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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 18, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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MOREDIRECT.COM, INC.
(Exact Name of Registrant as Specified in Its Charter)
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<TABLE>
<S> <C> <C>
FLORIDA 65-0526173
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation) Classification Code Number) Identification Number)
</TABLE>
3401 N. FEDERAL HIGHWAY, SUITE 216
BOCA RATON, FLORIDA 33431
561-367-1188
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
RUSSELL L. MADRIS
3401 N. FEDERAL HIGHWAY, SUITE 216
BOCA RATON, FLORIDA 33431
561-367-1188
(Name, Address Including Zip Code, and Telephone Number, Including Area Code, of
Agent for Service)
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COPIES TO:
<TABLE>
<S> <C>
BRUCE I. MARCH, ESQ. DENNIS J. BLOCK, ESQ.
SCOT P. O'BRIEN, ESQ. CADWALADER, WICKERSHAM & TAFT
AKERMAN, SENTERFITT & EIDSON, P.A. 100 MAIDEN LANE
350 EAST LAS OLAS BOULEVARD, SUITE 1600 NEW YORK, NEW YORK 10038
FORT LAUDERDALE, FLORIDA 33301 212-504-5555
954-463-2700 212-504-5557 (FACSIMILE)
954-463-2224 (FACSIMILE)
</TABLE>
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Approximate date of commencement of proposed sale to the public: AS SOON AS
PRACTICABLE AFTER THE EFFECTIVENESS OF THIS REGISTRATION STATEMENT.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the earlier offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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TITLE OF EACH CLASS PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES AGGREGATE OFFERING REGISTRATION
TO BE REGISTERED PRICE(1) FEE
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<S> <C> <C>
Common stock, par value $.01 per share.......... $50,000,000 $13,200
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c).
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
MOREDIRECT.COM MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE.
THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER
OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION -- DATED , 2000
PROSPECTUS
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Shares
(MOREDIRECT LOGO)
Common Stock
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MoreDirect.com, Inc. is offering shares of its common stock in an
initial public offering. Prior to this offering, there has been no public market
for MoreDirect.com's common stock.
MoreDirect.com, is a business-to-business, or B2B, electronic marketplace
providing a one-stop online solution for the procurement of information
technology products.
It is anticipated that the public offering price will be between $ and
per share. Application has been made to include the common stock for
quotation in the Nasdaq National Market under the symbol "MDIR". Following this
offering, Russell J. Madris, our founder, Chairman, Chief Executive Officer and
President will beneficially own approximately % of our outstanding common
stock, assuming no exercise of the underwriters' over-allotment option.
<TABLE>
<CAPTION>
Per Share Total
<S> <C> <C>
Public offering price.................................. $ $
Underwriting discounts and commissions................. $ $
Proceeds, before expenses, to MoreDirect.com........... $ $
</TABLE>
SEE "RISK FACTORS" ON PAGES 9 TO 18 FOR FACTORS THAT SHOULD BE CONSIDERED BEFORE
INVESTING IN THE SHARES OF MOREDIRECT.COM.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
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The underwriters may, under certain circumstances, purchase up to
additional shares from MoreDirect.com at the public offering price,
less underwriting discounts and commissions. Delivery and payment for the shares
will be on .
PRUDENTIAL VOLPE TECHNOLOGY
A UNIT OF PRUDENTIAL SECURITIES
ING BARINGS
THE ROBINSON-HUMPHREY COMPANY
, 2000
<PAGE> 3
[The above chart illustrates numerous multi-tiered and highly fragmented
distribution channels for the traditional supply of information technology
products. The chart shows how information technology products move between
wholesale distributors, master resellers, value added resellers, retailers and
corporate and government end-users.]
[The above chart illustrates how MoreDirect.com provides a one-stop online
solution for the procurement of information technology products. The chart shows
how MoreDirect.com consolidates the inventories of the wholesale distributors
allowing the corporate and government end-users to go directly to MoreDirect.com
to obtain products from these inventories.]
<PAGE> 4
TABLE OF CONTENTS
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PAGE
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<S> <C>
Prospectus Summary.................... 4
Risk Factors.......................... 9
Forward-Looking Statements............ 19
Use of Proceeds....................... 20
Dividend Policy....................... 20
S Corporation Distribution and
Conversion to C Corporation
Status.............................. 21
Dilution.............................. 22
Capitalization........................ 23
Selected Financial Data............... 24
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 26
</TABLE>
<TABLE>
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PAGE
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<S> <C>
Business.............................. 34
Management............................ 44
Certain Transactions.................. 49
Principal Shareholders................ 50
Description of Capital Stock.......... 51
Shares Eligible for Future Sale....... 53
Underwriting.......................... 55
Experts............................... 56
Legal Matters......................... 56
Where You Can Find More Information... 57
Index to Financial Statements......... F-1
</TABLE>
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We own or have rights to various trademarks and trade names used in our
business, including MoreDirect.com and TRAXX. Each trademark, trade name and
service mark of any other company appearing in this prospectus belongs to its
holder.
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You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with different information. We are not
making an offer of these securities in any jurisdiction where the offer or sale
is not permitted. You should not assume that the information in this prospectus
is accurate as of any date other than the date on the front cover of this
prospectus.
3
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PROSPECTUS SUMMARY
This summary highlights selected information that we present more fully
elsewhere in this prospectus. This summary does not contain all of the
information that you should consider before buying shares in this offering. You
should read the entire prospectus carefully.
MOREDIRECT.COM
MoreDirect.com, or MoreDirect, is a leading business-to-business, or B2B,
electronic marketplace providing a "one-stop" online solution for the
procurement of information technology products. Our Internet-based system
enables corporate and government customers to efficiently source, evaluate,
purchase and track a wide variety of information technology, or IT, products.
Our electronic marketplace, or emarketplace, serves as an intermediary,
providing current inventory information, including comparative pricing,
available quantity and detailed product specifications directly from the largest
wholesale distributors in the United States. MoreDirect is unique to the IT
procurement marketplace in that our web-based system enables IT buyers to view
the inventories of multiple wholesale distributors at a single source and
provides valuable IT asset management solutions.
OUR COMPANY
While we began providing B2B electronic IT procurement services in 1994, we
converted our procurement technology to our current Internet-based solution in
June 1999. Since our transition to the Internet, our business has grown
dramatically. Our business model utilizes commission-based sales representatives
who introduce large corporate and government customers to our emarketplace.
During the twelve months ended December 31, 1999, 552 customers purchased IT
products using our e-procurement system, as compared to 286 customers that
purchased IT products during the twelve months ended December 31, 1998. We
currently have over 630 customers utilizing our emarketplace. Our revenues
increased by 24% to $33.1 million for the year ended December 31, 1999, compared
to $26.8 million for the year ended December 31, 1998. Our revenues have
increased by 162% to $18.6 million for the three months ended March 31, 2000,
compared to $7.1 million for three months ended March 31, 1999.
OUR MARKET
Corporations are rapidly increasing the use of the Internet to transact
business with their suppliers and vendors. Forrester Research Inc. estimates
that businesses bought $109 billion in goods over the Internet in 1999, as
compared with $20 billion in goods bought by consumers. In addition, Forrester
Research predicts that B2B e-commerce in the United States will grow to $2.7
trillion by 2004, representing more than 90% of the projected total e-commerce
market. Forrester Research also reports that the IT products market is the
fastest growing segment of the projected B2B e-commerce market and is highly
fragmented, providing an attractive opportunity for an Internet-based solution.
The IT products supply chain has historically been a multi-tiered and
highly fragmented distribution channel. Traditionally, products are sold through
a supply chain which includes manufacturers, wholesale distributors, resellers,
dealers and end-users. In addition, large corporate and government entities have
typically purchased their IT products from several dealer or reseller sources,
each of which carries limited inventories. This multi-tiered channel and
multiple vendor approach causes inefficiencies in the IT procurement process
resulting in increased transaction costs. According
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<PAGE> 6
to Forrester Research, companies spend approximately $130 to process each
paper-based purchase order, whereas the cost to process each electronic purchase
order is estimated to be less than $10.
OUR SOLUTION
MoreDirect's emarketplace provides IT product buyers with direct access to
what we believe is the largest selection of IT products available at a single
source. Our Internet-based solution eliminates supply-chain inefficiencies by
providing IT buyers with the current inventory and pricing information of
leading IT wholesale distributors, including Ingram Micro, Inc., Tech Data
Corporation, Merisel, Inc. and Pinacor, Inc., the four largest wholesale
distributors in the United States. Our emarketplace aggregates approximately
290,000 SKUs, or stock-keeping units, available through wholesale distributors.
Available inventory includes products from over 1,500 manufacturers, including
popular brand names, such as IBM, Compaq, Hewlett-Packard, Toshiba, Cisco and
Microsoft. By displaying the comparative prices of the current inventories of
multiple wholesale distributors, we create a price competitive online
marketplace. We believe our system is highly scalable, which allows us the
flexibility to add additional suppliers and products to our emarketplace.
Our e-procurement solution creates purchasing efficiencies that we believe
provide significant cost and time savings for IT buyers. Our primary target
customers are large corporations and government entities that are interested in
making their IT procurement process more efficient and cost effective. Our
system provides our customers with flexible online product search capabilities
and important procurement information, such as product price comparisons,
inventory availability, order status, and shipping, billing and payment
information. We customize each customer's website access and web pages to
incorporate that entity's purchasing authorities, approval process, work flow
and business rules. We also provide IT asset management information and reports
such as complete order histories, product serial numbers, shipped to locations,
tracking and other account information, enabling customers to better manage the
IT products they have ordered.
OUR STRATEGY
MoreDirect's objective is to become the premier B2B emarketplace for the
procurement of IT products by large corporate and government entities. The key
elements in our business strategy include:
- building brand awareness through increased marketing efforts;
- expanding our sales force;
- pursuing strategic alliances;
- establishing relationships with additional suppliers;
- enhancing the services and functionality of our e-procurement solution;
and
- expanding our service to offer complementary products.
We were incorporated as Corporate Buying Service Inc. in October 1994. We
changed our name to MoreDirect.com, Inc. in March 2000. We are a Florida
corporation, and our principal executive offices are located at 3401 N. Federal
Highway, Suite 216, Boca Raton, Florida 33431. Our telephone number is (561)
367-1188. Our website is located at http://www.moredirect.com. Any information
that is contained on or linked to any of our websites is not part of this
prospectus.
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THE OFFERING
Shares offered by MoreDirect.............. shares
Shares to be outstanding after this
offering.................................. shares
Use of proceeds........................... For (1) working capital and
general corporate purposes,
including expanding our sales and
marketing activities, expanding
our corporate infrastructure,
further developing our
emarketplace and our e-procurement
services, and expanding our
corporate facilities, (2) to repay
amounts outstanding under our line
of credit and (3) to make a
distribution to our founder of
undistributed S corporation tax
basis earnings in connection with
the termination of our S
corporation status.
Proposed Nasdaq National Market symbol.... MDIR
The number of shares of common stock to be outstanding after this offering
is based on shares outstanding on March 31, 2000, which excludes:
- 475,500 shares issuable upon the exercise of options outstanding as of
March 31, 2000 under our stock option plan, at a weighted average
exercise price of $3.71 per share, of which options to purchase 33,000
shares were exercisable;
- 165,000 shares of common stock issuable upon the conversion of warrants
held by a consultant to our company;
- 524,500 shares available for grant under our stock option plan as of
March 31, 2000; and
- up to shares that the underwriters may purchase if they
exercise their over-allotment option.
RISK FACTORS
You should consider the risk factors before investing in our common stock,
which factors could adversely affect our business.
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<PAGE> 8
SUMMARY FINANCIAL DATA
The summary financial data set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations," the financial statements and related notes, and the other financial
data included elsewhere in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
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1997 1998 1999
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<S> <C> <C> <C>
STATEMENTS OF INCOME DATA:
Net sales............................................... $13,145,364 $26,836,473 $33,131,315
Cost of sales........................................... 12,396,264 23,932,350 29,806,978
----------- ----------- -----------
Gross profit.................................. 749,100 2,904,123 3,324,337
----------- ----------- -----------
Operating expenses:
Sales and marketing expense........................... 102,531 146,954 135,159
Commissions expense (excluding non-cash compensation
of $120,114)....................................... -- 291,115 827,375
Non-cash stock-based compensation expense............. -- -- 436,954
General and administrative expense (excluding non-cash
compensation of $316,840).......................... 397,982 623,864 789,820
----------- ----------- -----------
Total operating expenses...................... 500,513 1,061,933 2,189,308
----------- ----------- -----------
Income from operations........................ 248,587 1,842,190 1,135,029
Interest income, net.......................... 24,571 42,174 78,180
----------- ----------- -----------
Net income.............................................. $ 273,158 $ 1,884,364 $ 1,213,209
=========== =========== ===========
Net income per share:
Basic.............................................. $ .03 $ .19 $ .12
Diluted............................................ $ .03 $ .19 $ .12
Weighted average shares outstanding:
Basic.............................................. 10,000,000 10,000,000 10,000,000
Diluted............................................ 10,000,000 10,000,000 10,045,579
PRO FORMA STATEMENTS OF INCOME DATA (UNAUDITED):
Net income as reported................................ $ 273,158 $ 1,884,364 $ 1,213,209
Pro forma income taxes provision(1)................... (93,032) (641,328) (413,779)
----------- ----------- -----------
Pro forma net income.................................. $ 180,126 $ 1,243,036 $ 799,430
----------- ----------- -----------
Pro forma net income per share:
Basic.............................................. $ .08
Diluted............................................ $ .08
Pro forma weighted average shares outstanding(2):
Basic.............................................. 10,000,000
Diluted............................................ 10,045,579
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
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1999
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PRO FORMA
1998 ACTUAL PRO FORMA(3) AS ADJUSTED(4)
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<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................... $1,707,472 $1,244,086 $1,244,086
Working capital (deficit).................... 1,311,073 2,245,134 10,396
Total assets................................. 4,774,167 6,275,629 6,513,100
Distribution payable to sole shareholder..... 1,000,000 700,000 700,000
Note payable to sole shareholder............. -- -- 2,472,209
Total shareholder's equity................... 1,434,252 2,384,415 149,677
</TABLE>
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(1) Prior to the closing of this offering, we will terminate our S corporation
status and elect C corporation status and, accordingly, become subject to
federal and state income taxes. The unaudited pro forma information reflects
the incremental tax expense that we would have incurred if we had been
subject to federal income taxes for the years ended December 31, 1997, 1998
and 1999. The effective tax rate used for pro forma income taxes was the
applicable effective federal statutory rate, as there would have been no
state income tax obligations or significant permanent federal income tax
differences.
(2) The pro forma weighted average number of shares outstanding at December 31,
1999 includes the effect of the assumed issuance of shares of
common stock to generate sufficient cash to pay an S corporation
distribution of previously earned and undistributed S corporation earnings
of approximately $2.5 million at December 31, 1999. The issuance of common
stock was based on an assumed $ initial public offering price. Pro
forma weighted average shares outstanding does not include the shares of
common stock to be issued upon the closing of this offering.
(3) Pro forma unaudited balance sheet data at December 31, 1999 reflects the
effect of: (a) an assumed distribution of previously earned and
undistributed S corporation earnings of approximately $2.5 million as of
December 31, 1999, which distribution we expect will increase based upon S
corporation tax basis earnings from January 1, 2000 through the termination
of our S corporation status; and (b) the recording of a one-time non-cash
credit to earnings to recognize a net deferred income tax asset as a result
of the termination of our S corporation status of approximately $237,000 as
of December 31, 1999, which amount may change as a result of the recognition
of additional deferred tax assets or liabilities associated with S
corporation earnings related to our operations from January 1, 2000 through
the termination of our S corporation status.
(4) Pro forma as adjusted balance sheet data as of December 31, 1999 gives
effect to note (3) above and the issuance and sale of the common stock in
this offering at an assumed public offering price of $ per share
and application of the net proceeds therefrom as described in "Use of
Proceeds."
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RISK FACTORS
You should carefully consider the following risk factors, in addition to
the other information set forth in this prospectus, before purchasing shares of
our common stock. Each of these risk factors could adversely affect our
business, operating results and financial condition, as well as adversely affect
the value of an investment in our common stock. This investment involves a high
degree of risk.
RISKS RELATED TO OUR BUSINESS
OUR BUSINESS AND PROSPECTS ARE DIFFICULT TO EVALUATE BECAUSE WE HAVE A
LIMITED OPERATING HISTORY OF OFFERING OUR SERVICES THROUGH THE INTERNET.
Although we have operated our IT procurement business using an
electronic-based system since we were incorporated in 1994, we only began
offering our services through the Internet in June 1999. Because of this limited
operating history pursuing our current business model, our five years of
financial results do not reflect our current business model. Accordingly,
investment decisions must be made based on our business prospects. Our business
prospects are subject to all the risks, expenses and uncertainties encountered
by any company in a new and rapidly evolving market, including:
- the uncertainty of market acceptance of our emarketplace, brand and
services;
- our need to continue to develop and expand our sources of supply;
- our need to continue to develop and expand our system's functionality and
services;
- our ability to respond to competitive and technological developments; and
- our ability to attract and retain qualified sales representatives and
other personnel.
IF ANY OF THE SEVERAL KEY WHOLESALE DISTRIBUTORS WHICH WE DEPEND ON TO
SUPPLY AND FILL ORDERS FOR IT PRODUCTS CEASES DOING BUSINESS WITH US, WE
MAY NOT REACH MUTUALLY SATISFACTORY ARRANGEMENTS WITH ALTERNATIVE
SUPPLIERS.
We are dependent on Ingram Micro, Tech Data, Merisel and Pinacor, which
collectively supply approximately 93% of the products we sell. We have not
entered into written agreements with these companies or any of our other
suppliers. As we continue our efforts to grow our business, we will seek to
include additional wholesale distributors and manufacturers as our suppliers.
The addition of new suppliers may be considered adversely competitive to some of
our existing suppliers. While we believe that our relations with our current
suppliers are good, we cannot assure you that any of our suppliers will continue
to make products available to us, or that they will make products available to
us on terms that will allow us to be price competitive. If any of our suppliers
were to cease doing business with us, we cannot assure you that we would be able
to reach mutually satisfactory arrangements with alternate suppliers. Even if we
were able to enter into arrangements with alternative suppliers, the inventory
available from these suppliers through our emarketplace may be less extensive or
less price competitive, which could make our emarketplace less attractive to IT
buyers, causing our sales to decrease.
WE ARE DEPENDENT ON OUR SUPPLIERS FOR ORDER FULFILLMENT AND HAVE LIMITED
CONTROL OVER WHETHER OUR CUSTOMERS ARE SATISFIED WITH THE FULFILLMENT OF
THEIR ORDERS.
We depend on our suppliers to fulfill orders for, and to ship all of the
products we sell to, our customers. We have limited control over our suppliers'
fulfillment or shipping procedures and cannot
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ensure that our suppliers will complete these functions to the satisfaction of
our customers. If our customers become dissatisfied with the fulfillment of
orders placed through our service, our reputation and business will be adversely
affected.
WE DERIVE A SUBSTANTIAL PERCENTAGE OF OUR SALES FROM A SMALL NUMBER OF
CUSTOMERS WHO COULD REDUCE THEIR PURCHASES AT ANY TIME, WHICH COULD CAUSE
OUR SALES TO DECLINE.
A small number of our customers account for a substantial percentage of our
sales. We have not entered into long-term agreements with any of our customers.
For the year ended December 31, 1999, our largest two customers represented 21%
and 11% of our total sales. Although historically our largest customers have
varied from quarter to quarter, we have historically received a substantial
percentage of our total sales from a small number of customers. We may continue
to derive our revenues from a small number of customers who may reduce their
purchases at any time, causing our sales to decline.
OUR E-PROCUREMENT SERVICES MAY BE UNABLE TO ACHIEVE OR MAINTAIN WIDE MARKET
ACCEPTANCE, WHICH WOULD CAUSE OUR FUTURE SALES GROWTH AND PROFITABILITY TO
DECLINE.
We expect to generate the majority of our sales from the sale of products
to corporate and government entities through our Internet-based IT purchasing
solution. Our success will depend principally on achieving and maintaining wide
market acceptance of our e-procurement solution. If businesses do not
increasingly accept the use of the Internet as a tool for purchasing IT
products, our future sales growth and profitability will suffer.
OUR FUTURE SALES ARE UNPREDICTABLE, AND WE EXPECT OUR OPERATING RESULTS TO
FLUCTUATE FROM PERIOD TO PERIOD.
It is difficult for us to accurately forecast our sales for any given
period, and we expect sales to fluctuate significantly from quarter to quarter.
If our sales fail to meet the expectations of investors, the price of our stock
could fall substantially. Our sales could fall short of expectations based on a
number of factors, including the following:
- the amount of sales we are able to generate through our emarketplace;
- announcements from our competition;
- our ability to establish and maintain customer loyalty;
- price competition for IT products;
- the introduction of competitive emarketplaces for IT products;
- the timing and effectiveness of our marketing efforts;
- the rate at which we can recruit, train and integrate qualified sales
representatives and other personnel into our operations;
- our ability to maintain and expand our relationships with wholesale
distributors and manufacturers;
- the costs of establishing, and the timing of, strategic relationships;
and
- general economic conditions.
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The success of our business model depends on the volume of business
transactions conducted through our emarketplace and our ability to maintain
adequate gross margins on product sales. We may need to reduce the prices at
which we offer products for sale to gain acceptance or to be competitive, and we
may incur more costs than we currently anticipate. If we are unable to generate
sufficient sales through our e-procurement marketplace, or if we are required to
lower our sales prices, our profitability will suffer.
WE MUST RETAIN ADDITIONAL INDEPENDENT SALES REPRESENTATIVES AND OTHER
PERSONNEL TO EXPAND OUR OPERATIONS.
Our future success depends on our ability to identify, retain and motivate
highly skilled sales representatives and executive, technical, managerial, sales
and marketing, business development and administrative personnel. We intend to
retain a significant number of sales representatives and other personnel during
the next year. Competition for qualified sales representatives and other
personnel is intense, particularly in the technology and Internet markets. If we
fail to successfully attract, assimilate and retain a sufficient number of
qualified executive, technical, managerial, sales and marketing, business
development and administrative personnel, our ability to manage and expand our
business could suffer.
OUR EXPECTED GROWTH WILL STRAIN OUR RESOURCES, AND FAILURE TO MANAGE THIS
GROWTH EFFECTIVELY COULD DISRUPT OUR OPERATIONS AND PREVENT US FROM
GENERATING THE SALES WE EXPECT.
We expect to significantly expand our operations in order to successfully
implement our business strategy. In particular, the development of our business
requires increased sales and marketing expenditures and additional personnel
costs. This expansion will strain our management, operational, financial and
technological infrastructure. We will need to improve our financial and
managerial controls and reporting systems and procedures, and will need to train
and manage our workforce. Furthermore, we expect that we will be required to
manage an increasing number of relationships with customers, suppliers and other
third parties. Our failure to manage our growth in a manner that minimizes these
strains on our resources could disrupt our operations and prevent us from
generating expected operating results.
WE MAY BE UNABLE TO SUCCESSFULLY COMPETE WITH OTHER COMPANIES IN THE
INDUSTRY.
The market for sales of IT products to corporations and government entities
is highly fragmented and intensely competitive. In addition, this market is
rapidly evolving as a result of new technologies, such as the Internet. We
expect competition to persist and intensify and the number of competitors to
increase in the future. We believe that our primary competitors include:
- other B2B emarketplaces, such as Onvia.com, Inc. and VerticalNet, Inc.;
- B2B electronic commerce software vendors, such as Ariba, Inc., Commerce
One, Inc. and PurchasePro.com, Inc., which provide automated procurement
software that links corporations to their suppliers;
- software vendors for the IT industry, such as pcOrder.com, Inc., which
provide software applications which allow computer product resellers to
sell products online;
- catalogue merchandisers and other corporate resellers, such as CDW
Computer Centers, Inc., MicroWarehouse, Inc., Insight Enterprises, Inc.
and En Pointe Technologies, Inc.;
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- IT product retailers, including traditional storefront retailers, such as
CompUSA, Inc., Office Depot, Inc., Staples, Inc. and OfficeMax, Inc.; and
- Internet-based retailers, such as OnSale.com, Inc., Outpost.com, Inc. and
Egghead.com., Inc.
In addition, certain IT product manufacturers and distributors sell their
products directly to end-users, through the Internet and other channels, and may
be able to offer lower prices than we can offer. If additional manufacturers and
distributors initiate such sales efforts, we expect that we would face increased
competitive pressures.
Many of our current and potential competitors have longer operating
histories, larger customer or user bases, greater brand recognition and
significantly greater financial, marketing, website and systems development and
other resources than we do. If we are unable to compete successfully against our
competitors, our business, financial condition, margins and operating results
may be adversely affected.
UNLESS WE DEVELOP AND MAINTAIN A STRONG BRAND IDENTITY, OUR BUSINESS WILL
NOT GROW, AND OUR SALES MAY DECLINE.
We believe that developing, maintaining and enhancing the value of our
MoreDirect emarketplace brand name is critical to attracting customers to our
e-procurement solution. Our success in developing and maintaining brand
awareness will depend on our ability to continuously provide high quality
services and competitively-priced products to IT product buyers. We cannot
assure you that we will be successful in developing or maintaining our brand
identity. We expect to spend significant amounts in the future to develop
awareness of our brand. These efforts may not be successful, and our sales may
not be sufficient to offset these costs.
IF WE FAIL TO ENTER INTO AND MAINTAIN STRATEGIC ALLIANCES, OUR BUSINESS AND
RESULTS OF OPERATIONS WILL BE ADVERSELY AFFECTED.
An important element of our strategy involves entering into strategic
alliances with other Internet-based businesses and other companies that offer
complementary services. We expect these contractual relationships to involve
revenue sharing, sales commissions, joint marketing or promotional arrangements.
For example, we plan to pursue strategic alliances with Internet-based B2B
procurement software companies, IT content websites and IT consulting firms.
Although the establishment of these relationships is an important factor in our
strategy and may provide us with important marketing and distribution
arrangements, parties with which we may contract may not view their
relationships with us as significant to their own businesses. In addition, we
may not derive material sales from these relationships, and these relationships
may impose contractual obligations on us. It is not certain that the benefits we
receive from any such relationships will outweigh the obligations that may be
imposed on us. In order to maintain any business relationships we may develop,
we will need to meet our partners' specific business objectives, including
incremental sales, brand awareness and implementation of specific e-commerce
applications. If we are unsuccessful in entering into such relationships, or if
any relationships we may develop are discontinued, our business and results of
operations may be adversely affected.
RUSSELL L. MADRIS OWNS A LARGE PERCENTAGE OF OUR VOTING STOCK AND CAN
CONTROL THE OUTCOME OF ACTIONS REQUIRING SHAREHOLDER APPROVAL.
Upon completion of this offering, Russell L. Madris, our founder, Chairman,
Chief Executive Officer and President, will beneficially own approximately
% of our outstanding common stock, % if the underwriters exercise
their over-allotment option in full. As a result, Mr. Madris will be
12
<PAGE> 14
able to exercise control over all matters requiring shareholder approval,
including the election of directors and approval of significant corporate
transactions. This concentration of ownership may delay, deter or prevent
transactions that would result in a change of control or otherwise affect
corporate governance, which in turn could reduce the market price of our common
stock.
THE LOSS OF KEY PERSONNEL COULD DISRUPT OUR OPERATIONS AND HARM OUR
BUSINESS.
Our success depends on the skills, experience and performance of our senior
management and other key personnel. In particular, we are highly dependent upon
the services of Russell L. Madris, our founder, Chairman, Chief Executive
Officer and President. Our other key personnel include Scott J. Modist, our Vice
President and Chief Financial Officer, James Garrity, our Vice President of
Sales and Marketing, and Bernardo Sicard, our Vice President of Technology and
Information Services. If we do not successfully retain our key personnel, our
business could suffer. With the exception of Russell Madris, most of our senior
management team joined us in 1999, and thus it may take some period of time
before they work together most efficiently.
WE MAY REQUIRE ADDITIONAL FUNDING TO SUCCESSFULLY OPERATE AND GROW OUR
BUSINESS.
Although we believe that, following this offering, our cash reserves,
including the net proceeds of this offering, will be adequate to fund our
operations through the end of 2001, these resources may ultimately prove to be
inadequate. Consequently, we may require additional funds during or after this
period. Additional financing may not be available on favorable terms or at all.
If we raise additional funds by selling stock or securities convertible into
stock, the percentage ownership of our then current shareholders will be
reduced. If we cannot raise adequate funds to satisfy our capital requirements,
we may have to limit our operations significantly. Our future capital
requirements depend upon many factors, including, but not limited to:
- the rate at which we develop and expand our e-procurement services;
- the rate at which we expand our sales and marketing operations; and
- the extent to which we develop and upgrade our technology and data
network infrastructure.
RISKS ASSOCIATED WITH OUR TECHNOLOGY
OUR ABILITY TO DEVELOP AND DELIVER OUR TECHNOLOGY-BASED SERVICES IS
DEPENDENT ON THE SERVICES OF KEY IT PERSONNEL.
We are a technology-based company and, therefore, rely upon the employment
services of key IT personnel. Our IT capability currently relies on the services
and knowledge of Russell Madris, our founder, Chairman, Chief Executive Officer
and President, and Bernardo Sicard, Vice President of Technology and Information
Services, as well as the support of a limited IT staff. Our success depends upon
our ability to attract and retain highly qualified technical employees. The
process of hiring employees with the combination of skills and attributes
required to carry out our strategy can be extremely competitive and
time-consuming. We may not be able to successfully retain existing IT personnel
or identify, hire and integrate additional IT personnel. If we lose the services
of key IT personnel or are unable to attract additional qualified IT personnel,
our business, financial condition and results of operations could be materially
and adversely affected.
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<PAGE> 15
IF WE DO NOT CONTINUOUSLY UPGRADE OUR TECHNOLOGICAL CAPABILITIES, WE MAY
NOT REMAIN COMPETITIVE.
We have limited experience delivering our technology-based services. The
market for online products and services is characterized by rapidly changing
technology, evolving industry standards, evolving customer demands and frequent
new product and service introductions. In order to remain competitive, we must
regularly upgrade our services to incorporate new technology. If a large number
of our customers or prospective customers adopt new Internet technologies or
standards, we may need to incur substantial expenditures to modify or adapt our
services to remain compatible with their systems. If we do not successfully
incorporate new technology, such as Extensible Mark-up Language, or XML, a form
of data transfer which provides an alternative to the Electronic Data
Interchange, or EDI, an industry standard form of data transfer, the performance
of our services would suffer. While these technologies are generally
commercially available, we may be required to expend considerable time and money
in order to successfully integrate them into our technology-based services. We
must also maintain an adequate testing and technical support infrastructure to
ensure the successful introduction and development of services.
WE MAY NOT BE ABLE TO SUFFICIENTLY EXPAND AND UPGRADE OUR COMPUTER SYSTEMS
AND TECHNOLOGY INFRASTRUCTURE IF THE NUMBER OF USERS ON OUR SYSTEM
INCREASES, WHICH COULD CAUSE SYSTEM DISRUPTIONS AND CUSTOMER
DISSATISFACTION.
We intend to expand and upgrade our technology and network infrastructure
as the number of users of our system increases. If the number of users does
increase, we could experience periodic temporary capacity constraints, which may
cause unanticipated system disruptions, slower response times and lower levels
of customer service. We may be unable to accurately project the rate or timing
of increases, if any, in the use of our services or when we must expand and
upgrade our systems and infrastructure to accommodate these increases in a
timely manner. Any inability to do so could harm our business by causing our
users to be dissatisfied with our services.
OUR COMPUTER SYSTEMS MAY BE VULNERABLE TO SYSTEM FAILURES PREVENTING US
FROM CONDUCTING BUSINESS AND CAUSING US TO LOSE CUSTOMERS.
Our success depends on the performance, reliability and availability of,
and the technology supporting, our services. Our sales depend, in large part, on
the number of IT product buyers that order products through our system. This
depends, in part, upon our system's actual and perceived reliability and
performance. Any slowdown or stoppage of our online systems could cause us to
lose customers and suppliers and therefore lose sales. Substantially all of our
computer and communications hardware is located at our facility in Boca Raton,
Florida. Our systems and operations are vulnerable to damage or interruption
from fire, flood, power loss, telecommunications failure, break-in, hurricanes
and similar events. Because we presently do not have fully redundant systems or
a formal disaster recovery plan, a systems failure could adversely affect our
business. Our computer systems are vulnerable to computer viruses, physical or
electronic break-ins and similar disruptions, which may lead to interruptions,
delays, loss of data or inability of users to access or fully utilize our online
services. The software we have developed or that has been developed on our
behalf, and other software that we license, may contain undetected errors,
defects or bugs causing system failures. We may be required to expend
considerable time and money to correct any system failure. If we are unable to
fix a problem that arises, we may lose customers or be unable to conduct our
business at all.
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<PAGE> 16
IF WE ARE UNABLE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY AND
PROPRIETARY RIGHTS, OTHER COMPANIES MAY BE ABLE TO COMPETE MORE EFFECTIVELY
AGAINST US.
We regard our intellectual property rights as critical to our success and
we rely on trademark and common law copyright law, trade secret protection and
confidentiality agreements with our employees and others to protect our
proprietary rights. Despite our precautions, unauthorized third parties might
copy portions of our software or reverse engineer and use information that we
regard as proprietary. Any misappropriation of our proprietary information by
third parties could adversely affect our business by enabling third parties to
compete more effectively with us.
OUR TECHNOLOGY MAY INFRINGE THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS
EXPOSING US TO SUBSTANTIAL LIABILITIES.
Although we have not received notice of any alleged infringement by us, we
cannot be certain that our technology does not infringe patents issued to third
parties, copyrights or other intellectual property rights of others. In
addition, because patent applications in the United States are not publicly
disclosed until the patent is issued, applications may have been filed which
relate to our e-procurement system. We may be subject to legal proceedings and
claims from time to time in the ordinary course of our business, including
claims of alleged infringement of the trademarks and other intellectual property
rights of third parties. Intellectual property litigation is expensive and time-
consuming, and could divert our management's attention away from running our
business.
RISKS ASSOCIATED WITH THE INTERNET
OUR SUCCESS DEPENDS ON CONTINUED INCREASES IN THE USE OF THE INTERNET AS A
COMMERCIAL MEDIUM.
We depend on the growing use and acceptance of the Internet as an effective
e-commerce medium by businesses. Rapid growth in the use of and interest in the
Internet and other online services is a recent development. We cannot be certain
that acceptance and use of the Internet and other online services generally will
continue to develop or that a sufficiently broad base of businesses will adopt
and continue to use the Internet and other online services as an e-commerce
medium. The Internet may fail as an e-commerce medium for a number of reasons,
including potentially inadequate development of the necessary network
infrastructure or delayed development of enabling technologies, including
security technology and performance improvements.
RAPID TECHNOLOGICAL CHANGE COULD CAUSE US TO INCUR SUBSTANTIAL EXPENDITURES
TO REMAIN COMPETITIVE.
The market for online products and services is characterized by rapidly
changing technology, evolving industry standards, evolving customer demands and
frequent new product and service introductions. Our future success will depend
in significant part on our ability to improve the performance, content and
reliability of our online services in response to both the evolving demands of
the market and competitive services. Our efforts in these areas may not be
successful. If a large number of our customers or prospective customers adopt
new Internet technologies or standards, we may need to incur substantial
expenditures modifying or adapting our services to remain compatible with their
systems.
WE RELY ON THE INTERNET INFRASTRUCTURE PROVIDED BY OTHERS TO OPERATE OUR
BUSINESS.
Our success depends, in large part, on other companies' maintenance of
Internet infrastructure. In particular, we rely on other companies to maintain a
reliable network backbone that provides adequate speed, data capacity and
security. If the Internet continues to experience significant growth
15
<PAGE> 17
in the number of users, frequency of use and amount of data transmitted, as
expected, the Internet infrastructure of thousands of computers communicating
via telephone lines, coaxial cable and other telecommunications systems may be
unable to support the demands placed on it. If the performance or reliability of
the Internet suffers, our customers could have difficulty obtaining access to
our website. In addition, data transmitted over the Internet, including
information and graphics contained on web pages, could reach the user much more
slowly. This could result in frustration by our users, which could decrease
usage and cause businesses to use alternate purchasing channels.
FUTURE GOVERNMENTAL REGULATION AND TAXATION COULD INCREASE THE COST OF
CONDUCTING BUSINESS.
We are not currently subject to direct regulation by any government agency,
other than regulations applicable to businesses generally, and there are
currently few laws or regulations directly applicable to access to or commerce
on the Internet. However, due to the increasing popularity and use of the
Internet, a number of legislative and regulatory proposals are under
consideration by federal, state, local and foreign governmental organizations,
and it is possible that a number of laws or regulations may be adopted with
respect to the Internet relating to issues such as taxation, infringement,
pricing, quality of products and services and intellectual property ownership.
The adoption of any laws or regulations that have the effect of imposing
additional costs, liabilities or restrictions relating to the use of the
Internet by businesses could decrease the growth in the use of the Internet,
which could in turn decrease the demand for our services, increase our costs of
doing business, or otherwise have a material adverse effect on our business.
A number of proposals have been made at the federal, state and local level
that would impose additional taxes on the sale of goods and services over the
Internet and certain states have taken measures to tax Internet-related
activities. The taxation of Internet-related activities could have the effect of
imposing additional costs on companies such as us that sell products through the
Internet. This, in turn, could lead to increased prices for the products we
offer through our services, which could result in decreased demand.
We currently collect sales or other similar taxes on the shipment of goods
in the State of Florida and seven other states. However, other states could seek
to impose income tax obligations or sales tax collection obligations on us due
to our sales efforts in these states based on the presence of our sales
representatives in these states. As we expand our sales force into additional
states we may become subject to additional state income tax. The potential
additional costs of these taxes could have a material adverse effect on our
business.
RISKS RELATED TO THIS OFFERING
THERE IS NO PRIOR PUBLIC MARKET FOR OUR COMMON STOCK, AND OUR STOCK PRICE
MAY DECLINE AFTER THE OFFERING.
Before this offering, there has not been a public market for our common
stock. After this offering, the market price of our common stock may decline
below the initial public offering price. The initial public offering price will
be determined by negotiations between us and representatives of the
underwriters. In addition, an active public market for our common stock may not
develop or be sustained after this offering.
INVESTORS PURCHASING SHARES OF COMMON STOCK IN THIS OFFERING WILL
EXPERIENCE AN IMMEDIATE AND SUBSTANTIAL DILUTION.
The initial public offering price is substantially higher than the net
tangible book value of each outstanding share of our common stock. As a result,
purchasers of common stock in this offering will
16
<PAGE> 18
suffer immediate and substantial dilution. This dilution will reduce the net
tangible book value of their shares, since the price per share in this offering
will be substantially higher than it was for our existing shareholder. The
dilution will be $ per share in the net tangible book value of the
common stock from the assumed initial public offering price of $ per
share. If outstanding options to purchase shares of common stock are exercised,
there will be further dilution.
OUR MANAGEMENT HAS BROAD DISCRETION OVER THE USE OF THE PROCEEDS OF THIS
OFFERING AND MAY ALLOCATE THESE NET PROCEEDS IN WAYS IN WHICH YOU DO NOT
AGREE.
Our management has broad discretion over the use of a substantial portion
of the proceeds of this offering. Accordingly, it is possible that our
management may allocate the proceeds differently than investors in this offering
would have desired, or that we will fail to maximize our return on these
proceeds.
OUR STOCK PRICE MAY BE VOLATILE. SUCH VOLATILITY MAY SUBJECT US TO CLAIMS
FROM DISSATISFIED SHAREHOLDERS.
The stock market in general, and the stock prices of Internet-related
companies in particular, have recently experienced extreme volatility, which may
be unrelated to the operating performance of any particular company or
companies. Our stock price could be subject to wide fluctuations in response to
factors such as the following:
- actual or anticipated variations in quarterly results of operations;
- the addition or loss of customers and user traffic;
- announcements of technological innovations, new products or services by
us or our competitors;
- conditions or trends in the Internet, e-procurement and IT industries;
- changes in the market valuations of other Internet, online service or IT
companies;
- our announcements of significant acquisitions, strategic relationships,
joint ventures or capital commitments;
- additions or departures of key personnel;
- sales of our common stock;
- general market conditions; and
- other events or factors, many of which are beyond our control.
These broad market and industry factors may materially and adversely affect
our stock price, regardless of our operating performance. The trading prices of
the stocks of many technology companies, including Internet companies, are
volatile. These trading prices may continue to be volatile and could subject us
to claims from dissatisfied shareholders.
In the past, securities class action litigation has often been brought
against companies following periods of volatility in their stock prices. We may
in the future be the target of similar litigation. Securities litigation could
result in substantial costs and divert our management's time and resources,
which could cause our business to suffer.
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<PAGE> 19
OUR ARTICLES OF INCORPORATION, BYLAWS AND FLORIDA LAW CONTAIN PROVISIONS
THAT COULD DISCOURAGE OR PREVENT A TAKEOVER, EVEN IF AN ACQUISITION WOULD
BE BENEFICIAL TO OUR SHAREHOLDERS.
Provisions of our articles of incorporation, bylaws and Florida law may
discourage, delay or prevent a merger or acquisition that some shareholders may
consider favorable. These provisions, which are more fully described in
"Description of Capital Stock -- Anti-Takeover Effects of Florida Law and Our
Articles of Incorporation and Bylaws," include:
- authorizing our board of directors to issue preferred stock;
- establishing advance notice requirements for nominations for election of
our board of directors or for proposing matters that can be acted on by
shareholders at shareholder meetings; and
- establishing a classified board of directors.
FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE.
After this offering, a total of shares of our common stock will
be outstanding, shares if the underwriters exercise their over-allotment
option in full. All the shares sold in this offering will be freely tradable.
shares of our total outstanding shares will become available for
resale in the public market as shown in the chart below. We, our officers and
directors, option and warrant holders and our sole shareholder have entered into
lock-up agreements pursuant to which we and they have agreed not to offer or
sell any shares of common stock or securities convertible into or exercisable or
exchangeable for shares of common stock without the prior written consent of
Prudential Securities Incorporated, on behalf of the underwriters. Prudential
Securities Incorporated may waive the terms of these lock-up agreements as
specified in the underwriting agreement. Many of the remaining shares of our
common stock outstanding after this offering not currently available for sale
are subject to vesting restrictions and the holding period, volume and other
restrictions of Rule 144 under the Securities Act of 1933. If our shareholders
sell a substantial number of these shares in the public market during a short
period of time, our stock price could decline significantly.
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE OF AVAILABILITY FOR RESALE INTO PUBLIC MARKET
- ---------------- --------------------------------------------------
<S> <C>
......................... 180 days after the date of this prospectus due to a lock-up
agreement these shareholders have with Prudential Securities
Incorporated.
......................... Between 180 and 365 days after the date of this prospectus
due to the requirements of the federal securities laws.
</TABLE>
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<PAGE> 20
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. We have based these
forward-looking statements largely on our current expectations and projections
about future events and financial trends affecting the financial condition of
our business. These forward-looking statements are subject to a number of risks,
uncertainties and assumptions about MoreDirect, including, among other things:
- general economic and business conditions, both nationally and in our
markets;
- our expectations and estimates concerning future financial performance,
financing plans and the impact of competition;
- anticipated trends in our business;
- existing and future regulations affecting our business;
- use of the Internet as a commercial medium; and
- other risk factors set forth under "Risk Factors" in this prospectus.
In addition, in this prospectus, the words "believe", "may", "will",
"estimate", "continue", "anticipate", "intend", "expect" and similar
expressions, as they relate to MoreDirect, our business or our management, are
intended to identify forward-looking statements.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks and uncertainties, the forward-looking events and
circumstances discussed in this prospectus may not occur and actual results
could differ materially from those anticipated or implied in the forward-looking
statements.
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<PAGE> 21
USE OF PROCEEDS
We estimate that the net proceeds to us from the sale of shares of
common stock that we are offering will be approximately $ million, $
million if the underwriters exercise their over-allotment option in full,
assuming an initial public offering price of $ per share and after
deducting underwriting discounts and commissions and estimated offering expenses
of $ million.
We intend to use the net proceeds we receive from this offering for:
- working capital and general corporate purposes including:
- expanding our sales and marketing activities;
- expanding our corporate infrastructure, including our systems and
staff;
- further developing our emarketplace and our e-procurement services;
and
- expanding our corporate facilities;
- repaying amounts outstanding under our line of credit; and
- making a distribution of previously earned and undistributed S
corporation earnings to our sole shareholder in connection with the
termination of our S corporation status, as described in "S Corporation
Distribution and Conversion to C Corporation Status".
The amounts that we actually spend for working capital and general
corporate purposes will vary significantly depending on a number of factors,
including future sales growth, the amount of cash we generate from operations
and the progress of our sales and business development efforts.
Although we have no present plans, agreements or proposals to do so, we may
also use a portion of the net proceeds to license or acquire new technologies,
to acquire or invest in businesses complementary to our own or to enter into
strategic alliances with other businesses. As a result, we will retain broad
discretion in allocating the net proceeds from this offering. Pending such uses,
we intend to invest the net proceeds in short-term, investment-grade securities
or obligations of, or secured by, the U.S. government.
DIVIDEND POLICY
Other than the S corporation distribution in the form of promissory notes
described below, we do not anticipate declaring or paying any cash dividends in
the foreseeable future. We currently intend to retain future earnings, if any,
to finance operations and the expansion of our business. Any future
determination to pay cash dividends will be at the discretion of our board of
directors and will be dependent upon our financial condition, operating results,
capital requirements and such other factors as our board of directors deems
relevant.
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<PAGE> 22
S CORPORATION DISTRIBUTION AND
CONVERSION TO C CORPORATION STATUS
Since our incorporation, we elected to be treated as an S corporation under
Subchapter S of the Internal Revenue Code of 1986, as amended. As a result, our
earnings since incorporation have been included in the income of our sole
shareholder for income tax purposes. Prior to the closing of this offering, we
will terminate our S corporation status. Prior to the termination of our S
corporation status, we will declare a distribution to our sole shareholder in an
amount equal to our previously earned and undistributed S corporation earnings
through the termination of our S corporation status.
As of December 31, 1999, our earned and undistributed S corporation
earnings was approximately $2.5 million. We expect this amount will increase as
a result of additional S corporation earnings from January 1, 2000 through the
date on which our S corporation status is terminated. The distribution of our
previously earned and undistributed S corporation earnings will be distributed
in the form of two promissory notes, one of which will be in the amount of
approximately $2.5 million and the other of which will be in an amount equal to
the earned and undistributed S corporation earnings between January 1, 2000 and
the date of termination of our S corporation status. Each promissory note will
bear interest at the rate of 8% per annum and will be repaid following the
consummation of this offering from net proceeds of this offering.
Following the termination of our S corporation status, we will be subject
to corporate federal and state income taxation on an accrual basis under
Subchapter C of the Internal Revenue Code. In connection with the termination of
our S corporation status, we have estimated an available net deferred tax asset
of approximately $237,000 as of December 31, 1999. This estimate is dependent
upon the date on which we voluntarily terminate our S corporation status, which
we anticipate will occur in connection with the closing of this offering. At
such time, net deferred tax assets or liabilities will be recorded in accordance
with Statement of Financial Accounting Standards No. 109. A valuation allowance
may be required to offset a net deferred tax asset if it is more likely than not
that all or some portion of the deferred tax asset will not be realized.
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<PAGE> 23
DILUTION
Purchasers of the common stock in this offering will experience an
immediate and substantial dilution in the net tangible book value of their
common stock from the initial public offering price. The net tangible book value
of our common stock on December 31, 1999, was $2,384,415, or approximately $0.24
per share. Net tangible book value per share represents the amount of our total
tangible assets less our total liabilities, divided by the number of shares of
common stock outstanding. Dilution in pro forma net tangible book value per
share represents the difference between the amount per share paid by purchasers
of shares of our common stock in this offering and the net tangible book value
per share of our common stock immediately afterwards. After giving effect to:
(1) the sale of shares of common stock by us in this offering at
an assumed initial public offering price of $ and after deducting the
underwriting discounts and commissions and estimated offering expenses; (2) an
assumed distribution of previously earned and undistributed S corporation
earnings of approximately $2.5 million as of December 31, 1999, which
distribution we expect will increase based upon S corporation earnings from
January 1, 2000 through the termination of our S corporation status; and (3) a
one-time non-cash credit to earnings to recognize a net deferred income tax
asset as a result of the termination of our S corporation status of
approximately $237,000 as of December 31, 1999, which amount may change as a
result of the recognition of additional deferred tax assets or liabilities
associated with S corporation earnings related to our operations from January 1,
2000 through the termination of our S corporation status, our net tangible book
value would have been $ , or $ per share. This represents an
immediate increase in net tangible book value of $ per share to our
existing shareholder and an immediate and substantial dilution of $ per
share to new investors of common stock in this offering. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price....................... $
Net tangible book value per share at December 31, 1999...... $
Decrease due to payment of the S corporation ( )
distribution....................................
--------
Increase due to deferred tax asset................
Increase attributable to new investors............
--------
Pro forma net tangible book value after the offering........
--------
Dilution to new investors................................... $
========
</TABLE>
The following table summarizes on a pro forma basis as of December 31,
1999, the differences between the total consideration paid and the average price
per share paid by the existing sole shareholder and the new investors with
respect to the number of shares of common stock purchased from us based on the
initial public offering price before deducting underwriting discounts and
commissions and offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------- ------------------- AVERAGE PRICE
NUMBER PERCENT NUMBER PERCENT PER SHARE
------- ------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing sole shareholder.............
New investors.........................
Total.......................
</TABLE>
The foregoing discussions and tables assume no exercise of outstanding
stock options. The discussions and tables exclude as of December 31, 1999 (1)
165,000 shares of common stock issuable upon the exercise of warrants at an
exercise price of $1.75 issued to a consultant, (2) 380,500 shares of common
stock issuable upon exercise of outstanding options at a weighted average
exercise price of $2.21 per share, (3) 95,000 shares of common stock granted
subsequent to December 31, 1999, issuable upon exercise of outstanding options
at a weighted average exercise price of $9.71 per share and (4) 524,500 shares
reserved for future grants under our stock option plan. To the extent that any
shares are issued pursuant to these plans, there will be further dilution to the
new investors.
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<PAGE> 24
CAPITALIZATION
The following table presents a summary of our capitalization as of December
31, 1999:
- on an actual basis;
- on a pro forma basis to reflect (a) an assumed distribution to our sole
shareholder of previously earned and undistributed S corporation earnings
in the amount of approximately $2.5 million as of December 31, 1999,
which distribution we expect will increase based upon S corporation
earnings from January 1, 2000 through the termination of our S
corporation status; and (b) a one-time non-cash credit to earnings to
recognize a net deferred income tax asset as a result of the termination
of our S corporation status of approximately $237,000 as of December 31,
1999, which amount may change as a result of the recognition of
additional deferred tax assets or liabilities associated with S
corporation earnings related to our operations from January 1, 2000
through the termination of our S corporation status; and
- on a pro forma as adjusted basis to reflect the pro forma adjustments
described above and the sale of the shares of common stock offered in
this prospectus at the assumed initial public offering price of $ per
share, after deducting underwriting discounts and commissions and
estimated offering expenses payable by us and the application of the net
proceeds therefrom.
<TABLE>
<CAPTION>
DECEMBER 31, 1999
--------------------------------------
PRO FORMA
PRO FORMA AS ADJUSTED
ACTUAL (UNAUDITED) (UNAUDITED)
---------- ----------- -----------
<S> <C> <C> <C>
Cash and cash equivalents...................... $1,244,086 $1,244,086 $
========== ========== ==========
Shareholders' equity:
Preferred stock, $.01 par value; 20,000,000
authorized; 0 shares issued and
outstanding............................... $ -- $ --
Common stock, $.01 par value; 80,000,000
shares authorized; 10,000,000 shares
issued and outstanding; and shares
issued and outstanding pro forma and as
adjusted, respectively.................... 100,000 100,000
Additional paid-in capital................... 1,176,494 699,117
Unearned compensation........................ (649,440) (649,440)
Retained earnings............................ 1,757,361 --
---------- ----------
Total shareholders' equity........... $2,384,415 $ 149,677
========== ==========
</TABLE>
23
<PAGE> 25
SELECTED FINANCIAL DATA
The selected financial data set forth below should be read in conjunction
with our financial statements and notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing elsewhere
in this prospectus. The financial data as of December 31, 1998 and 1999 and for
the years ended December 31, 1997, 1998 and 1999 has been derived from our
audited financial statements included elsewhere in this prospectus. The
financial data as of December 31, 1996 and 1997 and for the year ended December
31, 1996 has been derived from audited financial statements not included in this
prospectus. The unaudited financial data as of December 31, 1995 and for the
year ended December 31, 1995 has been derived from unaudited financial
statements not included in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1995 1996 1997 1998 1999
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME DATA:
Net sales............................................. $5,791,201 $ 8,991,902 $13,145,364 $26,836,473 $33,131,315
Cost of sales......................................... 5,477,622 8,647,179 12,396,264 23,932,350 29,806,978
----------- ----------- ----------- ----------- -----------
Gross profit.................................. 313,579 344,723 749,100 2,904,123 3,324,337
----------- ----------- ----------- ----------- -----------
Operating expenses:
Sales and marketing expense......................... 18,871 66,209 102,531 146,954 135,159
Commissions expense (excluding non-cash compensation
of $120,114)...................................... -- -- -- 291,115 827,375
Non-cash stock-based compensation expense........... -- -- -- -- 436,954
General and administrative expense (excluding
non-cash compensation of $316,840)................ 188,828 217,037 397,982 623,864 789,820
----------- ----------- ----------- ----------- -----------
Total operating expenses...................... 207,699 283,246 500,513 1,061,933 2,189,308
----------- ----------- ----------- ----------- -----------
Income from operations........................ 105,880 61,477 248,587 1,842,190 1,135,029
Interest income, net.......................... 9,350 5,598 24,571 42,174 78,180
----------- ----------- ----------- ----------- -----------
Net income............................................ $ 115,230 $ 67,075 $ 273,158 $ 1,884,364 $ 1,213,209
=========== =========== =========== =========== ===========
Net income per share:
Basic............................................. $ .01 $ .01 $ .03 $ .19 $ .12
Diluted........................................... $ .01 $ .01 $ .03 $ .19 $ .12
Weighted average shares outstanding:
Basic............................................. 10,000,000 10,000,000 10,000,000 10,000,000 10,000,000
Diluted........................................... 10,000,000 10,000,000 10,000,000 10,000,000 10,045,579
PRO FORMA STATEMENTS OF INCOME DATA (UNAUDITED):
Net income as reported.............................. $ 115,230 $ 67,075 $ 273,158 $ 1,884,364 $ 1,213,209
Pro forma income taxes provision(1)................. (39,178) (11,768) (93,032) (641,328) (413,779)
----------- ----------- ----------- ----------- -----------
Pro forma net income................................ $ 76,052 $ 55,307 $ 180,126 $ 1,243,036 $ 799,430
=========== =========== =========== =========== ===========
Pro forma net income per share
Basic............................................. $ .08
Diluted........................................... $ .08
Pro forma weighted average shares outstanding(2)
Basic............................................. 10,000,000
Diluted........................................... 10,045,579
</TABLE>
24
<PAGE> 26
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------------------------------------------------------------------------------
1999
-------------------------------------------
PRO PRO FORMA
1995 1996 1997 1998 ACTUAL FORMA(3) AS ADJUSTED(4)
----------- ---------- ---------- ---------- ------------ ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.... $ 88,618 $ 417,141 $ 216,057 $1,707,472 $1,244,086 $1,244,086
Working capital (deficit).... (764,468) 254,049 518,531 1,311,073 2,245,134 10,396
Total assets................. 1,039,559 1,468,361 2,253,336 4,774,167 6,275,629 6,513,100
Distribution payable to sole
shareholder................ -- -- -- 1,000,000 700,000 700,000
Note payable to sole
shareholder................ -- -- -- -- -- 2,472,209
Total shareholder's equity... 275,091 276,730 549,888 1,434,252 2,384,415 149,677
</TABLE>
- ---------------
(1) Prior to the closing of this offering, we will terminate our S corporation
status and elect C corporation status and accordingly become subject to
federal and state income taxes. The unaudited pro forma information reflects
the incremental tax expense that we would have incurred if we had been
subject to federal income taxes for the years ended December 31, 1995, 1996,
1997, 1998 and 1999. The effective rate used for pro forma income taxes was
the applicable effective federal statutory rate, as there would have been no
state income tax obligations or significant permanent federal income tax
differences.
(2) The pro forma weighted average number of shares outstanding at December 31,
1999 include the effect of the assumed issuance of shares of
common stock to generate sufficient cash to pay an S corporation
distribution of previously earned and undistributed S corporation earnings
of approximately $2.5 million at December 31, 1999. The issuance of common
stock was based on an assumed $ initial public offering price. Pro
forma weighted average shares outstanding does not include the shares of
common stock to be issued upon the closing of the initial public offering.
(3) Pro forma unaudited balance sheet data at December 31, 1999 reflects the
effect of: (a) an assumed distribution of previously earned and
undistributed S corporation earnings of approximately $2.5 million as of
December 31, 1999, which we expect will increase based on S corporation
earnings from January 1, 2000 through the termination of our S corporation
status; and (b) the recording of a one-time non-cash credit to earnings to
recognize a net deferred income tax asset as a result of the terminating of
our S corporation status, approximately $237,000 as of December 31, 1999,
which amount may change as a result of the recognition of additional
deferred tax assets or liabilities associated with S corporation earnings
related to our operations from January 1, 2000 through the termination of
our S corporation status.
(4) Pro forma as adjusted balance sheet data as of December 31, 1999 (unaudited)
gives effect to note (3) above and the issuance and sale of the common stock
in this offering at an assumed public offering price of $ per share
and application of the net proceeds therefrom as described in "Use of
Proceeds."
25
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of
operations should be read together with our selected financial data and the
financial statements and related notes included elsewhere in this prospectus.
This discussion and analysis contains forward-looking statements that involve
risks, uncertainties and assumptions. Our actual results may differ from those
anticipated in these forward-looking statements as a result of certain factors,
including, but not limited to, those set forth under "Risk Factors," and
elsewhere in this prospectus.
GENERAL
We are a leading business-to-business, or B2B, electronic marketplace
providing a "one-stop" online solution for the procurement of information
technology products. Our Internet-based system enables corporate and government
customers to efficiently source, evaluate, purchase and track a wide variety of
IT products. Our electronic marketplace, or emarketplace, serves as an
intermediary, providing current inventory information including comparative
pricing, available quantity and detailed product specifications directly from
the largest wholesale distributors in the United States. MoreDirect is unique to
the IT procurement marketplace in that our web-based system enables IT buyers to
view the inventories of multiple wholesale distributors at a single source and
provides valuable IT asset management solutions.
Our emarketplace aggregates approximately 290,000 product SKUs available
through wholesale distributors whose inventories include products from over
1,500 manufacturers including popular brand names, such as IBM, Compaq,
Hewlett-Packard, Toshiba, Cisco, and Microsoft. By displaying the comparative
prices of the current inventories of multiple wholesale distributors, we create
a price competitive online marketplace. Our emarketplace provides IT product
buyers with direct access to what we believe is the largest selection of IT
products available at a single source. Our primary target customers are large
corporations and government entities that are interested in making their IT
procurement process more efficient and cost effective.
We generate our sales from product sales. Net sales include product sales
and shipping and handling charges. We recognize sales upon shipment. Orders are
placed either directly by our customers, or by our sales representatives,
through our website upon receipt of a purchase order from our customers.
Customer orders are electronically transmitted to a specific wholesale
distributor based upon product availability and price, then shipped directly to
our customers. We take title to products upon shipment and record the related
sales transaction. We assume economic risk of all losses on credit and
collections, customer service issues and returns.
We do not maintain any product inventory. Our fulfillment and distribution
operations are handled by leading wholesale distributors, including Ingram
Micro, Tech Data, Merisel and Pinacor, who are known for their fulfillment
expertise and high levels of customer satisfaction. In addition, our transaction
processes and business practices are highly automated. Through this business
model, we capitalize on the cost efficiencies and expertise of our wholesale
distributors and thereby minimize our related infrastructure and operating
expenses.
Our business model utilizes commission-based sales representatives who
introduce corporate and government customers to our emarketplace. As a result,
our sales representatives' compensation is almost entirely variable with our
sales volume. As of December 31, 1999, we had 33 independent commission-based
sales representatives and six commission-based sales representatives employed by
our company. We intend to continue to pursue an aggressive program to attract
new sales representatives.
26
<PAGE> 28
We have devoted available resources to improving and expanding our
technology and infrastructure, developing new e-procurement features and
functionality, and adding suppliers, products and services to our emarketplace.
As of December 31, 1999, we had 18 employees including six sales
representatives. In addition, we anticipate substantially increasing our
expenditures on sales and marketing activities, including attracting additional
employee sales representatives, with the net proceeds from this offering.
Accordingly, we anticipate a significant increase in our operating expenses in
2000 and for the foreseeable future.
Beginning in the fourth quarter of 1999 and throughout the first quarter of
2000, we expanded the features and functionality of our e-procurement solution.
We transferred our technology platform to a Sun Microsystems Solaris server,
which significantly increased our system's performance and scalability. We added
additional wholesale distributors, including Tech Data. We also added important
e-procurement functionality, including administrative capabilities which allow
customers to assign purchasing authorization levels and passwords enabling
selected employees to view or access certain menus or web pages. These
administrative capabilities allow our customers to incorporate their approval
process and business rules into our e-procurement system. In addition, we
implemented order tracking capabilities and direct links, based upon shipment
tracking numbers, to a respective carrier's web site in order to determine the
status of shipments. Further, company standards lists were added so that
customers can pre-select standard products for their employees. Other
functionality was developed to incorporate various accounting and asset
management reports that can be downloaded by customers either on a stand-alone
basis or for integration into their internal information systems. We also
developed the capability to transfer various data files to our customers'
systems using FTP, XML or EDI. We believe that these recent enhancements to our
system make our emarketplace more valuable to corporate IT buyers and allow for
seamless integration into their internal purchasing software applications.
While we began providing B2B electronic IT procurement services in 1994, we
converted our procurement technology to our current Internet-based solution in
June 1999. Since our transition to the Internet, our business has grown
dramatically. During the 12 months ended December 31, 1999, 552 customers
purchased IT products using our e-procurement system as compared to 286
customers that purchased IT products during the 12 months ended December 31,
1998. We now have over 630 active IT product buyers utilizing our emarketplace.
Our revenues have increased by 162% to $18.6 million for the three months ended
March 31, 2000 compared to $7.1 million for the three months ended March 31,
1999.
27
<PAGE> 29
RESULTS OF OPERATIONS
The following table sets forth statements of income data for each of the
periods indicated as a percentage of sales:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1997 1998 1999
------ ------ -------
<S> <C> <C> <C>
Net sales.................................................. 100.0% 100.0% 100.00%
Cost of sales.............................................. 94.3 89.2 90.0
------ ------ -------
Gross profit..................................... 5.7 10.8 10.0
------ ------ -------
Sales and marketing expense................................ 0.8 0.5 0.4
Commissions expense (excluding non-cash compensation
expense)................................................. 0.0 1.1 2.5
Non-cash stock-based compensation expense.................. -- -- 1.3
General and administrative expense (excluding non-cash
compensation expense).................................... 3.0 2.3 2.4
------ ------ -------
Income from operations........................... 1.9 6.9 3.4
Interest income, net....................................... 0.2 0.1 0.2
------ ------ -------
Net income....................................... 2.1% 7.0% 3.6%
====== ====== =======
</TABLE>
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Net Sales. Net sales increased by $6.3 million, or 23.5%, to $33.1 million
for the year ended December 31, 1999 from $26.8 million for the year ended
December 31, 1998. This increase resulted from the introduction of our
Internet-based e-procurement system and growth in our customer base. The
majority of our sales growth was realized in the second half of 1999 after the
implementation of the current version of our Internet-based emarketplace and the
adoption of our commission-based sales representative program, both of which
commenced in June 1999. During 1999, 552 customers purchased IT products using
our e-procurement system as compared to 286 customers during 1998. Two customers
accounted for approximately 32% and 39% of our sales for the years ended
December 31, 1999 and December 31, 1998, respectively.
Cost of Sales. Cost of sales consists of our net cost of products sold
less manufacturer reimbursements and rebates. Cost of sales increased by $5.9
million, or 24.5%, to $29.8 million for the year ended December 31, 1999 from
$23.9 million for the year ended December 31, 1998, primarily as a result of the
increase in our net sales. Our gross margin on product sales declined to 10.0%
for the year ended December 31, 1999 from 10.8% for the year ended December 31,
1998. This reduction in gross margin reflected our aggressive product pricing
strategy to build our emarketplace as well as our strategy to increase the
number of large corporate customers. Large corporate customers typically
negotiate lower purchase prices based upon their greater purchasing volumes. We
anticipate that our gross profit margin will continue to decrease during 2000 as
we aggressively pursue new large corporate and government customers and build
our market share.
Sales and Marketing Expenses (Excludes Commission Expense). Sales and
marketing expense decreased by $12,000, or 8.0%, to $135,000 for the year ended
December 31, 1999 from $147,000 for the year ended December 31, 1998. The
decrease in sales and marketing expenses is attributable to a decrease in the
number of internal sales and marketing employees as we focused our sales
strategy on attracting commissioned-based sales representatives, as discussed in
"Commission Expense" below. To date, our growth has been achieved with no
advertising and minimal marketing activities. We intend to implement advertising
and marketing campaigns in 2000 utilizing a portion of the net
28
<PAGE> 30
proceeds from this offering. As a result, we expect sales and marketing expenses
to increase significantly in future periods.
Commission Expense. Commission expense increased by $536,000, or 184.2%,
to $827,000 for the year ended December 31, 1999 from $291,000 for the year
ended December 31, 1998. Commission expense as a percentage of sales increased
to 2.5% in 1999 from 1.1% in 1998. The increase in commission expense was
principally due to our aggressive program, that began in the third quarter of
1999, to recruit commission-based sales representatives. Our business model
utilizes commission-based sales representatives who introduce corporate and
government customers to our emarketplace. We intend to continue to pursue an
aggressive program to attract new commission-based sales representatives. We had
39 commission-based sales representatives at December 31, 1999 compared to 10 at
December 31, 1998.
Commissions are paid to our sales representatives based on a percentage of
gross profit on sales transactions. Therefore, our sales representatives'
compensation is almost entirely variable with our sales volume. Commission
expense as a percentage of gross profit increased to 24.9% in 1999 from 10.0% in
1998. Commission expense as a percentage of gross profit increased in 1999
because a higher percentage of our sales were to new customers that were
solicited by commission-based sales representatives. In 1998, a higher
percentage of our sales were to customers that were previously established as
"in-house" accounts. Therefore, commission expenses were limited. We expect that
commission expense as a percentage of gross profit will continue to increase
during 2000 as we aggressively recruit new commission-based sales
representatives.
Non-Cash Stock-Based Compensation Expense. Non-cash stock-based
compensation expense was $437,000 for the year ended December 31, 1999. In 1999,
the Company issued a warrant to purchase 165,000 shares of common stock to an
outside consultant for services performed in 1999 at $1.75 per share and
recorded a charge to compensation expense of approximately $179,000. Also, in
1999, the Company granted 33,000 options to independent contractors which
options vested immediately and recorded a charge to compensation expense of
approximately $120,000. Under APB 25, compensation expense of approximately
$138,000 was charged for employee stock options whose exercise price was less
than the estimated fair value price of the stock on the grant date. The
aggregate difference between the exercise price and the fair value amounted to
approximately $788,000, which will be recognized over the vesting period of the
stock options. The recognition of the compensation expense charged would be
accelerated in conjunction with the acceleration of vesting in the event of an
initial public offering.
