At all meetings of the stockholders the
voting may be a voice vote, but any qualified voter may demand a stock vote
whereupon such stock vote shall be taken by ballot, each of which shall state
the name of the stockholder voting and the number of shares voted by him/her
and, if such ballot be cast by proxy, it shall also state the name of such
proxy; provided, however, that the mode of voting prescribed by statute for any
particular case shall be in such case followed.
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<PAGE>
SECTION 9. PROXIES. At any meeting of the stockholders, any stockholder
may be represented and vote by a proxy or proxies appointed by an instrument in
writing. In the event any such instrument in writing shall designate two or more
persons to act as proxies, a majority of such persons present at the meeting, or
if only one shall be present, then that one shall have and may exercise all of
the powers conferred by such written instrument upon all of the persons so
designated unless the instrument shall otherwise provide. No such proxy shall be
valid after the expiration of six (6) months from the date of its execution,
unless coupled with an interest, or unless the person executing it specified
therein the length of time for which it is to continue in force, which in no
case shall exceed seven (7) years from the date of its execution. Subject to the
above, any proxy duly executed is not revoked and continues in full force and
effect until any instrument revoking it or duly executed proxy bearing a later
date is filed with the Secretary of the Corporation. At no time shall any proxy
be valid which shall be filed less than ten (10) hours before the commencement
of the meeting.
SECTION 10. VOTING LISTS. The officer or agent in charge of the
transfer books for shares of the corporation shall make, at least three (3) days
before each meeting of stockholders, a complete list of the stockholders
entitled to vote at such meeting, arranged in alphabetical order with the number
of shares held by each, which list for a period of two (2) days prior to such
meeting shall be kept on file at the registered office of the corporation and
shall be subject to inspection by any stockholder at any time during the whole
time of the meeting. The original share ledger or transfer book, or duplicate
thereof, kept in this state, shall be PRIMA FACIE evidence as to who are the
stockholders entitled to examine such list or share ledger or transfer book or
to vote at any meeting of stockholders.
SECTION 11. CLOSING TRANSFER BOOKS OR FIXING OR RECORD DATE. For the
purpose of determining stockholders entitled to notice or to vote for any
meeting of stockholders, the Board of Directors of the Corporation may provide
that the stock transfer books be closed for a stated period but not to exceed in
any case sixty (60) days before such determination. If the stock transfer books
are closed for the purpose of determining stockholders entitled to notice of a
meeting of stockholders, such books shall be closed for at least fifteen (15)
days immediately preceding such meeting. In lieu of closing the stock transfer
books, the Board of Directors may fix in advance a date in any case to be not
more than sixty (60) days, not less than ten (10) days prior to the date on
which the particular action, requiring such determination of stockholders, is to
be taken. If the stock transfer books are not closed and no record date is fixed
for determination of stockholders entitled to notice of meeting of stockholders,
or stockholders entitled to receive payment of a dividend, the date on which
notice of the meeting is mailed or the date on which the resolution of the Board
of Directors declaring such dividend is adopted, as the case may be, shall be
the record of date for such determinations of shareholders.
SECTION 12. VOTING OF SHARES BY CERTAIN HOLDERS. Shares standing in the
name of another corporation, domestic or foreign, may be voted by such officer,
agent or proxy as the Bylaws of such corporation by prescribe, or, in the
absence of such provisions, the Board of Directors of such corporation may
determine.
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Shares standing in the name of a deceased person may be voted by
his/her administrator or executor, either in person or by proxy. Shares standing
in the name of the guardian, conservator or trustee may be voted by such
fiduciary either in person or by proxy, but no guardian, conservator, or trustee
shall be entitled, as such fiduciary, to vote shares held by him without a
transfer of such shares into his/her name.
Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted by
such receiver without the transfer thereof into his name if authority so to do
be contained in an appropriate order of the court at which such receiver was
appointed.
A stockholder whose shares are pledged shall be entitled to vote such
shares until shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Shares of its own stock belonging to this corporation shall not vote,
directly or indirectly, at any meeting and shall not be counted in determining
the total number of outstanding shares at any time, but shares of its own stock
held by it in a fiduciary capacity may be voted and shall be counted in
determining the total number of outstanding shares at any given time.
SECTION 13. INFORMAL ACTION BY STOCKHOLDERS. Any action is required to
be taken at a meeting of the stockholders or any other action which may be taken
at a meeting of the stockholders except the election of directors may be taken
without a meeting if a consent in writing setting forth the action so taken
shall be signed by all of the stockholders entitled to vote with respect to the
subject matter thereof.
SECTION 14. VOTING OF SHARES. Each outstanding share entitled to vote
shall be entitled to one (1) vote upon each matter submitted to vote at a
meeting of stockholders.
ARTICLE III
DIRECTORS
SECTION 1. GENERAL POWERS. The Board of Directors shall have the
control and general management of the affairs and business of the Corporation.
Such directors shall in all cases act as Board, regularly convened, by a
majority, and they may adopt such rules and regulations for the conduct of their
meetings and the management of the Corporation, as they may deem proper, not
inconsistent with these Bylaws, Articles of Incorporation and the laws of the
State of Nevada. The Board of Directors shall further have the right to delegate
certain other powers to the Executive Committee as provided in these Bylaws.
SECTION 2. NUMBER OF DIRECTORS. The affairs and business of this
Corporation shall be managed by a Board of Directors consisting of not less than
one (1) or more than seven (7), until changed by amendment to these Bylaws
adopted by the shareholders amending this
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Section 2, Article III, and except as authorized by the Nevada Revised Statutes,
there shall in no event be less than one (1) Director.
SECTION 3. ELECTION. The Directors of the Corporation shall be elected
at the annual meeting of the stockholders except as hereinafter otherwise
provided for the filling of vacancies. Each Director shall hold office for a
term of one (1) year and until his successor shall have duly chosen and shall
have qualified, or until his death, or until he shall resign or shall have been
removed in the manner hereinafter provided.
SECTION 4. VACANCIES IN THE BOARD. Any vacancy in the Board of
Directors occurring during the year through death, resignation, removal or other
cause, including vacancies caused by an increase in the number of directors,
shall be filled for the unexpired portion they constitute a quorum, at any
special meeting of the Board called for that purpose, or at any regular meeting
thereof, provided, however, that in the event the remaining directors do not
represent a quorum of the number set forth in Section 2 hereof, a majority of
such remaining directors may elect directors to fill any vacancies.
SECTION 5. DIRECTORS MEETINGS. Annual meeting of the Board of Directors
shall be held each year immediately following the annual meeting of the
stockholders. Other regular meetings of the Board of Directors shall from time
to time by resolution be prescribed. No further notice of such annual or regular
meeting of the Board of Directors need be given.
SECTION 6. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by or at the request of the President or any Director. The person
or persons authorized to call meetings of the Board of Directors may fix any
place, either within or without the State of Nevada, as the place for holding
any special meeting of the Board of Directors called by them.
SECTION 7. NOTICE. Notice of any special meeting shall be given at
least twenty-four (24) hours previous thereto by written notice if personally
delivered, or five (5) days previous thereto if mailed to each Director at his
business address, or by telegram. If mailed, such notice shall be deemed to have
been delivered when deposited in the United States mail so addressed with
postage thereon prepaid. If notice is given by telegram, such notice shall be
deemed to be delivered when the telegram is delivered to the telegraph company.
Any Director may waive notice of any meeting. The attendance of a Director at
any meeting shall constitute a waiver of notice of such meeting, except where a
Director attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened.
SECTION 8. CHAIRMAN. At all meetings of the Board of Directors, the
President shall serve as Chairman, or in the absence of the President, the
Directors present shall choose by majority vote a Director to preside as
Chairman.
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SECTION 9. QUORUM AND MANNER OF ACTING. A majority of Directors, whose
number is designated in Section 2 herein, shall constitute a quorum for the
transaction of business at any meeting and the act of a majority of the
Directors present at any meeting at which a quorum is present shall be the act
of the Board of Directors. In the absence of a quorum, the majority of the
Directors present may adjourn any meeting from time to time until a quorum is
had. Notice of any adjourned meeting need not be given. The Directors shall act
only as a Board and the individual Directors shall have no power as such.
SECTION 10. REMOVAL OF DIRECTORS. Any one or more of the Directors may
be removed either with or without cause at any time by the vote or written
consent of the stockholders representing not less than two-thirds (2/3) of the
issued and outstanding capital stock entitled to voting power.
SECTION 11. VOTING. At all meetings of the Board of Directors, each
Director is to have one (1) vote, irrespective of the number of shares of stock
that he may hold.
SECTION 12. COMPENSATION. By resolution of the Board of Directors, the
Directors may be paid their expenses, if any, of attendance of each meeting of
the Board, and may be paid a fixed sum for attendance at meetings or a stated
salary of Directors. No such payment shall preclude any Director from serving
the Corporation in any other capacity and receiving compensation therefor.
SECTION 13. PRESUMPTION OF ASSENT. A Director of the Corporation who is
present at a meeting of the Board of Directors at which action on any corporate
matter is taken, shall be conclusively presumed to have assented to the action
unless his/her dissent shall be entered in the minutes of the meeting or unless
he/she shall file his/her written dissent to such action with the person acting
as the Secretary of the meeting before the adjournment thereof or shall file
forward such dissent by certified or registered mail to the Secretary of the
Corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a Director who voted in favor of such action.
ARTICLE IV
EXECUTIVE COMMITTEE
SECTION 1. NUMBER AND ELECTION. The Board of Directors may, in its
discretion, appoint from its membership an Executive Committee of one (1) or
more Directors, each to serve at the pleasure of the Board of Directors.
SECTION 2. AUTHORITY. The Executive Committee is authorized to take any
action which the Board of Directors could take, except that the Executive
Committee shall not have the power to either issue or authorize the issuance of
shares of capital stock, to amend the Bylaws,
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or a resolution of the Board of Directors. Any authorized action taken by the
Executive Committee shall be as effective as if it had been taken by the full
Board of Directors.
SECTION 3. REGULAR MEETINGS. Regular meetings of the Executive
Committee may be held within or without the State of Nevada at such time and
place as the Executive Committee may provide from time to time.
SECTION 4. SPECIAL MEETINGS. Special meetings of the Executive
Committee may be called by or at the request of the President or any member of
the Executive Committee.
SECTION 5. NOTICE. Notice of any special meeting shall be given at
least one (1) day previous thereto by written notice, telephone, telegram or in
person. Neither the business to be transacted, nor the purpose of a regular or
special meeting of the Executive Committee need be specified in the notice of
waiver of notice of such meeting. A member may waive notice of any meeting of
the Executive Committee. The attendance of a member at any meeting shall
constitute a waiver of notice of such meeting, except where a member attends a
meeting for the express purpose of objecting to the transaction of any business
because the meeting is not lawfully called or convened.
SECTION 6. QUORUM. A majority of the members of the Executive Committee
shall constitute a quorum for the transaction of business at any meeting of the
Executive Committee; provided that if fewer than a majority of the members are
present at said meeting a majority of the members present may adjourn the
meeting from time to time without further notice.
SECTION 7. MANNER OF ACTING. The act of the majority of the members
present at a meeting at which a quorum is present shall be the act of the
Executive Committee, and said Committee shall keep regular minutes of its
proceedings which shall at all times be open for inspection by the Board of
Directors.
SECTION 8. PRESUMPTION OF ASSENT. A member of the Executive Committee
who is present at a meeting of the Executive Committee at which action on any
corporate matter is taken, shall be conclusively presumed to have assented to
the action taken unless his/her dissent shall be entered in the minutes of the
meeting or unless he/she shall file his written dissent to such action with the
person acting as Secretary of the meeting before the adjournment thereof, or
shall forward such dissent by certified or registered mail to the Secretary of
the Corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a member of the Executive Committee who voted in
favor of such action.
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ARTICLE V
OFFICERS
SECTION 1. NUMBER. The officers of the Corporation shall be a
President, Vice President, a Treasurer and a Secretary and such other or
subordinate officers as the Board of Directors may from time to time elect. One
(1) person may hold the office and perform the duties of one or more of said
officers. No officer need be a member of the Board of Directors.
SECTION 2. ELECTION, TERM OF OFFICE, QUALIFICATIONS. The officers of
the Corporation shall be chosen by the Board of Directors and they shall be
elected annually at the meeting of the Board of Directors held immediately after
each annual meeting of the stockholders except as hereinafter otherwise provided
for filling vacancies. Each officer shall hold his/her office until his/her
successor has been duly chosen and has qualified, or until his/her death, or
until he/she resigns or has been removed in the manner hereinafter provided.
SECTION 3. REMOVALS. Any officer or agent elected or appointed by the
Board of Directors may be removed by the Board of Directors at any time whenever
in its judgment the best interests of the Corporation would be served thereby,
and such removal shall be without prejudice to the contract rights, if any, or
the person so removed.
SECTION 4. VACANCIES. All vacancies in any office shall be filled by
the Board of Directors without undue delay, at any regular meeting, or at a
meeting specially called for that purpose.
SECTION 5. PRESIDENT. The President shall be the Chief Executive
Officer of the Corporation and shall have general supervision over the business
of the Corporation and over its several officers, subject, however, to the
control of the Board of Directors. He/she may sign, with the Treasurer or with
the Secretary or any other proper officer of the Corporation thereunto
authorized by the Board of Directors, certificates for shares of the capital
stock of the Corporation; may sign and execute in the name of the Corporation
deeds, mortgages, bonds, contracts or other instruments authorized by the Board
of Directors, except in cases where signing and execution thereof shall be
expressly delegated by the Board of Directors or by these Bylaws to some other
officer or agent of the Corporation; and in general shall perform all duties
incident to the duties of the President, and such other duties as from time to
time may be assigned to him/her by the Board of Directors.
SECTION 6. VICE PRESIDENT. The Vice President shall in the absence or
incapacity of the President, or as ordered by the Board of Directors, perform
the duties of the President, or such other duties or functions as may be given
to him by the Board of Directors from time to time.
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SECTION 7. TREASURER. The Treasurer shall have the care and custody of
all the funds and securities of the Corporation and deposit the same in the name
of the Corporation in such bank or trust company as the Board of Directors may
designate; he may sign or countersign all checks, drafts and orders for the
payment of money and may pay out and dispose of same under the direction of the
Board of Directors, and may sign or countersign all notes or other obligations
of indebtedness of the Corporation; he/she; may sign with the President or Vice
President, certificates for shares of stock of the Corporation; he/she shall at
all reasonable times exhibit the books and accounts to any director or
stockholder of the Corporation under application at the office of the Company
during business hours; and he/she shall, in general, perform all duties as from
time to time may be assigned to him/her by the President or by the Board of
Directors. The Board of Directors may at its discretion require that each
officer authorized to disburse the funds of the Corporation be bonded in such
amount as it may deem adequate.
SECTION 8. SECRETARY. The Secretary shall keep the minutes of the
meetings of the Board of Directors and also the minutes of the meetings of the
stockholders; he/she shall attend to the giving and serving of all notices of
the Corporation and shall affix the seal of Corporation to all certificates of
stock, when signed and countersigned by the duly authorized officers; he/she may
sign certificates for shares of stock of the Corporation; he/she may sign or
countersign all checks, drafts and orders for the payment of money; he/she shall
have charge of the certificate book and such other books and papers as the Board
may direct; he/she shall keep a stock book containing the names alphabetically
arranged, of all persons who are stockholders of the Corporation, showing their
places of residence, the number of shares held by them respectively, the time
when they respectively became the owners thereof, and the amount paid thereof;
and he/she shall in general, perform all duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him/her
by the President or by the Board of Directors.
SECTION 9. OTHER OFFICERS. The Board of Directors may authorize and
empower other persons or other officers appointed by it to perform the duties
and functions of the officers specifically designated above by special
resolution in each case.
SECTION 10. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. The
Assistant Treasurers shall respectively, as may be required by the Board of
Directors, give bonds for the faithful discharge of their duties in such sums
and with such sureties as the Board of Directors shall determine. The Assistant
Secretaries as thereunto authorized by the Board of Directors may sign with the
President or Vice President certificates for shares of the capital stock of the
Corporation, issued of which shall have been authorized by resolution of the
Board of Directors. The Assistant Treasurers and Assistant Secretaries shall, in
general, perform such duties as may be assigned to them by the Treasurer or the
Secretary respectively, or by the President or by the Board of Directors.
