As filed with the Securities and Exchange Commission on June 11, 1997
Registration No. 333- 26445
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------
COMPUTER MARKETPLACE(R), INC.
(Name of small business issuer in its charter)
Delaware 5045 33-0008870
(State or other juris- (Primary Standard Industrial (I.R.S. Employer
diction of organization) Classification Code No.) Identification No.)
(Address and telephone number of principal executive offices)
Computer Marketplace(R), Inc.
1490 Railroad Street
Corona, California 91720
(909) 735-2102
(Address of principal place of business or
intended principal place of business)
L. Wayne Kiley
President
1490 Railroad Street
Corona, California 91720
(909) 735-2102
(Name, address and telephone number of agent for service)
Copies to:
Alan N. Forman, Esq.
Bernstein & Wasserman, LLP
950 Third Avenue
New York, NY 10022
(212) 826-0730
(212) 371-4730 (Fax)
Approximate date of proposed sale to the public: As soon as reasonably
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462 (b) under the Securities Act, please 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 the delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. [ ]
---------------
The Registrant hereby amends this Registration Statement on such date
or dates 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.
<PAGE>
Explanatory Note
This Registration Statement covers the offering (the "Offering") of
shares of Common Stock, par value $.0001 ("Common Stock"), and Class D
Redeemable Common Stock Purchase Warrants (the "Class D Warrants") of Computer
Marketplace(R), Inc. (the "Company") by certain selling securityholders (the
"Selling Securityholders"). The prospectus (the "Prospectus") included in this
Registration Statement covers (i) the resale of 9,000,000 Class D Warrants being
offered by certain Selling Securityholders (the "Warrantholders"), (ii) the
issuance by the Company of 1,500,000 shares of Common Stock upon the exercise
of the Class D Warrants by other than the Warrantholders, (iii) the resale of
1,000,000 shares of Common Stock issuable to Victoria Holdings, Inc., a
consultant to the Company, upon the exercise of an option held thereby, and (iv)
the resale of 1,000,000 shares of Common Stock issuable to certain employees,
directors and consultants of the Company upon the exercise of options held
thereby.
ii
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed
Proposed maximum
Title of each Amount maximum aggregate Amount of
class of securities to be offering price offering registration
to be registered registered (1) per Security (2) price (2) fee (1)
- ---------------- -------------- ---------------- --------- ------------
<S> <C> <C> <C> <C>
Class D Redeemable Common
Stock Purchase Warrants 9,000,000 $.027 $ 243,000 $ 73.64
Common Stock, par value $.0001, 1,500,000 $2.50 $3,750,000 $ 1,136.36
per share(3)(4)
Common Stock, par value $.0001,
per share (5) 1,000,000 $1.00 $1,000,000 $ 303.03
Common Stock, par value $.0001,
per share (6) 1,000,000 $1.00 $1,000,000 $ 303.03
--------- ----- ---------- -----------
TOTAL: $5,993,000 $ 1,816.06
---------- -----------
Amount Previously Paid $ 1,816.06
-----------
Total Amount Due $ 00.00
-----------
</TABLE>
(1) Pursuant to Rule 416 under the Securities Act of 1933 (the "Act"), this
Registration Statement covers such additional indeterminate number of
shares of Common Stock, and Class D Redeemable Common Stock Purchase
Warrants ("Class D Warrants") as may be issued by reason of adjustments
in the number of shares of Common Stock and Class D Warrants pursuant
to anti-dilution provisions contained in the Class D Warrants. Because
such additional shares of Common Stock, and Class D Warrants will, if
issued, be issued for no additional consideration, no registration fee
is required.
(2) Estimated solely for purposes of calculating registration fee.
(3) The number of shares of Common Stock specified is the number which may
be acquired upon exercise of the Class D Warrants at the maximum
exercise price thereof.
(4) Issuable upon the exercise of Class D Warrants held by certain Selling
Securityholders (the "Warrantholders").
(5) Issuable upon the exercise of an option issued pursuant to a
consulting agreement dated December 9, 1996 (the "Consulting
Agreement") by and between Victoria Holdings, Inc. and the Company
(the "Victoria Holdings Options").
(6) Issuable upon the exercise of options, issued to certain employees and
directors of the Company (the "Management Options").
iii
<PAGE>
COMPUTER MARKETPLACE(R), INC.
CROSS REFERENCE SHEET
(Showing Location in the Prospectus of Information
Required by Items 1 through 23, Part I, of Form SB-2)
Item in Form SB-2 Prospectus Caption
----------------- ------------------
1. Front of Registration
Statement and Outside Front
Cover of Prospectus............... Facing Page of Registration Statement;
Outside Front Page of Prospectus
2. Inside Front and Outside Back
Cover Pages of Prospectus......... Inside Front Cover Page of Prospectus;
Outside Back Cover Page of Prospectus
3. Summary Information and Risk
Factors........................... Prospectus Summary; Risk Factors
4. Use of Proceeds................... Use of Proceeds
5. Determination of Offering Price... Outside Front Cover Page of Prospectus;
Underwriting; Risk Factors
6. Dilution.......................... Dilution; Risk Factors
7. Selling Securityholders........... Description of Securities; Selling
Securityholders;
8. Plan of Distribution.............. Outside Front Cover Page of Prospectus;
Risk Factors;
9. Legal Proceedings................. Business - Legal Proceedings
10. Directors, Executive Officers,
Promoters and Control Persons..... Management
11. Security Ownership of Certain
Beneficial Owners and Management... Principal Stockholders
12. Description of Securities.......... Description of Securities;
13. Interest of Named Experts and
Counsel............................ Experts; Legal Matters
14. Disclosure of Commission Position
on Indemnification for
Securities Act Liabilities......... Inside Front Cover Page of Prospectus;
15. Organization Within Last 5 Years... Prospectus Summary; The Company;
Business; Certain Transactions
16. Description of Business............ Business; Risk Factors
17. Management's Discussion and Analysis
or Plan of Operation............... Management's Discussion and Analysis of
Financial Condition and Results of
Operations
18. Description of Property............ Business - Properties
19. Certain Relationships and
Related Transactions............... Certain Transactions
20. Market for Common Equity and
Related Stockholder Matters........ Outside Front Cover Page of Prospectus;
Prospectus Summary; Description of
Securities
21. Executive Compensation............. Management - Executive Compensation
22. Financial Statements............... Selected Financial Data; Financial
Statements
23. Changes in and Disagreements
with Accountants on Accounting
and Financial Disclosures..........* Selected Financial Data; Financial
Statements
- -------------
* Omitted because Item is not applicable.
iv
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH AN OFFER, SOLICITATION OF SALE WOULD BE UNLAWFUL
PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
STATE.
Subject to Completion, Dated June 11, 1997
PROSPECTUS
COMPUTER MARKETPLACE(R), INC.
9,000,000 Class D Redeemable Common Stock Purchase Warrants
3,500,000 shares of Common Stock
This prospectus ("Prospectus") relates to the resale of (i) 9,000,000
Class D Redeemable Common Stock Purchase Warrants ("Class D Warrants") of
Computer Marketplace(R), Inc. (the "Company") by certain holders thereof (the
"Warrantholders"), (ii) 1,000,000 shares of the Company's common stock, par
value $.0001 per share ("Common Stock") issuable to Victoria Holdings, Inc., a
consultant to the Company ("Victoria Holdings"), upon the exercise of an option
held thereby (the "Victoria Holdings Options"), and (iii) 1,000,000 shares of
Common Stock issuable to certain employees, directors and consultants of the
Company (the "Management Optionholders") upon the exercise of options held
thereby. The Warrantholders, Victoria Holdings and the Management Optionholders
shall be collectively referred to as the "Selling Securityholders."
This prospectus also relates to the issuance by the Company of
1,500,000 shares of Common Stock, upon exercise of the Class D Warrants by the
public warrantholders thereof.