General and Administrative Expenses. General and administrative expenses
increased by $166,000, or 26.6%, to $790,000 for the year ended December 31,
1999 from $624,000 for the year ended December 31, 1998. This increase is
primarily attributable to increases in payroll expense and professional fees
associated with our technology development, the hiring of finance and
administrative personnel, and legal and accounting services. We expect general
and administrative expenses to continue to increase as we expand our customer
base, increase our staff and incur additional costs related to the growth in our
business operations.
Interest Income, Net. Interest income, net, increased by $36,000, or 85.4%
to $78,000 for year ended December 31, 1999 from $42,000 for year ended December
31, 1998. This increase was attributable primarily to interest income generated
from larger average cash balances during 1999 as compared to 1998.
29
<PAGE> 31
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Net Sales. Net sales increased by $13.7 million, or 104.2%, to $26.8
million for the year ended December 31, 1998 from $13.1 million for the year
ended December 31, 1997. This increase resulted primarily from increased sales
to existing customers.
Cost of Sales. Cost of sales increased by $11.5 million, or 93.1%, to
$23.9 million for the year ended December 31, 1998 from $12.4 million as a
result of the significant increase in our net sales. Our gross margin on product
sales increased to 10.8% for the year ended December 31, 1998 from 5.7% for the
year ended December 31, 1997. Gross margins were affected in 1997 by intense
market-wide pricing pressure which subsided in 1998.
Sales and Marketing Expenses (Excludes Commission Expense). Sales and
marketing expense increased by $44,000, or 43.3%, to $147,000 for the year ended
December 31, 1998 from $103,000 for the year ended December 31, 1997.
Commission Expense. Commission expense was $291,000 in 1998. No commission
expense was recorded in 1997. In 1997, we did not engage commission-based sales
representatives. All sales and marketing activities were conducted by employees
who were not compensated based on commission.
General and Administrative Expenses. General and administrative expenses
increased by approximately $226,000, or 56.8% to $624,000 for year ended
December 31, 1998 from $398,000 for the year ended December 31, 1997. This
increase is primarily attributable to increased headcount of and related
expenses associated with our increase in our technology development, finance,
administrative, and support staff due to our growth.
Interest Income, Net. Interest income, net increased by approximately
$18,000, or 71.6% to $42,000 for the year ended December 31, 1998 from $25,000
for the year ended December 31, 1997. The increase is attributable primarily to
interest income generated from larger average cash balances during 1998 compared
to 1997.
30
<PAGE> 32
QUARTERLY RESULTS OF OPERATIONS
The following tables present our unaudited results of operations for each
of the quarters ended December 31, 1998 and 1999 both in dollars and as a
percentage of sales. This information has been compiled from our unaudited
interim financial data. In the opinion of our management, our unaudited
financial data have been prepared on the same basis as our audited financial
statements which appear elsewhere in this prospectus, and include normal
necessity adjustments that we consider necessary to fairly present this
information. The results of operations for any quarter are not necessarily
indicative of the results of operations for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------------------------------
1998 1999
------------------------------------------------- -------------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME
DATA:
Net sales............... $7,834,180 $5,984,968 $5,978,102 $7,039,223 $7,057,149 $8,042,412 $8,447,159 $9,584,595
Cost of sales........... 7,187,328 5,336,353 5,299,492 6,109,177 6,199,925 7,200,513 7,650,933 8,755,607
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross profit.......... 646,852 648,615 678,610 930,046 857,224 841,899 796,226 828,988
Sales and marketing..... 26,770 39,393 44,262 36,529 30,692 16,312 37,362 50,793
Commissions expense
(excluding non-cash
compensation)......... 36,621 63,589 65,769 125,136 158,418 217,400 186,890 264,667
Non-cash stock-based
compensation
expense............... -- -- -- -- 178,530 -- -- 258,424
General and
administrative expense
(excluding non-cash
compensation)......... 147,516 143,509 155,422 177,417 183,013 198,894 203,516 204,397
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total operating
expenses............ 210,907 246,491 265,453 339,082 550,653 432,606 427,768 778,281
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Income from
operations.......... 435,945 402,124 413,157 590,964 306,571 409,293 368,458 50,707
Interest income, net.... 3,502 4,411 14,245 20,016 11,587 14,858 23,480 28,255
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income.......... $ 439,447 $ 406,535 $ 427,402 $ 610,980 $ 318,158 $ 424,151 $ 391,938 $ 78,962
========== ========== ========== ========== ========== ========== ========== ==========
AS A PERCENTAGE OF NET
SALES:
Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales........... 91.7 89.2 88.7 86.8 87.9 89.5 90.6 91.4
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross profit.......... 8.3 10.8 11.3 13.2 12.1 10.5 9.4 8.6
Sales and marketing..... 0.3 0.7 0.7 0.5 0.4 0.2 0.4 0.5
Commissions expense
(excluding non-cash
compensation)......... 0.5 1.0 1.1 1.8 2.2 2.7 2.2 2.8
Non-cash stock-based
compensation
expense............... -- -- -- -- 2.5 2.7
General and
administrative expense
(excluding non-cash
compensation)......... 1.9 2.4 2.6 2.5 2.6 2.5 2.4 2.1
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total operating
expenses............ 2.7 4.1 4.4 4.8 7.7 5.4 5.0 8.1
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Income from
operations.......... 5.6 6.7 6.9 8.4 4.4 5.1 4.4 0.5
Interest income, net.... 0.0 0.1 0.2 0.3 0.1 0.2 0.3 0.3
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income.......... 5.6% 6.8% 7.1% 8.7% 4.5% 5.3% 4.7% 0.8%
========== ========== ========== ========== ========== ========== ========== ==========
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, we had $1.2 million of cash and cash equivalents.
As of that date, our principal commitments consisted of a distribution payable
to the sole shareholder of $700,000.
Net cash used in operations was $183,000 in 1997. Net cash provided by
operations was $1.7 million and $589,000 in 1998 and 1999, respectively. The
change from net cash used to net cash provided by operations from 1997 to 1998
was primarily a result of increased profitability with a corresponding increase
in net income of $1.6 million. The decrease in net cash provided by operations
in 1999 was primarily a result of an increase in accounts receivable levels
associated with net sales growth and a decrease in net income.
31
<PAGE> 33
Net cash used in investing activities of $18,000, $106,000 and $53,000 in
1997, 1998 and 1999, respectively, represented expenditures for additions to
property and equipment.
Net cash used by financing activities was $60,000 in 1998, which
represented a loan repayment to the sole shareholder. Net cash used by financing
activities was $1.0 million in 1999, which represented payment of a distribution
payable to the sole shareholder.
We have historically financed our operations and capital expenditures
primarily through cash flow from operations. Our working capital was $1.3
million and $2.2 million at December 31, 1998 and 1999, respectively. The
increase of $934,000 in working capital in 1999 was primarily due to the
increase in accounts receivable and accrued expenses. At December 31, 1999, we
had no outstanding long-term debt. Since our incorporation, we have been a S
corporation and 100% owned by Russell L. Madris, our founder, Chairman, Chief
Executive Officer and President and immediately prior to the closing of this
offering by Madris Delaware, L.P., a Delaware limited partnership controlled by
Mr. Madris.
In March 2000, we obtained a $15.0 million line of credit from SunTrust
Bank. We may obtain advances under the line of credit in an amount equal to 85%
of our accounts receivable, subject to certain adjustments. Amounts outstanding
under the line of credit accrue interest at LIBOR plus 1.25-2.25%, subject to
certain financial ratios. The line of credit matures in March 2002. The line of
credit contains covenants, including maintenance of financial ratios and
indebtedness covenants and a requirement that we obtain the consent of our
lender before we incur debt, other than trade debt, pay dividends or make
distributions, make investments or consummate mergers or acquisitions. We can
use the advances we obtain under the line of credit as working capital to
support our accounts receivable and for general working capital purposes. To
secure our obligations under the line of credit, we granted our lender a first
priority lien and security interest on all of our existing and future assets. As
of April 12, 2000, the Company has borrowed $1.5 million under the line of
credit.
Our current and anticipated uses of cash are to fund operations and capital
expenditures necessary to support current growth in sales. We anticipate that
cash flow from operations together with the funds available under our $15.0
million line of credit from SunTrust Bank should be adequate to support our
presently anticipated cash and working capital requirements until we receive the
net proceeds from this offering. We anticipate that the net proceeds from this
offering will be adequate to fund our cash and capital requirements through the
end of 2001. However, our ability to continue funding our planned growth beyond
the proceeds from this offering is dependent upon our ability to generate
sufficient cash flow from operations, to raise funds through subsequent equity
offerings or our ability to obtain additional bank financing.
YEAR 2000 ISSUES
The impact of the year 2000 on our technology systems to date has been
insignificant. The total cost associated with our year 2000 remediation effort
has not been material and is not expected to be material in future periods. To
date we have experienced no year 2000 issues which have materially affected our
business. On and after January 1, 2000, our customers were able to access our
website. We were able to process and transmit our customers' orders and our
suppliers were able to process and deliver those orders.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, we adopted Statement of Position No. 98-1, or SOP 98-1,
Accounting for Costs of Computer Software Developed or Obtained for Internal
Use, which provides guidance on accounting for the cost of computer software
developed or obtained for internal use. SOP 98-1 was
32
<PAGE> 34
effective for fiscal years beginning after December 15, 1998. The adoption of
SOP 98-1 did not have a material impact on our financial statements.
In June 1999, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
establishes accounting and reporting standards for derivative instruments and
hedging activities. SFAS 133, as amended by SFAS 137, will be effective for our
financial reporting beginning in the first quarter of 2001. We do not currently
utilize derivative financial instruments; therefore, we do not expect that the
adoption of SFAS 133 will have a material impact on our results of operations or
financial position.
In December 1999, the SEC staff released Staff Accounting Bulletin No. 101,
Revenue Recognition in Financial Statements, which provides guidance on the
recognition, presentation and disclosure of sales in financial statements. SAB
No. 101 did not impact the way we currently recognize sales.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
All of our operations are in the United States and all our sales are
currently made in U.S. dollars. Accordingly, our results of operations are not
materially affected by economic conditions in foreign countries at the present
time.
Our investments are classified as cash and cash equivalents with original
maturities of three months or less. As of December 31, 1999, we consider the
reported amounts of these investments to be reasonable approximations of their
fair values. Changes in market interest rates will not have a material impact on
our financial position.
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BUSINESS
OVERVIEW
We are a leading business-to-business, or B2B, electronic marketplace
providing a "one-stop" online solution for the procurement of information
technology products. Our Internet-based system enables corporate and government
customers to efficiently source, evaluate, purchase and track a wide variety of
IT products. Our electronic marketplace, or emarketplace, serves as an
intermediary, providing current inventory information, including comparative
pricing, available quantity and detailed product specifications directly from
the largest wholesale distributors in the United States. MoreDirect is unique to
the IT procurement marketplace in that our web-based system enables IT buyers to
view the inventories of multiple wholesale distributors at a single source and
provides valuable IT asset management solutions.
MoreDirect's emarketplace aggregates approximately 290,000 product SKUs
available through wholesale distributors. Available inventory includes products
from over 1,500 manufacturers, including popular brand names, such as IBM,
Compaq, Hewlett-Packard, Toshiba, Cisco and Microsoft. By displaying the
comparative prices of the current inventories of multiple wholesale
distributors, we create a price competitive online marketplace. We believe our
emarketplace provides IT product buyers with direct access to what we believe is
the largest selection of IT products available at a single source.
The IT products distribution channel has historically been highly
fragmented and multi-tiered which has added several layers of costs to
end-users. Our Internet-based solution eliminates supply-chain inefficiencies
and creates a more direct, cost-effective IT products marketplace. We provide
customers with direct access to the current inventories of leading wholesale
distributors, including Ingram Micro, Tech Data, Merisel and Pinacor, the four
largest wholesale distributors in the United States. We are in the process of
expanding inventory available through our emarketplace by adding additional
suppliers of IT products.
MoreDirect's e-procurement solution creates purchasing efficiencies that we
believe provide significant cost and time savings for IT buyers of large
corporations and government entities. Some of the key e-procurement features
available to customers of our emarketplace include the ability to:
- compare product price and availability among several leading wholesale
distributors;
- search for products using a number of different criteria, including brand
name, product name, product description, manufacturer's part number,
supplier's part number, product category and product classification;
- track existing orders and obtain history on all product orders and
returns, including aging credit and cash receipt information;
- create and transmit detailed purchase orders; and
- confirm orders via e-mail, with file attachments available for uploading
to customer's ordering and purchasing systems.
Each customer's website access and web pages are customized to incorporate that
entity's purchasing authorities, approval process, work flow and business rules.
We believe that this flexibility makes our service an attractive solution to a
wide variety of IT buyers. In addition, we provide IT asset management
information and reports such as complete order histories, product serial
numbers, shipped to locations, tracking and other account information enabling
customers to manage the IT products they have ordered. Our emarketplace provides
a complete e-procurement solution.
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Our objective is to become the premier B2B emarketplace for IT products.
The key elements in our strategy include:
- building brand awareness through increased marketing efforts;
- expanding our sales force;
- pursuing strategic alliances;
- establishing relationships with additional suppliers;
- enhancing the services and functionality of our e-procurement solution;
and
- expanding our service to offer complementary products.
INDUSTRY BACKGROUND
Growth of Business-to-Business E-Commerce
The rapid growth of the B2B e-commerce market is fueled largely by the
recurring nature of business needs and transactions. The Internet provides a
medium in which buyers and suppliers can effect transactions more efficiently by
reducing the costs of accessing information and streamlining complex purchasing
and distribution processes. As compared to business to consumer e-commerce
transactions, B2B exchanges are characterized by a larger average order size and
a higher level of customer loyalty and repeat business. Forrester Research
estimates that businesses bought $109 billion in goods over the Internet in
1999, as opposed to $20 billion in goods bought by consumers. In addition,
Forrester Research predicts that B2B e-commerce in the United States will grow
to $2.7 trillion by 2004, representing more than 90% of the projected total
e-commerce market. Forrester Research also reports that the IT products market
is the fastest growing segment of the projected B2B e-commerce market and is
highly fragmented, providing an attractive opportunity for an Internet-based
solution. According to estimates by International Data Corporation, the IT
products market in the United States totaled $245 billion in 1999, and will
reach $334 billion by 2003.
Traditional Distribution Channels for Information Technology Products
The IT product distribution channel is multi-tiered and highly fragmented,
with a wide variety of manufacturers selling products through a number of
different channels. Traditionally, products are sold through a supply chain
which includes manufacturers, wholesale distributors, resellers, dealers and
end-users. In addition, certain manufacturers sell their products directly to
end-users.
Historically, corporate and government entities have purchased their IT
products from several dealer or reseller sources, each of which carried limited
inventories. The traditional distribution channels result in an inefficient
purchasing process for business and government consumers of IT products. The
typical purchasing process consists of the following four principal steps:
- Sourcing. An IT buyer who desires to purchase a product at a favorable
price must typically contact a number of resellers or dealers and obtain
information as to product specifications, pricing and availability.
- Ordering. Once a product has been selected, the buyer must place an
order with the chosen vendor. This process includes the buyer's internal
approval process, followed by negotiations with the vendor as to terms
such as price, delivery location and delivery date.
- Fulfillment. This step includes the delivery of the product to the
buyer, as well as the buyer's tracking of the order.
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- Invoice and Payment. Once the product has been received, the buyer must
verify receipt of the ordered product and process and remit payment to
the vendor.
The Need for a More Efficient Purchasing System
As a result of the inefficiencies in the traditional corporate and
government IT purchasing process, IT buyers are increasingly seeking solutions
that eliminate multiple purchasing sources and reduce procurement processing
costs. Many IT buyers are looking to the Internet as a potential purchasing
solution. Corporations and government entities are moving their purchasing
programs towards e-procurement in order to increase access to real-time
information from numerous suppliers, reduce the time and cost of ordering, and
provide automated order tracking and other critical information.
While an increasing number of manufacturers, distributors and resellers are
offering IT products for sale over the Internet, we do not believe that there
has been a single source providing a complete purchasing solution. We do not
believe that any existing procurement alternative provides current, comparative
inventory information from multiple wholesale suppliers, detailed product
information, flexible product search capabilities, the ability to order from
multiple suppliers though a single source and receive one consolidated invoice,
and provide online tracking and order information.
THE MOREDIRECT SOLUTION
We offer corporate and government buyers a comprehensive, one-stop online
marketplace for the procurement of IT products. Our proprietary e-procurement
system, which is available to our customers through our website provides current
information directly from many of the leading wholesale distributors of IT
products, including Ingram Micro, Tech Data, Merisel and Pinacor.
Some of the features of the MoreDirect solution include the ability to:
- compare product price and availability among several leading wholesale
distributors;
- search for products using a number of different criteria, including by
brand name, product name, product description, manufacturer's part
number, supplier's part number, product category and product
classification;
- track orders and obtain history on all product orders and returns,
including aging, credit and payment information;
- create and transmit detailed purchase orders; and
- confirm orders via e-mail, with file attachments suitable for uploading
to customer's ordering and purchasing systems.
Additional key features include the ability to:
- customize pricing, which allows us to assign to any customer a detailed
customized pricing profile, which we believe allows us to maximize profit
margins;
- provide remote access for our sales representatives to facilitate
execution of all aspects of customer orders and account management over
the Internet; and
- accept large amounts of data from multiple wholesale distributors and
receive, update and track information on hundreds of thousands of product
SKUs electronically.
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Our emarketplace is accessible through the Internet using any standard browser,
and does not require any special software application. We do not charge license
fees, transaction fees, service charges or usage fees. Use of our e-procurement
solution is free to approved corporate and government customers.
Benefits to Corporate and Government Customers
Improved Efficiency. The MoreDirect e-procurement solution improves the
efficiency of the purchasing process by increasing access to information and by
streamlining purchasing procedures. A corporate or government IT buyer seeking
product, pricing or availability information can easily obtain this information
from a number of leading wholesale suppliers through a single source, rather
than contacting multiple distributors individually. Our solution aggregates the
inventory of wholesale distributors and allows the customer to order products
directly online through MoreDirect. We transmit our customers' order information
to our suppliers, who ship directly to the customer, usually on the same day.
Upon shipment, we invoice the customer directly for all products purchased. The
customer can easily access its account on our system at any time to review its
order history, invoices and up-to-date product tracking information. By
integrating the purchasing steps, we enable customers to improve the speed and
efficiency of the traditional ordering process.
By providing corporate and government buyers with access to the inventories
of leading IT wholesale distributors, our emarketplace generally results in
lower product pricing for our customers. Our e-procurement system is designed
to:
- create supply-chain efficiencies by eliminating layers of dealers and
resellers from the distribution chain;
- create a direct channel from wholesalers distributors to end-users;
- create a more competitive emarketplace by displaying pricing information
from multiple wholesale distributors;
- aggregate a highly fragmented market; and
- create a B2B emarketplace offering a substantial amount of the products
available through wholesale distributions.
Reduced Costs. Our simplified and stream-lined purchasing model is
designed to allow corporate and government customers to reduce processing costs
and to obtain favorable product pricing. Processing costs that can be typically
reduced through use of our system include the following:
- transaction costs, including costs relating to manual paper ordering
methods, telephone and fax communications between potential suppliers and
generating written purchase orders and requests for proposals;
- search costs associated with identifying and communicating with potential
product suppliers to obtain information as to pricing and availability;
- organizational costs, such as internal costs associated with product
selection and order approval; and
- fulfillment costs associated with tracking the status of product
shipments, and reacting to unanticipated delivery problems.
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We believe that corporate and government buyers can realize significant
process cost savings by using our automated online system as compared to the
traditional purchasing process. In fact, according to Forrester Research,
companies spend approximately $130 to process each paper-based purchase order,
whereas the cost to generate an electronic purchase order is estimated to be
less than $10.
IT Asset Management Services. Our e-procurement system contains a number
of features designed to provide valuable information to corporate and government
IT buyers. In addition to the ability to purchase products through our
e-procurement system, our system also allows customers to prepare IT asset
management information and reports, which include complete order histories,
product serial numbers, shipped to locations, tracking and other account
information enabling customers to better manage the IT products they have
ordered. The features of our emarketplace which enable IT asset management are
easy to use and navigate, and can be integrated directly into a user's internal
computer system.
Benefits to Distributors
Additional Sales Channel. Our electronic marketplace offers IT wholesale
distributors a powerful new sales channel to reach corporate purchasers directly
through the Internet, without the need for website development or other costs
associated with creating a new sales channel. This system enables wholesalers to
make their inventory available both to traditional dealers and resellers, as
well as corporate end-users.
Reduced Selling Costs. Wholesale distributors who make their products
available through our electronic marketplace are able to take advantage of many
of the same types of efficiencies as buyers, including reduced administrative,
order processing and other transaction costs associated with order fulfillment
and sales. We enable suppliers to sell direct to corporate end-users, reducing
the number of intermediaries in the traditional computer product supply chain.
Our Operating Structure
We believe that our business model allows us to operate very efficiently
with minimal administrative overhead. The high level of automation built into
our website and back-end processing systems has enabled us to operate with a
cost-effective corporate infrastructure. Unlike traditional distributors and
resellers, we do not maintain inventory. Our B2B e-procurement model utilizes
commission-based sales representatives who recruit and service a corporate
client base. As a result, our sales representatives' compensation is almost
entirely variable with sales volume. In addition, our infrastructure and our
system's bandwidth has been designed to handle increased sales volume and
heavier website traffic with minimal investment or additional fixed costs. As a
result of this operating model, we believe our operating expenses as a
percentage of sales are among the lowest in the industry.
STRATEGY
Our objective is to become the leading B2B electronic marketplace for
computer-related products, and to expand our marketplace to include
complementary product offerings. Our strategy to achieve this goal includes the
following elements:
Building Brand Awareness Through Increased Marketing Efforts. We have
grown our business to date with no advertising. Following this offering, we
intend to increase awareness of our electronic marketplace, brand name and
services through a marketing campaign targeted at corporate technology
purchasers. We anticipate advertising in trade and business publications and on
B2B
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websites that attract corporate decision-makers. We have recently begun a direct
e-mail campaign directed at chief information officers and other high level
corporate technology personnel.
Expanding Our Sales Force. We began actively recruiting commission-based
sales representatives during 1999. As of March 31, 2000, we had retained 37
independent commission-based sales representatives and seven commission-based
sales representatives employed by our company. We intend to aggressively expand
our sales force by retaining additional sales representatives and hiring
experienced sales managers. We believe that we will be successful in recruiting
qualified information technology sales representatives because we can pay
attractive commissions as a result of our efficient operating model and low
fixed overhead. In addition, we offer the flexibility of working out of a home
office, easily accessible detailed account information and the ability to
interact with clients online. We have also recently begun to establish an
in-house telemarketing group that will contact corporate information technology
purchasers. We intend to expand the size of our telemarketing group and to
increase our direct marketing efforts.
Pursuing Strategic Alliances. We are pursuing strategic alliances with
complementary B2B product and service providers. We believe that Internet-based
procurement software companies and information technology consulting firms,
which typically provide services to large business customers with extensive
computer requirements, would be ideal candidates for partnerships and alliances.
Establishing Relationships with Additional Suppliers. We currently have
relationships with the leading wholesale distributors, including Ingram Micro,
Tech Data, Merisel and Pinacor. We believe that our system offers an attractive
low-cost, efficient distribution channel for wholesale distributors and for
manufacturers, and we intend to pursue relationships with additional suppliers
to add to our product offerings and sales opportunities.
Enhancing Services and Functionality of our E-procurement Solution. We
believe that our e-procurement solution provides an easy to navigate, efficient
and cost-effective method of information technology product procurement, and
that it includes access to information that increase its value to business and
governmental consumers. We intend to develop enhancements to our system to
provide users in-depth management information and report capabilities regarding
purchasing activities and controls. For instance, we intend to adopt the
Extensible Markup Language, or XML, and create additional electronic links for
our corporate customers to further increase the level of unassisted e-commerce
transactions and strengthen our corporate relationships.
Expanding Our Service to Offer Complementary Products. While we believe
that the market for computer related products is especially well-suited to our
electronic purchasing solution due to the large, fragmented nature of the
market, we plan to evaluate the possibility of adding additional types of
products to our marketplace. We believe that our e-procurement system can be
easily adapted for use with other types of products, and that we may be able to
leverage our existing customer base to sell complementary products, such as
office furniture, equipment or supplies.
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CUSTOMERS
We currently have more than 630 active corporate customers. The following
is a representative list of businesses that have purchased products through our
system during the six months ended February 29, 2000:
<TABLE>
<S> <C>
Assurant Group Mitsui & Co. (U.S.A.), Inc.
British Airways PLC Morgan Stanley Dean Witter & Co.
Citibank Nintendo of America, Inc.
Credit Suisse First Boston Northrop Grumman Corporation
Headhunter.net, Inc. PGA of America
Homegrocer.com, Inc. Turner Broadcasting System
Lehman Brothers Holdings Inc. Verio Inc.
Matchmaker.com, Inc. Washington Mutual, Inc.
</TABLE>
Washington Mutual Bank and Assurant Group (service mark of Fortis, Inc. and
formerly known as American Bankers Insurance) accounted for approximately 21%
and 11%, respectively, of our sales in 1999.
SALES AND MARKETING
To date, our expenditures on marketing and sales programs have been
extremely limited. We expect to significantly increase our marketing efforts
following this offering. The majority of our sales and marketing efforts are
undertaken by our commission-based sales representatives. As of March 31, 2000,
our sales force consisted of 37 independent commission-based sales
representatives and seven commission-based sales representatives employed by our
company. We intend to increase the number of our sales representatives in order
to introduce new corporate and government customers to our emarketplace. In
addition to our sales representatives, we also intend to hire experienced sales
managers to assist with the growth of our sales force as discussed below.
We believe that our arrangements with our sales representatives are
mutually beneficial and will enable us to continue to attract qualified
representatives. Our independent sales representatives are generally responsible
for their own expenses and overhead. All of our sales representatives are
typically given a high degree of autonomy, including the ability to negotiate
price directly with distributors on behalf of customers and the limited
authority to adjust product prices. Our sales representatives help introduce
customers to our e-procurement solution and may assist certain customers to
conduct product comparisons or to place orders. Our sales representatives are
compensated based on the gross margin profitability of their sales. The cost to
us of adding a new sales representative is nominal, and our commissions due to
sales representatives are based almost entirely on the gross profits we realize
from the sales they generate. On occasion, we may provide non-recoverable draws
or advances against commissions to a limited number of sales representatives
with proven sales records for a limited period of time as a recruiting tool. We
believe that our compensation structure generally allows us to pay our most
effective sales representatives a high level of compensation relative to the
industry average, and minimizes our cost of sales.
In December 1999, we opened a regional sales office in New York City. In
order to more effectively market to business customers in large metropolitan
regions, we may open additional regional sales offices. We believe that large
corporations in major metropolitan areas offer valuable prospects for us, and
that for relatively low cost we will be able to generate increased sales by
maintaining a local sales representative in key markets.
We have recently established an in-house telemarketing group, in addition
to our sales representatives. As of March 31, 2000, our telemarketing group
consisted of three people, and we are
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in the process of increasing the size of this group. Our telemarketing group
will be responsible for, in part, contacting chief information officers and
other corporate IT buyers to introduce them to our e-procurement solution.
We have recently begun our initial marketing campaign composed primarily of
email programs targeted to chief information officers and other corporate IT
buyers. We anticipate participating in computer and technology trade shows,
launching advertising, corporate identity and brand development programs and
enhancing our presence on the World Wide Web through strategic partnerships.
We have recently begun a program to attract value added resellers to
purchase products through our system in order to complement the efforts of our
sales representatives.
TECHNOLOGY
Our proprietary e-procurement system, called TRAXX, is accessible to
customers through two-types of interfaces:
- Graphical Interface. Our Internet-based graphical user interface is
available to any user through our MoreDirect.com website. Our web content
was developed using Microsoft Active Server Page Extensions. We believe
that this technology allows us to provide dynamic content to each user
quickly and efficiently. In addition, each corporate website is tailored
for each company's needs.
- Character-based Interface. In addition, the TRAXX system is accessible
through a character-based user interface, familiar to many corporate
sales representatives and corporate information technology purchasers,
that can be accessed using a wide variety of electronic-based programs.
This provides users with an efficient and reliable method of accessing
the TRAXX system.
The backbone of the TRAXX system is an extensive product database that is
designed to handle high-speed, Internet-based transaction processing. The
database contains the current inventory of numerous suppliers. This technology
is easily scalable with increasing demand and is portable to any platform. We
believe that this scalability will help ensure that we will not outgrow the
capabilities of our software in the foreseeable future, and that will be able to
meet anticipated increased demand for our service. Our Sun Microsystems Solaris
server utilizes the latest UNIX and Microsoft Windows NT platforms and are
maintained at our corporate offices.
Currently, the TRAXX system utilizes industry-standard Electronic Data
Interchange, or EDI, systems. EDI is used to transmit large files of data
between our systems and our wholesale distributors. EDI simplifies the receipt
and processing of electronic information and documents, such as product
inventory, purchase orders and billing information. Recently, we have adopted
XML and created additional electronic links for our corporate customers to
further increase the level of unassisted e-commerce transactions and strengthen
our corporate relationships.
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COMPETITION
The market for sales of IT products for corporations and government
entities is highly fragmented and intensely competitive. In addition, this
market is rapidly evolving as a result of new technologies, such as the
Internet. We expect competition to persist and intensify and the number of
competitors to increase in the future. We believe that our primary competitors
include:
- other B2B emarketplaces, such as Onvia.com and VerticalNet;
- B2B electronic commerce software vendors, such as Ariba Technologies,
Commerce One and PurchasePro.com, which provide automated procurement
software that links corporations to their suppliers;
- software vendors for the IT industry, such as pcOrder.com, which provide
software applications which allow computer product resellers to sell
products online;
- catalogue merchandisers and other corporate resellers, such as CDW
Computer Centers, MicroWarehouse, Insight Enterprises and En Pointe
Technologies;
- IT product retailers, including traditional storefront retailers, such as
CompUSA, Office Depot, Staples and OfficeMax; and
- Internet-based retailers, such as OnSale.com, Outpost.com and
Egghead.com.
In addition, certain IT product manufacturers and distributors sell their
products directly to end-users, through the Internet and other channels, and may
be able to offer lower prices that we can offer. If additional manufacturers and
distributors initiate such sales efforts, we expect that we would face increased
competitive pressures.
Although we believe that we compete favorably with other corporate
information technology procurement businesses, many of our current and potential
competitors, including those mentioned above, have significantly greater
financial, technical and marketing resources, longer operating histories, better
name recognition and more experience than we do.
INTELLECTUAL PROPERTY
We rely on a combination of trademark, licenses, trade secret and common
law copyright laws and contractual restrictions to protect the proprietary
aspects of our technology. In an effort to limit the disclosure of our
intellectual property, we will require key employees and consultants with access
to our proprietary information to execute confidentiality agreements with us. In
addition, we limit the personnel who have access to our proprietary technology.
However, these legal protections and precautions afford only limited protection
for our technology. Even if persons were to gain access to our proprietary
technology, we believe that it would be difficult to obtain and assemble our
proprietary technology in sufficient time to compete effectively against us.
Instead, we have concentrated on developing and enhancing our emarketplace in
order to establish and maintain a leadership position in our market.
Nonetheless, despite our efforts to protect our proprietary rights,
unauthorized parties may attempt to copy aspects of our products or to obtain
and use information that we regard as proprietary. Litigation may be necessary
in the future to enforce our intellectual property rights, to protect our trade
secrets, to determine the validity and scope of the proprietary rights of others
or to defend against claims of infringement or invalidity.
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We integrate third-party software into our system. This third-party
software may not continue to be available on commercially reasonable terms. We
believe that there are alternative sources for such technology. If we could not
maintain licenses to the third-party software included in our system, however,
use of our service could be halted until equivalent software could be developed
or licensed and integrated into our system. The failure to maintain licenses and
the potential for litigation as described above could materially adversely
affect our business, operating results and financial condition.
EMPLOYEES
At March 31, 2000, we had 22 employees, including corporate officers,
system programmers, customer support, administrative and sales personnel,
excluding independent commission-based sales representatives. From time to time
we have engaged independent contractors to support our technology development
efforts. We are not subject to any collective bargaining arrangement and believe
that our employee relations are good.
FACILITIES
Our principal executive offices are located in Boca Raton, Florida, where
we lease approximately 2,000 square feet under a lease that expires in June
2000. Our principal facility will not be adequate to meet our needs beyond the
near-term future. We have entered into a five year lease commencing April 1,
2000 for approximately 5,000 square feet of office space in Boca Raton, Florida.
The lessor is a corporation of which our founder, Chairman, Chief Executive
Officer and President, Russell L. Madris, is a 50% shareholder.
We have one regional sales office located in New York, New York, consisting
of approximately 1,500 square feet under a lease that expires in December 2000.
LEGAL PROCEEDINGS
We currently are not party to any material legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning our executive
officers and directors as of March 31, 2000:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Russell L. Madris.......................... 43 President, Chief Executive Officer and
Chairman of the Board of Directors
Scott J. Modist............................ 39 Vice President, Chief Financial Officer and
Treasurer
James R. Garrity........................... 33 Vice President of Sales and Marketing
Bernardo Sicard............................ 34 Vice President of Technology and
Information Services
James J. Felcyn, Jr........................ 57 Director
Robert D. Grambo........................... 36 Director
Christopher J. Daly........................ 41 Director
Michael D. Horvitz......................... 39 Director
</TABLE>
RUSSELL L. MADRIS founded our company in 1994. He has served as Chairman of
the Board of Directors, Chief Executive Officer and President since our
inception. From 1991 to 1994, Mr. Madris owned and operated an IT products
reseller. From 1981 to 1991, Mr. Madris served in a variety of positions with
the Computer Factory, a computer retailer, including as Vice President of Sales
and Marketing from 1985 to 1991 and as a Director from 1985 to 1991. Mr. Madris
was responsible for the sales, marketing and operations of the Computer
Factory's 68 branch locations and its corporate and retail sales staff of over
400 employees.
SCOTT J. MODIST has served as our Vice President and Chief Financial
Officer since September 1999. From March 1992 to July 1999, Mr. Modist served as
Senior Vice President and Chief Financial Officer of Equitrac Corporation, a
publicly traded technology company. At Equitrac, Mr. Modist was responsible for
all financial, strategic planning, acquisitions, investor relations, legal and
administrative matters. Prior to joining Equitrac in March 1992, Mr. Modist was
a senior manager at KPMG Peat Marwick LLP. Mr. Modist is a Certified Public
Accountant.
JAMES R. GARRITY has served as our Vice President of Sales and Marketing
since June 1999. From September 1997 to June 1999, Mr. Garrity was an Account
Executive at Ingram Micro, the largest IT wholesale distributor in the United
States. Mr. Garrity's responsibilities included establishing and managing the
Ingram's relationships with certain major accounts and strategic partners, as
well as the company's e-commerce strategies. From October 1991 to September
1997, Mr. Garrity held various positions with Ingram Industries and its
affiliates.
BERNARDO SICARD has served as our Vice President of Technology and
Information Services since September 1999. From August 1998 to August 1999, Mr.
Sicard served as our Director of Technology Development. From June 1990 to July
1998, Mr. Sicard held various network engineer, software development and
customer technical support management positions at BUC International, a yacht
brokerage company, where he was responsible for software development, network
installation at customer sites and customer technical support of global private
networks.
JAMES J. FELCYN, JR. has served as a director since March 2000. Mr. Felcyn
served as Vice President--Finance and Administration, Chief Financial Officer
and Treasurer of Citrix Systems,
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Inc., a publicly traded software company, from July 1994 until January 2000. Mr.
Felcyn currently serves as a director of several publicly traded companies,
including Smith Gardner & Associates, Inc., a provider of enterprise software
solutions for e-commerce companies, Equinox Systems, Inc., a manufacturer of
high speed serial communication ports, and Optio/Software, Inc., a web-based
document design software company. Mr. Felcyn is a Certified Public Accountant
and also serves as a director of a number of privately held companies, including
Emergin, Inc., Lifefiles.com, Inc. and Silverback Technology, Inc.
ROBERT D. GRAMBO has served as a director since March 2000. Mr. Grambo has
served as Chairman of the Board and Chief Executive Officer of BuyNow Inc., an
e-commerce services provider, since March 2000. From March 1987 to February
2000, Mr. Grambo served in several executive positions for Ingram Micro, the
largest IT wholesale distributor, and its affiliates, including as President of
Ingram Micro Europe and as President of Ingram Micro U.S.
CHRISTOPHER J. DALY has served as a director since March 2000. Mr. Daly has
served as President of MetroSplash.com, Inc., a vertical Internet portal company
which includes Matchmaker.com, since March 1998. From March 1992 to March 1998,
Mr. Daly served as a consultant to a number of technology companies, including
Digital Equipment Corp., NEC Corp., Wang and Goldstar. From 1988 to 1992, Mr.
Daly served as President of Emerson Technology, a computer manufacturer. Mr.
Daly also served as a Senior Vice President of Packard Bell NEC, Inc., a
computer manufacturer, from 1986 to 1988.
MICHAEL D. HORVITZ has served as a director since March 2000. Since April
1998, Mr. Horvitz has served as the President of Twin-Star International, Inc.,
a contract manufacturer, designer and importer of home furnishings. Since April
1995, Mr. Horvitz has been an active investor purchasing residential and
commercial properties as well as performing and non-performing real estate
mortgages. Mr. Horvitz began his career as a Certified Public Accountant with
Price Waterhouse in 1982.
BOARD OF DIRECTORS
Our board of directors consists of five directors, and will be divided into
three classes that are to remain as nearly equal in number as possible. Class I
will consist of Messrs. Felcyn and Horvitz, whose terms will expire at the first
annual meeting of shareholders; Class II will consist of Messrs. Grambo and
Daly, whose terms will expire at the second annual meeting of shareholders; and
Class III will consist of Mr. Madris whose term will expire at the third annual
meeting of shareholders. At each annual meeting of shareholders after the
initial classification, the successors to directors whose terms will then expire
will be elected to serve from the time of election and qualification until the
third annual meeting following election and until their successors have been
duly elected and qualified. Any additional directorships resulting from an
increase in the number of directors will be distributed among the three classes
so that, as nearly as possible, each class will consist of an equal number of
directors. This classification of the board of directors may have the effect of
delaying or preventing a change of control or management of MoreDirect. See
"Risk Factors -- Our articles of incorporation, bylaws and Florida law contain
provisions that could discourage or prevent a takeover, even if an acquisition
would be beneficial to our shareholders." There are no family relationships
among any of our directors or executive officers.
COMMITTEES OF THE BOARD OF DIRECTORS
In connection with the closing of this offering, we will establish an audit
committee, all of the members of which will be non-employee directors, and a
compensation committee, which will consist of two or more non-employee
directors.
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<PAGE> 47
The audit committee will review our financial controls and our accounting,
audit and reporting activities. The audit committee will also make
recommendations to our board of directors regarding the selection of independent
accountants, review the results and scope of audit and other services provided
by our independent accountants, and review the accounting principles and
auditing practices and procedures to be used for our financial statements.
The compensation committee will review and recommend to the board of
directors the compensation and benefits for our officers, directors and
employees. The compensation committee will also administer our stock option
plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1999, we had no compensation committee. Decisions concerning
executive officer compensation were made solely by Mr. Madris. None of our
executive officers has served as a director or member of the compensation
committee of another entity and none of those executive officers served as a
director or member of our compensation committee.
DIRECTOR COMPENSATION
We currently do not intend to pay any cash retainer to directors. Following
the closing of this offering, each independent director will be compensated
$1,000 per board meeting and $500 per committee meeting. In addition, in March
2000 each independent director received an initial grant of options to purchase
20,000 shares of our common stock, exerciseable at $9.50 or $10.00 per share
which vest upon the closing of this offering.
EXECUTIVE COMPENSATION
The following table sets forth information for fiscal 1999 concerning
compensation we paid to our Chairman, Chief Executive Officer and President.
None of our other executive officers received compensation in excess of $100,000
during fiscal 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------------
OTHER ANNUAL
NAME SALARY BONUS COMPENSATION
- ---- -------- -------- ------------
<S> <C> <C> <C>
Russell L. Madris......................................... $170,000 $ -- $700,000(1)
Chairman, Chief Executive Officer and President
</TABLE>
- ---------------
(1) Represents compensation to be paid to Mr. Madris to cover estimated 1999
taxes payable by Mr. Madris who was the sole shareholder of our S
corporation during 1999.
OPTION GRANTS
We did not grant any options to purchase shares of our common stock to our
Chairman, Chief Executive Officer and President during fiscal 1999.
STOCK OPTION PLAN
Our 1999 stock option plan was approved in October 1999. The stock option
plan provides for the grant to employees of incentive stock options within the
meaning of Section 422 of the Internal Revenue Code of 1986 and for the grant to
employees, directors, independent contractors, consultants
46
<PAGE> 48
and sales representatives of nonstatutory stock options. Unless sooner
terminated, the stock option plan will automatically terminate in 2009. A total
of 1,000,000 shares of common stock are reserved for issuance pursuant to the
stock option plan. As of March 31, 2000, options to purchase 475,500 shares of
common stock were outstanding under the stock option plan with a
weighted-average exercise price of $3.71. No options granted under the stock
option plan have been exercised.
The stock option plan may be administered by our board of directors, the
Compensation Committee of the Board of Directors, or a stock option committee,
which committee shall consist of two or more "outside directors" within the
meaning of Section 162(m) of the Internal Revenue Code of 1986. The board of
directors or the committee has the power to determine the terms of the options
granted, including the exercise price, the number of shares subject to the
option, and the exercisability thereof, and the form of consideration payable
upon such exercise. In addition, the board of directors has the authority to
amend, suspend or terminate the stock option plan, provided that no such action
may affect any shares of common stock previously issued and sold or any options
previously granted under the stock option plan.
Options granted under the stock option plan are not generally transferable
by the optionee, and each option is generally exercisable during the lifetime of
the optionee only by such optionee. Options granted under the stock option plan
must generally be exercised within 30 days following termination of an
optionee's status as an employee, director, independent contractor, consultant
or sales representative of MoreDirect or within one year following termination
of an optionee by death or disability, but in no event later than the expiration
of the option's 10-year term. The exercise price of all stock options granted
under the stock option plan must be at least equal to the fair market value of
the common stock on the date of grant. With respect to any participant who owns
stock possessing more than 10% of the voting power of all classes of our
outstanding capital stock, the exercise price of any incentive stock option
granted must equal at least 110% of the fair market value on the grant date and
the term of any incentive stock option may not exceed five years. The term of
all other options granted under the stock option plan may not exceed 10 years.
The stock option plan provides that in the event of our merger,
consolidation, reorganization or other business combination with or into another
corporation in which we are not the surviving entity, each outstanding option
will upon exercise entitle the holder to the number of shares of common stock or
other securities or property which a holder of shares of our common stock would
have been entitled to receive upon such merger, consolidation, reorganization or
other business combination. In addition, upon a change in control, our board of
directors may, in its sole discretion, provide on a case-by-case basis for the
accelerated vesting of some or all options granted under the stock option plan,
and/or provide for the termination of all outstanding options which have not
previously been exercised and which are not assumed by our successor company.
As of March 31, 2000, we have granted options to purchase an aggregate of
475,500 shares of our common stock under our stock option plan of which 360,500
are incentive stock options and 115,000 are non-qualified stock options. The
incentive stock options we granted are exercisable between $2.00 and $9.50 per
share for a period of ten years beginning on the date the incentive stock
options vest. The incentive stock options generally vest in equal installments
over a three year period beginning on June 28, 2000 but this vesting schedule
may be accelerated by our Board of Directors. One-third of Mr. Modist's and Mr.
Garrity's options will vest upon the closing of this offering.
The non-qualified stock options we granted are exercisable between $2.00
and $10.00 per share. The non-qualified stock options generally vest upon
issuance. The non-qualified stock options granted to Messrs. Daly, Grambo,
Felcyn and Horvitz will vest upon the closing of this offering.
47
<PAGE> 49
EMPLOYMENT AGREEMENTS AND CHANGE-IN-CONTROL ARRANGEMENTS
Russell Madris. We entered into a three-year employment agreement with Mr.
Madris effective as of January 1, 2000. The agreement provides for an initial
annual salary of $250,000, with automatic increases of 10% on each annual
anniversary of the date of the employment agreement. In addition, Mr. Madris'
salary may be further increased (but not lowered) by our board of directors or
its compensation committee. Mr. Madris is also entitled to receive a yearly
bonus in an amount that may range between zero and 75% of his current salary for
each fiscal year during the term of the employment agreement (pro rated for any
partial year), based on our achievement of yearly modified operating income
targets set annually by our board of directors or its compensation committee.
Mr. Madris also receives a $1,000 monthly car allowance. If Mr. Madris is
terminated by us at any time without cause, or if he terminates his employment
for "good reason", we are obligated to (i) pay him a lump-sum amount equal to
two times his annual base salary, plus the amount of any bonus paid to him for
each of the two calendar years immediately preceding the termination, (ii) pay
him the pro rata portion of the bonus, if any, that would have been payable to
him on account of the year in which the termination occurs, based on the
percentage of the year during which he remained in our employ, and (iii) provide
him health insurance and other benefits for two years following the termination
of his employment. For the purpose of the employment agreement, "good reason" is
considered breach of the provisions in the employment agreement relating to,
assignment of duties inconsistent with Mr. Madris' position, breach of
compensation obligation, and failure to require any successor to our company to
assume performance of the employment agreement.
Scott Modist. We entered into a three-year employment agreement with Mr.
Modist effective as of September 27, 1999. The agreement provides for an annual
salary of $175,000 effective upon the consummation of this offering. Mr.
Modist's salary may be increased (but not lowered) by our board of directors or
its compensation committee. Commencing with calendar year 2000, Mr. Modist is
also entitled to receive a yearly bonus in an amount that may range between zero
and 75% of his current salary for each calendar year during the term of the
employment agreement (pro rated in the case of any partial year), based on our
achievement of yearly modified operating income targets set annually by our
board of directors or its compensation committee. If Mr. Modist is terminated by
us at any time without cause, we are obligated to (i) pay him a lump-sum amount
equal to 25% of his then-current annual base salary, (ii) pay him the pro rata
portion of any bonus that would have been payable to him based on when his
employment was terminated during the year, and (iii) provide him health
insurance and other benefits for three months following the termination of his
employment. Mr. Modist was also granted options to purchase 140,000 shares of
common stock at $2.00 per share vesting one-third at the closing of this
offering, one-third in September 2000 and one-third in September 2001.
James Garrity. We entered into a three-year employment agreement with Mr.
Garrity effective as of June 28, 1999. The agreement provides for an annual
salary of $125,000 effective upon the consummation of this offering. Mr.
Garrity's salary may be increased (but not lowered) by our board of directors or
its compensation committee. Mr. Garrity is also entitled to receive a bonus in
an amount that may range between zero and $20,000 for each calendar quarter
during the term of the employment agreement, based on our achievement of
quarterly gross profit targets set by our board of directors or its compensation
committee. If Mr. Garrity is terminated by us at any time without cause, we are
obligated to (i) pay him a lump-sum amount equal to 25% of his then-current
annual base salary, (ii) pay him the pro rata portion of any bonus that would
have been payable to him based on when his employment was terminated during the
year, and (iii) provide him health insurance and other benefits for three months
following the termination of his employment. Mr. Garrity was also granted
options to purchase 140,000 shares of common stock at $2.00 per share vesting
one-third at the closing of this offering, one-third in June 2000 and one-third
in June 2001.
48
<PAGE> 50
Bernardo Sicard. We entered into a three-year employment agreement with
Mr. Sicard effective as of September 27, 1999. The agreement provides for an
annual salary of $80,000 effective April 1, 2000, and a bonus payable at the
discretion of our board of directors or its compensation committee. Mr. Sicard's
salary may be increased (but not lowered) by our board of directors or
compensation committee. If Mr. Sicard is terminated by us at any time without
cause, we are obligated to (i) pay him a lump-sum amount equal to 25% of his
then-current annual base salary, (ii) pay him the pro rata portion of any bonus
that would have been payable to him based on when his employment was terminated
during the year, and (iii) provide him health insurance and other benefits for
three months following the termination of employment. Mr. Sicard was also
granted options to purchase 20,000 shares of common stock at $2.00 per share
vesting one-third in September 2000, one-third in September 2001 and one-third
in September 2002.
Each of the employment agreements described above contains non-competition
and non-solicitation provisions applicable during the term of the agreement and
for two years (or, in the case of the non-competition provision applicable to
Mr. Garrity, one year) thereafter, which restrict the executives from engaging
in the business of selling computers or computer-related hardware or software
products to commercial businesses using the Internet as a significant channel of
distribution, or any other business in which we are engaged during the term of
employment, or soliciting any of our employees. The employment agreements also
contain confidentiality provisions, as well as provisions recognizing our
ownership of all ideas and inventions relating to our business which may be
conceived by the employee during the term of the employment agreement or within
one year thereafter.
CERTAIN TRANSACTIONS
Since our incorporation, we elected to be treated as an S corporation under
Subchapter S of the Internal Revenue Code of 1986, as amended. As a result, our
earnings since incorporation have been included in the income of our sole
shareholder for income tax purposes. Prior to the consummation of this offering,
we will terminate our S corporation status. Prior to the termination of our S
corporation status, we will declare a distribution to our sole shareholder in an
amount equal to our previously earned and undistributed S corporation earnings
through the termination of our S corporation status. As of December 31, 1999,
our earned and undistributed S corporation earnings was approximately $2.5
million. We expect this amount will increase as a result of additional S
corporation earnings from January 1, 2000 through the date on which our S
corporation status is terminated. The distribution of our previously earned and
undistributed S corporation earnings will be distributed in the form of two
promissory notes, one of which will be in the amount of approximately $2.5
million and the other of which will be in an amount equal to the earned and
undistributed S corporation earnings between January 1, 2000 and the date of
termination of our S corporation status. Each promissory note will bear interest
at the rate of 8% per annum and will be repaid following the consummation of
this offering from the net proceeds of this offering.
On March 27, 2000, we entered into a five year lease with Byram Hill Realty
Corporation for approximately 5,000 square feet of office space located in Boca
Raton, Florida. Our founder, Chairman of the Board, Chief Executive Officer and
President, Russell Madris, is a 50% shareholder of Byram. The new space will
serve as our principal executive offices. The lease contains an option to extend
the term of the lease for an additional five-year term. The monthly lease
payments due during the first year of the lease is approximately $8,000. The
monthly lease payments increase by 5% each year thereafter. In addition, we will
also be required to pay Byram a refundable security deposit of approximately
$8,000. We believe that the lease transaction was made on terms as favorable to
us as we would have received from unaffiliated third parties.
49
<PAGE> 51
PRINCIPAL SHAREHOLDERS
The percentage ownership in the table below is based on 10,000,000 shares
outstanding as of March 31, 2000. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission. Shares of
common stock subject to options currently exercisable or exercisable within 60
days of March 31, 2000, are deemed outstanding for the purpose of computing the
percentage ownership of the person holding the options but are not deemed
outstanding for computing the percentage ownership of any other person. Unless
otherwise indicated below, the persons and entities named in the table have sole
voting and sole investment power with respect to all shares beneficially owned
subject to community property laws where applicable. The percentage of shares
outstanding after the offering assumes the underwriters' over-allotment is not
exercised. Unless otherwise indicated, the following beneficial owners can be
reached at our principal offices.
<TABLE>
<CAPTION>
NUMBER SHARES PERCENTAGE OF SHARES NUMBER SHARES PERCENTAGE OF SHARES
BENEFICIALLY OWNED BENEFICIALLY OWNED BENEFICIALLY OWNED BENEFICIALLY OWNED
NAME BEFORE THE OFFERING BEFORE THE OFFERING AFTER THE OFFERING AFTER THE OFFERING
---- ------------------- -------------------- ------------------- --------------------
<S> <C> <C> <C> <C>
Russell L. Madris.... 10,000,000 100% 10,000,000 %
Scott J. Modist...... 0 * 46,667(1) *
James R. Garrity..... 0 * 46,667(1) *
James J. Felcyn, Jr.. 0 * 20,000(1) *
Robert D. Grambo..... 0 * 20,000(1) *
Christopher J. Daly.. 0 * 20,000(1) *
Michael D. Horvitz... 0 * 20,000(1) *
All directors and
executive officers
as a group (8
persons)........... 10,000,000 100% 10,173,334 %
</TABLE>
- ---------------
* Less than 1%
(1) Represents shares of common stock issuable upon the exercise of options
which are exercisable upon the closing of this offering.
50
<PAGE> 52
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 80,000,000 shares of common stock
having a par value of $.01 per share and 20,000,000 shares of preferred stock
having a par value of $.01 per share. The following description of our capital
stock does not purport to be complete and is subject to and qualified in its
entirety by our articles of incorporation and bylaws, which are included as
exhibits to the registration statement of which this prospectus forms a part,
and by the provisions of applicable Florida law.
COMMON STOCK
The holders of common stock are entitled to one vote for each share on all
matters voted upon by shareholders, including the election of directors. Such
holders are not entitled to vote cumulatively for the election of directors.
Holders of common stock are entitled to dividends on a pro rata basis upon
declaration of dividends by our board of directors. Dividends are payable only
out of funds legally available for the payment of dividends. Our board of
directors is not required to declare dividends, and it currently expects to
retain earnings to finance the development of our business. For a further
discussion on dividends see "Dividend Policy" above.
Upon a liquidation of our company, holders of the common stock will be
entitled to a pro rata distribution of our assets, after payment of all amounts
owed to our creditors, and subject to any preferential amount payable to holders
of our preferred stock, if any. Holders of common stock have no preemptive,
subscription, conversion, redemption or sinking fund rights.
PREFERRED STOCK
Our articles of incorporation permit our board of directors to issue shares
of preferred stock in one or more series and to fix the relative rights,
preferences and limitations of each series. Among such rights, preferences and
limitations are dividend rates, provisions of redemption, rights upon
liquidation, conversion privileges and voting powers. The issuance of preferred
stock could have the effect of making it more difficult for a third party to
acquire, or discouraging a third party from acquiring, a majority of our
outstanding voting stock. There are currently no shares of preferred stock
outstanding.
WARRANTS
In March 1999, we entered into an agreement with Chatsworth Securities LLC
pursuant to which Chatsworth agreed to act as a consultant to our company. Under
the terms of this agreement, Chatsworth agreed to, among other things, advise
and assist us in evaluating our corporate and technology infrastructure needs,
evaluating and enhancing our marketing program (including the development of a
national sales force), evaluating and filling management level personnel needs
(including a chief financial officer and a chief technology officer),
identifying suitable candidates for our board of directors, developing a
business plan and evaluating alternatives for debt and equity financing to
support our growth. In consideration for these services, we issued Chatsworth a
five-year warrant to purchase 165,000 shares of our common stock at a price of
$1.75 per share (taking into account stock splits undertaken by us in 1999),
subject to further adjustment for stock splits and stock dividends. The warrant
is exercisable upon the consummation of this offering. While either party may
terminate the agreement with Chatsworth at any time, the warrant may not be
canceled. If the warrant is exercised at the time of this offering, it may be
exercised on a cashless conversion basis. The warrant expires in March 2004.
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<PAGE> 53
ANTI-TAKEOVER EFFECTS OF FLORIDA LAW AND OUR ARTICLES OF INCORPORATION AND
BYLAWS
Certain provisions of Florida law, our articles of incorporation and our
bylaws summarized below may be deemed to have an anti-takeover effect and may
discourage, delay, defer or prevent a tender offer or takeover attempt that a
shareholder might consider in its best interest, including those attempts that
might result in a premium over the market price for shares held by our
shareholders.
Anti-Takeover Provisions of Florida Law. Florida law generally states that
shares acquired above specified thresholds will not possess any voting rights
unless those voting rights are approved by a majority of a corporation's
disinterested shareholders. Florida law also generally requires super majority
approval by disinterested shareholders of specified transactions between a
public corporation and holders of more than 10% of the outstanding voting shares
of the corporation.
Staggered Terms of Directors. Our bylaws provide for a classified board of
directors. Upon the consummation of this offering, our board will be divided
into three classes of directors. Directors are elected for three-year terms,
which are staggered so that the terms of the different classes expire in
successive years.
Shareholder Proposals. Our bylaws have an advance notice procedure for
proposals by shareholders at shareholders' meetings, including proposals for the
nomination of candidates for election as directors.
Authorized but Unissued Shares. Subject to requirements of the exchange or
automated quotation service on which our shares are listed or traded, our board
of directors may issue shares of our authorized but unissued common stock and
preferred stock without shareholder approval. These additional shares may be
utilized for a variety of corporate purposes, including future public or private
offerings to raise additional capital, corporate acquisitions or employee
benefit plans. The existence of authorized but unissued and unreserved common
stock and preferred stock may enable our board of directors to issue shares to
persons friendly to current management which could render more difficult or
discourage an attempt to obtain control of our company by means of a proxy
contest, tender offer, merger or otherwise, and thereby protect the continuity
of our management.
INDEMNIFICATION AND LIMITATION OF LIABILITY
Our articles of incorporation and our bylaws provide that our directors and
officers, and people who exercise the duties of directors or officers, will be
indemnified by us to the fullest extent permitted by Florida law against all
expenses and liabilities reasonably incurred in connection with service for or
on our behalf. Our bylaws also provide that the right of any person to
indemnification does not exclude any other right to which the person may be
entitled. This provision does not alter a director's liability under the federal
securities laws. In addition, this provision does not affect the availability of
equitable remedies, such as injunction or rescission, for breach of a director's
fiduciary duty.
We have entered into separate indemnity agreements with each of our
directors and executive officers, under which we agree to indemnify them and to
advance them expenses in a manner and subject to terms and conditions similar to
those set forth in our articles of incorporation and bylaws. There is no pending
litigation or proceeding involving our directors, officers, employees or other
agents to which indemnification is being sought, nor are we aware of any pending
or threatened litigation that may result in claims for indemnification by any
director, officer, employee or other agent.
TRANSFER AGENT AND REGISTRAR
will serve as transfer agent and registrar for our common
stock.
52
<PAGE> 54
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. The market price of our common stock could drop due to sales of a large
number of shares of our common stock or the perception that such sales could
occur. These factors could also make it more difficult to raise funds through
future offerings of common stock.
After this offering, shares of common stock will be outstanding,
shares if the underwriters exercise their over-allotment option in
full, and shares of common stock issuable upon the exercise of outstanding
options. Of these shares, the shares, shares if the
underwriters exercise their over-allotment option in full, sold in this offering
will be freely tradeable without restriction under the Securities Act except for
any shares purchased by "affiliates" of our company as defined in Rule 144 under
the Securities Act. The remaining shares are "restricted securities" within
the meaning of Rule 144 under the Securities Act. The restricted securities
generally may not be sold unless they are registered under the Securities Act or
are sold pursuant to an exemption from registration, such as the exemption
provided by Rule 144 under the Securities Act.
We and our officers, directors, sole shareholder and option and warrant
holders have entered into lock-up agreements pursuant to which we and they have
agreed not to offer or sell any shares of common stock or securities convertible
into or exchangeable or exercisable for shares of common stock for a period of
180 days after the date of this prospectus without the prior written consent of
Prudential Securities Incorporated, on behalf of the underwriters. Prudential
Securities Incorporated may, at any time and without notice, waive any of the
terms of these lock-up agreements as specified in the underwriting agreement.
Following the lock-up period, these shares will not be eligible for sale in the
public market without registration under the Securities Act unless such sales
meet the conditions and restrictions of Rule 144 as described below.
As restrictions on resale end, the market price could drop significantly if
the holders of these restricted shares sell them, or are perceived by the market
as intending to sell them.
<TABLE>
<CAPTION>
DATE OF AVAILABILITY FOR RESALE
NUMBER OF SHARES INTO PUBLIC MARKET
- ---------------- -------------------------------
<S> <C>
180 days after the date of this prospectus due to a lock-up
agreement these stockholders have with Prudential Securities
Incorporated.
Between 180 and 365 days after the date of this prospectus
due to the requirements of the federal securities laws.
</TABLE>
An additional shares will be available for resale between 180 and
365 days after the date of this prospectus if Chatsworth Securities LLP
exercises its warrant in full.
In general, under Rule 144 as currently in effect, any person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
shares for a period of at least one year is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of (1)
1% of the then-outstanding shares of common stock and (2) the average weekly
trading volume in the common stock during the four calendar weeks immediately
preceding the date on which the notice of such sale on Form 144 is filed with
the SEC. Sales under Rule 144 are also subject to certain provisions relating to
notice and manner of sale and the availability of current public information
about our company. In addition, a person (or persons whose shares are
aggregated) who has not been an affiliate of our company at any time during the
90 days immediately preceding a sale, and who has beneficially owned the shares
for at least two years, would be entitled to sell such shares under Rule 144(k)
without regard to the volume limitation and other
53
<PAGE> 55
conditions described above. The foregoing summary of Rule 144 is not intended to
be a completed description.
As soon as practicable following the closing of this offering, we intend to
file a registration statement under the Securities Act to register the shares of
common stock available for issuance pursuant to our stock option plan as of the
date of this prospectus. Shares issued pursuant to this plan after the effective
date of such registration statement will be available for sale in the open
market subject to the lock-up period and, for affiliates of our company, subject
to certain conditions and restrictions of Rule 144.
54
<PAGE> 56
UNDERWRITING
We have entered into an underwriting agreement with the underwriters named
below for whom Prudential Securities Incorporated, ING Barings LLC and The
Robinson-Humphrey Company, LLC are acting as representatives. We are obligated
to sell, and the underwriters obligated to purchase, all of the shares offered
on the cover page of this prospectus if any are purchased. Subject to certain
conditions of the underwriting agreement, each underwriter has severally agreed
to purchase the shares indicated opposite its name:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- ------------ ---------
<S> <C>
Prudential Securities Incorporated..........................
ING Barings LLC.............................................
The Robinson-Humphrey Company, LLC..........................
---------
Total..................................................
=========
</TABLE>
The underwriters may sell more shares than the total number of shares
offered on the cover page of this prospectus and they have, for a period of 30
days from the date of this prospectus, an over-allotment option to purchase up
to additional shares from us. If any additional shares are purchased, the
underwriters will severally purchase the shares in the same proportion as per
the table above.
The representatives of the underwriters have advised us that the shares
will be offered to the public at the offering price indicated on the cover page
of the prospectus. The underwriters may allow to selected dealers a concession
not in excess of $ per share and such dealers may reallow a concession
not in excess of $ per share to certain other dealers. After the shares
are released for sale to the public, the representatives may change the offering
price and the concessions. The representatives have informed us that the
underwriters do not intend to sell shares to any investor who has granted them
discretionary authority.
We have agreed to pay the underwriters the following fees, assuming both no
exercise and full exercise of the underwriters' over-allotment option to
purchase additional shares:
<TABLE>
<CAPTION>
TOTAL FEES
---------------------------------------------
FEE WITHOUT EXERCISE OF FULL EXERCISE OF
PER SHARE OVER-ALLOTMENT OPTION OVER-ALLOTMENT OPTION
--------- --------------------- ---------------------
<S> <C> <C> <C>
Fees paid by us................................ $ $ $
</TABLE>
In addition, we estimate that we will spend approximately $ in
expenses for this offering. We and Russell J. Madris have agreed to indemnify
the underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended, or contribute to payments that the
underwriters may be required to make in respect of these liabilities.
We, our officers, directors, sole shareholder and option and warrant
holders have entered into lock-up agreements pursuant to which we and they have
agreed not to offer or sell any shares of common stock or securities convertible
into or exchangeable or exercisable for shares of common stock for a period of
180 days from the date of this prospectus without the prior written consent of
Prudential Securities Incorporated, on behalf of the underwriters. Prudential
Securities Incorporated
55
<PAGE> 57
may, at any time and without notice, waive the terms of these lock-up agreements
as specified in the underwriting agreement.
Prudential Securities Incorporated, on behalf of the underwriters, may
engage in the following activities in accordance with applicable securities
rules:
- over-allotments involving sales in excess of the offering size, creating
a short position. Prudential Securities Incorporated may elect to reduce
this short position by exercising some or all of the over-allotment
option;
- stabilizing and short covering; stabilizing bids to purchase the shares
are permitted if they do not exceed a specified maximum price. After the
distribution of shares has been completed, short covering purchases in
the open market may also reduce the short position. These activities may
cause the price of the shares to be higher than would otherwise exist in
the open market; and
- penalty bids permitting the representatives to reclaim concessions from a
syndicate member for the shares purchased in the stabilizing or short
covering transactions.
These activities, which may be commenced and discontinued at any time, may
be effected on the Nasdaq National Market, in the over-the-counter market or
otherwise.
Each underwriter has represented that it has complied and will comply with
all applicable laws and regulations in connection with the offer, sale or
delivery of the shares and related offering materials in the United Kingdom,
including:
- the Public Offers of Securities Regulations 1995;
- the Financial Services Act 1986; and
- the Financial Services Act 1986, (Investment Advertisement) (Exemptions)
Order 1996 (as amended).
Prudential Securities Incorporated facilitates the marketing of new issues
online through its Prudential Securities.com division. Clients of Prudential
Advisor(SM), a full service brokerage firm program, may view offering terms and
a prospectus online and place orders through their financial advisors.
EXPERTS
The financial statements as of December 31, 1998 and 1999 and for each of
the three years in the period ended December 31, 1999 included in this
prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
LEGAL MATTERS
Akerman, Senterfitt & Eidson, P.A., Fort Lauderdale, Florida will pass upon
the validity of the common stock offered by this prospectus for us. Certain
legal matters in connection with the offering will be passed upon for the
underwriters by Cadwalader, Wickersham & Taft, New York, New York.
56
<PAGE> 58
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1. This prospectus, which forms a part of the registration
statement, does not contain all the information included in the registration
statement. Certain information is omitted and you should refer to the
registration statement and its exhibits. With respect to references made in this
prospectus to any contract or other document of MoreDirect, such references are
not necessarily complete and you should refer to the exhibits attached to the
registration statement for copies of the actual contract or document. You may
review a copy of the registration statement, including exhibits filed therewith,
at the Commission's public reference facilities in Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of
the Commission located at 67 World Trade Center, Suite 1300, New York, New York
10048, and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. You may also obtain copies of such materials from the Public
Reference Section of the Commission, Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. For information on
the operation of the Public Reference Room, call the Commission at
1-800-SEC-0330. The Commission maintains a Web site (http://www.sec.gov) that
contains reports, proxy and information statements and other information
regarding registrants, such as MoreDirect, that file electronically with the
Commission.
This prospectus includes statistical data regarding the Internet sector and
the B2B e-commerce industry which were obtained from industry publications,
including reports generated by Forrester Research and International Data
Corporation. These industry publications generally indicate that they have
obtained information from sources believed to be reliable, but they do not
guarantee the accuracy and completeness of such information. While we believe
these industry publications to be reliable, we have not independently verified
such data.
57
<PAGE> 59
INDEX TO FINANCIAL STATEMENTS
MOREDIRECT.COM, INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants.......... F-2
Balance Sheets.............................................. F-3
Statements of Income........................................ F-4
Statements of Changes in Shareholder's Equity............... F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 60
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholder of
MoreDirect.com, Inc.