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ARTICLE VI
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Except as hereinafter stated otherwise, the Corporation shall indemnify
all of its officers and directors, past, present and future, against any and all
expenses incurred by them, and each of them including but not limited to legal
fees, judgments and penalties which may be incurred, rendered or levied in any
legal action brought against any or all of them for or on account of any act or
omission alleged to have been committed while acting within the scope of their
duties as officers or directors of this Corporation.
ARTICLE VII
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 1. CONTRACTS. The Board of Directors may authorize any officer
or officers, agent or agents to enter into any contract or execute and deliver
any instrument in the name of and on behalf of the Corporation, and such
authority may be general or confined to specific instances.
SECTION 2. LOANS. No loans shall be contracted on behalf of the
Corporation and no evidence of indebtedness shall be issued in its name unless
authorized by the Board of Directors or approved by loan committee appointed by
the Board of Directors and charged with the duty of supervising investments.
Such authority may be general or confined to specific instances.
SECTION 3. CHECKS, DRAFTS, ETC. A check, draft or other orders for
payment of money, notes or other evidences of indebtedness issued in the name of
the Corporation shall be signed by such officer or officers, agent or agents of
the Corporation and in such manner as shall from time to time be determined by
resolutions of the Board of Directors.
SECTION 4. DEPOSITS. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositories as the Board of Directors
may select.
ARTICLE VIII
CAPITAL STOCK
SECTION 1. CERTIFICATE FOR SHARES. Certificates for shares of stocks of
the Corporation shall be in such form as shall be approved by the incorporators
or by the Board of Directors. The certificates shall be numbered in the order of
their issue, shall be signed by the President or Vice President and by the
Secretary or the Treasurer, or by such other person or
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officer as may be designed by the Board of Directors; and the seal of the
Corporation shall be affixed thereto, which said signatures of the duly
designated officers and of the seal of the Corporation. Every certificate
authenticated by a facsimile of such signatures and seal must be countersigned
by a Transfer Agent to be appointed by the Board of Directors, before issuance.
SECTION 2. TRANSFER OF STOCK. Shares of the stock of the Corporation
may be transferred by the delivery of the certificate accompanied either by an
assignment in writing on the back of the certificate or by written power of
attorney to sell, assign, and transfer the same on the books of the Corporation,
signed by the person appearing by the certificate to the owner of the shares
represented thereby, together with all necessary federal and state transfer tax
stamps affixed and shall be transferable on the books of the Corporation upon
surrender thereof so signed or endorsed. The person registered on the books of
the Corporation as the owner of any shares of stock shall be entitled to all
rights of ownership with respect to such shares.
SECTION 3. REGULATIONS. The Board of Directors may make such rules and
regulations as it may deem expedient not inconsistent with the Bylaws or with
the Articles of Incorporation, concerning the issue, transfer and registration
of the certificates for shares of stock of the Corporation. The Board of
Directors may appoint a transfer agent or registrar of transfers, or both, and
it may require all certificates to bear the signature of either or both.
SECTION 4. LOST CERTIFICATES. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost or destroyed. When authorizing such issue of
a new certificate or certificates, the Board of Directors may, in its discretion
and as a condition precedent to the issue thereof, require the owner of such
lost or destroyed certificate or certificates, or his/her legal representative,
to advertise the same in such manner as it shall require and/or give the
Corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the Corporation with respect to the certificate alleged
to have been lost or destroyed.
ARTICLE IX
DIVIDENDS
SECTION 1. The Corporation shall be entitled to treat the holder of any
share or shares of stock as the holder in fact thereof and, accordingly, shall
not be bound to recognize any equitable or other claim to or interest in such
shares on the part of any other person, whether or not it shall have express or
other notice thereof, except as expressly provided by the laws of Nevada.
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SECTION 2. Dividends on the capital stock of the Corporation, subject
to the provisions of the Articles of Incorporation, if any, may be declared by
the Board of Directors at any regular or special meeting, pursuant to law.
SECTION 3. The Board of Directors may close the transfer books in its
discretion for a period not exceeding fifteen (15) days preceding the date fixed
for holding any meeting, annual or special of the stockholders, or the day
appointed for the payment of a dividend.
SECTION 4. Before payment of any dividend or making any distribution of
profits, there may be set aside out of funds of the Corporation available for
dividends, such sum or sums as the Directors may from time to time, in their
absolute discretion think proper as a reserve fund to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
Corporation, or for any such other purpose as the Directors shall think
conducive to the interest of the Corporation, and the Directors may modify or
abolish any such reserve in the manner in which it was created.
ARTICLE X
SEAL
The Board of Directors shall provide a Corporate Seal which shall be in
the form of a circle and shall bear the full name of the Corporation, the year
of its incorporation and the words "Corporate Seal, State of Nevada".
ARTICLE XI
FISCAL YEAR
The fiscal year of the Corporation shall end on the 31st day of
December of each year.
ARTICLE XII
WAIVER OF NOTICE
Whenever any notice whatever is required to be given under the
provisions of these Bylaws, or under the laws of the State of Nevada, or under
the provisions of the Articles of Incorporation, a waiver in writing signed by
the person or persons entitled to such notice, whether before or after the time
stated therein, shall be deemed equivalent to the giving of such notice.
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ARTICLE XIII
AMENDMENTS
These Bylaws may be altered, amended or repealed and new Bylaws may be
adopted at any regular or special meeting of the stockholders by a vote of the
stockholders owning a majority of the shares and entitled to vote at the
meeting. These Bylaws may also be altered, amended or repealed and new Bylaws
may be adopted at any regular or special meeting of the Board of Directors of
the Corporation (if notice of such alteration or repeal be contained in the
notice of such special meeting) by a majority vote of the Directors present at
the meeting at which a quorum is present, but any such amendment shall not be
inconsistent with or contrary to the provision of any amendment adopted by the
stockholders.
KNOW ALL MEN BY THESE PRESENTS that the undersigned, being the
Secretary of PACIFIC MAGTRON INTERNATIONAL CORP., a Nevada corporation hereby
acknowledges that the above and foregoing Bylaws were duly adopted as the Bylaws
of said Corporation on July 16, 1998.
IN WITNESS WHEREOF, I hereunto subscribe my name this 14th day of
January 1999.
/s/ Hui Lee
--------------------------------------
Hui Lee, Secretary
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PACIFIC MAGTRON INTERNATIONAL CORP.
1998 STOCK OPTION PLAN
The following definitions shall be applicable throughout the Plan:
(a) "BOARD" means the Board of Directors of the Company.
(b) "ARTICLES OF INCORPORATION" means the Company's Articles of
Incorporation, as amended or restated from time to time.
(c) "CODE" means the Internal Revenue Code of 1986, as amended from
time to time. Reference in the Plan to any Section of the Code shall be deemed
to include any amendments or successor provisions to such Section and any rules
or regulations under such Section.
(d) "COMMITTEE" means the committee appointed by the Board to
administer the Plan as referred to in Article V.
(e) "COMMISSION" means the Securities and Exchange Commission or any
successor agency.
(f) "COMPANY" means Pacific Magtron International Corp., a Nevada
corporation.
(g) "DATE OF GRANT" means the date on which the granting of an Option
is authorized by the Board or such later date as may be specified by the Board
in such authorization as referred to in Article V.
(h) "ELIGIBLE EMPLOYEE" means any person regularly employed by the
Company or a Subsidiary on a full-time salaried basis who satisfies all of the
requirements of Article IX.
(i) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended from time to time, and the rules and regulations promulgated thereunder.
(j) "FAIR MARKET VALUE" is defined in Article IV.
(k) "HOLDER" means an employee of the Company or a Subsidiary who has
been granted an Option.
(l) "INCENTIVE STOCK OPTION" means any Option intended to be and
designated as an "incentive stock option" within the meaning of ss.422 of the
Code.
(m) "NON-EMPLOYEE DIRECTOR" means a member of the Board who qualifies
as a "Non-Employee Director" as defined in Rule 16b-3, as promulgated by the
Commission under the Exchange Act or any successor definition adopted by the
Commission.
<PAGE>
(n) "NON-STATUTORY OPTION" means an Option which is not an Incentive
Stock Option.
(o) "NORMAL TERMINATION" means termination at retirement pursuant to
the Company or Subsidiary retirement plan then in effect.
(p) "OPTION" means an award granted under Article IX of the Plan and
includes both Non-Statutory Options and Incentive Stock Options.
(q) "PLAN" means this 1998 Stock Option Plan.
(r) "SECURITIES ACT" means the Securities Act of 1933, as amended from
time to time, and the rules and regulations promulgated thereunder.
(s) "SHARE" means a share of Stock.
(t) "STOCK" means common stock of the Company as described in the
Articles of Incorporation.
(u) "SUBSIDIARY" means "subsidiary corporation" as defined in ss.424(f)
of the Code.
(v) "TERMINATION" means separation from employment with the Company or
any of its Subsidiaries for any reason except due to death.
(w) "TREASURY" means the Department of the Treasury of the United
States of America.
ARTICLE I.
DESIGNATION AND PURPOSE OF THE PLAN
The Plan shall be known as the "1998 Stock Option Plan." The purpose of
the Plan is to provide additional incentives to Employees and Non-Employee
Directors of the Company to achieve financial results aimed at increasing
shareholder value and to attract and retain the best available personnel for
positions of responsibility within the Company through the grant of options to
purchase shares of the Company's Common Stock. The Plan was approved by the
Board, subject to the approval by the shareholders of the Company, on July 1,
1998. Subject to the determination of the Board or a Committee appointed by the
Board, Options granted under this Plan may be Incentive Stock Options or
Non-Statutory Options.
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ARTICLE II.
SHARES AVAILABLE FOR PURCHASE
A maximum of 1,000,000 authorized but unissued shares of the Company's
common stock may be issued upon the exercise of Options granted pursuant to the
Plan. Shares reserved for issuance shall be deemed to have been used in the
exercise of Options whether actually delivered or whether the Fair Market Value
equivalent of such Shares is paid in cash. If an Eligible Employee pays the
exercise price of any given Option by having Shares withheld which, upon
exercise, would have a Fair Market Value at the time the Option is exercised
equal to the Option price, then the withheld shares will not be deducted from
those shares reserved for issuance under the Plan. Also, if the Company, at any
time during the effective period of this plan, repurchases Shares on the open
market, then the Board may, but is not required to, add such Shares to the pool
of Shares reserved for issuance under this Plan. However, the number of Shares
authorized for issuance under the Plan may never exceed 1,000,000 at any given
time.
In the event that any Option granted under the Plan expires or
terminates for any reason whatsoever without having been exercised in full, the
Shares subject to, but not delivered under such Option shall become available
for other Options which may be granted under the Plan; or shall be available for
any other lawful corporate purpose.
ARTICLE III.
LIMIT ON VALUE OF OPTION SHARES
In the case of an Incentive Stock Option, the aggregate Fair Market
Value (determined as of the time such Option is granted) of the Shares with
respect to which the Incentive Stock Option is exercisable for the first time by
an individual during any calendar year (under all plans of the Company) shall
not exceed $100,000.
ARTICLE IV.
DETERMINATION OF FAIR MARKET VALUE
As used herein the term "Fair Market Value" shall mean, with respect to
the date a given Option is granted or exercised, the value determined by the
Board or any Committee appointed in accordance with Article VI hereof in good
faith using a generally accepted valuation method and, in the case of an
incentive stock option, determined in accordance with applicable Treasury
regulations; provided, however, that where there is a public market for the
common stock of the Company, the Fair Market Value per share shall be the
average of the final bid and asked prices of the Stock on the date of grant, as
reported in THE WALL STREET JOURNAL (or, if not so reported, as otherwise
reported by the National Association of Securities Dealers Automated Quotation
System on the Nasdaq SmallCap Market, National Market or OTC Bulletin Board) or,
in the event the stock
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is listed on a stock exchange, the fair market value per share shall be the
closing price on such exchange on the date of grant of the option, as reported
in THE WALL STREET JOURNAL.
ARTICLE V.
STOCK OPTIONS AND OPTION AGREEMENTS
(a) Stock Options under the Plan may be of two types: Incentive Stock
Options and Non-Statutory Options. Any Stock Option granted under the Plan will
be in such form as the Board may from time to time approve. The Board will have
the authority to grant any optionee Incentive Stock Options, Non-Statutory
Options or both types of Options. The Date of Grant of an Option will be the
date the Board by resolution selects an individual to be a participant in any
grant of an Option, determines the number of Shares to be subject to such Option
to be granted to such individual and specifies the terms and provisions of the
Option. Incentive Stock Options may only be granted to Eligible Employees. To
the extent that any Option is not designated as an Incentive Stock Option or
even if so designated does not qualify as an Incentive Stock Option, it will be
deemed to be a Non-Statutory Option. The Board may grant Non-Statutory Options
to Non-Employee Directors under the Plan. Anything in the Plan to the contrary
notwithstanding, no term of the Plan relating to Incentive Stock Options will be
interpreted, amended or altered nor shall any discretion or authority granted
under the Plan be exercised so as to disqualify the Plan under ss.422 of the
Code or, without the consent of the optionee, to disqualify any Incentive Stock
Option under such ss.422.
(b) Each Option granted under the Plan shall be evidenced by an option
agreement ("Option Agreement"), which shall indicate on its face whether it is
an agreement for an Incentive Stock Option or a Non-Statutory Option, or both
and shall be signed by an officer of the Company on behalf of the Company and by
the employee who was granted the Option and which shall contain such provisions
as may be approved by the Board or any Committee appointed by the Board
according to Article VI. The provisions shall be subject to the following terms
and conditions:
(i) Any Option or portion thereof that is exercisable shall be
exercisable as to such number of Shares and at such times as set forth
in the Stock Option Agreement, except as limited by the terms of the
Plan heretofore;
(ii) Every Share purchased through the exercise of an Option
shall be paid for in full at the time of the exercise. Each Option
shall cease to be exercisable, as to any Share, when the Holder
purchases the Share, or when the Option lapses;
(iii) Options shall not be transferable by the Holder except
by will, the laws of descent and distribution or pursuant to a
qualified domestic relations order and shall be exercisable during the
Holder's lifetime only by the Holder; and
(iv) An unexpired Option shall become immediately exercisable
(1) automatically on the Holder's Normal Termination, (2) at the
discretion of the Board, in whole or in part, on the date the Holder
becomes eligible to receive early
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retirement benefits, as defined under the retirement plan of the
Company then in effect, (3) upon any change in control of the Company,
and (4) under such other circumstances as the Board may direct.
(c) The Option Agreements shall constitute binding contracts between
the Company and the employee. Every employee, upon acceptance and execution of
such option agreement, shall be bound by the terms and conditions of this Plan
and of the Option Agreement.
(d) The terms and conditions of the Option Agreement shall be in
accordance with this Plan, but may include additional provisions and
restrictions, provided that the same are not inconsistent with the Plan.
ARTICLE VI.
COMPENSATION AND STOCK OPTION COMMITTEE
The Plan shall be administered by the Board or a Committee appointed by
the Board in accordance with Rule 16b-3 of the Exchange Act ("Rule 16b-3"). Any
Committee which has been delegated the duty of administering the Plan by the
Board shall be composed of two or more persons each of whom (i) is a
Non-Employee Director and (ii) is an "outside director" as defined in
ss.162(m)(4) of the Code. To the extent reasonable and practicable, the Plan
shall be consistent with the provisions of Rule 16b-3 to the degree necessary to
ensure that transactions authorized pursuant to the Plan are exempt from the
operation of Section 16(b) of the Exchange Act. If such a Committee is
appointed, the Committee shall have the same power and authority to construe,
interpret and administer the Plan and from time to time adopt such rules and
regulations for carrying out this Plan as it may deem proper and in the best
interests of the Company as does the Board. Any reference herein to the Board
shall, where appropriate, encompass a Committee appointed to administer the Plan
in accordance with this Article VI.
The Board shall, from time to time, in its discretion, determine which
of the Eligible Employees are to be granted Options and the form, amount and
timing of such Options and, unless otherwise provided herein, the terms and
provisions thereof and the form of payment of an Option, if applicable, and such
other matters specifically delegated to It under this Plan. Subject to the
express provisions of the Plan, the Board shall have authority to interpret the
Plan and Options granted hereunder, to prescribe, amend and rescind rules and
regulations relating to the Plan, and to make all other determinations necessary
or advisable in administering the Plan, all of which determinations shall be
final and binding upon all persons. A quorum of the Board shall consist of a
majority of its members and the Board may act by vote of a majority of its
members at a meeting at which a quorum is present, or without a meeting by a
written consent to the action taken signed by all members of the Board. No
member of the Board shall be liable for any action, interpretation or
construction made in good faith with respect to the Plan or any Option granted
hereunder.