The Class D Warrants were issued in December 1996 pursuant to a
private placement of 500,000 Units of the Company's securities, each Unit
consisting of eighteen (18) Class D Warrants and one (1) share of common stock
of the Company's subsidiary, Medical Marketplace, Inc. ("Medical Marketplace")
and are exercisable over a one (1) year period commencing on March 31, 1997.
Each six (6) Class D Warrants entitles the holder to purchase one (1) share of
Common Stock, at a price of $2.50 per share. The Class D Warrants are redeemable
by the Company for $.05 per Warrant, at any time after March 31, 1997, upon
thirty (30) days' prior written notice, if the average closing or bid price of
the Common Stock, as reported by the principal exchange on which the Common
Stock is traded, Nasdaq or the National Quotation Bureau Incorporated, as the
case may be, equals or exceeds $30.00 per share, for twenty (20) consecutive
trading days during a period of thirty (30) trading days ending within ten (10)
days prior to the date of notice of redemption, which notice shall be mailed no
later than five (5) days hereafter. See "Description of Securities" and
"Selling Securityholders."
The Class D Warrants and the shares of Common Stock issuable upon
exercise of the Management Options may not be sold or transferred by the
Warrantholders or the Management Optionholders, as the case may be, until July
1, 1998 and June 17, 1998, respectively, without the prior written consent of
Biltmore Securities, Inc., a licensed broker-dealer and member of the National
Association of Securities Dealers ("Biltmore"). The shares of Common Stock
issuable upon exercise of the Victoria Holdings Options may be sold from time
to time after the effectiveness of this Registration Statement. Victoria
Holdings is an affiliate of Biltmore. No underwriting arrangements have been
entered into by the Selling Securityholders. The distribution of the securities
by the Selling Securityholders may be effected in one or more transactions that
may take place on the over-the-counter market including ordinary broker's
transactions, privately-negotiated transactions or through sales to one or more
dealers for resale of such shares as principals at market prices prevailing at
the time of sale, at prices related to such prevailing market prices or at
negotiated prices. Usual and customary or specifically negotiated brokerage fees
or
<PAGE>
commissions may be paid by the Selling Securityholders in connection with sales
of such securities.
The Company anticipates applying for inclusion of the Class D Warrants
on The NASD OTC Electronic Bulletin Board (the "Bulletin Board"). There can be
no assurance that such securities will be quoted on the Bulletin Board, and if
granted quotation, that an active trading market will develop. See "Risk
Factors - Lack of Prior Market for Class D Warrants."
The Company's Common Stock is traded on The Nasdaq SmallCap Market
("Nasdaq"). Under the rules of Nasdaq in order to qualify for continued
quotation of securities on Nasdaq, the Company, among other things, must have
either (i) $2,000,000 in assets, $1,000,000 in stockholder equity and a minimum
bid price of $1.00 per share (the "Minimum Bid Requirement"), or alternatively,
(ii) $2,000,000 in total capital and surplus and $1,000,000 market value or
public float (the "Capital Market Value Requirement"). On January 21, 1997, the
Staff of Nasdaq advised the Company that the Company failed to satisfy the
Capital Market Value Requirement or the Minimum Bid Requirement with respect to
its shares of Common Stock. The Company was provided 90 days to comply with
either of such requirements in order to continue the listing of its Common Stock
on Nasdaq. Failure to comply would have resulted in delisting the Company's
shares of Common Stock. On March 21, 1997, the Company was informed by Nasdaq
that the Company complied with the Minimum Bid Requirement. On April 3, 1997,
the Staff of Nasdaq advised the Company that the Company's shares of Common
Stock failed to meet the Capital Market Value Requirement and the Minimum Bid
Requirement. In order to continue the listing of its Common Stock on Nasdaq, the
Company was provided 90 days to meet the Capital Market Value Requirement or the
Minimum Bid Requirement. On May 21, 1997, the Company was informed by Nasdaq
that the Company has complied with the continued listing requirements.
The Company will not receive any of the proceeds from the sale of the
securities by the Selling Securityholders, except for the payment of the
exercise price of the Class D Warrants, the Victoria Holdings Options and the
Management Options. All costs incurred in the registration of the securities of
the Selling Securityholders are being borne by the Company. See "Selling
Securityholders."
The Company's Common Stock, is currently listed on The Nasdaq SmallCap
Market under the symbol "MKPL". On June 3, 1997, the closing price of the
Common Stock, as reported by Nasdaq, was $1.25.
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK
AND IMMEDIATE SUBSTANTIAL DILUTION OF THE BOOK VALUE OF THE SECURITIES OFFERED
HEREBY AND SHOULD BE CONSIDERED ONLY BY PERSONS WHO CAN AFFORD THE LOSS OF THEIR
ENTIRE INVESTMENT. SEE "DILUTION" AND "RISK FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is June __, 1997.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities maintained at the Commission at Room
1024, 450 Fifth Street, N.W., Washington, DC 20549. Copies of such material can
be obtained upon written request addressed to the Commission, Public Reference
Section, 450 Fifth Street, N.W., Washington, DC 20549, at prescribed rates.
Pursuant to Release 33-7289, the Commission maintains a web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission (including the
Company). The address for the Commission web site is http://www.sec.gov. The
Company has filed with the Commission a registration statement on Form SB-2
(herein together with all amendments and exhibits referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Act"), of which this Prospectus forms a part. This Prospectus does not contain
all of the information set forth in the Registration Statement, certain parts of
which have been omitted in accordance with the rules and regulations of the
Commission. For further information reference is made to the Registration
Statement.
<PAGE>
PROSPECTUS SUMMARY
The following is a summary of certain information (including financial
statements and notes thereto) contained in this Prospectus and is qualified in
its entirety by the more detailed information, appearing elsewhere herein. In
addition, unless otherwise indicated to the contrary, all per share information
set forth in this Prospectus has been adjusted to reflect a 373.2849-for-1 stock
split effected by the Company in March 1993, a 2-for-1 stock split effected by
the Company in June 1994 and a 1-for-6 reverse stock split (the "Reverse Stock
Split") effected by the Company in April 1997 but, except as expressly set forth
herein, has not been adjusted to give effect to (i) 726,667 shares of Common
Stock issuable upon exercise of the Class A Warrants; (ii) 726,667 shares of
Common Stock issuable upon exercise of the Class B Warrants; (iii) 73,333 shares
of Common Stock issuable upon exercise of the Class C Warrants; (iv) 1,500,000
shares of Common Stock issuable upon exercise of the Class D Warrants; (v)
307,500 shares of Common Stock issuable upon the exercise of certain options
granted to management and certain employees; (vi) 1,000,000 shares of Common
Stock issuable upon exercise of the Victoria Holdings Options, and (vii)
1,000,000 shares of Common Stock issuable upon exercise of the Management
Options. See "Description of Securities." Each prospective investor is urged to
carefully read this Prospectus in its entirety, including but not limited to,
the Risk Factors.
THE COMPANY
Computer Marketplace, Inc. a California corporation, was incorporated
on July 19, 1983, as Quality Associates, Inc. and changed its name to Computer
Marketplace, Inc. in June 1987. In March 1993, Computer Marketplace changed its
name to Computer Marketplace(R), Inc. ("Computer Marketplace(R)") and its state
of incorporation from California to Delaware. Computer Marketplace(R) is
currently engaged in the national wholesale distribution of new and used
computer equipment to dealers, computer maintenance companies, leasing
companies, equipment brokers, and end-users. A majority of this equipment is
manufactured by International Business Machine Corporation ("IBM") and includes
computer peripheral equipment, upgrades and parts, particularly for AS/400, and
RISC System/6000 computer systems. Computer Marketplace(R) also sells new
computer equipment produced by IBM, Digital Equipment Corporation, Compaq,
Hewlett Packard, Motorola, as well as a number of other manufacturers. Many of
the new product lines require value added services, software or hardware.
Computer Marketplace(R) has made significant investments in its employees in
order to increase their technical knowledge of the new product products, many in
the document imaging and document management areas, in order to enhance its
value added portfolio. The new product lines generally require Computer
Marketplace(R) not to remarket used equipment manufactured by the Original
Equipment Manufacturer ("OEM").