In our opinion, the accompanying balance sheets and the related statements
of income, of changes in shareholder's equity and of cash flows present fairly,
in all material respects, the financial position of MoreDirect.com, Inc.,
formerly known as Corporate Buying Service Inc., (the "Company") at December 31,
1998 and 1999, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1999 in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Fort Lauderdale, Florida
March 3, 2000
F-2
<PAGE> 61
MOREDIRECT.COM, INC. (FORMERLY KNOWN AS CORPORATE BUYING SERVICE INC.)
BALANCE SHEETS
DECEMBER 31, 1998 AND 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31,
1999
(NOTE 10)
1998 1999 (UNAUDITED)
---------- ---------- ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $1,707,472 $1,244,086 $1,244,086
Accounts receivable, net of allowance for doubtful
accounts of $40,446 and $75,273 in 1998 and 1999,
respectively......................................... 2,943,516 4,707,307 4,707,307
Accounts receivable -- other............................ -- 184,955 184,955
Deferred tax assets..................................... -- -- 237,471
---------- ---------- ----------
Total current assets............................ 4,650,988 6,136,348 6,373,819
Property and equipment, net............................... 120,289 111,209 111,209
Other assets.............................................. 2,890 28,072 28,072
---------- ---------- ----------
Total assets.................................... $4,774,167 $6,275,629 $6,513,100
========== ========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Accounts payable, trade................................. $2,217,004 $2,712,292 $2,712,292
Accrued expenses........................................ 122,911 333,478 333,478
Unearned income......................................... -- 145,444 145,444
Distribution payable to sole shareholder................ 1,000,000 700,000 700,000
Note payable to sole shareholder (Note 10).............. -- -- 2,472,209
---------- ---------- ----------
Total liabilities............................... 3,339,915 3,891,214 6,363,423
---------- ---------- ----------
Commitments and contingencies (Note 6)
Shareholder's equity:
Preferred stock, $.01 par value; 20,000,000 authorized;
0 shares issued and outstanding...................... -- -- --
Common stock, $.01 par value; 80,000,000 shares
authorized; 10,000,000 shares issued and
outstanding.......................................... 100,000 100,000 100,000
Additional paid-in capital.............................. 90,100 1,176,494 699,117
Unearned compensation................................... -- (649,440) (649,440)
Retained earnings....................................... 1,244,152 1,757,361 --
---------- ---------- ----------
Total shareholder's equity...................... 1,434,252 2,384,415 149,677
---------- ---------- ----------
Total liabilities and shareholder's equity...... $4,774,167 $6,275,629 $6,513,100
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 62
MOREDIRECT.COM, INC. (FORMERLY KNOWN AS CORPORATE BUYING SERVICE INC.)
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Net sales............................................... $13,145,364 $26,836,473 $33,131,315
Cost of sales........................................... 12,396,264 23,932,350 29,806,978
----------- ----------- -----------
Gross profit.................................. 749,100 2,904,123 3,324,337
----------- ----------- -----------
Operating expenses:
Sales and marketing expense........................... 102,531 146,954 135,159
Commissions expense (excluding non-cash compensation
of $120,114)....................................... -- 291,115 827,375
Non-cash stock-based compensation expense............. -- -- 436,954
General and administrative expense (excluding non-cash
compensation of $316,840).......................... 397,982 623,864 789,820
----------- ----------- -----------
Total operating expenses...................... 500,513 1,061,933 2,189,308
----------- ----------- -----------
Income from operations........................ 248,587 1,842,190 1,135,029
Interest income, net.......................... 24,571 42,174 78,180
----------- ----------- -----------
Net income.............................................. $ 273,158 $ 1,884,364 $ 1,213,209
=========== =========== ===========
Net income per share:
Basic................................................. $ .03 $ .19 $ .12
Diluted............................................... $ .03 $ .19 $ .12
Weighted average shares outstanding:
Basic................................................. 10,000,000 10,000,000 10,000,000
Diluted............................................... 10,000,000 10,000,000 10,045,579
Pro forma statements of income data (Unaudited)(Note 10)
Net income as reported................................ $ 273,158 $ 1,884,364 $ 1,213,209
Pro forma income taxes provision...................... (93,032) (641,328) (413,779)
----------- ----------- -----------
Pro forma net income.................................. $ 180,126 $ 1,243,036 $ 799,430
=========== =========== ===========
Pro forma net income per share
Basic.............................................. $ .08
===========
Diluted............................................ $ .08
===========
Pro forma weighted average shares outstanding
Basic.............................................. 10,000,000
===========
Diluted............................................ 10,045,579
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 63
MOREDIRECT.COM, INC. (FORMERLY KNOWN AS CORPORATE BUYING SERVICE INC.)
STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------------- PAID-IN UNEARNED RETAINED
SHARES AMOUNT CAPITAL COMPENSATION EARNINGS TOTAL
---------- -------- ---------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1996....... 10,000,000 $100,000 $ 90,100 -- $ 86,630 $ 276,730
Net income............ 273,158 273,158
---------- -------- ---------- --------- ----------- -----------
Balance at December 31,
1997.................. 10,000,000 100,000 90,100 -- 359,788 549,888
Distribution payable
to sole shareholder -- -- -- -- (1,000,000) (1,000,000)
Net income............ -- -- -- -- 1,884,364 1,884,364
---------- -------- ---------- --------- ----------- -----------
Balances at December 31,
1998.................. 10,000,000 100,000 90,100 -- 1,244,152 1,434,252
Issuance of warrant
and stock options.. -- -- 298,644 -- -- 298,644
Issuance of employee
stock options...... -- -- 787,750 (787,750) -- --
Distribution payable
to sole shareholder -- -- -- -- (700,000) (700,000)
Amortization of
unearned
compensation....... 138,310 138,310
Net income............ -- -- -- -- 1,213,209 1,213,209
---------- -------- ---------- --------- ----------- -----------
Balances at December 31,
1999.................. 10,000,000 $100,000 $1,176,494 $(649,440) $ 1,757,361 $ 2,384,415
========== ======== ========== ========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 64
MOREDIRECT.COM, INC. (FORMERLY KNOWN AS CORPORATE BUYING SERVICE INC.)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1998 1999
----------- ---------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................................. $ 273,158 $1,884,364 $ 1,213,209
Adjustments to reconcile net income to net cash (used
in) provided by operating activities:
Depreciation and amortization....................... 9,658 43,997 61,687
Provision for bad debts............................. 26,404 9,169 34,827
Stock-based compensation expense.................... -- -- 436,954
Changes in assets and liabilities:
Accounts receivable............................... (1,003,787) (946,763) (1,798,618)
Other current assets.............................. -- -- (184,955)
Other assets...................................... (218) (1,283) (25,182)
Accounts payable, trade........................... 560,546 617,338 495,288
Accrued expenses.................................. (48,729) 51,265 210,567
Unearned income................................... -- -- 145,444
----------- ---------- -----------
Net cash (used in) provided by operating
activities................................ (182,968) 1,658,087 589,221
----------- ---------- -----------
Cash flows from investing activities:
Acquisition of property and equipment.................. (18,116) (106,436) (52,607)
----------- ---------- -----------
Net cash used in investing activities........ (18,116) (106,436) (52,607)
----------- ---------- -----------
Cash flows from financing activities:
Payment of distribution payable to sole shareholder.... -- -- (1,000,000)
Repayment of due to sole shareholder................... -- (60,236) --
----------- ---------- -----------
Net cash used in financing activities.................... -- (60,236) (1,000,000)
----------- ---------- -----------
Net increase (decrease) in cash.......................... (201,084) 1,491,415 (463,386)
Cash, beginning of year.................................. 417,141 216,057 1,707,472
----------- ---------- -----------
Cash, end of year........................................ $ 216,057 $1,707,472 $ 1,244,086
=========== ========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest................. $ 29 $ 16,519 $ 2,200
=========== ========== ===========
Distribution payable to shareholder but not paid
current year........................................ $ -- $1,000,000 $ 700,000
=========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 65
MOREDIRECT.COM, INC. (FORMERLY KNOWN AS CORPORATE BUYING SERVICE INC.)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1999
- --------------------------------------------------------------------------------
1. NATURE OF OPERATIONS:
MoreDirect.com, Inc., formerly known as Corporate Buying Service Inc., (the
"Company") a Florida corporation, was incorporated on October 3, 1994 and
changed its name to MoreDirect.com, Inc. in March 2000. The Company markets and
sells products primarily in the United States. The Company's emarketplace
aggregates computer and related products available through multiple wholesale
distributors. The Company displays comparative prices of the current inventories
of the wholesale distributors to create a price competitive online marketplace.
The Company's primary target customers are large corporations and government
entities.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
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 dates of the financial
statements and the reported amounts of sales and expenses during the reporting
periods. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. The Company has bank
balances, including cash equivalents, which at times may exceed federally
insured limits.
ACCOUNTS RECEIVABLE
Accounts receivable are presented net of an allowance for doubtful accounts
which is charged to operations based on the Company's evaluation of expected
collections resulting from an analysis of current and past due accounts, past
collection experience and other relevant information.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash and accounts receivable. Cash is
deposited with one financial institution in the United States.
To reduce credit risk related to accounts receivable, the Company performs
ongoing evaluations of its customers' financial condition but does not generally
require collateral. Management believes that the allowance for doubtful accounts
is adequate to cover potential credit risk losses.
The Company has a concentration of business activities with certain
customers and vendors. Sales to two individual customers represented 27% and
12%, respectively, in 1998 and 21% and 11%, respectively, in 1999 of net sales.
Accounts receivable related to these two customers was 12% and 9%, respectively,
at December 31, 1998 and 4% and 7%, respectively, at December 31, 1999 of net
accounts receivable. Purchases from two individual suppliers represented 54% and
35%, respectively,
F-7
<PAGE> 66
MOREDIRECT.COM, INC. (FORMERLY KNOWN AS CORPORATE BUYING SERVICE INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998 AND 1999
- --------------------------------------------------------------------------------
in 1998 and 34% and 48%, respectively, in 1999 of purchases. Accounts payable
related to these two suppliers was 42% and 33%, respectively, at December 31,
1998, and 31% and 39%, respectively, at December 31, 1999, of total accounts
payable.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated on a
straight-line basis over the estimated useful lives of the respective assets.
Maintenance and repair costs are expensed as incurred. Expenditures for
significant renewals and betterments to property and equipment are capitalized.
Gains or losses on dispositions are reflected in current operations.
REVENUE RECOGNITION
Net sales include gross revenues from sales of products and related net
shipping fees, net of discounts and provisions for sales returns. Net sales from
products are recognized by the Company upon shipment. The Company is responsible
for establishing prices, processing the orders, and coordinating shipment from
wholesale distributors. The Company assumes credit risk and is responsible for
collecting accounts receivable and processing returns from customers. The
Company provides for estimated returns at the time of shipment based on
historical data. Such returns have previously been insignificant.
COST OF SALES
Cost of sales include the cost of product less manufacturer reimbursements
and rebates. The Company purchases product from the wholesale distributors and
has the liability to the distributors. The Company independently negotiates
product cost with its wholesale distributors.
INCOME TAXES
The Company has elected to be treated as a S corporation for income tax
purposes. Generally under this election, the shareholders are individually
responsible for reporting taxable income or loss and available credits.
Accordingly, no provision for income taxes has been recorded in the accompanying
historical financial statements.
In connection with the consummation of a proposed Initial Public Offering
("IPO") of the Company's stock, MoreDirect.com will terminate its S corporation
status and will be treated as a C corporation and be subject to corporate
federal and state income taxes. Accordingly, a pro forma income tax provision
has been calculated as if the Company was taxable as a C corporation under the
Internal Revenue Code for all periods presented. (See Note 10).
EARNINGS PER SHARE
Basic net income per share is calculated by dividing net income by the
weighted average number of common shares outstanding during the period. Diluted
net income per share is calculated by dividing net income by the weighted
average number of common and potential common shares outstanding during the
period. Potential common shares consist of the dilutive effect of outstanding
options and warrants calculated using the treasury stock method. All earnings
per share amounts for
F-8
<PAGE> 67
MOREDIRECT.COM, INC. (FORMERLY KNOWN AS CORPORATE BUYING SERVICE INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998 AND 1999
- --------------------------------------------------------------------------------
all periods have been presented to conform to the Statement of Financial
Accounting Standards No. 128 requirements.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes
accounting and reporting standards for derivative instruments and hedging
activities. SFAS No. 133, as amended by SFAS No. 137, will be effective for the
Company's financial reporting beginning in the first quarter of 2001. SFAS No.
133 will require the Company to recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. The accounting for gains and losses from changes in the fair
value of a particular derivative will depend on the intended use of the
derivative. The Company does not expect the adoption of SFAS No. 133 to have a
material impact on the financial statements because the Company does not hold
any derivative instrument.
In March 1998, The Accounting Standards Executive Committee of the
A.I.C.P.A. issued Statement of Position ("SOP") No. 98-1, "Software for Internal
Use," which provides guidance on accounting for the cost of computer software
developed or obtained for internal use. SOP No. 98-1 is effective for financial
statements for fiscal years beginning after December 31, 1998. The Company has
adopted SOP No. 98-1 for the year ended December 31, 1998. The adoption of SOP
98-1 did not have a material impact on the Company's financial statements.
In December 1999, the Securities and Exchange Commission staff released
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
("SAB No. 101"), which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements. SAB No. 101 did not impact the
Company's revenue recognition policy.
STOCK BASED COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion No.
25 ("APB No. 25"), "Accounting for Stock Issued to Employees," and related
interpretations, in accounting for employee stock options rather than the
alternative fair value accounting allowed by Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123").
APB No. 25 provides that the compensation expense related to the Company's
employee stock options is measured based on the intrinsic value of the stock
option. SFAS No. 123 requires companies that continue to follow APB No. 25 to
provide pro forma disclosure of the impact of applying the fair value method of
SFAS No. 123. The Company recognizes compensation expense for equity instruments
granted to non-employees in accordance with the provisions of SFAS No. 123 and
the Emerging Issues Task Force consensus Issue in 96-18 ("EITF 96-18"),
"Accounting for Equity Instruments that are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods or Services."
F-9
<PAGE> 68
MOREDIRECT.COM, INC. (FORMERLY KNOWN AS CORPORATE BUYING SERVICE INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998 AND 1999
- --------------------------------------------------------------------------------
3. ACCOUNTS RECEIVABLE
Accounts receivable consists of the following:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------
1998 1999
---------- -----------
<S> <C> <C>
Gross accounts receivable................................... $2,983,962 $ 4,782,580
Allowance for doubtful accounts............................. (40,446) (75,273)
---------- -----------
$2,943,516 $ 4,707,307
========== ===========
</TABLE>
Additions to allowance for doubtful accounts were charged to bad debt
expense, approximately $9,200 and $35,000 for the years ended December 31, 1998
and 1999, respectively. There were no accounts receivable writeoffs charged
directly against operating income for the three years in the period ended
December 31, 1999.
4. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
<TABLE>
<CAPTION>
ESTIMATED USEFUL
1998 1999 LIVES
-------- --------- -------------------
<S> <C> <C> <C>
Computer equipment and software................... $154,505 $ 201,767 3 years
Equipment, furniture and fixtures................. 34,077 39,422 5 - 7 years
-------- ---------
188,582 241,189
Less accumulated depreciation and amortization.... (68,293) (129,980)
-------- ---------
$120,289 $ 111,209
======== =========
</TABLE>
5. DISTRIBUTION PAYABLE TO SOLE SHAREHOLDER:
Distribution payable to sole shareholder represents amounts due to sole
shareholder which are payable on demand and as such have been reflected as
current liabilities.
6. COMMITMENTS AND CONTINGENCIES:
The Company leases office space under an operating lease with a lease term
of three years expiring in 2000. Approximate future minimum lease payments
required under the operating lease amount to $11,440 in 2000. The operating
lease terminates in June 2000.
Rent expense recorded under the above lease was approximately $16,100,
$26,100 and $28,000 for the years ended December 31, 1997, 1998 and 1999,
respectively.
From June 1999 to January 2000, the Company entered into three-year
employment agreements with four key employees of the Company. At January 1,
2000, the agreements provide for an aggregate annual salary of approximately
$520,000. Upon the consummation of an IPO the agreements provide for an
aggregate annual salary of approximately $630,000 to these key employees.
The Company may from time to time be involved in litigation arising out of
claims in the normal course of business. Based upon the information presently
available, management believes that
F-10
<PAGE> 69
MOREDIRECT.COM, INC. (FORMERLY KNOWN AS CORPORATE BUYING SERVICE INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998 AND 1999
- --------------------------------------------------------------------------------
there are no claims or actions pending or threatened against the Company, the
ultimate resolution of which may have a material adverse effect on the Company's
financial position, liquidity or results of operations.
7. SHAREHOLDER'S EQUITY:
On October 11, 1999, the Company's sole shareholder approved to amend the
Company's certificate of incorporation to increase authorized no par common
stock from 1,000 shares to 80,000,000 shares of $.01 par common stock and to
effect a one hundred thousand-for-1 common stock split for shares outstanding as
of October 11, 1999 and to authorize 20,000,000 shares of $.01 par preferred
stock. An amount equal to the par value of the common shares issued was
transferred from capital in excess of par value to the common stock account.
This transfer has been reflected in the Statement of Changes in Common
Shareholder's Equity at December 31, 1999. All references to number of shares
and to per share information in the financial statements have been adjusted to
reflect the stock split on a retroactive basis.
8. NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE:
The calculation of basic and diluted net income per share for the years
ended December 31, 1997, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Basic net income per share:
Net income............................................ $ 273,158 $ 1,884,364 $ 1,213,209
----------- ----------- -----------
Weighted average common shares outstanding............ 10,000,000 10,000,000 10,000,000
----------- ----------- -----------
Basic net income per share............................ $ .03 $ .19 $ .12
----------- ----------- -----------
Diluted net income per share:
Weighted common shares outstanding.................... 10,000,000 10,000,000 10,000,000
----------- ----------- -----------
Stock options and warrants............................ -- -- 45,579
----------- ----------- -----------
Weighted average common and potential common shares
outstanding........................................ 10,000,000 10,000,000 10,045,579
----------- ----------- -----------
Diluted net income per share.......................... $ .03 $ .19 $ .12
=========== =========== ===========
</TABLE>
9. STOCK OPTIONS:
In October 1999, the Company adopted a qualified (incentive) and
non-qualified stock option plan (the "Plan") and reserved an aggregate of
1,000,000 shares of common stock for issuance pursuant to options granted under
the Plan. The Plan provides for the granting of options to directors, officers,
employees and independent contractors, consultants and sales representatives
performing services for the Company. Options have a ten year term. Generally,
the options are not exercisable until the earliest to occur of the following: 1)
the Company completes an IPO, 2) there is a change in control of the Company, or
3) five years from the date such options were granted. Upon completion of an IPO
or a change in control, granted options generally commence vesting over a three
year period. For certain key employees, who have been granted options to
purchase 280,000
F-11
<PAGE> 70
MOREDIRECT.COM, INC. (FORMERLY KNOWN AS CORPORATE BUYING SERVICE INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998 AND 1999
- --------------------------------------------------------------------------------
shares of common stock, upon completion of an IPO, one-third of the granted
options vest immediately and the remaining options vest upon each anniversary of
the date of grant.
Stock options issued under the plan were granted with an exercise price of
$2.00 and $3.50 in October 1999 and December 1999, respectively, with a
corresponding estimated fair value of the underlying stock of $4.00 and $6.00,
respectively. The difference between the exercise price and the fair value
amounted to approximately $788,000. In 1999, the Company charged approximately
$138,000 to non cash compensation expense and the remaining approximately
$650,000 to unearned compensation. The unearned compensation will be amortized
over the vesting period.
In 1999, the Company granted options to independent contractors to purchase
35,000 shares of common stock with options to purchase 33,000 shares vesting
immediately and the remaining following the terms of the Plan as outlined above.
The Company accounts for the fair value of non-employee options in accordance
with SFAS 123, "Accounting for Stock Based Compensation" and EITF 96-18. In
1999, the compensation cost related to these options that has been charged
against income was approximately $120,000. The fair value of the options was
estimated on the grant date using the Black-Scholes option-pricing model using
the following assumptions: expected volatility of 70 percent, risk-free interest
rate of 5.52% to 5.85%, and estimated life of 5 years.
A summary of the status of the Company's stock option plan as of December
31, 1999, and changes during the year is presented below:
<TABLE>
<CAPTION>
WEIGHTED-
INCENTIVE AVERAGE
NON-QUALIFIED QUALIFIED EXERCISE PRICE
------------- --------- ----------------
<S> <C> <C> <C>
Outstanding at beginning of year................. -- --
Granted........................................ 35,000 345,500 $2.21
Forfeited...................................... -- --
------- ------- -----
Outstanding at end of year....................... 35,000 345,500 $2.21
Options exercisable at end of year............... 33,000 -- $2.68
------- ------- =====
Weighted average fair value of options granted
during the year................................ $3.21
=====
Weighted average remaining contractual life...... 9.69 years
=====
</TABLE>
Significant option groups outstanding at December 31, 1999 and related
price and life information follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-----------------------------------------------
WEIGHTED OPTIONS EXERCISABLE
WEIGHTED AVERAGE ------------------------------
RANGE OF AVERAGE REMAINING WEIGHTED AVERAGE
EXERCISE PRICES OUTSTANDING EXERCISE PRICE CONTRACTUAL LIFE EXERCISABLE EXERCISE PRICE
--------------- ----------- -------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$2.00................... 327,000 $ 2.00 9.64 18,000 $ 2.00
$3.50................... 53,500 3.50 9.94 15,000 3.50
------- ------- ------ ------ -------
380,500 $ 2.21 9.69 33,000 $ 2.68
======= ======= ====== ====== =======
</TABLE>
F-12
<PAGE> 71
MOREDIRECT.COM, INC. (FORMERLY KNOWN AS CORPORATE BUYING SERVICE INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998 AND 1999
- --------------------------------------------------------------------------------
The Company applies APB 25, "Accounting for Stock Issued to Employees," and
related interpretations in accounting for its plans. Under APB 25, compensation
expense of $138,310 was charged for options whose exercise price was less than
the estimated market price of the stock on the grant date. If compensation costs
for the Company's stock option plan had been determined based on the fair value
at the grant dates for awards under the plan consistent with the method of SFAS
No. 123, the Company's 1999 net income would have been reduced by the
amortization, corresponding with the vesting period of the estimated fair market
value of the options. The Company's pro forma information follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------
AS REPORTED PRO FORMA
----------- ----------
<S> <C> <C>
Net Income
Net income................................................ $1,213,209 $1,198,572
Basic..................................................... .12 .12
Diluted................................................... .12 .12
</TABLE>
In accordance with SFAS No. 123, the fair value of option grants is
estimated on the date of grant using the Black-Scholes option pricing model for
pro forma disclosure purposes with the following assumptions used for all
grants: expected volatility of 70 percent, risk-free interest rate of 5.52% to
5.85% and expected option life of 5 years.
In March 1999, the Company issued a warrant for common stock to an outside
consultant for services performed in 1999, to purchase 165,000 shares of common
stock at $1.75 per share, which was the fair value of the common stock on the
grant date. The warrant expires in March 2004. The Company accounts for the fair
value of the warrants in accordance with SFAS 123, "Accounting for Stock Based
Compensation" and EITF 96-18. In 1999, the compensation cost related to this
warrant that has been charged against income was $178,530. The fair value of the
warrant was estimated on the grant date using the Black-Scholes option-pricing
model using the following assumptions: expected volatility of 70 percent,
risk-free interest rate of 5.02% percent, and contract life of 5 years. The
warrant vested immediately upon the date of grant. The warrant is exercisable on
the earlier of the following events: 1) the Company completes an IPO, 2) there
is a change in control of the Company, or 3) four and half years from the date
such warrant was granted.
10. PRO FORMA DISCLOSURES (UNAUDITED)
The Company is in the process of an initial public offering of its common
stock. In connection with the consummation of the proposed IPO as the Company
will terminate its S corporation election (Note 2) and elect C corporation
status and accordingly become subject to federal and state income taxes.
Immediately prior to its conversion to C corporation status, the Company will
issue a promissory note to its sole shareholder for all of its previously earned
and undistributed tax basis S corporation earnings, which amount may change on
account of S corporation tax basis earnings from January 1, 2000 to the
termination of the S corporation status. The promissory note will bear 8%
interest per annum and will be immediately due upon the final determination of
our S corporation tax basis earnings and related taxes. The promissory note will
be repaid from the net proceeds of the offering. Upon termination of the S
corporation election, deferred income taxes reflecting the tax effect of
temporary differences between the Company's financial statement and tax bases of
certain assets and liabilities would become a net asset or liability of the
Company and would be reflected on
F-13
<PAGE> 72
MOREDIRECT.COM, INC. (FORMERLY KNOWN AS CORPORATE BUYING SERVICE INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998 AND 1999
- --------------------------------------------------------------------------------
the balance sheet with a corresponding non-recurring benefit or charge in the
statement of income. The net pro forma deferred tax assets as of December 31,
1999 relate primarily to accrued expenses, allowance for doubtful accounts,
stock-based compensation and unearned income. The amount of such net pro forma
deferred tax asset computed using the asset and liability method of accounting
for deferred income taxes is approximately $237,000 at December 31, 1999, which
amount may change as a result of the recognition of additional deferred tax
assets or liabilities associated with S corporation earnings related to
operations from January 1, 2000 through termination of our S corporation status.
The pro forma presentation of earnings per common share reflects (a) the
income tax adjustments for federal and state income taxes as if the Company had
been taxed as a C corporation rather than an S corporation for the years ended
December 31, 1997, 1998 and 1999 and (b) the effect of the assumed issuance of a
sufficient number of shares of common stock at the IPO price to generate cash to
pay the S corporation distribution amount of approximately $2.5 million at
December 31, 1999.
The following unaudited pro forma information reflects the incremental tax
expense (benefit) that the Company would have incurred if it had been subject to
Federal and state income taxes for the years ended December 31, 1997, 1998, and
1999. The effective rate used for pro forma income taxes was the applicable
effective Federal statutory rate as there were no significant permanent
differences or state income tax obligations.
<TABLE>
<CAPTION>
1997 1998 1999
------- -------- ---------
<S> <C> <C> <C>
Pro forma current:
Federal................................................... $97,336 $625,986 $ 644,276
Pro forma deferred:
Federal................................................... (4,304) 15,342 (230,497)
------- -------- ---------
Total income tax provision........................ $93,032 $641,328 $ 413,779
======= ======== =========
</TABLE>
The Company's presentation of an unaudited pro forma balance sheet at
December 31, 1999, reflects the effect on historical retained earnings of a
planned S corporation distribution to the existing shareholder of approximately
$2.5 million and the recording of deferred tax assets and a one-time non-cash
credit to earnings in the amount of approximately $237,000 as if the S
corporation election terminated as of December 31, 1999, but does not give
effect to the receipt of any proceeds from the Company's initial public offering
or earnings subsequent to December 31, 1999. The distribution to the sole
shareholder of approximately $2.5 million is recorded as a reduction to retained
earnings and additional paid-in capital on the pro forma balance sheet.
11. SUBSEQUENT EVENTS (UNAUDITED)
In March 2000, the Company entered into a five year lease with Byram Hill
Realty Corporation for approximately 5,000 square feet of office space located
in Boca Raton, Florida. The new space will serve as the Company's principal
executive offices. The lease contains an option to extend the term of the lease
for an additional five-year term. During the term of the lease the Company will
be required to pay Byram average lease payments of approximately $8,000 per
month. In addition, the Company will also be required to pay Byram a refundable
security deposit of approximately $8,000. The CEO and president of the Company
is a 50 percent shareholder of Byram.
F-14
<PAGE> 73
MOREDIRECT.COM, INC. (FORMERLY KNOWN AS CORPORATE BUYING SERVICE INC.)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1998 AND 1999
- --------------------------------------------------------------------------------
In March 2000, the Company obtained a $15.0 million line of credit from
SunTrust Bank. The Company may obtain advances under the line of credit in an
amount equal to 85% of the Company's accounts receivable subject to certain
adjustments. Amounts outstanding under the line of credit accrue interest at
LIBOR plus 1.25-2.25%, subject to certain financial ratios. The line of credit
matures in March, 2002. The line of credit contains covenants, including
maintenance of financial ratios and indebtedness covenants and a requirement
that the Company obtain the consent of the lender before the Company incurs
debt, other than trade debt, pays dividends or makes distributions, makes
investments or consummate mergers or acquisitions. The Company can use the
advances under the line of credit as working capital to support accounts
receivables and for general working capital purposes. To secure the obligations
under the line of credit, the Company granted the lender a first priority lien
and security interest on all existing and future assets. As of April 12, 2000,
the Company has borrowed $1.5 million under the line of credit.
In March 2000, the Company granted options with exercise prices between
$9.50 and $10.00 a share to issue 80,000 shares of common stock to non-employee
directors of the Company. Generally, the options are not exercisable until the
earliest to occur of the following: 1) the Company completes an IPO, 2) there is
a change in control of the Company, or 3) five years from the date such options
were granted.
In March 2000, the Company granted a qualified common stock option to an
employee to purchase 15,000 shares of common stock at $9.50 per share, which
vests in accordance with the general provisions of the Plan.
F-15
<PAGE> 74
- --------------------------------------------------------------------------------
Until , all dealers effecting transactions in our common stock,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the obligation of dealers to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
- --------------------------------------------------------------------------------
(MORE DIRECT LOGO)
PRUDENTIAL VOLPE TECHNOLOGY
A UNIT OF PRUDENTIAL SECURITIES
ING BARINGS
THE ROBINSON-HUMPHREY COMPANY
- --------------------------------------------------------------------------------
<PAGE> 75
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the fees and expenses in connection with the
issuance and distribution of the securities being registered hereunder.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee......... $ 13,200
NASD Filing Fee............................................. 5,500
Nasdaq Listing Fee..........................................
Printing and Engraving Costs................................
Accounting Fees and Expenses................................
Legal Fees and Expenses.....................................
Transfer Agent and Registrar Fees...........................
Miscellaneous...............................................
--------
Total............................................. $
========
</TABLE>
All amounts are estimated except for the SEC registration fee and the
Nasdaq filing fee.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Articles of Incorporation and Bylaws provide that the Company
shall indemnify any director or officer, any former director or officer, and any
person exercising any duties of a director or officer, to the fullest extent
permitted under Florida law.
The Company has acquired insurance with respect to, among other things,
certain liabilities that may arise under the statutory provisions referred to
above. The directors and officers of the Company are insured against certain
liabilities, including certain liabilities arising under the Securities Act of
1933, which might be incurred by them in such capacities and against which they
are not indemnified by the Company.
Section 607.0850(1) of the Florida Business Corporation Act (the "FBCA")
provides that a Florida corporation, such as the Company, shall have the power
to indemnify any person who was or is a party to any proceeding (other than an
action by, or in the right of, the corporation), by reason of the fact that he
is or was a director, officer, employee, or agent of the corporation or is or
was serving at the request of the corporation as a director, officer, employee,
or agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise against liability
incurred in connection with such proceeding, including any appeal thereof, if he
acted in good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful.
Section 607.0850(2) of the FBCA provides that a Florida corporation shall
have the power to indemnify any person, who was or is a party to any proceeding
by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee, or agent of
the corporation or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses and amounts paid in
settlement not exceeding, in the judgment of the board of directors, the
estimated expense of litigating the proceeding to conclusion, actually and
reasonably incurred in connection with the defense or settlement of such
proceeding, including any appeal thereof. Such indemnification shall be
authorized if such person acted in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interests of the corporation,
except that no
II-1
<PAGE> 76
indemnification shall be made under this subsection in respect of any claim,
issue, or matter as to which such person shall have been adjudged to be liable
unless, and only to the extent that, the court in which such proceeding was
brought, or any other court of competent jurisdiction, shall determine upon
application that, despite the adjudication of liability but in view of all
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which such court shall deem proper.
Section 607.850 of the FBCA further provides that: (i) to the extent that a
director, officer, employee or agent of a corporation has been successful on the
merits or otherwise in defense of any proceeding referred to in subsection (1)
or subsection (2), or in defense of any proceeding referred to in subsection (1)
of subsection (2), or in defense of any claim issue, or matter therein, he shall
be indemnified against expense actually and reasonably incurred by him in
connection therewith; (ii) indemnification provided pursuant to Section 607.0850
is not exclusive; and (iii) the corporation may purchase and maintain insurance
on behalf of a director or officer of the corporation against any liability
asserted against him or incurred by him in any such capacity or arising out of
his status as such where or not the corporation would have the power to
indemnify him against such liabilities under Section 607.0850.
Notwithstanding the foregoing, Section 607.0850 of the FBCA provides that
indemnification or advancement of expenses shall not be made to or on behalf of
any director, officer, employee or agent if a judgment or other final
adjudication establishes that his actions, or omissions to act, were material to
the cause of action so adjudicated and constitute: (i) a violation of the
criminal law, unless the director, officer, employee or agent had reasonable
cause to believe his conduct was lawful or had no reasonable cause to believe
his conduct was lawful; (ii) a transaction from which the director, officer,
employee or agent derived an improper personal benefit; (iii) in the case of a
distributions are applicable; or (iv) willful misconduct or a conscious
disregard for the best interests of the corporation in a proceeding by or in the
right of the corporation to procure a judgment in its favor or in a proceeding
by or in the right of a shareholder.
Section 607.0831 of the FBCA provides that a director of a Florida
corporation is not personally liable for monetary damages to the corporation or
any other person for any statement, vote, decision, or failure to act, regarding
corporate management or policy, by a director, unless: (i) the director breached
or failed to perform his duties as a director; and (ii) the director's breach
of, or failure to perform, those duties constitutes: (A) a violation of criminal
law, unless the director had reasonable cause to believe his conduct was lawful
or had no reasonable cause to believe his conduct was unlawful; (B) a
transaction from which the director derived an improper personal benefit, either
directly or indirectly; (C) a circumstance under which the liability provisions
regarding unlawful distributions are applicable; (D) in a proceeding by or in
the right of the corporation to procure a judgment in its favor or by or in the
right of a shareholder, conscious disregard for the best interest of the
corporation, or willful misconduct; of (E) in a proceeding by or in the right of
someone other than the corporation or a shareholder, recklessness or an act or
omission which was committed in bad faith or with malicious purpose or in a
manner exhibiting wanton and willful disregard of human rights, safety, or
property.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In the three years preceding the filing of this Registration Statement, the
Company has sold the following securities that were not registered under the
Securities Act of 1933, as amended (the "Securities Act").
Effective as of March 18, 1999, in connection with the Company's retention
of Chatsworth Securities LLC as a financial advisor, the Company issued a
warrant to acquire 165,000 shares of its
II-2
<PAGE> 77
common stock to Chatsworth Securities. The securities issued in this transaction
were intended to be exempt from registration pursuant to Section 4(2) of the
Securities Act.
In October 1999, we granted options to purchase an aggregate of 327,000
shares of common stock to our employees and consultants at an exercise price of
$2.00 per share. In December 1999, we granted options to purchase 53,500 shares
of common stock to our employees and consultants at an exercise price of $3.50
per share. From February 2000 to March 2000, we granted options to purchase an
aggregate of 55,000 shares of common stock to certain directors, employees,
consultants at an exercise price of $9.50. In late March 2000, we also granted
options to purchase an aggregate of 40,000 shares of common stock to additional
directors at an exercise price of $10.00. These options were issued pursuant to
our 1999 Stock Option Plan and exempt from registration in reliance on Section
4(2) or Rule 701 of the Securities Act as securities issued under a written
compensatory benefit plan established by us for the participation of our
employees, directors, officers or consultants and advisors.
For all transactions listed in this Item other exemptions from registration
under the Securities Act may also have been available.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBITS:
The following exhibits are filed as part of this registration statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
1.1* -- Form of Underwriting Agreement
3.1 -- Amended and Restated Articles of Incorporation
3.2 -- Amended and Restated Bylaws
4.1 -- See Exhibits 3.1 and 3.2 for provisions of the Amended and
Restated Articles of Incorporation and Amended and Restated
Bylaws of the Company defining the rights of holders of the
Company's common stock
4.2* -- Specimen certificate for the Company's common stock
4.3 -- Warrant Agreement, dated March 20, 1999, between Chatsworth
Securities LLC and the Company
5.1* -- Form of Opinion of Akerman, Senterfitt & Eidson, P.A.
regarding the validity of the securities offered
10.1 -- Loan and Security Agreement, dated March 27, 2000, between
SunTrust Bank and the Company
10.2 -- Master Note, dated March 27, 2000, from the Company to
SunTrust Bank
10.3 -- Employment Agreement, dated January 1, 2000, between Russell
L. Madris and the Company
10.4 -- Employment Agreement, dated September 27, 1999, between
Scott J. Modist and the Company
10.5 -- Employment Agreement, dated June 20, 1999, between James R.
Garrity and the Company
10.6 -- Employment Agreement, dated September 27, 1999, between
Bernardo Sicard and the Company
10.7* -- Form of Promissory Note from the Company to Russell L.
Madris
</TABLE>
II-3
<PAGE> 78
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
10.8 -- Form of 1999 Stock Option Plan
10.9 -- Consulting Agreement, dated March 20, 1999, between
Chatsworth Securities LLC and the Company
10.10 -- Form of Indemnification Agreement
21.1 -- Subsidiaries of the Company
23.1* -- Consent of Akerman, Senterfitt & Eidson, P.A. (included in
Exhibit 5.1 of this Registration Statement)
23.2 -- Consent of PricewaterhouseCoopers LLP
25.1 -- Power of Attorney (included on the signature page of this
Registration Statement)
27.1 -- Financial Data Schedule (for SEC use only)
</TABLE>
- ---------------
* To be filed by amendment
ITEM 17. UNDERTAKINGS
The Company hereby undertakes to provide to the Underwriters at the closing
specified in the Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, 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 of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Company
of expenses incurred or paid by a Director, officer or controlling person of the
Company in the successful defense of any action, suit or proceeding) is asserted
by such Director, officer or controlling person in connection with the
securities being registered, the Company will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
The Company hereby undertakes that:
For purposes of determining any liability under the Securities Act of 1933,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective. For the purpose of
determining any liability under the Securities Act of 1933, each post-effective
amendment that contains a form of prospectus shall be deemed to be a new
Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof. For purposes of determining any liability under the
Securities Act of 1933, each filing of the Company's annual report pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in the Registration Statement shall be deemed to be a new Registration
Statement relating to the securities offered therein, and the offering of such
securities at the time shall be deemed to be the initial bona fide offering
thereof.
II-4
<PAGE> 79
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, MoreDirect.com,
Inc. has duly caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Boca Raton, State of
Florida, on the 18th day of April, 2000.
MOREDIRECT.COM, INC.
By: /s/ RUSSELL L. MADRIS
------------------------------------
Russell L. Madris
President and Chief Executive
Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Russell L. Madris and Scott J. Modist, and each
of them, his true and lawful attorney-in-fact and agent, with full power of
substitution and revocation, for him and in his name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to sign any Registration
Statement (and any and all amendments thereto) related to this Registration
Statement and filed pursuant to Rule 462(b) promulgated by the Securities and
Exchange Commission, and to file the same with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done as fully
to all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ RUSSELL L. MADRIS President, Chairman and Chief April 18, 2000
- ----------------------------------------------------- Executive Officer (Principal
Russell L. Madris Executive Officer) and
Director
/s/ SCOTT J. MODIST Chief Financial Officer and April 18, 2000
- ----------------------------------------------------- Vice President (Principal
Scott J. Modist Financial and Principal
Accounting Officer)
/s/ JAMES J. FELCYN, JR. Director April 18, 2000
- -----------------------------------------------------
James J. Felcyn, Jr.
/s/ ROBERT GRAMBO Director April 18, 2000
- -----------------------------------------------------
Robert Grambo
</TABLE>
II-5
<PAGE> 80
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ CHRISTOPHER DALY Director April 18, 2000
- -----------------------------------------------------
Christopher Daly
/s/ MICHAEL D. HORVITZ Director April 18, 2000
- -----------------------------------------------------
Michael D. Horvitz
</TABLE>
II-6
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
MOREDIRECT.COM, INC.
Pursuant to Sections 607.1006 and 607.1007 of the Florida Business
Corporation Act, the Articles of Incorporation of MoreDirect.com, Inc.
originally filed with the Secretary of State of the State of Florida on October
3, 1994, are hereby amended and restated in their entirety as follows:
Pursuant to Section 607.1006 and Section 607.1007 of the Florida
Business Corporation Act, the following amendment and restatement to the
Articles of Incorporation of the Corporation was duly authorized and adopted by
unanimous written consent of the Board of Directors and the Shareholders of the
Corporation in accordance with Sections 607.0821 and 607.0704 of the Florida
Business Corporation Act on April 1, 2000.
ARTICLE I
NAME
The name of the corporation is MoreDirect.com, Inc. (the
"Corporation").
ARTICLE II
PRINCIPAL OFFICE AND MAILING ADDRESS
The principal office and mailing address of the Corporation is 3401
North Federal Highway, Suite 216, Boca Raton, Florida 33431.
ARTICLE III
CAPITAL STOCK
The aggregate number of shares of all classes of capital stock that the
Corporation is authorized to issue is one hundred million (100,000,000) shares
consisting of (i) eighty million (80,000,000) shares of common stock, par value
$0.01 per share (the "Common Stock"), and (ii) twenty million (20,000,000)
shares of preferred stock, par value $0.01 per share (the "Preferred Stock").
<PAGE> 2
The designations, preferences, limitations and relative rights of the
Common Stock and the Preferred Stock of the Corporation are as follows:
A. PROVISIONS RELATING TO THE COMMON STOCK.
1. VOTING RIGHTS. Except as otherwise required by law or as may be
provided by the resolutions of the Board of Directors authorizing the issuance
of any class or series of Preferred Stock, as provided in Section B of this
Article III, all rights to vote and all voting power shall be vested exclusively
in the holders of the Common Stock. The holders of the Common Stock shall be
entitled to one vote per share on all matters submitted to a vote of
shareholders, including, without limitation, the election of directors.
2. DIVIDENDS. Except as otherwise provided by law or as may be provided
by the resolutions of the Board of Directors authorizing the issuance of any
class or series of Preferred Stock in accordance with Section B of this Article
III, the holders of the Common Stock shall be entitled to receive when, as and
if provided by the Board of Directors, out of funds legally available therefor,
dividends payable in cash, stock or otherwise.
3. LIQUIDATING DISTRIBUTIONS. Upon any liquidation, dissolution or
winding-up of the Corporation, whether voluntary or involuntary, and after
payment or provision for payment of the debts and other liabilities of the
Corporation, and except as may be provided by the resolutions of the Board of
Directors authorizing the issuance of any class or series of Preferred Stock in
accordance with Section B of this Article III, the remaining assets of the
Corporation shall be distributed pro-rata to the holders of the Common Stock.
B. PROVISIONS RELATING TO THE PREFERRED STOCK.
1. GENERAL. The Preferred Stock may be issued from time to time in one
or more classes or series, the shares of each class or series to have such
designations, powers, preferences, rights, qualifications, limitations and
restrictions thereof as are stated and expressed herein and in the resolution or
resolutions providing for the issuance of such class or series adopted by the
Board of Directors as hereinafter prescribed.
2. PREFERENCES. Authority is hereby expressly granted to and vested in
the Board of Directors to authorize the issuance of the Preferred Stock from
time to time in one or more classes or series, to determine and take necessary
proceedings fully to effect the issuance and redemption of any such Preferred
Stock, and, with respect to each class or series of the Preferred Stock, to fix
and state by the resolution or resolutions from time to time adopted providing
for the issuance thereof the following:
(a) whether or not the class or series is to have voting
rights, full or limited, or is to be without voting rights;
2
<PAGE> 3
(b) the number of shares to constitute the class or series and
the designations thereof;
(c) the preferences and relative, participating, optional or
other special rights, if any, and the qualifications, limitations or
restrictions thereof, if any, with respect to any class or series;
(d) whether or not the shares of any class or series shall be
redeemable and if redeemable the redemption price or prices, and the time or
times at which and the terms and conditions upon which, such shares shall be
redeemable and the manner of redemption;
(e) whether or not the shares of a class or series shall be
subject to the operation of retirement or sinking funds to be applied to the
purchase or redemption of such shares for retirement, and if such retirement or
sinking fund or funds be established, the annual amount thereof and the terms
and provisions relative to the operation thereof;
(f) the dividend rate, whether dividends are payable in cash,
stock of the Corporation, or other property, the conditions upon which and the
times when such dividends are payable, the preference to or the relation to the
payment of the dividends payable on any other class or classes or series of
stock, whether or not such dividend shall be cumulative or noncumulative, and if
cumulative, the date or dates from which such dividends shall accumulate;
(g) the preferences, if any, and that amounts thereof that the
holders of any class or series thereof shall be entitled to receive upon the
voluntary or involuntary dissolution of, or upon any distribution of the assets
of, the Corporation;
(h) whether or not and the circumstances under which the
shares of any class or series shall be convertible into, or exchangeable for,
the shares of any other class or classes or of any other series of the same or
any other class or classes of the Corporation and the conversion price or prices
or ratio or ratios or the rate or rates at which such conversion or exchange may
be made, with such adjustments, if any, as shall be stated and expressed or
provided for in such resolution or resolutions; and
(i) such other special rights and protective provisions with
respect to any class or series as the Board of Directors may deem advisable.
The shares of each class or series of the Preferred Stock may vary from
the shares of any other class or series thereof in any or all of the foregoing
respects. The Board of Directors may increase the number of shares of Preferred
3
<PAGE> 4
Stock designated for any existing class or series by a resolution adding to such
class or series authorized and unissued shares of the Preferred Stock not
designated for any other class or series. The Board of Directors may decrease
the number of shares of Preferred Stock designated for any existing class or
series by a resolution, subtracting from such class or series unissued shares of
the Preferred Stock designated for such class or series and the shares so
subtracted shall become authorized, unissued and undesignated shares of the
Preferred Stock.
ARTICLE IV
REGISTERED OFFICE AND AGENT
The street address of the Corporation's registered office is 350 East
Las Olas Boulevard, Suite 1600, Fort Lauderdale, Florida 33301. The name of the
Corporation's registered agent at that office is American Information Services,
Inc.
ARTICLE V
INDEMNIFICATION
The Corporation shall indemnify any present or former officer or
director, or person exercising any duties of an officer or director, and shall
advance expenses on behalf of any such officer, director or other person, in
each case, to the fullest extent now or hereafter permitted by law.
4
<PAGE> 5
IN WITNESS WHEREOF, the undersigned has executed these Amended and
Restated Articles of Incorporation as of April 1, 2000.
MOREDIRECT.COM, INC.
By: /s/ RUSSELL MADRIS
-----------------------------
Russell Madris
President
5
<PAGE> 6
CERTIFICATE OF ACCEPTANCE BY
REGISTERED AGENT
Pursuant to the provisions of Section 607.0501 of the Florida Business
Corporation Act, the undersigned submits the following statement in accepting
the designation as registered agent and registered office of MoreDirect.com,
Inc., a Florida corporation (the "Corporation"), in the Corporation's articles
of incorporation:
Having been named as registered agent and to accept service of process
for the Corporation at the registered office designated in the
Corporation's articles of incorporation, the undersigned accepts the
appointment as registered agent and agrees to act in this capacity. The
undersigned further agrees to comply with the provisions of all
statutes relating to the proper and complete performance of its duties,
and the undersigned is familiar with and accepts the obligations of its
position as registered agent.
IN WITNESS WHEREOF, the undersigned has executed this Certificate on
April 1, 2000.
AMERICAN INFORMATION SERVICES, INC.
/s/ Marla Mayster
-----------------------------------------
Marla Mayster, Vice President
6
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
MOREDIRECT.COM, INC.
(A Florida Corporation)
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
ARTICLE 1
OFFICES..............................................................................................- 1 -
Section 1. Registered Office...............................................................- 1 -
Section 2. Other Offices...................................................................- 1 -
ARTICLE 2
MEETINGS OF SHAREHOLDERS.............................................................................- 1 -
Section 1. Place...........................................................................- 1 -
Section 2. Time of Annual Meeting..........................................................- 1 -
Section 3. Call of Special Meetings........................................................- 1 -
Section 4. Conduct of Meetings.............................................................- 1 -
Section 5. Notice and Waiver of Notice.....................................................- 2 -
Section 6. Business of Special Meeting.....................................................- 2 -
Section 7. Quorum..........................................................................- 2 -
Section 8. Voting per Share................................................................- 3 -
Section 9. Voting of Shares................................................................- 3 -
Section 10. Proxies.........................................................................- 4 -
Section 11. Shareholder List................................................................- 4 -
Section 12. Action Without Meeting..........................................................- 4 -
Section 13. Fixing Record Date..............................................................- 5 -
Section 14. Inspectors and Judges...........................................................- 5 -
Section 15. Voting for Directors............................................................- 5 -
Section 16. Voting Trusts...................................................................- 5 -
Section 17. Shareholders' Agreements........................................................- 6 -
Section 18. Advance Notice of Shareholder Proposals and Director Nominations................- 6 -
ARTICLE 3
DIRECTORS............................................................................................- 7 -
Section 1. Number, Election and Term.......................................................- 7 -
Section 2. Vacancies.......................................................................- 8 -
Section 3. Powers..........................................................................- 8 -
Section 4. Duties of Directors.............................................................- 8 -
Section 5. Place of Meetings...............................................................- 8 -
Section 6. Annual Meeting..................................................................- 8 -
Section 7. Regular Meetings................................................................- 8 -
Section 8. Special Meetings and Notice.....................................................- 9 -
Section 9. Quorum; Required Votes Presumption of Assent....................................- 9 -
</TABLE>
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<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
Section 10. Action Without Meeting.........................................................- 9 -
Section 11. Conference Telephone or Similar Communications
Equipment Meetings ........................................................- 9 -
Section 12. Committees....................................................................- 10 -
Section 13. Compensation of Directors.....................................................- 10 -
Section 14. Chairman of the Board.........................................................- 10 -
Section 15. Removal of Directors..........................................................- 10 -
Section 16. Director Conflicts of Interest................................................- 10 -
ARTICLE 4
OFFICERS............................................................................................- 11 -
Section 1. Positions......................................................................- 11 -
Section 2. Election of Specified Officers by Board........................................- 11 -
Section 3. Election or Appointment of Other Officers......................................- 11 -
Section 4. Salaries.......................................................................- 11 -
Section 5. Term; Resignation..............................................................- 11 -
Section 6. President......................................................................- 12 -
Section 7. Vice Presidents................................................................- 12 -
Section 8. Secretary......................................................................- 12 -
Section 9. Treasurer......................................................................- 12 -
Section 10. Other Officers, Employees and Agents...........................................- 12 -
ARTICLE 5
CERTIFICATES FOR SHARES.............................................................................- 13 -
Section 1. Issue of Certificates..........................................................- 13 -
Section 2. Legends for Preferences and Restrictions on Transfer...........................- 13 -
Section 3. Facsimile Signatures...........................................................- 13 -
Section 4. Lost Certificates..............................................................- 13 -
Section 5. Transfer of Shares.............................................................- 14 -
Section 6. Registered Shareholders........................................................- 14 -
ARTICLE 6
INDEMNIFICATION.....................................................................................- 14 -
ARTICLE 7
BOOKS AND RECORDS...................................................................................- 15 -
Section 1. Books and Records..............................................................- 15 -
Section 2. Shareholders' Inspection Rights................................................- 15 -
</TABLE>
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<PAGE> 4
<TABLE>
<CAPTION>
<S> <C> <C>
Section 3. Financial Information.........................................................- 15 -
ARTICLE 8
GENERAL PROVISIONS..................................................................................- 15 -
Section 1. Dividends......................................................................- 15 -
Section 2. Reserves.......................................................................- 15 -
Section 3. Checks.........................................................................- 15 -
Section 4. Fiscal Year....................................................................- 15 -
Section 5. Seal...........................................................................- 16 -
Section 6. Gender.........................................................................- 16 -
ARTICLE 9
AMENDMENTS OF BYLAWS................................................................................- 16 -
</TABLE>
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<PAGE> 5
AMENDED AND RESTATED
BYLAWS OF
MOREDIRECT.COM, INC.
ARTICLE 1
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of MoreDirect.com,
Inc., a Florida corporation (the "Corporation"), shall be located in the City of
Boca Raton, State of Florida, unless otherwise designated by the Board of
Directors.
SECTION 2. OTHER OFFICES. The Corporation may also have offices at such
other places, either within or without the State of Florida, as the Board of
Directors of the Corporation (the "Board of Directors") may from time to time
determine or as the business of the Corporation may require.
ARTICLE 2
MEETINGS OF SHAREHOLDERS
SECTION 1. PLACE. All annual meetings of shareholders shall be held at
such place, within or without the State of Florida, as may be designated by the
Board of Directors and stated in the notice of the meeting or in a duly executed
waiver of notice thereof. Special meetings of shareholders may be held at such
place, within or without the State of Florida, and at such time as shall be
stated in the notice of the meeting or in a duly executed waiver of notice
thereof.
SECTION 2. TIME OF ANNUAL MEETING. Annual meetings of shareholders
shall be held on such date and at such time fixed, from time to time, by the
Board of Directors, provided that there shall be an annual meeting held every
year at which the shareholders shall elect a Board of Directors and transact
such other business as may properly be brought before the meeting.
SECTION 3. CALL OF SPECIAL MEETINGS. Special meetings of the
shareholders shall be held if called by the Board of Directors, the President,
or if the holders of not less than fifty percent (50%) of all the votes entitled
to be cast on any issue proposed to be considered at the proposed special
meeting sign, date, and deliver to the Secretary one or more written demands for
the meeting describing the purpose or purposes for which it is to be held.
SECTION 4. CONDUCT OF MEETINGS. The Chairman of the Board (or in his
absence, the President or such other designee of the Chairman of the Board)
shall preside at the annual and
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<PAGE> 6
special meetings of shareholders and shall be given full discretion in
establishing the rules and procedures to be followed in conducting the meetings,
except as otherwise provided by law or in these Bylaws.
SECTION 5. NOTICE AND WAIVER OF NOTICE. Except as otherwise provided by
law, written or printed notice stating the place, day and hour of the meeting
and, in the case of a special meeting, the purpose or purposes for which the
meeting is called, shall be delivered not less than ten (10) nor more than sixty
(60) days before the day of the meeting, either personally or by first-class
mail, by or at the direction of the President, the Secretary, or the officer or
person calling the meeting, to each shareholder 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 shareholder at his address
as it appears on the stock transfer books of the Corporation, with postage
thereon prepaid. If a meeting is adjourned to another time and/or place, and if
an announcement of the adjourned time and/or place is made at the meeting, it
shall not be necessary to give notice of the adjourned meeting unless the Board
of Directors, after adjournment, fixes a new record date for the adjourned
meeting. Whenever any notice is required to be given to any shareholder, a
waiver thereof in writing signed by the person or persons entitled to such
notice, whether signed before, during or after the time of the meeting stated
therein, and delivered to the Corporation for inclusion in the minutes or filing
with the corporate records, shall be equivalent to the giving of such notice.
Neither the business to be transacted at, nor the purpose of, any regular or
special meeting of the shareholders need be specified in any written waiver of
notice. Attendance of a person at a meeting shall constitute a waiver of (a)
lack of or defective notice of such meeting, unless the person objects at the
beginning to the holding of the meeting or the transacting of any business at
the meeting, or (b) lack of defective notice of a particular matter at a meeting
that is not within the purpose or purposes described in the meeting notice,
unless the person objects to considering such matter when it is presented.
SECTION 6. BUSINESS OF SPECIAL MEETING. Business transacted at any
special meeting shall be confined to the purposes stated in the notice thereof.
SECTION 7. QUORUM. Shares entitled to vote as a separate voting group
may take action on a matter at a meeting only if a quorum of these shares exists
with respect to that matter. Except as otherwise provided in the Articles of
Incorporation or by law, a majority of the shares entitled to vote on the matter
by each voting group, represented in person or by proxy, shall constitute a
quorum at any meeting of shareholders. If a quorum is present, the affirmative
vote of the majority of the shares represented at the meeting and entitled to
vote on the subject matter shall be the act of the shareholders unless otherwise
provided in the Articles of Incorporation, these Bylaws or by law. If less than
a majority of outstanding shares entitled to vote are represented at a meeting,
a majority of the shares so represented may adjourn the meeting from time to
time without further notice. After a quorum has been established at any
shareholders' meeting, the subsequent withdrawal of shareholders, so as to
reduce the number of shares entitled to vote at the meeting below the number
required for a quorum, shall not affect the validity of any action taken at the
meeting or any adjournment thereof. Once a share is represented for any purpose
at a meeting, it is deemed present for quorum purposes for the remainder of the
meeting and for any adjournment of that meeting unless a new record date is or
must be set for that adjourned meeting.
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<PAGE> 7
SECTION 8. VOTING PER SHARE. Except as otherwise provided in the
Articles of Incorporation or by law, each shareholder is entitled to one (1)
vote for each outstanding share held by him on each matter voted at a
shareholders' meeting. Shares of stock of this corporation owned by another
corporation the majority of the voting stock of which is owned or controlled by
this corporation, and shares of stock of this corporation held by it in a
fiduciary capacity shall not be voted, directly or indirectly, at any meeting,
and shall not be counted in determining the total number of shares outstanding
at any given time. At each election of directors, every shareholder entitled to
vote at such election shall have the right to vote, in person or by proxy, the
number of shares owned by him for as many persons as there are directors to be
elected at that time and for whose election he has a right to vote.
SECTION 9. VOTING OF SHARES. A shareholder may vote at any meeting of
shareholders of the Corporation, either in person or by proxy. Shares standing
in the name of another corporation, domestic or foreign, may be voted by the
officer, agent or proxy designated by the bylaws of such corporate shareholder
or, in the absence of any applicable bylaw, by such person or persons as the
board of directors of the corporate shareholder may designate. In the absence of
any such designation, or, in case of conflicting designation by the corporate
shareholder, the chairman of the board, the president, any vice president, the
secretary and the treasurer of the corporate shareholder, in that order, shall
be presumed to be fully authorized to vote such shares. Shares held by an
administrator, executor, guardian, personal representative, or conservator may
be voted by him, either in person or by proxy, without a transfer of such shares
into his name. Shares standing in the name of a trustee may be voted by him,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him without a transfer of such shares into his name or the name of his
nominee. Shares held by or under the control of a receiver, a trustee in
bankruptcy proceedings, or an assignee for the benefit of creditors may be voted
by such person without the transfer thereof into his name. If shares stand of
record in the names of two or more persons, whether fiduciaries, members of a
partnership, joint tenants, tenants in common, tenants by the entirety or
otherwise, or if two or more persons have the same fiduciary relationship
respecting the same shares, unless the Secretary of the Corporation is given
notice to the contrary and is furnished with a copy of the instrument or order
appointing them or creating the relationship wherein it is so provided, then
acts with respect to voting shall have the following effect: (a) if only one
votes, in person or by proxy, his act binds all; (b) if more than one vote, in
person or by proxy, the act of the majority so voting binds all; (c) if more
than one vote, in person or by proxy, but the vote is evenly split on any
particular matter, each faction is entitled to vote the share or shares in
question proportionally; or (d) if the instrument or order so filed shows that
any such tenancy is held in unequal interest, a majority or a vote evenly split
for purposes hereof shall be a majority or a vote evenly split in interest. A
shareholder whose shares are pledged shall be entitled to vote such shares until
the shares have been transferred into the name of the pledgee, and thereafter
the pledgee or his nominee shall be entitled to vote the shares so transferred.
On or after the date on which written notice of redemption of redeemable shares
has been mailed to the holders thereof and a sum sufficient to redeem such
shares has been deposited with a bank or trust company with irrevocable
instrument and authority to pay the redemption price to the holders thereof upon
surrender of certificates therefor, such shares shall not be entitled to vote on
any matter and shall not be deemed to be outstanding shares. The principles of
this paragraph shall apply, insofar as possible, to execution
- 3 -
<PAGE> 8
of proxies, waivers, consents, or objections and for the purpose of ascertaining
the presence of a quorum.
SECTION 10. PROXIES. Any shareholder of the Corporation, other person
entitled to vote on behalf of a shareholder pursuant to law, or attorney-in-fact
for such persons may vote the shareholder's shares in person or by proxy. Any
shareholder of the corporation may appoint a proxy to vote or otherwise act for
him by signing an appointment form, either personally or by his
attorney-in-fact. An executed telegram or cablegram appearing to have been
transmitted by such person, or a photographic, photostatic, or equivalent
reproduction of an appointment form, shall be deemed a sufficient appointment
form. An appointment of a proxy is effective when received by the Secretary of
the Corporation or such other officer or agent which is authorized to tabulate
votes, and shall be valid for up to 11 months, unless a longer period is
expressly provided in the appointment form. The death or incapacity of the
shareholder appointing a proxy does not affect the right of the Corporation to
accept the proxy's authority unless notice of the death or incapacity is
received by the secretary or other officer or agent authorized to tabulate votes
before the proxy exercises his authority under the appointment. An appointment
of a proxy is revocable by the shareholder unless the appointment is coupled
with an interest.
SECTION 11. SHAREHOLDER LIST. After fixing a record date for a meeting
of shareholders, the Corporation shall prepare an alphabetical list of the names
of all its shareholders who are entitled to notice of the meeting, arranged by
voting group with the address of, and the number and class and series, if any,
of shares held by each. The shareholders' list must be available for inspection
by any shareholder for a period of ten (10) days prior to the meeting or such
shorter time as exists between the record date and the meeting and continuing
through the meeting at the Corporation's principal office, at a place identified
in the meeting notice in the city where the meeting will be held, or at the
office of the Corporation's transfer agent or registrar. Any shareholder of the
Corporation or his agent or attorney is entitled on written demand to inspect
the shareholders' list (subject to the requirements of law), during regular
business hours and at his expense, during the period it is available for
inspection. The Corporation shall make the shareholders' list available at the
meeting of shareholders, and any shareholder or his agent or attorney is
entitled to inspect the list at any time during the meeting or any adjournment.
If the requirements of this Section have not been substantially complied with,
the meeting on demand of any shareholders in person or by proxy, shall be
adjourned until the requirements are complied with. If no such demand is made,
failure to comply with the requirements of this Section shall not affect the
validity of any action taken at such meeting.
SECTION 12. ACTION WITHOUT MEETING. Any action required by law to be
taken at a meeting of shareholders, or any action that may be taken at a meeting
of shareholders, may be taken without a meeting or notice if a consent in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock constituting the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted with respect to the subject
matter thereof, and such consent shall have the same force and effect as a vote
of shareholders taken at such a meeting. Within ten days after obtaining such
authorization by written consent, notice shall be given to those shareholders
who have not consented in writing. The notice shall fairly summarize the
material features of the authorized action and, if the action be a merger,
consolidation or sale or
- 4 -
<PAGE> 9
exchange of assets for which dissenters rights are provided by law, the notice
shall contain a clear statement of the right of shareholders dissenting
therefrom to be paid the fair value of their shares upon compliance with further
provisions as provided by law regarding the rights of dissenting shareholders.
SECTION 13. FIXING RECORD DATE. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof or entitled to receive payment of any dividend, or in
order to make a determination of shareholders for any other proper purposes, the
Board of Directors may fix in advance a date as the record date for any such
determination of shareholders, such date in any case to be not more than sixty
(60) days, and, in case of a meeting of shareholders, not less than ten (10)
days, prior to the date on which the particular action requiring such
determination of shareholders is to be taken. If no record date is fixed for the
determination of shareholders entitled to notice of or to vote at a meeting of
shareholders, or shareholders entitled to receive payment of a dividend, the
date on which the notice of the meeting is mailed or the date on which the
resolutions of the Board of Directors declaring such dividend is adopted, as the
case may be, shall be the record date for such determination of shareholders.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this Section 13, such determination
shall apply to any adjournment thereof, except where the Board of Directors
fixes a new record date for the adjourned meeting or as required by law.
SECTION 14. INSPECTORS AND JUDGES. The Board of Directors in advance of
any meeting may, but need not, appoint one or more inspectors of election or
judges of the vote, as the case may be, to act at the meeting or any
adjournment(s) thereof. If any inspector or inspectors, or judge or judges, are
not appointed, the person presiding at the meeting may, but need not, appoint
one or more inspectors or judges. In case any person who may be appointed as an
inspector or judge fails to appear or act, the vacancy may be filled by the
Board of Directors in advance of the meeting, or at the meeting by the person
presiding thereat. The inspectors or judges, if any, shall determine the number
of shares of stock outstanding and the voting power of each, the shares of stock
represented at the meeting, the existence of a quorum, the validity and effect
of proxies, and shall receive votes, ballots and consents, hear and determine
all challenges and questions arising in connection with the right to vote, count
and tabulate votes, ballots and consents, determine the result, and do such acts
as are proper to conduct the election or vote with fairness to all shareholders.
On request of the person presiding at the meeting, the inspector or inspectors
or judge or judges, if any, shall make a report in writing of any challenge,
question or matter determined by him or them, and execute a certificate of any
fact found by him or them.
SECTION 15. VOTING FOR DIRECTORS. Unless otherwise provided in the
Articles of Incorporation, directors shall be elected by a plurality of the
votes cast by the shares entitled to vote in the election at a meeting at which
a quorum is present.
SECTION 16. VOTING TRUSTS. Any number of shareholders of the
Corporation may create a voting trust for the purpose of conferring upon a
trustee or trustees the right to vote or otherwise represent their shares, as
provided by law. Where the counterpart of a voting trust agreement and the copy
of the record of the holders of voting trust certificates has been deposited
with the corporation as provided by law, such documents shall be subject to the
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<PAGE> 10
same right of examination by a shareholder of the corporation, in person or by
agent or attorney, as are the books and records of the corporation, and such
counterpart and such copy of such record shall be subject to examination by any
holder of record of voting trust certificates either in person or by agent or
attorney, at any reasonable time for any proper purpose.
SECTION 17. SHAREHOLDERS' AGREEMENTS. Two or more shareholders of the
Corporation may enter an agreement providing for the exercise of voting rights
in the manner provided in the agreement or relating to any phase of the affairs
of the Corporation as provided by law. Nothing therein shall impair the right of
the Corporation to treat the shareholders of record as entitled to vote the
shares standing in their names. A transfer of shares of the Corporation whose
shareholders have a shareholder's agreement authorized by this section shall be
bound by such agreement if he takes shares subject to such agreement with notice
thereof. A transferee shall be deemed to have notice of any such agreement if
the exercise thereof is noted on the face or back of the certificate or
certificates representing such shares.