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ARTICLE VII.
OPTION PRICE
The Option price at which Shares may be purchased under an Option
granted pursuant to this Plan shall be set by the Board, but shall in no
instance be less than the Fair Market Value of such Shares on the Date of Grant
in the case of Incentive Stock Options. Such Fair Market Value shall be
determined by the criteria set forth in Article IV hereof. The Option price will
be subject to adjustments in accordance with provisions of Article X herein.
In the event that an employee granted an Incentive Stock Option
hereunder owns, directly or indirectly, immediately after such grant, more than
10% of the total combined voting power of all classes of the issued and
outstanding stock of the company, the option price shall be at least 110% of the
Fair Market Value of the stock subject to the Option and such Option by its
terms shall not be exercisable after the expiration of five (5) years from the
date such Option is granted.
ARTICLE VIII.
EXERCISE OF OPTION
(a) Subject to the provisions of Articles VII and IX the period during
which each Option may be exercised shall be fixed by the Board at the time such
Option is granted, subject to the following rules:
(i) such Option is granted within ten (10) years from the date
the Plan is adopted, or the date such Plan is approved by the
stockholders, whichever is earlier;
(ii) such Option by its terms is not exercisable after the
expiration of ten (10) years (in the case if Incentive Stock Options,
not to exceed five years for Eligible Employees owning 10% or more of
the combined voting power of all classes of stock of the Company) from
the Date of Grant as shall be set forth in the Stock Option Agreement
relating to such grant; and,
(iii) such Option by its terms states that a person's rights
and interests under the Plan, including amounts payable, may not be
assigned, pledged, or transferred except, in the event of an employee's
death, to a designated beneficiary as provided in the Plan, or in the
absence of such designation, by will or the laws of descent and
distribution and pursuant to a qualified domestic relations order.
(b) An Option shall lapse under the following circumstances:
(i) Ten (10) years after it is granted, three months after
Normal Termination, twelve months after the date of Termination if due
to permanent
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disability, three months after any other Termination or any earlier
time set by the grant.
(ii) If the Holder dies within the Option period, the Option
shall lapse unless it is exercised within the Option period and in no
event later than twelve months after the date of his death by the
Holder's legal representative or representatives or by the person or
persons entitled to do so under the Holder's last will and testament
or, if the Holder shall fail to make testamentary disposition of such
Option or shall die intestate, by the person or persons entitled to
receive said Option under the applicable laws of descent and
distribution.
(iii) Notwithstanding the foregoing, in no event shall the
period of exercise be less than thirty days after Normal Termination or
the death of the Holder; provided, however, that in no event shall an
Incentive Stock Option be exercised more than ten years after the Date
of Grant.
(c) No Shares shall be delivered pursuant to any exercise of an Option
until the requirements of such laws and regulations, as may be deemed by the
Board to be applicable, are satisfied and until payment in full of the option
price specified in the applicable Stock Option Agreement is received by the
Company. No employee shall be deemed to be an owner of any Shares subject to any
Option unless and until the certificate or certificates for them have been
issued, as reflected on the stock record and transfer books of the Company.
ARTICLE IX.
ELIGIBILITY
All employees of the Company, including officers and directors who are
salaried employees, shall be Eligible Employees eligible to participate under
this Plan. The fact that an employee has been granted an Option under this Plan
shall not in any way affect or qualify the right of the employee to terminate
his employment at any time. Nothing contained in this Plan shall be construed to
limit the right of the Company to grant Options otherwise than under the Plan
for any proper and lawful corporate purpose, including but not limited to
Options granted to employees. Employees to whom Options may be granted under the
Plan will be those selected by the Committee from time to time who, in the sole
discretion of the Committee, have contributed in the past or who may be expected
to contribute materially in the future to the successful performance of the
Company.
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<PAGE>
ARTICLE X.
CAPITAL ADJUSTMENTS AFFECTING STOCK
(a) If the outstanding Stock of the Company shall at any time be
changed or exchanged by declaration of a stock dividend, split-up, combination
of Shares, recapitalization, merger, consolidation, or other corporate
reorganization in which the Company is the surviving corporation, the number and
kind of Shares subject to the Plan or subject to any Options theretofore
granted, and the Option prices, shall be appropriately and equitably adjusted so
as to maintain the proportionate number of Shares without changing the aggregate
Option price and the Board may make any other adjustments as the Board deems
appropriate for purposes of the Plan. The determination of the Board as to the
terms of any adjustment shall be conclusive except to the extent governed by
Treasury regulations applicable to Incentive Stock Options.
(b) In the event of a liquidation or dissolution of the Company, sale
of all or substantially all of its assets, or a merger, consolidation or other
corporate reorganization in which the Company is not the surviving corporation,
or any merger or other reorganization in which the Company is the surviving
corporation but the holders of its Stock receive securities of another
corporation, or in the event a person makes a tender offer to the stockholders
of the Company, the Board may, but need not, accelerate the time at which
unexercised Options may be exercised. Nothing herein contained shall prevent the
substitution of a new Option by the surviving or acquiring corporation.
ARTICLE XI.
AMENDMENTS, SUSPENSION OR TERMINATION
(a) The Board shall have the right, at any time, to amend, suspend or
terminate the Plan, and if suspended, reinstate the Plan in whole or in part in
any respect which it may deem to be in the best interests of the Company,
provided, however, no amendments shall be made in the Plan which:
(i) Increase the total number of Shares for which Options may
be granted under this Plan for all employees or for any one of them
except as provided in Article X;
(ii) Change the minimum purchase price for the optioned
Shares, except as provided in Article X;
(iii) Affect outstanding Options or any unexercised rights
thereunder, except as provided in Article VIII;
(iv) Extend the option period provided in Article VIII or make
an Option exercisable earlier than as specified in Article VIII; or
(v) Extend the termination date of the Plan.
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(b) The Board shall also have the right, with the express written
consent of an individual participant, to cancel, reduce or otherwise alter such
participant's outstanding Options under the Plan.
(c) Any such amendment, termination, suspension, cancellation,
reduction or alteration shall be further approved by the shareholders of the
Company if such approval is required to preserve or comply with any exemption,
whether under Rule 16b-3 or otherwise, from Section 16(b) of the Exchange Act or
to preserve the status of Incentive Stock Options within the meaning of ss.422
of the Code.
ARTICLE XII.
EFFECTIVE DATE, TERM AND APPROVAL
The effective date for this Plan shall be upon approval by the
stockholders. Options may be granted as provided herein for a period of ten
years after such date unless an earlier termination date after which no Options
may be granted under the Plan is fixed by action of the Board, but any Option
granted prior thereto may be exercised in accordance with its terms. The grant
of any Options under the Plan is effective only upon approval of the Plan by the
stockholders. The Plan and all Options granted pursuant to it are subject to all
laws, approvals, requirements, and regulations of any governmental authority or
securities exchange which may be applicable thereto and, notwithstanding any
provisions of the Plan or option agreement, the Holder of an Option shall not be
entitled to exercise his Option nor shall the Company be obligated to issue any
Shares to the Holder if such exercise or issuance shall constitute a violation
by the Holder or the Company of any provisions of any such laws, approvals,
requirements, or regulations. The Plan shall continue in effect until all
matters relating to the payment of Options granted under the Plan and
administration of the Plan have been settled.
ARTICLE XIII.
GENERAL
(a) GOVERNMENT AND OTHER REGULATIONS. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act,
the Exchange Act, and the requirements of any stock exchange upon which the
Shares may then be listed and shall be further subject to the approval of
counsel for the Company with respect to such compliance. Inability of the
Company to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
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<PAGE>
(b) RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. The inability of the Company
to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
(c) TAX WITHHOLDING. The employee or other person receiving Stock upon
exercise of an Option may be required to pay to the Company or to a Subsidiary,
as appropriate, the amount of any such taxes which the Company or Subsidiary is
required to withhold with respect to such Stock. In connection with such
obligation to withhold tax, the Company may defer making delivery of such Stock
unless and until indemnified on such withholding liability to its satisfaction.
(d) CLAIM TO OPTIONS AND EMPLOYMENT RIGHTS. No employee or other person
shall have any claim or right to be granted an Option under the Plan. Neither
this Plan nor any action taken hereunder shall be construed as giving any
employee any right to be retained in the employ of the Company or a Subsidiary.
(e) BENEFICIARIES. Any issuance of shares upon exercise of Options
issued under this Plan to be made to a deceased participant shall be paid to the
beneficiary designated by the participant and filed with the Board. If no such
beneficiary has been designated or survives the participant, issuance shall be
made to the participant's legal representative. A beneficiary designation may be
aged or revoked by a participant at any time provided the change or revocation
is filed with the Board. The designation by a married participant of one or more
persons other than the participant's spouse must be consented to by the spouse.
(f) INDEMNIFICATION. Each person who is or shall have been a member of
the Board shall be indemnified and held harmless by the Company against and from
any loss, cost, liability, or expense that may be imposed upon or reasonably
incurred by him in connection with or resulting from any claim, action, suit, or
proceeding to which he may be a party or in which he may be involved by reason
of any action or failure to act under the Plan and against and from any and all
amounts paid by him in satisfaction of judgment in such action, suit, or
proceeding against him. He shall give the Company an opportunity, at its own
expense, to handle and defend the same before he undertakes to handle and defend
it on his own behalf. The foregoing right of indemnification shall not be
exclusive of any other rights of indemnification to which such persons may be
entitled under the Company's Bylaws or Articles of Incorporation, as a matter of
law, or otherwise, or any power that the Company may have to indemnify them or
hold them harmless.
(g) RELIANCE ON REPORTS. Each member of the Board shall be fully
justified in relying or acting in good faith upon any report made by the
independent public accountants of the Company and its Subsidiaries and upon any
other information furnished in connection with the Plan by any person or persons
other than himself. In no event shall any person who is or shall have been a
member of the Board be liable for any determination made or other action taken,
including the furnishing of information, or failure to act, if in good faith.
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(h) RELATIONSHIP TO OTHER BENEFITS. No grant of any Options under the
Plan shall be taken into account in determining any benefits under any pension,
retirement, savings, profit sharing, group insurance, welfare or other benefit
plan of the Company or any Subsidiary.
(i) EXPENSES. The expenses of administering the Plan shall be borne by
the Company and its Subsidiaries.
(j) PRONOUNS. Masculine pronouns and other words of masculine gender
shall refer to both men and women.
(k) TITLES AND HEADINGS. The titles and headings of the Sections in the
Plan are for convenience of reference only, and in the event of any conflict,
the text of the Plan, rather than such titles or headings, shall control.
(l) FRACTIONAL SHARES. No fractional Shares shall be issued and the
Board shall determine whether cash shall be given in lieu of fractional Shares
or whether such fractional Shares shall be eliminated by rounding up or rounding
down unless otherwise provided in the Plan.
(m) CONSTRUCTION OF PLAN. The place of administration of the Plan shall
be in the State of California and the validity, construction, interpretation,
administration and effect of the Plan and of its rules and regulations, and
rights relating to the Plan, shall be determined in accordance with the laws of
the State of California.
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SONY
COMPONENT & COMPUTER PRODUCTS GROUP
VALUE ADDED RESELLER AGREEMENT
SONY ELECTRONICS INC.
THIS AGREEMENT is made this first day of May 1996, by SONY ELECTRONICS INC.
through its COMPONENT & COMPUTER PRODUCTS GROUP., with a place of business at
3300 Zanker Road, San Jose, CA 95134 (hereinafter referred to as the
"Division"), and Pacific Magtron maintaining its principal office at 675 Palomar
Avenue, Sunnyvale, CA 94086 (hereinafter referred to as the "Buyer").
WITNESSETH:
WHEREAS, the Division is engaged in the sale, licensing and distribution of
various kinds of electronics products and accessories; and,
WHEREAS, the Buyer desires to purchase and/or license certain of such products
and accessories as part of systems manufactured, integrated or assembled or
integrated by the Buyer for resale, leasing, licensing or other distribution.
NOW, THEREFORE, by reason of the foregoing premises, and in consideration of the
mutual covenants set forth in this Agreement, the parties agree as follows:
ARTICLE 1.0 DEFINITIONS. FOR PURPOSES OF THIS AGREEMENT:
1.1 The term the "Products" shall mean those products and accessories listed on
Appendix I attached to this Agreement and made a part hereof, which list
may be amended from time to time by the Division adding or deleting
products and accessories therefrom and by giving the Buyer notice thereof.
1.2 The term the "Systems" shall mean those integrated systems generally
described in Appendix I attached to this Agreement and made a part hereof,
that are manufactured, integrated or assembled by the Buyer containing the
Products or that add significant value to the Products by the Buyer's
combination of same with products or accessories manufactured, integrated
and/or assembled or distributed by the Buyer.
1.3 The term the "Customers" shall mean those customers for the Buyer's Systems
in those classes of trade designated on Appendix I attached to this
Agreement and made a part hereof, which designation may be amended from
time to time by the Division adding or deleting classes of trade therefrom
and by giving the Buyer notice thereof.
ARTICLE 2.0 SCOPE OF THIS AGREEMENT.
2.1 General: The Division agrees to sell and/or license, and the Buyer agrees
to purchase, the Products from the Division for the Buyer's incorporation
thereof and/or license into the Systems for resale, as part of the Systems,
to the Customers upon the terms and conditions set forth in this Agreement.
<PAGE>
2.2 Limitations: The Buyer acknowledges that its right to resell, lease,
license and distribute the Products under this Agreement is non-exclusive,
and that the Division reserves the right to sell, lease, license and
distribute any of its products to any customers in the world, and to
appoint, in its sole discretion, any additional resellers or third parties,
including itself, at any location as may be chosen by the Division, without
giving the Buyer notice thereof and without incurring any liability to the
Buyer therefor.
2.3 Status as Independent Contractor: The Buyer acknowledges that it is an
independent contractor of the Division and that it has no right or
authority to assume or create any obligation of any kind, whether express
or implied, on behalf of the Division. The Buyer shall make no warranties
or representations to any third party with respect to any of the Products,
except those expressly approved in writing by the Division. The Buyer will
defend, indemnify and hold the Division (and/or its officers, directors,
employees and agents) harmless from all suits, claims, losses and damages
(including reasonable attorney's fees) arising from any claims against the
Division as a result of the Buyer's default in the performance of its
obligations under the terms and conditions of this Agreement.
2.4 Access: The Buyer shall give the Division such documentation as the
Division may reasonably request to verify the Buyer's performance of its
obligations under the terms and conditions of Section 5.4 and Appendix 1.
ARTICLE 3.0 ORDERING PROCEDURE.
3.1 Orders: On or before the date first above written, and on or before the
start of each calendar month thereafter, the Buyer shall place with the
Division the Buyer's firm order for the Products it wishes to purchase
and/or License for delivery during the calendar month following the
Division's then current leadtimes therefor. All the Buyer's orders will be
in writing, will refer to this Agreement, and will indicate the quantities,
shipping dates and shipping destination requested. The Division reserves
the right to reject any Buyer order and each Buyer order will only be
deemed accepted by the Division when acknowledged in writing or by the
Division's delivery of the Products covered thereby. Except as provided in
this Section, any term or condition set forth in any Buyer order or other
purchasing document which are inconsistent with, different from', or in
addition to, the terms and conditions of this Agreement, will have no force
or effect unless separately agreed to by the Division in writing.
3.2 Forecasts: No later than the tenth (10th) calendar day of each month during
the term of this Agreement, Buyer shall furnish the Division with a
non-binding forecast of its anticipated needs for the Products for delivery
during the immediately following three (3) month period.
3.3 Purchases: The Buyer shall use its best efforts to purchase and/or license
for delivery during the term of this Agreement those minimum quantities of
the Products referred to in Appendix 2 attached hereto and made a part
hereof. Such minimum purchase requirement will not be interpreted or
construed as a "take or pay" obligation on the part of the Buyer, but may
be used by the Division to determine whether it, in its sole discretion,
wishes to offer the Buyer the right to continue to purchase and/or license
the Products after the expiration or termination hereof and/or as an
eligibility requirement for any promotional programs and the like
concerning the Products the Division may wish to run during the term
hereof.
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ARTICLE 4.0 SALE OF THE PRODUCTS.