In June 1993, prior to the 2-for-1 stock split and Reverse Stock Split
mentioned above, the Company consummated its initial public offering of
2,070,000 units, each unit consisting of one (1) share of Common Stock, one (1)
Class A Warrant and one (1) Class B Warrant (the "IPO Units"). See, "Description
of Securities." The Company received net proceeds of approximately $6,594,179
from its initial public offering.
4
<PAGE>
In March 1994, Computer Marketplace(R) formed Medical Marketplace, Inc.
("Medical Marketplace") as a wholly owned subsidiary to engage in worldwide
distribution of used medical equipment to health care providers. In September
1994, Computer Marketplace(R) formed Marketplace Asset Recovery Services, Inc.
("MARS") as a wholly owned subsidiary to perform asset recovery assignments,
repossessions and asset verifications. The operations of MARS to date, have not
been material to the consolidated financial statements. In June 1996, management
began the process of closing down the operations of MARS. In August 1996, MARS
was renamed Marketplace Leasing, Inc., ("MLI"). Management intends to utilize
MLI for equipment leasing transactions. In January 1994, Computer Marketplace(R)
formed a wholly owned subsidiary, Superior Solutions, Inc. ("SSI") (formerly
called Computer Marketplace-SSI, Inc.), to purchase certain assets and assume
certain obligations of Synergy Solutions, Inc. and International Associated
Marketing Corporation, both located in Livonia, Michigan. These companies were
engaged principally in the development, installation and maintenance of local
and wide area networks, were Novell Platinum Authorized Resellers, and were also
selling computer hardware. On July 1, 1996, the employees of SSI began operating
as a sales and networking branch of Computer Marketplace(R). In light of the
fact that SSI had not been profitable, in June 1996, the Company discontinued
the operations of SSI. Computer Marketplace(R) and its subsidiaries are
hereinafter referred to as the "Company".
Computer Marketplace(R) purchases computer equipment from a variety of
sources and suppliers and sells or rents the equipment nationwide and in Europe
to companies ranging in size from small companies to Fortune 500 Corporations.
Computer Marketplace's operations and primary selling efforts are conducted from
its principal office in Corona, California. Computer Marketplace(R), which
maintains service and inventory storage centers at its Corona headquarters, also
has arrangements to inventory its equipment on a temporary basis at independent
service centers across the country.
Medical Marketplace buys and resells a wide variety of medical
equipment including Magnetic Resonance Imaging ("MRI"), Computed Tomography
Scanners ("CT") and Ultrasound equipment. In addition Medical Marketplace
provides customers with consulting services related to equipment acquisition,
equipment layout and facility design. Medical Marketplace also has a small
rental program which provides new equipment and contract service with mobile MRI
and CT equipment. Medical Marketplace conducts its primary distribution
operations from its main office in Corona, California, which is shared with the
Company. It also has sales representatives in Northern California, Kansas,
Washington State and North Carolina.
In December 1996, the Company entered into a one year consulting
agreement with Victoria Holdings, Inc. ("Victoria Holdings"), an affiliate of
Biltmore Securities, Inc. ("Biltmore"). Pursuant to the consulting agreement,
Victoria Holdings agreed to assist the Company in identifying new business
partners suitable for the Company and in structuring, negotiating and
financing such transactions. Pursuant to the terms of the consulting
agreement, the Company issued to Victoria Holdings options (the "Victoria
Holdings Options") to purchase 1,000,000 shares of Common Stock at an exercise
price of $1.00 per share. In addition, the Company agreed to issue 1,000,000
shares of Common Stock to Victoria Holdings (the "Victoria Fee Shares") upon
consummation by the Company of (i) an acquisition of a company (or companies)
introduced to the Company by Victoria Holdings with net assets of at least
$2,500,000 or (ii) a divestiture of the Company's assets, or a sale of a
controlling interest in the
5
<PAGE>
Company's capital stock, to a purchaser introduced to the Company by Victoria
Holdings resulting in net proceeds to the Company in excess of $2,000,000.
In December 1996, the Company issued to certain employees, directors
and consultants of the Company (the "Management Optionholders") options (the
"Management Options") to purchase an aggregate of 1,000,000 shares of the
Company's Common Stock during a four (4) year period commencing on January 1,
1997 at an exercise price of $1.00 per share (the "Management Options").
On December 31, 1996, the Company concluded a private placement of
500,000 Units (the "December 1996 Private Placement") which were placed by
Biltmore on a firm commitment basis. Each Unit was offered at a price of $2.00
per Unit, and consisted of one (1) share of Common Stock of Medical Marketplace,
Inc., and eighteen (18) Class D Redeemable Common Stock Purchase Warrants (the
"Class D Warrants"). Each six (6) Class D Warrants are exercisable for one (1)
share of the Company's Common Stock commencing March 31, 1997 at an exercise
price of $2.50 per share for a one (1) year period.
On January 21, 1997 the Staff of Nasdaq advised the Company that the
Company failed to satisfy the Capital Market Value Requirement and the Minimum
Bid Requirement with respect to its shares of Common Stock. The Company was
provided 90 days to comply with either of such requirements in order to continue
the listing of its Common Stock on Nasdaq. Failure to comply would have resulted
in delisting the Company's shares of Common Stock. On March 21, 1997, the
Company was informed by Nasdaq that the Company complied with the Minimum Bid
Requirement.
In March 1997, the Company's Board of Directors approved a 1-for-6
reverse stock split (the "Reverse Stock Split") with respect to each outstanding
share of the Company's Common Stock, such approval was contingent upon the
approval of a majority of the Company's Stockholders. The Company's Board of
Directors conducted its annual shareholder meeting on April 4, 1997 (the "Annual
Meeting") where, among other things, the Company's shareholders voted to approve
the Reverse Stock Split. At the Annual Meeting the Company's shareholders also
voted (i) to elect five (5) directors to the Board of the Company for a one (1)
year term, including, L. Wayne Kiley, Nancy Kiley, Rick C. Garian, J.R. Achten
and Thomas E. Evans, Jr. and (ii) to ratify the appointment of Moore Stephens,
P.C. as the Company's independent certified public accountant.
On April 3, 1997, the Staff of Nasdaq advised the Company that the
Company's shares of Common Stock failed to meet the Capital Market Value
Requirement and the Minimum Bid Requirement. In order to continue the listing of
its Common Stock on Nasdaq, the Company was provided 90 days to meet the Capital
Market Value Requirement or the Minimum Bid Requirement. On May 21, 1997, the
Company was informed by Nasdaq that the Company has complied with the continued
listing requirements.
In light of the fact that the Company has been unable to operate
profitably since fiscal year ended June 1994, the Company believes that
substantial measures need to be taken to address the
6
<PAGE>
Company's financial difficulties. The Board of Directors, after having
considered numerous alternatives, has concluded that the Company must
significantly reduce its expenses in order to reduce the Company's net losses.
Therefore, the Company has embarked upon a cost cutting plan by reducing its
workforce, closing unprofitable locations and discontinuing under performing
product lines. Specifically, the Company (i) closed its branch offices in
Livonia, Michigan, Traverse City, Michigan and Mariposa, California and (ii)
reduced the number of employees from a high of ninety six (96) in September 1995
to twenty two (22) full-time and six (6) part-time as of April 15, 1997. See
"Business - General". In the event that the Company determines that these
measures are insufficient to achieve profitability, the Company may reduce
further its existing business or pursue divesting the Company's computer
business and/or acquiring an alternative business. As of the date of this
Prospectus, the Company has not entered into a definitive agreement with any
third party with respect to such a transaction.
The Company's executive office is located at 1490 Railroad Street,
Corona, California. It's telephone number is (909) 735-2102.
7
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Securities Offered 9,000,000 Class D Warrants.
1,500,000 shares of Common Stock issuable
upon exercise of the Class D Warrants.