SECTION 18. ADVANCE NOTICE OF SHAREHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. At any annual or special meeting of shareholders, proposals by
shareholders and persons nominated for election as Directors by shareholders
shall be considered only if advance notice thereof has been timely given as
provided herein and such proposals or nominations are otherwise proper for
consideration under applicable law and the Articles of Incorporation and Bylaws
of the Corpora tion. Notice of any proposal to be presented by any shareholder
or of the name of any person to be nominated by any shareholder for election as
a Director of the Corporation at any meeting of shareholders shall be delivered
to the Secretary of the Corporation at its principal executive office not less
than sixty (60) nor more than ninety (90) days prior to the date of the meeting;
provided, however, that if the date of the meeting is first publicly announced
or disclosed (in a public filing or otherwise) less than seventy (70) days prior
to the date of the meeting, such advance notice shall be given not more than ten
(10) days after such date is first so announced or disclosed. Public notice
shall be deemed to have been given more than seventy (70) days in advance of the
annual meeting if the Corporation shall have previously disclosed, in these
Bylaws or otherwise, that the annual meeting in each year is to be held on a
determinable date, unless and until the Board of Directors determines to hold
the meeting on a different date. Any shareholder who gives notice of any such
proposal shall deliver therewith the text of the proposal to be presented and a
brief written statement of the reasons why such shareholder favors the proposal
and setting forth such shareholder's name and address, the number and class of
all shares of each class of stock of the Corporation beneficially owned by such
shareholder and any material interest of such shareholder in the proposal (other
than as a shareholder). Any shareholder desiring to nominate any person for
election as a Director of the Corporation shall deliver with such notice a
statement in writing setting forth the name of the person to be nominated, the
number and class of all shares of each class of stock of the Corporation
beneficially owned by such person, the information regarding such person
required by paragraphs (a), (e) and (f) of Item 401 of Regulation S-K adopted by
the Securities and Exchange Commission (or the corresponding provisions of any
regulation subsequently adopted by the Securities and Exchange Commission
applicable to the Corporation), such person's signed consent to serve as a
Director of the Corporation if elected, such shareholder's name and address and
the number and class of all shares of each class of stock of the Corporation
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beneficially owned by such shareholder. As used herein, shares "beneficially
owned" shall mean all shares as to which such person, together with such
person's affiliates and associates (as defined in Rule 12b-2 under the
Securities Exchange Act of 1934), may be deemed to beneficially own pursuant to
Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, as well as all
shares as to which such person, together with such person's affiliates and
associates, has the right to become the beneficial owner pursuant to any
agreement or understanding, or upon the exercise of warrants, options or rights
to convert or exchange (whether such rights are exercisable immediately or only
after the passage of time or the occurrence of conditions). The person presiding
at the meeting, in addition to making any other determinations that may be
appropriate to the conduct of the meeting, shall determine whether such notice
has been duly given and shall direct that proposals and nominees not be
considered if such notice has not been given.
ARTICLE 3
DIRECTORS
SECTION 1. NUMBER, ELECTION AND TERM. The business and affairs of the
Corporation shall be managed by or under the direction of a Board of Directors.
The Board of Directors shall consist of seven or more members, the exact number
to be determined from time to time by the shareholders or the Board of
Directors. The number of Directors may be increased or decreased from time to
time by the shareholders or the Board of Directors, but no decrease shall have
the effect of shortening the terms of any incumbent director. The Board of
Directors shall be divided into three classes designated Class I, Class II and
Class III. Each class shall consist, as nearly as possible, of one-third of the
total number of directors constituting the entire Board of Directors. The
initial term of the Class I directors shall expire at the first annual meeting
of shareholders of the Corporation, the initial term of the Class II directors
shall expire at the second annual meeting of shareholders of the Corporation and
the initial term of the Class III directors shall expire at the third annual
meeting of shareholders of the Corporation. At each such annual meeting of
shareholders, successors to the class of directors whose term expires at such
annual meeting shall be elected for a three-year term. If the number of
directors is changed, any increase or decrease shall be apportioned among the
classes so as to maintain the number of directors in each class as nearly equal
as possible, and any additional director of any class elected to fill a vacancy
resulting from an increase in such class shall hold office for a term that shall
coincide with the remaining term of that class, but in no case will a decrease
in the number of directors shorten the term of any incumbent director. Directors
need not be residents of this State or shareholders of the Corporation. A
director shall hold office until the annual meeting for the year in which his or
her term expires and until his or her successor shall be elected and shall
qualify, subject, however, to prior death, resignation, retirement,
disqualification or removal from office. Directors may only be removed for
cause. "Cause" shall mean any intentional or grossly reckless conduct that is
harmful to the Corporation, such as misuse of confidential information,
competing against the Corporation, a serious violation of due care or fiduciary
duties or other gross abuse of office. Notwithstanding any other provisions of
these Bylaws to the contrary, this Article 3 may not be amended or repealed
unless approved by the affirmative vote of not less than two-thirds of the
outstanding shares of the Corporation
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entitled to vote in an election of directors.
SECTION 2. VACANCIES. A director may resign at any time by giving
written notice to the Corporation, the Board of Directors or the Chairman of the
Board. Such resignation shall take effect when the notice is delivered unless
the notice specifies a later effective date, in which event the Board of
Directors may fill the pending vacancy before the effective date if they provide
that the successor does not take office until the effective date. Any vacancy
occurring in the Board of Directors and any directorship to be filled by reason
of an increase in the size of the Board of Directors shall be filled by the
affirmative vote of a majority of the current directors though less than a
quorum of the Board of Directors, or may be filled by an election at an annual
or special meeting of the shareholders called for that purpose, unless otherwise
provided by law. A director elected to fill a vacancy shall be elected for the
unexpired term of his predecessor in office, or until the next election of one
or more directors by shareholders if the vacancy is caused by an increase in the
number of directors.
SECTION 3. POWERS. Except as provided in the Articles of Incorporation
and by law, all corporate powers shall be exercised by or under the authority
of, and the business and affairs of the Corporation shall be managed under the
direction of, its Board of Directors.
SECTION 4. DUTIES OF DIRECTORS. A director shall perform his duties as
a director, including his duties as a member of any committee of the board upon
which he may serve, in good faith, in a manner he reasonably believes to be in
the best interests of the corporation, and with such care as an ordinarily
prudent person in a like position would use under similar circumstances. In
performing his duties, a director shall be entitled to rely on information,
opinions, reports or statements, including financial statements and other
financial data, in each case prepared or presented by (1) one or more officers
or employees of the corporation whom the director reasonably believes to be
reliable and competent in the matters presented, (2) counsel, public
accountants, or (3) other persons as to matters which the director reasonably
believes to be within such person's professional or expert competence, or a
committee of the Board upon which he does not serve, duly designated in
accordance with a provision of the Articles of Incorporation or the By-Laws, as
to matters within its designated authority, which committee the director
reasonably believes to merit confidence. A director shall not be considered to
be acting in good faith if he has knowledge concerning the matter in question
that would cause such reliance described above to be unwarranted. A person who
performs his duties in compliance with this section shall have no liability by
reason of being or having been a director of the corporation and shall be
indemnified by the corporation for any and all claims and/or losses arising out
of his service as a director of the Corporation
SECTION 5. PLACE OF MEETINGS. Meetings of the Board of Directors,
regular or special, may be held either within or without the State of Florida.
SECTION 6. ANNUAL MEETING. The first meeting of each newly elected
Board of Directors shall be held, without call or notice, immediately following
each annual meeting of shareholders.
SECTION 7. REGULAR MEETINGS. Regular meetings of the Board of Directors
may also be held without notice at such time and at such place as shall from
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time to time be determined by the Board of Directors.
SECTION 8. SPECIAL MEETINGS AND NOTICE. Special meetings of the Board
of Directors may be called by the Chairman of the Board or by the President and
shall be called by the Secretary on the written request of any two directors.
Written notice of special meetings of the Board of Directors shall be given to
each director at least two (2) days before the meeting. Except as required by
statute, neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board of Directors need be specified in the
notice or waiver of notice of such meeting. Notices to directors shall be in
writing and delivered personally or mailed to the directors at their addresses
appearing on the books of the Corporation. Notice by mail shall be deemed to be
given at the time when the same shall be received. Notice to directors may also
be given by telegram, teletype or other form of electronic communication. Notice
of a meeting of the Board of Directors need not be given to any director who
signs a written waiver of notice before, during or after the meeting. Attendance
of a director at a meeting shall constitute a waiver of notice of such meeting
and a waiver of any and all objections to the place of the meeting, the time of
the meeting and the manner in which it has been called or convened, except when
a director states, at the beginning of the meeting or promptly upon arrival at
the meeting, any objection to the transaction of business because the meeting is
not lawfully called or convened.
SECTION 9. QUORUM; REQUIRED VOTES PRESUMPTION OF ASSENT. A majority of
the number of directors fixed by, or in the manner provided in, these bylaws
shall constitute a quorum for the transaction of business; provided, however,
that whenever, for any reason, a vacancy occurs in the Board of Directors, a
quorum shall consist of a majority of the remaining directors until the vacancy
has been filled. The act of a majority of the directors present at a meeting at
which a quorum is present when the vote is taken shall be the act of the Board
of Directors. A majority of the directors present, whether or not a quorum
exists, may adjourn any meeting of the Board of Directors to another time and
place. Notice of any such adjourned meeting shall be given to the directors who
were not present at the time of adjournment, and, unless the time and place of
the adjourned meeting are announced at the time of adjournment, to the other
directors. A director of the Corporation who is present at a meeting of the
Board of Directors or a committee of the Board of Directors when corporate
action is taken shall be presumed to have assented to the action taken, unless
he objects at the beginning of the meeting, or promptly upon his arrival, to
holding the meeting or transacting specific business at the meeting, or he votes
against or abstains from the action taken.
SECTION 10. ACTION WITHOUT MEETING. Any action required or permitted to
be taken at a meeting of the Board of Directors or a committee thereof may be
taken without a meeting if a consent in writing, setting forth the action taken,
is signed by all of the members of the Board of Directors or the committee, as
the case may be, and such consent shall have the same force and effect as a
unanimous vote at a meeting. Action taken under this section is effective when
the last director signs the consent, unless the consent specifies a different
effective date. A consent signed under this Section 9 shall have the effect of a
meeting vote and may be described as such in any document.
SECTION 11. CONFERENCE TELEPHONE OR SIMILAR COMMUNICATIONS EQUIPMENT
MEETINGS. Members of the Board of Directors may participate in a meeting of the
Board by means of conference telephone or similar communications equipment by
means of which all persons participating in the meeting can hear each other at
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the same time. Participation in such a meeting shall constitute presence in
person at the meeting, except where a person participates in the meeting for the
express purpose of objecting to the transaction of any business on the ground
the meeting is not lawfully called or convened.
SECTION 12. COMMITTEES. The Board of Directors, by resolution adopted
by a majority of the full Board of Directors, may designate from among its
members an executive committee and one or more other committees, each of which,
to the extent provided in such resolution, shall have and may exercise all of
the authority of the Board of Directors in the business and affairs of the
Corporation except where the action of the full Board of Directors is required
by statute. Each committee must have two or more members who serve at the
pleasure of the Board of Directors. The Board of Directors, by resolution
adopted in accordance with this Article Three, may designate one or more
directors as alternate members of any committee, who may act in the place and
stead of any absent member or members at any meeting of such committee.
Vacancies in the membership of a committee shall be filled by the Board of
Directors at a regular or special meeting of the Board of Directors. The
executive committee shall keep regular minutes of its proceedings and report the
same to the Board of Directors when required. The designation of any such
committee and the delegation thereto of authority shall not operate to relieve
the Board of Directors, or any member thereof, of any responsibility imposed
upon it or him by law.
SECTION 13. COMPENSATION OF DIRECTORS. The directors may be paid their
expenses, if any, of attendance at each meeting of the Board of Directors and
may be paid a fixed sum for attendance at each meeting of the Board of Directors
or a stated salary as director. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
SECTION 14. CHAIRMAN OF THE BOARD. The Board of Directors may, in its
discretion, choose a chairman of the board who shall preside at meetings of the
shareholders and of the directors and shall be an ex officio member of all
standing committees. The Chairman of the Board shall have such other powers and
shall perform such other duties as shall be designated by the Board of
Directors. The Chairman of the Board shall be a member of the Board of Directors
but no other officers of the Corporation need be a director. The Chairman of the
Board shall serve until his successor is chosen and qualified, but he may be
removed at any time by the affirmative vote of a majority of the Board of
Directors.
SECTION 15. REMOVAL OF DIRECTORS. At a meeting of shareholders called
expressly for that purpose, any director or the entire Board of Directors may be
removed, with or without cause, by a vote of the holders of a majority of the
shares then entitled to vote at an election of directors.
SECTION 16. DIRECTOR CONFLICTS OF INTEREST. No contract or other
transaction between the Corporation and one or more of its directors or any
other corporation, firm, association or entity in which one or more of the
directors are directors or officers or are financially interested, shall be
either void or voidable because of such relationship or interest or because such
director or directors are present at the meeting of the Board of Directors or a
committee thereof which authorizes, approves or ratifies such contract or
transaction or because his or their votes are counted for such purpose, if: (1)
the fact of such relationship or interest is disclosed or known to the Board of
Directors or committee which authorizes, approves or ratifies the contract or
transaction by a vote or consent sufficient for the purpose without counting the
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votes or consents of such interested directors; (2) the fact of such
relationship or interest is disclosed or known to the shareholders entitled to
vote and they authorize, approve or ratify such contract or transaction by vote
or written consent; or (3) the contract or transaction is fair and reasonable as
to the Corporation at the time it is authorized by the Board, a committee or the
shareholders. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or a committee
thereof which authorizes, approves or ratifies such contract or transaction.
ARTICLE 4
OFFICERS
SECTION 1. POSITIONS. The officers of the Corporation shall consist of
a President, one or more Vice Presidents, a Secretary and a Treasurer, and, if
elected by the Board of Directors by resolution, a Chairman of the Board. Any
two or more offices may be held by the same person.
SECTION 2. ELECTION OF SPECIFIED OFFICERS BY BOARD. The Board of
Directors at its first meeting after each annual meeting of shareholders shall
elect a President, one or more Vice Presidents, a Secretary, and a Treasurer.
SECTION 3. ELECTION OR APPOINTMENT OF OTHER OFFICERS. Such other
officers and assistant officers and agents as may be deemed necessary may be
elected or appointed by the Board of Directors, or, unless otherwise specified
herein, appointed by the President of the Corporation. The Board of Directors
shall be advised of appointments by the President at or before the next
scheduled Board of Directors meeting.
SECTION 4. SALARIES. The salaries of all officers of the Corporation to
be elected by the Board of Directors pursuant to Article Four, Section 2 hereof
shall be fixed from time to time by the Board of Directors or pursuant to its
discretion. The salaries of all other elected or appointed officers of the
Corporation shall be fixed from time to time by the President of the Corporation
or pursuant to his direction.
SECTION 5. TERM; RESIGNATION. The officers of the Corporation shall
hold office until their successors are chosen and qualified. Any officer or
agent elected or appointed by the Board of Directors or the President of the
Corporation may be removed, with or without cause, by the Board of Directors.
Any officers or agents appointed by the President of the Corporation pursuant to
Section 3 of this Article Four may also be removed from such officer positions
by the President, with or without cause. Any vacancy occurring in any office of
the Corporation by death, resignation, removal or otherwise shall be filled by
the Board of Directors, or, in the case of an officer appointed by the President
of the Corporation, by the President or the Board of Directors. Any officer of
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the Corporation may resign from his respective office or position by delivering
notice to the Corporation. Such resignation is effective when delivered unless
the notice specifies a later effective date. If a resignation is made effective
at a later date and the Corporation accepts the future effective date, the Board
of Directors may fill the pending vacancy before the effective date if the Board
provides that the successor does not take office until the effective date.
SECTION 6. PRESIDENT. The President shall be the Chief Executive
Officer of the Corporation, shall have general and active management of the
business of the Corporation and shall see that all orders and resolutions of the
Board of Directors are carried into effect. In the absence of the Chairman of
the Board or in the event the Board of Directors shall not have designated a
chairman of the board, the President shall preside at meetings of the
shareholders and the Board of Directors.
SECTION 7. VICE PRESIDENTS. The Vice Presidents in the order of their
seniority, unless otherwise determined by the Board of Directors, shall, in the
absence or disability of the President, perform the duties and exercise the
powers of the President. They shall perform such other duties and have such
other powers as the Board of Directors shall prescribe or as the President may
from time to time delegate.
SECTION 8. SECRETARY. The Secretary shall attend all meetings of the
Board of Directors and all meetings of the shareholders and record all the
proceedings of the meetings of the shareholders and of the Board of Directors in
a book to be kept for that purpose and shall perform like duties for the
standing committees when required. The Secretary shall give, or cause to be
given, notice of all meetings of the shareholders and special meetings of the
Board of Directors, and shall perform such other duties as may be prescribed by
the Board of Directors or President, under whose supervision the Secretary shall
be. The Secretary shall keep in safe custody the seal of the Corporation and,
when authorized by the Board of Directors, affix the same to any instrument
requiring it.
SECTION 9. TREASURER. The Treasurer shall have the custody of corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the Corporation in
such depositories as may be designated by the Board of Directors. The Treasurer
shall disburse the funds of the Corporation as may be ordered by the Board of
Directors, taking proper vouchers for such disbursements, and shall render to
the President and the Board of Directors at its regular meetings or when the
Board of Directors so requires an account of all the Treasurer's transactions as
treasurer and of the financial condition of the Corporation unless otherwise
specified by the Board of Directors, the Treasurer shall be the Corporation's
Chief Financial Officer.
SECTION 10. OTHER OFFICERS, EMPLOYEES AND AGENTS. Each and every other
officer, employee and agent of the Corporation shall possess, and may exercise,
such power and authority, and shall perform such duties, as may from time to
time be assigned to him by the Board of Directors, the officer so appointing him
and such officer or officers who may from time to time be designated by the
Board of Directors to exercise such supervisory authority.
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ARTICLE 5
CERTIFICATES FOR SHARES
SECTION 1. ISSUE OF CERTIFICATES. The Corporation shall deliver
certificates representing all shares to which shareholders are entitled; and
such certificates shall be signed by the Chairman of the Board, President or a
Vice President, and by the Secretary or an Assistant Secretary of the
Corporation, and may be sealed with the seal of the Corporation or a facsimile
thereof.
SECTION 2. LEGENDS FOR PREFERENCES AND RESTRICTIONS ON TRANSFER. The
designations, relative rights, preferences and limitations applicable to each
class of shares and the variations in rights, preferences and limitations
determined for each series within a class (and the authority of the Board of
Directors to determine variations for future series) shall be summarized on the
front or back of each certificate. Alternatively, each certificate may state
conspicuously on its front or back that the Corporation will furnish the
shareholder a full statement of this information on request and without charge.
Every certificate representing shares that are restricted as to the sale,
disposition, or transfer of such shares shall also indicate that such shares are
restricted as to transfer and there shall be set forth or fairly summarized upon
the certificate, or the certificate shall indicate that the Corporation will
furnish to any shareholder upon request and without charge, a full statement of
such restrictions. If the Corporation issues any shares that are not registered
under the Securities Act of 1933, as amended, and registered or qualified under
the applicable state securities laws, the transfer of any such shares shall be
restricted substantially in accordance with the following legend:
"THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 OR UNDER ANY APPLICABLE STATE LAW. THEY MAY NOT BE
OFFERED FOR SALE, SOLD, TRANSFERRED OR PLEDGED WITHOUT (1) REGISTRATION
UNDER THE SECURITIES ACT OF 1933 AND ANY APPLICABLE STATE LAW, OR (2)
AT HOLDER'S EXPENSE, AN OPINION (SATISFACTORY TO THE CORPORATION) OF
COUNSEL (SATISFACTORY TO THE CORPORATION) THAT REGISTRATION IS NOT
REQUIRED.
SECTION 3. FACSIMILE SIGNATURES. The signatures of the Chairman of the
Board, the President or a Vice President and the Secretary or Assistant
Secretary upon a certificate may be facsimiles, if the certificate is manually
signed by a transfer agent, or registered by a registrar, other than the
Corporation itself or an employee of the Corporation. In case any officer who
has signed or whose facsimile signature has been placed upon such certificate
shall have ceased to be such officer before such certificate is issued, it may
be issued by the Corporation with the same effect as if he were such officer at
the date of the issuance.
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 issuance thereof, require the owner of such
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lost or destroyed certificate or certificates, or his legal representative, to
advertise the same in such manner as it shall require and/or to 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.
SECTION 5. TRANSFER OF SHARES. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
SECTION 6. REGISTERED SHAREHOLDERS. The Corporation shall be entitled
to recognize the exclusive rights of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and shall not
be bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person, whether or not it shall have express
or other notice thereof except as otherwise provided by the laws of the State of
Florida.
ARTICLE 6
INDEMNIFICATION
Any person, his heirs, or personal representative, made, or threatened
to be made, a party to any threatened, pending, or completed action or
proceeding, whether civil, criminal, administrative, or investigative, because
he, his testator, or intestate is or was a director, officer, employee, or agent
of the Corporation or serves or served any other corporation or other enterprise
in any capacity at the request of the Corporation, shall be indemnified by the
Corporation, and the Corporation may advance his related expenses to the full
extent permitted by law. In discharging his duty, any director, officer,
employee, or agent, when acting in good faith, may rely upon information,
opinions, reports, or statements, including financial statements and other
financial data, in each case prepared or presented by (1) one or more officers
or employees of the corporation whom the director, officer, employee, or agent
reasonably believes to be reliable and competent in the matters presented, (2)
counsel, public accountants, or other persons as to matters that the director,
officer, employee, or agent believes to be within that person's professional or
expert competence, or (3) in the case of a director, a committee of the Board of
Directors upon which he does not serve, duly designated according to law, as to
matters within its designated authority, if the director reasonably believes
that the committee is competent. The foregoing right of indemnification or
reimbursement shall not be exclusive of other rights to which the person, his
heirs, or personal representatives may be entitled. The Corporation may, upon
the affirmative vote of a majority of its Board of Directors, purchase insurance
for the purpose of indemnifying these persons. The insurance may be for the
benefit of all directors, officers, or employees.
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ARTICLE 7
BOOKS AND RECORDS
SECTION 1. BOOKS AND RECORDS. The Corporation shall keep correct and
complete books and records of accounts and shall keep minutes of the proceedings
of its shareholders, Board of Directors and committees of directors. The
Corporation shall keep at its registered office or principal place of business,
or at the office of its transfer agent or registrar, a record of its
shareholders, giving the names and addresses of all shareholders, and the
number, class and series, if any, of the shares held by each. Any books, records
and minutes may be in written form or in any other form capable of being
converted into written form within a reasonable time.
SECTION 2. SHAREHOLDERS' INSPECTION RIGHTS. Any person who shall have
been a holder of record of shares or of voting trust certificates therefor at
least six months immediately preceding his demand or shall be the holder of
record of, or the holder of record of voting trust certificates for, at least
five percent of the outstanding shares of any class or series of the
Corporation, upon written demand stating the purpose thereof, shall have the
right to examine, in person or by agent or attorney, at any reasonable time or
times, for any proper purpose its relevant books and records of accounts,
minutes and records of shareholders and to make extracts therefrom.
SECTION 3. FINANCIAL INFORMATION. Not later than four months after the
close of each fiscal year, the Corporation shall prepare a balance sheet showing
in reasonable detail the financial condition of the Corporation as of the close
of its fiscal year, and a profit and loss statement showing the results of the
operations of the corporation during its fiscal year. Upon the written request
of any shareholder or holder of voting trust certificates for shares of the
Corporation, the Corporation shall mail to such shareholder or holder of voting
trust certificates a copy of the most recent annual balance sheet and profit and
loss statement. The balance sheets and profit and loss statements shall be filed
in the registered office of the Corporation in this state, shall be kept for as
long as the law requires and shall be subject to inspection during business
hours by any shareholder or holder of voting trust certificates, in person or by
agent.
ARTICLE 8
GENERAL PROVISIONS
SECTION 1. DIVIDENDS. The Board of Directors may from time to time
declare, and the Corporation may pay, dividends on its outstanding shares in
cash, property, or its own shares pursuant to law and subject to the provisions
of the Articles of Incorporation.
SECTION 2. RESERVES. The Board of Directors may by resolution create a
reserve or reserves out of earned surplus for any proper purpose or purposes,
and may abolish any such reserve in the same manner.
SECTION 3. CHECKS. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
SECTION 4. FISCAL YEAR. The fiscal year of the Corporation shall be
fixed by the Board of Directors and may be changed from time to time by
resolution of the Board of Directors.
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SECTION 5. SEAL. The corporate seal shall have inscribed thereon the
name and state of incorporation of the Corporation. The seal may be used by
causing it or a facsimile thereof to be impressed or affixed or in any other
manner reproduced.
SECTION 6. GENDER. All words used in these Bylaws in the masculine
gender shall extend to and shall include the feminine and neuter genders.
ARTICLE 9
AMENDMENTS OF BYLAWS
Unless otherwise provided by law, these Bylaws may be altered, amended
or repealed or new Bylaws may be adopted by action of the Board of Directors or
the shareholders, but the Board of Directors may not amend or repeal any by-law
adopted by shareholders if the shareholders specifically provide such by-law
shall not be subject to amendment or repeal by the directors.
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EXHIBIT 4.3
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE.
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND
MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL
ACCEPTABLE TO THE ISSUER IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE
EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND
ANY APPLICABLE STATE SECURITIES LAWS.
CORPORATE BUYING SERVICE INC.
Warrant for the Purchase of Shares of Common Stock
1.65 Shares
FOR VALUE RECEIVED, Corporate Buying Service Inc., a Florida
corporation (the "Company"), with its principal office at 3401 North Federal
Hwy. Suite 216, Boca Raton, Fl 33431, hereby certifies that Chatsworth
Securities LLC or its registered assigns (the "Holder") is entitled, subject to
the provisions of this Warrant, to purchase from the Company, at any time or
from time to time after the Permitted Exercise Date (as hereinafter defined) and
on or before 5:00 p.m., Eastern Standard Time, March 20, 2004 (the "Expiration
Date"), the number of fully paid and nonassessable shares of Common Stock, $.01
par value per share, of the Company ("Common Stock") set forth above. For
purposes of this Agreement, "Permitted Exercise Date" shall mean the earliest of
(a) the date on which the Company completes an Initial Public Offering, (b) the
date on which there is a Change in Control of the Company, or (c) March 20,
2003. For purposes of this Warrant, (a) a "Change in Control" shall mean (i) a
reorganization, merger, consolidation or other form of corporate transaction or
series of transactions, in each case, with respect to which persons who were the
shareholders of the Company immediately prior to such reorganization, merger or
consolidation or other transaction do not, immediately thereafter, own more than
fifty percent (50%) of the combined voting power entitled to vote generally in
the election of directors of the reorganized, merged or consolidated company's
then outstanding voting securities, (ii) a liquidation or dissolution of the
Company, (iii) the sale, lease, exchange or other disposition of all or
substantially all of the assets of the Company, or (iv) the acquisition by any
person, or any two or more persons acting as a group, and all affiliates of such
person or persons, who prior to such time owned less than fifty percent (50%) of
the combined voting power entitled to vote generally in the election of
directors, of additional voting power in one or more transactions, or series of
transactions, such that following such transaction or transactions, such person
or group and affiliates beneficially own fifty percent (50%) or more of the
combined voting power entitled to vote generally in the election of directors,
(b) a "person" shall mean any person, corporation, partnership, joint venture or
other entity or any group (as such term is defined for purposes of Section 13(d)
of the Exchange Act) and "beneficial ownership" shall be determined in
accordance with Rule 13d-3 under the Exchange Act, and (c) the
- 1 -
<PAGE> 2
Company shall be deemed to have completed an "Initial Public Offering" if there
is a closing of an underwritten public offering by the Company pursuant to a
registration statement filed and declared effective under the Securities Act of
1933, as amended, covering the offer and sale of the Company's Common Stock for
the account of the Company.
The Holder may purchase the above number of shares of Common Stock at a
purchase price per share (as appropriately adjusted pursuant to Section 6
hereof) of One Hundred Seventy-Five Thousand Dollars ($175,000) per share (the
"Exercise Price"). The number of shares of Common Stock to be received upon the
exercise of this Warrant and the price to be paid for a share of Common Stock
are subject to adjustment from time to time as hereinafter set forth. The shares
of Common Stock deliverable upon such exercise, as adjusted from time to time,
are hereinafter sometimes referred to as "Warrant Shares".
SECTION 1. EXERCISE OF WARRANT.
(a) This Warrant may be exercised in whole or in part on any business
day prior to the termination of the Warrant by presentation and surrender hereof
to the Company at its principal office at the address set forth in the initial
paragraph hereof (or at such other address as the Company may hereafter notify
the Holder in writing) with the Purchase Form annexed hereto duly executed and
accompanied by proper payment of the Exercise Price in lawful money of the
United States of America in the form of a certified or cashier's check for the
number of Warrant Shares specified in the Purchase Form. If this Warrant should
be exercised in part only, the Company shall, upon surrender of this Warrant,
execute and deliver a new Warrant evidencing the rights of the Holder thereof to
purchase the balance of the Warrant Shares purchasable hereunder. The Company
shall pay any and all documentary stamp or similar issue or transfer taxes
payable in respect of the issue or delivery of the Warrant Shares.
Notwithstanding anything to the contrary contained in this Warrant, in the event
that a Holder shall desire to exercise the Warrant in whole or in part prior to
the date on which the Company shall have completed an Initial Public Offering,
the Holder shall, as a condition precedent to such Holder's right to exercise
this Warrant, execute and deliver to the Company a copy of the Shareholders'
Agreement attached hereto as EXHIBIT A (the "Shareholders' Agreement").
(b) Notwithstanding the foregoing, upon exercise of all or any portion
of this Warrant in connection with the consummation by the Company of an Initial
Public Offering, in lieu of payment of the Exercise Price, the Holder may
instead elect to receive that number of shares of Common Stock of the Company
equal to the quotient obtained by dividing [(A-B)(C)] by A, where:
(A) = the Fair Market Value (as defined below) of one share of the
Company's common stock on the date of exercise of this Warrant;
(B) = the Exercise Price for one share of Common Stock under this
Warrant (as adjusted to the date of such calculation); and
- 2 -
<PAGE> 3
(C) = the number of shares of Common Stock issuable upon exercise of
this Warrant or, if only a portion of the Warrant is being exercised,
the portion of the Warrant being canceled (at the date of such
calculation).
If the above calculation results in a negative number, then no shares of Common
Stock shall be issued or issuable upon exercise of this Warrant. For purposes of
this calculation, "Fair Market Value" of a share of common stock of the Company
shall mean the price at which shares of the Company's Common Stock are offered
for sale to the public by the Company in its Initial Public Offering.
Upon exercise of this Warrant pursuant to this Section 1(b), the
registered holder hereof shall be entitled to receive a certificate for the
number of shares of Common Stock determined as aforesaid within a reasonable
time not to exceed 20 days after exercise of the stock purchase rights
represented by this Warrant. Notwithstanding anything to the contrary contained
herein, the Holder shall not be deemed to hold shares of Common Stock issuable
upon exercise of this Warrant until the Company shall have issued and delivered
to the Holder a Certificate representing such shares.
SECTION 2. RESERVATION OF SHARES. The Company hereby agrees that at all
times there shall be reserved for issuance and delivery upon exercise of this
Warrant all shares of its Common Stock or other shares of capital stock of the
Company from time to time issuable upon exercise of this Warrant. All such
shares shall be duly authorized and, when issued upon such exercise in
accordance with the terms of this Warrant, shall be validly issued, fully paid
and nonassessable, free and clear of all liens, security interests, charges and
other encumbrances or restrictions on sale (other than as provided in the
Company's articles of incorporation, any restrictions on sale set forth herein
or pursuant to applicable federal and state securities laws or the Shareholders'
Agreement) and free and clear of all preemptive rights.
SECTION 3. FRACTIONAL INTEREST. The Company will not issue a fractional
share of Common Stock upon exercise of a Warrant. Instead, the Company will
deliver its check for the Fair Market Value of such fraction of a share, rounded
to the nearest cent. For purposes of this paragraph, "Fair Market Value" of a
share of Common Stock of the Company shall mean:
(1) where there exists a public market for the Company's
common stock at the time of such exercise, the Fair Market
Value per share of common stock shall be the average of the
closing bid and asked prices of the common stock quoted in the
Over The Counter Market Summary or the last reported sale
price of the common stock or the closing sale price quoted on
the NASDAQ National Market System or on any exchange on which
the common stock is listed, whichever is applicable.
Notwithstanding the forgoing, in the event the Warrant is
exercised in connection with the Company's Initial Public
Offering, the Fair Market Value per share shall be the per
share offering price to the public of the Company's Initial
Public Offering; or
(2) in all other cases, the Fair Market Value per share as
determined in good faith by the Company's Board of Directors.
- 3 -
<PAGE> 4
SECTION 4. ASSIGNMENT OR LOSS OF WARRANT.
(1) Except as provided in Section 8, the Holder of this Warrant shall
not be entitled, without obtaining the consent of the Company, to assign its
interest in this Warrant in whole or in part to any person or persons; provided,
however, that this warrant may be assigned to affiliates, (including
distributions or transfers made to general or limited partners of a Holder) in
compliance with the provisions of Section 8. Subject to the provisions of
Section 8, and the obtaining of such consent of the Company, where required,
upon surrender of this Warrant to the Company or at the office of its stock
transfer agent or warrant agent, with the Assignment Form annexed hereto duly
executed and an agreement satisfactory to the Company of the assignee(s) to be
bound and abide by the terms hereof and funds sufficient to pay any documentary
stamp or similar issue or transfer taxes the Company shall, without charge,
execute and deliver a new Warrant or Warrants in the name of the assignee or
assignees named in such instrument of assignment and, if the Holders entire
interest is not being assigned, in the name of the Holder, and this Warrant
shall promptly be canceled.
(2) Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction or mutilation of this Warrant, and (in the case of loss,
theft or destruction of a bond or indemnification satisfactory to the Company),
and upon surrender and cancellation of this Warrant, if mutilated, the Company
shall execute and deliver a new Warrant of like tenor and date.
SECTION 5. RIGHTS OF THE HOLDER. The Holder shall not, by virtue
hereof, be entitled to any rights of a shareholder in the Company, either at law
or equity, and the rights of the Holder are limited to those expressed in this
Warrant. Nothing contained in this Warrant shall be construed as conferring upon
the Holder hereof the right to vote or to consent or to receive notice as a
shareholder of the Company on any matters or any rights whatsoever as a
shareholder of the Company. No dividends or interest shall be payable or accrued
in respect of this Warrant or the interest represented hereby or the Warrant
Shares purchasable hereunder until, and only to the extent that, this Warrant
shall have been exercised and the certificate representing the Warrant Shares
issued and delivered in accordance with its terms.
SECTION 6. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES. The
number and kind of securities purchasable upon the exercise of each Warrant and
the Exercise Price shall be subject to adjustment from time to time upon the
happening of certain events, as follows:
(1) ADJUSTMENT FOR CHANGE IN CAPITAL STOCK. If the Company:
(A) pays a dividend or makes a distribution in shares of
its common stock;
(B) subdivides its outstanding shares of common stock
into greater number of shares;
(C) combines its outstanding shares of common stock into
a smaller number of shares;
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<PAGE> 5
then the exercise right and the Exercise Price in effect immediately prior to
such action shall be adjusted so that the Holder may receive upon exercise of
the Warrants the number of shares of capital stock of the Company which the
Holder would have owned immediately following such action if the Holder had
exercised the Warrants immediately prior to such action.
The adjustment shall become effective immediately after the record date
in the case of a dividend or distribution and immediately after the effective
date in the case of a subdivision, combination or reclassification.
(2) NO ADJUSTMENT FOR OTHER ISSUANCES. Except as expressly set forth in
Section 6(1) above, there shall b no adjustment to the number or kind of
securities purchasable upon the exercise of each Warrant or the Exercise Price
thereof on account of any issuances of common stock or other securities of the
Company (including, without limitation, the issuance of options under any stock
option plans on the issuance of securities upon the exercise thereof).
(2) MINIMUM ADJUSTMENT. No adjustment in the Exercise Price of this
Section 6 shall be required unless such adjustment would require an increase or
decrease of at least one cent ($0.01) in such Exercise Price; PROVIDED, HOWEVER,
that any adjustments which by reason of this subsection are not required to be
made, shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this Section 6 shall be made to the nearest
cent or to the nearest share, as the case may be.
(4) NOTICE OF ADJUSTMENTS. Whenever the Exercise Price or number of
Warrant Shares issuable upon exercise hereof shall be adjusted pursuant to this
section, the Company shall issue a certificate signed by the secretary of the
Company setting forth, in reasonable detail, the event requiring the adjustment,
the amount of the adjustment, the method by which such adjustment was calculated
and the Exercise Price and number of Warrant Shares purchasable hereunder after
giving effect to such adjustment, and shall cause a copy of such certificate to
be mailed to the holder of this Warrant.
(5) DEFERRAL OF ISSUANCE OR PAYMENT. In any case in which an event
covered by this Section 6 shall require that an adjustment in the Exercise Price
be made effective as of a record date, the Company may elect to defer until the
occurrence of such event (i) issuing to the Holder, if this Warrant is exercised
after such record date, the shares of Common Stock and other capital stock of
the Company, if any, issuable upon such exercise over and above the shares of
Common Stock or other capital stock of the Company, if any, issuable upon such
exercise on the basis of the Exercise Price in effect prior to such adjustment,
and (ii) paying to the Holder by check any amount in lieu of the issuance of
fractional shares pursuant to Section 3.
(6) WHEN NO ADJUSTMENT REQUIRED. No adjustment need be made for a
change in the par value or no par value of the Common Stock.
- 5 -
<PAGE> 6
(7) NOTICE OF CERTAIN ACTIONS. In the event that:
a) the Company shall authorize the issuance to all holders of its
capital stock of rights, warrants, options or convertible
securities to subscribe for or purchase shares of its common
stock or of any other subscription rights, warrants, options
or convertible securities; or
b) the Company shall authorize the distribution to all holders of
its capital stock of evidences of its indebtedness or assets
(other than dividends paid in or distributions of the
Company's capital stock for which the Exercise Price shall
have been adjusted pursuant to subsection (a) of this Section
6 or regular cash dividends or distributions payable out of
earnings or earned surplus and made in the ordinary course of
business); or
c) the Company shall authorize any capital reorganization or
reclassification of its capital stock (other than a
subdivision or combination of the outstanding common stock and
other than a change in par value of its capital stock) or of
any consolidation or merger to which the Company is a party
and for which approval of any stockholders of the Company is
required (other than a consolidation or merger in which the
Company is the continuing corporation and that does not result
in any reclassification or change of the Common Stock issuable
upon the exercise of the Warrant), or of the conveyance or
transfer of the properties and assets of the Company as an
entirety or substantially as an entirety; or
d) the Company is the subject of a voluntary or involuntary
dissolution, liquidation or winding-up procedure;
e) the Company proposes to take any action (other than actions of
the character described in subsection (a) or (b) of this
Section 6) that would require an adjustment of the Exercise
Price pursuant to this Section 6; or
f) the Company has filed a registration statement relating to an
initial public offering of its securities;
then the Company shall cause to be mailed by first-class mail to the Holder, at
least ten (10) days prior to the applicable record or effective date hereinafter
specified, a notice stating (x) the date as of which the holders of capital
stock of record to be entitled to receive any such rights, warrants or
distributions are to be determined, or (y) the date on which any such
consolidation, merger, conveyance, transfer, dissolution, liquidation or
winding-up is expected to become effective, and the date as of which it is
expected that holders of capital stock of record shall be entitled to exchange
their shares of capital stock for securities or other property, if any,
deliverable upon such reorganization, reclassification, consolidation, merger,
conveyance, transfer, dissolution, liquidation or winding-up.
- 6 -
<PAGE> 7
(8) NO ADJUSTMENT UPON EXERCISE OF WARRANTS. No adjustments shall be
made under any Section herein in connection with the issuance of Warrant Shares
upon exercise of the Warrants.
SECTION 7. RECLASSIFICATION, REORGANIZATION CONSOLIDATION OR MERGER. In
the event of any reclassification, capital reorganization or other change of
outstanding shares of capital stock of the Company (other than a subdivision or
combination of the outstanding capital stock and other than a change in the par
value of its capital stock) or in the event of any consolidation or merger of
the Company with or into another corporation (other than a merger in which
merger the Company is the continuing corporation and that does not result in any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock issuable upon exercise of this Warrant), the Company shall, as a
condition precedent to such transaction, cause effective provisions to be made
so that the Holder shall have the right thereafter, by exercising this Warrant,
to purchase the kind and amount of shares of stock and other securities and
property (including cash) receivable upon such reclassification, capital
reorganization and other change, consolidation, merger, sale or conveyance by a
holder of the number of shares of Common Stock that might have been received
upon exercise of this Warrant immediately prior to such reclassification,
capital reorganization, change, consolidation, merger, sale or conveyance. Any
such provision shall include provisions for adjustments in respect of such
shares of stock and other securities and property that shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Warrant. The foregoing provisions of this Section 7 shall similarly apply to
successive reclassifications, capital reorganizations and changes of shares of
Common Stock and to successive consolidations, mergers, sales or conveyances. In
the event that in connection with any such capital reorganization, or
reclassification, consolidation, merger, sale or conveyance, additional shares
of Common Stock shall be issued in exchange, conversion, substitution or
payment, in whole or in part, for, or of, a security of the Company other than
Common Stock, any such issue shall be treated as an issue of Common Stock
covered by the provisions of subsection (a) of Section 6.
SECTION 8. TRANSFER TO COMPLY WITH THE SECURITIES ACT OF 1933.
This Warrant may not be exercised and neither this Warrant nor any of
the Warrant Shares, nor any interest in either, may be sold, assigned, pledged,
hypothecated, encumbered or in any other manner transferred or disposed of, in
whole or in part, except in compliance with applicable United States federal and
state securities or blue sky laws and the terms and conditions hereof. Each
Warrant shall bear a legend in substantially the same form as the legend set
forth on the first page of this Warrant. Each certificate for Warrant Shares
issued upon exercise of this Warrant, unless at the time of exercise such
Warrant Shares are acquired pursuant to a registration statement that has been
declared effective under the Act, shall bear a legend substantially in the
following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES
LAWS OF ANY STATE. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT
AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS,
- 7 -
<PAGE> 8
PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THE ISSUER OF THESE
SECURITIES MAY REQUIRE AN OPINION OF COUNSEL ACCEPTABLE TO THE ISSUER
IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY
PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY
APPLICABLE STATE SECURITIES LAWS.
Any certificate for any Warrant Shares issued at any time in exchange or
substitution for any certificate for any Warrant Shares bearing such legend
(except a new certificate for any Warrant Shares issued after the acquisition of
such Warrant Shares pursuant to a registration statement that has been declared
effective under the Act) shall also bear such legend unless, in the opinion of
counsel for the Company, the Warrant Shares represented thereby need no longer
be subject to the restriction contained herein. The provision of this Section 8
shall be binding upon all subsequent holders of certificates for Warrant Shares
bearing the above legend and all subsequent holders of this Warrant, if any.
SECTION 9. MODIFICATION AND WAIVER. This Warrant and any term hereof
may be changed, waived, discharged or terminated by an instrument in writing
signed by the Company and the Holder.
SECTION 10. RIGHTS AND OBLIGATIONS SURVIVE EXERCISE OF WARRANT. The
rights and obligations of the Company, the Holder and the holder of shares of
Common Stock issued upon exercise of this Warrant referred to in Sections 10
shall survive the exercise of this Warrant.
SECTION 11. NOTICES. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed effectively given
upon personal delivery, on the first business day following mailing by overnight
courier, or on the fifth day following mailing by registered or certified mail,
return receipt requested, postage prepaid, addressed to the Company and the
Holder at its address as shown on the books of the Company or to the Company at
the address indicated therefor in the first paragraph of this Warrant.
SECTION 12. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The description
headings of the several sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. This Warrant
shall be construed and enforced in accordance with, and the rights of the
parties shall be governed by, the laws of the State of Florida.
SECTION 13. ARBITRATION. Each Holder and the Company agrees to
arbitrate all disputes, controversies or differences that may arise between them
with respect to any provision of this Warrant. Either party may give notice to
the other of its decision to arbitrate the dispute, and such notice shall
specify the issue or issues to be arbitrated. Each party shall select one
arbitrator, and the two arbitrators thereby selected shall select a third
arbitrator. The arbitration shall take place in Palm Beach County, Florida or
such other place as the parties shall agree, under the then-current Commercial
Arbitration Rules of the American Arbitration Association. The decision of a
majority of the three arbitrators, including any assessment of the cost of
arbitration, will be final and binding
- 8 -
<PAGE> 9
on the parties. The arbitrators will only have the authority to award actual
direct damages, and will not have the authority to award consequential or
punitive damages. Judgement upon the decision made by the arbitrators may be
entered in any court of competent jurisdiction.
SECTION 14. LOCK-UP OF WARRANT SHARES. During the period commencing on
the date hereof and ending one hundred eighty (180) days after the date of the
final prospectus relating to the Initial Public Offering and any subsequent
public offering of the Company's securities (or such longer period as may be
required by the lead underwriter in connection with such Initial Public Offering
or such subsequent public offering), each Holder agrees not to (i) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, or otherwise transfer or dispose of, directly or indirectly, this
Warrant or any Warrant Shares, or (ii) enter into any swap or other arrangement
that transfers all or a portion of the economic consequences associated with the
ownership of this Warrant or any Warrant Shares, without the prior written
consent of the Company's Board of Directors.
SECTION 15. DRAG ALONG SALE. In the event that the Company shall enter
into a transaction with an Independent Third Party or group of Independent Third
Parties pursuant to which such party or parties will acquire (i) capital stock
of the Company possessing the voting power under normal circumstances to elect a
majority of the Board of Directors of the Corporation (whether by merger,
consolidation or sale or transfer of the capital stock of the Company), or (ii)
all or substantially all of the Company's assets determined on a consolidated
basis and the Holder shall not at such time have exercised all or any portion of
this Warrant, the Company may, at its election, by delivery of notice to the
Holder, elect to purchase the Warrant by delivering to the Holder such
securities and property (including cash) which such Holder would have been
entitled to receive had such Holder exercised this Warrant immediately prior to
such transaction, LESS the portion of such securities and other property having
a fair market value equal to the aggregate exercise price which would have been
payable by such Holder upon exercise of the Warrant, as determined in good faith
by the Company's Board of Directors. In connection therewith, the Holder shall
take such actions and execute such documents as shall be deemed necessary or
advisable by the Board of Directors of the Company in connection with the
consummation of such transaction. For purposes of this Section, "Independent
Third Party" means any person who, immediately prior to the contemplated
transaction, does not own in excess of five percent (5%) of the Common Stock of
the Company on a fully-diluted basis (a "5% Owner)", who is not controlling,
controlled by or under common control with any such 5% Owner and who is not the
spouse or descendent (by birth or adoption) of any such 5% Owner or a trust for
the benefit of such 5% Owner and/or such other persons, a corporation owned
solely by such 5% Owner and/or such other persons or a partnership whose
partners include only such 5% Owner and/or such other persons.
- 9 -
<PAGE> 10
IN WITNESS WHEREOF, the Company has duly caused this Warrant to be
executed by its duly authorized officer and to be dated as of March 20, 1999.
CORPORATE BUYING SERVICE INC.
By: /s/ RUSSELL MADRIS
----------------------------
Russell Madris
President
AGREED AND ACCEPTED
CHATSWORTH SECURITIES LLC
By: /s/ Albert P. Vasquez
-------------------------------
Albert P. Vasquez
Managing Director
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<PAGE> 11
PURCHASE FORM
Dated ______________, _____
The undersigned hereby irrevocably elects to exercise the within Warrant to
purchase shares of common stock and hereby makes payment of ________ in payment
of the exercise price therefor.
- ------------------------------
(Signature)
<PAGE> 12
ASSIGNMENT FORM
Dated _______________, ____
FOR VALUE RECEIVED, ______________________ hereby sells, assigns, and transfers
unto _____________________________________________(the "Assignee"),
(please type or print in block letters)
- ------------------------------------------------------------------------------
(insert address)
its right to purchase up to ____________ shares of Common Stock represented by
this Warrant and does hereby irrevocably constitute and appoint
___________________ as its attorney-in-fact, to transfer the same on the books
of the Company, with full power of substitution in the premises.
- ----------------------------------
(Signature)
<PAGE> 1
EXHIBIT 10.1
- ------------------------------------------------------------------------------
LOAN AND SECURITY AGREEMENT
BETWEEN
MOREDIRECT.COM, INC.
AND
SUNTRUST BANK
CLOSING DATE: March 27, 2000
- ------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
1. DEFINITIONS, TERMS AND REFERENCES...........................................................................1
1.1. CERTAIN DEFINITIONS......................................................................................1
1.1. CERTAIN DEFINITIONS TC...................................................................................1
1.2. USE OF DEFINED TERMS....................................................................................11
1.3. ACCOUNTING TERMS........................................................................................11
1.4. UCC TERMS...............................................................................................11
2. THE FINANCING..............................................................................................11
2.1. EXTENSIONS OF CREDIT....................................................................................11
2.2. INTEREST AND OTHER CHARGES..............................................................................12
2.3. GENERAL PROVISIONS AS TO PAYMENTS.......................................................................17
3. SECURITY INTEREST..........................................................................................17
4. REPRESENTATIONS, WARRANTIES AND COVENANTS APPLICABLE TO ACCOUNTS RECEIVABLE COLLATERAL.....................17
4.1. BONA FIDE ACCOUNTS......................................................................................18
4.2. GOOD TITLE..............................................................................................18
4.3. RIGHT TO ASSIGN.........................................................................................18
4.4. LOCKBOXES AND BLOCKED ACCOUNT...........................................................................18
4.5. DIRECT NOTIFICATION.....................................................................................18
4.6. TRADE STYLES............................................................................................18
4.7. LIMITED POWER OF ATTORNEY...............................................................................19
5. REPRESENTATIONS, WARRANTIES AND COVENANTS APPLICABLE TO INVENTORY COLLATERAL...............................19
5.1. SALE OF INVENTORY COLLATERAL............................................................................19
5.2. INSURANCE...............................................................................................19
5.3. GOOD TITLE..............................................................................................20
5.4. RIGHT TO GRANT SECURITY INTEREST........................................................................20
5.5. LOCATION OF INVENTORY COLLATERAL........................................................................20
6. REPRESENTATIONS, WARRANTIES AND COVENANTS APPLICABLE TO EQUIPMENT COLLATERAL...............................20
6.1. SALE OF EQUIPMENT COLLATERAL............................................................................20
6.2. INSURANCE...............................................................................................20
6.3. GOOD TITLE..............................................................................................20
6.4. RIGHT TO GRANT SECURITY INTEREST........................................................................21
6.5. LOCATION................................................................................................21
7. REPRESENTATIONS, WARRANTIES AND COVENANTS APPLICABLE TO BALANCES COLLATERAL................................21
7.1. OWNERSHIP...............................................................................................21
7.2. REMEDIES................................................................................................21
7.3. LIENS...................................................................................................21
8. REPRESENTATIONS, WARRANTIES AND COVENANTS APPLICABLE TO INTANGIBLES COLLATERAL.............................21
8.1. OWNERSHIP...............................................................................................21
8.2. LIENS...................................................................................................21
8.3. PRESERVATION............................................................................................22
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C> <C>
9. GENERAL REPRESENTATIONS AND WARRANTIES.....................................................................22
9.1. EXISTENCE AND QUALIFICATION.............................................................................22
9.2. AUTHORITY AND VALIDITY AND BINDING EFFECT...............................................................22
9.3. INCUMBENCY AND AUTHORITY OF SIGNING OFFICERS............................................................22
9.4. NO MATERIAL LITIGATION..................................................................................22
9.5. TAXES...................................................................................................23
9.6. CAPITAL.................................................................................................23
9.7. ORGANIZATION............................................................................................23
9.8. INSOLVENCY..............................................................................................23
9.9. TITLE...................................................................................................23
9.10. MARGIN STOCK..........................................................................................23
9.11. NO VIOLATIONS.........................................................................................23
9.12. FINANCIAL STATEMENTS..................................................................................24
9.13. PURCHASE OF COLLATERAL................................................................................24
9.14. POLLUTION AND ENVIRONMENTAL CONTROL...................................................................24
9.15. POSSESSION OF PERMITS.................................................................................24
9.16. SUBSIDIARIES..........................................................................................24
9.17. FEDERAL TAXPAYER IDENTIFICATION NUMBER................................................................24
9.18. EMPLOYEE BENEFIT PLANS................................................................................25
9.19. ADA...................................................................................................25
9.20. YEAR 2000 COMPATIBILITY...................................................................................25
10. AFFIRMATIVE COVENANTS......................................................................................25
10.1. RECORDS RESPECTING COLLATERAL.........................................................................25
10.2. FURTHER ASSURANCES....................................................................................25
10.3. RIGHT TO INSPECT AND CONDUCT AUDITS...................................................................25
10.4. COLLATERAL REPORTS....................................................................................26
10.5. BORROWING BASE CERTIFICATE............................................................................26
10.6. PERIODIC FINANCIAL STATEMENTS.........................................................................26
10.7. ANNUAL FINANCIAL STATEMENTS...........................................................................26
10.8. OPERATING PLAN........................................................................................27
10.9. PAYMENT OF TAXES......................................................................................27
10.10. MAINTENANCE OF INSURANCE..............................................................................27
10.11. MAINTENANCE OF PROPERTY...............................................................................28
10.12. COMPLIANCE CERTIFICATE................................................................................28
10.13. CHANGE OF PRINCIPAL PLACE OF BUSINESS, ETC............................................................28
10.14. WAIVERS...............................................................................................28
10.15. PRESERVATION OF EXISTENCE.............................................................................28
10.16. COMPLIANCE WITH LAWS..................................................................................28
10.17. CERTAIN REQUIRED NOTICES..............................................................................29
10.18. OPERATING ACCOUNTS....................................................................................29
10.19. KEY MAN LIFE INSURANCE POLICY.........................................................................29
11. NEGATIVE COVENANTS.........................................................................................29
11.1. ENCUMBRANCES..........................................................................................29
11.2. DEBT..................................................................................................29
11.3. CONTINGENT LIABILITIES................................................................................29
11.4. DISTRIBUTIONS.........................................................................................29
11.5. REDEMPTION............................................................................................30
11.6. INVESTMENTS...........................................................................................30
11.7. MERGERS...............................................................................................30
11.8. BUSINESS LOCATIONS....................................................................................31
11.9. AFFILIATE TRANSACTIONS................................................................................31
11.10. SUBSIDIARIES..........................................................................................31
</TABLE>
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11.11. FISCAL YEAR...........................................................................................31
11.12. DISPOSITION OF ASSETS.................................................................................31
11.13. FEDERAL TAXPAYER IDENTIFICATION NUMBER................................................................31
11.14. EMPLOYEE BENEFIT PLANS................................................................................31
12. FINANCIAL COVENANTS........................................................................................31
12.1. DEBT/WORTH RATIO......................................................................................31
12.2. CAPITAL EXPENDITURES..................................................................................32
12.3. FIXED CHARGE COVERAGE RATIO...........................................................................32
12.4. TANGIBLE NET WORTH....................................................................................32
13. EVENTS OF DEFAULT..........................................................................................32
13.1. OBLIGATIONS...........................................................................................32
13.2. MISREPRESENTATIONS....................................................................................32
13.3. CERTAIN COVENANTS.....................................................................................32
13.4. OTHER COVENANTS.......................................................................................32
13.5. OTHER DEBTS...........................................................................................33
13.6. VOLUNTARY BANKRUPTCY..................................................................................33
13.7. INVOLUNTARY BANKRUPTCY................................................................................33
13.8. DAMAGE, LOSS, THEFT OR DESTRUCTION OF COLLATERAL......................................................33
13.9. JUDGMENTS.............................................................................................33
13.10. DISAVOWAL OF CERTAIN OBLIGATIONS......................................................................34
13.11. MATERIAL ADVERSE CHANGE...............................................................................34
13.12. CHANGE OF CONTROL, ETC................................................................................34
13.13. CHANGE IN MANAGEMENT, ETC.............................................................................34
14. REMEDIES...................................................................................................34
14.1. ACCELERATION OF THE OBLIGATIONS.......................................................................34
14.2. DEFAULT...............................................................................................35
14.3. REMEDIES OF A SECURED PARTY...........................................................................35
14.4. REPOSSESSION OF THE COLLATERAL........................................................................35
14.5. OTHER REMEDIES........................................................................................35
14.6. SET OFF...............................................................................................35
15. MISCELLANEOUS..............................................................................................35
15.1. WAIVER................................................................................................35
15.2. GOVERNING LAW.........................................................................................36
15.3. SURVIVAL..............................................................................................36
15.4. ASSIGNMENTS...........................................................................................36
15.5. COUNTERPARTS..........................................................................................36
15.6. REIMBURSEMENT.........................................................................................36
15.7. SUCCESSORS AND ASSIGNS................................................................................37
15.8. SEVERABILITY..........................................................................................37
15.9. NOTICES...............................................................................................37
15.10. ENTIRE AGREEMENT: AMENDMENTS..........................................................................37
15.11. TIME OF ESSENCE.......................................................................................37
15.12. INTERPRETATION........................................................................................37
15.13. THE BANK NOT A JOINT VENTURER.........................................................................37
15.14. JURISDICTION..........................................................................................38
15.15. ACCEPTANCE............................................................................................38
15.16. PAYMENT ON NON-BUSINESS DAYS..........................................................................38
15.17. CURE OF DEFAULTS BY THE BANK..........................................................................38
15.18. RECITALS..............................................................................................38
15.19. ATTORNEY-IN-FACT......................................................................................38
15.20. SOLE BENEFIT..........................................................................................39
15.21. INDEMNIFICATION.......................................................................................39
15.22. JURY TRIAL WAIVER.....................................................................................39
</TABLE>
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15.23. TERMINOLOGY...........................................................................................39
15.24. EXHIBITS..............................................................................................40
15.25. CONFIDENTIALITY.......................................................................................40
16. CONDITIONS PRECEDENT.......................................................................................40
16.1. SECRETARY'S CERTIFICATE...............................................................................40
16.2. GOOD STANDING CERTIFICATES............................................................................41
16.3. LOAN DOCUMENTS........................................................................................41
16.4. INSURANCE.............................................................................................41
16.5. FINANCING STATEMENTS..................................................................................41
16.6. OPINION OF COUNSEL....................................................................................41
16.7. KEY MAN LIFE INSURANCE POLICY.........................................................................41
16.8. NO DEFAULT............................................................................................41
16.9. TELEPHONE INSTRUCTION LETTER..........................................................................41
16.10. DISBURSEMENTS LETTER..................................................................................41
16.11. BORROWING BASE CERTIFICATE............................................................................41
16.12. NO MATERIAL ADVERSE CHANGE............................................................................41
16.12. NO MATERIAL ADVERSE CHANGE TC.........................................................................42
16.13. OTHER.................................................................................................42
</TABLE>
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<PAGE> 6
LOAN AND SECURITY AGREEMENT
PREAMBLE. THIS AGREEMENT, made, entered into and effective as of March 27, 2000,
by and between MOREDIRECT.COM, INC., a Florida corporation (the "COMPANY"); and
SUNTRUST BANK, a Georgia banking corporation (the "BANK").
W I T N E S S E T H :
WHEREAS, the Company has applied to the Bank for certain financing, as
more particularly described hereinbelow, consisting of a $15,000,000 line of
credit; and
WHEREAS, the Bank is willing to extend such financing to the Company in
accordance with the terms hereof upon the execution of this Agreement by the
Company, compliance by the Company with all of the terms and provisions of this
Agreement and fulfillment of all conditions precedent to the Bank's obligations
herein contained;
NOW, THEREFORE, to induce the Bank to extend the financing provided for
herein, and for other good and valuable consideration, the sufficiency and
receipt of all of which are acknowledged by the Company, the Bank agrees with
the Company as follows:
1. DEFINITIONS, TERMS AND REFERENCES.
1.1. CERTAIN DEFINITIONS. In addition to such other terms as elsewhere
defined herein, as used in this Agreement and in any Exhibit or Schedule
attached hereto, the following terms shall have the following meanings:
"ACCOUNTS RECEIVABLE COLLATERAL" shall mean and include all accounts,
accounts receivable, contract rights, instruments, chattel paper and general
intangibles in the nature of payment obligations owing to the Company,
including, without limitation, all rights of the Company to payment for goods
sold or leased, or to be sold or to be leased, or for services rendered or to be
rendered, howsoever evidenced or incurred, together with all returned or
repossessed goods and all books, records, computer tapes, programs and ledger
books arising therefrom or relating thereto, all whether now owned or hereafter
acquired and howsoever arising.
"ACCOUNT DEBTOR" shall mean any Person who is obligated on any of the
Accounts Receivable Collateral or otherwise is obligated as a purchaser or
lessee of any of the Inventory Collateral.
"ADA" shall mean The Americans with Disabilities Act of 1990, as in
effect from time to time, and all rules and regulations promulgated thereunder.
"ADVANCE" shall mean an advance of borrowed funds made by the Bank to
or on behalf of the Company pursuant to this Agreement.
<PAGE> 7
"AFFILIATE" shall mean (i) with respect to the Company specifically,
the Principal or any Subsidiary of the Company; and (ii) generally, with respect
to any Person (including the Company), any Person Controlling, Controlled by or
under common Control with such Person.
"AGREEMENT" shall mean this Loan and Security Agreement, as it may be
modified, amended or supplemented from time to time; together with any and all
Schedules or Exhibits attached hereto.
"ASSIGNMENT OF CLAIMS ACT" shall mean the federal Assignment of Claims
Act of 1940, as it may be amended from time to time; together with all
regulations promulgated from time to time in respect thereof.
"APPLICABLE INDEX RATE" shall mean either the LIBOR Rate or the Base
Rate, as determined pursuant to Section 2.2.1(a); PROVIDED, HOWEVER, that,
pursuant to Section 2.2.1(d), the "Applicable Index Rate" may be limited to the
Base Rate under certain circumstances.
"APPLICABLE MARGIN" (a) with respect to Base Rate Borrowings, to the
extent required to be made pursuant to Section 2.2.1(d), shall mean zero (0),
and (b) with respect to LIBOR Borrowings, shall mean, initially, one and
one-fourth of one percent ( 1 1/4 %) per annum, subject to adjustment as
provided in Section 2.2.1(c) hereof.
"APPLICABLE RATE" shall mean the interest rate per annum payable on the
Advances, as is defined and more particularly described in Section 2.2.1.
"BALANCES COLLATERAL" shall mean all property of the Company left with
the Bank or in the Bank's possession, custody or control now or hereafter, all
deposit accounts of the Company now or hereafter opened with the Bank, all
certificates of deposit now or hereafter issued by the Bank to the Company, and
all drafts, checks and other items deposited in or with the Bank by the Company
for collection now or hereafter.
"BANK" shall have the meaning given to such term in the preamble to
this Agreement.
"BANKRUPTCY CODE" shall mean Title 11 of the United States Code, as it
may be amended from time to time.
"BASE BORROWINGS" shall mean those Borrowings which bear interest at a
rate per annum determined by reference to the Base Rate plus any Applicable
Margin.
"BASE RATE" refers to that interest rate announced by the Bank from
time to time as its prime lending rate. The Base Rate is but one of several
interest rate bases used by the Bank. The Bank extends credit at interest rates
equal to, above and below the Base Rate.
"BLOCKED ACCOUNT" shall mean an account established by the Company with
a bank satisfactory to the Bank, for the concentration and collection of
proceeds of certain Collateral, subject to a blocked account or similar
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<PAGE> 8
agreement among the Company, such bank and the Bank, in form and substance
satisfactory to the Bank.
"BORROWING AVAILABILITY" shall mean (a) the LESSER of (i) the Margin
and (ii) the maximum amount of the Commitment, MINUS (b) the sum of all
outstanding Advances and Letter of Credit Obligations
"BORROWING BASE CERTIFICATE" shall mean a certificate submitted by the
Company to the Bank demonstrating compliance with the Margin Requirement, to be
substantially in the form of EXHIBIT "F" attached hereto (unless otherwise
required or approved by the Bank).
"BORROWINGS" shall mean Advances of borrowed funds made hereunder to or
on behalf of the Company pursuant to this Agreement.
"BUSINESS DAY" shall mean a day on which the Bank is open for the
conduct of banking business at its principal office in Atlanta, Georgia;
PROVIDED, HOWEVER, that, for purposes of determining the timing of requests for,
and establishing the Applicable Rate on, LIBOR Borrowings, "BUSINESS DAY" shall
mean, additionally, any day on which dealings in United States Dollar deposits
are also being carried out by the Bank in the London interbank eurodollar
market.
"CAPITAL EXPENDITURES" shall mean all expenditures made in respect of
the cost of any fixed asset or improvement, or replacement, substitution, or
addition thereto, having a useful life of more than one (1) year.
"CAPITAL LEASES" shall mean any leases of property that, in accordance
with GAAP, should be reflected as liabilities on the balance sheet of a Person.
"CLOSING DATE" shall mean the date set forth on the cover page as the
"Closing Date."
"CODE" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the regulations promulgated and the rulings issued thereunder.
"COLLATERAL" shall mean the property, or interests in property, of the
Company described as such in Article 3 plus any other property, or interests in
property, of the Company in which the Bank has, or hereafter obtains or claims,
a Lien as security for the payment of the Obligations.
"COLLATERAL LOCATIONS" shall mean the Executive Office and those
additional locations, if any, set forth and described on the Company Information
Schedule.
"COLLECTIONS ACCOUNT" shall mean an account established by the Company
with the Bank to which funds in the Blocked Account shall be transferred on each
Business Day in accordance with the terms of the blocked account agreement
applicable to the Blocked Account.
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<PAGE> 9
"COMPLIANCE CERTIFICATE" shall mean a certificate to be signed by a
duly authorized officer of the Company pursuant to Section 10.12 in
substantially the form of EXHIBIT "B" attached hereto (unless otherwise required
or approved by the Bank).
"COMMITMENT" shall mean the maximum amount which is available for
borrowing under the Line of Credit (considered without regard to the Margin).
"COMPANY" shall have the meaning given to such term in the preamble to
this Agreement.
"COMPANY INFORMATION SCHEDULE" shall mean an information schedule, to
be completed by the Company, in substantially the form of EXHIBIT "A" attached
hereto.
"CONSOLIDATED SUBSIDIARIES" shall mean those Subsidiaries of the
Company (if any) existing from time to time which, for purposes of GAAP, are
required to be consolidated for financial reporting purposes.
"CONTROL," "CONTROLLED" or "CONTROLLING" shall mean, with respect to
any Person, the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities or
otherwise; PROVIDED, HOWEVER, that, in any event, any Person which owns directly
or indirectly ten percent (10%) or more of the securities having ordinary voting
power for the election of directors or other governing body of an entity shall
be deemed to "Control" such entity for purposes of this Agreement.
"DEBT" means all liabilities, obligations and indebtedness of a Person,
of any kind or nature, whether now or hereafter owing, arising, due or payable,
howsoever evidenced, created, incurred, acquired or owing, which would appear as
liabilities on a balance sheet of such person prepared in accordance with GAAP,
including, without in any way limiting the generality of the foregoing: (i) all
indebtedness for borrowed money, (ii) all accounts payable, (iii) all
obligations, liabilities and indebtedness secured by any Lien on a Person's
Property, even though such Person shall not have assumed or become liable for
the payment thereof; (iv) all obligations or liabilities created or arising
under any Capital Lease, conditional sale or other title retention agreement;
(v) all accrued pension fund and other employee benefit plan obligations and
liabilities; (vi) all Guaranteed Obligations; (vii) any liabilities under, or
associated with, interest rate protection agreements; and (viii) any deferred
taxes.
"DEBT/WORTH RATIO" shall mean, as of any determination date, the ratio
of (a) total Debt of the Company and its Consolidated Subsidiaries to (b)
Tangible Net Worth of the Company and its Consolidated Subsidiaries.
"DEFAULT CONDITION" shall mean the occurrence of any event which, after
satisfaction of any requirement for the giving of notice or the lapse of time,
or both, would become an Event of Default.
"DEFAULT RATE" shall mean that interest rate per annum equal to two
percent (2%) per annum in excess of the Base Rate.
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<PAGE> 10
"DOLLARS" or "$" shall mean United States Dollars.