4.1 Terms: The Division shall sell and/or license the Products to the Buyer
upon the terms and conditions set forth in this Agreement.
4.2 Prices: The Division shall sell and/or license the Products to the Buyer at
the prices and fees set forth on Appendix 2 attached to this Agreement and
made a part hereof, subject to adjustment as provided for in that Appendix.
Not withstanding the foregoing, Division reserves the right to adjust the
prices for the Products by giving the Buyer notice thereof
4.3 Allocations: The Division reserves the right to allocate its inventory of
Products in such a manner as it may, in its sole and absolute discretion,
from time to time, determine without incurring any liability therefor.
4.4 Specifications: The Buyer acknowledges that the Division may discontinue
the sale and/or licensing of any of the Products and any parts thereof
(except where continued availability is required by federal law) as it, in
its sole discretion, determines, without giving the Buyer notice thereof
and without incurring any liability to the Buyer therefor. Notwithstanding
the foregoing, the Division will use its best efforts to give the Buyer
prior notice of any such discontinuance or change affecting the Product's
form, fit or function. If, because of any discontinuance or change to the
Products affecting their form, fit or function, Buyer does not wish to
purchase and/or license same or any of the other products covered by this
Agreement, then the Buyer may terminate this Agreement by giving the
Division notice thereof within ten (10) days of the Division's notice to
it. In addition, the Division will afford the Buyer the opportunity to
purchase and/or license from it, on a "last call" basis hereunder, any of
the Products to be so discontinued or so changed within thirty (30) days of
such notice.
4.5 Taxes: The Buyer shall bear the cost and expense of any taxes, levies,
duties and fees of any kind, nature or description whatsoever applicable to
the Products sold and/or licensed to it by the Division, other than taxes
based solely on the Division's own income derived therefrom. The Buyer will
promptly pay to the Division all such amounts upon the Division giving the
Buyer notice thereof unless the Buyer provides the Division with exemption
certificates or licenses acceptable to the appropriate taxing authorities.
ARTICLE 5.0 THE SYSTEMS.
5.1 General: The Buyer represents to the Division that all the Products
purchased and/or licensed by it under this Agreement shall be incorporated
into the Systems or be sold as replacement parts for the Systems and will
only be sold to the Customers of the Systems with significant value added
thereto. The Buyer will defend, indemnify and hold the Division (and/or its
officers, directors, employees and agents) harmless from all suits, claims,
losses and damages (including reasonable attorneys' fees) arising from any
claims against the Division as a result of the Buyer's default in the
performance of its obligations under this Section.
5.2 Specific Uses: The Buyer will not knowingly, sell, lease, license or
distribute the Systems for use in aircraft instrumentation or for life
support purposes. In addition, if the Buyer sells, leases, licenses or
distributes the Systems for any medical purpose or application, Buyer will,
at its own cost and expense, obtain and maintain all approvals and permits
required by the United States Federal Food, Drug & Cosmetic Act of 1938, as
now in effect or hereafter amended, concerning same and will not resell,
lease, license or distribute any of the Products in any way that will make
them be adulterated or misbranded within the meaning of the Act, or be an
article which may not be introduced into interstate commerce pursuant to
the requirements of Sections, 404, 415, 510, 513 or 515 thereof, nor be in
violation of any similar law or any other jurisdiction having authority
over the manufacture, processing and distribution of the Systems or the
Products. The Buyer will defend, indemnify and hold the Division (and/or
its officers, directors, employees and agents) harmless from all suits,
claims, losses and damages (including reasonable attorneys' fees) arising
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from any claims against the Division as a result of the Buyer's default in
the performance of its obligations under this Section.
5.3 Trademarks: The Buyer acknowledges the validity of the Division's
tradenames and trademarks and that it shall have no right to or interest in
any trade names or trademarks owned, used or claimed now or in the future
by the Division or Sony Corporation (Japan) as a result of this Agreement.
5.4 Documentation Accompanying the Products: The Buyer shall furnish the
Customers for the Systems with all warranty cards and other documentation
accompanying the Products at the time of their delivery to the Buyer and
will not remove any Sony trademarks, trade names, serial numbers and other
Sony identification appearing on the Products, without the prior written
consent of the Division. HOWEVER, IF THE BUYER MODIFIES THE PRODUCTS FOR
THE SYSTEMS, THEN IT WELL REMOVE ALL SUCH CARDS, DOCUMENTATION, TRADEMARKS,
TRADE NAMES, SERIAL NUMBERS AND IDENTIFICATION.
ARTICLE 6.0 SHIPMENTS.
6.1 Title and Risk of Loss: Title to all the Products sold (but not licensed)
by the Division to the Buyer shall pass upon the Division's delivery
thereof to the carrier. Risk of loss or damage to any of the Products in
transit, without regard to whether the Division paid the shipping charges
therefor or whether any third party is designated as consignee thereof, is
the Buyer's, whose responsibility it will be to file claims with the
carrier.
6.2 Time of Delivery: Delivery dates set forth in any Buyer order or other
purchasing documents, or any confirmation thereof by the Division, shall be
deemed to be estimated only and subject to the Division's then current
leadtimes for the Products. The Buyer will not be excused from payment of
any amounts it owes to the Division or from the performance of any of its
other obligations under the terms and conditions hereof as a result of, and
the Division will not be liable to the Buyer for damages resulting from,
the Division's failure to meet any of those dates. However, if the
Division's delay in shipment or delivery of any ordered Products exceeds by
ninety (90) days such first estimated date, then either party may cancel
any Buyer order or part thereof not previously fulfilled by giving the
other notice thereof, and without incurring any liability to the other
therefor.
6.3 Separate Transaction: Each Buyer order for the Products shall be deemed a
separate transaction and each shipment of the Products by the Division will
constitute a separate sale and/or license, obligating the Buyer to pay
therefor, whether such shipment be in whole or only in partial fulfillment
of such order.
6.4 Stop Shipments: The Buyer acknowledges that the Division reserves the
right, in its sole discretion, to cancel any Buyer orders previously
accepted by the Division or to delay the delivery of any of the Products
covered thereby if the Buyer defaults in any of its obligations under this
Agreement or if the Division reasonably believes that the Buyer may do so
for or with respect to any past or pending Buyer order.
ARTICLE 7.0 CREDIT, PAYMENT AND INDEBTEDNESS.
7.1 Maintenance of Credit Line: The Buyer shall maintain a credit line
sufficient to support its purchase and/or license of the Products under
this Agreement. The Buyer will provide the Division with such statements of
the Buyer's financial condition as the Division may reasonably request by
giving the Buyer notice thereof. The Buyer acknowledges that the Division
may, from time to time, vary, change or limit the amount or duration of
credit allowed to the Buyer either
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<PAGE>
generally or with respect to any specific order for the Products by giving
the Buyer notice thereof and without incurring any liability to the Buyer
therefor.
7.2 Payment Term: Buyer shall pay to the Division the net purchase price of all
Product shipped hereunder within thirty (30) days after the date of
Division's invoice.
7.3 Unauthorized Deductions: The Buyer shall not make deductions of any kind
from any amount it owes to the Division unless the Buyer has received an
official credit memorandum from the Division authorizing such deduction.
The making of any such deduction shall be grounds for immediate cessation
of further deliveries to the Buyer and/or termination of this Agreement by
the Division without liability of the Division therefor.
7.4 Charge for Late Payment: If payment is not received by the Division when
due, the Division shall have the right, in its sole and absolute
discretion, to levy, in addition to the prices specified, a monthly charge
equal to the lesser of (i) one and one-half percent (1-1/2%) of the
invoiced amount for each month during which the payment remains
outstanding, including any month in which payment was due and not received,
or (ii) the maximum allowable by law. If at any time the Buyer's account is
subject to a finance charge hereunder, in addition to any other remedies,
the Division reserves the right to stop all further shipments to the Buyer.
Late payment shall constitute a material breach by the Buyer hereunder and
constitute a basis for termination of this Agreement by the Division.
7.5 Defaults: If the Buyer defaults in the payment of any amount it owes to the
Division when due, and if such default continues for a period of ten (10)
days after the Division gives the Buyer notice thereof, then, in addition
to any other remedy available to the Division under this Agreement or at
law therefor, all amounts payable by the Buyer to the Division, whether
then due or not, shall, in the Division's sole discretion, and without
further notice to the Buyer, become immediately due and payable.
ARTICLE 8.0 PATENT, TRADEMARK AND COPYRIGHT INFRINGEMENT.
8.1 Claims of Direct Infringement: Subject to the terms and conditions of this
Article 8.0, the Division warrants to the Buyer that, to the best of the
Division's knowledge, the Products as and when manufactured and delivered
by the Division to the Buyer shall be free of any rightful third party
claim of direct infringement of any United States patent, trademark or
copyright by the Products per se.
8.2 Indemnification by the Division: The Division shall, at its own cost and
expense, defend any claim or suit alleging direct patent, trademark or
copyright infringement instituted against the Buyer or other affiliated
companies in which the Buyer has direct ownership (and/or its officers,
directors, employees and agents) but not customers of the Buyer, and
indemnify the Buyer (and/or its officers, directors, employees and agents)
against any award of damages and costs for direct infringement (including
reasonable attorneys' fees) made against the Buyer by a court of last
resort, insofar as such award of damages is based on a final determination
that the Products as and when delivered by the Division to the Buyer under
this Agreement directly infringed any patent, trademark or copyright of the
United States. Indemnification of costs hereunder will extend only to
actual costs assessed. This indemnity will not apply to the Products made
by or for, or modified by or for, the Division in accordance with the
Buyer's specifications or requests.
8.3 Conditions Under Which Indemnification Applies: The Division's obligation
under Section 8.2 shall be conditioned on the following: (a) the Division
shall be notified promptly in writing by Buyer of any notice of such claim,
but in no event later than ten (10) days after Buyer shall have received
any notice thereof-, (b) the Division, in its sole discretion, is given
sole control of the defense of any such claim, suit or allegation and all
negotiations for its settlement or compromise; (c) the Buyer fully
cooperates with the Division in the defense and all related settlement
negotiations. If the Products become, or in the Division's opinion are
likely to become, the subject of such a claim, allegation or suit then the
Buyer permits the Division, at the Division's own cost
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and expense but in its sole discretion: (1) to procure for the Buyer the
right to continue using the affected Products; (2) to replace or modify the
affected Products so that they become noninfringing; or, (3) to remove the
affected Products and refund the purchase price the Buyer paid therefor.
8.4 Exclusions: Notwithstanding the terms and conditions of Sections 8.1, 8.2
and 8.3, the Division shall have no liability to the Buyer if any such
claim, allegation or suit is based upon or arises out of. (a) alterations
of the Products by the Buyer or any third party; (b) failure of the Buyer
to use updated Products provided by the Division for avoiding such
infringement; (c) use of the Products in combination with equipment,
software or products not furnished by the Division except for those
expressly approved in writing by the Division; (d) processes or methods
allegedly performed by the Products except those expressly approved in
writing by the Division: (e) use of the Products in the manner for which
the same were neither designed nor contemplated; or, (f) a patent,
trademark or copyright in which the Buyer or an affiliate or subsidiary of
the Buyer has a direct or indirect interest by license or otherwise.
8.5 Disclaimer of Warranty Against Infringement: THE WARRANTY SET FORTH IN
SECTION 8.1 IS IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, WITH
REGARD TO ANY CLAIM OF INFRINGEMENT BY THE PRODUCTS. THE DIVISION HEREBY
DISCLAIMS AND EXCLUDES ALL WARRANTIES AGAINST INFRINGEMENT THAT MAY BE
PROVIDED IN SECTION 2-312(3) OF THE UNIFORM COMMERCIAL CODE AND/OR IN ANY
OTHER COMPARABLE STATE STATUTE.
8.6 Limitation of Liability For Infringement Claims: The terms and conditions
of this Article and Article 11.0 state the entire liability of the Division
to the Buyer for any claim arising from, or based upon, infringement of any
third party intellectual property right including but not limited to
patent, trademark or copyright infringement.
8.7 Indemnification by the Buyer: The Buyer shall, at its own cost and expense,
defend, indemnify and hold harmless the Division (and/or its officers,
directors, employees and agents) in the same manner and to the same extent
described in Section 8.2 from any claim, allegation or suit against the
Division (and/or its officers, directors, employees and agents) in which
the alleged direct patent, trademark or copyright infringement arises from:
(a) any of the Products made by or for, or modified by or for, the Division
in accordance with the Buyer's specifications or requests; (b) alteration
of the Products by the Buyer; or, (c) from the combination of the Products
with equipment, software or products not furnished by the Division except
for those expressly approved in writing by the Division
ARTICLE 9.0 INTELLECTUAL PROPERTY RIGHTS IN SOFTWARE.
9.1 Retention of Rights: The Buyer acknowledges that the Division or, in
applicable instances, the Division's licensor, retains the entire right and
title in and to the intellectual property of any software the Division
furnishes to the Buyer pursuant to this Agreement. The Buyer shall enter
into such agreements as the Division may from time to time request as a
condition to the Division furnishing the Buyer any such software and the
Buyer's distribution, use or modification thereof.
9.2 Software as Products: Unless an agreement of the type referred to in
Section 9.1 is entered into, the Buyer shall only license and/or distribute
and shall not unbundle, offer for sale or in any way attempt to separate
the software the Division furnishes to it for distribution as one of the
Products, and then only on those terms and conditions, not including
license fees, as the Division may, from time to time, request. The Buyer
agrees that they will not remove any end user license agreement included
with the software and will not modify or reverse engineer the software.
9.3 Customer Licenses: The Buyer shall obtain for and deliver to, the Division
customer signed copies of any agreements the Division may, from time to
time, require the Buyer's customer to enter into as a condition to their
use of any software the Division furnishes to the Buyer for distribution as
one of the Products. Although the Buyer will not be responsible for the
enforcement of any such agreements, it will take such actions as the
Division may from time to time reasonably request by
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giving the Buyer notice thereof not to induce or contribute reasonably to
any customer's default under such an agreement.
ARTICLE 10.0 INSPECTION AND WARRANTY.
10.1 Upon receipt of shipment hereunder, Buyer shall inspect the Products under
such shipment. Claims for shortages, incorrect materials or invoicing
errors must be made by Buyer within twenty (20) days after receipt of
shipment. Claims for non-receipt of shipment must be made within twenty
(20) days after receipt of invoice. Claims for defects in material,
workmanship or failure to meet specifications must be made within the time
period specified below.
10.2 Division warrants that the Products furnished hereunder will at the time of
shipment, and for the period specified in Appendix 2 ("Warranty Period"),
be free from defects in material and workmanship under normal use and
service and will conform to Division's applicable standard written
specifications.
10.3 Should any Product prove defective by reason of improper material or
workmanship or failure to meet the specifications, and if Buyer shall have
so notified Division in writing within the period specified above and shall
have specified in such notice the alleged defects and/or failures, and if
such Product is found to Division's satisfaction to be nonconforming,
Division shall, at Division's option, either repair or replace such
defective Product at Division's cost or refund the purchase price of such
defective Product within sixty (60) days after receipt of such defective
Product. Division shall not be required to remove or install any Products
from or into Buyer's product(s) or system(s) for the purpose of such repair
or replacement.
10.4 Notwithstanding the above, Division shall have no warranty, liability or
obligation to the Buyer with respect to any software which may be contained
on any media Products; or any Products which have been subjected to
operating and/or environmental conditions in excess of the maximum values
therefor in the applicable specifications or otherwise have been subjected
to abuse, misuse, improper use, improper testing, negligence, accident,
alteration, tampering or faulty repair, such as, by way of example, any
Product that has been reconfigured by Buyer; or any Product which has been
altered, repaired or modified other than upon Division's prior written
approval; or any Product subjected to unusual physical, electrical or
environmental stress or improper installation; or any Product that has any
foreign equipment or component, either residing in Buyer's chassis or
connecting to it other than via a Division-supplied interface device,
unless such foreign equipment or component is first removed, and no defect
has been induced by its incorporation. Nor shall this warranty extend to
subsequent purchasers or end users of Buyer's product(s) in which
Division's Products may be incorporated.
10.5 Division hereby disclaims any representations or warranty that the Products
are or will be compatible with any combination of non-Sony products Buyer
may choose to connect to the Products. It shall be Buyer's responsibility
to determine for itself the suitability and compatibility of the Products
in each instance.