1,000,000 shares of Common Stock issuable
upon exercise of the Victoria Holdings
Options.
1,000,000 shares of Common Stock issuable
upon exercise of the Management Options.
Terms of Class D Warrants The Class D Warrants are exercisable for one (1)
share of Common Stock commencing on March
31, 1997 for a one (1) year period. The
Class D Warrants are each redeemable by the
Company for $.05 per Warrant, at any time
after March 31, 1997, upon thirty (30) days'
prior written notice, if the average closing
price or bid price of the Common Stock, as
reported by the principal exchange on which
the Common Stock is traded, Nasdaq or the
National Quotation Bureau Incorporated, as
the case may be, equals or exceeds $30.00
per share for twenty (20) consecutive
trading days during a period of thirty (30)
trading days ending within ten (10) days
prior to the date of the notice of
redemption, which notice shall be mailed no
later than five (5) days thereafter. The
Company, in its sole discretion, upon thirty
(30) days', prior written notice may reduce
the purchase price per share to be paid upon
exercise or extend the warrant expiration
date. See "Description of Securities."
</TABLE>
<TABLE>
<CAPTION>
Securities Outstanding
Prior to the Offering:
<S> <C> <C>
Common Stock.. 1,352,424 Shares
Class A Warrants.. 2,180,000 Warrants
Class B Warrants.. 2,180,000 Warrants
Class C Warrants.. 220,000 Warrants
Class D Warrants.. 9,000,000 Warrants
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Securities Outstanding
After the Offering:
<S> <C> <C>
Common Stock.. 3,352,424(1) Shares
Class A Warrants.. 2,180,000 Warrants
Class B Warrants.. 2,180,000 Warrants
Class C Warrants.. 220,000 Warrants
Class D Warrants.. 9,000,000 Warrants
</TABLE>
<TABLE>
<S> <C>
Use of Proceeds.. The Company will receive no proceeds from the
sale of the securities offered hereby,
except for the payment of the exercise price
of the Class D Warrants ($3,750,000), the
Victoria Holdings Options ($1,000,000) and the
Management Options ($1,000,000). See "Use of
Proceeds."
Risk Factors.. The securities offered hereby involve substantial
risks including but not limited to History
of Losses; Need to Restructure; Availability
of Funds; Dependence upon Availability of
Equipment; Possible Adverse Effect on the
Market of Shares Owned by Selling
Securityholders; Impact on Market of Warrant
Exercise; Competition; Attraction and
Retention of Sales and Marketing Personnel;
Uncertainty of Proposed Sale or Purchase of
Business; Technological Obsolescence;
Dependence Upon Key Personnel; Control by
Principal Stockholders; Rule 144 Sales;
Future Sales of Common Stock; Lack of Prior
Market for the Class D Warrants; Possible
Delisting of Securities from Nasdaq; "Penny
Stock" Regulations; Limited Number of
Management Personnel; Future Issuances of
Stock by the Company; Trademark Protection;
Outstanding Warrants and Options; Current
Prospectus and State Blue Sky Registration
in Connection with the Exercise of the
Warrants; No Dividends; Limitation on
Director Liability; Redemption of Redeemable
Warrants; Anti-Takeover Effect of General
Corporation Law of Delaware.
</TABLE>
- -----------------
(1) Assumes the issuance of an aggregate of 2,000,000 shares upon the exercise
of the Victoria Holdings Options and the Management Options, but does not assume
the exercise of the Class D Warrants.
9
<PAGE>
<TABLE>
<S> <C>
Current Nasdaq SmallCap
Market Symbols ................................ Common Stock-MKPL
Proposed NASD OTC Electronic
Bulletin Board Symbol(1)................... Class D Warrants - MKPL__
</TABLE>
- -------------------
(1) Although the Company intends to apply for inclusion of the Class D
Warrants on The NASD OTC Electronic Bulletin Board, there can be no assurance
that the Class D Warrants will be included for quotation, or if so that a
public trading market will develop or that, if such a market develops, it will
be sustained. See "Risk Factors," "Lack of Prior Market for the Class D
Warrants," and "Possible Delisting of Securities from Nasdaq; "Penny Stock"
Regulations."
10
<PAGE>
SUMMARY FINANCIAL INFORMATION
The selected historical financial data presented below are derived from
financial statements of the Company, which have been audited by Moore Stephens,
P.C. independent accountants, whose reports are included elsewhere herein,
except for the financial statements for the nine months ended March 31,
1997 which are unaudited. The data set forth below should be read in conjunction
with and is qualified in its entirety by the Company's Financial Statements,
Related Notes and Management's Discussion and Analysis of Financial Condition
and Results of Operations. The following summary financial information has been
summarized from the Company's Financial Statements included elsewhere in this
Prospectus. The information should be read in conjunction with the Financial
Statements and the related Notes thereto. See "Financial Statements" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
SUMMARY BALANCE SHEET DATA
<TABLE>
<CAPTION>
March 31, 1997
Actual (unaudited)
------------------
<S> <C>
Working Capital......................$1,612,072
Total Assets.........................$9,083,246
Total Liabilities....................$6,077,707
Long-Term Obligations................$1,539,194
Minority Interest....................$ 143,367
Stockholders' Equity.................$2,862,172
</TABLE>
SUMMARY INCOME STATEMENT DATA
<TABLE>
<CAPTION>
Nine Months
Ended
March 31 Years Ended June 30,
-------------------------- ---------------------------
1997 1996 1996 1995 1994 1993 1992
----------- ----------- ----------- ------------ ----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $19,557,647 $23,737,114 $30,000,912 $31,524,365 $26,874,587 $10,507,272 $16,820,979
----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross Profit 2,356,378 3,734,225 4,614,220 4,855,273 3,261,986 1,068,294 1,520,978
(Loss) Income from (2,149,432) (209,018) (987,450) (972,449) 374,457 (384,873) 367,648
Operations
Net (Loss) Income (2,438,396) (443,507) (1,331,431) (1,224,709) 415,114 (787,512) 152,103
Pro forma Net
(Loss) Income (1) (2,438,396) (443,507) (1,331,431) (1,224,709) 415,114 (787,512) 111,760
Net Income (Loss)
per Share (1) (1.80) (.33) (.98) (.91) .31 (2.55) .36
Average Number of
Common Shares
Outstanding 1,352,424 1,352,424 1,352,424 1,350,144 1,344,828 308,786 308,333
</TABLE>
- -------------
(1) Gives effect to income tax expense as if the Company had been a C
Corporation.
11
<PAGE>
RISK FACTORS
An investment in the securities offered hereby is speculative and
involves a high degree of risk and should only be purchased by investors who can
afford to lose their entire investment. Prospective purchasers, prior to making
an investment, should carefully consider the following risks and speculative
factors, as well as others described elsewhere in this Prospectus, associated
with this offering, including the information contained in the
Financial Statements herein.
1. History of Losses; Need to Restructure. The Company incurred net losses
for the years ended June 30, 1996 and 1995 of $1,331,431 and $1,224,709,
respectively, and for the nine months ended March 31, 1997 and 1996 of
$2,438,396 and $443,507, respectively. The Company's accumulated deficit as of
March 31, 1997 was $5,056,944. The Company intends to reduce its expenses
by restructuring its business which may include the sale of all or part
of the Company's business. See, "Business - General." The continuation of the
Company as a going concern is dependent on these plans. There can be no
assurance that the Company will not continue to incur net losses in the future.
The Company's cash requirements have been and will continue to be significant.
2. Availability of Funds. The Company is dependent upon the availability of
funds or sources of financing which will permit it to purchase equipment in
sufficient quantities, as it becomes available, and to do so at the lowest
possible prices. While the Company believes that it has sufficient funds to
permit the Company to acquire products in sufficient quantity during the four
(4) months following this offering, increased costs, technological advances,
availability of products, and shifting consumer demand could necessitate the
expenditure of greater sums than the Company presently anticipates. In such
event, there is no assurance that the Company will have access to such
additional funds, or that it will be able to obtain such funds in a timely
manner.