"EBITDA" shall mean net income for the period in question before
provision for interest expense, income tax expense (or tax distributions in lieu
thereof), depreciation and amortization and any non-cash stock option or warrant
charges, all determined for the Company and its Consolidated Subsidiaries in
accordance with GAAP.
"ELIGIBLE ACCOUNTS" shall mean that portion of the Company's Accounts
Receivable Collateral consisting of trade accounts receivable actually billed
to, and owing to the Company by, its Account Debtors in the ordinary course of
its business, EXCLUDING, HOWEVER, in any event, any such account: (i) with
respect to which any portion thereof is EITHER (A) more than ninety (90) days
past invoice date or (B) more than sixty (60) days past due date; (ii) which is
owing by any Affiliate of the Company; (iii) which is owing by any Account
Debtor having fifty percent (50%) or more in face value of its then existing
accounts with the Company ineligible hereunder pursuant to the operation and
effect of clause (i) above; (iv) which arises from any contract on which the
Company's performance is assured by a performance, completion or other bond; (v)
constituting retainage which has been withheld from the Company pending contract
completion, to the extent thereof; (vi) constituting a service, warranty or
similar charge, to the extent thereof; (vii) which is evidenced by a promissory
note, other instrument or chattel paper; (viii) which represents an accord and
satisfaction in respect of any prior account receivable; (ix) the assignment of
which is subject to any requirements set forth in the Assignment of Claims Act
(unless and except to the extent that the Company has complied therewith to the
Bank's satisfaction); (x) which does not conform in any respect to the
warranties and representations set forth in the Loan Documents in respect of
Accounts Receivable Collateral; (xi) which is owing by any Account Debtor (other
than Morgan Stanley/Dean Witter or Credit Suisse/First Boston) whose accounts in
face amount with the Company exceed twenty-five percent (25%) of the Company's
Eligible Accounts, but only to the extent of such excess; (xii) which is owing
by Morgan Stanley/Dean Witter or Credit Suisse/First Boston, if the accounts in
face amount of either such Account Debtor exceed thirty-five percent (35%) of
the Company's Eligible Accounts, but only to the extent of such excess; (xiii)
which is owing by, billed to or paid by any Account Debtor not located in the
United States of America; (xiv) as to which a duly perfected, first priority
security interest does not exist at any time in favor of the Bank; (xv) as to
which any counterclaim, defense, setoff, deduction or contra-account exists, to
the extent thereof; or (xvi) with respect to which the Bank determines, in its
good faith discretion, that the collection of such account is insecure, or that
payment thereof is doubtful or will be delayed by reason of the applicable
Account Debtor's financial condition or that the prospect of payment or
performance by such Account Debtor is or will be impaired.
"EMPLOYEE BENEFIT PLAN" shall mean any "employee welfare benefit plan",
as that term is defined in Section 3(1) of ERISA, any "employee pension benefit
plan", as that term is defined in Section 3(2) of ERISA, or any other plan which
is subject to the provisions of Title IV of ERISA which is for the benefit of
any employees of the Company and any employees of any Subsidiary or any other
entity which is a member of a "controlled group" or under "common control" with
the Company, as such terms are defined in Section 4001(a)(14) of ERISA.
-5-
<PAGE> 11
"ENVIRONMENTAL LAWS" shall mean all federal, state and local laws,
rules, regulations, ordinances, programs, permits, guidances, orders and consent
decrees relating to health, safety and environmental matters, whether now or
hereafter existing, including, but not limited to state and federal superlien
and environmental cleanup laws and U.S. Department of Transportation regulations
and any other state or local law or regulation relating to pollution,
reclamation, or protection of the environment, including laws relating to
emissions, discharges, releases or threatened releases of pollutants,
contaminants, or hazardous or toxic materials or wastes into air, water, or
land, or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of pollutants, contaminants
or hazardous or toxic materials or wastes.
"EQUIPMENT COLLATERAL" shall mean all equipment and fixtures of the
Company, whether now owned or hereafter acquired, wherever located, including,
without limitation, all machinery, furniture, furnishings, leasehold
improvements, computer hardware and motor vehicles used or useful in the
Company's business operations.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as may be amended from time to time.
"EVENT OF DEFAULT" shall mean any of the events or conditions described
in Article 13, provided that any requirement for the giving of notice or the
lapse of time, or both, has been satisfied.
"EXECUTIVE OFFICE" shall mean the address of the Company's chief
executive office and principal place of business, as designated on the Company
Information Schedule, as such Executive Office may be changed to the New
Facility or otherwise as permitted pursuant to Section 11.8 hereof.
"FISCAL YEAR", in respect of a Person, shall mean the fiscal year of
such Person, as employed by such Person as of the Closing Date, and designated
as such on the Company Information Schedule, as to the Company. The terms
"FISCAL QUARTER" and "FISCAL MONTH" shall correspond accordingly thereto.
"FIXED CHARGE COVERAGE RATIO" shall mean, the ratio of (i) EBITDA for
the applicable period LESS Capital Expenditures which are not financed hereunder
and distributions (including, without limitation, Permissible Tax Distributions)
made during such period to (ii) the sum of interest expense for such period PLUS
scheduled principal payments made on all funded Debt during such period, all
determined for the Company and its Consolidated Subsidiaries in accordance with
GAAP.
"GAAP" shall mean generally accepted accounting principles consistently
applied for the fiscal period(s) in question.
"GUARANTEED OBLIGATIONS" shall mean, with respect to any Person, all
obligations of such Person which in any manner directly or indirectly guarantee
or assure, or in effect guarantee or assure, the payment or performance of any
indebtedness, dividend or other obligation of any other Person or to assure or
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<PAGE> 12
in effect assure the holder of any such obligations against loss in respect
thereof.
"GUARANTOR" shall mean, individually and collectively, any and all
accommodation makers, endorsers, guarantors or sureties from whom the Bank may
require, either on or after the Closing Date, the endorsement of any Note or the
execution of any contract of guaranty or suretyship guaranteeing payment of any
of the Obligations. As of the Closing Date, there are no Guarantors.
"GUARANTY" shall mean any agreement or other writing executed by a
Guarantor guaranteeing payment of any of the Obligations. Each Guaranty shall be
substantially in the form of EXHIBIT "C" attached hereto, unless otherwise
accepted and approved by the Bank.
"INTANGIBLES COLLATERAL" shall mean all general intangibles of the
Company, whether now existing or hereafter acquired or arising, including,
without limitation, all copyrights, royalties, tax refunds, rights to tax
refunds, trademarks, trade names, service marks, patent and proprietary rights,
blueprints, drawings, designs, trade secrets, plans, diagrams, schematics and
assembly and display materials relating thereto, all customer lists, all books
and records, all computer software and programs, and all rights of the Company
as purchaser, lessee, licensee or indemnitee under any contract.
"INTEREST RATE DETERMINATION DATE" shall mean, in respect of LIBOR
Borrowings, initially, the date of the funding of the initial Advance hereunder,
and, thereafter, the first day of each calendar month; PROVIDED, HOWEVER, that
if such day is not a Business Day, the Interest Rate Determination Date shall be
the first preceding Business Day.
"INVENTORY COLLATERAL" shall mean all inventory of the Company, whether
now owned or hereafter acquired, wherever located, including, without
limitation, all goods of the Company held for sale or lease or furnished or to
be furnished under contracts of service, all goods held for display or
demonstration, goods on lease or consignment, spare parts, repair parts,
returned and repossessed goods, and supplies used or consumed in the Company's
business, together with all documents, documents of title, dock warrants, dock
receipts, warehouse receipts, bills of lading or orders for the delivery of all,
or any portion, of the foregoing.
"IPO" shall mean an initial public offering of the Company's stock
consummated on or prior to August 31, 2000.
"LANDLORD'S AGREEMENT" shall mean an agreement from the landlord of any
Collateral Location pursuant to which such landlord has waived, released or
subordinated in favor of the Bank any rights it has in respect of the
Collateral, to be substantially in the form of EXHIBIT "D" attached hereto
(unless otherwise required or approved by the Bank).
"LETTER OF CREDIT" shall have the meaning given to such term in Section
2.1.2.
"LETTER OF CREDIT OBLIGATIONS" shall mean all Obligations of the
Company arising in respect of Letters of Credit, including, without limitation,
(i) all contingent liabilities arising in respect of Letters of Credit issued,
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<PAGE> 13
but not drawn upon, and (ii) all reimbursement liabilities arising in respect of
drawings made under Letters of Credit.
"LIEN" shall mean any deed to secure debt, deed of trust, mortgage or
similar instrument, and any lien, security interest, preferential arrangement
which has the practical effect of constituting a security interest, security
title, pledge, charge, encumbrance or servitude of any kind, whether by
consensual agreement or by operation of statute or other law, and whether
voluntary or involuntary, including, without limitation, any conditional sale or
other title retention agreement or lease in the nature thereof.
"LIBOR BORROWINGS" shall mean those Borrowings which bear interest at a
rate per annum determined by reference to the LIBOR Rate plus the Applicable
Margin.
"LIBOR RATE" shall mean that interest rate per annum designated by the
Bank on each Interest Rate Determination Date applicable thereto as the "LIBOR
Rate", based upon the offered rate for deposits in United States dollars for a
term of one (1) month, which then appears on the display designated as Page
"3750" of the Telerate Service (or such other page as may replace Page 3750 of
that service or such other service or services as may be nominated by the
British Bankers' Association for the purpose of displaying London interbank
offered rates for United States Dollar deposits), determined as of 11:00 a.m.,
London time, on each such Interest Rate Determination Date, and taking into
account such other factors as the Bank shall deem relevant, including any then
applicable reserve requirements.
"LINE OF CREDIT" shall refer to the line of credit in the maximum
principal amount of Fifteen Million Dollars ($15,000,000) opened by the Bank in
favor of the Company pursuant to the provisions of Section 2.1.1.
"LOAN DOCUMENTS" shall mean this Agreement, the Notes, any financing
statements covering portions of the Collateral, and any and all other documents,
instruments, certificates and agreements executed and/or delivered by the
Company or any Guarantor in connection herewith, or any one, more, or all of the
foregoing, as the context shall require.
"MARGIN" shall mean an amount equal to eighty-five percent (85%), or
such lesser or greater percentage which the Bank may elect to establish from
time to time by written notice to the Company (but not less than seventy percent
(70%) unless a Default Condition or Event of Default shall have occurred and is
continuing), in its credit judgment, of the net dollar amount of Eligible
Accounts as at the date of determination. The Bank shall also entitled to impose
such reserves against the Margin and borrowing availability under the Line of
Credit as it may elect in its good faith discretion, on the Closing Date or, by
written notice to the Company from time to time, after the Closing Date.
"MARGIN REQUIREMENT" shall have the meaning ascribed to such term in
Section 2.1.1.
"MASTER NOTE" shall mean the master promissory note, dated of even date
herewith, as amended or supplemented from time to time, in a principal amount
equal to the maximum amount of the Line of Credit, evidencing Advances to be
obtained by the Company under the Line of Credit, together with any renewals or
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<PAGE> 14
extensions thereof in whole or in part. The Master Note shall be substantially
in the form of EXHIBIT "E".
"MATERIAL ADVERSE CHANGE" shall mean with respect to any event, act,
condition or occurrence of whatever nature (including any adverse determination
in any litigation, arbitration or governmental investigation or proceeding),
whether singly or in conjunction with any other event or events, act or acts,
condition or conditions, occurrence or occurrences, whether or not related, a
material adverse change in, or a material adverse effect upon, any of (a) the
financial condition, operations, business, properties or prospects of the
Company and its Consolidated Subsidiaries taken as a whole or any Guarantor, (b)
the rights and remedies of the Bank under any of the Loan Documents or any
documents, instruments or agreements executed and/or delivered by any Person
other than the Company in conjunction with the Loan Documents, or the ability of
the Company to perform its obligations under any of the Loan Documents or of any
Guarantor to perform Guarantor's obligations under any Guaranty or any
documents, instruments or agreements executed by any Guarantor in conjunction
with such Guaranty, or (c) the legality, validity or enforceability of any of
the Loan Documents or any documents, instruments or agreements executed and/or
delivered by any Person other than the Company in conjunction with the Loan
Documents.
"NEW FACILITY" shall mean the office facility located at 7300 N.
Federal Highway, Suite 200, Boca Raton, Florida 33487.
"NOTE" shall mean any instrument at any time evidencing all or any
portion of any Obligations.
"OBLIGATIONS" shall mean any and all (i) Debts of the Company to the
Bank arising hereunder or as a result hereof, whether evidenced by any Note, or
constituting Advances, Letter of Credit Obligations or otherwise, and any and
all amendments, modifications, extensions or renewals thereof in whole or in
part; (ii) Debts of the Company to the Bank under any later or future advances
or loans made by the Bank to the Company pursuant hereto, and any and all
amendments, modifications, extensions or renewals thereof in whole or in part;
(iii) Debts of the Company to the Bank in respect of checking, deposit or
operating accounts or any other banking and related transactions, services or
functions relationships between the Company and the Bank (other than loans
arising under documents other than the Loan Documents unless the parties shall
otherwise mutually agree in writing) and (iv) Debts of the Company to the Bank
in respect of any interest rate "hedge", "swap", "cap" or "collar" agreement or
similar arrangement entered into between the Bank and the Company.
"PERMISSIBLE TAX DISTRIBUTIONS" shall mean, with respect to the
Company, cash dividends or distributions to its shareholders with respect to
each taxable year during which the Company is a Subchapter S corporation for
federal and state income tax purposes in an amount not to exceed (x) the
aggregate of the maximum federal and state income tax liability of the
shareholders of the Company (assuming that all of the shareholders are taxed at
the maximum permissible federal and Florida state rates of such shareholders)
attributable to the taxable income of the Company for such taxable year,
computed in accordance with the Code, MINUS (y) the amount of any tax refund or
-9-
<PAGE> 15
reduction received by the shareholders for any preceding taxable year due to a
net loss of the Company for such preceding taxable year, to the extent that such
tax refund or reduction has not been contributed to the Company.
"PERMITTED ENCUMBRANCES" shall mean: (i) Liens for taxes not yet due
and payable or being actively contested as permitted by this Agreement, but only
if such Liens do not adversely affect the Bank's rights or the priority of the
Bank's security interest in the Collateral; (ii) carriers', warehousemen's,
mechanics', materialmen's, repairmen's or other like Liens arising in the
ordinary course of business, payment for which is not yet due or which are being
actively contested in good faith and by appropriate, lawful proceedings, but
only if such liens are and remain junior to liens granted in favor of the Bank;
(iii) pledges or deposits in connection with worker's compensation, unemployment
insurance and other social security legislation; (iv) deposits to secure the
performance of utilities, leases, statutory obligations and surety and appeal
bonds and other obligations of a like nature arising by statute or under
customary terms regarding depository relationships on deposits held by financial
institutions with whom the Company has a banker-customer relationship; (v)
typical restrictions imposed by licenses and leases of software (including
location and transfer restrictions); (vi) Liens in favor of the Bank; and (vii)
purchase money Liens or Liens under Capital Leases on equipment securing
purchase money Debt or Debt under Capital Leases incurred or entered into by the
Company to finance the purchase of such equipment; PROVIDED, THAT (A) the
incurrence of such Debt is permitted pursuant to Section 11.2 hereof, (B) such
Lien secures only such purchase money Debt or Debt under a Capital Lease and (C)
such Lien is terminated promptly upon payment in full of such Debt.
"PERSON" shall mean any individual, partnership, corporation, limited
liability company, joint venture, joint stock company, trust, governmental unit
or other entity.
"PRINCIPAL" shall mean Russell Madris, being the sole shareholder of
the Company on the Closing Date.
"SUBSIDIARY" shall mean any corporation, partnership, business
association or other entity (including any Subsidiary of any of the foregoing)
of which the Company owns, directly or indirectly through one or more
Subsidiaries, interests having ordinary voting power for the election of the
majority of the board of directors or others performing similar functions.
"TANGIBLE NET WORTH" shall mean book net worth, determined on a
consolidated basis for the Company and its Consolidated Subsidiaries in
accordance with GAAP, MINUS all assets of the Company and such Subsidiaries
constituting (i) goodwill, patents, copyrights, trademarks, trade names and
other intangible assets, (ii) write-ups of assets, (iii) unamortized debt
discount and expense, (iv) deferred charges, (v) any Debts owing to such Person
from any shareholders, officers or directors of such Person, or from any
Affiliates or Subsidiaries of such Person, and (vi) any permitted investments
described in clauses (iii) through (vi) of Section 11.6, PLUS, to the extent
deducted in determining book net worth, any dividends which have been declared
but not paid. For purposes hereof, any minority interest in any Subsidiary shown
on the balance sheet of the Company and its Consolidated Subsidiaries shall be
excluded from its net worth and be included in its total liabilities.
-10-
<PAGE> 16
"TELEPHONE INSTRUCTIONS LETTER" shall mean a letter from the Company to
the Bank, dated as of the Closing Date, indicating to the Bank the Person(s)
authorized to request Advances pursuant hereto, to be substantially in the form
of EXHIBIT "G" attached hereto (unless otherwise required or approved by the
Bank).
"TERMINATION DATE" shall mean the EARLIEST to occur of the following
dates: (i) that date on which, pursuant to Section 14, the Bank terminates the
Line of Credit (or the Line of Credit is deemed automatically terminated)
subsequent to the occurrence of an Event of Default; (ii) March 27, 2002; or
(iii) such later date as to which the Bank may agree in writing from time to
time hereafter.
"UCC" shall mean the Uniform Commercial Code-Secured Transactions of
Georgia (OCGA Art. 11-9), as in effect on the Closing Date.
1.2. USE OF DEFINED TERMS. All terms defined in this Agreement
and the Exhibits shall have the same defined meanings when used in any other
Loan Documents, unless the context shall require otherwise.
1.3. ACCOUNTING TERMS. All accounting terms not specifically
defined herein shall have the meanings generally attributed to such terms under
GAAP.
1.4. UCC TERMS. The terms "accounts", "chattel paper",
"instruments", "general intangibles", "inventory," "equipment" and "fixtures",
as and when used in the Loan Documents, shall have the same meanings given to
such terms under the UCC.
2. THE FINANCING.
2.1. EXTENSIONS OF CREDIT.
2.1.1. LINE OF CREDIT. On the Closing Date, the Bank agrees to
open the Line of Credit in favor of the Company so that, subject to fulfillment
of all conditions precedent set forth in Section 16, during the period from the
Closing Date to, but not including, the Termination Date, so long as there is
not in existence any Default Condition or Event of Default and the requested
Borrowing, if made, will not cause a Default Condition or Event of Default to
exist, the Company may borrow and repay and reborrow Advances in up to a maximum
aggregate principal amount outstanding at any one time equal to the original
principal amount of the Line of Credit; SUBJECT, HOWEVER, to the requirements
that at no time shall the aggregate principal amount of outstanding Advances and
Letter of Credit Obligations exceed the LESSER of (A) the Commitment or (B) the
Margin (such requirement being referred to herein as the "MARGIN REQUIREMENT"),
and SUBJECT, FURTHER, to the requirement that if, at any time hereafter, the
Margin Requirement is not satisfied, the Company will immediately repay the then
principal balance of the Master Note by that amount necessary to satisfy the
Margin Requirement. Proceeds of Advances obtained by the Company under the Line
of Credit shall be used by the Company for working capital and general corporate
-11-
<PAGE> 17
purposes in such manner as the Company may elect in the ordinary course of its
business operations. The Debts arising from Advances made to or on behalf of the
Company under the Line of Credit shall be evidenced by the Master Note, which
shall be executed by the Company and delivered to the Bank on the Closing Date.
The outstanding principal amount of the Master Note may fluctuate from time to
time, but shall be due and payable in full on the Termination Date, and shall
bear interest from the date of each disbursement of principal until paid in full
at the Applicable Rate, payable in the manner described in Section 2.2.1. The
Company shall have the option to request Advances under the Line of Credit by
telephone or in a writing delivered to the Bank not later than 12:00 noon
(Atlanta, Georgia time) on the date of the requested Advance; PROVIDED, HOWEVER,
that any telephone requests shall be made in accordance with the Telephone
Instructions Letter and, unless otherwise approved by the Bank, confirmed in
writing not later than the Business Day following the disbursement of the
requested Advance.
2.1.2. LETTERS OF CREDIT. In addition to the foregoing, so
long as the Line of Credit remains open, the Company shall have the further
right to apply for, and obtain, commercial or standby letters of credit
("LETTERS OF CREDIT"), in an aggregate face amount not in excess of One Million
Dollars ($1,000,000) at any time outstanding, to be issued by the Bank for the
Company for use by the Company in the ordinary course of its business operations
pursuant to a separate application and agreement (one per each Letter of Credit)
to be executed at time of issuance between the Bank and the Company, which shall
set forth, among other things, the purpose, beneficiary, the expiry date and
credit limit, together with the fees and charges imposed by the Bank for the
issuance and administration thereof. All outstanding Letter of Credit
Obligations shall be reserved by the Bank against borrowing availability under
the Line of Credit and be included as outstanding Debt for purposes of
determining the Margin Requirement. The Bank shall have the continuing right to
charge as Advances any outstanding Letter of Credit Obligations, and any fees
and charges associated therewith, which have become due and payable.
2.2. INTEREST AND OTHER CHARGES.
2.2.1. INTEREST AT APPLICABLE RATE.
(A) INTEREST RATE. The outstanding Advances under the Line of
Credit shall bear interest at the Applicable Index Rate PLUS the Applicable
Margin (the "APPLICABLE RATE"). Subject to the contrary provisions of subsection
(d) below, the Applicable Index Rate shall at all times be the LIBOR Rate, as
determined by the Bank on the date of funding of the initial Advance hereunder
and on each Interest Rate Determination Date thereafter. Subject to the terms of
subsection (d) below, if the Applicable Index Rate is the LIBOR Rate, such rate
shall remain unchanged during each month after its determination. If, pursuant
to the operation of subsection (d) below, the Applicable Index Rate is at any
time the Base Rate, then, the Applicable Index Rate may, nonetheless, change
from time to time within each monthly period if changes in the Base Rate occur
during such period, with each such change (if any) to be effective as and when
the Base Rate shall change.
(B) PAYMENT OF INTEREST. Accrued interest on all Borrowings at
the Applicable Rate shall be due and payable monthly in arrears, on the first
day of each calendar month, for the preceding calendar month (or portion
thereof), commencing on the first day of the first calendar month following the
Closing Date, and on the Termination Date.
-12-
<PAGE> 18
(C) SUBSEQUENT ADJUSTMENTS. Commencing with the Company's
Fiscal Quarter ending March 31, 2000, the Applicable Margin with respect to
LIBOR Borrowings shall be subject to further and subsequent adjustment, up or
down, based on the Company's and its Consolidated Subsidiaries' financial
performance, determined by reference to the Debt/Worth Ratio and the Fixed
Charge Coverage Ratio measured quarterly; that is, if such ratios, measured as
of the end of each Fiscal Quarter of the Company, in the manner provided in
Sections 12.1 and 12.3 hereof, commencing with the Fiscal Quarter ending March
31, 2000, are as described below, the Applicable Margin with respect to LIBOR
Borrowings shall be the margin appearing at the intersection of such ratios:
<TABLE>
<CAPTION>
------------------------------ ---------------------------- ----------------------------
Fixed <3.00:1.00 >3.00:1.00
Charge
Coverage
Ratio
Debt/
Worth
Ratio
------------------------------ ---------------------------- ----------------------------
<S> <C> <C>
>6.00:1.00 2.50% 2.25%
-
------------------------------ ---------------------------- ----------------------------
<6.00:1.00 2.25% 2.00%
>4.00:1.00
-
------------------------------ ---------------------------- ----------------------------
<4.00:1.00 1.90% 1.75%
>3.00:1.00
-
------------------------------ ---------------------------- ----------------------------
<3.00:1.00 1.65% 1.55%
>2.50:1.00
-
------------------------------ ---------------------------- ----------------------------
<2.50:1.00 1.45% 1.25%
------------------------------ ---------------------------- ----------------------------
</TABLE>
The Bank shall determine whether any adjustment to the Applicable Margin
applicable to LIBOR Borrowings is to be made quarterly, starting with the
Company's Fiscal Quarter ending March 31, 2000, based on the Company's
consolidated financial statements as of and for each Fiscal Quarter end
delivered to the Bank pursuant to Section 10.6, PROVIDED, HOWEVER, that if such
financial statements are not delivered to the Bank within ten (10) days after
the date required by Section 10.6, then an adjustment to such Applicable Margin
shall be made based on an assumed delivery of said financial statements
reflecting a Debt/Worth Ratio of >6.00:1.00 and a Fixed Charge Coverage Ratio of
<3.00:1.00 unless and until such financial statements are delivered (subject to
the waiver by the Bank of any Event of Default resulting therefrom); and,
PROVIDED, FURTHER, that (i) no downward adjustment shall be made if an Event of
Default or Default Condition then exists (unless then waived or permitted to be
cured) and (ii) the allowance by the Bank to the Company of such ten (10) day
period for delivery of such financial statements for purposes of this Section
2.2.1(c) and for purposes of Section 2.2.2(b) hereof shall not constitute a
waiver by the Bank of the Event of Default resulting from the failure of the
Company to deliver such financial statements to the Bank on or prior to the date
required pursuant to Section 10.6. Each such adjustment to such Applicable
Margin shall become effective (retroactively if necessary) as of the first day
-13-
<PAGE> 19
of the first calendar month following the date on which such financial
statements are delivered (or deemed delivered) to the Bank, and shall remain
effective unless and until any subsequent adjustment becomes effective in
accordance with the terms of this subsection (c). Each such adjustment shall
apply not only to LIBOR Borrowings under the Line of Credit made (including
conversions and continuations) on or after such adjustment date (but prior to
the next such adjustment date) but also to any then existing as of such
adjustment date. In the event that the annual audit report of the Company for
any Fiscal Year shall require restatement of financial statements of the Company
and such restatement would have required a different Applicable Margin to be in
effect for prior periods with respect to LIBOR Borrowings, then the Bank shall
require the Company to make additional payments of interest or shall rebate
excess interest charged for such prior periods.
(D) SPECIAL CONDITIONS AND LIMITATIONS ON LIBOR BORROWINGS.
The Company shall have the continuing right, provided that no Event of Default
or Default Condition exists, to obtain LIBOR Borrowings; SUBJECT, HOWEVER, to
the following conditions and limitations: (i) if the Bank determines that
deposits in United States Dollars (in the applicable amounts) are not being
offered in the relevant market or that the LIBOR Rate will not adequately and
fairly reflect the cost to the Bank of funding any relevant LIBOR Borrowings,
then the Bank shall forthwith give notice thereof to the Company, whereupon,
until the Bank notifies the Company that the circumstances giving rise to such
suspension no longer exist, the obligation of the Bank to make LIBOR Borrowings
available to the Company shall be suspended; and (ii) if at any time, a change
of law, or compliance by the Bank with any request or directive (whether or not
having the force of law) of any governmental authority shall make it unlawful or
impracticable for the Bank to make available, maintain or fund any LIBOR
Borrowings, the Bank shall forthwith give notice to such effect to the Company,
whereupon, until the Bank notifies the Company that the circumstances giving
rise to such suspension no longer exist, the obligation of the Bank to make such
Borrowings available to the Company shall be suspended. Any Borrowings obtained
after the delivery by the Bank to the Company of a notice of suspension pursuant
to the preceding sentence, for so long as such suspension remains in effect,
shall be a Base Rate Borrowing, and if, in connection with giving of such
notice, the Bank shall determine that it may not lawfully continue to maintain
and fund any then outstanding LIBOR Borrowings to maturity and shall so specify
in such notice, each LIBOR Borrowing so affected shall be converted into a Base
Borrowing, effective immediately.
(E) CALCULATION OF INTEREST AND FEES. Interest on all
Borrowings (and any fees described in Section 2.2.2 computed on a per annum
basis) shall be calculated on the basis of a 360-day year and actual days
elapsed.
(F) CHARGING OF INTEREST AND FEES. Accrued and unpaid interest
on any Borrowings (and any outstanding fees described in Section 2.2.2) may,
when due and payable, be paid, at the Bank's option (without any obligation to
do so), either (i) by the Bank's charging the Line of Credit for an Advance in
the amount thereof; or (ii) by the Bank's debiting any deposit account
constituting Balances Collateral for the amount thereof; but, notwithstanding
the foregoing, the Company shall be and remain responsible for the payment of
such sums.
(G) RATE ON OTHER OBLIGATIONS. To the extent that, at any
time, there are other Obligations besides Advances which are outstanding and
unpaid, such Obligations shall, unless and except to the extent that this
Agreement, any Note or any other Loan Document evidencing such Obligations
provides otherwise, bear interest at the same rate per annum as is then and
thereafter payable on Base Borrowings under the Line of Credit.
-14-
<PAGE> 20
2.2.2. FEES. In addition to the payment of interest at the
rate provided hereinabove, the Company shall also be obligated to pay the Bank
the following fees and charges:
(A) COMMITMENT FEE. On the Closing Date, the Company shall pay
to the Bank a commitment fee in the amount of Five Thousand Dollars ($5,000).
Such fee shall be fully-earned and non-refundable on the due date therefor.
(B) FACILITY FEE. Monthly, on the first day of each calendar
month, for the preceding calendar month (or portion thereof), commencing on the
first day of the first calendar month following the Closing Date, a facility fee
in the amount equal to (x) one-twenty-fourth of one percent (1/24%) per annum
times (y) the difference between (A) the Commitment and (B) the sum, without
duplication, of the following, determined on a daily average basis for the
immediately preceding calendar quarter (or portion thereof, as the case may be):
(i) all Advances under the Line of Credit PLUS (ii) all outstanding Letter of
Credit Obligations; PROVIDED, HOWEVER, that commencing with the Company's Fiscal
Quarter ending March 31, 2000, the facility fee shall be subject to further and
subsequent adjustment, up or down, based on the Company's and its Consolidated
Subsidiaries' financial performance, determined by reference to the Debt/Worth
Ratio measured quarterly; that is, if such ratio, measured as of the end of each
Fiscal Quarter of the Company, in the manner provided in Sections 12.1 hereof,
commencing with the Fiscal Quarter ending March 31, 2000, is as described below,
the facility fee shall be the percentage appearing opposite such ratio:
<TABLE>
<CAPTION>
Debt/Worth Ratio Facility Fee
---------------------------------- -----------------------------
<S> <C> <C>
>6.00:1.00 1/4%
---------------------------------- -----------------------------
<6.00:1.00 3/16%
>4.00:1.00
---------------------------------- -----------------------------
<4.00:1.00 1/8%
>3.00:1.00
---------------------------------- -----------------------------
<3.00:1.00 1/16%
>2.50:1.00
---------------------------------- -----------------------------
<2.50:1.00 1/24%
---------------------------------- -----------------------------
</TABLE>
The Bank shall determine whether any adjustment to the facility fee is to be
made quarterly, starting with the Company's Fiscal Quarter ending March 31,
2000, based on the Company's consolidated financial statements as of and for
each Fiscal Quarter end delivered to the Bank pursuant to Section 10.6,
PROVIDED, HOWEVER, that if such financial statements are not delivered to the
Bank within ten (10) days after the date required by Section 10.6 hereof, then
an adjustment to such facility fee shall be made based on an assumed delivery of
said financial statements reflecting a Debt Worth Ratio of >6.00:1.00 unless and
until such financial statements are delivered (subject to the waiver by the Bank
of any Event of Default resulting therefrom); and, PROVIDED, FURTHER, that no
downward adjustment shall be made if an Event of Default or Default Condition
then exists (unless then waived or permitted to be cured). Each such adjustment
shall become effective (retroactively if necessary) as of the first day of the
first calendar month following the date on which such financial statements are
delivered (or deemed delivered) to the Bank, and shall remain effective unless
and until any subsequent adjustment becomes effective in accordance with the
terms of this subsection (b). In the event that the annual audit report of the
Company for any Fiscal Year shall require restatement of financial statements of
-15-
<PAGE> 21
the Company and such restatement would have required a different facility fee to
be in effect for prior periods, then the Bank shall require the Company to make
additional payments of facility fees or shall rebate excess facility fees
charged for such prior periods.
(C) LETTER OF CREDIT FEE. In addition to the fees imposed by
the Bank for the issuance and administration of each Letter of Credit, monthly,
on the first day of each calendar month, commencing on the first day of the
first calendar month following the issuance of any Letter of Credit, a letter of
credit fee in an amount equal to (x) one percent (1%) per annum times (y) the
aggregate face amount of all outstanding Letters of Credit.
(D) TERMINATION FEE. In the event that the Company terminates
this Agreement prior to the Termination Date and repays the obligations using
the proceeds of loans obtained from any financial institution other than the
Bank or its Affiliates or, if such termination and repayment occurs prior to the
first anniversary of the Closing Date, First Union National Bank, an early
termination fee in an amount equal to (i) the Commitment times (ii) (x) one
fourth of one percent (1/4%) if such termination occurs prior to the first
anniversary of the Closing Date and (y) one-eighth of one percent (1/8%) if such
termination occurs after the first anniversary of the Closing Date but prior to
the second. Such fee shall be due and payable on the effective date of such
termination.
(E) AUDIT FEES. For Collateral audits performed by the Bank
pursuant to Section 10.3, the Bank's standard audit fee for each audit performed
by the Bank (or its designee), which, as of the Closing Date, equals Five
Hundred Dollars ($500) per auditor per day plus expenses; PROVIDED, HOWEVER,
that, so long as no Event of Default exists (i) the Company shall not have to
pay for more than two (2) such audits in any one Fiscal Year and (ii) the
Company shall not have to pay for more than five (5) auditor-days with respect
to each such audit.
2.2.3. CAPITAL ADEQUACY. If, after the Closing Date, the
adoption of any applicable law, rule or regulation regarding capital adequacy,
or any change therein, or any change in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency charged
with the administration thereof, or compliance by the Bank with any request or
directive regarding capital adequacy (whether or not having the force of law) of
any such authority, central bank or comparable agency, affects or might affect
the amount of capital required or expected to be maintained by the Bank or any
corporation in control of the Bank and the Bank determines that the amount of
such capital is increased by or based upon the Bank's obligations hereunder,
then from time to time, within thirty (30) days after demand by the Bank, the
Company shall pay to the Bank such additional amount or amounts as will
compensate the Bank in light of such circumstances, to the extent that the Bank
reasonably determines such increase in capital is allocable to the Bank's
obligations hereunder, and such payment, as and when received, shall be applied
by the Bank in reimbursement of the Bank's increased costs in regard to such
obligations.
2.2.4. USURY SAVINGS PROVISIONS. The Bank and the Company
hereby further agree that the only charge imposed by the Bank upon the Company
for the use of money in connection herewith is and shall be interest at the
Applicable Rate, and that all other charges imposed by the Bank upon the Company
in connection herewith, are and shall be deemed to be charges made to compensate
the Bank for underwriting and administrative services and costs, and other
services and costs performed and incurred, and to be performed and incurred, by
-16-
<PAGE> 22
the Bank in connection with making credit available to the Company hereunder,
and shall under no circumstances be deemed to be charges for the use of money.
In no contingency or event whatsoever shall the aggregate of all amounts deemed
interest hereunder or under the Notes and charged or collected pursuant to the
terms of this Agreement or pursuant to the Notes exceed the highest rate
permissible under any law which a court of competent jurisdiction shall, in a
final determination, deem applicable hereto. In the event that such a court
determines that the Bank has charged or received interest hereunder in excess of
the highest Applicable Rate, the rate in effect hereunder shall automatically be
reduced to the maximum rate permitted by applicable law and the Bank shall
promptly refund to the Company any interest received by the Bank in excess of
the maximum lawful rate or, if so requested by the Company, shall apply such
excess to the principal balance of the Advances. It is the intent hereof that
the Company not pay or contract to pay, and that the Bank not receive or
contract to receive, directly or indirectly in any manner whatsoever, interest
in excess of that which may be paid by the Company under applicable law.
2.3. GENERAL PROVISIONS AS TO PAYMENTS.
2.3.1. METHOD OF PAYMENT. All payments of interest, fees and
principal pursuant to this Agreement must be received by the Bank no later than
2:00 p.m. (Atlanta, Georgia time) on the date when due, in federal or other
funds immediately available to the Bank in Atlanta, Georgia.
2.3.2. APPLICATION OF PAYMENT. Except as otherwise expressly
set forth herein, all payments received by the Bank hereunder shall be applied,
in accordance with the then current billing statement applicable to the
Borrowing, first to accrued interest, then to fees, then to principal due and
then to late charges. Any remaining funds shall be applied to the further
reduction of principal. Notwithstanding the foregoing, upon the occurrence of a
Default Condition or Event of Default, payments shall be applied to the
Obligations in such order as the Bank, in its sole discretion, may elect.
3. SECURITY INTEREST. As security for the payment of all
Obligations, the Company hereby grants to the Bank a continuing, general Lien
upon and security interest and security title in and to the following described
property, or interests in property, of the Company, wherever located, whether
now existing or hereafter acquired or arising (herein collectively called the
"COLLATERAL"), namely: (a) the Accounts Receivable Collateral; (b) the Inventory
Collateral; (c) the Equipment Collateral; (d) the Intangibles Collateral; (e)
the Balances Collateral; (f) all deposit accounts and other bank accounts of the
Company which are not included within the definition of Balances Collateral and
all sums from time to time on deposit therein; (g) all documents; (h) all
products and/or proceeds of any and all of the foregoing, including, without
limitation, insurance proceeds; and (i) all books and records pertaining to any
or all of the foregoing.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS APPLICABLE TO
ACCOUNTS RECEIVABLE COLLATERAL. With respect to the Accounts Receivable
-17-
<PAGE> 23
Collateral, the Company hereby represents, warrants and covenants to the Bank as
set forth below.
4.1. BONA FIDE ACCOUNTS. Each item of the Accounts Receivable
Collateral arises or will arise under a contract between the Company and the
Account Debtor, or from the bona fide sale or delivery of goods to, or
performance of services for, the Account Debtor.
4.2. GOOD TITLE. The Company has good title to the Accounts
Receivable Collateral free and clear of all Liens other than any Permitted
Encumbrances, and no financing statement covering the Accounts Receivable
Collateral is on file in any public office other than any evidencing Permitted
Encumbrances.
4.3. RIGHT TO ASSIGN. The Company has full right, power and
authority to make this assignment of the Accounts Receivable Collateral and
hereafter will not pledge, hypothecate, grant a security interest in, sell,
assign, transfer, or otherwise dispose of the Accounts Receivable Collateral, or
any interest therein.
4.4. LOCKBOXES AND BLOCKED ACCOUNT. On or prior to the Closing
Date, the Company shall establish and thereafter maintain the Blocked Account
with a bank satisfactory to the Bank, into which all cash, checks, drafts, items
and other instruments for the payment of money received in any lockbox or
lockboxes maintained by the Company for the collection of proceeds of Accounts
Receivable Collateral or received by the Company directly in full or partial
payment for Inventory Collateral or otherwise as proceeds of the Accounts
Receivable Collateral shall be transferred and delivered on a daily basis.
Pending transfer and delivery of cash, checks, drafts, items and other
instruments to the Blocked Account, the Company shall be deemed to hold same in
trust for the benefit of the Bank. On each Business Day, in accordance with the
terms of the blocked account agreement applicable thereto, funds in the Blocked
Account shall be transferred to the Collections Account. The Company shall not
be entitled to withdraw funds on deposit in the Blocked Account or the
Collections Account without the prior written consent of the Bank. The Bank
shall apply collected funds in the Collections Account, on each Business Day, in
payment of outstanding Advances or, if an Event of Default has occurred and is
continuing, in payment of the Obligations, in such order as the Bank shall
elect.
4.5. DIRECT NOTIFICATION. The Bank may, additionally, in its
sole discretion, at any time that an Event of Default exists, direct Account
Debtors to make payments on the Accounts Receivable Collateral, or portions
thereof, directly to the Bank, and the Account Debtors are hereby authorized and
directed to do so by the Company upon the Bank's direction, and the funds so
received shall be deposited in the Collections Account, or, at the election of
the Bank, upon its receipt thereof, be applied directly to repayment of the
Obligations in such order as the Bank, in its sole discretion, shall determine.
4.6. TRADE STYLES. Except as may be set forth on the Company
Information Schedule attached hereto, the Company uses no trade names or trade
styles in its business operations (herein, "TRADE STYLES"), and the Company
covenants with the Bank not to use any Trade Styles in its business operations
hereafter, except as so specified on the Company Information Schedule prior to
having given the Bank at least ten (10) Business Days prior written notice
thereof. In any event, to the extent that, now or hereafter, the Company uses
any Trade Styles, the Company hereby certifies and agrees with the Bank that:
(i) all of the accounts receivable and proceeds thereof arising out of sales
under the Trade Styles shall be the property of, and belong to, the Company;
(ii) each of the Trade Styles is a trade name and trade style (and not an
independent corporation or other legal entity) by which the Company identifies
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<PAGE> 24
and sells certain of its products or services and under which it may conduct a
portion of its business; (iii) all accounts receivable, proceeds thereof, and
returned merchandise which arise from the sale of products invoiced under the
names of any of the Trade Styles shall be owned solely by the Company and shall
be subject to the terms of this Agreement as they relate to Accounts Receivable
Collateral; and (iv) the Company hereby appoints the Bank as its
attorney-in-fact to file such certificates disclosing the Company's use of the
Trade Styles and to take such other actions on its behalf as are necessary to
comply with the statutes of any states relating to the use of fictitious or
assumed business names, to the extent that the Company fails to do so.
4.7. LIMITED POWER OF ATTORNEY. The Company irrevocably
designates and appoints the Bank as its true and lawful attorney-in-fact to
endorse for collection any checks, drafts, notes or other instruments received
in payment of or on account of any Collateral hereafter coming into the Bank's
possession and control, whether pursuant to the Collections Account or
otherwise, but the Bank shall not be under any duty to exercise any such
authority or power or in any way be responsible for the collection of any such
Collateral.
5. REPRESENTATIONS, WARRANTIES AND COVENANTS APPLICABLE TO
INVENTORY COLLATERAL. With respect to the Inventory Collateral, if any, the
Company hereby represents, warrants and covenants to the Bank as set forth
below:
5.1. SALE OF INVENTORY COLLATERAL. The Company will not sell,
lease, exchange, or otherwise dispose of any of the Inventory Collateral without
the prior written consent of the Bank, except in the ordinary course of business
for cash or on open account or on terms of payment ordinarily extended to its
customers. Upon the sale, exchange or other disposition of the Inventory
Collateral, the security interest and lien created and provided for herein,
without break in continuity and without further formality or act, shall continue
in and attach to any proceeds thereof, including, without limitation, accounts,
contract rights, shipping documents, documents of title, bills of lading,
warehouse receipts, dock warrants, dock receipts and cash or noncash proceeds,
and in the event of any unauthorized sale, shall continue in the Inventory
Collateral itself.
5.2. INSURANCE. The Company will obtain and maintain insurance
on the Inventory Collateral with such companies, in such amounts and against
such risks as the Bank may reasonably request, with loss payable to the Bank as
its interests may appear. Such insurance shall not be cancellable by the
Company, unless with the prior written consent of the Bank, or by the Company's
insurer, unless with at least thirty (30) days (or any lesser number of days
otherwise approved by the Bank) advance written notice to the Bank. In addition,
the Company shall cause its insurer to provide the Bank with at least thirty
(30) days advance written notice prior to insurer's nonrenewal of such
insurance. The Company shall provide to the Bank a copy of each such policy.
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5.3. GOOD TITLE. Except with respect to any Permitted
Encumbrances, the Company owns the Inventory Collateral free and clear of any
Lien, and no financing statements or other evidences of the grant of a security
interest respecting the Inventory Collateral exist on the public records as of
the date hereof other than any evidencing any Permitted Encumbrances.
5.4. RIGHT TO GRANT SECURITY INTEREST. The Company has the
right to grant a security interest in the Inventory Collateral. The Company will
pay all taxes and other charges against the Inventory Collateral, and the
Company will not use the Inventory Collateral illegally or allow the Inventory
Collateral to be encumbered except for the security interest in favor of the
Bank granted herein and except for any Permitted Encumbrances.
5.5. LOCATION OF INVENTORY COLLATERAL. The Company hereby
represents and warrants to the Bank that, as of the date hereof, the Inventory
Collateral of the Company (other than Inventory Collateral which is in transit
to or from the Company) is situated only at one or more of the Collateral
Locations and the Company covenants with the Bank not to locate the Inventory
Collateral at any location other than a Collateral Location without at least ten
(10) Business Days prior written notice to the Bank.
6. REPRESENTATIONS, WARRANTIES AND COVENANTS APPLICABLE TO
EQUIPMENT COLLATERAL. With respect to the Equipment Collateral, the Company
hereby represents, warrants and covenants to the Bank as set forth below:
6.1. SALE OF EQUIPMENT COLLATERAL. The Company will not sell,
lease, exchange, or otherwise dispose of any of the Equipment Collateral without
the prior written consent of the Bank; provided, however, that, with notice to,
but without the necessity of consent of, the Bank, from time to time hereafter,
in the ordinary course of the Company's business, the Company may sell, exchange
or otherwise dispose of portions of the Equipment Collateral which are obsolete,
worn-out or unsuitable for continued use by the Company; provided, further,
that, unless such Equipment Collateral is no longer necessary in the operation
of the Company's business, such Equipment Collateral is replaced promptly upon
its disposition with equipment constituting Equipment Collateral having a market
value equal to or greater than the Equipment Collateral so disposed of and in
which the Bank shall obtain and have a security interest pursuant hereto.
6.2. INSURANCE. The Company agrees that it will obtain and
maintain insurance on the Equipment Collateral with such companies and in such
amounts and against such risks as the Bank may reasonably request, with loss
payable to the Bank as its interests may appear. Such insurance shall not be
cancellable by the Company, unless with the prior written consent of the Bank,
or by the Company's insurer, unless with at least thirty (30) days (or such
lesser number of days otherwise approved by the Bank) advance written notice to
the Bank. In addition, the Company shall cause its insurer to provide to the
Bank at least thirty (30) days advance written notice prior to such insurer's
nonrenewal of such insurance. The Company shall provide to the Bank a copy of
each such policy on the Closing Date.
6.3. GOOD TITLE. The Company owns the Equipment Collateral
free and clear of any prior Lien other than with respect to any Permitted
Encumbrances and no financing statements or other evidences of the grant of a
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<PAGE> 26
security interest respecting the Equipment Collateral exist on the public
records as of the date hereof other than any evidencing any Permitted
Encumbrances.
6.4. RIGHT TO GRANT SECURITY INTEREST. The Company has the
right to grant a security interest in the Equipment Collateral. The Company will
pay all taxes and other charges against the Equipment Collateral. The Company
will not use the Equipment Collateral illegally or allow the Equipment
Collateral to be encumbered except for the security interest in favor of the
Bank granted herein and except for any Permitted Encumbrances.
6.5. LOCATION. As of the Closing Date, the Equipment
Collateral is located only at one or more of the Collateral Locations and,
hereafter, the Company covenants with the Bank not to locate Equipment
Collateral at any location other than a Collateral Location without at least ten
(10) Business Days written notice to the Bank.
7. REPRESENTATIONS, WARRANTIES AND COVENANTS APPLICABLE TO
BALANCES COLLATERAL. With respect to the Balances Collateral, the Company hereby
represents, warrants and covenants to the Bank as set forth below:
7.1. OWNERSHIP. The Company owns the Balances Collateral free
and clear of any liens, mortgages, security interests or encumbrances thereon,
except for any Permitted Encumbrances.
7.2. REMEDIES. In addition to such other rights and remedies
with respect to the Balances Collateral as may exist from time to time hereafter
in favor of the Bank, whether by way of set-off, banker's lien, consensual
security interest or otherwise, the Bank may charge any part or all of the
obligations of the Bank to the Company represented by items constituting the
Balances Collateral in the possession and control of the Bank against the
Obligations.
7.3. LIENS. Hereafter, the Company will not incur, create or
suffer to exist a Lien upon the Balances Collateral, except for Permitted
Encumbrances, or sell, convey, hypothecate, pledge or assign its right, title or
interest therein, without the prior written consent of the Bank thereto.
8. REPRESENTATIONS, WARRANTIES AND COVENANTS APPLICABLE TO
INTANGIBLES COLLATERAL. With respect to the Intangibles Collateral, the Company
hereby represents, warrants and covenants to the Bank as set forth below:
8.1. OWNERSHIP. The Company owns the Intangibles Collateral
free and clear of any Liens other than with respect to any Permitted
Encumbrances, and no financing statements or other evidences of the grant of a
security interest respecting the Intangibles Collateral exist on the public
records as of the date hereof other than any evidencing any Permitted
Encumbrances.
8.2. LIENS. Hereafter, the Company will not incur, create or
suffer to exist any lien, security interest or encumbrance upon the Intangibles
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<PAGE> 27
Collateral except for the security interest granted herein and except for any
Permitted Encumbrances or sell, convey, hypothecate, pledge or assign its right,
title or interest therein.
8.3. PRESERVATION. Hereafter, the Company will take all
necessary and appropriate measures to obtain, maintain, protect and preserve
such of the Intangibles Collateral as is reasonably necessary for the operation
of the business of the Company .
9. GENERAL REPRESENTATIONS AND WARRANTIES. In order to induce the
Bank to enter into this Agreement, the Company hereby represents and warrants to
the Bank (which representations and warranties, together with any other
representations and warranties of the Company contained elsewhere in this
Agreement, shall be deemed to be renewed as of the date of each Advance or
Letter of Credit), as set forth below:
9.1. EXISTENCE AND QUALIFICATION. The Company is a
corporation, duly organized, validly existing and in good standing under the
laws of the State of its incorporation, as designated on the Company Information
Schedule, with its principal place of business, chief executive office and
office where it keeps all of its books and records being located at the
Executive Office and is duly qualified as a foreign corporation in good standing
in each other state in which a Collateral Location is situated or wherein the
conduct of its business or the ownership of its property requires such
qualification, except where the failure to be so qualified and in good standing
could not reasonably be expected to result in a Material Adverse Change. The
Company has as its corporate name, as registered with the secretary of state of
the state of its incorporation, the words first inscribed hereinabove as its
name, and, except as may be described on the Company Information Schedule, has
not done business under any other name.
9.2. AUTHORITY AND VALIDITY AND BINDING EFFECT. The Company
has the power to make, deliver and perform under the Loan Documents, and to
borrow hereunder, and has taken all necessary and appropriate action to
authorize the execution, delivery and performance of the Loan Documents. This
Agreement constitutes, and the remainder of the Loan Documents, as and when
executed and delivered for value received, will constitute, the valid
obligations of the Company, legally binding upon it and enforceable against it
in accordance with their respective terms.
9.3. INCUMBENCY AND AUTHORITY OF SIGNING OFFICERS. As of the
date of this Agreement, the undersigned officer of the Company holds the office
specified hereinbelow and, in such capacity, is duly authorized and empowered to
execute, attest and deliver this Agreement and the remainder of the Loan
Documents for and on behalf of the Company, and to bind the Company accordingly
thereby.
9.4. NO MATERIAL LITIGATION. Except as may be set forth on the
Company Information Schedule, there are no legal proceedings pending (or, so far
as the Company or its officers know, threatened), before any court or
administrative agency which, if adversely determined, could reasonably be
expected to result in a Material Adverse Change.
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<PAGE> 28
9.5. TAXES. The Company has filed or caused to be filed all
tax returns required to be filed by it and has paid all taxes shown to be due
and payable by it on said returns or on any assessments made against it.
9.6. CAPITAL. All stock, debentures, bonds, notes and all
other securities of the Company presently issued and outstanding are validly and
properly issued in accordance with all applicable laws, including, but not
limited to, the "blue sky" laws of all applicable states and the federal
securities laws. As of the date of this Agreement, the Principal owns all of the
issued and outstanding shares of stock in the Company, having power to elect or
appoint the Board of Directors of the Company, in the amount(s) prescribed on
the Company Information Schedule.
9.7. ORGANIZATION. The articles of incorporation and bylaws of
the Company are in full force and effect under the law of the state of its
incorporation and all amendments to said articles of incorporation and bylaws
have been duly and properly made under and in accordance with all applicable
laws.
9.8. INSOLVENCY. After giving effect to the execution and
delivery of the Loan Documents and the extension of any credit or other
financial accommodations hereunder, the Company will not be "insolvent", within
the meaning of such term as used in O.C.G.A. ss. 18-2-22 or as defined in ss.
101(32) of the Bankruptcy Code; or be unable to pay its debts generally as such
debts become due; or have an unreasonably small capital.
9.9. TITLE. The Company has good and marketable title to all
of its properties subject to no Lien of any kind except for Permitted
Encumbrances.
9.10. MARGIN STOCK. The Company is not engaged principally, or
as one of its important activities, in the business of purchasing or carrying
any "margin stock", as that term is defined in Section 221.2(h) of Regulation U
of the Board of Governors of the Federal Reserve System, and no part of the
proceeds of any borrowing made pursuant hereto will be used to purchase or carry
any such margin stock or to extend credit to others for the purpose of
purchasing or carrying any such margin stock, or be used for any purpose which
violates, or which is inconsistent with, the provisions of Regulation X of said
Board of Governors. In connection herewith, if requested by the Bank, the
Company will furnish to the Bank a statement in conformity with the requirements
of Federal Reserve Form U-1 referred to in said Regulation U to the foregoing
effect.
9.11. NO VIOLATIONS. The execution, delivery and performance
by the Company of this Agreement, the Notes and the other Loan Documents have
been duly authorized by all necessary action by the Company and do not and will
not require any consent or approval of the shareholders of the Company, violate
any provision of any law, rule, regulation (including, without limitation,
Regulation X of the Board of Governors of the Federal Reserve System), order,
writ, judgment, injunction, decree, determination or award presently in effect
having applicability to the Company or of the articles of incorporation or
bylaws of the Company, or result in a breach of or constitute a default under
any indenture or loan or credit agreement or any other agreement, lease or
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<PAGE> 29
instrument to which the Company is a party or by which it or its properties may
be bound or affected; and the Company is not in default under any such law,
rule, regulation, order, writ, judgment, injunction, decree, determination or
award or any such indenture, agreement, lease or instrument in any manner which
could reasonably be expected to result in a Material Adverse Change.
9.12. FINANCIAL STATEMENTS. The financial statements of the
Company and its Consolidated Subsidiaries (if any) for its most recently
completed Fiscal Year and for that portion of its current Fiscal Year ended with
that Fiscal Month ended closest to the Closing Date for which financial
statements have been prepared, including balance sheets, income statements and
statements of changes in cash flow, copies of which heretofore have been
furnished to the Bank, are complete and accurately and fairly represent the
financial condition of the Company and its Consolidated Subsidiaries (if any),
the results of its operations and the transactions in its equity accounts as of
the dates and for the periods referred to therein, and have been prepared in
accordance with GAAP (subject in the case of interim financial statements to the
omission of footnotes and year end adjusting entries). There are no material
liabilities, direct or indirect, fixed or, to the best of the Company's
knowledge, contingent, of the Company or any such Consolidated Subsidiaries as
of the date of such financial statements which are not reflected therein or in
the notes thereto. No Material Adverse Change has occurred since the date of the
balance sheet contained in the annual financial statement described hereinabove.
9.13. PURCHASE OF COLLATERAL. Within the twelve (12) months
period preceding the Closing Date, neither the Company nor any Subsidiary (if
any) has purchased any of the Collateral in a bulk transfer or in a transaction
which was outside the ordinary course of the business of the Company's seller.
9.14. POLLUTION AND ENVIRONMENTAL CONTROL. The Company and
each Subsidiary (if any) have obtained all permits, licenses and other
authorizations which are required under, and is in material compliance with, all
Environmental Laws.
9.15. POSSESSION OF PERMITS. The Company and each Subsidiary
(if any) possess all franchises, certificates, licenses, permits and other
authorizations from governmental political subdivisions or regulatory
authorities, and all patents, trademarks, service marks, trade names,
copyrights, licenses and other, similar rights, free from burdensome
restrictions, that are necessary for the ownership, maintenance and operation of
any of its properties and assets, and neither the Company nor any Subsidiary is
in violation of any thereof. A complete and accurate list of all such patents,
trademarks, service marks, trade names, copyrights, licenses and other, similar
rights owned by the Company in existence on the Closing Date is set forth on the
Company Information Schedule attached hereto.
9.16. SUBSIDIARIES. As of the Closing Date, the Company has no
Subsidiaries except as may be described on the Company Information Schedule.
9.17. FEDERAL TAXPAYER IDENTIFICATION NUMBER. As of the date
of this Agreement, the Company's federal taxpayer identification number is as
indicated on the Company Information Schedule.
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9.18. EMPLOYEE BENEFIT PLANS. As of the Closing Date, the
Company has no Employee Benefit Plans except as may be described on the Company
Information Schedule.
9.19. ADA. The Company is in compliance with the requirements
of the ADA.
9.20. YEAR 2000 COMPATIBILITY. (a) All computer-based systems
of the Company and its Subsidiaries are capable of the following: (i) handling
date information involving all and any dates before, during and/or after January
1, 2000, including accepting input, providing output and performing date
calculations in whole or in part; (ii) operating accurately without interruption
on and in respect of any and all dates before, during and/or after January 1,
2000 and without any change in performance; (iii) responding to and processing
two digit year input without creating any ambiguity as to the century and (iv)
storing and providing date input information without creating any ambiguity as
to the century; and (b) the Company's and its Subsidiaries' vendors, suppliers
and customers are capable of all of the foregoing, where noncompliance could
reasonably be expected to result in a Material Adverse Change.
10. AFFIRMATIVE COVENANTS. The Company covenants to the Bank that
from and after the date hereof, and so long as any amounts remain unpaid on
account of any of the Obligations or this Agreement remains effective (whichever
is the last to occur), the Company will comply (and cause each Subsidiary to
comply) with the affirmative covenants set forth below:
10.1. RECORDS RESPECTING COLLATERAL. All records of the
Company with respect to the Collateral will be kept at its Executive Office and
will not be removed from such address without the prior written consent of the
Bank.
10.2. FURTHER ASSURANCES. The Company shall duly execute
and/or deliver (or cause to be duly executed and/or delivered) to the Bank any
instrument, invoice, document, document of title, dock warrant, dock receipt,
warehouse receipt, bill of lading, order, financing statement, assignment,
waiver, consent or other writing which may be reasonably necessary to the Bank
to carry out the terms of this Agreement and any of the other Loan Documents and
to perfect its security interest in and facilitate the collection of the
Collateral, the proceeds thereof, and any other property at any time
constituting security to the Bank. The Company shall perform or cause to be
performed such acts as the Bank may request to establish and maintain for the
Bank a valid and perfected security interest in and security title to the
Collateral, free and clear of any liens, encumbrances or security interests
other than Permitted Encumbrances.
10.3. RIGHT TO INSPECT AND CONDUCT AUDITS. The Bank (or any
Person or Persons designated by it) shall have the continuing right to call at
the Executive Office or any Collateral Location at any reasonable time, upon
reasonable advance notice, and without hindrance or delay, inspect, audit, check
and make extracts from the Company's books, records, journals, orders, receipts
and any correspondence and other data relating to the Collateral, to the
Company's business or to any other transactions between the parties hereto.
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10.4. COLLATERAL REPORTS. The Company shall, as soon as
practicable, but in any event on or before twenty (20) days after the end of
each Fiscal Month, furnish or cause to be furnished to the Bank a status report,
certified by a duly authorized officer of the Company, showing the aggregate
dollar value of the items comprising the Accounts Receivable Collateral and the
age of each individual item thereof as of the last day of the preceding Fiscal
Month (segregating such items in such manner and to such degree as the Bank may
reasonably request), plus the location of any Inventory Collateral as at the end
of the preceding Fiscal Month, plus an accounts payable listing. Additionally,
the Bank may, at any time in its sole discretion, require the Company to permit
the Bank to verify the individual account balances of any individual Account
Debtors. Further, upon written request from the Bank, made at any time
hereafter, and, in any event, with the above-described status report for the
month of December in each year, the Company shall furnish the Bank with a then
current customer and Account Debtor name and address list.
10.5. BORROWING BASE CERTIFICATE. On a twice monthly basis
(during the second and fourth week of each month), so long as (i) Borrowing
Availability is at least One Million Dollars ($1,000,000) and (ii) no Default
Condition or Event of Default has occurred and is continuing, and on a weekly
basis (or more frequently as requested by the Bank) if either of the conditions
specified in the preceding clauses (i) and (ii) is not satisfied, the Company
shall prepare and deliver to the Bank a Borrowing Base Certificate with respect
to satisfaction of the Margin Requirement, as of the date of certificate
submission, the statements in which, in each instance, shall be reconciled to
the monthly collateral reports delivered pursuant to Section 10.4 hereof and
certified as to truth and accuracy by a duly authorized officer of the Company.
10.6. PERIODIC FINANCIAL STATEMENTS. The Company shall, as
soon as practicable, and in any event within thirty (30) days after the end of
each Fiscal Month, furnish to the Bank unaudited financial statements of the
Company and each Consolidated Subsidiary (if any), including balance sheets,
income statements and statements of cash flow, for the Fiscal Month ended, and
for the Fiscal Year to date, on a consolidated basis, and showing comparative
results for the corresponding period in the prior Fiscal Year; provided,
however, in the event that the Company becomes subject to the reporting
requirements of the Securities Exchange Act of 1934 (the "34 ACT"), the
financial statements required hereby for any Fiscal Month ending at the end of a
Fiscal Quarter of the Company may be delivered not later than forty-six (46)
days subsequent to the end of such Fiscal Month. All such financial statements
shall be certified by a duly authorized officer of the Company to present fairly
the financial position and results of operations of the Company for the period
involved in accordance with GAAP (but for the omission of footnotes and subject
to year-end audit adjustments).
10.7. ANNUAL FINANCIAL STATEMENTS. The Company shall, as soon
as practicable, and in any event within one hundred twenty (120) days after the
end of each Fiscal Year, furnish to the Bank the annual audit report of the
Company and its Consolidated Subsidiaries (if any), certified without material
qualification by independent certified public accountants selected by the
Company and acceptable to the Bank, and prepared in accordance with GAAP,
together with relevant financial statements of the Company and such Subsidiaries
for the Fiscal Year then ended, on a consolidated basis, if applicable. The
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<PAGE> 32
Company shall cause such accountants to furnish the Bank with a statement that
in making their examination of such financial statements, they obtained no
knowledge of any Event of Default or Default Condition which pertains to
accounting matters relating to this Agreement or the other Loan Documents or, in
lieu thereof, a statement specifying the nature and period of existence of any
such Event of Default or Default Condition disclosed by their examination.
10.8. OPERATING PLAN. On or prior to that date which is thirty
(30) days prior to the end of each Fiscal Year, the Company shall deliver to the
Bank its operating plan for its next succeeding Fiscal Year, as approved by the
Company's Board of Directors, to include, without limitation the Company's
projected budget and operating profit and cash flows for such Fiscal Year.
10.9. PAYMENT OF TAXES. The Company shall pay and discharge
all taxes, assessments and governmental charges upon it, its income and its
properties prior to the date on which penalties attach thereto, unless and to
the extent only that (x) such taxes, assessments and governmental charges are
being contested in good faith and by appropriate proceedings by the Company, (y)
the Company maintains reasonable reserves on its books therefor and (z) the
payment of such taxes does not result in a Lien upon any of the Collateral other
than a Permitted Encumbrance.
10.10. MAINTENANCE OF INSURANCE. In addition to and cumulative
with any other requirements herein imposed on the Company with respect to
insurance, the Company shall maintain insurance with responsible insurance
companies on such of its properties, in such amounts and against such risks as
is customarily maintained by similar businesses operating in the same vicinity,
but in any event to include business interruption insurance, in amounts
satisfactory to the Bank, which such insurance shall not be cancellable by the
Company, unless with the prior written consent of the Bank, or by the Company's
insurer, unless with at least ten (10) days advance written notice to the Bank
thereof (or such lesser or greater time period as shall be accepted or required
by the Bank from time to time). The Bank acknowledges that the Company's
insurance policies in effect on the date hereof, as described in SCHEDULE 10.10
attached hereto, are satisfactory to the Bank for purposes hereof. The Company
shall file with the Bank upon its request a detailed list of such insurance then
in effect stating the names of the insurance companies, the amounts and rates of
insurance, the date of expiration thereof, the properties and risks covered
thereby and the insured with respect thereto, together with a copy of each such
policy and, within thirty (30) days after notice in writing from the Bank,
obtain such additional insurance as the Bank may reasonably request. The Bank
shall be named as loss payee on each policy of property insurance and additional
insured on each policy of liability insurance. The Bank is hereby authorized and
empowered to collect and receive the proceeds of any insurance policies
maintained pursuant to this Section 10.10 or any other provision of this
Agreement for application (i) to the Advances if no Default Condition or Event
of Default has occurred and is continuing and (ii) to the Obligations in such
order as the Bank shall elect if any Event of Default or Default Condition has
occurred and is continuing. The Bank is hereby further authorized and empowered,
at its option, at any time when a Default Condition or Event of Default has
occurred and is continuing, to adjust or compromise any loss under any such
insurance policies.
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<PAGE> 33
10.11. MAINTENANCE OF PROPERTY. The Company shall maintain its
property in good working condition.
10.12. COMPLIANCE CERTIFICATE. The Company shall, on a
quarterly basis not later than thirty (30) days after the close of each of its
first three Fiscal Quarters (or forty-five (45) days if the Company is subject
to the reporting requirements of the 34 Act) and not later than one hundred
twenty (120) days after the close of its Fiscal Year, certify to the Bank, in a
Compliance Certificate executed by a duly authorized officer of the Company,
that no Event of Default and no Default Condition exists or has occurred, or, if
an Event of Default or Default Condition exists, specifying the nature and
period of existence thereof. Such Compliance Certificate shall also set forth,
in reasonable detail, evidence of the Company's, compliance with all financial
covenants set forth in Section 12 hereof for the immediately preceding Fiscal
Quarter.
10.13. CHANGE OF PRINCIPAL PLACE OF BUSINESS, ETC. Subject to
the additional requirements set forth in Section 11.8 hereof, the Company hereby
understands and agrees that if, at time hereafter, the Company elects to move
its Executive Office, or if the Company elects to change its name, identity or
its organization structure to other than a corporate structure, the Company will
notify the Bank in writing at least ten (10) Business Days prior thereto.
10.14. WAIVERS. With respect to each of the Collateral
Locations, the Company will obtain such waivers of lien, estoppel certificates
or subordination agreements as the Bank may reasonably require to insure the
priority of its security interest in that portion of the Collateral situated at
such locations; PROVIDED, HOWEVER, that the Company shall not be required to
obtain a lien waiver from the landlord of the Executive Office as in existence
on the Closing Date, so long as, as contemplated pursuant to Section 11.8
hereof, the Company relocates the Executive Office to the New Facility on or
prior to that date which is sixty (60) days after the Closing Date and, on or
prior to such date, obtains a Landlord's Agreement from the landlord of the New
Facility.
10.15. PRESERVATION OF EXISTENCE. The Company shall preserve
and maintain its corporate existence, rights, franchises and privileges in the
jurisdiction of its incorporation, and qualify and remain qualified as a foreign
corporation in each jurisdiction in which the failure to be so qualified could
reasonably be expected to result in a Material Adverse Change.
10.16. COMPLIANCE WITH LAWS. The Company and each of its
Subsidiaries shall comply with the requirements of all applicable laws, rules,
regulations and orders of any governmental authority, noncompliance with which
would or could materially adversely affect their respective financial condition
or the ownership, maintenance or operation of any material portion of any of
their respective properties. Without limiting the foregoing, each of the Company
and its Subsidiaries shall obtain and maintain all permits, licenses and other
authorizations which are required under, and otherwise comply with, all federal,
state, and local laws and regulations, except to the extent that the failure to
obtain or maintain any of the foregoing could not reasonably be expected to
result in a Material Adverse Change.