10.6 Continued use or possession of the Products after expiration of the
applicable warranty period stated above shall be conclusive evidence that
the warranty is fulfilled to the full satisfaction of Buyer. Division's
warranties as hereinabove set forth shall not be enlarged, diminished or
affected by, and no obligation or liability shall arise or grow out of,
Division's rendering of technical advice or service in connection with
Buyer's order of the Products furnished hereunder.
10.7 THE BUYER ACKNOWLEDGES THAT, EXCEPT AS EXPRESSLY PROVIDED ABOVE, NO
WARRANTIES WITH REGARD TO THE PRODUCTS, WHETHER OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE OR OTHERWISE, ARE CREATED BY THIS
AGREEMENT AND THE DIVISION HEREBY DISCLAIMS AND EXCLUDES ALL IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
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ARTICLE 11.0 LIMITATION OF LIABILITY.
THE LIABILITY OF THE DIVISION, IF ANY, FOR DAMAGES FOR ANY CLAIM OF ANY
KIND WHATSOEVER AND REGARDLESS OF THE LEGAL THEORY, WITH REGARD TO ANY
ORDER PLACED BY THE BUYER HEREUNDER, REGARDLESS OF THE DELIVERY OR
NON-DELIVERY OF SUCH PRODUCTS, OR WITH RESPECT TO THE PRODUCTS COVERED
THEREBY, SHALL NOT BE GREATER THAN THE ACTUAL PURCHASE PRICE OF THE
PRODUCTS WITH RESPECT TO WHICH SUCH CLAIM IS MADE. IN NO EVENT SHALL
DIVISION BE LIABLE TO THE BUYER FOR SPECIAL, INCIDENTAL, OR CONSEQUENTIAL
DAMAGES OF ANY KIND. UNDER NO CIRCUMSTANCES SHALL DIVISION BE LIABLE TO THE
BUYER FOR COMPENSATION, REIMBURSEMENT OR DAMAGES ON ACCOUNT OF THE LOSS OF
PRESENT OR PROSPECTIVE PROFITS, EXPENDITURES, INVESTMENTS OR COMMITMENTS,
WHETHER MADE IN THE ESTABLISHMENT, DEVELOPMENT OR MAINTENANCE OF BUSINESS
REPUTATION OR GOODWILL, OR FOR LOSS OF DATA, COST OF SUBSTITUTE PRODUCTS,
COST OF CAPITAL, AND THE CLAIMS OF ANY THIRD PARTY, OR FOR ANY OTHER REASON
WHATSOEVER
ARTICLE 12.0 TERM AND TERMINATION.
12.1 Term: This Agreement shall become effective as of this date first above
written and will expire on April 30, 1997 unless sooner terminated in
accordance with the terms and conditions hereof.
12.2 Termination for Convenience: This Agreement may be terminated without cause
by either party by and upon ninety (90) days prior written notice given to
the other party by registered or certified mail, in which event this
Agreement shall terminate on the date set forth in such notice. The date of
mailing said written notice shall be deemed the date on which notice of
termination of the Agreement shall have been given.
12.3 Termination for Cause: This Agreement may be terminated by either party
upon the occurrence of any of the following, by the aggrieved party giving
written notice to the other party by registered or certified mail, in which
event this Agreement shall terminate on the date set forth in such notice.:
(a) The Buyer defaults in the payment of any amount it owes to the Division
when due and such default continues for a period of ten (10) days after the
Division gives the Buyer notice thereof.
(b) If any proceeding in bankruptcy or in reorganization or for the
appointment of a receiver or trustee or any other proceedings under any law
for the relief of debtors shall be instituted by or against the other party
or if the other party shall make an arrangement for the benefit of
creditors;
(c) A breach by either party of any terms of this Agreement which breach is
not remedied to the aggrieved party's satisfaction within ten (10) days of
the breaching party's receipt of notice of such breach
(d) Either party engaging directly or indirectly in any attempt to defraud
the other party;
(e) The occurrence of any of the events referred to in Article 13.1 (a)
through (c), or the Buyer'sfailure to give the Division notice of an event
referred to in Article 13.1 (a) through (c).
12.4 Remedies for Breach: If the Buyer defaults in the performance of its
obligations under the terms and conditions of this Agreement, then the
Division may, in addition to any other remedy available to it hereunder or
at law, suspend or cease further shipments of the Products to the Buyer or
suspend doing business with the Buyer.
12.5 Right of Set-Off: If the Buyer defaults in the performance of its
obligations under the terms and conditions of this Agreement or any other
agreement(s) with any other division of Sony Electronics Inc., then the
Division may, in addition to any other remedy available to it hereunder or
at law, set-
8
<PAGE>
off any amounts owed to it pursuant to this Agreement or such other
agreements. Upon the termination of this Agreement, any amounts the
Division owes to the Buyer will be first off-set against any amounts the
Buyer owes to the Division, or any other division of Sony Electronics Inc..
12.6 Effect on Other Agreements: Upon the termination of this Agreement, the
Division may, in its sole discretion, terminate any/or all other agreements
then in effect BETWEEN THE BUYER AND THE DIVISION and/or any other division
of Sony Electronics Inc. Said right of termination as set FORTH HEREIN
shall be in addition to and to the extent necessary supersede any right of
termination which may be provided for in any of such other agreements.
12.7 Surviving Obligations and Limitations: Neither the expiration or
termination of this Agreement nor the termination of any agreement referred
to in Section 12.6 shall release the Buyer from its obligation to pay any
amount it owes to the Division or operate to discharge any liability to the
Division incurred by the Buyer prior thereto.
12.8 Order Procedure After Notice of Termination: During the period between the
Division giving the Buyer notice of default or notice of this Agreement's
termination and the date of cure or effective date of such termination, all
Buyer orders for the Products that are accepted by the Division shall be
shipped to the Buyer only upon a cash with order basis.
ARTICLE 13.0 NOTICES.
13.1 The Buyer agrees to give the Division immediate notice in writing of any:
(a) Transaction affecting the ownership of ten percent (10%) or more of
the Buyer's capital stock, if a corporation;
(b) Change in the respective interest of the partners, if a partnership;
(c) Transaction affecting the ownership of any part of the business, if an
individual proprietorship; and
(d) Changes in address of its headquarters or branch locations.
13.2 Any notice given under this Agreement shall be deemed to have been
sufficiently given when sent by certified or registered mail to the
respective parties hereto at the address designated by each of them
respectively in this Agreement, or as subsequently changed by notice duly
given. The date of mailing said written notice shall be deemed the date on
which notice has been given.
ARTICLE 14.0 GENERAL.
14.1 Export: The Buyer represents and warrants to the Division that the Buyer
shall not export the Products covered by this Agreement in violation of
U.S. export laws and regulations. The Buyer will be solely responsible for
compliance with and the obtaining of any required export licenses.
14.2 Assignment: The Buyer shall not assign or otherwise transfer this Agreement
or any interest herein or any right hereunder to any third party without
the prior written consent of the Division, and any such purported
assignment, transfer or attempt to assign or transfer any interest herein
or right hereunder without the prior written consent of the Division will
be deemed immediately null, void and of no force or effect and this
Agreement will be deemed immediately terminated.
14.3 Waivers: No waiver by the Division of any default in performance on the
part of the Buyer under this Agreement or of any breach or series of
breaches by the Buyer of any of the terms or conditions of this Agreement
shall constitute a waiver of any subsequent default in performance under
this Agreement or any subsequent breach of any terms or conditions thereof.
9
<PAGE>
14.4 Non-Exclusivity of Remedy: Any specific right or remedy provided in this
AGREEMENT SHALL NOT BE exclusive but will be cumulative of all other
rights and remedies set forth herein or allowed by law.
14.5 Litigation: In the event of any litigation between the parties with
respect to this AGREEMENT, THE prevailing party (the party entitled to
recover costs of suit, at such time as all appeals HAVE BEEN exhausted or
the time for taking such appeals has expired), shall be entitled to
recover REASONABLE attorneys' fees and costs in addition to such other
relief as the court may award. This provision shall survive the
expiration or termination of this Agreement.
14.6 Headings: The headings of Articles and sections in this Agreement are for
convenience and reference only, and they shall in no way define, limit or
describe the scope of the terms and conditions of such Articles and
sections and will not be considered in the interpretation, construction
or enforcement hereof.
14.7 Governing Law, Venue and Waiver of Jury Trial: (i) This Agreement shall
be construed and enforced in accordance with the local law of the State
of California. (ii) The parties hereby consent to and submit to the
jurisdiction of the federal and state courts located in the State of
California, and any action or suit under this Agreement shall only be
brought by the parties in any federal or state court with appropriate
jurisdiction over the subject matter established or sitting in the State
of California. The parties shall not raise in connection therewith, and
hereby waive, any defenses based upon the venue, the inconvenience of the
forum, the lack of personal jurisdiction, the sufficiency of service of
process, or the like in any such action or suit brought in the State of
California. Ibis provision shall survive the expiration or termination of
this Agreement.
14.8 Waiver of Jury Trial: BUYER HEREBY WAIVES ALL RIGHT OR ENTITLEMENT TO
TRIAL BY JURY IN CONNECTION WITH ANY DISPUTE THAT ARISES OUT OF OR
RELATES IN ANY WAY TO THIS AGREEMENT. THIS PROVISION SHALL SURVIVE THE
EXPIRATION OR TERMINATION OF THIS AGREEMENT.
14.9 Invalidity: If and to the extent that any of the terms and conditions
hereof are specifically determined by any court to be in whole or in part
invalid or unenforceable, this Agreement will be deemed immediately
terminated.
14.10 Government Contracts: No term or condition required in any United States
government contract or subcontract related thereto shall be deemed a part
of this Agreement, or be imposed upon or binding upon the Division, and
this Agreement will not be deemed an acceptance of any government term or
condition that may be included or referred to in any Buyer order or other
purchasing document
ARTICLE 15.0 ENTIRETY OF AGREEMENT.
This Agreement supersedes, terminates and otherwise renders null and void
any and all prior written and/or oral agreements entered into and between
the parties with respect to the Products, except that nothing herein
contained shall be interpreted or construed to discharge the Buyer from
its obligation to pay any amount it owes to the Division or to discharge
any liability to the Division incurred by the Buyer prior to the date
first above written. This Agreement represents and incorporates the
entire understanding of the parties with respect to the matters herein
expressly set forth, and each party acknowledges that there are no
warranties, representations, covenants or understandings of any kind,
nature or description whatsoever made by either party to the other,
except as are herein expressly set forth. This Agreement may only be
amended by means of a written agreement between the parties which states
that it is an amendment hereto.
10
<PAGE>
ARTICLE 16.0 ACCEPTANCE.
This Agreement shall be subject to acceptance by the Division, through
its execution by an authorized representative thereof
IN WITNESS WHEREOF, the parties have entered into this Agreement as of the
date first above written.
Component & Computer Products Group Pacific Magtron:
Sony Electronics Inc.
By: /s/ Yasuhiro Kuga By: /s/ Ted Li
Yasuhiro Kuga Authorized Signature
President Printed Name: Ted Li
Title: Managing Partner
11
<PAGE>
APPENDIX 1
PRODUCTS AND SYSTEMS
THE PRODUCTS are as follows:
CD-ROM Drives
Floppy Disk Drives
CD-R Drives
The Systems are as follows:
Multi-Media Kits
Peripheral Subsystems
In all events, the Systems will consist of the Products combined with or
incorporated into plug and play subsystems or standalone systems in each
case, using equipment and/or programs manufactured or developed by or for
the Buyer.
The Customers are as follows:
Buyer certifies and agrees that the System will be leased or resold in
the regular course of business to the customers. Buyer may not resell the
Products to end users that are affiliated with Buyer, or have an equity
interest in Buyer.
12
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APPENDIX 2
MINIMUM QUANTITIES AND PRICES
Volume Level Products Price Per Unit
------------ -------- --------------
100 units per month CDU76S $97.00
100 units per month CDU920S $550.00
100 units per month CDU924S $500.00
100 units per month CDU111 $85.00
100 units per month CDU311 $109.50
100 units per month MPF5201/13 $19.50
Delivery for the Products will be FOB: Division's shipping location.
Minimum per-shipment quantity 100 units per product type
The warranty period applicable to
each of the Products is: one year from date of invoice.
Current minimum lead time: 90 days from receipt of order.
The prices to be initially charged the Buyer will be those designated for Volume
Levels indicated above. If the Buyer does not purchase for delivery at least
thirty percent (30%) of its applicable Volume Level in the first six (6) months
of this Agreement, the Division will increase such price, for the remainder 'of
the Agreement term, to the price contained in the Division's then current volume
price list which pertains to the prorated Volume Level at which the Buyer has
actually purchased.
If, at the end of the first six (6) months of this Agreement, the Buyer has
purchased for delivery more than one hundred twenty percent (120%) of the
semiannual prorated portion of its maximum initial Volume Level, then it may,
with Division's approval, purchase Products at the next higher applicable Volume
Level for the remaining term of the Agreement. If, at the end of the term of
this Agreement, Buyer's purchases exceed the agreed upon Volume Levels, the
Division will issue a credit for the difference in the prices paid and the price
which would have been paid at the higher Volumes actually achieved. Subject to
Section 12.5, any such credit will be issued in the form of a credit memorandum
by the Division to the Buyer.
13
Logitech OEM Distribution and Installation Agreement
This agreement ("Agreement") is entered into as of the 26th day of March 1997,
between Pacific Magtron, a Corp. having its principal place of business at 1600
California Cir, ("Buyer") and Logitech, Inc., having its principal place of
business at 8505 Kaiser Drive, Fremont, CA 94555 ("Logitech").
1. DEFINITIONS
"Product" of "Products" shall mean Logitech's computer peripherals and related
software, including, but not limited to, computer mice, trackballs, touchpads,
joysticks, scanners and digital video cameras, and software therefore. "Computer
Hardware" shall be defined to be an assembled computer system which includes at
a minimum a motherboard with CPU, hard disk drive, power supply and case. BUYER
agrees that it defines its business to be in Hardware manufacturing, system
assembling, motherboard or bare-bones system distribution or reselling.
2. USE OF PRODUCTS
Logitech hereby grants BUYER a non-exclusive right to use, install, integrate
and resell Products for use with any BUYER Computer Hardware. BUYER shall
require all persons and entities in its distribution channels to comply with the
foregoing restriction. Product and Product Packaging may not be modified,
altered, repackaged, reassembled or supplemented in any way. BUYER shall not
advertise or otherwise market the Product(s) as separate items, but shall
clearly indicate in all marketing materials that the Product(s) are available
only as an indivisible part of the Computer Hardware. Buyer shall not publish or
otherwise disclose separate prices for the Product(s), but shall price the
Computer Hardware with the Product(s) at a single indivisible unit. No license
is given or implied to reproduce any Logitech software or to distribute, license
or sell as a separate item any software which is part of the Product. BUYER
agrees that it will not export or re-export Product(s) to any country, person,
entity or end user outside of the United States, Canada and Latin America.
3. WARRANTY
a) LIMITED WARRANTY: Logitech warrants that all Products delivered under this
Agreement will be free from defects in materials or workmanship and will perform
for a period of twelve (12) months from the date of manufacture by Logitech.
This warranty shall include parts and labor and shall apply to any Product which
is or becomes defective during the applicable warranty period and is returned to
Logitech, freight prepaid. Logitech will repair or replace, at its option and
without charge to Buyer. LOGITECH MAKES NO OTHER WARRANTIES, EXPRESS OR IMPLIED,
EITHER IN FACT OR BY OPERATION OF LAW, STATUTORY OR OTHERWISE, AND EXPRESSLY
EXCLUDES AND DISCLAIMS ANY WARRANTIES OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE, ARISING FROM THE COURSE OF DEALINGS BETWEEN THE PARTIES
AND/OR FROM USAGE OF TRADE. b) RETURN POLICY No products shall be returned to
Logitech except in conformance with the Logitech standard return policy. Only
defective products may be returned. Logitech shall be under no obligation to
accept any Products returned by BUYER unless BUYER shall have first contacted
Logitech, described the nature of the problem, obtained a Returned Material
Authorization (RMA) number and shipped the Products to Logitech in shipping
containers suitable for protection of the Products, with the RMA number
conspicuously displayed on the outside of the shipping carton. All products
returned to Logitech shall be returned by BUYER at BUYER'S expense.