3. Dependence upon Availability of Equipment. Most of the sales by the
Company are derived from products which the Company obtains in the computer
"aftermarket." As a supplier of used equipment, the Company must constantly
identify sources for products at costs which permit the Company to resell or
lease such equipment on a competitive and profitable basis. The Company believes
that it has developed a network of product suppliers which will assure
availability of equipment. Technical advances and shifts in consumer preference
may, however, require the Company to offer additional or different products and
could render a portion of the Company's inventory unmarketable. From time to
time the Company may experience shortages in availability of some products. The
occurrence of such shortages in the future may have an adverse effect on the
business of the Company and. See "Business-Computer Products Competition" and
"Business-Medical Equipment Competition."
12
<PAGE>
4. Possible Adverse Effect on the Market of Shares Owned by Selling
Securityholders. The Registration Statement of which this Prospectus forms a
part covers the offering an aggregate of 2,000,000 shares of Common Stock
issuable upon the exercise of the Victoria Holdings Options and the Management
Options. In addition, the Registration Statement includes the resale of
9,000,000 Class D Warrants and the issuance by the Company upon the exercise
thereof of 1,500,000 shares of Common Stock. As a result, the sale of such Class
D Warrants and Common Stock in the future may have an adverse effect on the
market price of the Company's securities in any market which may develop for
such securities.
5. Impact on Market of Warrant Exercise. In the event of the exercise of a
substantial number of the Company's Class A Warrants, Class B Warrants, Class C
Warrants or Class D Warrants, the resulting increase in the amount of Common
Stock of the Company in the trading market could substantially affect the market
price of the Common Stock. See "Description of Securities - Class A Warrants,
Class B Warrants, Class C Warrants and Class D Warrants."
6. Competition. The Company faces substantial competition in connection with
the distribution of new and used computer systems. Among its competitors are
numerous national and regional distributors of the same and equivalent products.
Many such competitors are well established, have substantially greater financial
and other resources than the Company and have established reputations for
success in the distribution and support of computer-related products. In
addition, IBM may sell directly to the Company's customers, and the Company's
continued ability to compete effectively may be affected by policies of IBM. The
Company's competitors include IBM, Comdisco, Inc., Sun Data, Inc.. and El
Camino Resources, Inc. The used medical equipment industry is relatively young
as compared to the more established computer industry. Medical Marketplace's
competitors include General Electric Corporation, Siemens and Access Medical.
There can be no assurance that the Company or Medical Marketplace will be able
to compete successfully or that they will maintain profitability. See "Business
- - Computer Products Competition and "Business - Medical Equipment Competition."
7. Attraction and Retention of Sales and Marketing Personnel. The Company's
and Medical Marketplace's ability to expand its operations will depend in
significant part on its ability to attract and retain qualified sales
representatives experienced in the purchase and sale of new and used computer
systems and parts and medical equipment. There is significant demand for such
individuals and, accordingly, there is no assurance that the Company or Medical
Marketplace will be able to hire or retain qualified representatives when
needed. All of the Company's and Medical Marketplace's existing sales personnel
are on multiple-year employment contracts with the Company or Medical
Marketplace and all new sales personnel must sign a three-year employment
contract as a condition of employment. All of the existing sales personnel have
been developed and trained within the Company. See "Business-Computer Products
Sales and Marketing" and "Business-Medical Equipment Sales and Marketing."
13
<PAGE>
8. Uncertainty of Proposed Sale or Purchase of Business. In the
event that the Company determines that certain cost cutting measures are
insufficient to achieve profitability, the Company may pursue divesting the
Company's computer business, and/or acquiring an alternative business. The
Company has identified several companies engaged in complementary businesses,
but has not reached a definitive agreement to sell to or acquire any such
companies. The Company can make no assurances that it will be able to divest its
computer business or acquire any alternative business. See "Business - General."
9. Technological Obsolescence. The computer equipment industries have been
characterized in recent years by significant and rapid technological advances.
Changes in systems and components may require the Company to liquidate its
inventory of certain products at significant markdowns or replace such products
with new or products on a continual basis, which may result in losses.
10. Dependence Upon Key Personnel. The success of the business of the Company
is largely dependent upon the active participation of L. Wayne Kiley, its
President and Chief Executive Officer. In the event that the services of Mr.
Kiley are lost for any reason whatsoever, the business operations of the Company
and Medical Marketplace may be adversely affected. In October 1992, Mr. Kiley
entered into a five (5) year employment agreement with the Company and in
October 1996, the Company extended such Employment Agreement for two years. See
"Management," "Executive Compensation," and "Certain Relationships and
Transactions." The Company has obtained a key-man life insurance policy on its
President in the amount of $1 million, with the Company as beneficiary.
11. Dilution. Upon the exercise of 2,000,000 Options for 2,000,000 shares of
Common Stock, the net tangible book value per share of the Company's Common
Stock will be $4,776,677, representing an immediate dilution of approximately
$.63 per share or 31% per share and an immediate increase of $.42 per share or
42% per share to the purchasers of the shares of Common Stock upon the exercise
of the Options.
12. Control by Principal Stockholders. The Company's current principal
stockholders beneficially own approximately 53.2 percent of the Company's
outstanding Common Stock. Accordingly, the current principal stockholders will
be able to elect all of the Company's directors, and generally direct the
affairs of the Company. See "Management," "Certain Relationships and Related
Transactions" "Principal Stockholders" and "Description of Securities - Common
Stock."
13. Rule 144 Sales; Future Sales of Common Stock. There are currently 356,001
shares of the Company's Common Stock currently outstanding which may be deemed
"restricted securities" as that term is defined by Rule 144 of the Securities
Act of 1933 (the "Act") and, in the future, may be sold in compliance with Rule
144 of the Act. Ordinarily, under Rule 144, a person who is an affiliate of the
Company (as that term is defined in Rule 144) and has beneficially owned
restricted securities for a period of one (1) year may, every three (3) months,
sell in brokerage transactions an amount that does not exceed the greater of (i)
1% of the outstanding class of such securities or (ii) the average weekly
trading volume of trading in such securities on all national exchanges and/or
reported through the automated quotation system of a registered securities
association during the four (4) weeks prior to the filing of a notice of sale by
a securities holder. A person who is not an affiliate of the Company who
beneficially owns restricted securities is also subject to the foregoing volume
limitations but may, after the
14
<PAGE>
expiration of two (2) years, sell unlimited amounts of such securities under
certain circumstances. Possible or actual sales of the Company's outstanding
Common Stock by certain of the present stockholders under Rule 144 may, in the
future, have a depressive effect on the price of the Company's Common Stock.
14. Lack of Prior Market for the Class D Warrants. Following this offering,
there may be no public trading market for the Class D Warrants. There can be
no assurance that a public trading market for the Class D Warrants will develop
or that a public trading market, if developed, will be sustained. No assurance
can be given that the Company's Class D Warrants will be quoted on The NASD
OTC Electronic Bulletin Board (the "Bulletin Board") or any other trading market
or exchange. If such securities are not listed on the Bulletin Board or a
public trading market does not develop, purchasers of such securities may have
difficulty in selling their securities should they desire to do so.