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10.17. CERTAIN REQUIRED NOTICES. Promptly, upon its receipt of
notice or knowledge thereof, the Company will report to the Bank: (i) any
lawsuit or administrative proceeding in which the Company or any Subsidiary is a
defendant which, if decided adversely to the Company or such Subsidiary, could
reasonably be expected to result in a Material Adverse Change; or (ii) the
existence and nature of any Default Condition or Event of Default.
10.18. OPERATING ACCOUNTS. The Company will maintain its
principal operating accounts with Bank.
10.19. KEY MAN LIFE INSURANCE POLICY. The Company shall obtain
on or prior to that date which is forty-five (45) days after the Closing Date,
and thereafter shall maintain, a "key man" life insurance policy on the life of
the Principal in an amount equal to at least One Million Dollars ($1,000,000)
issued by an insurer satisfactory to the Bank and otherwise on terms and
conditions satisfactory to the Bank which policy shall be collaterally assigned
by the Company to the Bank as additional collateral for the Obligations.
11. NEGATIVE COVENANTS. The Company covenants to the Bank that
from and after the date hereof and so long as any amount remains unpaid on
account of any of the Obligations or this Agreement remains effective (whichever
is the last to occur), the Company will not do (and will not permit any
Subsidiary to do), without the prior written consent of the Bank, any of the
things or acts set forth below:
11.1. ENCUMBRANCES. Create, assume, or suffer to exist any
Lien, except for Permitted Encumbrances.
11.2. DEBT. Incur, assume, or suffer to exist any Debt, except
for: (i) Debt to the Bank or any Affiliate of the Bank; (ii) trade payables and
obligations to suppliers, customers, sales representatives and employees
incurred in the ordinary course of business; (iii) accrued pension fund and
other employee benefit plan obligations and liabilities (provided, however, that
such Debt does not result in the existence of any Event of Default or Default
Condition under any other provision of this Agreement); (iv) deferred taxes; (v)
Debt resulting from endorsements of negotiable instruments received in the
ordinary course of its business, and (vi) all other Debt not to exceed Two
Hundred Fifty Thousand Dollars ($250,000) in the aggregate at any one time
outstanding.
11.3. CONTINGENT LIABILITIES. Guarantee, endorse, become
surety with respect to or otherwise become directly or contingently liable for
or in connection with the obligations of any other person, firm, or corporation,
except for endorsements of negotiable instruments for collection in the ordinary
course of business.
11.4. DISTRIBUTIONS. Pay any dividend or make any other
distributions with respect to any shares of any class of its capital stock;
provided, however, that (a) so long as no Default Condition or Event of Default
exists hereunder or would result therefrom, the Company may pay dividends to its
shareholders during the Company's Fiscal Year ending December 31, 2000 in an
aggregate amount not in excess of One Million Dollars ($1,000,000), (b) with
respect to each Fiscal Year, commencing with the Company's Fiscal Year ending
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December 31, 2001, so long as the Company shall remain an "S Corporation" under
Subchapter S of the Code and no Default Condition or Event of Default exists
hereunder or would result therefrom, the Company may make payments to its
shareholders constituting Permissible Tax Distributions; provided that, during
each Fiscal Year of the Company, the amounts payable as Permissible Tax
Distributions hereunder shall be retained by the Company until preparation of
final year-end financial results of the Company except to the extent that such
Permissible Tax Distributions are required to be paid to the shareholders during
such Fiscal Year in order to prevent penalties and interest accruing against
such shareholders, (c) with respect to each Fiscal Year, commencing with the
Company's Fiscal Year ending December 31, 2001, as long as no Default Condition
or Event of Default exists hereunder or would result therefrom and the Company
has delivered to the Bank its audited financial statements for such Fiscal Year
as required hereunder and a Compliance Certificate so demonstrating, the Company
may pay dividends to its shareholders in an aggregate amount not in excess of
twenty-five percent (25%) of its net income for such Fiscal Year after
subtracting therefrom all Permissible Tax Distributions paid or payable with
respect to such Fiscal Year and (d) concurrently with the consummation of the
IPO, so long as no Default Condition or Event of Default has occurred and is
continuing or would result therefrom, the Company may pay to Principal a
dividend in an amount not in excess of the net cash proceeds of the IPO minus
the sum of Twenty-Five Million Dollars ($25,000,000).
11.5. REDEMPTION. Purchase, redeem, or otherwise acquire for
value any shares of any class of its capital stock.
11.6. INVESTMENTS. Make any investment in cash or by delivery
of property to any Person, whether by acquisition of stock, indebtedness or
other obligation or security, or by loan, advance or capital contribution, or
otherwise, in any Person or property of a Person, except for: (i) fixed assets
acquired from time to time in the ordinary course of business; (ii) current
assets arising from the sale of goods or the provision of services in the
ordinary course of business; (iii) loans or advances to employees for salary,
commissions, travel or the like, made in the ordinary course of business, not to
exceed, however, the aggregate amount of One Hundred Thousand Dollars ($100,000)
in any Fiscal Year; (iv) investments in direct obligations of the United States
of America, or any agency thereof or obligations guaranteed by the United States
of America, provided that such obligations mature within one (1) year from the
date of acquisition thereof; (v) investments in time deposits, demand deposits
and certificates of deposit maturing within one year from the date of
acquisition issued by a bank or trust company organized under the laws of the
United States or any state thereof having capital surplus and undivided profits
aggregating at least $500,000,000; (vi) investments in commercial paper given
the highest rating by a national credit rating agency and maturing not more than
two hundred seventy (270) days from the date of creation thereof and (vii) from
and after the consummation of the IPO, if the net proceeds thereof are in excess
of Twenty-Five Million Dollars ($25,000,000), investments in other
investment-grade securities.
11.7. MERGERS. Dissolve or otherwise terminate its corporate
status or enter into any merger, reorganization or consolidation or make any
substantial change in the basic type of business conducted by the Company and
its Subsidiaries, as of the Closing Date.
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11.8. BUSINESS LOCATIONS. Transfer its principal place of
business or Executive Office or open new locations or warehouses, or transfer
existing locations or warehouses or maintain records with respect to Collateral,
to or at any locations other than those at which the same are presently kept or
maintained as set forth on the Company Information Schedule, unless upon at
least ten (10) Business Days prior written notice to the Bank, except that in
connection with the Company's anticipated relocation of the Executive Office to
the New Facility such required notice period shall be reduced to five (5)
Business Days, and, in any event, after the delivery to the Bank of (a) a
Landlord's Agreement (unless waived in writing by the Bank in its sole
discretion) and (b) financing statements, in form satisfactory to the Bank, to
perfect or continue the perfection of the Bank's Lien.
11.9. AFFILIATE TRANSACTIONS. Enter into, or be a party to, or
permit any Subsidiary to enter into or be a party to, any transaction with any
Affiliate, except in the ordinary course of and pursuant to the reasonable
requirements of the Company's or such Subsidiary's business and upon fair and
reasonable terms which are fully disclosed to the Bank and are no less favorable
to the Company than would be obtained in a comparable arm's length transaction
with a Person not an Affiliate.
11.10. SUBSIDIARIES. Create any Subsidiary or divest itself of
any material assets by transferring them to any Subsidiary which is hereafter
created with the Bank's consent.
11.11. FISCAL YEAR. Change its Fiscal Year, or permit any
Subsidiary to have a fiscal year different from the Fiscal Year of the Company.
11.12. DISPOSITION OF ASSETS. Sell, lease or otherwise dispose
of any of its properties, including any disposition of property as part of a
sale and leaseback transaction, to or in favor of any Person, except (i) sales
of Inventory Collateral in the ordinary course of the Company's business or (ii)
dispositions otherwise expressly authorized by this Agreement.
11.13. FEDERAL TAXPAYER IDENTIFICATION NUMBER. Change or
permit any Subsidiary to change its federal taxpayer identification number
without prior written notice to the Bank.
11.14. EMPLOYEE BENEFIT PLANS. Permit an Employee Benefit Plan
to become materially underfunded or create any Employee Benefit Plan, other than
health insurance plans without prior written notice to the Bank and upon such
notification this Agreement shall be amended as determined necessary by the Bank
in its discretion as a result of the creation of such Plan.
12. FINANCIAL COVENANTS. The Company covenants to the Bank that,
from and after the date hereof and so long as any amount remains unpaid on
account of any of the Obligations or this Agreement remains effective (whichever
is the last to occur), it will:
12.1. DEBT/WORTH RATIO. Maintain a Debt/Worth Ratio, of not
more than 6.00:1.00 at all times.
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12.2. CAPITAL EXPENDITURES. Not expend, during any Fiscal
Year, in Capital Expenditures, for itself and its Subsidiaries, if any, or
contract for any future Capital Expenditures, which in the aggregate represent
an amount exceeding the sum of Seven Hundred Fifty Thousand Dollars ($750,000).
12.3. FIXED CHARGE COVERAGE RATIO. Maintain as of the end of
each Fiscal Quarter of the Company, for the four (4) Fiscal Quarters ending on
such date, a Fixed Charge Coverage Ratio of at least 2.00:1.00.
12.4. TANGIBLE NET WORTH. Maintain Tangible Net North of at
least $2,589,630 at all times; provided, however that such required amount shall
increase in each Fiscal Quarter by an amount equal to seventy-five percent (75%)
of the net income of the Company and its Consolidated Subsidiaries for the
preceding Fiscal Quarter as reported in the financial statements delivered by
the Company to the Bank pursuant to Section 10.6 hereof.
13. EVENTS OF DEFAULT. The occurrence of any events or conditions
set forth below shall constitute an Event of Default hereunder, provided that
any requirement for the giving of notice or the lapse of time, or both, has been
satisfied:
13.1. OBLIGATIONS. The Company (i) shall fail to make any
payment when due of any principal, interest, fees or Letter of Credit
Obligations payable under this Agreement or any of the other Loan Documents or
(ii) shall fail to pay any other Obligations when due and such failure described
in this clause (ii) shall continue for more than two (2) Business Days after the
Bank has notified the Company thereof in writing.
13.2. MISREPRESENTATIONS. The Company, any Subsidiary or any
Guarantor shall make any representations or warranties in any of the Loan
Documents or in any certificate or statement furnished at any time hereunder or
in connection with any of the Loan Documents which proves to have been untrue or
misleading in any material respect when made or furnished.
13.3. CERTAIN COVENANTS. The Company shall default in the
observance or performance of any covenant or agreement contained in Article 10
(other than Sections 10.2, 10.9, 10.11 and 10.14 thereof), 11 or 12 hereof.
13.4. OTHER COVENANTS. The Company, any Subsidiary or any
Guarantor shall default in the observance or performance of any covenant or
agreement contained herein or in any of the other Loan Documents (other than a
default the performance or observance of which is dealt with specifically
elsewhere in this Section) unless (i) with respect to this Agreement, such
default is cured to the Bank's satisfaction within five (5) days, in the case of
defaults under Section 10.2, and ten (10) days, in the case of defaults under
any other such covenants or agreements, after the sooner to occur of receipt of
notice of such default from the Bank or the date on which such default first
becomes known to the Company and (ii) with respect to any other Loan Document,
such default is cured within any applicable grace, cure or notice and cure
period contained therein.
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13.5. OTHER DEBTS. The Company, any Subsidiary or any
Guarantor shall default in connection with any agreement or agreements for Debt
for borrowed money or Capital Leases in excess of Two Hundred Fifty Thousand
Dollars ($250,000) in the aggregate, with any creditor or creditors, including,
without limitation, SunTrust Banks, Inc. and the Bank, which entitles said
creditor or creditors to accelerate the maturity thereof.
13.6. VOLUNTARY BANKRUPTCY. The Company, any Subsidiary or any
Guarantor shall file a voluntary petition in bankruptcy or a voluntary petition
or answer seeking liquidation, reorganization, arrangement, readjustment of its
debts, or for any other relief under the Bankruptcy Code, or under any other act
or law pertaining to insolvency or debtor relief, whether state, Federal, or
foreign, now or hereafter existing; the Company, any Subsidiary or any Guarantor
shall enter into any agreement indicating its consent to, approval of, or
acquiescence in, any such petition or proceeding; the Company, any Subsidiary or
any Guarantor shall apply for or permit the appointment by consent or
acquiescence of a receiver, custodian or trustee of the Company, any Subsidiary
or any Guarantor for all or a substantial part of its property; the Company, any
Subsidiary or any Guarantor shall make an assignment for the benefit of
creditors; or the Company, any Subsidiary or any Guarantor shall be unable or
shall fail to pay its debts generally as such debts become due, or the Company,
any Subsidiary or any Guarantor shall admit, in writing, its inability or
failure to pay its debts generally as such debts become due.
13.7. INVOLUNTARY BANKRUPTCY. There shall have been filed
against the Company, any Subsidiary or any Guarantor an involuntary petition in
bankruptcy or seeking liquidation, reorganization, arrangement, readjustment of
its debts or for any other relief under the Bankruptcy Code, or under any other
act or law pertaining to insolvency or debtor relief, whether state, federal or
foreign, now or hereafter existing; the Company, any Subsidiary or any Guarantor
shall suffer or permit the involuntary appointment of a receiver, custodian or
trustee of the Company, any Subsidiary or any Guarantor or for all or a
substantial part of its property; or the Company, any Subsidiary or any
Guarantor shall suffer or permit the issuance of a warrant of attachment,
execution or similar process against all or any substantial part of the property
of the Company, any Subsidiary or any Guarantor, and such petition, appointment
or warrant shall remain undismissed for a period of greater than sixty (60)
days, or any motion, complaint or other pleading is filed in any bankruptcy case
of any person or entity other than the Company and such motion, complaint or
pleading seeks the consolidation of the Company's assets and liabilities with
the assets and liabilities of such person or entity.
13.8. DAMAGE, LOSS, THEFT OR DESTRUCTION OF COLLATERAL. There
shall have occurred material uninsured damage to, or loss, theft or destruction
of, any Collateral having a value, based on the lower of its depreciated cost or
market value, exceeding Seventy-Five Thousand Dollars ($75,000).
13.9. JUDGMENTS. A final judgment or order for the payment of
money is rendered against the Company, any Subsidiary or any Guarantor in the
amount of Five Hundred Thousand Dollars ($500,000) or more (exclusive of amounts
covered by insurance) and a stay of enforcement of such judgment or order, by
reason of a pending appeal or otherwise, shall not be in effect.
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13.10. DISAVOWAL OF CERTAIN OBLIGATIONS. Any Person (other
than the Bank) party to a Guaranty shall disavow its obligations thereunder; or
any such Guaranty is alleged to be, or determined by any governmental authority
to be, invalid, unenforceable or otherwise not binding on any Person party
thereto (other than the Bank), in whole or in part.
13.11. MATERIAL ADVERSE CHANGE. There shall occur any Material
Adverse Change.
13.12. CHANGE OF CONTROL, ETC. (i) The Principal shall fail to
own, beneficially and of record, at least NINETY percent (90%) in the aggregate,
prior to the consummation of the IPO, and at least fifty-one percent (51%) in
the aggregate, from and after the consummation of the IPO, of the issued and
outstanding capital stock of the Company, or (ii) the Principals shall enter
into, consent to, or acquiesce in, any sale, assignment, transfer, pledge,
hypothecation or other disposition of any such capital stock other than in favor
of the Bank.
13.13. CHANGE IN MANAGEMENT, ETC. The Principal shall die,
become incapacitated, cease to be the chief executive officer of the Company or
otherwise cease to be actively involved in the day-to-day executive management
of the Company; or the Company shall fail to maintain generally executive
management satisfactory to the Bank having sufficient skill and experience in
the Company's industry to manage the Company competently and efficiently.
14. REMEDIES. Upon the occurrence or existence of any Event of
Default, or at any time thereafter, without prejudice to the rights of the Bank
to enforce its claims against the Company for damages for failure by the Company
to fulfill any of its obligations hereunder, subject only to prior receipt by
the Bank of payment in full of all Obligations then outstanding in a form
acceptable to the Bank, the Bank shall have all of the rights and remedies set
forth below, and it may exercise any one, more, or all of such remedies, in its
sole discretion, without thereby waiving any of the others; PROVIDED, HOWEVER,
that, in addition to the foregoing, if the Event of Default is in respect of
Section 13.6 or 13.7, then, automatically, immediately upon such Event of
Default occurring, without necessity of any further action on the Bank's part,
all commitments of the Bank hereunder and under all other Loan Documents shall
terminate, and all Obligations shall be immediately due and payable.
14.1. ACCELERATION OF THE OBLIGATIONS. The Bank, at its
option, may terminate all commitments of the Bank hereunder and under all other
Loan Documents, and declare all of the Obligations to be immediately due and
payable, whereupon the same shall become immediately due and payable without
presentment, demand, protest, notice of nonpayment or any other notice required
by law relative thereto, all of which are hereby expressly waived by the
Company, anything contained herein to the contrary notwithstanding. Thereafter,
the Bank, at its option, may, but shall not be obligated to, accept less than
the entire amount of Obligations due, if tendered, provided, however, that
unless then agreed to in writing by the Bank, no such acceptance shall or shall
be deemed to constitute a waiver of any Event of Default or a reinstatement of
any commitments of the Bank hereunder or under all other Loan Documents.
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14.2. DEFAULT. If the Bank so elects, by further written
notice to the Company, the Bank may increase the rate of interest charged on the
Notes then outstanding for so long thereafter as the Bank further shall elect by
an amount not to exceed the Default Rate.
14.3. REMEDIES OF A SECURED PARTY. The Bank shall thereupon
have the rights and remedies of a secured party under the UCC in effect on the
date thereof (regardless whether the same has been enacted in the jurisdiction
where the rights or remedies are asserted), including, without limitation, the
right to take possession of any of the Collateral or the proceeds thereof, to
sell or otherwise dispose of the same, to apply the proceeds therefrom to any of
the Obligations in such order as the Bank, in its sole discretion, may elect.
The Bank shall give the Company written notice of the time and place of any
public sale of the Collateral or the time after which any other intended
disposition thereof is to be made. The requirement of sending reasonable notice
shall be met if such notice is given to the Company at least ten (10) days
before such disposition. Expenses of retaking, holding, insuring, preserving,
protecting, preparing for sale or selling or the like with respect to the
Collateral shall include, in any event, reasonable attorneys' fees and other
legally recoverable collection expenses, all of which shall constitute
Obligations.
14.4. REPOSSESSION OF THE COLLATERAL. The Bank may take the
Collateral or any portion thereof into its possession, by such means (without
breach of the peace) and through agents or otherwise as it may elect (and, in
connection therewith, demand that the Company assemble the Collateral at a place
or places and in such manner as the Bank shall prescribe), and sell, lease or
otherwise dispose of the Collateral or any portion thereof in its then condition
or following any commercially reasonable preparation or processing, which
disposition may be by public or private proceedings, by one or more contracts,
as a unit or in parcels, at any time and place and on any terms, so long as the
same are commercially reasonable and the Company hereby waives all rights which
the Company has or may have under and by virtue of OCGA Ch. 44-14, including,
without limitation, the right of the Company to notice and to a judicial hearing
prior to seizure of any Collateral by the Bank.
14.5. OTHER REMEDIES. Unless and except to the extent
expressly provided for to the contrary herein, the rights of the Bank specified
herein shall be in addition to, and not in limitation of, the Bank's rights
under the UCC, as amended from time to time, or any other statute or rule of law
or equity, or under any other provision of any of the Loan Documents, or under
the provisions of any other document, instrument or other writing executed by
the Company or any third party in favor of the Bank, all of which may be
exercised successively or concurrently.
14.6. SET OFF. The Bank may set off any or all of the Balances
Collateral against the Obligations.
15. MISCELLANEOUS.
15.1. WAIVER. Each and every right granted to the Bank under
this Agreement, or any of the other Loan Documents, or any other document
delivered hereunder or in connection herewith or allowed it by law or in equity,
shall be cumulative and may be exercised from time to time. No failure on the
part of the Bank to exercise, and no delay in exercising, any right shall
operate as a waiver thereof, nor shall any single or partial exercise by the
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Bank of any right preclude any other or future exercise thereof or the exercise
of any other right. No waiver by the Bank of any Default Condition or Event of
Default shall constitute a waiver of any subsequent Default Condition or Event
of Default.
15.2. GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS, AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND
THEREUNDER, SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF GEORGIA.
15.3. SURVIVAL. All representations, warranties and covenants
made herein and in the Loan Documents shall survive the execution and delivery
hereof and thereof. The terms and provisions of this Agreement shall continue in
full force and effect, notwithstanding the payment of one or more of the Notes
or the termination of the Line of Credit, until all of the Obligations have been
paid in full and the Bank has terminated this Agreement in writing.
15.4. ASSIGNMENTS. No assignment hereof or of any Loan
Document shall be made by the Company without the prior written consent of the
Bank. The Bank may assign, or sell participations in, its right, title and
interest herein and in the Loan Documents at any time hereafter without notice
to or consent of the Company.
15.5. COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which when fully executed shall be an original, and
all of said counterparts taken together shall be deemed to constitute one and
the same agreement.
15.6. REIMBURSEMENT. The Company shall pay to the Bank on
demand all out-of-pocket costs and expenses that the Bank pays or actually
incurs in connection with the negotiation, preparation, consummation,
enforcement and termination of this Agreement and the other Loan Documents,
including, without limitation: (a) attorneys' fees and paralegals' fees and
disbursements of outside counsel; (b) costs and expenses (including outside
attorneys' and paralegals' fees and disbursements) for any amendment,
supplement, waiver, consent or subsequent closing in connection with the Loan
Documents and the transactions contemplated thereby; (c) costs and expenses of
lien and title searches and title insurance; (d) actual taxes, fees and other
charges for recording any deeds to secure debt, deeds of trust, mortgages,
filing financing statements and continuations, and other actions to perfect,
protect and continue the Lien of the Bank in the Collateral; (e) sums paid or
incurred to pay for any amount or to take any action required of the Company
under the Loan Documents that the Company fails to pay or take; (f) costs of
inspections, field audits and verifications of the Collateral, including,
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without limitation, costs of travel, for inspections of the Collateral and the
Company's operations by the Bank (subject to the limitations set forth in
Section 2.2.2(e)); (g) costs and expenses of preserving and protecting the
Collateral; and (h) after an Event of Default, costs and expenses (including
reasonable attorneys' and paralegals' fees and disbursements) paid or incurred
to obtain payment of the Obligations, enforce the Lien in the Collateral, sell
or otherwise realize upon the Collateral, and otherwise enforce the provisions
of the Loan Documents or to defend any claim made or threatened against the Bank
arising out of the transactions contemplated hereby (including, without
limitation, preparations for and consultations concerning any such matters). The
foregoing shall not be construed to limit any other provisions of the Loan
Documents regarding costs and expenses to be paid to the Company. All of the
foregoing costs and expenses may, in the discretion of the Bank, be charged to
the Master Note. The Company will pay all expenses incurred by it in the
transaction. In the event the Company becomes a debtor under the Bankruptcy
Code, the Bank's secured claim in such case shall include interest on the
Obligations and all fees, costs and charges provided for herein (including,
without limitation, reasonable attorneys' fees actually incurred) all to the
extent allowed by the Bankruptcy Code.
15.7. SUCCESSORS AND ASSIGNS. This Agreement and Loan
Documents shall be binding upon and inure to the benefit of the successors and
permitted assigns of the parties hereto and thereto.
15.8. SEVERABILITY. If any provision this Agreement or of any
of the Loan Documents or the application thereof to any party thereto or
circumstances shall be invalid or unenforceable to any extent, the remainder of
such Loan Documents and the application of such provisions to any other party
thereto or circumstance shall not be affected thereby and shall be enforced to
the greatest extent permitted by law.
15.9. NOTICES. All notices, requests and demands to or upon
the respective parties hereto shall be deemed to have been given or made when
personally delivered or three (3) days after being deposited in the mail,
registered or certified mail, postage prepaid, addressed as follows: (i) for the
Bank, care of the address of the Bank inscribed beneath its signature
hereinbelow and (ii) for the Company, care of the address set forth as its
Executive Office on the Company Information Schedule (or to such other address
as may be designated hereafter in writing by the respective parties hereto)
except in cases where it is expressly provided herein or by applicable law that
such notice, demand or request is not effective until received by the party to
whom it is addressed.
15.10. ENTIRE AGREEMENT: AMENDMENTS. This Agreement, together
with the remaining Loan Documents, constitute the entire agreement between the
parties hereto with respect to the subject matter hereof. Neither this Agreement
nor any Loan Document may be changed, waived, discharged, modified or terminated
orally, but only by an instrument in writing signed by the party against whom
enforcement is sought.
15.11. TIME OF ESSENCE. Time is of the essence in this
Agreement and the other Loan Documents.
15.12. INTERPRETATION. No provision of this Agreement or any
Loan Document shall be construed against or interpreted to the disadvantage of
any party hereto by any court or other governmental or judicial authority by
reason of such party having or being deemed to have structured or dictated such
provision.
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15.13. THE BANK NOT A JOINT VENTURER. Neither this Agreement
nor any Loan Document shall in any respect be interpreted, deemed or construed
as making the Bank a partner or joint venturer with the Company or as creating
any similar relationship or entity, and the Company agrees that it will not make
any contrary assertion, contention, claim or counterclaim in any action, suit or
other legal proceeding involving the Bank and the Company.
15.14. JURISDICTION. THE COMPANY AGREES THAT ANY LEGAL ACTION
OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY LOAN DOCUMENT MAY BE BROUGHT
IN THE COURTS OF THE STATE OF GEORGIA OR THE UNITED STATES OF AMERICA FOR THE
NORTHERN DISTRICT OF GEORGIA, ATLANTA DIVISION, ALL AS THE BANK MAY ELECT. BY
EXECUTION OF THIS AGREEMENT, THE COMPANY HEREBY SUBMITS TO EACH SUCH
JURISDICTION, HEREBY EXPRESSLY WAIVING WHATEVER RIGHTS MAY CORRESPOND TO IT BY
REASON OF ITS PRESENT OR FUTURE DOMICILE. NOTHING HEREIN SHALL AFFECT THE RIGHT
OF THE BANK TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE
COMPANY IN ANY OTHER JURISDICTION OR TO SERVE PROCESS IN ANY MANNER PERMITTED OR
REQUIRED BY LAW.
15.15. ACCEPTANCE. This Agreement, together with the other
Loan Documents, shall not become effective unless and until delivered to the
Bank at its principal office in Atlanta, Fulton County, Georgia and accepted in
writing by the Bank at such office as evidenced by its execution hereof (notice
of which delivery and acceptance are hereby waived by the Company).
15.16. PAYMENT ON NON-BUSINESS DAYS. Whenever any payment to
be made hereunder or under the Notes shall be stated to be due on a Saturday,
Sunday or any other day in which national banks within the State of Georgia are
legally authorized to close, such payment may be made on the next succeeding
Business Day, and such extension of time shall in such case be included in the
computation of payment of interest hereunder or under the Notes.
15.17. CURE OF DEFAULTS BY THE BANK. If, hereafter, the
Company defaults in the performance of any duty or obligation to the Bank
hereunder or under any Loan Document, the Bank may, at its option, but without
obligation, cure such default and any costs, fees and expenses incurred by the
Bank in connection therewith including, without limitation, for the purchase of
insurance, the payment of taxes and the removal or settlement of liens and
claims, shall be deemed to be advances against the Master Note, whether or not
this creates an overadvance thereunder, and shall be payable in accordance with
its terms.
15.18. RECITALS. All recitals contained herein are hereby
incorporated by reference into this Agreement and made part thereof.
15.19. ATTORNEY-IN-FACT. The Company hereby designates,
appoints and empowers the Bank irrevocably as its attorney-in-fact, effective
during any time that an Event of Default exists, either in the name of the
Company or the name of the Bank, at the Company's cost and expense, (i) to do
any and all actions which the Bank may deem necessary or advisable to carry out
the terms of this Agreement or any other Loan Document upon the failure, refusal
or inability of the Company to do so and (ii) to ask for, demand, sue for,
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<PAGE> 44
collect, compromise, compound, receive, receipt for and give acquittances for
any and all sums owing or which may become due upon any of the Collateral and,
in connection therewith, to take any and all actions as the Bank may deem
necessary or desirable to realize upon any Collateral; and the Company hereby
agrees to indemnify and hold the Bank harmless from any costs, damages, expenses
or liabilities arising against or incurred by the Bank in connection therewith.
15.20. SOLE BENEFIT. The rights and benefits set forth in this
Agreement and the other Loan Documents are for the sole and exclusive benefit of
the parties hereto and thereto and may be relied upon only by them.
15.21. INDEMNIFICATION. The Company will hold the Bank, its
respective directors, officers, employees, agents, Affiliates, successors and
assigns (collectively, "INDEMNIFIED PARTIES") harmless from and indemnify
Indemnified Parties against, all loss, damages, costs and expenses (including,
without limitation, reasonable attorney's fees, costs and expenses) actually
incurred by any of the foregoing, whether direct, indirect or consequential, as
a result of or arising from or relating to any "Proceedings" (as defined below)
by any Person, whether threatened or initiated, asserting a claim for any legal
or equitable remedy against any Person under any statute, case or regulation,
including, without limitation, any federal or state securities laws, the ADA or
any Environmental Laws or under any common law or equitable case or otherwise,
arising from or in connection with this Agreement, and any other of the
transactions contemplated by this Agreement, except to the extent such losses,
damages, costs or expenses are due to the willful misconduct or gross negligence
of an Indemnified Party. As used herein, "Proceedings" shall mean actions, suits
or proceedings before any court, governmental or regulatory authority and shall
include, particularly, but without limitation, any actions concerning
Environmental Laws. At the request of the Bank, the Company will indemnify any
Person to whom the Bank transfers or sells all or any portion of its interest in
the Obligations or participations therein on terms substantially similar to the
terms set forth above. The Bank shall not be responsible or liable to any Person
for consequential damages which may be alleged as a result of this Agreement or
any of the transactions contemplated hereby. The obligations of the Company
under this Section shall survive the termination of this Agreement and payment
of the Obligations.
15.22. JURY TRIAL WAIVER. EACH OF THE COMPANY AND THE BANK
HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE RIGHT TO TRIAL BY
JURY IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING OUT OF
OR RELATED TO ANY OF THE LOAN DOCUMENTS, OBLIGATIONS OR THE COLLATERAL.
15.23. TERMINOLOGY. All personal pronouns used in this
Agreement, whether used in the masculine, feminine or neuter gender, shall
include all other genders; the singular shall include the plural, and the plural
shall include the singular. Titles of Articles and Sections in this Agreement
are for convenience only, and neither limit nor amplify the provisions of this
Agreement, and all references in this Agreement to Articles, Sections,
Subsections, paragraphs, clauses, subclauses or Exhibits shall refer to the
corresponding Article, Section, Subsection, paragraph, clause, subclause of, or
Exhibit attached to, this Agreement, unless specific reference is made to the
articles, sections or other subdivisions divisions of or Exhibit to, another
document or instrument. Wherever in this Agreement reference is made to any
instrument, agreement or other document, including, without limitation, any of
the Loan Documents, such reference shall be understood to mean and include any
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<PAGE> 45
and all amendments thereto or modifications, restatements, renewals or
extensions thereof. Wherever in this Agreement reference is made to any statute,
such reference shall be understood to mean and include any and all amendments
thereof and all regulations promulgated pursuant thereto. Whenever any matter
set forth herein or in any Loan Document is to be consented to or be
satisfactory to the Bank, or is to be determined, calculated or approved by the
Bank, then, unless otherwise expressly set forth herein or in any such Loan
Document, such consent, satisfaction, determination, calculation or approval
shall be in the Bank's sole discretion, exercised in good faith and, where
required by law, in a commercially reasonable manner, and shall be conclusive
absent manifest error.
15.24. EXHIBITS. All Exhibits attached hereto are by reference
made a part hereof.
15.25. CONFIDENTIALITY. The Bank agrees to exercise
commercially reasonable efforts to keep any information delivered or made
available by the Company to it pursuant to Section 10 hereof, or any other
information which is clearly indicated to be confidential information,
confidential from anyone other than Persons employed or retained by the Bank who
are or are expected to become engaged in evaluating, approving, structuring or
administering the transactions contemplated hereby; provided that nothing herein
shall prevent the Bank from disclosing such information (i) upon the order of
any court or administrative agency, (ii) upon the request or demand of any
regulatory agency or authority having jurisdiction over the Bank, (iii) which
has been publicly disclosed, (iv) to the extent reasonably required in
connection with any litigation to which the Bank or its Affiliates may be party,
(v) to the extent reasonably required in connection with the exercise of any
remedy hereunder, (vi) to the Bank's legal counsel and independent auditors, and
(vii) to any actual or proposed assignee or participant of the Bank so long as
such assignee or participant agrees in writing to be bound by the provisions of
this Section 15.25.
16. CONDITIONS PRECEDENT. Unless waived in writing by the Bank at
or prior to the execution and delivery of this Agreement, the conditions set
forth below shall constitute express conditions precedent to any obligation of
the Bank hereunder.
16.1. SECRETARY'S CERTIFICATE. Receipt by the Bank of a
certificate from the Secretary (or Assistant Secretary) of the Company, to be in
form and substance substantially similar to the secretary's certificate set
forth on EXHIBIT "H", certifying to the Bank (i) that appropriate resolutions
have been entered into by the Board of Directors of the Company, as required,
incident hereto and that the officers of the Company whose signatures appear
hereinbelow, on the other Loan Documents, and on any and all other documents,
instruments and agreements executed in connection herewith, are duly authorized
by the Board of Directors of the Company for and on behalf of the Company to
execute and deliver this Agreement, the other Loan Documents and such other
documents, instruments and agreements, and to bind the Company accordingly
thereby, and (ii) as to the existence and status of the Company's articles of
incorporation and bylaws.
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<PAGE> 46
16.2. GOOD STANDING CERTIFICATES. Receipt by the Bank of a
certificate of good standing with respect to the Company from the secretaries of
state of the state of organization of the Company and of any state in which a
Collateral Location is situated, dated within thirty (30) days of the Closing
Date.
16.3. LOAN DOCUMENTS. Receipt by the Bank of all the other
Loan Documents, including any Notes, together with any Guaranty, each duly
executed in form and substance acceptable to the Bank.
16.4. INSURANCE. Receipt by the Bank of a certificate
respecting all insurance required to be maintained hereunder, together with
appropriate loss payee and additional insured endorsements thereto, favoring the
Bank, all in form acceptable to the Bank.
16.5. FINANCING STATEMENTS. Receipt by the Bank of Uniform
Commercial Code financing statements respecting the Collateral, duly executed by
the Company in form and substance acceptable to the Bank.
16.6. OPINION OF COUNSEL. Receipt by the Bank of an opinion of
counsel from independent legal counsel to the Company in substantially the form
of EXHIBIT "I".
16.7. KEY MAN LIFE INSURANCE POLICY. Receipt by the Bank of
evidence satisfactory to it that Russell Madris has been approved by an insurer
satisfactory to the Bank for the issuance of the key man life insurance policy
required pursuant to Section 10.20.
16.8. NO DEFAULT. No Default Condition or Event of Default
shall exist and the Company shall in all respects be in compliance with all of
the terms of the Loan Documents, as evidenced by its delivery of a compliance
certificate to such effect, to be substantially in the form of EXHIBIT "B"
attached hereto.
16.9. TELEPHONE INSTRUCTION LETTER. Receipt by the Bank of the
Telephone Instruction Letter.
16.10. DISBURSEMENTS LETTER. If required by the Bank, receipt
by the Bank of a disbursements letter, concerning the use of the proceeds of the
initial extensions of credit hereunder, to be substantially in the form of
EXHIBIT "J" attached hereto.
16.11. BORROWING BASE CERTIFICATE. Receipt by the Bank of a
Borrowing Base Certificate together with accompanying documentation required by
the Bank (all in form and substance required by the Bank, but to include in any
event an accounts receivable aging and accounts payable listing as more
particularly described in Section 10.4 and a then current customer and Account
Debtor name and address list) which shall indicate satisfaction of the
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<PAGE> 47
Margin Requirement as of the date of the initial Borrowing and if no funds are
borrowed on the Closing Date indicating the amount of Borrowings available under
the Margin Requirement, each certified as to truth and accuracy by a duly
authorized officer of the Company.
16.12. NO MATERIAL ADVERSE CHANGE. The Bank shall have
determined that no Material Adverse Change shall have occurred.
16.13. OTHER. Receipt by the Bank of such other documents,
certificates, instruments and agreements as shall be required hereunder or
provided for herein or as the Bank or the Bank's counsel may require in
connection herewith.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and the Company has caused its seal to be affixed hereto, as of the day
and year first above written.
"BANK"
SUNTRUST BANK
By: /s/ Harry Bacheller
--------------------------------
Name: Harry Bacheller
-------------------------
Title: Vice President
-------------------------
Address for Notices:
SunTrust Bank, Atlanta
25 Park Place
26th Floor
Atlanta, Georgia 30303
Attn: Harry Bacheller
Vice President
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<PAGE> 48
"COMPANY"
MOREDIRECT.COM, INC.
By: /s/ Scott Modist
---------------------------------------
Name: Scott Modist
Title: Vice President, Chief Financial
Officer and Assistant Secretary
(CORPORATE SEAL)
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<PAGE> 1
EXHIBIT 10.2
MASTER NOTE
1. FOR VALUE RECEIVED, the undersigned, MOREDIRECT.COM, INC., a
Florida corporation (the "COMPANY"), promises to pay to the order of SUNTRUST
BANK ("BANK"), at the principal office of Bank in Atlanta, Georgia, or at such
other place as Bank hereafter may direct in writing, in legal tender of the
United States of America, the principal sum of Fifteen Million Dollars
($15,000,000), or so much thereof as may be disbursed and remain outstanding
from time to time hereafter under the certain "Line of Credit" opened by Bank
in favor of the Company pursuant to the terms of that certain Loan and Security
Agreement, dated as of even date herewith, between Bank and the Company
(hereinafter, as it may be amended or supplemented from time to time, called
the "LOAN AGREEMENT"; all capitalized terms used herein, but not expressly
defined herein, shall have the meanings given to such terms in the Loan
Agreement), the terms and provisions of which are hereby incorporated herein by
reference and made a part hereof, on the Termination Date, with interest
thereon (computed on the daily outstanding principal balance, for the actual
number of days outstanding, on the basis of a 360 day year) on each Advance
made hereunder from date of advance until paid in full at a rate per annum
equal to the Applicable Rate. Unless and except to the extent otherwise
expressly provided in the Loan Agreement, accrued interest on the unpaid
principal balance hereof from time to time outstanding shall be due and payable
monthly, commencing on the first day of the calendar month succeeding the date
hereof and continuing on the same day of each succeeding calendar month
thereafter and on the Termination Date.
2. The Company agrees, in the event that this Master Note or any
portion hereof is collected by law or through an attorney at law, to pay all
costs of collection, including, without limitation, reasonable attorneys' fees.
3. This Note evidences borrowing under, is subject to and
secured by, and shall be paid and enforced in accordance with, the terms of the
Loan Agreement and is the "Master Note" defined in Section 1.1 thereof.
4. Nothing herein shall limit any right granted to Bank by any
other instrument or by law or equity.
5. The Company hereby waives presentment, demand, protest,
notice of presentment, demand, protest and nonpayment and any other notice
required by law relative hereto, except to the extent as otherwise may be
provided for in the Loan Agreement.
<PAGE> 2
IN WITNESS WHEREOF, the Company has caused this Note to be signed and
sealed as of March 27, 2000.
"THE COMPANY"
MOREDIRECT.COM, INC. (SEAL)
By: /s/ SCOTT MODIST
-------------------------------
Name: Scott Modist
Title: Vice President and Chief
Financial Officer
<PAGE> 1
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is entered into and shall
be effective as of January 1, 2000 between Corporate Buying Service Inc., a
Florida corporation (the "Company"), and Russell Madris, a resident of the State
of Florida (the "Executive").
RECITALS
The Company operates an internet-based, business-to-business electronic
marketplace which enables information technology buyers to efficiently source,
evaluate, purchase and track a wide variety of computer hardware, software and
related technology products directly from the inventories of leading technology
wholesale distributors. The Executive was the founder of and has served as
President and Chief Executive Officer of the Company since its organization. The
Company is evaluating potential financing transactions and wishes to confirm in
connection therewith certain understandings with respect to the Executive's
employment with the Company.
TERMS OF AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. EMPLOYMENT. The Company hereby agrees to employ the Executive to
serve in the capacities described herein, and the Executive agrees to accept
such employment and perform such services upon the terms and subject to the
conditions set forth in this Agreement.
2. TERM. The Executive's employment by the Company under this Agreement
shall commence on January 1, 2000 (the "Commencement Date") and expire on the
close of business on January 1, 2003 (the "Expiration Date") unless terminated
by the Company prior thereto in accordance with the terms of this Agreement. For
purposes of this Agreement, "Term" shall mean the period beginning on the
Commencement Date and ending upon the sooner of the Expiration Date or the
termination of the Executive's employment hereunder for any reason.
3. DUTIES AND RESPONSIBILITIES. During the Term, the Executive shall
serve as the President and Chief Executive Officer of the Company. The Executive
shall perform such duties and have such authority as may be assigned and
delegated to him from time to time by the Board of Directors of the Company. The
Executive shall at all times perform his duties and responsibilities honestly,
diligently, in good faith and to the best of his ability. The Executive shall
observe and comply with all of the rules, regulations, policies and procedures
established by the Company from time to time and all applicable laws, rules and
regulations imposed by governmental and regulatory authorities from time to
time. The Executive's employment by the Company shall be full-time and exclusive
and the Executive agrees that he will devote his full business time, attention
and energies
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<PAGE> 2
to the performance of his obligations hereunder. Notwithstanding the foregoing,
the Executive shall be permitted to engage in charitable and civic activities
and manage his personal passive investments, provided such personal passive
investments are not in a company which engages in a business competitive with
the business of the Company and provided that such activities do not
individually or collectively interfere with the performance of his duties and
responsibilities under this Agreement. The Executive shall be based at the
Company's headquarters in Boca Raton, Florida, subject to such travel as may be
necessary to fulfill his obligations under this Agreement.
4. COMPENSATION. As compensation for his services hereunder and in
consideration of the covenants set forth in Sections 9, 10 and 11 below, the
Company shall pay to the Executive the following compensation, subject to any
withholding and other taxes as may be imposed by applicable federal, state,
provincial or local government authorities and other normal and usual employee
deductions:
(a) BASE SALARY. The Company shall pay to the Executive an
annual base salary (the "Base Salary") of Two Hundred Fifty Thousand Dollars
($250,000) per year during the Term. The Base Salary shall be increased by ten
percent (10%) on each anniversary of the date hereof and may be further
increased from time to time during the Term in the sole discretion of the
Company's Board of Directors. The Base Salary shall be payable in accordance
with the Company's customary payroll practices and procedures and shall be
prorated for any partial year arising during the Term.
(b) BONUS. In addition to the Base Salary, the Executive shall
be eligible to be paid a bonus (the "Bonus") on account of the services rendered
by him during each calendar year during the Term beginning with calendar year
2000. The Bonus, if any, payable on account of any calendar year shall be
payable within ninety (90) days following the end of such calendar year and
shall be prorated for any partial calendar year during the Term. The Bonus
payable on account of any calendar year during the Term shall be calculated as
follows:
(i) If the Modified Operating Income (as defined
below) of the Company for such year is equal to the target Modified
Operating Income for such year as determined in the sole discretion of
the Company's Board of Directors (or the Compensation Committee
thereof) (the "Target"), the Executive shall be entitled to a Bonus in
an amount equal to 50% of the Base Salary of the Executive as of
December 31 of such year (the "Target Bonus"). For purposes of this
Agreement, "Modified Operating Income" for any period shall mean the
sum of (a) the operating income of the Company for such period
determined in accordance with generally accepted accounting principles
in the United States of America as in effect from time to time, and (b)
any charges and expenses taken by the Company during such period on
account of the issuance of any stock options or warrants, in each case,
as determined by the Company in its sole discretion
(ii) If the Modified Operating Income of the Company
for such year is more than the Target and less than 150% of the Target,
the Executive shall be entitled to a Bonus as calculated below:
- 2 -
<PAGE> 3
B = Target Bonus + [Target Bonus x MOI - T]
-------
T
where:
B = the Bonus earned in such year.
MOI = the Modified Operating Income of the Company for
such year.
T = the Target for such year.
(iii) If the Modified Operating Income of the Company
for such year is equal to or greater than 150% of the Target, the
Executive shall be entitled to a Bonus in an amount equal to 150% of
the Target Bonus.
(iv) If the Modified Operating Income of the Company
for such year is more than 75% of the Target but less than the Target,
the Executive shall be entitled to a Bonus as calculated below:
B = Target Bonus - [Target Bonus x T - MOI]
-------
T
where:
B = the Bonus earned in such year.
MOI = the Modified Operating Income of the Company for
such year.
T = the Target for such year.
(v) If the Modified Operating Income of the Company
for such year is equal to or less than 75% of the Target, the Executive
shall not be entitled to a Bonus.
(c) STOCK OPTIONS. The Executive shall be eligible to
participate in any stock option plan which may be adopted by the Company from
time to time in such amount and on such terms as may be approved by the
Company's Board of Directors.
5. FRINGE BENEFITS. The Executive shall be paid an automobile allowance
in the amount of One Thousand Dollars ($1,000) per month. The Executive shall
also be entitled to participate in all employee benefit plans and programs
(including, without limitation, profit sharing, medical, disability and life
insurance plans and programs) that the Company establishes and makes generally
available from time to time to its employees, subject, however, to the
applicable eligibility requirements and other provisions of such plans and
programs (including, without limitation, requirements as to position, tenure,
salary, age and health). The Executive shall also be entitled to receive such
fringe benefits and prerequisites as may be generally provided by the Company
from
- 3 -
<PAGE> 4
time to time to its employees, in accordance with the policies of the Company in
effect from time to time.
6. VACATION. The Executive shall be entitled to four (4) weeks paid
vacation annually. The Executive shall be entitled to as many holidays, sick
days and personal days as are generally provided by the Company from time to
time to its employees in accordance with the Company's policies as in effect
from time to time.
7. REIMBURSEMENT OF EXPENSES. The Company shall pay or reimburse the
Executive for all reasonable and necessary travel, entertainment and other
expenses incurred by him in connection with the performance of his duties
hereunder in accordance with the policies and procedures of the Company as in
effect from time to time.
8. TERMINATION. Notwithstanding anything to the contrary contained in
this Agreement, the Company shall have the right, in addition to any other
rights and remedies which it may have, to terminate this Agreement and the
Executive's employment hereunder as follows:
(a) FOR CAUSE. In the event that the Executive (i) repeated
breaches of any of the material terms or conditions of this Agreement and such
breaches are not cured (if curable) within a reasonable time after written
notice thereof is delivered to the Executive by the Company; (ii) commits any
dishonest or fraudulent act with respect to the Company; or (iii) is convicted
of any serious misdemeanor involving illegal use, possession or sale of drugs,
larceny, crimes of violence or sex offenses or any felony, then the Company
shall have the right to immediately terminate this Agreement and the Executive's
employment with the Company hereunder by delivery of written notice to the
Executive of such termination.
(b) DEATH. In the event of the Executive's death, this
Agreement shall automatically terminate as of the date of such death without
notice to either party.
(c) DISABILITY. In the event that the Executive shall be
unable to perform his duties hereunder by virtue of illness or physical or
mental disability (from any cause or causes whatsoever) in substantially the
manner and to the extent required of him hereunder prior to the commencement of
such disability and the Executive shall fail to perform such duties for periods
aggregating 180 days, whether or not continuous, in any continuous 270 day
period, then the Company shall have the right to terminate this Agreement and
the Executive's employment with the Company as of the end of any calendar month
during the continuance of such disability upon at least 30 days' prior written
notice to the Executive.
(d) WITHOUT CAUSE. The Company shall have the right to
terminate this Agreement and the Executive's employment with the Company at any
time without cause on thirty (30) days prior written notice to the Executive.
- 4 -
<PAGE> 5
(e) GOOD REASON. The Executive shall have the right to
terminate his employment under this Agreement for "good reason" if:
(i) the Executive shall be assigned any duties
inconsistent in any respect with the Executive's position set forth in
Section 3 above or any action by the Company which results in a
material diminution in such position, or in the authority, duties or
responsibilities of the Executive, excluding for this purpose, any
isolated, insubstantial and inadvertent action by the Company which is
not taken in bad faith and which is remedied by the Company promptly
after receipt of notice thereof given by the Executive;
(ii) the Company shall fail to comply with any of the
provisions of Section 4 of this Agreement other than an isolated,
insubstantial and inadvertent action by the Company which is not taken
in bad faith and which is remedied by the Company promptly after
receipt of notice thereof given by the Executive;
(iii) the Company shall require the Executive to be
based at any office or location other than the location set forth in
Section 3 of this Agreement, except for travel reasonably required in
the performance of his responsibilities; or
(iv) the Company shall fail to comply with and
satisfy the terms of Section 15 of this Agreement.
(f) MUTUAL AGREEMENT. The parties may terminate this Agreement
and the Executive's employment with the Company upon their mutual written
consent.
(g) PAYMENTS UPON TERMINATION.
(i) In the event that the Company shall terminate
this Agreement and the Executive's employment with the Company under
Section 8(a) above or the Executive shall terminate this Agreement and
his employment with the Company other than for good reason prior to the
Expiration Date, then (a) the Company shall pay to the Executive to the
extent not theretofore paid (1) the Base Salary earned through the date
of termination, payable when and as the same would have been payable
but for such termination, and (2) any Bonus payable under this
Agreement on account of any prior calendar year, payable when and as
the same would have been payable but for such termination, and (b) the
Company shall reimburse the Executive for any expenses for which the
Executive is entitled to reimbursement under Section 7 of this
Agreement and the Company shall have no further obligation to the
Executive.
(ii) In the event that the Company shall terminate
this Agreement and the Executive's employment with the Company under
Section 8(b) or (c) above, then (a) the Company shall pay to the
Executive (or his heirs or personal representatives) to the extent not
theretofore paid (1) the Base Salary earned through the date of
termination, payable when
- 5 -
<PAGE> 6
and as the same would have been payable but for such termination, (2)
any Bonus payable under this Agreement on account of any prior calendar
year, payable when and as the same would have been payable but for such
termination, (3) in the event that a Bonus would have been payable to
the Executive under this Agreement but for such termination of
employment on account of the calendar year in which this Agreement is
terminated, a pro rata portion of such Bonus based on a fraction, the
numerator of which is the number of days in the calendar year in which
the Agreement was terminated occurring prior to the effective date of
such termination and the denomination of which is 365, payable when and
as the same would have been payable but for such termination, (b) in
the case of termination under Section 8(c) above, the Company shall
continue to provide the Executive with those medical, life and
disability insurance benefits, if any, which are provided to the
Executive on the last day of his employment by the Company for a period
of one year following the last day of employment with the Company, and
(c) the Company shall reimburse the Executive for any expenses for
which the Executive is entitled to reimbursement under Section 7 of
this Agreement.
(iii) In the event that the Company shall terminate
this Agreement and the Executive's employment with the Company under
Section 8(d) above (for a reason other than those covered by Sections
8(a), (b) or (c) above) or the Executive shall terminate this Agreement
and his employment with the Company for good reason prior to the
Expiration Date, then (a) the Company shall pay to the Executive to the
extent not theretofore paid (1) an amount equal to the Base Salary
through the date of termination, payable when and as the same would
have been payable but for such termination; (2) the Bonus, if any,
payable under this Agreement on account of any prior calendar year,
payable when and as the same would have been payable but for such
termination; (3) an amount equal to two years Base Salary, plus the
amount of any Bonus paid to the Executive under this Agreement on
account of each of the two calendar years preceding the year in which
such termination occurs, payable in a lump sum on the date of
termination; and (4) in the event that a Bonus would have been payable
to the Executive under this Agreement but for such termination of
employment on account of the calendar year in which this Agreement is
terminated, a pro rata portion of such Bonus based on a fraction, the
numerator of which is the number of days in the calendar year in which
the Agreement was terminated occurring prior to the effective date of
such termination and the denominator of which is 365, payable when and
as the same would have been payable but for such termination, (b) the
Company shall continue to provide the Executive with those medical,
life and disability insurance benefits, if any, which are provided to
the Executive on the last day of his employment with the Company for a
period of two years following his last day of employment with the
Company, and (c) the Company shall reimburse the Executive for any
expenses for which the Executive is entitled to reimbursement under
Section 7 of this Agreement, and the Company shall have no further
obligation to the Executive. The payments made under Sections (a)(3)
and (a)(4) of this subsection shall be referred to herein as the
"Severance Payment." If the Severance Payment, either alone
or together with other "parachute payments" (as defined in Section
280G(b)(2)(A) of the Code), would constitute an "excess parachute
payment" (as defined in Section 280G(b)(1) of the Code), such Severance
Payment shall be reduced to the largest amount as will result
- 6 -
<PAGE> 7
in no portion of the Severance Payment being subject to the excise tax
imposed by Section 4999 of the Code (the "Reduced Severance Payment"),
provided however, no reduction to the Severance Payment shall occur if
the Severance Payment, prior to any such reduction, less any excise tax
which would be imposed on such payment pursuant to Section 4999 of the
Code, would be greater than the Reduced Severance Payment. The
determination of any reduction in the Severance Payment pursuant to the
foregoing provision shall be made by independent counsel to the Company
in consultation with the independent certified public accountants
and/or auditors of the Company.
(iv) In the event that the parties shall terminate
this Agreement and the Executive's employment with the Company pursuant
to Section 8(f), then the Executive shall only be entitled to receive
those payments and benefits which are expressly set forth in the
severance or other agreement entered into by the parties in connection
with such termination.
(h) Notwithstanding anything to the contrary contained herein,
in no event shall the Executive be obligated to seek other employment or take
any other action by way of mitigation of the amounts payable to the Executive
under this Agreement.
9. CONFIDENTIAL INFORMATION. The Executive recognizes and acknowledges
that he will have access to certain confidential and proprietary information
about the Company, its affiliates and parties with whom the Company does
business (collectively, the "Confidential Information"), (including, without
limitation, trade secrets and other information regarding research,
developments, inventions, product designs and specifications, know-how, prices,
suppliers, customers, costs, strategies, financial and business prospects) and
that such information constitutes valuable, special and unique property of the
Company. The Executive acknowledges that the Confidential Information is and
shall remain the exclusive property of the Company. The Executive agrees that he
will not at any time (whether during the Term or at any time thereafter)
disclose the Confidential Information to anyone outside the Company, or utilize
such Confidential Information for his own benefit or the benefit of any third
parties without the prior written consent of the Company. The Executive agrees
that the foregoing restrictions shall apply whether or not such information is
marked "Confidential". The Company acknowledges that the term "Confidential
Information" shall not include information (i) was known by the Executive prior
to disclosure by or on behalf of the Company, its affiliates or parties with
whom the Company does business, (ii) becomes available to the Executive from a
source other than the Company, its affiliates or parties with whom the Company
does business that is not bound by a duty of confidentiality to the Company, its
affiliates or such other parties, or (iii) becomes generally available or known
in the industry other than as a result of its disclosure by the Executive. In
the event that the Executive becomes legally obligated to disclose any
Confidential Information other than to the Company, he will provide the Company
with prompt notice thereof so that the Company may seek a protective order or
other appropriate remedy and the Executive will cooperate with and assist the
Company in securing such protective order or other remedy. In the event that
such protective order is not obtained, or that the Company waives compliance
with the provisions of this Section to permit a particular disclosure, the
Executive will furnish only that portion of the Confidential Information which
he is legally required to disclose. The Executive further agrees that all
memoranda, disks, files, notes, records or other documents which contain
Confidential Information, whether in electronic form or hard copy, and whether
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<PAGE> 8
created by the Executive or others, which come into his possession, shall be and
remain the exclusive property of the Company to be used by the Executive only in
the performance of his obligations hereunder, and shall be delivered by him to
the Company together with any copies thereof upon the termination of his
employment hereunder or at any other time upon the request of the Company. The
Executive also agrees to execute such confidentiality agreements that the Board
of Directors of the Company may adopt, and modify from time to time, as a
standard form to be executed by employees of the Company.
10. NONCOMPETITION. The Executive acknowledges that (a) the Company
engages in a competitive business, (b) the Executive's services and
responsibilities are unique in character and are of particular significance to
the Company, and (c) the Executive's position with the Company will place him in
a position of confidence and trust with the customers, suppliers and employees
of the Company. The Executive consequently agrees that it is reasonable and
necessary for the protection of the Company and its goodwill and business that
the Executive makes the commitments set forth herein. The Executive therefore
agrees that during the Term and for a period of two (2) years thereafter (the
"Noncompete Period"), he will not:
(a) as an individual proprietor, partner, shareholder,
officer, director, employee, consultant, independent contractor, agent, joint
venturer, investor or lender, directly or indirectly, engage anywhere in the
United States in the business of selling computers and computer-related hardware
or software products to commercial businesses using the internet as a
significant channel of distribution or in any other business engaged in by the
Company or any of its present or future parents, subsidiaries or other
affiliates while the Executive was employed by the Company; PROVIDED, HOWEVER,
that the beneficial ownership by the Executive of less than two percent (2%) of
the shares of common stock of any other corporation having a class of equity
securities actively traded on a national securities exchange or over-the-counter
market shall not be deemed, in and of itself, to violate the prohibitions of
this Section, or
(b) attempt in any manner to solicit or sell to any Customer
(as defined below) any products of the type developed, produced, marketed or
sold or being developed, produced, marketed or sold by the Company while the
Executive was employed by the Company or any products competitive with such
products or to persuade any Customer to cease to do business or reduce the
amount of business which such Customer has customarily done or is reasonably
expected to do with the Company, whether or not the relationship between the
Company and such Customer was originally established in whole or in part through
his efforts. As used in this paragraph, the term "Customer" shall mean and
include (i) anyone who was a customer of the Company or any of its present or
future parents, subsidiaries or other affiliates on the date of termination of
the Executive's employment or at any time during the one year immediately
preceding the date of termination of the Executive's employment, (ii) any
prospective customer to whom any representative of the Company or any of its
present or future parents, subsidiaries or other affiliates made a business
presentation or sales pitch at any time during the one year period immediately
preceding the date of termination of the Executive's employment and (iii) any
prospective customer to whom any representative of the Company or any of its
present or future parents, subsidiaries or other affiliates made a business
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<PAGE> 9
presentation or sales pitch at any time within six months after the date of
termination of the Executive's employment if the initial contact or discussion
with such prospective customer relating to the sale of products occurred prior
to the date of termination of the Executive's employment. For purposes of this
clause, it is agreed that a general mailing or incidental contact shall not be
deemed a business presentation or sales pitch. In addition, if the Customer is
part of a group of entities which conduct business through more than one
entities, divisions, teams or operating units, whether or not separately
incorporated, the term "Customer" shall include each entity, division, team and
operating unit of the Customer.
11. NON-SOLICITATION OF EMPLOYEES. The Executive agrees that he will
not during the Term and for a period of two (2) years thereafter, directly or
indirectly, employ or permit any company or business directly or indirectly
controlled by him to employ, any person who is, or at any time during the
preceding twelve month period, was an employee of the Company, or induce or
persuade or seek to induce or persuade any such person to leave his employment
with the Company.
12. ENFORCEABILITY OF RESTRICTIVE COVENANTS. The Executive hereby
acknowledges that the restrictions on his activity contained in Sections 9, 10
and 11 are necessary for the reasonable protection of the Company and are a
material inducement to the Company entering into this Agreement. The Executive
further acknowledges that a breach or threatened breach of any such provisions
would cause irreparable harm to the Company for which there is no adequate
remedy at law. The Executive agrees that in the event of any breach or
threatened breach of any provision contained in Sections 9, 10 or 11 of this
Agreement, the Company shall have the right, in addition to any other rights or
remedies it may have, to seek injunctive relief without having to post bond or
other security and without having to prove special damages or the inadequacy of
the available remedies at law. The parties acknowledge that (a) the time, scope,
geographic area and other provisions contained in Sections 9, 10 and 11 are
reasonable and necessary to protect the goodwill and business of the Company,
(b) as an internet-based business, the Customers of the Company may be serviced
from any location and accordingly it is reasonable that the covenants set forth
herein are not limited by narrow geographic area, and (c) the restriction of the
Executive's ability to solicit Customers will not prevent him from being
employed or earning a livelihood. If any covenant contained in Sections 9, 10 or
11 are held to be unenforceable by reason of the time, scope or geographic area
covered thereby, such covenant shall be interpreted to extend to the maximum
time, scope or geographic area for which it may be enforced as determined by a
court making such determination, and such covenant shall only apply in its
reduced form to the operation of such covenant in the particular jurisdiction in
which such adjudication is made. In the event that the Company shall bring any
action, suit or proceeding against the Executive for the enforcement of this
Agreement, the calculation of the Noncompete Period shall not include the period
of time commencing with the filing of the action, suit or proceeding to enforce
this Agreement through the date of the final judgment or final resolution
(including all appeals, if any) of such action, suit or proceeding. The
existence of any claim or cause of action by the Executive against the Company
or any of its affiliates predicated on this Agreement or otherwise shall not
constitute a defense to the enforcement by the Company of any provision of
Sections 9, 10 or 11.
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<PAGE> 10
13. INTELLECTUAL PROPERTY. The Executive agrees that he shall make full
and prompt disclosure to the Company of all inventions, improvements,
discoveries, methods, developments, software and works of authorship, whether or
not patentable or copyrightable, which are created, made, conceived or reduced
to practice by the Executive or under his direction or jointly with others
during the Term or within one (1) year thereafter (whether or not during normal
working hours, on the premises of the Company or using Company's equipment or
Confidential Information), which relate to the present or planned business or
research and development of the Company (all of which are collectively referred
to as "Developments"). All right, title and interest in the Developments,
whether or not used by the Company, shall, from the inception of development, be
exclusively and perpetually the property of the Company, free of any claim
whatsoever by the Executive or any third party deriving any rights from the
Executive. Any such Developments shall be deemed "works made for hire" within
the meaning of the U.S. Copyright Act and any other applicable U.S. or foreign
laws relating to intellectual property, and the Executive understands and
acknowledges that the Company shall own all right, title and interest in and to
the Developments, including without limitation copyright, patent and trademark
rights, throughout the world. To the extent that any Developments shall not be
deemed "works made for hire," the Executive hereby assigns to the Company any of
its right, title and interest in and to all worldwide intellectual proprietary
rights, including but not limited to all worldwide copyrights, trade secrets,
patent rights and trademark rights, in and to all of the Developments, and
agrees to cooperate fully with the Company, both during and after the Term, with
respect to the procurement, maintenance and enforcement of patents, copyrights
and other intellectual property rights, throughout the world, with respect to
the Developments. The Executive shall sign all papers, including, without
limitation, patent applications, copyright applications, declarations, oaths and
formal assignment documents, which the Company may deem necessary or appropriate
to protect its rights and interests in any Development. The Executive hereby
appoints any officer of the Company as the Executive's attorney-in-fact to
execute any such documents in the name and on behalf of the Executive in the
event that the Executive fails to execute and deliver such documents within
thirty (30) days after the Company's request.
14. CONFLICT. The Executive hereby represents and warrants to the
Company that the execution and delivery of this Agreement by him and the
performance by him of his duties hereunder, shall not constitute a default,
breach or violation of any understanding, contract or commitment, written or
oral, express or implied, to which the Executive is a party or to which the
Executive is or may be bound, including, without limitation, any understanding,
contract or commitment with any present or former employer. The Executive hereby
agrees to indemnify and hold the Company harmless from and against any and all
claims, losses, damages, liabilities, costs and expenses (including, without
limitation, attorneys' fees and expenses) incurred by the Company in connection
with any default, breach or violation by the Executive of any such
understanding, contract or commitment.
15. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, successors and
assigns, except that the Executive may not assign any of his rights or delegate
any of his duties hereunder without the prior written consent of the Company
(which may be granted or withheld in the Company's sole and absolute
discretion).
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<PAGE> 11
The Company shall require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to expressly assume and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform if no such succession had taken place. As used herein,
the "Company" shall mean the Company as defined herein and any successor to its
business and/or assets as aforesaid which assumes this Agreement by operation of
law or otherwise.
16. ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding of the parties and supersedes all prior agreements,
understandings, arrangements, promises and commitments, whether written or oral,
express or implied, relating to the subject matter hereof, and all such prior
agreements, understandings, arrangements, promises and commitments are hereby
canceled and terminated.
17. AMENDMENT. This Agreement may not be amended, supplemented or
modified in whole or in part except by an instrument in writing signed by the
party or parties against whom enforcement of such amendment, supplement or
modification is sought.
18. SURVIVAL. The provisions of Sections 7, 9, 10, 11, 12, 13,
14, 21, 22 and 27 hereof shall survive the termination or expiration of this
Agreement.
19. NOTICES. Any notice, request or other document required or
permitted to be given under this Agreement shall be in writing and shall be
deemed given (a) upon delivery, if delivered by hand, (b) three days after the
date of deposit in the mail, postage prepaid, if mailed by U.S. certified or
registered mail, or (c) on the next business day, if sent by prepaid overnight
courier service, in each case, addressed as follows:
If to the Executive, to the address set forth below his name
on the signature page hereto.
If to the Company, to:
Corporate Buying Service Inc.
3401 N. Federal Highway, Suite 216
Boca Raton, FL 33431
Attention: President
with a copy to:
Akerman Senterfitt & Eidson, P.A.
350 E. Las Olas Boulevard, Suite 1600
Fort Lauderdale, Florida 33301
Attention: Bruce I. March, Esq.
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<PAGE> 12
Any party may change the address to which notice shall be sent by giving notice
of such change of address to the other parties in the manner provided above.
20. WAIVERS. The failure or delay of any party to enforce any provision
of this Agreement shall in no way affect the right of such party to enforce the
same or any other provision of this Agreement. The waiver by any party of any
breach of any provision of this Agreement shall not be construed as a waiver by
such party of any succeeding breach of such provision or a waiver by such party
of a breach of any other provision. The granting of any consent or approval by
any party in any one instance shall not be construed to waive or limit the need
for such consent or approval in any other or subsequent instance.
21. GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Florida applicable to contracts executed and to be
wholly performed within such State. The parties to this Agreement agree that any
suit, action or proceeding arising out of or relating to this Agreement
(including, without limitation, any action for the enforcement of an arbitration
award pursuant to Section 22 below) or any judgment entered by any court in
respect thereof shall be brought in the courts of Palm Beach County, Florida or
in the U.S. District Court for the Southern District of Florida. Each party
hereby (a) irrevocably accepts the exclusive personal jurisdiction of such
courts for the purpose of any action, suit or proceeding arising out of or
relating to this Agreement, (b) irrevocably waive, to the fullest extent
permitted by law, any objection which it may now or hereafter have to the laying
of venue of any action, suit or proceeding arising out of or relating to this
Agreement or any judgment entered by any court in respect thereof brought in
such courts, and (c) irrevocably waive any claim that any action, suit or
proceeds brought in any such court has been brought in an inconvenient forum.
Each party further agrees that service of process, summons, notice or document
by U.S. registered mail in accordance with this Agreement shall be effective
service of process for any action, suit or proceeding brought against a party in
any such court.