4. LIMITATION OF LIABILITY
IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR COSTS OF PROCUREMENT OF SUBSTITUTE
PRODUCTS OR SERVICES, LOST PROFITS, OR ANY SPECIAL, INDIRECT, CONSEQUENTIAL OR
INCIDENTAL DAMAGES, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY, ARISING IN
ANY WAY OUT OF THE SALE, TERMINATION OF THE AGREEMENT, BREACH OF WARRANTY AND/OR
AGREEMENT TO SELL BUYER PRODUCTS OR SERVICES. This LIMITATION SHALL APPLY EVEN
IF A PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, AND
NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY.
5. OTHER TERMS
TERM AND TERMINATION. This Agreement shall become effective as of the date it is
signed by both parties and shall automatically renew every April 1 unless a
Party, in its sole discretion, elects, upon thirty (30) days written notice, to
not renew the Agreement. During the term of this Agreement, either party may
terminate this Agreement for its convenience upon thirty (30) days written
notice and Logitech may terminate this Agreement immediately if Buyer becomes
insolvent or engages in any illegal and/or unethical practices. INDEPENDENT
CONTRACTORS. The Parties are independent contractors with respect to each other,
and not agents of each other, and Buyer has no authority to bind Logitech.
CONFIDENTIAL INFORMATION. The terms and conditions of this Agreement constitute
Logitech confidential information and shall not be disclosed by Buyer to third
parties. INDEMNIFICATION. Buyer, upon Logitech's request, shall indemnify
Logitech for all costs, fees and damages incurred by Logitech and its affiliates
that arise from Buyer and its customers' acts and omissions. ENTIRE AGREEMENT
AND APPLICABLE LAW. The terms and conditions in this Agreement constitute the
entire and final agreement between Logitech and Buyer regarding the purchase and
sale of the goods or services from Logitech. Any and all representations,
promises, warranties or statements by Logitech agents that differ in any way
from the terms of this Agreement shall be given no force or effect. This
Agreement may only be modified in writing signed by both parties' authorized
representatives. Any suit hereunder shall be brought in the federal or state
courts in the districts which include Fremont, California, and Buyer hereby
agrees and submits to the personal jurisdiction and venue thereof. This
Agreement shall be governed by construed in accordance with the laws of the
State of California, without regard to any provision concerning the
applicability of the laws of other jurisdictions.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives.
LOGITECH, INC. BUYER
/s/ Dan McConnaughey /s/ Eddie Shen
- ------------------------ -------------------
Dan McConnaughey 4/4/97 Eddie Shen
TERM NOTE
$2,5OO,000.00 Palo Alto, California
February 4, 1997
FOR VALUE RECEIVED, the undersigned PACIFIC MAGTROM, INC.
(collectively, "Borrower") promises to pay to the order of WELLS FARGO BANK,
NATIONAL ASSOCIATION ("Bank") at its office at Peninsula RCBO, 4-00 Hamilton
Avenue, Palo Alto, California, or at such other place as the holder hereof may
designate, in lawful money of the United States of America and in immediately
available funds, the principal sum of Two Million Five Hundred Thousand Dollars
($2,500,000.00), with interest thereon (computed on the basis of a 360-day year,
actual days elapsed) at a fixed rate per annum determined by Bank to be two and
one-half percent (2.50%) above Bank's LIBOR in effect on the first day of each
Fixed Rate Term.
A. DEFINITIONS:
As used herein, the following terms shall have the meanings set forth
after each:
1."Business Day" means any day except a Saturday, Sunday or any other
day designated as a holiday under Federal or California statute or regulation.
2."Fixed Rate Term" means a period commencing on the date of
disbursement and continuing for three (3) months and each consecutive three (3)
months period thereafter, during which all of the OUTSTANDING PRINCIPAL balance
of this Note bears interest determined in-relation to Bank's LIBOR; provided
however, that no Fixed Rate Term shall extend beyond the scheduled maturity date
hereof. If any Fixed Rate Term would end on a day which is not a Business Day,
then such Fixed Rate Term shall be extended to the next succeeding Business Day.
3."LIBOR" means the rate per annum (rounded upward, if necessary, to
the nearest whole 1/8 of 1%) and determined pursuant to the following formula:
LIBOR = BASE LIBOR
---------------------------------
100% - LIBOR Reserve Percentage
(a)"Base LIBOR" means the rate per annum for United States dollar
deposits quoted by Bank as the Inter-Bank Market Offered Rate, with the
understanding that such rate is quoted by Bank for the purpose of calculating
effective rates of interest for loans making reference thereto, on the first day
of a Fixed Rate Term for delivery of funds on said date for a period of time
approximately equal to the number of days in such Fixed Rate Term and in an
amount approximately equal to the principal amount to which such Fixed Rate Term
applies. Borrower understands and agrees that Bank may base its quotation of the
Inter-Bank Market
<PAGE>
Offered Rate upon such offers or other market indicators of the Inter-Bank
Market as Bank in its discretion deems appropriate including, but not limited
to, the rate offered for U.S. dollar deposits on the London Inter-Bank Market.
(b) "LIBOR Reserve Percentage" means the reserve percentage prescribed
by the Board of Governors of the Federal Reserve System (or any successor) for
"Eurocurrency Liabilities" (as defined in Regulation D of the Federal Reserve
Board, as amended), adjusted by Bank for expected changes in such reserve
percentage during the applicable Fixed Rate Term.
4. "Successor Rate" means a rate of interest, determined by Bank in its
sole discretion, such that Bank shall receive an equivalent financial return had
LIBOR remained available or ascertainable throughout the term of this Note.
B. INTEREST:
1. PAYMENT OF INTEREST. Interest accrued on this Note shall be payable
on the first day of each month, commencing April 1, 1997.
2. ADDITIONAL LIBOR PROVISIONS.
(a) If Bank at any time shall determine that for any reason adequate
and reasonable means do not exist for ascertaining Bank's LIBOR, then Bank shall
promptly give notice thereof to Borrower. If such notice is given and until such
notice has been withdrawn by Bank, then (i) no new LIBOR option may be selected
by Borrower, and, (ii) any portion of the outstanding principal balance hereof
which bears interest determined in relation to Bank's LIBOR, subsequent to the
end of the Fixed Rate Term applicable thereto, shall bear interest determined in
relation to the Successor Rate.
(b) If any law, treaty, rule, regulation or determination of a court or
governmental authority or any change therein or in the interpretation or
application thereof (each, a "Change in Law") shall make it unlawful for Bank
(i) to make LIBOR options available hereunder, or (ii) to maintain interest
rates based on Bank's LIBOR, then in the former event, any obligation of Bank to
make available such unlawful LIBOR options shall immediately be cancelled, and
in the latter event, any such unlawful LIBOR-based interest rates then
outstanding shall be converted, at Bank's option, so that interest on the
portion of the outstanding principal balance subject thereto is determined in
relation to the Prime Rate; provided however, that if any such Change in Law
shall permit any LIBOR-based interest rates to remain in effect until the
expiration of the Fixed Rate Term applicable thereto, then such permitted
LIBOR-based interest rates shall continue in effect until the expiration of such
Fixed Rate Term. Upon the occurrence of any of the foregoing events, Borrower
shall pay to Bank immediately upon demand such amounts as may be necessary to
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<PAGE>
compensate Bank for any fines, fees, charges, penalties or other costs incurred
or payable by Bank as a result thereof and which are attributable to any LIBOR
options made available to Borrower hereunder, and any reasonable allocation made
by Bank among its operations shall be conclusive and binding upon Borrower.
(c) IF any Change in Law or compliance by Bank with any request or
directive (whether or not having the force of law) from any central bank or
other governmental authority shall:
(i) subject Bank to any tax, duty or other charge with respect to any
LIBOR options, or change the basis of taxation of payments to Bank of
principal, interest, fees or any other amount payable hereunder (except for
changes in the rate of tax on the overall net income of Bank); or
(ii) impose, modify or hold applicable any reserve-, special deposit,
compulsory loan or similar requirement against assets held by, deposits or
other liabilities in or for the account of, advances or loans by, or any
other acquisition of funds by any office of Bank; or
(iii) impose on Bank any other condition;
and the result of any of the foregoing is to increase the cost to Bank of
making, renewing or maintaining any LIBOR options hereunder and/or to reduce any
amount receivable by Bank in connection therewith, then in any such case,
Borrower shall pay to Bank immediately upon demand such amounts as may be
necessary to compensate Bank for any additional costs incurred by Bank and/or
reductions in amounts received by Bank which are attributable-to such LIBOR
options. In determining which costs incurred by Bank and/or reductions in
amounts received by Bank are attributable to any LIBOR options made available to
Borrower hereunder, any reasonable allocation made by Bank among its operations
shall be conclusive and binding upon Borrower.
3. DEFAULT INTEREST. From and after the maturity date of this Note, or
such earlier date as all principal owing hereunder becomes due and payable by
acceleration or otherwise, the outstanding principal balance of this Note shall
bear interest until paid in full at an increased rate per annum (computed on the
basis of a 360-day year, actual days elapsed) equal to four percent (4%) above
the rate of interest from time to time applicable to this Note.
C . REPAYMENT AND PREPAYMENT:
1. REPAYMENT. Principal shall be payable in monthly installments as
follows:
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<PAGE>
(a) One Thousand Two Hundred Eighty-five Dollars ($1,285.00) each,
commencing on April 1, 1997 and continuing on the first day of each month
thereafter until and including March 1, 1998;
(b) One Thousand Four Hundred Fifteen Dollars ($1,415.00) each,
commencing on April 1, 1998 and continuing on the first day of each month
thereafter until and including March 1, 1999;
(c) One Thousand Five Hundred Fifty Dollars ($1,550.00) each,
commencing on April 1, 1999 and continuing on the first day of each month
thereafter until and including March 1, 2000;
(d) One Thousand Seven Hundred Five Dollars ($1,705.00) each,
commencing on April 1, 2000 and continuing on the first day of each month
thereafter until and including March 1, 2001;
(e) One Thousand Eight Hundred Seventy-five Dollars ($1,875.00) each,
commencing on April 1, 2001 and continuing on the first day of each month
thereafter until and including March 1, 2002;
(f) Two Thousand Sixty Dollars ($2,060.00) each, commencing on April 1,
2002 and continuing on the first day of each month thereafter until and
including March 1, 2003;
(g) Two Thousand Two Hundred Sixty-five Dollars ($2,265.00) each,
commencing on April 1, 2003 and continuing on the first day of each month
thereafter until and including March 1, 2004;
(h) Two Thousand Four Hundred Ninety Dollars ($2,490.00) each,
commencing on April 1, 2004 and continuing on the first day of each month
thereafter until and including March 1, 2005.
(i) Two Thousand Seven Hundred Forty Dollars ($2,740.00) each,
commencing on April 1, 2005 and continuing on the first day of each month
thereafter until and including March 1, 2006;
(j) Three Thousand Ten Dollars ($3,010.00) each, commencing on April 1,
2006 and continuing on the first day of each month .thereafter until and
including March 1, 2007;
All remaining unpaid principal and any accrued and unpaid interest
shall be due and payable in full on March 1, 2007.
2. APPLICATION OF PAYMENTS. Each payment made on this Note shall be
credited first, to any interest then due and second, to the outstanding
principal balance hereof.
3. PREPAYMENT Borrower may prepay principal on this Note at any time
and in the minimum amount of One Hundred Thousand Dollars ($100,000.00);
provided however, that if the outstanding principal balance of this Note is less
than said amount, the minimum prepayment amount shall be the entire outstanding
principal balance thereof. In consideration of Bank providing this prepayment
option to Borrower, or if this Note shall become due and payable at any time
prior to the last day of the Fixed
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<PAGE>
Rate Term applicable thereto by acceleration or otherwise, Borrower shall pay to
Bank immediately upon demand a fee which is the sum of the discounted monthly
differences for each month from the month of prepayment through the month in
which such Fixed Rate Term matures, calculated as follows for each such month:
(i) DETERMINE the amount of interest which would have accrued each
month on the amount prepaid at the interest rate applicable to
such amount had it remained outstanding until the last day of
the Fixed Rate Term applicable thereto.
(ii) SUBTRACT from the amount determined in (i) above the amount of
interest which would have accrued for the same month on the
amount prepaid for the remaining term of such Fixed Rate Term at
Bank's LIBOR in effect on the date of prepayment for new loans
made for such term and in a principal amount equal to the amount
prepaid.
(iii) If the result obtained in (ii) for any month is greater than
zero, discount that difference by Bank's LIBOR used in (ii)
above.
Each Borrower acknowledges that prepayment of such amount may result in Bank
incurring additional costs, expenses and/or liabilities, and that it is
difficult to ascertain the full extent of such costs, expenses and/or
liabilities. Each Borrower, therefore, agrees to pay the above-described
prepayment fee and agrees that said amount represents a reasonable estimate of
the prepayment costs, expenses and/or liabilities of Bank. if Borrower fails to
pay any prepayment fee when due, the amount of such prepayment fee shall
thereafter bear interest until paid at a rate per annum two percent (2.00%)
above the Prime Rate in effect from time to time (computed on the basis of a
360-day year, actual days elapsed).
(c) APPLICATION OF PREPAYMENTS. All prepayments of principal shall be
applied on the most remote principal. installment or installments then unpaid.
D. EVENTS OF DEFAULT:
The occurrence of any of the following shall constitute an "Event of
Default" under this Note:
1. The failure to pay any principal, interest, fees or other charges
when due hereunder or under any contract, instrument or document executed in
connection with this Note.
2. The filing of a petition by or against any Borrower, any guarantor
of this Note or any general partner or joint venturer in any Borrower which is a
partnership or a joint venture (with each such guarantor, general partner and/or
joint venturer referred to herein as a "Third Party Obligor") under any
provisions of the Bankruptcy Reform Act, Title 11 of the United
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<PAGE>
States Code, as amended or recodified from time to time, or under any similar or
other law relating to bankruptcy, insolvency, reorganization or other relief for
debtors; the appointment of a receiver, trustee, custodian or liquidator of or
for any part of the assets or property of any Borrower or Third Party Obligor;
any Borrower or Third Party Obligor becomes insolvent, makes a general
assignment for the benefit of creditors or is generally not paving its debts as
they become due; or any attachment or like levy on any property of any Borrower
or Third Party Obligor.
3. The death or incapacity of any individual Borrower or Third Party
Obligor, or the dissolution or liquidation of any Borrower or Third Party
Obligor which is a corporation, partnership, joint venture or other type of
entity.
4. Any default in the payment or performance of any obligation, or any
defined event of default, under any provisions of any contract, instrument or
document pursuant to which any Borrower or Third Party Obligor has incurred any
obligation for borrowed money, any purchase obligation, or any other liability
of any kind to any person or entity, including the holder.
5. Any financial statement provided by any Borrower or Third Party
Obligor to Bank proves false.
6. Any sale or transfer of all or a substantial or material part of the
assets of any Borrower or Third Party Obligor other than in the ordinary course
of its business.
7. Any violation or breach of any provision of, or any defined event of
default under, any addendum to this Note or any loan agreement, guaranty,
security agreement, deed of trust or other document executed in connection with
or securing this Note.
E. MISCELLANEOUS:
1. REMEDIES. Upon the sale, transfer, hypothecation, assignment or
other encumbrance, whether voluntary, involuntary or by operation of law, of all
or any interest in the property described in any deed of trust securing this
Note, or the occurrence of any Event of Default, the holder of this Note, at the
holder's option, may declare all sums of principal and interest outstanding
hereunder to be immediately due and payable without presentment, demand, protest
or notice of dishonor, all of which are expressly waived by each Borrower. Each
Borrower shall pay to the holder immediately upon demand the full amount of all
payments, advances, charges, costs and expenses, including reasonable attorneys'
fees (to include outside counsel fees and all allocated costs of the holder's
in-house counsel), incurred by the holder in connection with the enforcement of
the holder's rights and/or the collection of any amounts which become due to the
holder under this Note, and the prosecution or defense of any action in any way
related to this Note, including without limitation, any action for declaratory
relief, and including any
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<PAGE>
of the foregoing incurred in connection with any bankruptcy proceeding relating
to any Borrower.
2. OBLIGATIONS JOINT AND SEVERAL. Should more than one person or entity
sign this Note as a Borrower, the obligations of each such Borrower shall be
joint and several.
3. GOVERNING LAW. This Note shall be governed by and construed in
accordance with the laws of the State of California, except to the extent Bank
has greater rights or remedies under Federal law, whether as a national bank or
otherwise, in which case such choice of California law shall not be deemed to
deprive Bank of any such rights and remedies as may be available under Federal
law
This Note is secured by a Deed of Trust dated February 4, 1997.