15. Possible Delisting of Securities from Nasdaq; "Penny Stock" Regulations.
The Company's Common Stock is currently listed on The Nasdaq SmallCap Market
("Nasdaq"). Under the rules of the National Association of Securities Dealers,
Inc. ("NASD"), in order to qualify for continued listing (the "Listing
Requirements") on Nasdaq, the Company, among other things, must have total
assets of at least $2,000,000, $1,000,000 of stockholders equity and a minimum
bid price of $1.00 per share (the "Minimum Bid Requirement"), or alternatively,
$2,000,000 in total capital and surplus and $1,000,000 market value or public
float (the "Capital Market Value Requirement"). In the event the Company is
unable to satisfy any one of the Listing Requirements and, as a result, is
delisted from Nasdaq, trading in the Company's Common Stock, if any, would be
conducted in the over-the-counter market in what are commonly referred to as the
"pink sheets" or on the NASD electronic bulletin board. As a result, an investor
may find it more difficult to dispose of or obtain accurate quotations as to the
price of the securities offered hereby. The Commission has adopted regulations
which generally define "penny stock" to be any equity security that has a market
price (as defined) less than $5.00 per share or an exercise price of less than
$5.00 per share, subject to certain exceptions. The Company's Class D Warrants
(because they are not listed on Nasdaq) and the Company's Common Stock, if the
shares of Common Stock are removed from Nasdaq, may become subject to rules
that impose additional sales practice requirements on broker-dealers who sell
such securities to persons other than established customers and accredited
investors (generally those with assets in excess of $1,000,000 or annual income
exceeding $200,000, or $300,000 together with their spouse). For transactions
covered by these rules, the broker-dealer must make a special suitability
determination for the purchase of such securities and have received the
purchaser's written consent to the transaction prior to the purchase.
Additionally, for any transaction involving a penny stock unless exempt, the
rules require the delivery, prior to the transaction, of a disclosure schedule
prepared by the Commission relating to the penny stock market. The broker-dealer
also must disclose the commissions payable to both the broker-dealer and the
registered representative, current quotations for the securities and, if the
broker-dealer is the sole market-maker, the broker-dealer must disclose this
fact and the broker-dealer's presumed control over the market. Finally, monthly
statements must be sent disclosing recent price
15
<PAGE>
information for the penny stock held in the account and information on the
limited market in penny stocks. Consequently, the "penny stock" rules may
restrict the ability of broker-dealers to sell the Company's securities and may
affect the ability of purchasers in the offering to sell the Company's
securities in the secondary market. On January 21, 1997 the Staff of Nasdaq
advised the Company that the Company failed to satisfy the Capital Market Value
Requirement and the Minimum Bid Requirement with respect to its shares of Common
Stock. The Company was provided 90 days to comply with either of such
requirements in order to continue the listing of its Common Stock on Nasdaq.
Failure to comply would have resulted in delisting the Company's shares of
Common Stock. On March 21, 1997, the Company was informed by Nasdaq that the
Company complied with the Minimum Bid Requirement. On April 3, 1997 the Staff of
Nasdaq advised the Company that the Company's shares of Common Stock failed to
meet the Capital Market Value Requirement and the Minimum Bid Requirement. In
order to continue the listing of its Common Stock on Nasdaq, the Company, was
provided 90 days to meet the Capital Market Value Requirement or the Minimum Bid
Requirement. On May 21, 1997, the Company was advised that it was in compliance
with the Nasdaq continued listing requirements. Although the Company believes it
is in compliance with the Minimum Bid Requirement, it should be noted that,
Nasdaq filed in early March 1997, with the SEC, proposed rule changes to the
maintenance standards required by Nasdaq. Upon SEC approval the Company would
have six (6) months to meet the new maintenance standards. Under the proposed
new standards for continued inclusion on The Nasdaq SmallCap Market the Company
will have to have net tangible assets of $2,000,000 or net income of $500,000
in two of the last three years or a market capitalization of at least
$35,000,000. If the proposed rule changes are approved by the SEC and adopted by
Nasdaq, it is unlikely that the Company would be able to comply with such new
standards.
16. Limited Number of Management Personnel. There are currently only three
(3) executive officers of the Company. Following this offering, there can be no
assurance that, if the Company grows, the current management team will be able
to continue to properly manage the Company's affairs. Further, there can be no
assurance that the Company will be able to identify additional qualified
managers on terms economically feasible to the Company.
17. Future Issuances of Stock by the Company. The Company has outstanding
1,352,424 shares of Common Stock out of a total of 50,000,000 shares of Common
Stock authorized. The remaining shares of Common Stock not issued or reserved
for specific purposes may be issued without any action or approval of the
Company's shareholders. Although there are no present plans, agreements or
undertakings involving the issuance of such shares, except as disclosed in this
Prospectus, any such issuance could be used as a method of discouraging,
delaying or preventing a change in control of the Company or could dilute the
public ownership of the Company. There can be no assurance that the Company will
not undertake to issue such shares if it deems it appropriate to do so. Pursuant
to a consulting agreement dated December 9, 1996 between the Company and
Victoria Holdings, Inc. (the "Consulting Agreement"), the Company has agreed to
issue 1,000,000 shares of Common Stock to Victoria Holdings, Inc. upon (i) the
acquisition of one or more businesses introduced to the Company by Victoria
16
<PAGE>
Holdings, Inc. which in the aggregate have net assets of not less than
$2,500,000, or (ii) the divestiture of assets outside the ordinary course of
business, or the sale of a majority of the Company's capital stock outside the
ordinary course of business, by merger or otherwise, to a purchaser introduced
to the Company by Victoria Holdings, Inc. resulting in net proceeds to the
Company of not less than $2,000,000 in cash or stock. See "Risk Factors -
Outstanding Warrants and Options."
18. Trademark Protection. Although the Company has obtained a registered
trademark for the AcceleRAIDer(R) and a service mark for Computer Marketplace(R)
with the United States Patent and Trademark Office ("PTO") and intends to
register any new trademarks developed by the Company with the PTO, there can be
no assurance as to the breadth or degree of protection which such existing or
future trademarks may afford the Company from competitors.
19. Outstanding Warrants and Options. As of June 3, 1997, the Company had
outstanding (i) 2,180,000 Class A Warrants, (ii) 2,180,000 Class B Warrants,
(iii) 220,000 Class C Warrants and (iv) an aggregate of 307,500 options held by
management and certain employees (the "Options"). Each six (6) Class A Warrants,
six (6) Class B Warrants and six (6) Class C Warrants are exercisable to acquire
two shares of Common Stock at an exercise price of $28.50, $33.00, and $93.00,
respectively. The Options are exercisable at prices ranging from $1.6875 to
$6.00. In addition, the Company has reserved 1,000,000 shares of Common Stock
for issuance upon exercise of options under the Company's 1995 Stock Plan. In
December 1996, the Company issued to certain members of management options to
purchase an aggregate of 1,000,000 shares of the Company's Common Stock during a
four (4) year period commencing on January 1, 1997 at an exercise price of $1.00
per share (the "Management Options"). In exchange for the issuance of the
Management Options, certain option holders surrendered for cancellation an
aggregate of 238,833 options issued in June 1996 for 716,667 of the Management
Options. Also, in December 1996, the Company issued to Victoria Holdings, an
option pursuant to the Consulting Agreement by and between Victoria Holdings and
the Company to purchase 1,000,000 shares of Common Stock, at an exercise price
of $1.00 per share. If the Class A Warrants, Class B Warrants, Class C Warrants,
Class D Warrants or any of the options are exercised, current stockholders will
be substantially diluted. See "Certain Transactions."
20. Current Prospectus and State Blue Sky Registration in Connection with the
Exercise of the Warrants. The Company will be able to issue shares of Common
Stock underlying the Class A, the Class B, the Class C Warrants, the Class D
Warrants and outstanding options only if (i) there is a current prospectus
relating to the Common Stock issuable upon the exercise of such Warrants under
an effective registration statement filed with the Securities and Exchange
Commission, and (ii) such Common Stock is then qualified for sale or exempt
therefrom under applicable state securities laws of the jurisdictions in which
the various holders of Warrants reside. There can be no assurance, however, that
the Company will be successful in maintaining a current registration statement.