22. ARBITRATION. The parties to this Agreement agree to arbitrate all
disputes, controversies or differences that may arise between them with respect
to any provision of this Agreement. Either party may give notice to the other of
its decision to arbitrate the dispute, and such notice shall specify the issue
or issues to be arbitrated. Each party shall select one arbitrator, and the two
arbitrators thereby selected shall select a third arbitrator. The arbitration
shall take place in Palm Beach County, Florida or such other place as the
parties shall agree, under the then-current Commercial Arbitration Rules of the
American Arbitration Association. The decision of a majority of the three
arbitrators, including any assessment of the cost of arbitration, will be final
and binding on the parties. The arbitrators will only have the authority to
award actual direct damages, and will not have the authority to award
consequential or punitive damages. Judgement upon the decision made by the
arbitrators may be entered in any court of competent jurisdiction.
23. SEVERABILITY. If any term or provision of this Agreement shall be
determined by a court of competent jurisdiction to be illegal, invalid or
unenforceable for any reason, the remaining
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<PAGE> 13
provisions of this Agreement shall remain enforceable and the invalid, illegal
or unenforceable provisions shall be modified so as to be valid and enforceable
and shall be enforced.
24. SECTION HEADINGS. Section headings are included in this Agreement
for convenience of reference only, and shall in no way affect the meaning or
interpretation of this Agreement.
25. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
26. NUMBER OF DAYS. In computing the number of days for purposes of
this Agreement, all days shall be counted, including Saturdays, Sundays and
holidays; PROVIDED, HOWEVER, if the final day of any time period falls on a
Saturday, Sunday or holiday on which federal banks in the United States are or
may elect to be closed, then the final day should be deemed the next day which
is not a Saturday, Sunday or such holiday.
27. ATTORNEYS' FEES. In any action brought to enforce any provision of
Sections 9, 10 or 11 of this Agreement, the prevailing party shall be entitled
to recover reasonable attorneys' fees and costs from the other party to the
action or proceeding. For purposes of this Agreement, the "prevailing party"
shall be deemed to be that party who obtains substantially the result sought,
whether by settlement, mediation, judgment or otherwise, and "attorneys' fees"
shall include, without limitation, the actual attorneys' fees incurred in
retaining counsel for advice, negotiations, suit, or other legal proceeding,
including mediation and arbitration.
[Signature page follows]
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<PAGE> 14
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first written above.
CORPORATE BUYING SERVICE INC.
By: /s/ RUSSELL MADRIS
-------------------------------------
Russell Madris
President
EXECUTIVE
By: /s/ RUSSELL MADRIS
-------------------------------------
Russell Madris, Individually
Address:
927 Glenview Dr.
-------------------------------------
DelRay Beach, FL 33431
-------------------------------------
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<PAGE> 1
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is entered into and shall
be effective as of September 27, 1999 between Corporate Buying Service Inc., a
Florida corporation (the "Company"), and Scott Modist, a resident of the State
of Florida (the "Executive").
RECITALS
The Company operates an internet-based, business-to-business electronic
marketplace which enables information technology buyers to efficiently source,
evaluate, purchase and track a wide variety of computer hardware, software and
related technology products directly from the inventories of the leading
technology wholesale distributors. The Company has recently experienced
significant growth and desires to expand its management capabilities in the
financial and accounting areas and the Executive has extensive experience in the
such areas. The Company therefore desires to employ the Executive, and the
Executive has agreed to be employed by the Company, on the terms and subject to
the conditions set forth in this Agreement.
TERMS OF AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. EMPLOYMENT. The Company hereby agrees to employ the Executive to
serve in the capacities described herein, and the Executive agrees to accept
such employment and perform such services upon the terms and subject to the
conditions set forth in this Agreement.
2. TERM. The Executive's employment by the Company under this Agreement
shall commence on September 27, 1999 (the "Commencement Date") and expire on the
close of business on September 27, 2002 (the "Expiration Date") unless
terminated by the Company prior thereto in accordance with the terms of this
Agreement. For purposes of this Agreement, "Term" shall mean the period
beginning on the Commencement Date and ending upon the sooner of the Expiration
Date or the termination of the Executive's employment hereunder for any reason.
3. DUTIES AND RESPONSIBILITIES. During the Term, the Executive shall
serve as Vice President and Chief Financial Officer of the Company. The
Executive shall perform such duties and have such authority as may be assigned
and delegated to him from time to time by the President of the Company. The
Executive shall at all times perform his duties and responsibilities honestly,
diligently, in good faith and to the best of his ability. The Executive shall
observe and comply with all of the rules, regulations, policies and procedures
established by the Company from time to time and all applicable laws, rules and
regulations imposed by governmental and regulatory authorities from time to
time. The Executive's employment by the Company shall be full-time and exclusive
and the Executive agrees that he will devote his full business time, attention
and energies to the
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<PAGE> 2
performance of his obligations hereunder. Notwithstanding the foregoing, the
Executive shall be permitted to engage in charitable and civic activities and
manage his personal passive investments, provided such personal passive
investments are not in a company which engages in a business competitive with
the business of the Company and provided that such activities do not
individually or collectively interfere with the performance of his duties and
responsibilities under this Agreement. The Executive shall be based at the
Company's headquarters in Boca Raton, Florida, subject to such travel as may be
necessary to fulfill his obligations under this Agreement.
4. COMPENSATION. As compensation for his services hereunder and in
consideration of the covenants set forth in Sections 9, 10 and 11 below, the
Company shall pay to the Executive the following compensation, subject to any
withholding and other taxes as may be imposed by applicable federal, state,
provincial or local government authorities and other normal and usual employee
deductions:
(a) BASE SALARY. The Company shall pay to the Executive an
annual base salary (the "Base Salary") of One Hundred Twenty Five Thousand
Dollars ($125,000) per year during the Term. The Base Salary shall increase to
One Hundred Seventy Five Thousand Dollars ($175,000) upon the closing of an
underwritten public offering by the Company pursuant to a registration statement
filed and declared effective under the Securities Act of 1933, as amended,
covering the offer and sale of the Company's Common Stock (as defined below) for
the account of the Company. The Base Salary may be further increased from time
to time during the Term in the sole discretion of the Company's Board of
Directors. The Base Salary shall be payable in accordance with the Company's
customary payroll practices and procedures and shall be prorated for any partial
year arising during the Term.
(b) BONUS. In addition to the Base Salary, the Executive shall
be eligible to be paid a bonus (the "Bonus") on account of the services rendered
by him during each calendar year during the Term beginning with calendar year
2000. The Bonus, if any, payable on account of any calendar year shall be
payable within ninety (90) days following the end of such calendar year and
shall be pro rated for any partial calendar year during the Term. The Bonus
payable on account of any calendar year during the Term shall be calculated as
follows:
(i) If the Modified Operating Income (as defined
below) of the Company for such year is equal to the target Modified
Operating Income for such year as determined in the sole discretion of
the Company's Board of Directors (or the Compensation Committee
thereof) (the "Target"), the Executive shall be entitled to a Bonus in
an amount equal to 50% of the Base Salary of the Executive as of
December 31 of such year (the "Target Bonus"). For purposes of this
Agreement, "Modified Operating Income" for any period shall mean the
sum of (a) the operating income of the Company for such period
determined in accordance with generally accepted accounting principles
in the United States of America as in effect from time to time, and (b)
any charges and expenses taken by the Company during such period on
account of the issuance of any stock options or warrants, in each case,
as determined by the Company in its sole discretion.
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<PAGE> 3
(ii) If the Modified Operating Income of the Company
for such year is more than the Target and less than 150% of the Target,
the Executive shall be entitled to a Bonus as calculated below:
B = Target Bonus + [Target Bonus x MOI - T]
-------
T
where:
B = the Bonus earned in such year.
MOI = the Modified Operating Income of the Company for
such year.
T = the Target for such year.
(iii) If the Modified Operating Income of the Company
for such year is equal to or greater than 150% of the Target, the
Executive shall be entitled to a Bonus in an amount equal to 150% of
the Target Bonus.
(iv) If the Modified Operating Income of the Company
for such year is more than 75% of the Target but less than the Target,
the Executive shall be entitled to a Bonus as calculated below:
B = Target Bonus - [Target Bonus x T - MOI]
-------
T
where:
B = the Bonus earned in such year.
MOI = the Modified Operating Income of the Company for
such year.
T = the Target for such year.
(v) If the Modified Operating Income of the Company
for such year is equal to or less than 75% of the Target, the Executive
shall not be entitled to a Bonus.
(c) STOCK OPTIONS. The Executive shall be eligible to
participate in any stock option plan which may be adopted by the Company from
time to time in such amount and on such terms as may be approved by the
Company's Board of Directors.
5. FRINGE BENEFITS. The Executive shall be entitled to participate in
all employee benefit plans and programs (including, without limitation, profit
sharing, medical, disability and life insurance plans and programs) that the
Company establishes and makes generally available from time to time to its
employees, subject, however, to the applicable eligibility requirements and
other
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<PAGE> 4
provisions of such plans and programs (including, without limitation,
requirements as to position, tenure, salary, age and health). The Executive
shall also be entitled to receive such fringe benefits and prerequisites as may
be generally provided by the Company from time to time to its employees, in
accordance with the policies of the Company in effect from time to time.
6. VACATION. The Executive shall be entitled to three (3) weeks paid
vacation annually (with no right of carry-over), to be taken at such time(s) as
shall not, in the reasonable judgment of the President of the Company, interfere
with the Executive's fulfillment of his duties hereunder. The Executive shall be
entitled to as many holidays, sick days and personal days as are generally
provided by the Company from time to time to its employees in accordance with
the Company's policies as in effect from time to time.
7. REIMBURSEMENT OF EXPENSES. The Company shall pay or reimburse the
Executive for all reasonable and necessary travel, entertainment and other
expenses incurred by him in connection with the performance of his duties
hereunder in accordance with the policies and procedures of the Company as in
effect from time to time; PROVIDED THAT (a) such expenditure is of a nature
deductible under Section 162 of the Internal Revenue Code (the "Code") on the
Federal income tax return of the Company as a business expense and not as
deductible compensation to the Executive, and (b) Executive provides the Company
with such documentary evidence as may in the opinion of the Company be required
by the Code or any regulation promulgated thereunder for the substantiation of
such expenditures as a deductible business expense of the Company and not as
deductible compensation to the Executive. The Executive agrees that, if at any
time, any payment made to the Executive by the Company as a business expense
reimbursement shall be disallowed as a deductible expense to the Company by the
appropriate taxing authorities, the Executive shall reimburse the Company to the
full extent of such disallowance.
8. TERMINATION. Notwithstanding anything to the contrary contained in
this Agreement, the Company shall have the right, in addition to any other
rights and remedies which it may have, to terminate this Agreement and the
Executive's employment hereunder as follows:
(a) FOR CAUSE. In the event that the Executive (i) breaches
any of the terms or conditions of this Agreement and such breach is not cured
(if curable) within ten days after written notice thereof is delivered to the
Executive by the Company; (ii) fails or refuses to perform his duties and
responsibilities as set forth in or delegated to him pursuant to this Agreement
or fails to devote his full business time and attention exclusively to the
business and affairs of the Company in accordance with the terms of this
Agreement and such failure or refusal is not cured (if curable) within ten days
after written notice thereof is delivered to the Executive by the Company; (iii)
commits any dishonest, fraudulent or wilfully negligent act with respect to the
Company; (iv) is convicted of any misdemeanor involving dishonesty or moral
turpitude or any felony, or (v) commits any act which injures or could
reasonably be expected to injure the reputation, business or business
relationships of the Company, then the Company shall have the right to
immediately terminate this Agreement and the Executive's employment with the
Company hereunder by delivery of written notice to the Executive of such
termination.
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<PAGE> 5
(b) DEATH. In the event of the Executive's death, this
Agreement shall automatically terminate as of the date of such death without
notice to either party.
(c) DISABILITY. In the event that the Executive shall be
unable to perform his duties hereunder by virtue of illness or physical or
mental disability (from any cause or causes whatsoever) in substantially the
manner and to the extent required of him hereunder prior to the commencement of
such disability and the Executive shall fail to perform such duties for periods
aggregating 180 days, whether or not continuous, in any continuous 270 day
period, then the Company shall have the right to terminate this Agreement and
the Executive's employment with the Company as of the end of any calendar month
during the continuance of such disability upon at least 30 days' prior written
notice to the Executive.
(d) WITHOUT CAUSE. The Company shall have the right to
terminate this Agreement and the Executive's employment with the Company at any
time without cause on thirty (30) days prior written notice to the Executive.
(e) MUTUAL AGREEMENT. The parties may terminate this Agreement
and the Executive's employment with the Company upon their mutual written
consent.
(f) PAYMENTS UPON TERMINATION. In the event that the Company
shall terminate this Agreement and the Executive's employment with the Company
under Section 8(a), (b) or (c) above or the Executive terminates his employment
with the Company for any reason prior to the Expiration Date, then (a) the
Company shall pay to the Executive (or his heirs and/or personal
representatives) (1) the Base Salary earned through the date of termination,
payable when and as the same would have been payable but for such termination,
and (b) any Bonus payable under this Agreement on account of any prior calendar
year, payable when and as the same would have been payable but for such
termination, and (c) the Company shall reimburse the Executive for any expenses
for which the Executive is entitled to reimbursement under Section 7 of this
Agreement, and the Company shall have no further obligation to the Executive. In
the event that the Company shall terminate this Agreement and the Executive's
employment with the Company under Section 8(d) above (for a reason other than
those covered by Sections 8(a), (b) or (c) above), then (a) the Company shall
pay to the Executive (1) the Base Salary earned through the date of termination,
payable when and as the same would have been payable but for such termination,
(2) any Bonus payable under this Agreement on account of any prior calendar
year, payable when and as the same would have been payable but for such
termination, and (3) an amount equal to Twenty Five Percent (25%) of his then
current annual Base Salary in a lump sum payment within thirty (30) days
following the last day of the Executive's employment with the Company, (b) the
Company shall continue to provide the Executive with those medical, life and
disability insurance benefits, if any, which are provided to the Executive on
the last day of his employment with the Company for a period of three (3) months
following his last day of employment with the Company, and (c) the Company shall
reimburse the Executive for any expenses for which the Executive is
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entitled to reimbursement under Section 7 of this Agreement, and the Company
shall have no further obligation to the Executive.
9. CONFIDENTIAL INFORMATION. The Executive recognizes and acknowledges
that he will have access to certain confidential and proprietary information
about the Company, its affiliates and parties with whom the Company does
business (collectively, the "Confidential Information"), (including, without
limitation, trade secrets and other information regarding research,
developments, inventions, product designs and specifications, know-how, prices,
suppliers, customers, costs, strategies, financial and business prospects) and
that such information constitutes valuable, special and unique property of the
Company. The Executive acknowledges that the Confidential Information is and
shall remain the exclusive property of the Company. The Executive agrees that he
will not at any time (whether during the Term or at any time thereafter)
disclose the Confidential Information to anyone outside the Company, or utilize
such Confidential Information for his own benefit or the benefit of any third
parties without the prior written consent of the Company. The Executive agrees
that the foregoing restrictions shall apply whether or not such information is
marked "Confidential". The Company acknowledges that the term "Confidential
Information" shall not include information (i) was known by the Executive prior
to disclosure by or on behalf of the Company, its affiliates or parties with
whom the Company does business, (ii) becomes available to the Executive from a
source other than the Company, its affiliates or parties with whom the Company
does business that is not bound by a duty of confidentiality to the Company, its
affiliates or such other parties, or (iii) becomes generally available or known
in the industry other than as a result of its disclosure by the Executive. In
the event that the Executive becomes legally obligated to disclose any
Confidential Information other than to the Company, he will provide the Company
with prompt notice thereof so that the Company may seek a protective order or
other appropriate remedy and the Executive will cooperate with and assist the
Company in securing such protective order or other remedy. In the event that
such protective order is not obtained, or that the Company waives compliance
with the provisions of this Section to permit a particular disclosure, the
Executive will furnish only that portion of the Confidential Information which
he is legally required to disclose. The Executive further agrees that all
memoranda, disks, files, notes, records or other documents which contain
Confidential Information, whether in electronic form or hard copy, and whether
created by the Executive or others, which come into his possession, shall be and
remain the exclusive property of the Company to be used by the Executive only in
the performance of his obligations hereunder, and shall be delivered by him to
the Company together with any copies thereof upon the termination of his
employment hereunder or at any other time upon the request of the Company. The
Executive also agrees to execute such confidentiality agreements that the Board
of Directors of the Company may adopt, and modify from time to time, as a
standard form to be executed by employees of the Company.
10. NONCOMPETITION. The Executive acknowledges that (a) the Company
engages in a competitive business, (b) the Executive's services and
responsibilities are unique in character and are of particular significance to
the Company, and (c) the Executive's position with the Company will place him in
a position of confidence and trust with the customers, suppliers and employees
of the Company. The Executive consequently agrees that it is reasonable and
necessary for the
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protection of the Company and its goodwill and business that the Executive makes
the commitments set forth herein. The Executive therefore agrees that during the
Term and for a period of two (2) years thereafter (the "Noncompete Period"), he
will not:
(a) as an individual proprietor, partner, shareholder,
officer, director, employee, consultant, independent contractor, agent, joint
venturer, investor or lender, directly or indirectly, engage anywhere in the
United States in the business of selling computers and computer-related hardware
or software products to commercial businesses using the internet as a
significant channel of distribution or in any other business engaged in by the
Company or any of its present or future parents, subsidiaries or other
affiliates while the Executive was employed by the Company; PROVIDED, HOWEVER,
that the beneficial ownership by the Executive of less than two percent (2%) of
the shares of common stock of any other corporation having a class of equity
securities actively traded on a national securities exchange or over-the-counter
market shall not be deemed, in and of itself, to violate the prohibitions of
this Section, or
(b) attempt in any manner to solicit or sell to any Customer
(as defined below) any products of the type developed, produced, marketed or
sold or being developed, produced, marketed or sold by the Company while the
Executive was employed by the Company or any products competitive with such
products or to persuade any Customer to cease to do business or reduce the
amount of business which such Customer has customarily done or is reasonably
expected to do with the Company, whether or not the relationship between the
Company and such Customer was originally established in whole or in part through
his efforts. As used in this paragraph, the term "Customer" shall mean and
include (i) anyone who was a customer of the Company or any of its present or
future parents, subsidiaries or other affiliates on the date of termination of
the Executive's employment or at any time during the one year immediately
preceding the date of termination of the Executive's employment, (ii) any
prospective customer to whom any representative of the Company or any of its
present or future parents, subsidiaries or other affiliates made a business
presentation or sales pitch at any time during the one year period immediately
preceding the date of termination of the Executive's employment and (iii) any
prospective customer to whom any representative of the Company or any of its
present or future parents, subsidiaries or other affiliates made a business
presentation or sales pitch at any time within six months after the date of
termination of the Executive's employment if the initial contact or discussion
with such prospective customer relating to the sale of products occurred prior
to the date of termination of the Executive's employment. For purposes of this
clause, it is agreed that a general mailing or incidental contact shall not be
deemed a business presentation or sales pitch. In addition, if the Customer is
part of a group of entities which conduct business through more than one
entities, divisions, teams or operating units, whether or not separately
incorporated, the term "Customer" shall include each entity, division, team and
operating unit of the Customer.
11. NON-SOLICITATION OF EMPLOYEES. The Executive agrees that he will
not during the Term and for a period of two (2) years thereafter, directly or
indirectly, employ or permit any company or business directly or indirectly
controlled by him to employ, any person who is, or at any
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<PAGE> 8
time during the preceding twelve month period, was an employee of the Company,
or induce or persuade or seek to induce or persuade any such person to leave his
employment with the Company.
12. ENFORCEABILITY OF RESTRICTIVE COVENANTS. The Executive hereby
acknowledges that the restrictions on his activity contained in Sections 9, 10
and 11 are necessary for the reasonable protection of the Company and are a
material inducement to the Company entering into this Agreement. The Executive
further acknowledges that a breach or threatened breach of any such provisions
would cause irreparable harm to the Company for which there is no adequate
remedy at law. The Executive agrees that in the event of any breach or
threatened breach of any provision contained in Sections 9, 10 or 11 of this
Agreement, the Company shall have the right, in addition to any other rights or
remedies it may have, to seek injunctive relief without having to post bond or
other security and without having to prove special damages or the inadequacy of
the available remedies at law. The parties acknowledge that (a) the time, scope,
geographic area and other provisions contained in Sections 9, 10 and 11 are
reasonable and necessary to protect the goodwill and business of the Company,
(b) as an internet-based business, the Customers of the Company may be serviced
from any location and accordingly it is reasonable that the covenants set forth
herein are not limited by narrow geographic area, and (c) the restriction of the
Executive's ability to solicit Customers will not prevent him from being
employed or earning a livelihood. If any covenant contained in Sections 9, 10 or
11 are held to be unenforceable by reason of the time, scope or geographic area
covered thereby, such covenant shall be interpreted to extend to the maximum
time, scope or geographic area for which it may be enforced as determined by a
court making such determination, and such covenant shall only apply in its
reduced form to the operation of such covenant in the particular jurisdiction in
which such adjudication is made. In the event that the Company shall bring any
action, suit or proceeding against the Executive for the enforcement of this
Agreement, the calculation of the Noncompete Period shall not include the period
of time commencing with the filing of the action, suit or proceeding to enforce
this Agreement through the date of the final judgment or final resolution
(including all appeals, if any) of such action, suit or proceeding. The
existence of any claim or cause of action by the Executive against the Company
or any of its affiliates predicated on this Agreement or otherwise shall not
constitute a defense to the enforcement by the Company of any provision of
Sections 9, 10 or 11.
13. INTELLECTUAL PROPERTY. The Executive agrees that he shall make full
and prompt disclosure to the Company of all inventions, improvements,
discoveries, methods, developments, software and works of authorship, whether or
not patentable or copyrightable, which are created, made, conceived or reduced
to practice by the Executive or under his direction or jointly with others
during the Term or within one (1) year thereafter (whether or not during normal
working hours, on the premises of the Company or using Company's equipment or
Confidential Information), which relate to the present or planned business or
research and development of the Company (all of which are collectively referred
to as "Developments"). All right, title and interest in the Developments,
whether or not used by the Company, shall, from the inception of development, be
exclusively and perpetually the property of the Company, free of any claim
whatsoever by the Executive or any third party deriving any rights from the
Executive. Any such Developments shall be deemed "works made for hire" within
the meaning of the U.S. Copyright Act and any other applicable U.S. or foreign
laws
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<PAGE> 9
relating to intellectual property, and the Executive understands and
acknowledges that the Company shall own all right, title and interest in and to
the Developments, including without limitation copyright, patent and trademark
rights, throughout the world. To the extent that any Developments shall not be
deemed "works made for hire," the Executive hereby assigns to the Company any of
its right, title and interest in and to all worldwide intellectual proprietary
rights, including but not limited to all worldwide copyrights, trade secrets,
patent rights and trademark rights, in and to all of the Developments, and
agrees to cooperate fully with the Company, both during and after the Term, with
respect to the procurement, maintenance and enforcement of patents, copyrights
and other intellectual property rights, throughout the world, with respect to
the Developments. The Executive shall sign all papers, including, without
limitation, patent applications, copyright applications, declarations, oaths and
formal assignment documents, which the Company may deem necessary or appropriate
to protect its rights and interests in any Development. The Executive hereby
appoints any officer of the Company as the Executive's attorney-in-fact to
execute any such documents in the name and on behalf of the Executive in the
event that the Executive fails to execute and deliver such documents within
thirty (30) days after the Company's request.
14. CONFLICT. The Executive hereby represents and warrants to the
Company that the execution and delivery of this Agreement by him and the
performance by him of his duties hereunder, shall not constitute a default,
breach or violation of any understanding, contract or commitment, written or
oral, express or implied, to which the Executive is a party or to which the
Executive is or may be bound, including, without limitation, any understanding,
contract or commitment with any present or former employer. The Executive hereby
agrees to indemnify and hold the Company harmless from and against any and all
claims, losses, damages, liabilities, costs and expenses (including, without
limitation, attorneys' fees and expenses) incurred by the Company in connection
with any default, breach or violation by the Executive of any such
understanding, contract or commitment.
15. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, successors and
assigns, except that the Executive may not assign any of his rights or delegate
any of his duties hereunder without the prior written consent of the Company
(which may be granted or withheld in the Company's sole and absolute
discretion).
16. ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding of the parties and supersedes all prior agreements,
understandings, arrangements, promises and commitments, whether written or oral,
express or implied, relating to the subject matter hereof, and all such prior
agreements, understandings, arrangements, promises and commitments are hereby
canceled and terminated.
17. AMENDMENT. This Agreement may not be amended, supplemented or
modified in whole or in part except by an instrument in writing signed by the
party or parties against whom enforcement of such amendment, supplement or
modification is sought.
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<PAGE> 10
18. SURVIVAL. The provisions of Sections 7, 9, 10, 11, 12, 13,
14, 21, 22 and 27 hereof shall survive the termination or expiration of this
Agreement.
19. NOTICES. Any notice, request or other document required or
permitted to be given under this Agreement shall be in writing and shall be
deemed given (a) upon delivery, if delivered by hand, (b) three days after the
date of deposit in the mail, postage prepaid, if mailed by U.S. certified or
registered mail, or (c) on the next business day, if sent by prepaid overnight
courier service, in each case, addressed as follows:
If to the Executive, to the address set forth below his name
on the signature page hereto.
If to the Company, to:
Corporate Buying Service Inc.
3401 N. Federal Highway, Suite 216
Boca Raton, FL 33431
Attention: President
with a copy to:
Akerman Senterfitt & Eidson, P.A.
350 E. Las Olas Boulevard, Suite 1600
Fort Lauderdale, Florida 33301
Attention: Bruce I. March, Esq.
Any party may change the address to which notice shall be sent by giving notice
of such change of address to the other parties in the manner provided above.
20. WAIVERS. The failure or delay of any party to enforce any provision
of this Agreement shall in no way affect the right of such party to enforce the
same or any other provision of this Agreement. The waiver by any party of any
breach of any provision of this Agreement shall not be construed as a waiver by
such party of any succeeding breach of such provision or a waiver by such party
of a breach of any other provision. The granting of any consent or approval by
any party in any one instance shall not be construed to waive or limit the need
for such consent or approval in any other or subsequent instance.
21. GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Florida applicable to contracts executed and to be
wholly performed within such State. The parties to this Agreement agree that any
suit, action or proceeding arising out of or relating to this Agreement
(including, without limitation, any action for the enforcement of an arbitration
award pursuant to Section 22 below) or any judgment entered by any court in
respect thereof shall be
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<PAGE> 11
brought in the courts of Palm Beach County, Florida or in the U.S. District
Court for the Southern District of Florida. Each party hereby (a) irrevocably
accepts the exclusive personal jurisdiction of such courts for the purpose of
any action, suit or proceeding arising out of or relating to this Agreement, (b)
irrevocably waive, to the fullest extent permitted by law, any objection which
it may now or hereafter have to the laying of venue of any action, suit or
proceeding arising out of or relating to this Agreement or any judgment entered
by any court in respect thereof brought in such courts, and (c) irrevocably
waive any claim that any action, suit or proceeds brought in any such court has
been brought in an inconvenient forum. Each party further agrees that service of
process, summons, notice or document by U.S. registered mail in accordance with
this Agreement shall be effective service of process for any action, suit or
proceeding brought against a party in any such court.
22. ARBITRATION. The parties to this Agreement agree to arbitrate all
disputes, controversies or differences that may arise between them with respect
to any provision of this Agreement. Either party may give notice to the other of
its decision to arbitrate the dispute, and such notice shall specify the issue
or issues to be arbitrated. Each party shall select one arbitrator, and the two
arbitrators thereby selected shall select a third arbitrator. The arbitration
shall take place in Palm Beach County, Florida or such other place as the
parties shall agree, under the then-current Commercial Arbitration Rules of the
American Arbitration Association. The decision of a majority of the three
arbitrators, including any assessment of the cost of arbitration, will be final
and binding on the parties. The arbitrators will only have the authority to
award actual direct damages, and will not have the authority to award
consequential or punitive damages. Judgement upon the decision made by the
arbitrators may be entered in any court of competent jurisdiction.
23. SEVERABILITY. If any term or provision of this Agreement shall be
determined by a court of competent jurisdiction to be illegal, invalid or
unenforceable for any reason, the remaining provisions of this Agreement shall
remain enforceable and the invalid, illegal or unenforceable provisions shall be
modified so as to be valid and enforceable and shall be enforced.
24. SECTION HEADINGS. Section headings are included in this Agreement
for convenience of reference only, and shall in no way affect the meaning or
interpretation of this Agreement.
25. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
26. NUMBER OF DAYS. In computing the number of days for purposes of
this Agreement, all days shall be counted, including Saturdays, Sundays and
holidays; PROVIDED, HOWEVER, if the final day of any time period falls on a
Saturday, Sunday or holiday on which federal banks in the United States are or
may elect to be closed, then the final day should be deemed the next day which
is not a Saturday, Sunday or such holiday.
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<PAGE> 12
27. ATTORNEYS' FEES. In any action brought to enforce any provision of
Sections 9, 10 or 11 of this Agreement, the prevailing party shall be entitled
to recover reasonable attorneys' fees and costs from the other party to the
action or proceeding. For purposes of this Agreement, the "prevailing party"
shall be deemed to be that party who obtains substantially the result sought,
whether by settlement, mediation, judgment or otherwise, and "attorneys' fees"
shall include, without limitation, the actual attorneys' fees incurred in
retaining counsel for advice, negotiations, suit, or other legal proceeding,
including mediation and arbitration.
[SIGNATURE PAGE FOLLOWS]
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<PAGE> 13
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first written above.
CORPORATE BUYING SERVICE INC.
By: /s/ RUSSELL MADRIS
------------------------------------
Russell Madris
President
EXECUTIVE
/s/ SCOTT MODIST
----------------------------------------
Scott Modist, individually
Address:
1423 Alhambra Circle
----------------------------------------
Coral Gables, FL 33134
----------------------------------------
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<PAGE> 1
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is entered into and shall
be effective as of June 28, 1999 between Corporate Buying Service Inc., a
Florida corporation (the "Company"), and James Garrity, a resident of the State
of Florida (the "Executive").
RECITALS
The Company operates an internet-based, business-to-business electronic
marketplace which enables information technology buyers to efficiently source,
evaluate, purchase and track a wide variety of computer hardware, software and
related technology products directly from the inventories of leading technology
wholesale distributors. The Company has recently experienced significant growth
and desires to expand its sales and marketing capabilities and the Executive has
extensive experience in the such areas. The Company therefore desires to employ
the Executive, and the Executive has agreed to be employed by the Company, on
the terms and subject to the conditions set forth in this Agreement.
TERMS OF AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. EMPLOYMENT. The Company hereby agrees to employ the Executive to
serve in the capacities described herein, and the Executive agrees to accept
such employment and perform such services upon the terms and subject to the
conditions set forth in this Agreement.
2. TERM. The Executive's employment by the Company under this Agreement
shall commence on June 28, 1999 (the "Commencement Date") and expire on the
close of business on June 28, 2002 (the "Expiration Date") unless terminated by
the Company prior thereto in accordance with the terms of this Agreement. For
purposes of this Agreement, "Term" shall mean the period beginning on the
Commencement Date and ending upon the sooner of the Expiration Date or the
termination of the Executive's employment hereunder for any reason.
3. DUTIES AND RESPONSIBILITIES. During the Term, the Executive shall
serve as Vice President of Sales and Marketing of the Company. The Executive
shall perform such duties and have such authority as may be assigned and
delegated to him from time to time by the President of the Company. The
Executive shall at all times perform his duties and responsibilities honestly,
diligently, in good faith and to the best of his ability. The Executive shall
observe and comply with all of the rules, regulations, policies and procedures
established by the Company from time to time and all applicable laws, rules and
regulations imposed by governmental and regulatory authorities from time to
time. The Executive's employment by the Company shall be full-time and exclusive
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<PAGE> 2
and the Executive agrees that he will devote his full business time, attention
and energies to the performance of his obligations hereunder. Notwithstanding
the foregoing, the Executive shall be permitted to engage in charitable and
civic activities and manage his personal passive investments, provided such
personal passive investments are not in a company which engages in a business
competitive with the business of the Company and provided that such activities
do not individually or collectively interfere with the performance of his duties
and responsibilities under this Agreement. The Executive shall be based at the
Company's headquarters in Boca Raton, Florida, subject to such travel as may be
necessary to fulfill his obligations under this Agreement.
4. COMPENSATION. As compensation for his services hereunder and in
consideration of the covenants set forth in Sections 9, 10 and 11 below, the
Company shall pay to the Executive the following compensation, subject to any
withholding and other taxes as may be imposed by applicable federal, state,
provincial or local government authorities and other normal and usual employee
deductions:
(a) BASE SALARY. The Company shall pay to the Executive an
annual base salary (the "Base Salary") of Seventy Five Thousand Dollars
($75,000) per year during the Term. The Base Salary shall increase to One
Hundred Twenty Five Thousand Dollars ($125,000) upon the closing of an
underwritten public offering by the Company pursuant to a registration statement
filed and declared effective under the Securities Act of 1933, as amended,
covering the offer and sale of the Company's Common Stock (as defined below) for
the account of the Company. The Base Salary may be further increased from time
to time during the Term in the sole discretion of the Company's Board of
Directors. The Base Salary shall be payable in accordance with the Company's
customary payroll practices and procedures and shall be prorated for any partial
year arising during the Term.
(b) BONUS. In addition to the Base Salary, the Executive shall
be eligible to be paid a bonus (the "Bonus") on account of services rendered by
him during each calendar quarter during the Term, with the first calendar
quarter commencing on July 1, 1999. The Bonus, if any, shall be payable on
account of any calendar quarter shall be payable within forty-five (45) days
following the end of such calendar quarter. The Bonus payable on account of each
calendar quarter shall be calculated as follows:
(i) If the Gross Profit (as defined below) of the
Company for such calendar quarter is equal to the target Gross Profit
of the Company as determined in the sole discretion of the Company's
Board of Directors (or the Compensation Committee thereof) (the
"Target"), the Executive shall be entitled to a Bonus of Fifteen
Thousand Dollars ($15,000). For purposes of this Agreement, "Gross
Profit" for any period shall mean all amount invoiced by the Company
during such period on account of sales made by the Company during such
period less the sum of (a) any direct or indirect costs incurred by the
Company in connection with such sales (including, without limitation,
the cost of goods sold and any related shipping and handling charges),
(b) any sales returns, allowances or discounts with respect to any
sales made by the Company (whether such sales were made during that
period or any prior period), and (c) any taxes, duties and other fees
payable by
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<PAGE> 3
the Company with respect to sales (whether such sales were made during
that period or any prior period), in each case, as determined by the
Company in its sole discretion;
(ii) If the Gross Profit of the Company for such
quarter is equal to or greater than 110% of the Target, than the
Executive shall be entitled to a Bonus of Twenty Thousand Dollars
($20,000);
(iii) If the Gross Profit of the Company for such
quarter is more than 90% of the Target but less than the Target, the
Executive shall be entitled to a Bonus of Ten Thousand Dollars
($10,000);
(iv) If the Gross Profit of the Company for such
quarter is more than 80% of the Target but less than or equal to 90% of
the Target, the Executive shall be entitled to a Bonus of Five Thousand
Dollars ($5,000); and
(v) If the Gross Profit of the Company for such
quarter is equal to or less than 80% of the Target, the Executive shall
not be entitled to a Bonus.
(c) STOCK OPTIONS. The Executive shall be eligible to
participate in any stock option plan which may be adopted by the Company from
time to time in such amount and on such terms as may be approved by the
Company's Board of Directors.
5. FRINGE BENEFITS. The Executive shall be entitled to participate in
all employee benefit plans and programs (including, without limitation, profit
sharing, medical, disability and life insurance plans and programs) that the
Company establishes and makes generally available from time to time to its
employees, subject, however, to the applicable eligibility requirements and
other provisions of such plans and programs (including, without limitation,
requirements as to position, tenure, salary, age and health). The Executive
shall also be entitled to receive such fringe benefits and prerequisites as may
be generally provided by the Company from time to time to its employees, in
accordance with the policies of the Company in effect from time to time.
6. VACATION. The Executive shall be entitled to three (3) weeks paid
vacation annually (with no right of carry-over), to be taken at such time(s) as
shall not, in the reasonable judgment of the President of the Company, interfere
with the Executive's fulfillment of his duties hereunder. The Executive shall be
entitled to as many holidays, sick days and personal days as are generally
provided by the Company from time to time to its employees in accordance with
the Company's policies as in effect from time to time.
7. REIMBURSEMENT OF EXPENSES. The Company shall pay or reimburse the
Executive for all reasonable and necessary travel, entertainment and other
expenses incurred by him in connection with the performance of his duties
hereunder in accordance with the policies and procedures of the Company as in
effect from time to time; PROVIDED THAT (a) such expenditure is of a nature
deductible under Section 162 of the Internal Revenue Code (the "Code") on the
Federal income tax return of
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<PAGE> 4
the Company as a business expense and not as deductible compensation to the
Executive, and (b) Executive provides the Company with such documentary evidence
as may in the opinion of the Company be required by the Code or any regulation
promulgated thereunder for the substantiation of such expenditures as a
deductible business expense of the Company and not as deductible compensation to
the Executive. The Executive agrees that, if at any time, any payment made to
the Executive by the Company as a business expense reimbursement shall be
disallowed as a deductible expense to the Company by the appropriate taxing
authorities, the Executive shall reimburse the Company to the full extent of
such disallowance.
8. TERMINATION. Notwithstanding anything to the contrary contained in
this Agreement, the Company shall have the right, in addition to any other
rights and remedies which it may have, to terminate this Agreement and the
Executive's employment hereunder as follows:
(a) FOR CAUSE. In the event that the Executive (i) breaches
any of the terms or conditions of this Agreement and such breach is not cured
(if curable) within ten days after written notice thereof is delivered to the
Executive by the Company; (ii) fails or refuses to perform his duties and
responsibilities as set forth in or delegated to him pursuant to this Agreement
or fails to devote his full business time and attention exclusively to the
business and affairs of the Company in accordance with the terms of this
Agreement and such failure or refusal is not cured (if curable) within ten days
after written notice thereof is delivered to the Executive by the Company; (iii)
commits any dishonest, fraudulent or wilfully negligent act with respect to the
Company; (iv) is convicted of any misdemeanor involving dishonesty or moral
turpitude or any felony, or (v) commits any act which injures or could
reasonably be expected to injure the reputation, business or business
relationships of the Company, then the Company shall have the right to
immediately terminate this Agreement and the Executive's employment with the
Company hereunder by delivery of written notice to the Executive of such
termination.
(b) DEATH. In the event of the Executive's death, this
Agreement shall automatically terminate as of the date of such death without
notice to either party.
(c) DISABILITY. In the event that the Executive shall be
unable to perform his duties hereunder by virtue of illness or physical or
mental disability (from any cause or causes whatsoever) in substantially the
manner and to the extent required of him hereunder prior to the commencement of
such disability and the Executive shall fail to perform such duties for periods
aggregating 180 days, whether or not continuous, in any continuous 270 day
period, then the Company shall have the right to terminate this Agreement and
the Executive's employment with the Company as of the end of any calendar month
during the continuance of such disability upon at least 30 days' prior written
notice to the Executive.
(d) WITHOUT CAUSE. The Company shall have the right to
terminate this Agreement and the Executive's employment with the Company at any
time without cause on thirty (30) days prior written notice to the Executive.
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<PAGE> 5
(e) MUTUAL AGREEMENT. The parties may terminate this Agreement
and the Executive's employment with the Company upon their mutual written
consent.
(f) PAYMENTS UPON TERMINATION. In the event that the Company
shall terminate this Agreement and the Executive's employment with the Company
under Section 8(a), (b) or (c) above or the Executive terminates his employment
with the Company for any reason prior to the Expiration Date, then (a) the
Company shall pay to the Executive (or his heirs and/or personal
representatives), (1) the Base Salary earned through the date of termination,
payable when and as the same would have been payable but for such termination,
and (2) any Bonus payable under this Agreement on account of any prior calendar
quarter, payable when and as the same would have been payable but for such
termination, and (b) the Company shall reimburse the Executive for any expenses
for which the Executive is entitled to reimbursement under Section 7 of this
Agreement, and the Company shall have no further obligation to the Executive. In
the event that the Company shall terminate this Agreement and the Executive's
employment with the Company under Section 8(d) above (for a reason other than
those covered by Sections 8(a), (b) or (c) above), then the Company shall (a)
pay to the Executive (1) the Base Salary earned through the date of termination,
payable when and as the same would have been payable but for such termination,
(2) any Bonus payable under this Agreement on account of any prior calendar
quarter, payable when and as the same would have been payable but for such
termination, and (3) an amount equal to Twenty Five Percent (25%) of his then
current annual Base Salary in a lump sum payment within thirty (30) days
following the last day of the Executive's employment with the Company, (b) the
Company shall continue to provide the Executive with those medical, life and
disability insurance benefits, if any, which are provided to the Executive on
the last day of his employment with the Company for a period of three (3) months
following his last day of employment with the Company, and (c) the Company shall
reimburse the Executive for any expenses for which the Executive is entitled to
reimbursement under Section 7 of this Agreement, and the Company shall have no
further obligation to the Executive.
9. CONFIDENTIAL INFORMATION. The Executive recognizes and acknowledges
that he will have access to certain confidential and proprietary information
about the Company, its affiliates and parties with whom the Company does
business (collectively, the "Confidential Information"), (including, without
limitation, trade secrets and other information regarding research,
developments, inventions, product designs and specifications, know-how, prices,
suppliers, customers, costs, strategies, financial and business prospects) and
that such information constitutes valuable, special and unique property of the
Company. The Executive acknowledges that the Confidential Information is and
shall remain the exclusive property of the Company. The Executive agrees that he
will not at any time (whether during the Term or at any time thereafter)
disclose the Confidential Information to anyone outside the Company, or utilize
such Confidential Information for his own benefit or the benefit of any third
parties without the prior written consent of the Company. The Executive agrees
that the foregoing restrictions shall apply whether or not such information is
marked "Confidential". The Company acknowledges that the term "Confidential
Information" shall not include information (i) was known by the Executive prior
to disclosure by or on behalf of the Company, its affiliates or parties with
whom the Company does business, (ii) becomes available to
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the Executive from a source other than the Company, its affiliates or parties
with whom the Company does business that is not bound by a duty of
confidentiality to the Company, its affiliates or such other parties, or (iii)
becomes generally available or known in the industry other than as a result of
its disclosure by the Executive. In the event that the Executive becomes legally
obligated to disclose any Confidential Information other than to the Company, he
will provide the Company with prompt notice thereof so that the Company may seek
a protective order or other appropriate remedy and the Executive will cooperate
with and assist the Company in securing such protective order or other remedy.
In the event that such protective order is not obtained, or that the Company
waives compliance with the provisions of this Section to permit a particular
disclosure, the Executive will furnish only that portion of the Confidential
Information which he is legally required to disclose. The Executive further
agrees that all memoranda, disks, files, notes, records or other documents which
contain Confidential Information, whether in electronic form or hard copy, and
whether created by the Executive or others, which come into his possession,
shall be and remain the exclusive property of the Company to be used by the
Executive only in the performance of his obligations hereunder, and shall be
delivered by him to the Company together with any copies thereof upon the
termination of his employment hereunder or at any other time upon the request of
the Company. The Executive also agrees to execute such confidentiality
agreements that the Board of Directors of the Company may adopt, and modify from
time to time, as a standard form to be executed by employees of the Company.
10. NONCOMPETITION. The Executive acknowledges that (a) the Company
engages in a competitive business, (b) the Executive's services and
responsibilities are unique in character and are of particular significance to
the Company, and (c) the Executive's position with the Company will place him in
a position of confidence and trust with the customers, suppliers and employees
of the Company. The Executive consequently agrees that it is reasonable and
necessary for the protection of the Company and its goodwill and business that
the Executive makes the commitments set forth herein. The Executive therefore
agrees that during the Term and for a period of one (1) year thereafter (the
"Noncompete Period"), he will not:
(a) as an individual proprietor, partner, shareholder,
officer, director, employee, consultant, independent contractor, agent, joint
venturer, investor or lender, directly or indirectly, engage anywhere in the
United States in the business of selling computers and computer-related hardware
or software products to commercial businesses using the internet as a
significant channel of distribution or in any other business engaged in by the
Company or any of its present or future parents, subsidiaries or other
affiliates while the Executive was employed by the Company; PROVIDED, HOWEVER,
that the beneficial ownership by the Executive of less than two percent (2%) of
the shares of common stock of any other corporation having a class of equity
securities actively traded on a national securities exchange or over-the-counter
market shall not be deemed, in and of itself, to violate the prohibitions of
this Section, or
(b) attempt in any manner to solicit or sell to any Customer
(as defined below) any products of the type developed, produced, marketed or
sold or being developed, produced, marketed or sold by the Company while the
Executive was employed by the Company or any
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<PAGE> 7
products competitive with such products or to persuade any Customer to cease to
do business or reduce the amount of business which such Customer has customarily
done or is reasonably expected to do with the Company, whether or not the
relationship between the Company and such Customer was originally established in
whole or in part through his efforts. As used in this paragraph, the term
"Customer" shall mean and include (i) anyone who was a customer of the Company
or any of its present or future parents, subsidiaries or other affiliates on the
date of termination of the Executive's employment or at any time during the one
year immediately preceding the date of termination of the Executive's
employment, (ii) any prospective customer to whom any representative of the
Company or any of its present or future parents, subsidiaries or other
affiliates made a business presentation or sales pitch at any time during the
one year period immediately preceding the date of termination of the Executive's
employment and (iii) any prospective customer to whom any representative of the
Company or any of its present or future parents, subsidiaries or other
affiliates made a business presentation or sales pitch at any time within six
months after the date of termination of the Executive's employment if the
initial contact or discussion with such prospective customer relating to the
sale of products occurred prior to the date of termination of the Executive's
employment. For purposes of this clause, it is agreed that a general mailing or
incidental contact shall not be deemed a business presentation or sales pitch.
In addition, if the Customer is part of a group of entities which conduct
business through more than one entities, divisions, teams or operating units,
whether or not separately incorporated, the term "Customer" shall include each
entity, division, team and operating unit of the Customer.
11. NON-SOLICITATION OF EMPLOYEES. The Executive agrees that he will
not during the Term and for a period of two (2) years thereafter, directly or
indirectly, employ or permit any company or business directly or indirectly
controlled by him to employ, any person who is, or at any time during the
preceding twelve month period, was an employee of the Company, or induce or
persuade or seek to induce or persuade any such person to leave his employment
with the Company.
12. ENFORCEABILITY OF RESTRICTIVE COVENANTS. The Executive hereby
acknowledges that the restrictions on his activity contained in Sections 9, 10
and 11 are necessary for the reasonable protection of the Company and are a
material inducement to the Company entering into this Agreement. The Executive
further acknowledges that a breach or threatened breach of any such provisions
would cause irreparable harm to the Company for which there is no adequate
remedy at law. The Executive agrees that in the event of any breach or
threatened breach of any provision contained in Sections 9, 10 or 11 of this
Agreement, the Company shall have the right, in addition to any other rights or
remedies it may have, to seek injunctive relief without having to post bond or
other security and without having to prove special damages or the inadequacy of
the available remedies at law. The parties acknowledge that (a) the time, scope,
geographic area and other provisions contained in Sections 9, 10 and 11 are
reasonable and necessary to protect the goodwill and business of the Company,
(b) as an internet-based business, the Customers of the Company may be serviced
from any location and accordingly it is reasonable that the covenants set forth
herein are not limited by narrow geographic area, and (c) the restriction of the
Executive's ability to solicit Customers will not prevent him from being
employed or earning a livelihood. If any covenant contained in Sections 9, 10 or
11 are held to be unenforceable by reason of the time, scope or
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<PAGE> 8
geographic area covered thereby, such covenant shall be interpreted to extend to
the maximum time, scope or geographic area for which it may be enforced as
determined by a court making such determination, and such covenant shall only
apply in its reduced form to the operation of such covenant in the particular
jurisdiction in which such adjudication is made. In the event that the Company
shall bring any action, suit or proceeding against the Executive for the
enforcement of this Agreement, the calculation of the Noncompete Period shall
not include the period of time commencing with the filing of the action, suit or
proceeding to enforce this Agreement through the date of the final judgment or
final resolution (including all appeals, if any) of such action, suit or
proceeding. The existence of any claim or cause of action by the Executive
against the Company or any of its affiliates predicated on this Agreement or
otherwise shall not constitute a defense to the enforcement by the Company of
any provision of Sections 9, 10 or 11.
13. INTELLECTUAL PROPERTY. The Executive agrees that he shall make full
and prompt disclosure to the Company of all inventions, improvements,
discoveries, methods, developments, software and works of authorship, whether or
not patentable or copyrightable, which are created, made, conceived or reduced
to practice by the Executive or under his direction or jointly with others
during the Term or within one (1) year thereafter (whether or not during normal
working hours, on the premises of the Company or using Company's equipment or
Confidential Information), which relate to the present or planned business or
research and development of the Company (all of which are collectively referred
to as "Developments"). All right, title and interest in the Developments,
whether or not used by the Company, shall, from the inception of development, be
exclusively and perpetually the property of the Company, free of any claim
whatsoever by the Executive or any third party deriving any rights from the
Executive. Any such Developments shall be deemed "works made for hire" within
the meaning of the U.S. Copyright Act and any other applicable U.S. or foreign
laws relating to intellectual property, and the Executive understands and
acknowledges that the Company shall own all right, title and interest in and to
the Developments, including without limitation copyright, patent and trademark
rights, throughout the world. To the extent that any Developments shall not be
deemed "works made for hire," the Executive hereby assigns to the Company any of
its right, title and interest in and to all worldwide intellectual proprietary
rights, including but not limited to all worldwide copyrights, trade secrets,
patent rights and trademark rights, in and to all of the Developments, and
agrees to cooperate fully with the Company, both during and after the Term, with
respect to the procurement, maintenance and enforcement of patents, copyrights
and other intellectual property rights, throughout the world, with respect to
the Developments. The Executive shall sign all papers, including, without
limitation, patent applications, copyright applications, declarations, oaths and
formal assignment documents, which the Company may deem necessary or appropriate
to protect its rights and interests in any Development. The Executive hereby
appoints any officer of the Company as the Executive's attorney-in-fact to
execute any such documents in the name and on behalf of the Executive in the
event that the Executive fails to execute and deliver such documents within
thirty (30) days after the Company's request.
14. CONFLICT. The Executive hereby represents and warrants to the
Company that the execution and delivery of this Agreement by him and the
performance by him of his duties hereunder, shall not constitute a default,
breach or violation of any understanding, contract or
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<PAGE> 9
commitment, written or oral, express or implied, to which the Executive is a
party or to which the Executive is or may be bound, including, without
limitation, any understanding, contract or commitment with any present or former
employer. The Executive hereby agrees to indemnify and hold the Company harmless
from and against any and all claims, losses, damages, liabilities, costs and
expenses (including, without limitation, attorneys' fees and expenses) incurred
by the Company in connection with any default, breach or violation by the
Executive of any such understanding, contract or commitment.
15. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, successors and
assigns, except that the Executive may not assign any of his rights or delegate
any of his duties hereunder without the prior written consent of the Company
(which may be granted or withheld in the Company's sole and absolute
discretion).
16. ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding of the parties and supersedes all prior agreements,
understandings, arrangements, promises and commitments, whether written or oral,
express or implied, relating to the subject matter hereof, and all such prior
agreements, understandings, arrangements, promises and commitments are hereby
canceled and terminated.
17. AMENDMENT. This Agreement may not be amended, supplemented or
modified in whole or in part except by an instrument in writing signed by the
party or parties against whom enforcement of such amendment, supplement or
modification is sought.
18. SURVIVAL. The provisions of Sections 7, 9, 10, 11, 12, 13,
14, 21, 22 and 27 hereof shall survive the termination or expiration of this
Agreement.
19. NOTICES. Any notice, request or other document required or
permitted to be given under this Agreement shall be in writing and shall be
deemed given (a) upon delivery, if delivered by hand, (b) three days after the
date of deposit in the mail, postage prepaid, if mailed by U.S. certified or
registered mail, or (c) on the next business day, if sent by prepaid overnight
courier service, in each case, addressed as follows:
If to the Executive, to the address set forth below his name
on the signature page hereto.
If to the Company, to:
Corporate Buying Service Inc.
3401 N. Federal Highway, Suite 216
Boca Raton, FL 33431
Attention: President
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with a copy to:
Akerman Senterfitt & Eidson, P.A.
350 E. Las Olas Boulevard, Suite 1600
Fort Lauderdale, Florida 33301
Attention: Bruce I. March, Esq.
Any party may change the address to which notice shall be sent by giving notice
of such change of address to the other parties in the manner provided above.
20. WAIVERS. The failure or delay of any party to enforce any provision
of this Agreement shall in no way affect the right of such party to enforce the
same or any other provision of this Agreement. The waiver by any party of any
breach of any provision of this Agreement shall not be construed as a waiver by
such party of any succeeding breach of such provision or a waiver by such party
of a breach of any other provision. The granting of any consent or approval by
any party in any one instance shall not be construed to waive or limit the need
for such consent or approval in any other or subsequent instance.
21. GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Florida applicable to contracts executed and to be
wholly performed within such State. The parties to this Agreement agree that any
suit, action or proceeding arising out of or relating to this Agreement
(including, without limitation, any action for the enforcement of an arbitration
award pursuant to Section 22 below) or any judgment entered by any court in
respect thereof shall be brought in the courts of Palm Beach County, Florida or
in the U.S. District Court for the Southern District of Florida. Each party
hereby (a) irrevocably accepts the exclusive personal jurisdiction of such
courts for the purpose of any action, suit or proceeding arising out of or
relating to this Agreement, (b) irrevocably waive, to the fullest extent
permitted by law, any objection which it may now or hereafter have to the laying
of venue of any action, suit or proceeding arising out of or relating to this
Agreement or any judgment entered by any court in respect thereof brought in
such courts, and (c) irrevocably waive any claim that any action, suit or
proceeds brought in any such court has been brought in an inconvenient forum.
Each party further agrees that service of process, summons, notice or document
by U.S. registered mail in accordance with this Agreement shall be effective
service of process for any action, suit or proceeding brought against a party in
any such court.
22. ARBITRATION. The parties to this Agreement agree to arbitrate all
disputes, controversies or differences that may arise between them with respect
to any provision of this Agreement. Either party may give notice to the other of
its decision to arbitrate the dispute, and such notice shall specify the issue
or issues to be arbitrated. Each party shall select one arbitrator, and the two
arbitrators thereby selected shall select a third arbitrator. The arbitration
shall take place in Palm Beach County, Florida or such other place as the
parties shall agree, under the then-current Commercial Arbitration Rules of the
American Arbitration Association. The decision of a majority of the three
arbitrators, including any assessment of the cost of arbitration, will be final
and binding
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<PAGE> 11
on the parties. The arbitrators will only have the authority to award actual
direct damages, and will not have the authority to award consequential or
punitive damages. Judgement upon the decision made by the arbitrators may be
entered in any court of competent jurisdiction.
23. SEVERABILITY. If any term or provision of this Agreement shall be
determined by a court of competent jurisdiction to be illegal, invalid or
unenforceable for any reason, the remaining provisions of this Agreement shall
remain enforceable and the invalid, illegal or unenforceable provisions shall be
modified so as to be valid and enforceable and shall be enforced.
24. SECTION HEADINGS. Section headings are included in this Agreement
for convenience of reference only, and shall in no way affect the meaning or
interpretation of this Agreement.
25. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
26. NUMBER OF DAYS. In computing the number of days for purposes of
this Agreement, all days shall be counted, including Saturdays, Sundays and
holidays; PROVIDED, HOWEVER, if the final day of any time period falls on a
Saturday, Sunday or holiday on which federal banks in the United States are or
may elect to be closed, then the final day should be deemed the next day which
is not a Saturday, Sunday or such holiday.
27. ATTORNEYS' FEES. In any action brought to enforce any provision of
Sections 9, 10 or 11 of this Agreement, the prevailing party shall be entitled
to recover reasonable attorneys' fees and costs from the other party to the
action or proceeding. For purposes of this Agreement, the "prevailing party"
shall be deemed to be that party who obtains substantially the result sought,
whether by settlement, mediation, judgment or otherwise, and "attorneys' fees"
shall include, without limitation, the actual attorneys' fees incurred in
retaining counsel for advice, negotiations, suit, or other legal proceeding,
including mediation and arbitration.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first written above.
CORPORATE BUYING SERVICE INC.
By: /s/ RUSSELL MADRIS
-------------------------------------
Russell Madris
President
EXECUTIVE
/s/ JAMES GARRITY
----------------------------------------
James Garrity, individually
Address:
757 SW Wood Creek
----------------------------------------
Palm City, FL 34990
----------------------------------------
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EXHIBIT 10.6
EMPLOYMENT AGREEMENT
This Employment Agreement (this "Agreement") is entered into and shall
be effective as of September 27, 1999 between Corporate Buying Service Inc., a
Florida corporation (the "Company"), and Bernardo Sicard, a resident of the
State of Florida (the "Executive").
RECITALS
The Company operates an internet-based, business-to-business electronic
marketplace which enables information technology buyers to efficiently source,
evaluate, purchase and track a wide variety of computer hardware, software and
related technology products directly from the inventories of leading technology
wholesale distributors. The Executive has been employed by the Company as a
computer software engineer on an at-will basis. The Company desires to promote
the Executive to the position of Vice President of Technology and Information
Services and to assure his continued commitment to the Company, and the
Executive has agreed to accept such position and make such commitment to the
Company for the additional compensation and benefits and on the terms and
conditions set forth in this Agreement.
TERMS OF AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. EMPLOYMENT. The Company hereby agrees to employ the Executive to
serve in the capacities described herein, and the Executive agrees to accept
such employment and perform such services upon the terms and conditions set
forth in this Agreement.
2. TERM. The Executive's employment by the Company under this Agreement
shall commence on the date hereof (the "Commencement Date") and expire on the
close of business on the three-year anniversary of such date (the "Expiration
Date") unless terminated by the Company prior thereto in accordance with the
terms of this Agreement. For purposes of this Agreement, "Term" shall mean the
period beginning on the Commencement Date and ending upon the sooner of the
Expiration Date or the termination of the Executive's employment hereunder for
any reason.
3. DUTIES AND RESPONSIBILITIES. During the Term, the Executive shall
serve as Vice President of Technology and Information Services of the Company.
The Executive shall perform such duties and have such authority as may be
assigned and delegated to him from time to time by the President of the Company
or any officer of the Company charged by the President of the Company with his
supervision. The Executive shall at all times perform his duties and
responsibilities honestly, diligently, in good faith and to the best of his
ability. The Executive shall observe and comply with all of the rules,
regulations, policies and procedures established by the
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<PAGE> 2
Company from time to time and all applicable laws, rules and regulations imposed
by governmental and regulatory authorities from time to time. The Executive's
employment by the Company shall be full-time and exclusive and the Executive
agrees that he will devote his full business time, attention and energies to the
performance of his obligations hereunder. Notwithstanding the foregoing, the
Executive shall be permitted to engage in charitable and civic activities and
manage his personal passive investments, provided such personal passive
investments are not in a company which engages in a business competitive with
the business of the Company and provided that such activities do not
individually or collectively interfere with the performance of his duties and
responsibilities under this Agreement. The Executive shall be based at the
Company's headquarters in Boca Raton, Florida, subject to such travel as may be
necessary to fulfill his obligations under this Agreement.
4. COMPENSATION. As compensation for his services hereunder and in
consideration of the covenants set forth in Sections 9, 10 and 11 below, the
Company shall from and after the date hereof pay to the Executive the following
compensation, subject to any withholding and other taxes as may be imposed by
applicable federal, state, provincial or local government authorities and other
normal and usual employee deductions:
(a) BASE SALARY. The Company shall pay to the Executive an
annual base salary (the "Base Salary") of Sixty-Five Thousand Dollars ($65,000)
per year during the Term. The Base Salary shall increase to Eighty Thousand
Dollars ($80,000) per year on April 1, 2000. The Base Salary may be further
increased from time to time during the Term in the sole discretion of the
Company's Board of Directors. The Base Salary shall be payable in accordance
with the Company's customary payroll practices and procedures and shall be
prorated for any partial year arising during the Term.
(b) BONUS. In addition to the Base Salary, the Executive shall
be eligible for a bonus payable in the sole discretion of the Company's Board of
Directors.
(c) STOCK OPTIONS. The Executive shall be eligible to
participate in any stock option plan which may be adopted by the Company from
time to time in such amount and on such terms as may be approved by the
Company's Board of Directors.
5. FRINGE BENEFITS. The Executive shall be entitled to participate in
all employee benefit plans and programs (including, without limitation, profit
sharing, medical, disability and life insurance plans and programs) that the
Company establishes and makes generally available from time to time to its
employees, subject, however, to the applicable eligibility requirements and
other provisions of such plans and programs (including, without limitation,
requirements as to position, tenure, salary, age and health). The Executive
shall also be entitled to receive such fringe benefits and prerequisites as may
be generally provided by the Company from time to time to its employees, in
accordance with the policies of the Company in effect from time to time.
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<PAGE> 3
6. VACATION. The Executive shall be entitled to three (3) weeks paid
vacation annually (with no right of carry-over), to be taken at such time(s) as
shall not, in the reasonable judgment of the President of the Company, interfere
with the Executive's fulfillment of his duties hereunder. The Executive shall be
entitled to as many holidays, sick days and personal days as are generally
provided by the Company from time to time to its employees in accordance with
the Company's policies as in effect from time to time.
7. REIMBURSEMENT OF EXPENSES. The Company shall pay or reimburse the
Executive for all reasonable and necessary travel, entertainment and other
expenses incurred by him in connection with the performance of his duties
hereunder in accordance with the policies and procedures of the Company as in
effect from time to time; PROVIDED THAT (a) such expenditure is of a nature
deductible under Section 162 of the Internal Revenue Code (the "Code") on the
Federal income tax return of the Company as a business expense and not as
deductible compensation to the Executive, and (b) Executive provides the Company
with such documentary evidence as may in the opinion of the Company be required
by the Code or any regulation promulgated thereunder for the substantiation of
such expenditures as a deductible business expense of the Company and not as
deductible compensation to the Executive. The Executive agrees that, if at any
time, any payment made to the Executive by the Company as a business expense
reimbursement shall be disallowed as a deductible expense to the Company by the
appropriate taxing authorities, the Executive shall reimburse the Company to the
full extent of such disallowance.
8. TERMINATION. Notwithstanding anything to the contrary contained in
this Agreement, the Company shall have the right, in addition to any other
rights and remedies which it may have, to terminate this Agreement and the
Executive's employment hereunder as follows:
(a) FOR CAUSE. In the event that the Executive (i) breaches
any of the terms or conditions of this Agreement and such breach is not cured
(if curable) within ten days after written notice thereof is delivered to the
Executive by the Company; (ii) fails or refuses to perform his duties and
responsibilities as set forth in or delegated to him pursuant to this Agreement
or fails to devote his full business time and attention exclusively to the
business and affairs of the Company in accordance with the terms of this
Agreement and such failure or refusal is not cured (if curable) within ten days
after written notice thereof is delivered to the Executive by the Company; (iii)
commits any dishonest, fraudulent or wilfully negligent act with respect to the
Company; (iv) is convicted of any misdemeanor involving dishonesty or moral
turpitude or any felony, or (v) commits any act which injures or could
reasonably be expected to injure the reputation, business or business
relationships of the Company, then the Company shall have the right to
immediately terminate this Agreement and the Executive's employment with the
Company hereunder by delivery of written notice to the Executive of such
termination.
(b) DEATH. In the event of the Executive's death, this
Agreement shall automatically terminate as of the date of such death without
notice to either party.
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<PAGE> 4
(c) DISABILITY. In the event that the Executive shall be
unable to perform his duties hereunder by virtue of illness or physical or
mental disability (from any cause or causes whatsoever) in substantially the
manner and to the extent required of him hereunder prior to the commencement of
such disability and the Executive shall fail to perform such duties for periods
aggregating 180 days, whether or not continuous, in any continuous 270 day
period, then the Company shall have the right to terminate this Agreement and
the Executive's employment with the Company as of the end of any calendar month
during the continuance of such disability upon at least 30 days' prior written
notice to the Executive.
(d) WITHOUT CAUSE. The Company shall have the right to
terminate this Agreement and the Executive's employment with the Company at any
time without cause on thirty (30) days prior written notice to the Executive.
(e) MUTUAL AGREEMENT. The parties may terminate this Agreement
and the Executive's employment with the Company upon their mutual written
consent.
(f) PAYMENTS UPON TERMINATION. In the event that the Company
shall terminate this Agreement and the Executive's employment with the Company
under Section 8(a), (b) or (c) above or the Executive terminates his employment
with the Company for any reason prior to the Expiration Date, then (a) the
Company shall pay to the Executive (or his heirs and/or personal
representatives) (1) the Base Salary earned through the date of termination,
payable when and as the same would have been payable but for such termination,
and (b) any Bonus payable under this Agreement on account of any prior calendar
year, payable when and as the same would have been payable but for such
termination, and (c) the Company shall reimburse the Executive for any expenses
for which the Executive is entitled to reimbursement under Section 7 of this
Agreement, and the Company shall have no further obligation to the Executive. In
the event that the Company shall terminate this Agreement and the Executive's
employment with the Company under Section 8(d) above (for a reason other than
those covered by Sections 8(a), (b) or (c) above), then (a) the Company shall
pay to the Executive (1) the Base Salary earned through the date of termination,
payable when and as the same would have been payable but for such termination,
(2) any Bonus payable under this Agreement on account of any prior calendar
year, payable when and as the same would have been payable but for such
termination, and (3) an amount equal to Twenty Five Percent (25%) of his then
current annual Base Salary in a lump sum payment within thirty (30) days
following the last day of the Executive's employment with the Company, (b) the
Company shall continue to provide the Executive with those medical, life and
disability insurance benefits, if any, which are provided to the Executive on
the last day of his employment with the Company for a period of three (3) months
following his last day of employment with the Company, and (c) the Company shall
reimburse the Executive for any expenses for which the Executive is entitled to
reimbursement under Section 7 of this Agreement, and the Company shall have no
further obligation to the Executive.
9. CONFIDENTIAL INFORMATION. The Executive recognizes and acknowledges
that he will have access to certain confidential and proprietary information
about the Company, its affiliates and
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<PAGE> 5
parties with whom the Company does business (collectively, the "Confidential
Information"), (including, without limitation, trade secrets and other
information regarding research, developments, inventions, product designs and
specifications, know-how, prices, suppliers, customers, costs, strategies,
financial and business prospects) and that such information constitutes
valuable, special and unique property of the Company. The Executive acknowledges
that the Confidential Information is and shall remain the exclusive property of
the Company. The Executive agrees that he will not at any time (whether during
the Term or at any time thereafter) disclose the Confidential Information to
anyone outside the Company, or utilize such Confidential Information for his own
benefit or the benefit of any third parties without the prior written consent of
the Company. The Executive agrees that the foregoing restrictions shall apply
whether or not such information is marked "Confidential". The Company
acknowledges that the term "Confidential Information" shall not include
information (i) was known by the Executive prior to disclosure by or on behalf
of the Company, its affiliates or parties with whom the Company does business,
(ii) becomes available to the Executive from a source other than the Company,
its affiliates or parties with whom the Company does business that is not bound
by a duty of confidentiality to the Company, its affiliates or such other
parties, or (iii) becomes generally available or known in the industry other
than as a result of its disclosure by the Executive. In the event that the
Executive becomes legally obligated to disclose any Confidential Information
other than to the Company, he will provide the Company with prompt notice
thereof so that the Company may seek a protective order or other appropriate
remedy and the Executive will cooperate with and assist the Company in securing
such protective order or other remedy. In the event that such protective order
is not obtained, or that the Company waives compliance with the provisions of
this Section to permit a particular disclosure, the Executive will furnish only
that portion of the Confidential Information which he is legally required to
disclose. The Executive further agrees that all memoranda, disks, files, notes,
records or other documents which contain Confidential Information, whether in
electronic form or hard copy, and whether created by the Executive or others,
which come into his possession, shall be and remain the exclusive property of
the Company to be used by the Executive only in the performance of his
obligations hereunder, and shall be delivered by him to the Company together
with any copies thereof upon the termination of his employment hereunder or at
any other time upon the request of the Company. The Executive also agrees to
execute such confidentiality agreements that the Board of Directors of the
Company may adopt, and modify from time to time, as a standard form to be
executed by employees of the Company.