See Addendum to Promissory Note attached hereto, all terms of which are
incorporated herein by this reference.
Pacific Magtron, Inc.
By: /s/ Theodore S. Li
----------------------
Theodore S. Li
Managing Director
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<PAGE>
ADDENDUM TO PROMISSORY NOTE
THIS ADDENDUM is attached to and made a part of that certain promissory
note executed by PACIFIC MAGTRON, INC. ("Borrower") and payable to WELLS FARGO
BANK, NATIONAL ASSOCIATION ("Bank"), or order, dated as of February 4, 1997, in
the principal amount of Two Million Five Hundred Thousand Dollars
($2,500,000.00) (the "Note").
The following provisions are hereby incorporated into the Note:
1. So long as Bank remains committed to extend credit to
Borrower under this Note and until payment in full of all obligations of
Borrower hereunder, Borrower shall provide to Bank all of the following,
in form and detail satisfactory to Bank:
(a) not later than 90 days after and as of the end of each
fiscal year, a reviewed financial statement of Borrower, prepared by a
certified public accountant acceptable to Bank, to include balance
sheet, income statement and statement of cash flow, together with all
supporting schedules and footnotes;
(b) not later than 30 days after and as of the end of each
fiscal quarter, a financial statement of Borrower, prepared by Borrower,
to include balance sheet and income statement; and
(c) not later than 45 days after and as of the end of each
calendar year, a financial statement of each guarantor hereunder,
prepared by such guarantor, to include balance sheet and income
statement, and within 15 days after filing, but in no event later than
each October 31, copies of each such guarantor's filed federal income
tax returns for such year;
(d) from time to time such financial and other information as
Bank may reasonably request.
2. FINANCIAL CONDITION. Borrower shall maintain Borrower's
financial condition as follows using generally accepted accounting
principles consistently applied and used consistently with prior
practices (except to the extent modified by the definitions herein):
(a) Total Liabilities divided by Tangible Net Worth not at any
time greater than 2.5 to 1.0, with "Total Liabilities" defined as the
aggregate of current
<PAGE>
liabilities and non-current liabilities less subordinated debt, and with
"Tangible Net Worth" defined as the aggregate of total stockholders'
equity plus subordinated debt less any intangible assets.
(b) Net income after taxes not less than $1.00 on an annual
basis, determined as of each fiscal year end, with no more than two
consecutive quarterly losses in any fiscal year.
(c) EBITDA Coverage Ratio not less than 1.25 to 1.0 as of each
fiscal year end, with "EBITDA" defined as net profit before tax plus
interest expense (net of capitalized interest expense), depreciation
expense and amortization expense, and with "EBITDA Coverage Ratio"
defined as EBITDA divided by the aggregate of total interest expense
plus the prior period current maturity of long-term debt and the prior
period current maturity of subordinated debt.
3. ARBITRATION:
(a) ARBITRATION. Upon the demand of any party, any Dispute shall
be resolved by binding arbitration (except as set forth in (e) below) in
accordance with the terms of this Note. A "Dispute" shall mean any
action, dispute, claim or controversy of any kind, whether in contract
or tort, statutory or common law, legal or equitable, now existing or
hereafter arising under or in connection with, or in any way pertaining
to, this Note and each other document, contract and instrument required
hereby or now or hereafter delivered to Bank in connection herewith
(collectively, the "Documents"), or any past, present or future
extensions of credit and other activities, transactions or obligations
of any kind related directly or indirectly to any of the Documents,
including without limitation , any of the foregoing arising in
connection with the exercise of any self-help, ancillary or other
remedies pursuant to any of the Documents. Any party may by summary
proceedings bring an action in court to compel arbitration of a Dispute.
Any party who fails or refuses to submit to arbitration following a
lawful demand by any other party shall bear all costs and expenses
incurred by such other party in compelling arbitration of any Dispute.
(b) GOVERNING RULES. Arbitration proceedings shall be
administered by the American Arbitration Association ("AAA") or such
other administrator as the parties shall mutually agree upon in
accordance with the AAA Commercial Arbitration Rules. All Disputes
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<PAGE>
submitted to arbitration shall be resolved in accordance with the
Federal Arbitration Act (Title 9 of the United States Code),
notwithstanding any conflicting choice of law provision in any of the
Documents. The arbitration shall be conducted at a location in
California selected by the AAA or other administrator. If there is any
inconsistency between the terms hereof and any such rules, the terms and
procedures set forth herein shall control. All statutes of limitation
applicable to any Dispute shall apply to any arbitration proceeding. All
discovery activities shall be expressly limited to matters directly
relevant to the Dispute being arbitrated. Judgment upon any award
rendered in an arbitration may be entered in any court having
jurisdiction; provided however, that nothing contained herein shall be
deemed to be a waiver by any party that is a bank of the protections
afforded to it under 12 U.S.C. ss.91 or any similar applicable state
law.
(c) NO WAIVER; PROVISIONAL REMEDIES, SELF-HELP AND FORECLOSURE.
No provision hereof shall limit the right of any party to exercise
self-help remedies such as setoff, foreclosure against or sale of any
real or personal property collateral or security, or to obtain
provisional or ancillary remedies, including without limitation
injunctive relief, sequestration, attachment, garnishment or the
appointment of a receiver, from a court of competent jurisdiction
before, after or during the pendency of any arbitration or other
proceeding. The exercise of any such remedy shall not waive the right of
any party to compel arbitration or reference hereunder.
(d) ARBITRATOR QUALIFICATIONS AND POWERS; AWARDS. Arbitrators
must be active members of the California State Bar or retired judges of
the state or federal judiciary of California, with expertise in the
substantive law applicable to the subject matter of the Dispute.
Arbitrators are empowered to resolve Disputes by summary rulings in
response to motions filed prior to the final arbitration hearing.
Arbitrators (i) shall resolve all Disputes in accordance with the
substantive law of the state of California, (ii) may grant any remedy or
relief that a court of the state of California could order or grant
within the scope hereof and such ancillary relief as is necessary to
make effective any award, and (iii) shall have the power to award
recovery of all costs and fees, to impose sanctions and to take such
other actions as they deem necessary to the same extent a judge could
pursuant to the Federal Rules of Civil Procedure, the California
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<PAGE>
Rules of Civil Procedure or other applicable law. Any Dispute in which
the amount in controversy is $5,000,000 or less shall be decided by a
single arbitrator who shall not render an award of greater than
$5,000,000 (including damages, costs, fees and expenses). By submission
to a single arbitrator, each party expressly waives any right or claim
to recover more than $5,000,000. Any Dispute in which the amount in
controversy exceeds $5,000,000 shall be decided by majority vote of a
panel of three arbitrators; provided however, that all three arbitrators
must actively participate in all hearings and deliberations.
(e) JUDICIAL REVIEW. Notwithstanding anything herein to the
contrary, in any arbitration in which the amount in controversy exceeds
$25,000,000, the arbitrators shall be required to make specific, written
findings of fact and conclusions of law. In such arbitrations (A) the
arbitrators shall not have the power to make any award which is not
supported by substantial evidence or which is based on legal error, (B)
an award shall not be binding upon the parties unless the findings of
fact are supported by substantial evidence and the conclusions of law
are not erroneous under the substantive law of the state of California,
and (C) the parties shall have in addition to the grounds referred to in
the Federal Arbitration Act for vacating, modifying or correcting an
award the right to judicial review of (1) whether the findings of fact
rendered by the arbitrators are supported by substantial evidence, and
(2) whether the conclusions of law are erroneous under the substantive
law of the state of California. Judgment confirming an award in such a
proceeding may be entered only if a court determines the award is
supported by substantial evidence and not based on legal error under the
substantive law of the state of California.
(f) REAL PROPERTY COLLATERAL; JUDICIAL -REFERENCE.
Notwithstanding anything herein to the contrary, no Dispute shall be
submitted to arbitration if the Dispute concerns indebtedness secured
directly or indirectly, in whole or in part, by any real property unless
(i) the holder of the mortgage, lien or security interest specifically
elects in writing to proceed with the arbitration, or (ii) all parties
to the arbitration waive any rights or benefits that might accrue to
them by virtue of the single action rule statute of California, thereby
agreeing that all indebtedness and obligations of the parties, and all
mortgages, liens and security interests securing such indebtedness and
obligations, shall remain fully valid and enforceable.
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<PAGE>
If any such Dispute is not submitted to arbitration, the Dispute shall
be referred to a referee in accordance with California Code of Civil
Procedure Section 638 et seq., and this general reference agreement is
intended to be specifically enforceable in accordance with said Section
638. A referee with the qualifications required herein for arbitrators
shall be selected pursuant to the AAA's selection procedures. Judgment
upon the decision rendered by a referee shall be entered in the court in
which such proceeding was commenced in accordance with California Code
of Civil Procedure Sections 644 and 645.
(g) MISCELLANEOUS. To the maximum extent practicable, the AAA,
the arbitrators and the parties shall take all action required to
conclude any arbitration proceeding within 180 days of the filing of the
Dispute with the AAA. No arbitrator or other party to an arbitration
proceeding may disclose the existence, content or results thereof,
except for disclosures of information by a party required in the
ordinary course of its business, by applicable law or regulation, or to
the extent necessary to exercise any judicial review rights set forth
herein. If more than one agreement for arbitration by or between the
parties potentially applies to a Dispute, the arbitration provision most
directly related to the Documents or the subject matter of the Dispute
shall control. This Note may be amended or modified only in writing
signed by Bank and Borrower. If any provision of this Note shall be held
to be prohibited by or invalid under applicable law, such provision
shall be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or any
remaining provisions of this Note. This arbitration provision shall
survive termination, amendment or expiration of any of the Documents or
any relationship between the parties.
IN WITNESS WHEREOF, this Addendum has been executed as of the same date
as the Note.
Pacific Magtron Inc
By: /s/ Theodore S. Li
----------------------
Theodore S. Li
Managing Director
SERVICING AGENT AGREEMENT
SBA LOAN NUMBER SBA OFFICE NAME
CDC 942 585 30 03 CA San Francisco District
- --------------------------------------------------------------------------------
BORROWER'S NAME(S)
PACIFIC MAGTRON, INC., a California corporation
- --------------------------------------------------------------------------------
NAME TO APPEAR ON COLSON REPORTS TO THE CDC (IF DIFFERENT)
PACIFIC MAGTRON, INC., a California corporation
- --------------------------------------------------------------------------------
BORROWER'S STREET ADDRESS CITY/STATE/ZIP
1524 California Circle Milpitas, CA 95035
- --------------------------------------------------------------------------------
TAXPAYER 10 NO. (MUST BE 9 DIGITS)
77-0228715 (Pacific Magtron, Inc.)
- --------------------------------------------------------------------------------
SMALL BUSINESS CONCERN (SBC) NAME (IF DIFFERENT FROM BORROWER)
- --------------------------------------------------------------------------------
SBC STREET ADDRESS (IF DIFFERENT FROM BORROWER ADDRESS) CITY/STATE/ZIP
- --------------------------------------------------------------------------------
CERTIFIED DEVELOPMENT COMPANY CDC No.
The Mortgage Capital Development Corporation 09655
- --------------------------------------------------------------------------------
CENTRAL SERVICING AGENT
Colson Services Corp., 504 Loan Department
150 Nassau Street, New York, NY 10038
- --------------------------------------------------------------------------------
This Agreement is made by the parties hereto pursuant to the Master Servicing
Agent Agreement ("MSAA") dated 1-1-95 , between the U. S. Small Business
Administration ("SBA') and Colson Services Corp. (-Central Servicing Agent-). In
the event that SBA shall name a successor Central Servicing Agent Pursuant to a
new MSAA. such Agreement shall provide that such successor undertakes the
obligations and succeeds to the rights of Colson Services Corp. under the
Agreement on the same terms as stated herein. The Borrower and the CDC agree in
that event to the substitution of the successor Central Servicing Agent for
Colson Services Corp. in this Agreement as if such successor were named herein
and a signatory hereto.
NOTE TO SBA DISTRICT OFFICE. SEND THIS AGREEMENT TO THE CENTRAL SERVICING AGENT
BY OVERNIGHT MAIL ONLY.
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<PAGE>
This Agreement is made by the parties hereto in reference to the following
facts:
Whereas the Borrower has obtained financial assistance from the CDC in
the form of a Loan. or a Lease, of real and/or personal property; and
Whereas the CDC has issued a Debenture, as described above, to fund said
financial assistance which financial assistance is secured by Borrower's
Note and related collateral in the case of a Loan or Lease Agreement in
the case of a Lease; and
Whereas the Small Business Administration ("SBA") has guaranteed the
Debenture pursuant to 15 U.S.C. Section 697; and
Whereas the CDC has assigned the Note and related collateral or the
Lease, as the case may be to SBA as security for SBA's guarantee; and
Whereas SBA, in consideration of its guarantee, has required the parties
hereto appoint a Central Servicing Agent ("CSA") to receive and
distribute funds flowing among the parties hereto and perform other
services as specified herein and in the MSAA; and
Whereas the Debenture has been pooled with like Debentures. and
Certificates have been issued representing ownership of all or a
fractional part of such pool to investors who have purchased interest in
the pool; and
Whereas SBA has appointed a Trustee to issue Certificates to the
Investors, receive f unds from the CSA and remit funds to the Investors.
NOW, THEREFORE. IT IS AGREED BY THE PARTIES AS FOLLOWS:
1. APPOINTMENT OF SERVICING AGENT
a. The CDC hereby appoints Colson Services Corp. as its agent to:
(1) Receive the proceeds of the sale of the Debenture, net of
selling expenses, from the Selling Group as defined herein
below and, after distributing any of the proceeds in the
manner set forth herein, to disburse the remaining proceeds
to the Borrower specified herein.
(2) Receive monthly Loan or Lease payments from the Borrower.
credit some within one business day of receipt and retain
said payments in an account established pursuant to the MSAA
called the Maste'r Reserve Account ("MRA") until a
semi-annual Debenture payment is due.
(3) Remit semi-annual Debenture payments to the Trustee as
required by the MSAA.
b. The Borrower hereby consents to appointment of Colson Services
Corp. as CSA and in addition agrees to:
(1) Remit its monthly Loan or Lease payments when due to CSA by
Automatic Clearing House or Federal Fund wire transfer, or
in a manner approved by CSA in writing.
(2) Pay all fees attributable to Borrower as described herein.
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<PAGE>
DEBENTURE AND BORROWER'S OBLIGATIONS
Date of SBA approval July 29, 1996
(a) DEBENTURE (b) NOTE (OR LEASE)
a. * Principal Amount: $998,000.00 $998,000.00
b. Issue or Note/Lease Date: April 16, 1997 February 12, 1997
c. Interest Rate: % %**
d. Maturity Date: April 1, 2017 April 1, 2017
e. Payment: $ $
(Semi-Annual) (Monthly P & I)
f. Payment Dates:
Every 1st of April May 1, 1997
(First of month starting)
and 1st of October
g. Net Debenture Proceeds: $ 971,000.00
(as defined in 13 CFR 108.2)
The Borrower hereby certifies that the CDC has extended financial assistance to
the Borrower in the form of a Loan or a Lease evidenced by a written instrument
(the "Note" or the "Lease"), a copy of which is attached hereto, and described
in Column (b) above.
The CDC hereby certifies that it has issued a Debenture described in Column (a)
above. The CDC acknowledges that it is solely responsible for collecting all
Loan or Lease payments, including delinquent payments if any, due from the
Borrower so that funds shall be available for making all required payments due
pursuant to the terms of the Debenture. The CDC agrees to remit any delinquent
payments collected by the CDC from the Borrower to the CSA.
* Item in Column (a) must be identical to item in Column (b)
** The Note Rate is the interest rate charged on the Debenture. adjusted to
ref iect monthly amortization. Servicing fees, as per Section 8. are added
to monthly principal and interest payments to arrive at Borrower's total
monthly obligations. As set f orth in the Loan Amortization Schedule
attached to the Note. this combined amount is -the amount that must be
remitted to the CSA each month.
3. UNDERWRITERS FEE
The offering of the Certificates to investors through one or more
Underwriters has been arranged. The Underwriters fee for this service is
five-eighths of one percent (5/8 of I %) of the total Debenture proceeds.
identified in Section 5.b. hereof.
4. INITIATION. PROCESSING AND CLOSING FEES
The CDC and Borrower agree to pay the fees and closing costs set forth in
the Disbursement instructions, identified in Section 5.a.(3.) hereof.