After a registration statement becomes effective, it may require updating by the
filing of a post-effective amendment. A post-
17
<PAGE>
effective amendment is required (i) anytime after nine months subsequent to the
Effective Date when any information contained in the prospectus is over sixteen
months old (e.g., the date of the audited financial statements), (ii) when facts
or events have occurred which represent a fundamental change in the information
contained in the registration statement, or (iii) when any material change
occurs in the information relating to the plan of distribution of the securities
registered by such registration statement. The Company anticipates that this
Registration Statement will remain effective for at least nine (9) months
following the date of this Prospectus or until March ___, 1998. The Company
intends to qualify the resale of the Class D Warrants and shares of Common
Stock issuable upon the exercise of the Victoria Holdings Options and Management
Options in a limited number of states, although certain exemptions under certain
state securities ("blue sky") laws may permit the Class D Warrants to be
transferred to purchasers in states other than those in which Warrants were
initially qualified. The Company will be prevented, however, from issuing Common
Stock upon exercise of the Class D Warrants in those states where exemptions are
unavailable and the Company has failed to qualify the Common Stock issuable upon
exercise of the Class D Warrants. The Company may decide not to seek, or may not
be able to obtain, qualification of the issuance of such Common Stock in all of
the states in which the ultimate purchasers of the Class D Warrants reside. In
such a case, the Class D Warrants of those purchasers will expire and have no
value if such Class D Warrants cannot be exercised or sold. Accordingly, the
market for the Class D Warrants may be limited because of the Company's
obligation to fulfill both of the foregoing requirements. See "Description of
Securities."
21. No Dividends. The Company has not paid any dividends on its Common
Stock since its inception and does not intend to pay dividends on its Common
Stock in the foreseeable future and is restricted by its revolving credit
agreement to pay cash dividends. Any earnings which the Company may realize in
the foreseeable future will be retained to finance the growth of the Company.
See "Dividend Policy."
22. Limitation on Director Liability. As permitted by Delaware Corporation
law, the Company's Certificate of Incorporation limits the liability of
Directors to the Company or its stockholders to monetary damages for breach of a
Director's fiduciary duty except for liability in certain instances. As a result
of the Company's charter provision and Delaware law, stockholders may have a
more limited right to recover against Directors for breach of their fiduciary
duty other than as existed prior to the enactment of the law. See "Description
of Securities - Limitation on Liability of Directors."
23. Redemption of Redeemable Warrants. The Class D Warrants are subject to
redemption by the Company, at any time, commencing March 31, 1997 at a price of
$.05 per Warrant if the closing bid price for the Common Stock equals or exceeds
$30.00 per share for any twenty (20) trading days within a period of thirty (30)
consecutive trading days ending within ten (10) days prior to the date of the
notice of redemption. In the event that the Warrants are called for redemption
by the Company, Warrantholders will have thirty (30) days during which they may
exercise their rights to purchase shares of Common Stock. If holders of the
18
<PAGE>
Warrants elect not to exercise them upon notice of redemption thereof, and the
Warrants are subsequently redeemed prior to exercise, the holders thereof would
lose the benefit of the difference between the market price of the underlying
Common Stock as of such date and the exercise price of such Warrants, as well as
any possible future price appreciation in the Common Stock. The Company does not
intend to redeem the Class D Warrants at a time when a current prospectus is not
in effect. As a result of an exercise of the Warrants, existing stockholders
would be diluted and the market price of the Common Stock may be adversely
affected. If a Warrantholder fails to exercise his rights under the Warrants
prior to the date set for redemption, the Warrantholder will be entitled to
receive only the redemption price, or $.05 per Warrant. In addition, the
Warrants may only be exercised when a Prospectus is current and meets the
requirements of Section 10 of the Securities Act of 1933. See "Description of
Securities - Class D Warrants."
24. Anti-Takeover Effect of General Corporation Law of Delaware. The
Company is governed by the provisions of Section 203 of the General Corporation
Law of Delaware, an anti-takeover law enacted in 1988. As a result of Section
203, potential acquirors of the Company may be discouraged from attempting to
effect acquisition transactions with the Company, thereby possibly depriving
holders of the Company's securities of certain opportunities to sell or
otherwise dispose of such securities at above market prices pursuant to such
transactions. See "Description of Securities."
19
<PAGE>
USE OF PROCEEDS
The Company will receive no proceeds from the sale of the securities
offered hereby. An aggregate of $5,993,000 will be received by the Company in
the event that all of the Class D Warrants, Victoria Holdings Options and
Management Options are exercised. The proceeds received by the Company from the
exercise of all or a portion of such securities will be utilized by the Company
to supplement its working capital, or in the event that the Company enters into
a transaction to acquire an alternative business, then all or a portion of such
proceeds will be utilized to acquire and/or integrate such alternative business
with the Company's business.
DILUTION
At March 31, 1997, the Company had outstanding an aggregate of
1,352,424 shares of Common Stock having an aggregate net tangible book value of
$2,776,677 or $2.05 per share. Net tangible book value per share consists of
total assets less intangible assets and liabilities, divided by the total
number of shares of Common Stock outstanding. The shares of capital stock
described above do not include any securities subject to any outstanding
warrants or options.
After giving effect to the exercise of 2,000,000 Options for 2,000,000
shares of Common Stock, the pro forma net tangible book value of the Common
Stock at March 31, 1997 would have been $4,776,677 or approximately $1.42 per
share. This represents an immediate decrease in pro forma net tangible book
value of $.63 per share or 31% to the present shareholders and an immediate
increase of $.42 per share or 42% to the purchasers of the shares of Common
Stock upon the exercise of the Options. These figures do not reflect the shares
of Common Stock underlying the Class A Warrants, Class B Warrants, the Class C
Warrants or the Class D Warrants or any other outstanding options or warrants.
"Dilution" means the difference between the exercise price paid by the certain
optionholders and the pro forma net tangible book value per share after giving
effect to the exercise of the Options included in the offering. Holders of
Common Stock may be subjected to additional dilution if (i) the Class A Warrants
are exercised, (ii) the Class B Warrants are exercised, (iii) Class C Warrants
are exercised, (iv) the Class D Warrants are exercised or (v) any additional
securities are issued as compensation or to raise additional financing. The
following table illustrates the benefit which investors purchasing shares of
Common Stock underlying options registered in this offering will incur and the
dilution to current stockholders as a result of this offering:
Exercise price per Share ......................... $1.00
Net tangible book value per share
before offering .................................. $2.05
Dilution per share attributable to
options exercised hereby ......................... $ .63
Pro Forma net tangible book value per
Share after exercise of options .................. $1.42
Increase of net tangible book value per
Share to purchasers of Shares underlying
options exercised hereby ......................... $ .42
20
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1997. This table should be read in conjunction with the financial
statements of the Company, including the notes thereto, appearing elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
Actual
------
<S> <C>
Long term debt obligations, less current maturities: $ 1,494,929
-----------
Stockholders' equity:
Preferred Stock, par value $.0001 per share, 1,000,000 shares
authorized, no shares issued and outstanding................ $ -0-
-----------
Common Stock, par value $.0001 per share, 50,000,000 shares
authorized, 1,352,424 shares issued and outstanding......... $ 135
-----------
Capital in excess of par value Accumulated deficit........... $ 8,406,741
-----------
Accumulated deficit.......................................... $(5,056,944)
-----------
Deferred compensation........................................ $ (487,760)
-----------
TOTAL STOCKHOLDERS' EQUITY................................... $ 2,862,172
-----------
TOTAL CAPITALIZATION......................................... $ 4,357,101
===========
</TABLE>
21
<PAGE>
DIVIDEND POLICY
Holders of the Company's Common Stock are entitled to dividends when,
as and if declared by the Board of Directors out of funds legally available
therefore. The Company has not in the past and does not currently anticipate the
declaration or payment of any dividends in the foreseeable future and is
restricted by its revolving credit agreement to pay cash dividends. The Company
intends to retain earnings, if any, to finance the development and expansion of
its business. Future dividend policy will be subject to the discretion of the
Board of Directors and will be contingent upon future earnings, if any, the
Company's financial condition, capital requirements, general business conditions
and other factors. Therefore, there can be no assurance that any dividends of
any kind will ever be paid.