10. NONCOMPETITION. The Executive acknowledges that (a) the Company
engages in a competitive business, (b) the Executive's services and
responsibilities are unique in character and are of particular significance to
the Company, and (c) the Executive's position with the Company will place him in
a position of confidence and trust with the customers, suppliers and employees
of the Company. The Executive consequently agrees that it is reasonable and
necessary for the protection of the Company and its goodwill and business that
the Executive makes the commitments set forth herein. The Executive therefore
agrees that during the Term and for a period of two (2) years thereafter (the
"Noncompete Period"), he will not:
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<PAGE> 6
(a) as an individual proprietor, partner, shareholder,
officer, director, employee, consultant, independent contractor, agent, joint
venturer, investor or lender, directly or indirectly, engage anywhere in the
United States in the business of selling computers and computer-related hardware
or software products to commercial businesses using the internet as a
significant channel of distribution or in any other business engaged in by the
Company or any of its present or future parents, subsidiaries or other
affiliates while the Executive was employed by the Company; PROVIDED, HOWEVER,
that the beneficial ownership by the Executive of less than two percent (2%) of
the shares of common stock of any other corporation having a class of equity
securities actively traded on a national securities exchange or over-the-counter
market shall not be deemed, in and of itself, to violate the prohibitions of
this Section, or
(b) attempt in any manner to solicit or sell to any Customer
(as defined below) any products of the type developed, produced, marketed or
sold or being developed, produced, marketed or sold by the Company while the
Executive was employed by the Company or any products competitive with such
products or to persuade any Customer to cease to do business or reduce the
amount of business which such Customer has customarily done or is reasonably
expected to do with the Company, whether or not the relationship between the
Company and such Customer was originally established in whole or in part through
his efforts. As used in this paragraph, the term "Customer" shall mean and
include (i) anyone who was a customer of the Company or any of its present or
future parents, subsidiaries or other affiliates on the date of termination of
the Executive's employment or at any time during the one year immediately
preceding the date of termination of the Executive's employment, (ii) any
prospective customer to whom any representative of the Company or any of its
present or future parents, subsidiaries or other affiliates made a business
presentation or sales pitch at any time during the one year period immediately
preceding the date of termination of the Executive's employment and (iii) any
prospective customer to whom any representative of the Company or any of its
present or future parents, subsidiaries or other affiliates made a business
presentation or sales pitch at any time within six months after the date of
termination of the Executive's employment if the initial contact or discussion
with such prospective customer relating to the sale of products occurred prior
to the date of termination of the Executive's employment. For purposes of this
clause, it is agreed that a general mailing or incidental contact shall not be
deemed a business presentation or sales pitch. In addition, if the Customer is
part of a group of entities which conduct business through more than one
entities, divisions, teams or operating units, whether or not separately
incorporated, the term "Customer" shall include each entity, division, team and
operating unit of the Customer.
11. NON-SOLICITATION OF EMPLOYEES. The Executive agrees that he will
not during the Term and for a period of two (2) years thereafter, directly or
indirectly, employ or permit any company or business directly or indirectly
controlled by him to employ, any person who is, or at any time during the
preceding twelve month period, was an employee of the Company, or induce or
persuade or seek to induce or persuade any such person to leave his employment
with the Company.
12. ENFORCEABILITY OF RESTRICTIVE COVENANTS. The Executive hereby
acknowledges that the restrictions on his activity contained in Sections 9, 10
and 11 are necessary for the reasonable
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<PAGE> 7
protection of the Company and are a material inducement to the Company entering
into this Agreement. The Executive further acknowledges that a breach or
threatened breach of any such provisions would cause irreparable harm to the
Company for which there is no adequate remedy at law. The Executive agrees that
in the event of any breach or threatened breach of any provision contained in
Sections 9, 10 or 11 of this Agreement, the Company shall have the right, in
addition to any other rights or remedies it may have, to seek injunctive relief
without having to post bond or other security and without having to prove
special damages or the inadequacy of the available remedies at law. The parties
acknowledge that (a) the time, scope, geographic area and other provisions
contained in Sections 9, 10 and 11 are reasonable and necessary to protect the
goodwill and business of the Company, (b) as an internet-based business, the
Customers of the Company may be serviced from any location and accordingly it is
reasonable that the covenants set forth herein are not limited by narrow
geographic area, and (c) the restriction of the Executive's ability to solicit
Customers will not prevent him from being employed or earning a livelihood. If
any covenant contained in Sections 9, 10 or 11 are held to be unenforceable by
reason of the time, scope or geographic area covered thereby, such covenant
shall be interpreted to extend to the maximum time, scope or geographic area for
which it may be enforced as determined by a court making such determination, and
such covenant shall only apply in its reduced form to the operation of such
covenant in the particular jurisdiction in which such adjudication is made. In
the event that the Company shall bring any action, suit or proceeding against
the Executive for the enforcement of this Agreement, the calculation of the
Noncompete Period shall not include the period of time commencing with the
filing of the action, suit or proceeding to enforce this Agreement through the
date of the final judgment or final resolution (including all appeals, if any)
of such action, suit or proceeding. The existence of any claim or cause of
action by the Executive against the Company or any of its affiliates predicated
on this Agreement or otherwise shall not constitute a defense to the enforcement
by the Company of any provision of Sections 9, 10 or 11.
13. INTELLECTUAL PROPERTY. The Executive agrees that he shall make full
and prompt disclosure to the Company of all inventions, improvements,
discoveries, methods, developments, software and works of authorship, whether or
not patentable or copyrightable, which are created, made, conceived or reduced
to practice by the Executive or under his direction or jointly with others
during the Term or within one (1) year thereafter (whether or not during normal
working hours, on the premises of the Company or using Company's equipment or
Confidential Information), which relate to the present or planned business or
research and development of the Company (all of which are collectively referred
to as "Developments"). All right, title and interest in the Developments,
whether or not used by the Company, shall, from the inception of development, be
exclusively and perpetually the property of the Company, free of any claim
whatsoever by the Executive or any third party deriving any rights from the
Executive. Any such Developments shall be deemed "works made for hire" within
the meaning of the U.S. Copyright Act and any other applicable U.S. or foreign
laws relating to intellectual property, and the Executive understands and
acknowledges that the Company shall own all right, title and interest in and to
the Developments, including without limitation copyright, patent and trademark
rights, throughout the world. To the extent that any Developments shall not be
deemed "works made for hire," the Executive hereby assigns to the Company any of
its right, title and interest in and to all worldwide intellectual proprietary
rights, including but not
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<PAGE> 8
limited to all worldwide copyrights, trade secrets, patent rights and trademark
rights, in and to all of the Developments, and agrees to cooperate fully with
the Company, both during and after the Term, with respect to the procurement,
maintenance and enforcement of patents, copyrights and other intellectual
property rights, throughout the world, with respect to the Developments. The
Executive shall sign all papers, including, without limitation, patent
applications, copyright applications, declarations, oaths and formal assignment
documents, which the Company may deem necessary or appropriate to protect its
rights and interests in any Development. The Executive hereby appoints any
officer of the Company as the Executive's attorney-in-fact to execute any such
documents in the name and on behalf of the Executive in the event that the
Executive fails to execute and deliver such documents within thirty (30) days
after the Company's request.
14. CONFLICT. The Executive hereby represents and warrants to the
Company that the execution and delivery of this Agreement by him and the
performance by him of his duties hereunder, shall not constitute a default,
breach or violation of any understanding, contract or commitment, written or
oral, express or implied, to which the Executive is a party or to which the
Executive is or may be bound, including, without limitation, any understanding,
contract or commitment with any present or former employer. The Executive hereby
agrees to indemnify and hold the Company harmless from and against any and all
claims, losses, damages, liabilities, costs and expenses (including, without
limitation, attorneys' fees and expenses) incurred by the Company in connection
with any default, breach or violation by the Executive of any such
understanding, contract or commitment.
15. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, successors and
assigns, except that the Executive may not assign any of his rights or delegate
any of his duties hereunder without the prior written consent of the Company
(which may be granted or withheld in the Company's sole and absolute
discretion).
16. ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding of the parties and supersedes all prior agreements,
understandings, arrangements, promises and commitments, whether written or oral,
express or implied, relating to the subject matter hereof, and all such prior
agreements, understandings, arrangements, promises and commitments are hereby
canceled and terminated.
17. AMENDMENT. This Agreement may not be amended, supplemented or
modified in whole or in part except by an instrument in writing signed by the
party or parties against whom enforcement of such amendment, supplement or
modification is sought.
18. SURVIVAL. The provisions of Sections 7, 9, 10, 11, 12, 13,
14, 21, 22 and 27 hereof shall survive the termination or expiration of this
Agreement.
19. NOTICES. Any notice, request or other document required or
permitted to be given under this Agreement shall be in writing and shall be
deemed given (a) upon delivery, if delivered by hand, (b) three days after the
date of deposit in the mail, postage prepaid, if mailed by U.S.
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<PAGE> 9
certified or registered mail, or (c) on the next business day, if sent by
prepaid overnight courier service, in each case, addressed as follows:
If to the Executive, to the address set forth below his name
on the signature page hereto.
If to the Company, to:
Corporate Buying Service Inc.
3401 N. Federal Highway, Suite 216
Boca Raton, FL 33431
Attention: President
with a copy to:
Akerman Senterfitt & Eidson, P.A.
350 E. Las Olas Boulevard, Suite 1600
Fort Lauderdale, Florida 33301
Attention: Bruce I. March, Esq.
Any party may change the address to which notice shall be sent by giving notice
of such change of address to the other parties in the manner provided above.
20. WAIVERS. The failure or delay of any party to enforce any provision
of this Agreement shall in no way affect the right of such party to enforce the
same or any other provision of this Agreement. The waiver by any party of any
breach of any provision of this Agreement shall not be construed as a waiver by
such party of any succeeding breach of such provision or a waiver by such party
of a breach of any other provision. The granting of any consent or approval by
any party in any one instance shall not be construed to waive or limit the need
for such consent or approval in any other or subsequent instance.
21. GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Florida applicable to contracts executed and to be
wholly performed within such State. The parties to this Agreement agree that any
suit, action or proceeding arising out of or relating to this Agreement
(including, without limitation, any action for the enforcement of an arbitration
award pursuant to Section 22 below) or any judgment entered by any court in
respect thereof shall be brought in the courts of Palm Beach County, Florida or
in the U.S. District Court for the Southern District of Florida. Each party
hereby (a) irrevocably accepts the exclusive personal jurisdiction of such
courts for the purpose of any action, suit or proceeding arising out of or
relating to this Agreement, (b) irrevocably waive, to the fullest extent
permitted by law, any objection which it may now or hereafter have to the laying
of venue of any action, suit or proceeding arising out of or relating to this
Agreement or any judgment entered by any court in respect thereof brought in
such
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<PAGE> 10
courts, and (c) irrevocably waive any claim that any action, suit or proceeds
brought in any such court has been brought in an inconvenient forum. Each party
further agrees that service of process, summons, notice or document by U.S.
registered mail in accordance with this Agreement shall be effective service of
process for any action, suit or proceeding brought against a party in any such
court.
22. ARBITRATION. The parties to this Agreement agree to arbitrate all
disputes, controversies or differences that may arise between them with respect
to any provision of this Agreement. Either party may give notice to the other of
its decision to arbitrate the dispute, and such notice shall specify the issue
or issues to be arbitrated. Each party shall select one arbitrator, and the two
arbitrators thereby selected shall select a third arbitrator. The arbitration
shall take place in Palm Beach County, Florida or such other place as the
parties shall agree, under the then-current Commercial Arbitration Rules of the
American Arbitration Association. The decision of a majority of the three
arbitrators, including any assessment of the cost of arbitration, will be final
and binding on the parties. The arbitrators will only have the authority to
award actual direct damages, and will not have the authority to award
consequential or punitive damages. Judgement upon the decision made by the
arbitrators may be entered in any court of competent jurisdiction.
23. SEVERABILITY. If any term or provision of this Agreement shall be
determined by a court of competent jurisdiction to be illegal, invalid or
unenforceable for any reason, the remaining provisions of this Agreement shall
remain enforceable and the invalid, illegal or unenforceable provisions shall be
modified so as to be valid and enforceable and shall be enforced.
24. SECTION HEADINGS. Section headings are included in this Agreement
for convenience of reference only, and shall in no way affect the meaning or
interpretation of this Agreement.
25. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
26. NUMBER OF DAYS. In computing the number of days for purposes of
this Agreement, all days shall be counted, including Saturdays, Sundays and
holidays; PROVIDED, HOWEVER, if the final day of any time period falls on a
Saturday, Sunday or holiday on which federal banks in the United States are or
may elect to be closed, then the final day should be deemed the next day which
is not a Saturday, Sunday or such holiday.
27. ATTORNEYS' FEES. In any action brought to enforce any provision of
Sections 9, 10 or 11 of this Agreement, the prevailing party shall be entitled
to recover reasonable attorneys' fees and costs from the other party to the
action or proceeding. For purposes of this Agreement, the "prevailing party"
shall be deemed to be that party who obtains substantially the result sought,
whether by settlement, mediation, judgment or otherwise, and "attorneys' fees"
shall include, without limitation, the actual attorneys' fees incurred in
retaining counsel for advice, negotiations, suit, or other legal proceeding,
including mediation and arbitration.
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<PAGE> 11
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first written above.
CORPORATE BUYING SERVICE INC.
By: /s/ RUSSELL MADRIS
----------------------------------------
Russell Madris
President
EXECUTIVE
/s/ BERNARDO SICARD
-------------------------------------------
Bernardo Sicard, individually
Address:
125 NW 25 Ave.
-------------------------------------------
Deerfield Beach, FL 33442
-------------------------------------------
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<PAGE> 1
EXHIBIT 10.8
MOREDIRECT.COM, INC.
1999 STOCK OPTION PLAN
1. ESTABLISHMENT, EFFECTIVE DATE AND TERM
MoreDirect.com, Inc., a Florida corporation (the "Company"), hereby
establishes the "MoreDirect.com, Inc. 1999 Stock Option Plan" (the "Plan"). The
effective date of the Plan shall be October 11, 1999, (the "Effective Date"),
which is the date that the Plan was approved and adopted by the Board of
Directors and Shareholders of the Company (the "Board"). Unless earlier
terminated pursuant to Section 17 hereof, the Plan shall terminate on October
11, 2009.
2. PURPOSE
The purpose of the Plan is to advance the interests of the Company by
providing Eligible Individuals (as defined in Section 6 below) with an
opportunity to acquire or increase a proprietary interest in the Company, which
will thereby create a stronger incentive to expend maximum effort for the growth
and success of the Company and its subsidiaries, and will encourage such
individuals to remain in the employ of or maintain their relationship with the
Company or one or more of its subsidiaries.
3. TYPE OF OPTIONS
Each stock option granted under the Plan (an "Option") may be
designated by the Board, in its sole discretion, either as (i) an "incentive
stock option" ("Incentive Stock Options") within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended from time to time (the "Code"), or
(ii) as a non-qualified stock option which is not intended to meet the
requirements of Section 422 of the Code; PROVIDED, HOWEVER, that Incentive Stock
Options may only be granted to employees of the Company, any "subsidiary
corporation" as defined in Section 424 of the Code (a "Subsidiary") or any
"parent corporation" as defined in Section 424 of the Code (a "Parent"). In the
absence of any designation, Options granted under the Plan will be deemed to be
non-qualified stock options. The Plan shall be administered and interpreted so
that all Incentive Stock Options granted under the Plan will qualify as
incentive stock options under Section 422 of the Code. Options designated as
Incentive Stock Options that fail to continue to meet the requirements of
Section 422 of the Code shall be redesignated as non-qualified stock options
automatically on the date of such failure to continue to meet such requirements
without further action by the Board.
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<PAGE> 2
4. ADMINISTRATION
(a) BOARD. The Plan shall be administered by the Board, which shall
have the full power and authority to take all actions, and to make all
determinations required or provided for under the Plan or any Option granted or
Option Agreement (as defined in Section 9 below) entered into under the Plan and
all such other actions and determinations not inconsistent with the specific
terms and provisions of the Plan deemed by the Board to be necessary or
appropriate to the administration of the Plan or any Option granted or Option
Agreement entered into hereunder. The Board may correct any defect or supply any
omission or reconcile any inconsistency in the Plan or in any Option Agreement
in the manner and to the extent it shall deem expedient to carry the Plan into
effect and shall be the sole and final judge of such expediency. All such
actions and determinations shall be by the affirmative vote of a majority of the
members of the Board present at a meeting at which any issue relating to the
Plan is properly raised for consideration or without a meeting by written
consent of the Board executed in accordance with the Company"s Articles of
Incorporation and By-Laws and applicable law. The interpretation and
construction by the Board of any provision of the Plan or of any Option granted
or Option Agreement entered into hereunder shall be final, conclusive and
binding on all Optionees.
(b) COMMITTEE. The Board may, in its discretion, from time to time
appoint a Compensation Committee and/or Stock Option Committee (each of which is
referred to as the "Committee") consisting of not less than two members of the
Board, none of whom shall be an officer or other salaried employee of the
Company or any Parent or Subsidiary, and each of whom shall qualify in all
respects as a "non-employee director" as defined in Rule 16b-3 promulgated under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and an
"outside director" for purposes of Section 162(m) of the Code. The Board, in its
sole discretion, may provide that the role of the Committee shall be limited to
making recommendations to the Board concerning any determinations to be made and
actions to be taken by the Board pursuant to or with respect to the Plan, or the
Board may delegate to the Committee such powers and authorities related to the
administration of the Plan, as set forth in Section 4(a) above, as the Board
shall determine, consistent with the Articles of Incorporation and By-Laws of
the Company and applicable law. The Board may remove members, add members and
fill vacancies on the Committee from time to time, all in accordance with the
Company"s Articles of Incorporation and By-Laws and applicable law. The majority
vote of the Committee, or acts reduced to or approved in writing by a majority
of the members of the Committee, shall be the valid acts of the Committee.
(c) NO LIABILITY. No member of the Board or of the Committee shall be
liable for any action or determination made in good faith with respect to the
Plan or any Option granted or Option Agreement entered into hereunder.
(d) DELEGATION TO THE COMMITTEE. In the event that the Plan or any
Option granted or Option Agreement entered into hereunder provides for any
action to be taken by or determination to be made by the Board, such action may
be taken by or such determination may be made by the Committee if the power and
authority to do so has been delegated to the Committee by the Board as provided
for in Section 4(b) above. Unless otherwise expressly determined by the Board,
any such action or determination by the Committee shall be final, conclusive and
binding on all Optionees.
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<PAGE> 3
5. COMMON STOCK
The capital stock of the Company that may be issued pursuant to Options
granted under the Plan shall be shares of common stock, $.01 par value, of the
Company (the "Common Stock"), which shares may be treasury shares or authorized
but unissued shares. The total number of shares of Common Stock that may be
issued pursuant to Options granted under the Plan shall be one million
(1,000,000) shares, subject to adjustment as provided in Section 18 below. If
any Option expires, terminates or is terminated or canceled for any reason prior
to exercise in full, the shares of Common Stock that were subject to the
unexercised portion of such Option shall be available for future Options granted
under the Plan.
6. ELIGIBILITY
Options may be granted under the Plan to (i) any employee or director
of the Company or any Parent or Subsidiary, and (ii) any independent contractor,
consultant or sales representative performing services for the Company or any
Parent or Subsidiary as determined by the Board from time to time on the basis
of their importance to the business of the Company (collectively, "Eligible
Individuals"), PROVIDED, HOWEVER, that Incentive Stock Options may only be
granted to employees of the Company or any Parent or Subsidiary. An individual
may hold more than one Option, subject to such restrictions as are provided
herein.
7. GRANT OF OPTIONS
Subject to the terms and conditions of the Plan, the Board may, at any
time and from time to time, prior to the date of termination of the Plan, grant
to such Eligible Individuals as the Board may determine ("Optionees"), Options
to purchase such number of shares of Common Stock on such terms and conditions
as the Board may determine. The date on which the Board approves the grant of an
Option (or such later date as is specified by the Board) shall be considered the
date on which such Option is granted.
8. LIMITATION ON INCENTIVE STOCK OPTIONS
(a) TEN PERCENT SHAREHOLDER. Notwithstanding any other provision of
this Plan to the contrary, no individual may receive an Incentive Stock Option
under the Plan if such individual, at the time the award is granted, owns (after
application of the rules contained in Section 424(d) of the Code) stock
possessing more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or any Parent or Subsidiary, unless (i) the
purchase price for each share of Common Stock subject to such Incentive Stock
Option is at least one hundred and ten percent (110%) of the fair market value
of a share of Common Stock on the date of grant (as determined in good faith by
the Board) and (ii) such Incentive Stock Option is not exercisable after the
date which is five years from the date of grant.
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<PAGE> 4
(b) LIMITATION ON GRANTS. The aggregate fair market value (determined
with respect to each Incentive Stock Option at the time such Incentive Stock
Option is granted) of the shares of Common Stock with respect to which Incentive
Stock Options are exercisable for the first time by an individual during any
calendar year (under this Plan or any other plan of the Company or a Parent or
Subsidiary) shall not exceed $100,000. If an Incentive Stock Option is granted
pursuant to which the aggregate fair market value of shares with respect to
which it first becomes exercisable in any calendar year by an individual exceeds
such $100,000 limitation, the portion of such Option which is in excess of the
$100,000 limitation, and any Options issued subsequently in the same calendar
year, shall be treated as a non-qualified stock option pursuant to Section
422(d)(1) of the Code. In the event that an individual is eligible to
participate in any other stock option plan of the Company or any Parent or
Subsidiary which is also intended to comply with the provisions of Section 422
of the Code, such $100,000 limitation shall apply to the aggregate number of
shares for which Incentive Stock Options may be granted under this Plan and all
such other plans.
9. OPTION AGREEMENTS
All Options granted pursuant to the Plan shall be evidenced by written
agreements ("Option Agreements"), which shall be executed by the Company and by
the Optionee, in such form or forms and containing such terms and conditions not
inconsistent with the terms of the Plan as the Board shall from time to time
determine. Option Agreements covering Options granted from time to time or at
the same time need not contain similar provisions; PROVIDED, HOWEVER, that all
such Option Agreements shall comply with all terms of the Plan.
10. OPTION PRICE
The purchase price of each share of Common Stock subject to an Option
(the "Option Price") shall be fixed by the Board and stated in each Option
Agreement, and subject to the provisions of Section 8(a) above, shall be not
less than one hundred percent (100%) of the fair market value of a share of
Common Stock on the date the Option is granted. If the Common Stock is then
listed on any national securities exchange, the fair market value shall be the
closing price of a share of Common Stock on such exchange on the last trading
day immediately prior to the date of grant; PROVIDED, HOWEVER, that when
granting Incentive Stock Options, the Board shall determine fair market value in
accordance with the provisions of Section 422 of the Code. If the Common Stock
is not listed on any such exchange, the fair market value shall be determined in
good faith by the Board.
11. TERM AND VESTING OF OPTIONS
(a) OPTION PERIOD. Subject to the provisions of Sections 8(a) and 14
hereof, each Option granted under the Plan shall terminate and all rights to
purchase shares thereunder shall cease upon the expiration of ten (10) years
from the date such Option is granted, or on such date prior thereto as may be
fixed by the Board and stated in the Option Agreement relating to such Option.
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<PAGE> 5
Notwithstanding the foregoing, the Board may in its discretion, at any time
prior to the expiration or termination of any Option, extend the term of any
such Option for such additional period as the Board in its discretion may
determine; PROVIDED, HOWEVER, that in no event shall the aggregate option period
with respect to any Option, including the initial term of such Option and any
extensions thereof, exceed 10 years.
(b) VESTING.
(i) INCENTIVE STOCK OPTIONS. Subject to the provisions of
Section 12(a) and Section 14 hereof, each Agreement will specify the
vesting schedule applicable to Incentive Stock Options. The Board may
in its discretion provide that any vesting requirement or other such
limitation on the exercise of an Incentive Stock Option may be
rescinded, modified or waived by the Board, in its sole discretion, at
any time and from time to time after the date of grant of such
Incentive Stock Option, so as to accelerate the time at which the
Incentive Stock Option may be exercised.
(ii) NON-QUALIFIED STOCK OPTIONS. Subject to the provisions of
Section 12(a) and Section 14 hereof, each Agreement will specify the
vesting schedule applicable to non-qualified stock options. The Board
may in its discretion provide that any vesting requirement or other
such limitation on the exercise of a non-qualified stock option may be
rescinded, modified or waived by the Board, in its sole discretion, at
any time and from time to time after the date of grant of such
non-qualified stock option, so as to accelerate the time at which the
non-qualified stock option may be exercised.
(c) CHANGE IN CONTROL. In the event of a Change in Control (as defined
below), the Board may, in its sole and absolute discretion, provide on a case by
case basis that (a) immediately prior to the effective date of the transactions
giving rise to a Change in Control, the vesting of some or all of the
outstanding Options issued pursuant to an Option Agreement may be accelerated so
that each such Option shall become exercisable without regard to any limitation
on exercise imposed pursuant to the Option Agreement or this Plan, and/or (b)
upon the consummation of the transactions giving rise to the Change in Control,
all outstanding Options under the Plan shall, to the extent not previously
exercised or assumed by the successor corporation or its parent company,
terminate and cease to be outstanding. For purposes of the Plan, a "Change in
Control" shall mean (i) a reorganization, merger, consolidation or other form of
corporate transaction or series of transactions, in each case, with respect to
which persons who were the shareholders of the Company immediately prior to such
reorganization, merger or consolidation or other transaction do not, immediately
thereafter, own more than fifty percent (50%) of the combined voting power
entitled to vote generally in the election of directors of the reorganized,
merged or consolidated company"s then outstanding voting securities, (ii) a
liquidation or dissolution of the Company, (iii) the sale, lease, exchange or
other disposition of all or substantially all of the assets of the Company, or
(iv) the acquisition by any person, or any two or more persons acting as a
group, and all affiliates of such person or persons, who prior to such time
owned less than fifty percent (50%) of the combined voting power entitled to
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<PAGE> 6
vote generally in the election of directors, of additional voting power in one
or more transactions, or series of transactions, such that following such
transaction or transactions, such person or group and affiliates beneficially
own fifty percent (50%) or more of the combined voting power entitled to vote
generally in the election of directors. For purposes of the Plan, a "person"
shall mean any person, corporation, partnership, joint venture or other entity
or any group (as such term is defined for purposes of Section 13(d) of the
Exchange Act) and "beneficial ownership" shall be determined in accordance with
Rule 13d-3 under the Exchange Act.
(d) INITIAL PUBLIC OFFERING. In the event of an Initial Public Offering
of the Company"s Common Stock (as defined below), the Board may, in its sole and
absolute discretion, provide on a case by case basis that some or all
outstanding Options pursuant to an Option Agreement may become immediately
exercisable, without regard to any limitation on exercise imposed pursuant to
this Plan. For purposes of this Plan, the Company shall be deemed to have
completed an "Initial Public Offering" if there is a closing of an underwritten
public offering by the Company pursuant to a registration statement filed and
declared effective under the Securities Act of 1933, as amended, covering the
offer and sale of the Company's Common Stock for the account of the Company.
12. LIMITATIONS ON EXERCISE, MANNER OF EXERCISE AND PAYMENT
(a) LIMITATIONS ON EXERCISE. Notwithstanding anything to the contrary
contained in this Plan or in any Option Agreement, no Option shall be
exercisable until the earliest to occur of the following: (a) the Company
completes an Initial Public Offering, (b) there is a Change in Control of the
Company, or (c) five (5) years from the date such Option was granted.
(b) MANNER OF EXERCISE. An Option that is exercisable hereunder may be
exercised by delivery to the Company on any business day, at its principal
office, addressed to the attention of the person designated by the Company from
time to time as the Stock Option Administrator, of written notice of exercise,
which notice shall specify the number of shares with respect to which the Option
is being exercised, and shall be accompanied by payment in full of the Option
Price of the shares for which the Option is being exercised, by one or more of
the methods provided below. The minimum number of shares of Common Stock with
respect to which an Option may be exercised, in whole or in part, at any time
shall be the lesser of one hundred (100) shares or the maximum number of shares
available for purchase under the Option at the time of exercise.
(c) PAYMENT. Payment of the Option Price for the shares of Common Stock
purchased pursuant to the exercise of an Option shall be made (i) in cash or in
cash equivalents; (ii) through the tender to the Company of shares of Common
Stock, which shares shall be valued, for purposes of determining the extent to
which the Option Price has been paid thereby, at their fair market value
(determined in the manner described in Section 10 above) on the date of
exercise; (iii) by delivering a written direction to the Company that the Option
be exercised pursuant to a "cashless" exercise/sale procedure (pursuant to which
funds to pay for exercise of the Option are delivered to the Company by a broker
upon receipt of stock certificates from the Company) or a cashless exercise/loan
procedure (pursuant to which the Optionees would obtain a margin loan from a
broker to fund the exercise) through a licensed broker acceptable to the Company
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<PAGE> 7
whereby the stock certificate or certificates for the shares of Common Stock for
which the Option is exercised will be delivered to such broker as the agent for
the individual exercising the Option and the broker will deliver to the Company
cash (or cash equivalents acceptable to the Company) equal to the Option Price
for the shares of Common Stock purchased pursuant to the exercise of the Option
plus the amount (if any) of federal and other taxes that the Company, may, in
its judgment, be required to withhold with respect to the exercise of the
Option; (iv) to the extent permitted by applicable law and agreed to by the
Board in its sole and absolute discretion, by the delivery of a promissory note
of the Optionee to the Company on such terms as the Board shall specify in its
sole and absolute discretion; or (v) by a combination of the methods described
in clauses (i), (ii), (iii) and (iv). Payment in full of the Option Price need
not accompany the written notice of exercise if the Option is exercised pursuant
to the cashless exercise/sale procedure described above. An attempt to exercise
any Option granted hereunder other than as set forth above shall be invalid and
of no force and effect.
(d) ISSUANCE OF CERTIFICATES. Promptly after the exercise of an Option,
the individual exercising the Option shall be entitled to the issuance of a
certificate or certificates evidencing his ownership of such shares of Common
Stock. An individual holding or exercising an Option shall have none of the
rights of a shareholder until the shares of Common Stock covered thereby are
fully paid and issued to him and, except as provided in Section 18 below, no
adjustment shall be made for dividends or other rights for which the record date
is prior to the date of such issuance.
(e) EXECUTION OF SHAREHOLDERS" AGREEMENT AS CONDITION TO EXERCISE OF
OPTION. In the event that the Optionee shall desire to exercise all or any
portion of an Option prior to the date on which the Company shall have completed
an Initial Public Offering, the Optionee shall, as a condition precedent to such
Optionee"s right to exercise an Option, execute and deliver a copy of a
shareholders" agreement containing such terms and conditions as may be specified
by the Board from time to time in its sole and absolute discretion, which may
provide, among other things, for restrictions on transfer and voting of Option
Shares and provisions governing the management and control of the Company.
13. TRANSFERABILITY OF OPTIONS
(a) INCENTIVE STOCK OPTIONS. No Incentive Stock Option shall be
assignable or transferable by the Optionee to whom it is granted, other than by
will or the laws of descent and distribution.
(b) NON-QUALIFIED STOCK OPTIONS. Unless otherwise permitted by the
Board in its sole and absolute discretion, no non-qualified stock option shall
be assignable or transferable by the Optionee to whom it is granted, other than
by will or the laws of descent and distribution.
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<PAGE> 8
14. TERMINATION OF EMPLOYMENT, DEATH, DISABILITY OR BREACH OF RESTRICTIVE
COVENANTS
(a) GENERAL. If an Optionee"s employment with or service as a director
of or independent contractor, consultant or sales representative to the Company
or any Parent or Subsidiary terminates for any reason other than Cause (as
defined below), death or "permanent and total disability" (within the meaning of
Section 22(e)(3) of the Code) of such Optionee, Options granted to the Optionee
will expire thirty (30) days following the last day of the Optionee"s employment
with or service as a director of or independent contractor, consultant or sales
representative to the Company or any Parent or Subsidiary, or, if earlier, the
date specified in the Option Agreement. Except as may otherwise be provided in
any Option Agreement, Options will be exercisable only to the extent they are
exercisable on the date the Optionee's employment with or service as a director
of or independent contractor, consultant or sales representative to the Company
or any Parent or Subsidiary terminates.
(b) CAUSE. Notwithstanding any provisions set forth in this Plan, if
the Company or any Parent or Subsidiary terminates an Optionee"s employment with
or service as a director of or independent contractor, consultant or sales
representative to the Company or any Parent or Subsidiary for Cause (as defined
below), all Options granted to such Optionee pursuant to the Plan shall
terminate upon the date of such termination of employment or service and such
Optionee shall have no further right to purchase shares of Common Stock pursuant
to such Options. For purposes of the Plan, "Cause" means (i) failure or refusal
of the Optionee to perform the duties and responsibilities that the Company or
any Parent or Subsidiary requires to be performed by him, (ii) gross negligence
or willful misconduct by the Optionee in the performance of his duties, (iii)
commission by the Optionee of an act of dishonesty affecting the Company or any
Parent or Subsidiary, or the commission of an act constituting common law fraud
or a felony, or (iv) the Optionee"s commission of an act (other than the good
faith exercise of his business judgment in the exercise of his responsibilities)
resulting in material damages to the Company or any Parent or Subsidiary.
Notwithstanding the above, if an Optionee shall have entered into an employment,
independent contractor, consulting, sales representative or other agreement with
the Company or any Parent or Subsidiary which defines the term "Cause" for
purposes of such agreement,"Cause" for purposes of this Plan shall be defined
pursuant to the definition in such agreement rather than the definition set
forth above. The Board shall determine whether Cause exists for purposes of this
Plan and such determination shall be final, conclusive and binding on the
Optionees.
(c) DEATH. If an Optionee dies while serving as an employee or director
of or independent contractor, consultant or sales representative to the Company
or any Parent or Subsidiary, all Options exercisable on the date of the
Optionee"s death shall remain exercisable by the executors or administrators or
legatees or distributees of such Optionee's estate at any time within one (1)
year after the date of such Optionee's death, or if earlier, the date specified
in the Option Agreement pursuant to Section 11(a) above, to exercise such
Options in whole or in part.
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<PAGE> 9
(d) DISABILITY. If an Optionee's employment with or service as a
director of or independent contractor, consultant or sales representative to the
Company or any Parent or Subsidiary is terminated by reason of the "permanent
and total disability" (within the meaning of Section 22(e)(3) of the Code) of
such Optionee, then all Options exercisable on the date of the termination of
the Optionee's employment or service shall remain exercisable by Optionee at any
time within one (1) year after such termination of employment or service, or if
earlier, the date specified in the Option Agreement pursuant to Section 11(a)
above, to exercise such Options in whole or in part. Whether a termination of
employment or service is to be considered by reason of "permanent and total
disability" for purposes of this Plan shall be determined by the Board, which
determination shall be final, conclusive and binding on the Optionees.
15. USE OF PROCEEDS
The proceeds received by the Company from the sale of Common Stock upon
exercise of Options granted under the Plan shall constitute general funds of the
Company.
16. REQUIREMENTS OF LAW
(a) VIOLATIONS OF LAW. The Company shall not be required to sell or
issue any shares of Common Stock upon exercise of any Option if the sale or
issuance of such shares would constitute a violation by the individual
exercising the Option or the Company of any provisions of any law or regulation
of any governmental authority, including without limitation, any federal or
state securities laws or regulations. Any determination in this connection by
the Board shall be final, conclusive and binding on the Optionees. The Company
shall not be obligated to take any affirmative action in order to cause the
exercise of an Option or the issuance of shares pursuant thereto to comply with
any law or regulation of any governmental authority.
(b) REGISTRATION. At the time of any exercise of any Option, the
Company may, if it shall determine it necessary or desirable for any reason,
require the Optionee (or his or her heirs, legatees or legal representative, as
the case may be), as a condition to the exercise thereof, to deliver to the
Company a written representation of present intention to purchase the shares for
his or her own account as an investment and not with a view to, or for sale in
connection with, the distribution of such shares, except in compliance with
applicable federal and state securities laws with respect thereto. In the event
such representation is required to be delivered, an appropriate legend may be
placed upon each certificate delivered to the Optionee (or his or her heirs,
legatees or legal representative, as the case may be) upon his or her exercise
of all or any portion of the Option and a stop transfer order may be placed with
the transfer agent. Each Option shall also be subject to the requirement that,
if at any time the Company determines, in the discretion of the Board, that the
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<PAGE> 10
listing, registration or qualification of the shares subject to the Option upon
any securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body is necessary or desirable as a
condition of or in connection with, the issuance or purchase of the shares
thereunder, the Option may not be exercised in whole or in part unless such
listing, registration, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the Company in its
sole discretion. The Company shall not be obligated to take any affirmative
action in order to cause the exercisability or vesting of an Option or to cause
the exercise of an Option or the issuance of shares pursuant thereto to comply
with any law or regulation of any governmental authority.
(c) WITHHOLDING. The Board may make such provisions and take such steps
as it may deem necessary or appropriate for the withholding of any taxes that
the Company is required by any law or regulation of any governmental authority,
whether federal, state or local, domestic or foreign, to withhold in connection
with the exercise of any Option, including, but not limited to: (i) the
withholding of delivery of shares of Common Stock upon exercise of Options until
the holder reimburses the Company for the amount the Company is required to
withhold with respect to such taxes, (ii) the canceling of any number of shares
of Common Stock issuable upon exercise of such Options in an amount sufficient
to reimburse the Company for the amount it is required to so withhold, or (iii)
withholding the amount due from any such person"s wages, compensation, fees or
other amounts due such person.
(d) GOVERNING LAW. This Plan shall be governed by, and construed and
enforced in accordance with, the laws of the State of Florida.
17. AMENDMENT AND TERMINATION OF THE PLAN
The Board may, at any time and from time to time, amend, suspend or
terminate the Plan as to any shares of Common Stock as to which Options have not
been granted; PROVIDED, HOWEVER, that the approval by a majority of the votes
present and entitled to vote at a duly held meeting of the shareholders of the
Company at which a quorum representing a majority of all outstanding voting
stock is, either in person or by proxy, present and voting on the amendment, or
by written consent in accordance with applicable state law and the Articles of
Incorporation and By-Laws of the Company shall be required for any amendment (i)
that changes the requirements as to Eligible Individuals to receive Options
under the Plan, (ii) that increases the maximum number of shares of Common Stock
in the aggregate that may be sold pursuant to Options that are granted under the
Plan (except as permitted under Section 18 hereof), or (iii) if approval of such
amendment is necessary to comply with federal or state law (including without
limitation Rule 162(m) of the Code and Rule 16b-3 under the Exchange Act) or
with the rules of any stock exchange or automated quotation system on which the
Common Stock may be listed or traded. Except as permitted under Section 18
hereof, no amendment, suspension or termination of the Plan shall, without the
consent of the holder of the Option, alter or impair rights or obligations under
any Option theretofore granted under the Plan.
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<PAGE> 11
18. EFFECT OF CHANGES IN CAPITALIZATION
(a) RECAPITALIZATION. Subject to Section 11(c) above, if the
outstanding shares of Common Stock are increased or decreased or changed into or
exchanged for a different number or kind of shares or other securities of the
Company by reason of any recapitalization, reclassification, reorganization
(other than as described in Section 18(b) below), stock split, reverse split,
combination of shares, exchange of shares, stock dividend or other distribution
payable in capital stock of the Company, or other increase or decrease in such
shares effected without receipt of consideration by the Company, occurring after
the Effective Date, an appropriate and proportionate adjustment shall be made by
the Board (i) in the aggregate number and kind of shares of Common Stock
available under the Plan, (ii) in the number and kind of shares of Common Stock
issuable upon exercise of outstanding Options granted under the Plan, and (iii)
in the Option Price per share of outstanding Options granted under the Plan.
(b) REORGANIZATION. Subject to Section 11(c) above, in connection with
a merger, consolidation, reorganization or other business combination of the
Company with one or more other entities in which the Company is not the
surviving entity, each then outstanding Option shall upon exercise thereafter
entitle the holder thereof to such number of shares of Common Stock or other
securities or property to which a holder of shares of Common Stock would have
been entitled to upon such merger, consolidation, reorganization or other
business combination.
(c) DISSOLUTION OR LIQUIDATION. Upon the dissolution or liquidation of
the Company, the Plan and all Options outstanding hereunder shall terminate. In
the event of any termination of the Plan under this Section 18(c), each
individual holding an Option shall have the right, immediately prior to the
occurrence of such termination and during such reasonable period as the Board in
its sole discretion shall determine and designate, to exercise such Option in
whole or in part, whether or not such Option was otherwise exercisable at the
time such termination occurs and without regard to any vesting or other
limitation on exercise imposed pursuant to Section 11(b) above.
(d) ADJUSTMENTS. Adjustments under this Section 18 related to stock or
securities of the Company shall be made by the Board, whose determination in
that respect shall be final, conclusive and binding on the Optionees. No
fractional shares of Common Stock or units of other securities shall be issued
pursuant to any such adjustment, and any fractions resulting from any such
adjustment shall be eliminated in each case by rounding downward to the nearest
whole share or unit.
(e) NO LIMITATIONS. The grant of an Option pursuant to the Plan shall
not affect or limit in any way the right or power of the Company to make
adjustments, reclassifications, reorganizations or changes of its capital or
business structure or to merge, consolidate, dissolve or liquidate, or to sell
or transfer all or any part of its business or assets.
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<PAGE> 12
19. DISCLAIMER OF RIGHTS
No provision in the Plan or in any Option granted or Option Agreement
entered into pursuant to the Plan shall be construed to confer upon any
individual the right to remain an employee or director of or an independent
contractor, consultant or sales representative to the Company or any Parent or
Subsidiary or to interfere in any way with the right and authority of the
Company or any Parent or Subsidiary either to increase or decrease the
compensation of any individual, including any Option holder, at any time, or to
terminate his employment with or service as a director of or independent
contractor, consultant or sales representative to the Company or any Parent or
Subsidiary or to terminate any other relationship between any individual and the
Company or any Parent or Subsidiary. A holder of an Option shall not be deemed
for any purpose to be a Shareholder of the Company with respect to such Option
except to the extent that such Option shall have been exercised with respect
thereto and, in addition, a stock certificate shall have been issued theretofore
and delivered to the holder. No adjustment shall be made for dividends (ordinary
or extraordinary, whether in cash, securities or other property) or
distributions or other rights for which the record date is prior to the date
such stock certificate is issued, except as expressly provided in Section 18
hereof.
20. NONEXCLUSIVITY OF THE PLAN
The adoption of the Plan shall not be construed as creating any
limitations upon the right and authority of the Board to adopt such other
incentive compensation arrangements (which arrangements may be applicable either
generally to a class or classes of individuals or specifically to a particular
individual or individuals) as the Board in its discretion determines desirable,
including, without limitation, the granting of stock options or stock
appreciation rights otherwise than under the Plan.
21. SEVERABILITY
If any provision of the Plan or any Option Agreement shall be
determined to be illegal or unenforceable by any court of law in any
jurisdiction, the remaining provisions hereof and thereof shall be severable and
enforceable in accordance with their terms, and all provisions shall remain
enforceable in any other jurisdiction.
22. NOTICES
Any communication or notice required or permitted to be given under the
Plan shall be in writing, and mailed by registered or certified mail or
delivered by hand, if to the Company, to its principal place of business and
addressed to the attention of the person designated by the Company from time to
time as the Stock Option Administrator, and if to the holder of an Option, to
the address as appearing on the records of the Company.
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<PAGE> 1
EXHIBIT 10.9
CHATSWORTH SECURITIES LLC
March 20, 1999
Mr. Russell Madris
President
Corporate Buying Service Inc.
3401 N. Federal Highway
Boca Raton, FL 33431
Dear Mr. Madris:
This letter (this "Agreement") confirms the terms upon which Corporate Buying
Services Inc. ("CBS" or the "Company") and Chatsworth Securities LLC
("Chatsworth") have agreed to amend and restate the terms of that certain letter
agreement entered into between them on March 18, 1999 (the "Initial Engagement
Agreement") pursuant to which Chatsworth was retained to serve as a consultant
to the Company.
SECTION 1: NATURE OF THE ENGAGEMENT
In the capacity described above, Chatsworth will act as a consultant and will
advise and assist the Company with respect to the following:
(a) Advise and assist the Company in analyzing corporate and
technology infrastructure needs;
(b) Advise and assist the Company in evaluating the Company's
website;
(c) Advise and assist the Company in evaluating and enhancing the
Company's marketing program, including the development of a
national sales force;
(d) Advise and assist the Company in retaining executive search firms
and evaluating managerial personnel needs;
(e) Advise and assist the Company in identifying and hiring a
suitable CFO and CTO;
(f) Advise and assist the Company in identifying suitable candidates
for the Company's Board of Directors;
(g) Prepare a comprehensive business plan for the Company to
facilitate raising private equity capital;
(h) Prepare a valuation of the Company to facilitate raising private
equity capital;
(i) Advise and assist the Company in evaluating debt and equity
alternatives for financing the Company's growth;
(j) Advise and assist the Company in selecting and retaining
auditors; and
(k) Advise and assist the Company in establishing an employee stock
option plan and program.
One East Putnam Avenue, Greenwich, CT 06830
Tel. (203) 629-2612 Fax (203) 629-2375
<PAGE> 2
SECTION 2: FEES
In consideration of the services provided by Chatsworth hereunder, the Company
shall issue to Chatsworth a warrant to purchase 1.65 shares of common stock,
$.01 par value per share, of the Company (which shall be subject to adjustment
on account of any stock split or dividend undertaken by the Company) in the form
attached hereto as EXHIBIT A (the "Warrant").
SECTION 3: EXPENSES
In addition to the Warrant, the Company hereby agrees, from time to time upon
request, to reimburse Chatsworth for all reasonable and pre-approved
out-of-pocket traveling expenses incurred by Chatsworth in fulfilling its
obligations hereunder.
SECTION 4: INDEMNIFICATION
The Company agrees to indemnify, defend and hold harmless Chatsworth against any
and all loss, liability claim, damage and expense whatsoever (including, but not
limited to, any and all expenses reasonably incurred in investigating, preparing
or defending against any litigation commenced or threatened, or any claim
whatsoever) arising out of any untrue statement or alleged untrue statement of a
material fact contained in any registration statement filed by the Company with
the SEC and any prospectus contained therein (as amended and supplemented from
time to time) or the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading; PROVIDED, HOWEVER, that the Company shall not be liable in any
such case to the extent that any such loss, claim damage or liability arises out
of or is based upon (a) an untrue statement, or alleged untrue statement or
omission or alleged omission made in such registration statement or prospectus,
or such amendment or supplement, in reliance upon and in conformity with
information furnished to the Company by Chatsworth, or (b) grossly negligent,
reckless or intentional misconduct or wrongful acts of Chatsworth.
Chatsworth agrees that it will indemnify, defend and hold harmless the Company
and each of its officers, directors, employees and agents from and against any
loss, expense, claim, damage, or liability (including but not limited to any and
all expenses reasonably incurred in investigating, preparing or defending
against any litigation, commenced or threatened, or any claim whatsoever),
insofar as any such loss, expense, claim, damage, liability, or actions in
respect thereof arises out of or is based on any untrue statement or alleged
untrue statement of any material fact made by Chatsworth or the omission on or
alleged omission by Chatsworth of any material fact or any fact necessary to
make the statements made by Chatsworth not misleading or any grossly negligent,
reckless or intentional misconduct or wrongful act of Chatsworth or any of its
officers, directors, employees and agents.
SECTION 5: TERMINATION OF ENGAGEMENT
Chatsworth's engagement hereunder may be terminated by either the Company or
Chatsworth at any time, with or without cause, upon 10 days' written advice to
the other party; PROVIDED, HOWEVER, that
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<PAGE> 3
Chatsworth will be entitled to keep the Warrant subject to the terms set forth
therein; and PROVIDED, FURTHER, the provisions of Section 3, 4, and 5 shall
survive such termination.
The Company understands and agrees that all advice (written or oral) given by
Chatsworth to the Company in connection with Chatsworth's engagement hereunder
is intended solely for its benefit and use, and that no such advice shall be
used, reproduced, disseminated, quoted or referred to at any time, in any manner
or for any purpose, nor shall any public reference be made to Chatsworth except
(i) as may be required by law, any applicable rules or regulations promulgated
pursuant thereto or the rules of any exchange or market on which shares of the
Company are or are proposed to be listed, or (ii) with Chatsworth's prior
written consent.
Each Holder and the Company agrees to arbitrate all disputes, controversies or
differences that may arise between them with respect to any provision of this
Agreement. Either party may give notice to the other of its decision to
arbitrate the dispute, and such notice shall specify the issue or issues to be
arbitrated. Each party shall select one arbitrator, and the two arbitrators
thereby selected shall select a third arbitrator. The arbitration shall take
place in Palm Beach County, Florida or such other place as the parties shall
agree, under the then-current Commercial Arbitration Rules of the American
Arbitration Association. The decision of a majority of the three arbitrators,
including any assessment of the cost of arbitration, will be final and binding
on the parties. The arbitrators will only have the authority to award actual
direct damages, and will not have the authority to award consequential or
punitive damages. Judgement upon the decision made by the arbitrators may be
entered in any court of competent jurisdiction.
Please confirm that the foregoing is in accordance with your understandings and
agreements with Chatsworth by signing the duplicate copy of this letter and
returning the same to the undersigned, thereby constituting this a binding
agreement between us, our respective successors and assigns.
SECTION 6: OTHER
The terms of this letter agreement shall supersede and replace the terms of the
Initial Engagement Letter and the terms of such Initial Engagement Letter shall
be null and void.
Very truly yours,
CHATSWORTH SECURITIES LLC
By: /s/ ALBERT P. VASQUEZ
----------------------
Albert P. Vasquez
Managing Director
Accepted and agreed to as
of the date of this letter
CORPORATE BUYING SERVICE INC.
By: /s/ RUSSELL MADRIS
---------------------------
Russell Madris
President
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<PAGE> 1
EXHIBIT 10.10
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (this "Agreement") is entered into and
shall be effective as of _____________ , 200_ between MoreDirect.com, Inc., a
Florida corporation (the "Company"), and _____________ ("Indemnitee").
RECITALS
Indemnitee is a director, officer, employee or agent of the Company
and, as such, performs a valuable service in such capacity to the Company. The
Articles of Incorporation ("Articles") and Bylaws ("Bylaws") of the Company
contain provisions providing that the Company will indemnify all officers,
directors, employees and agents of the Company to the maximum extent permitted
by the Florida Business Corporations Act, as amended (the "Act").
Notwithstanding the protections contained in the Articles, Bylaws and the Act,
in order to induce Indemnitee to serve or continue serving as a director,
officer, employee or agent, the Company deems it in the best interest of the
Company to enter into this Agreement with Indemnitee to obligate itself to
indemnify Indemnitee based on the terms and subject to the conditions set forth
herein.
TERMS OF AGREEMENT
In consideration of the above recitals and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:
1. INDEMNIFICATION.
a. The Company will indemnify Indemnitee to the fullest extent
authorized or permitted by the provisions of the Act, as may be amended from
time to time to increase the scope of such permitted indemnification, from and
against any and all claims, damages, expenses (including attorneys' fees and
expenses), witness fees, judgments, fines, amounts paid in settlement and other
liabilities incurred by Indemnitee in connection with the investigation,
defense, prosecution, settlement or appeal of any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (including an action by or in the right of the Company) to which
Indemnitee is, was or at any time becomes a party, or is threatened to be made a
party, by reason of the fact that Indemnitee is, was or at any time becomes a
director, officer, employee or agent of the Company, or is or was serving or at
any time serves at the request of the Company as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, or by reason of anything done or not done by
the Indemnitee in any such capacity or capacities (each a "Covered Matter").
b. Notwithstanding the foregoing, no such indemnification
shall be made in respect of any claim, issue or matter as to which the Act
expressly prohibits such indemnification;
<PAGE> 2
PROVIDED, HOWEVER, that in such event such indemnification shall nevertheless be
made by the Company to the extent that the court in which such action or suit
was brought shall determine that such indemnification is equitable under the
circumstances.
2. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty (30) days
after receipt by Indemnitee of notice of the commencement of any action, suit or
proceeding, Indemnitee will, if a claim in respect thereof is to be made against
the Company under this Agreement, notify the Company of the commencement
thereof; but the omission so to notify the Company will not relieve the Company
from any liability which it may have to Indemnitee otherwise than under this
Agreement. With respect to any such action, suit or proceeding as to which
Indemnitee notifies the Company of the commencement thereof:
a. The Company will be entitled to participate therein at its
own expense;
b. Except as otherwise provided below, to the extent that it
may wish, the Company jointly with any other indemnifying party similarly
notified will be entitled to assume the defense thereof, with counsel reasonably
satisfactory to Indemnitee. After notice from the Company to Indemnitee of its
election to so assume the defense thereof, the Company will not be liable to
Indemnitee under this Agreement for any legal or other expenses subsequently
incurred by Indemnitee in connection with the defense thereof other than
reasonable costs of investigation or as otherwise provided below. Indemnitee
shall have the right to employ its counsel in such action, suit or proceeding
but the fees and expenses of such counsel incurred after notice from the Company
of its assumption of the defense thereof shall be at the expense of Indemnitee
unless (i) the employment of counsel by Indemnitee has been authorized by the
Company, (ii) Indemnitee shall have reasonably concluded that there may be a
conflict of interest between the Company and Indemnitee in the conduct of the
defense of such action or (iii) the Company shall not in fact have employed
counsel to assume the defense of such action, in each of which cases the fees
and expenses of Indemnitee's separate counsel shall be at the expense of the
Company. Company shall not be entitled to assume the defense of any action, suit
or proceeding brought by or on behalf of the Company or as to which Indemnitee
shall have made the conclusion provided for in (ii) above; and
c. The Company shall not be liable to indemnify Indemnitee
under this Agreement for any amounts paid in settlement of any action or claim
effected without the Company's written consent. The Company shall be permitted
to settle any action except that it shall not settle any action or claim in any
manner which would impose any penalty or restriction on Indemnitee without
Indemnitee's written consent. Neither the Company nor Indemnitee will
unreasonably withhold its consent to any proposed settlement.
3. ADVANCEMENT AND REPAYMENT OF EXPENSES.
a. In the event that Indemnitee employs his own counsel
pursuant to Section 2b.(i) through (iii) above, the Company shall advance to
Indemnitee, prior to any final disposition of any threatened or pending action,
suit or proceeding, whether civil, criminal, administrative or
2
<PAGE> 3
investigative, any and all reasonable expenses (including, without limitation,
attorneys' fees and expenses) incurred in investigating or defending any such
action, suit or proceeding within ten (10) days after receiving copies of
invoices presented to Indemnitee for such expenses.
b. Indemnitee agrees that Indemnitee will reimburse the
Company for all reasonable expenses paid by the Company in defending any civil
or criminal action, suit or proceeding against Indemnitee in the event and only
to the extent it shall be ultimately determined by a final judicial decision
(from which there is no right of appeal) that Indemnitee is not entitled, under
the provisions of the Act, the Articles, the Bylaws, this Agreement or
otherwise, to be indemnified by the Company for such expenses.
4. AUTHORIZATION FOR INDEMNIFICATION.
a. Indemnitee will be presumed to be entitled to
indemnification under this Agreement and will receive such indemnification,
subject to Section 4b. below, irrespective of whether the Covered Matter
involves allegations of breach of Indemnitee's fiduciary duties or alleged
violations of Section 16(b) or 10(b) of the Securities Exchange Act of 1934, as
amended.
b. If, in the opinion of counsel to the Company, applicable
law permits indemnification only upon a determination that indemnification is
proper in the circumstances because Indemnitee has met a standard of conduct
established by applicable law, the following apply:
i. The Company will give Indemnitee notice
that a determination and evaluation ("Determination") will be made under this
paragraph 4b.; such notice will be given immediately after receipt of counsel's
opinion that such Determination is necessary and will include a copy of such
opinion.
ii. Such Determination will be made in good faith, as
follows:
(1) first, by a majority vote of a quorum of the
Board of Directors of the Company (the
"Board") who are not parties or threatened
to be made parties to the Covered Matter in
question ("Disinterested Directors") or, if
such a quorum is not obtainable or, even if
obtainable, by a majority vote of a
committee of two or more Disinterested
Directors who are selected by the entire
Board ("Disinterested Committee");
(2) second, if a quorum of the Disinterested
Directors cannot be obtained or if the
Disinterested Committee cannot be
designated, by any independent legal counsel
(who may be the outside counsel regularly
employed by the Company) which is selected
by the Board or the Disinterested Committee;
or
3
<PAGE> 4
(3) third, if such legal counsel determination
cannot be obtained, by a majority of the
shareholders who are not parties to the
Covered Matter in question ("Disinterested
Shareholders") and who are represented in
person or by proxy and entitled to vote at a
meeting called for such purpose, or by a
written consent of all such Disinterested
Shareholders.
iii. Indemnitee shall be entitled to a hearing
before the entire Board of and any other person or persons making the
Determination. Indemnitee will be entitled to be represented by counsel at such
hearing.
iv. The cost of the Determination (including
attorneys' fees and other expenses incurred by Indemnitee in preparing for and
attending the hearing contemplated above and otherwise in connection with the
Determination) will be borne by the Company.
v. The Determination will be made as promptly
as reasonably possible after notice from counsel to the Company of the need
therefor and, in any case, (i) if the Determination is to be made by the Board
or the Disinterested Committee, such Determination will be made not later than
fifteen (15) days after notice from counsel to the Company; (ii) if the
Determination is to be made by independent legal counsel, such Determination
will be made not later than thirty (30) days after notice from counsel to the
Company and (iii) if the Determination is to be made by the shareholders, such
Determination will be made not later than 120 days after notice from counsel to
the Company.
vi. Evaluation of the reasonableness of
expenses incurred by the Indemnitee for purposes of this Agreement shall be made
in the same manner as the determination that indemnification is permissible
under Section 4b.(ii).
vii. For purposes of the determination and
evaluation described above, Indemnitee will be presumed to have met the required
standard of conduct under this Section 4 unless it is clearly demonstrated to
the determining body that Indemnitee has not met the required standard of
conduct.
c. Notwithstanding the failure of the Company to provide
indemnification, and despite any contrary determination of the determining body,
Indemnitee may apply for indemnification or advancement of expenses, or both, to
a court of competent jurisdiction.
5. PAYMENT OF INDEMNIFIED AMOUNTS. Immediately following a
Determination that the Indemnitee is entitled to indemnification hereunder or
that any expenses sought hereunder by Indemnitee are reasonable, or the passage
of time prescribed for making such Determination, the Company will pay to
Indemnitee in cash the amount to which Indemnitee is entitled to be indemnified
and/or reimbursed, as the case may be, without further authorization or action
by the Board, PROVIDED, HOWEVER, that the expenses for which indemnification or
reimbursement is sought
4
<PAGE> 5
have actually been incurred by Indemnitee.
6. CONTRIBUTION. If the indemnification provided in Section 1 hereof is
unavailable by reason of a determination made pursuant to Section 4 hereof, then
in respect of any Covered Matter in which the Company is jointly liable with
Indemnitee (or would be if joined in such Covered Matter), the Company shall
contribute to the amount of expenses (including attorneys' fees and expenses),
judgments, fines and amounts paid in settlement actually and reasonably incurred
and paid or payable by Indemnitee in such proportion as is appropriate to
reflect (i) the relative benefits received by the Company on the one hand and
Indemnitee on the other hand from the transaction from which such action, suit
or proceeding arose, and (ii) the relative fault of the Company on the one hand
and of Indemnitee on the other in connection with the events which resulted in
such expenses, judgments, fines or settlement amounts, as well as any other
relevant equitable considerations. The relative fault of the Company on the one
hand and of Indemnitee on the other shall be determined by reference to, among
other things, the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent the circumstances resulting in such expenses,
judgments, fines or settlement amounts. The Company agrees that it would not be
just and equitable if contribution pursuant to this Section 6 were determined by
pro rata allocation or any other method of allocation which does not take
account of the foregoing equitable considerations.
7. CONTINUATION OF OBLIGATIONS. All agreements and obligations of the
Company contained herein shall continue during the period Indemnitee is a
director, officer, employee or agent of the Company (or is or was serving at the
request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise) and shall continue thereafter so long as Indemnitee shall be subject
to any possible claim or threatened, pending or completed action, suit or
proceeding, whether civil, criminal or investigative, by reason of the fact that
Indemnitee was a director or officer, employee or agent of the Company or
serving in any other capacity referred to herein.
8. ENFORCEMENT.
a. The Company expressly confirms and agrees that it has
entered into this Agreement and assumed the obligations imposed on the Company
hereby in order to induce Indemnitee to serve or continue as a director, or
officer, employee or agent of the Company, and acknowledges that Indemnitee is
relying upon this Agreement in continuing in such capacity.
b. In the event Indemnitee is required to bring any action to
enforce rights or to collect moneys due under this Agreement and is successful
in such action, the Company shall reimburse Indemnitee for all Indemnitee's
reasonable fees and expenses in bringing and pursuing such action.
9. SUBROGATION. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and
5
<PAGE> 6
to enable the Company effectively to bring suit to enforce such rights.
10. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Indemnitee by
this Agreement shall not be exclusive of any other right which Indemnitee may
have or hereafter acquire under any statute, provision of the Articles or
Bylaws, agreement, vote of shareholders or directors, or otherwise, both as to
action in his official capacity and as to action in another capacity while
holding office.
11. NOTICE. Any notice, request or other document required or permitted
to be given under this Agreement shall be in writing and shall be deemed given
(a) upon delivery, if delivered by hand, (b) three (3) days after the date of
deposit in the mail, postage prepaid, if mailed by U.S. certified or registered
mail, or (c) on the next business day, if sent by prepaid overnight courier
service, in each case, addressed as follows:
If to Indemnitee, to the address set
forth below his or her name on the
signature page hereto
If to the Company, to:
MoreDirect.com, Inc.
3401 N. Federal Highway
Suite 216
Boca Raton, FL 33431
Attention: President
with a copy to:
Akerman Senterfitt & Eidson, P.A.
350 E. Las Olas Boulevard, Suite 1600
Fort Lauderdale, Florida 33301
Attention: Bruce I. March, Esq.
Any party may change the address to which notice shall be sent by giving notice
of such change of address to the other parties in the manner provided above.
12. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs,
successors and assigns. The Company will require any successor to all or
substantially all of the business or assets of the Company to assume all of the
Company's obligations under this Agreement. Such assumption will not release the
Company from its obligations under this Agreement.
6
<PAGE> 7
13. SEVERABILITY. If any term or provision of this Agreement shall be
determined by a court of competent jurisdiction to be illegal, invalid or
unenforceable for any reason, the remaining provisions of this Agreement shall
remain enforceable and the invalid, illegal or unenforceable provisions shall be
modified so as to be valid and enforceable and shall be enforced.
14. GOVERNING LAW; JURISDICTION. This Agreement shall be construed in
accordance with the laws of the State of Florida applicable to contracts
executed and to be wholly performed within such State. The parties to this
Agreement agree that any suit, action or proceeding arising out of or relating
to this Agreement or any judgment entered by any court in respect thereof shall
be brought in the courts of Palm Beach County, Florida or in the U.S. District
Court for the Southern District of Florida. Each party hereby irrevocably and
unconditionally (a) accepts the exclusive personal jurisdiction of such courts
for the purpose of any action, suit or proceeding arising out of or relating to
this Agreement, (b) waives, to the fullest extent permitted by law, any
objection which it may now or hereafter have to the laying of venue of any
action, suit or proceeding arising out of or relating to this Agreement or any
judgment entered by any court in respect thereof brought in such courts, (c)
waives any claim that any action, suit or proceeding brought in any such court
has been brought in an inconvenient forum, and (d) agrees that service of any
process, summons, notice or document by U.S. registered or certified mail to the
address set forth in Section 11 above shall be effective service of process for
any action, suit or proceeding brought against any party in any such court.
15. AMENDMENT. This Agreement may not be amended, supplemented or
modified in whole or in part except by an instrument in writing signed by the
party or parties against whom enforcement of such amendment, supplement or
modification is sought.
16. ENTIRE AGREEMENT. This Agreement constitutes the entire
understanding of the parties relating to the subject matter hereof and
supersedes all prior agreements, understandings, arrangements, promises and
commitments, whether written or oral, express or implied, relating to the
subject matter hereof, and all such prior agreements, understandings,
arrangements, promises and commitments are hereby canceled and terminated.
17. WAIVER. Except as may be provided herein, the failure or delay of
any party to enforce any provision of this Agreement shall in no way affect the
right of such party to enforce the same or any other provision of this
Agreement. Except as may be provided herein, the waiver by any party of any
breach of any provision of this Agreement shall not be construed as a waiver by
such party of any succeeding breach of such provision or a waiver by such party
of a breach of any other provision. The granting of any consent or approval by
any party in any one instance shall not be construed to waive or limit the need
for such consent or approval in any other or subsequent instance.
18. SECTION HEADINGS. Section headings are included in this Agreement
for convenience of reference only, and shall in no way affect the meaning or
interpretation of this Agreement.
19. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
[Signatures on following page]
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
MOREDIRECT.COM, INC.,
a Florida corporation
By:
-----------------------------
Russell Madris
President
INDEMNITEE:
---------------------------------
Name:
---------------------------------
Address:
---------------------------------
---------------------------------
8
<PAGE> 1
Exhibit 21.1
Subsidiaries of the Company
None
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated March 3, 2000 relating to the financial statements of
MoreDirect.com, Inc., which appears in such Registration Statement. We also
consent to the reference to us under the heading "Experts" in such Registration
Statement.
/s/ PricewaterhouseCoopers LLP
Fort Lauderdale, Florida
April 18, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,244,086
<SECURITIES> 0
<RECEIVABLES> 4,782,580
<ALLOWANCES> 75,273
<INVENTORY> 0
<CURRENT-ASSETS> 6,136,348
<PP&E> 241,289
<DEPRECIATION> 129,890
<TOTAL-ASSETS> 6,275,629
<CURRENT-LIABILITIES> 3,891,214
<BONDS> 0
0
0
<COMMON> 100,000
<OTHER-SE> 2,284,415
<TOTAL-LIABILITY-AND-EQUITY> 6,275,629
<SALES> 33,131,315
<TOTAL-REVENUES> 33,131,315
<CGS> 29,806,978
<TOTAL-COSTS> 31,996,286
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (78,180)
<INCOME-PRETAX> 1,213,209
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,213,209
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,213,209
<EPS-BASIC> 0.12
<EPS-DILUTED> 0.12
</TABLE>