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<PAGE>
5. DISBURSEMENT INSTRUCTIONS (All information must be completed "N/A" if not
applicable) (NOTE: Please round to the nearest penny.)
The total Debenture proceeds shall be disbursed as follows:
a. The CSA will disburse the following:
(1) Amount of the Net Debenture Proceeds to be disbursed
(less amount in (2), if applicable) to Borrower's
Creditor(s) by wire-transfer, as their interests appear
below: $ 971,000.00
(a) RECIPIENT BANK (e.g., Interim Lender) (NET DEBENTURE PROCEEDS):
NAME OF RECIPIENT BANK CITY AND STATE
9920 So. La Cieniga Blvd,
Imperial Bank Inglewood, CA 90301
ACCOUNT NAME ACCOUNT NUMBER
Santa Clara Land Title Company 16-147-230
ROUTING SYMBOL & TRANSACTION CODE ATTENTION OF:
(MUST BE 9 DIGITS) Liz Zankich
122-201-444 Esc. # SP116109
(b) CORRESPONDENT BANK - COMPLETE THE FOLLOWING ONLY IF RECIPIENT
BANK IS NOT A FEDWIRE MEMBER:
CORRESPONDENT BANK NAME CITY AND STATE
ACCOUNT NAME ACCOUNT NUMBER
ROUTING SYMBOL & TRANSACTION CODE (MUST BE 9 DIGITS) ATTENTION OF:
(2) Amount of Net Debenture Proceeds held in escrow by CSA
pursuant to Regulations Section 108.503-7(c): 0
(3) Processing Fees. Deposits, and Other CJosing Costs:
(a) Reserve Amount (0.005 times Net Debenture
Proceeds) to be deposited in Master Reserve
Account 4,855.00
(b) Funding Fee (0.0025 times Net Debenture Proceeds)
2,427.50
(c) CDC Processing Fee (0.015) times Net Debenture
Proceeds) 14,565.00
(d) Closing Costs 0
SUM of (a) through (d): 21,847.50
(4) Balance. if any. to the Borrower in amount of: 162.50
(5) Amount received and disbursed by CSA (Sum of Items (1)
thru (4)): 993,010.00
b. The Underwriters fee is withheld prior to CSA Receipt of
funds. (Underwriters Fee calculated as follows: Sum of (1).
(2) & (3) from above divided by 0.99375; round this number
up to the next highes-t thousand; multiply this number
by.00625): 4,990.00
c. TOTAL DEBENTURE AMOUNT (sum of Items a. (5) plus b.):
998,000.00
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<PAGE>
Under the attached Note Lease, the Borrower is subject to a late payment charge
which the CSA shall remit to either the. CSA or SEA at the direction of SBA as
compensation for additional collection efforts.
7. PREPAYMENT
It is understood that the Note or Lease is subject to prepayment, at the
option of the Borrower, upon notification of CSA by SEA and based on the
prepayment price computed as set forth in the Borrower's Note or Lease. The
Borrower agrees to give 45 days written notice to the CDC if it elects to
prepay such Note or Lease. in accordance with the -Prepayment' provision of
the attached Note or Lease. Any such prepayment will be remitted an the
scheduled prepayment date by CSA to the MRA as directed in writing by SEA.
It is further understood that prepayments in an amount less than necessary
to fully prepay the Note or Lease or made later than the scheduled date
shall not be permitted.
8. SERVICING FEES
As stated in Section 2 above, in addition to the principal and interest
payment, the Borrower's obligation includes the following servicing fees:
a. The Borrower's total monthly obligation shall include a servicing fee
of one-tenth of one percent (1/10 of I %) per annum on the balance of
the Note or Lease. such balance to be determined at S-year anniversary
intervals at the beginning of such interval. This fee shall be
deposited by the CSA in a subaccount of the MRA called the MRA fee
subaccount.
b. The Borrower's total monthly obligation shall include a servicing fee
paid to the CDC of one-half of one percent(1/2 of 1 %) per annum of
the outstanding balance of the Note or Lease determined at 5-year
anniversary intervals at the beginning of such interval.
9. COMPLETION OF DOCUMENTS
The Undersigned hereby authorize SEA or its agent, and/or the CSA, to date
and otherwise complete any terms of the Debenture. documents evidencing the
Borrower's obligation, and/or this Servicing Agent Agreement. which are
unknown at the time of execution thereof as soon thereafter as such terms
become known.
10. COMPENSATION TO CSA
CSA shall be compensated for performing the services set forth in Section
1.a. of this Agreement from the MRA fee subaccount at a price for such
services agreed to with SEA.
11. INDEMNIFICATION
The CSA and CDC shall indemnify and hold each other harmless from any and
all suits, liabilities, and claims, losses. costs and expenses (including
reasonable attorney's fees) incurred by either as a result of the other's
negligence or bad faith or failure to perform in accordance with this
Agreement or with instructions which either party may receive from time to
time.
12 TAXPAYER IDENTIFICATION NUMBER
A borrower is required by law to provide the Central Servicing Agent (CSA),
Colson Services Corp.. with its correct taxpayer identification number. If
the borrower does not provide the CSA with its correct identification
number. the borrower may be subject to civil or criminal penalties imposed
by law. Under penalties of perjury, the borrower certifies that the
taxpayer identification number shown on Page 1 of this Servicing Agent
Agreement is correct.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement or caused this
Agreement to be executed by their respective officers thereunto duly authorized
as of the 12th day of February 1997.
The Mortgage Capital PACIFIC MAGTRON, INC., a California
Development Corporation corporation
(Certified Development Company Name) (Borrower's Name(s))
BY: /s/ Mary Retzinger /s/ Theodore S. Li
Mary Retzinger, Vice President Theodore S. Li, President
Attest: /s/ Carole Hines
Carole Hines
Assistant Secretary
Small Business Concern (if not the Borrower):
ACCEPTANCE BY CSA
Colson Services Corp.. as Central Servicing Agent. hereby accepts appointment as
the CSA in accordance with provisions of the foregoing Agreement at its offices
in New York, New York on this 16th day of April, 1997.
Colson Services Corp.
By:
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<PAGE>
SBA LOAN NUMBER
CDC 942 585 30 03 CA
ADDENDUM TO SBA FORM 1506, PAGE 5
8c. The borrower's total monthly obligation shall include a servicing fee
paid to SBA of one-eighth of one percent (1 /8 of 1 %) per annum on the
outstanding balance of the Note or Lease determined at 5-year
anniversary intervals at the beginning of such interval.
Dated: February 12, 1997
CDC Name
THE MORTGAGE CAPITAL DEVELOPMENT CORPORATION
Attest: /s/ Carole Hines By: /s/ Mary Retzinger
Carole Hines, Assistant Secretary Mary Retzinger, Vice President
Borrower/Operating Company
PACIFIC MAGTRON, INC., a California corporation
By: /s/ Theodore S. Li
Theodore S. Li, President
Page 7 of 7
MUTUAL CONFIDENTIALITY AND
NON-DISCLOSURE AGREEMENT
This Agreement is made and entered into on the 10th day of September,
1997.
BETWEEN:
(1) Creative Labs, Inc. having the principal offices at 1901 McCarthy
Boulevard, Milpitas, CA 95085 ("Creative").
(2) Pacific Magtron, Inc. a California corporation having its principal offices
at 1800 California Circle, Milpitas, CA 95085 (" ")
WHEREAS:
1. Creative and Pacific Magtron are engaged in discussions with respect to a
possible business or financial arrangement or venture between them relating
to multimedia technology.
2. In connection therewith disclosure of certain information which is
proprietary/confidential to the parties may become necessary or desirable.
3. Each party is willing to disclose such Proprietary/Confidential Information
to the other parties upon the terms and conditions herein set forth and
each party is willing to maintain the confidentiality of such information
disclosed to it by the other parties in accordance with the terms and
conditions hereof.
NOW THEREFORE, in consideration of the disclosure of such
Proprietary/Confidential Information and the mutual covenants and promises
herein contained, it is agreed as follows:
1. INTERPRETATION
For the purposes of this Agreement, "Proprietary/Confidential Information"
shall mean any and all proprietary, secret information, technical data or
know-how related to any aspect of other party's business or technology
including, without limitation, data, know- how, formulas, designs,
photographs, drawings, specification, software programs and samples and any
other material bearing or incorporating any such information which is
disclosed by one party to the other, which information, data or know-how is
marked or stipulated as being "Proprietary", "Confidential", "Strictly
Private" or otherwise, using words of similar significance. Such disclosure
may be made either directly or indirectly, in writing, orally or by
drawings, plans or inspection of products, materials, parts or equipment.
2. UNDERTAKING OF THE PARTIES
Each party hereby undertakes to treat and maintain all
Proprietary/Confidential Information received from any of the other parties
in confidence. With respect thereto, each party hereby undertakes and
agrees as follows:
<PAGE>
i. For a period of 5 years from the date of this Agreement, the receiving
party shall not publish, disseminate nor disclose any
Proprietary/Confidential Information received from any of the other
parties to any third party accept to those of its own employment
having valid need to know the information in the course of employment
and such disclosure shall be on terms not less restrictive than those
herein contained.
ii. The receiving party shall use the same degree of care to avoid
disclosure or use of the Proprietary/Confidential Information as it
uses in respect of its own information of like importance but in no
case less than a reasonable degree of care.
iii. The receiving party shall in accordance with the request of the other
parties, either return all copies, recording and tangible
manifestations of Proprietary/Confidential Information or destroy the
same following a determination by any of the parties not to enter into
any arrangement or venture with each other of the kind contemplated
herein or upon termination of any related memorandum of understanding
or agreement entered into between the parties or upon the written
request of the disclosing party.
3. EXCEPTIONS
The aforesaid restrictions on the parties shall not apply to any
Proprietary/Confidential Information which
i. Can be proved by documentary evidence to be such
Proprietary/Confidential Information that was already in the
possession of the receiving party and at its free disposal before the
disclosure hereunder to it;
ii. Is received by the receiving party from third parties without
accompanying secrecy or confidentiality obligations and not in
violation of any duty of confidence under this agreement;
iii. Is independently developed by the receiving party;
iv. Is or becomes generally available to the public in printed
publications in general discussion through no act or default on the
part of the receiving party or its agents or employees;
v. Is furnished to a third party by a party hereunto who owns such
Proprietary/Confidential Information without similar restriction on
the third party's rights;
vi. Is approved for release by written authorization of the other party;
or vii. Is disclosed pursuant to any requirement or request by
operation of law provided that the involving party shall prior to
disclosure notify the disclosing party of any such requirement or
request.
4. OWNERSHIP
All Proprietary/Confidential Information disclosed pursuant to this
Agreement shall be and remain the property of the disclosing party. Nothing
in this Agreement shall be construed as granting or confirming any rights
by license or otherwise expressly impliedly or otherwise, for any of the
Proprietary/Confidential Information disclosed by the disclosing party
hereunder. All Proprietary/Confidential Information, existing in written
form or recorded in any other tangible medium, shall be returned to the
disclosing party upon its request, together with any reproductions or
copies thereof. Further, upon the disclosing party's request, notes,
memoranda and reports which incorporate the Proprietary/Confidential
Information shall, without exception, be destroyed.
5. ORAL DISCLOSURE
In the event the disclosing party of such Proprietary/Confidential
Information orally discloses the information to the receiving party, the
disclosing party agrees to promptly notify the receiving party of the
confidentiality of such oral disclosure and reduces to writing such
Proprietary/Confidential Information and submit the same to the receiving
party within 15 days of such oral disclosure, upon which the receiving
party shall not be bound by the confidentiality obligations as herein
provided as regards the said Proprietary/Confidential Information disclosed
orally.
6. AUTHORIZATION
Each party agrees that necessary authorizations, permits or licenses
including expert licenses as may be required will be obtained prior to the
exportation/disclosure of any Proprietary/Confidential Information relating
to the technology of the other party. The disclosing party shall notify the
receiving party of the need to obtain any required authorizations, permits
and licenses and/or the need to comply with any relevant laws or
regulations relating to the disclosure. The disclosing party shall obtain
the required authorizations, permits and licenses.
7. SURVIVAL
The aforesaid obligations of the receiving party shall survive the
termination of this Agreement.
8. LIMITED WARRANTY
Each party hereto warrants that it has the right to disclose the
Proprietary/Confidential Information which it discloses to the other
parties and that the Proprietary/Confidential Information disclosed is to
the best of its knowledge, correct. Nothing contained in this agreement
shall be construed to obligate any party to disclose any information to the
other parties.
9. REMEDY FOR BREACH
It is understood and agreed between the parties that any breach of the
obligations of confidentiality contained in this Agreement may cause the
disclosing party irreparable loss. Accordingly, and in addition to any
other remedies a party may have in law or equity, the disclosing party
shall be entitled to obtain injunctive relief against the receiving party
to prevent any further or continuing breach of the receiving party's
obligations or additional damage to the disclosing party in the event such
loss is in fact incurred by the disclosing party as a result of the breach
or is imminent.
10. SEVERABILITY
If, for any reason, a court of competent jurisdiction finds any provision
of this Agreement, or any portion thereof, to be unenforceable, such
decision shall not affect the validity of the remaining portion, which
remaining portion shall continue in full force and effect as if this
Agreement had been executed with the invalid portion thereof eliminated
therefrom.
In the event that a portion of this Agreement shall be declared to be
invalid, then the parties agree, that they shall, in good faith, negotiate
with one another to replace such invalid provision with a valid provision
as similar as possible to that which had been said to be invalid.
11. TERMINATION
This Agreement shall govern all matters referred to herein until terminated
by either party upon thirty days written notice to the other or in
accordance with this Agreement. Upon termination, all information and
materials shall be returned to the respective parties. Notwithstanding the
termination, each party shall continue to fulfill its obligations hereunder
for a period of five (5) years thereafter.
12. MISCELLANEOUS
Any notice or communication to be given under this Agreement shall be given
if delivered in writing to the intended recipient at the address and marked
for the attention of the person set out in this Agreement or as may be
notified from time to time by the party concerned.
This Agreement shall be fully binding upon inure to the benefit of and be
enforceable by the parties herein, their legal representatives and other
respective successors and assigns. Each party shall not make any assignment
of the Agreement or any interest therein without the prior written consent
of the other party.
The failure of any party to insist upon or enforce strict performance of
any of the provisions of this Agreement or to exercise any rights or
remedies under the Agreement shall not be construed as a waiver or
relinquishment to any extent of such party's rights to assert or rely upon
any such provisions, rights or remedies in that or any other instance;
rather the same shall remain in full force and affect.
The terms of this Agreement are confidential and shall not be disclosed to
third parties without the written consent of all parties, accept to the
extent required by a court or regulatory agency of competent jurisdiction.
13. GOVERNING LAW
This Agreement shall be governed by, construed and enforced in accordance
with California Law.
IN WITNESS WHEREOF, the parties have hereunto set their hands the day and
year first written above.
CREATIVE LABS, INC PACIFIC MAGTRON, INC.
Signature: /s/ Joseph R. Bowsky Signature: /s/ Ted Li
-------------------------- --------------------------
Name: Joseph R. Bowsky Name: Ted Li
------------------------------- -------------------------------
Designation: National Sales Manager Designation: President
------------------------ ------------------------
OEM Division
EXHIBIT 21.1
SUBSIDIARIES
SUBSIDIARY STATE OF INCORPORATION
---------- ----------------------
Pacific Magtron, Inc. California
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CURRENCY> U.S DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 3,262,900
<SECURITIES> 0
<RECEIVABLES> 5,140,900
<ALLOWANCES> 113,100
<INVENTORY> 2,066,800
<CURRENT-ASSETS> 10,681,800
<PP&E> 4,114,800
<DEPRECIATION> 209,800
<TOTAL-ASSETS> 15,057,800
<CURRENT-LIABILITIES> 5,119,900
<BONDS> 0
0
0
<COMMON> 10,000
<OTHER-SE> 6,468,500
<TOTAL-LIABILITY-AND-EQUITY> 15,057,800
<SALES> 96,388,500
<TOTAL-REVENUES> 96,388,500
<CGS> 90,364,700
<TOTAL-COSTS> 90,364,700
<OTHER-EXPENSES> 78,200
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 238,600
<INCOME-PRETAX> 2,086,000
<INCOME-TAX> 847,100
<INCOME-CONTINUING> 1,238,900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,238,900
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