22
<PAGE>
SELECTED FINANCIAL DATA
The selected historical financial data presented below are derived from
financial statements of the Company, which have been audited by Moore Stephens,
P.C. independent accountants, whose reports are included elsewhere herein,
except for the financial statements for the nine months ended March 31,
1997 which are unaudited. The data set forth below should be read in conjunction
with and is qualified in its entirety by the Company's Financial Statements,
Related Notes and Management's Discussion and Analysis of Financial Condition
and Results of Operations. The following summary financial information has been
summarized from the Company's Financial Statements included elsewhere in this
Prospectus. The information should be read in conjunction with the Financial
Statements and the related Notes thereto. See "Financial Statements" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
SUMMARY BALANCE SHEET DATA
<TABLE>
<CAPTION>
March 31, 1997
------------------
Actual (unaudited)
------------------
<S> <C>
Working Capital (Deficit)............................. $1,612,072
Total Assets.......................................... $9,083,246
----------
Total Liabilities..................................... $6,077,707
----------
Long-Term Obligations................................. $1,539,194
Minority Interest..................................... $ 143,367
----------
Stockholders' Equity.................................. $2,862,172
----------
</TABLE>
SUMMARY INCOME STATEMENT DATA
<TABLE>
<CAPTION>
Nine Months
Ended
March 31 Years Ended June 30,
---------------------- --------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
--------- -------- ----- ----- ----- ---- -----
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $19,557,647 $23,737,114 $30,000,912 $31,524.,365 $26,874,587 $10,507,272 $16,820,979
Gross Profit 2,356,378 3,734,225 4,614,220 4,855,273 3,261,986 1,068,294 1,520,978
(Loss) Income from Operations (2,149,432) (209,018) (987,450) (972,449) 374,457 (384,873) 367,648
Net (Loss) Income (2,438,396) (443,507) (1,331,431) (1,224,709) 415,114 (787,512) 152,103
Pro forma Net
(Loss) Income (1) ( 2,438,396) (443,507) (1,331,431) (1,224,709) 415,114 (787,512) 111,760
Net Income (Loss)
per Share (1) (1.80) (.33) (.98) (.91) .31 (2.55) .36
Average Number of
Common Shares
Outstanding 1,352,424 1,352,424 1,352,424 1,350,144 1,344,828 308,786 308,333
</TABLE>
- -------------
(1) Gives effect to income tax expense as if the Company had been a C
Corporation.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the Financial Statements and Notes thereto appearing elsewhere in this
prospectus.
Results of Operations
Nine Months Ended March 31, 1997 Compared to Nine Months Ended March 31, 1996.
Total revenues for the nine months ended March 31, 1997, were
$19,557,647 compared to $23,737,114 for the nine months ended March 31, 1996.
This represents a decrease of $4,179,467 or 18%.
Revenues from computer product sales and rentals for the nine months
ended March 31, 1997 totaled $13,954,875, and $7,170,285 or 34% decrease
compared to $21,125,160 for the nine months ended March 31, 1996. The sales
decrease is reflective of a general industry sales decrease which results in
part from price reductions in new computer hardware which negatively impacts
selling prices and sales of used computer hardware. The Company anticipates the
lower computer products sales trend to continue into the next fiscal year.
Medical product sales and rentals contributed $5,602,772 in revenues
for the nine months ended March 31, 1997, compared to $2,611,954 for the nine
months ended March 31, 1996. The current nine month's result represents a
$2,990,818 or 115% increase in revenues over the same period in 1996.
Continuing investments by Medical Marketplace, Inc. in experienced sales
representatives and technical staff, as well as a growing recognition within the
industry as an established reseller of previously owned and upgraded magnetic
resonance imaging, computed tomograph scanner and ultrasound equipment have
positively impacted the sales of this subsidiary. Continued growth and sustained
profitability for this subsidiary are expected into the next fiscal year.
Previously owned medical equipment is gaining acceptance in the health
care community as a cost effective alternative to new equipment. The Company
believes that its field representative program, financial strength and support
structure will provide Medical Marketplace, Inc. a distinct advantage over many
of the subsidiary's competitors.
Total aggregate cost of revenues for the nine months ended March
31, 1997 and 1996 were $17,201,269 or 88% of revenues and $20,002,889 or
84% of revenues, respectively. The higher cost of revenues percentage in the
current nine months is reflective of the reduced operating leverage resulting
from lower product sales and the Company's focus on liquidating older inventory
which has a lower profit margin. Cost of revenue percentages are expected to
remain relatively stable during the next fiscal year with small decreases
anticipated. Factors which
24
<PAGE>
will favorably reduce the cost of revenues percentage include; a Company focus
toward higher margin transactions through a focus on the Company's end user
customer base, a change in computer sales representative compensation plans
which includes a substantially higher base salary and less of a commission
component than prior periods and the positive effect that higher margin medical
equipment sales will have on the consolidated percentage.
Cost of revenues for computer products were $12,629,457 or 91% of
revenues and $17,913,905 or 85% of revenues for the nine months ended
March 31, 1997 and 1996, respectively. The higher cost of revenues percentage
in the current nine months is reflective of the reduced operating leverage
resulting from lower computer product sales and the Company's focus on
liquidating older inventory which has a lower profit margin.
Costs of revenues for medical products were $4,571,812 or 82% of
revenues and $2,088,984 or 80% of revenues for the nine months ended
March 31, 1997 and 1996, respectively.
Total selling, general and administrative ("SG&A") expenses for the
nine months ended March 31, 1997 and 1996 were $4,505,810 or 23% of
revenues and $3,943,243 or 17% of revenues, respectively. The aggregate
increase in SG&A expenses from the prior period was $562,567 or 14%. The
increase in SG&A expenses was negatively impacted by the increase in Medical
Marketplace, Inc. personnel expense, the change in computer sales
representative compensation plans mentioned above, write-offs of certain assets
relating to the closing of the Livonia, Michigan branch office, increased
reserves against accounts receivable and inventory, as well as charges relating
to the December 1996 Private Placement. These increases were partially offset by
personnel cutbacks during the current nine months.
SG&A expenses attributed to computer products were $3,892,064 or
28% of revenues and $3,607,918 or 17% of revenues for the nine months ended
March 31, 1997 and 1996, respectively. The increase in SG&A expenses as a
percentage of revenues is due primarily to the sales volume decrease previously
mentioned, write-offs of certain assets relating to the closing of the Livonia,
Michigan branch office, increased reserves against accounts receivable and
inventory, as well as charges relating to the December 1996 Private Placement.
SG&A expense attributed to medical products were $613,746 or 11% of
revenues and $335,325 or 13% of revenues for the nine months ended March
31, 1997 and 1996, respectively.
Total operating loss was $2,149,432 and $209,018 for the nine
months ended March 31, 1997 and 1996, respectively. This $1,940,414
unfavorable change was due to a combination of factors including: a decline in
computer product revenues, the delayed impact of additional cost reductions
during the nine months, and lower margin sales associated with the Company's
inventory reduction program.
25
<PAGE>
Operating loss for computer products was $2,566,646 and $396,663
for the nine months ended March 31, 1997 and 1996, respectively.
Operating income for medical products was $417,214 and $187,645
for the nine months ended March 31, 1997 and 1996, respectively.
Interest expense for the nine months ended March 31, 1997, was
$301,033 compared to $277,655 for the nine months ended March 31, 1996.
Management anticipates that interest expense will remain stable during the
current fiscal year over similar periods in the prior year, with small decreases
possible.
The Company's consolidated net loss was $2,438,396 or $1.80 per share
for the nine months ended March 31, 1997, versus $443,507 or $0.33 per
share for the nine months ended March 31, 1996. The net loss was a result
of the business conditions described herein.
Year Ended June 30, 1996 compared to Year Ended June 30, 1995
Total revenues for the year ended June 30, 1996 were $30,000,952
compared to $31,524,365 for the year ended June 30, 1995. This represents a
decrease of $1,523,413 or 5%. Revenues from product sales for the year ended
June 30, 1996 totaled $28,370,434 $1,782,030 or 6% decrease compared to
$30,152,464 for the year ended June 30, 1995. Revenues from rental, service and
other for the year ended June 30, 1996, were $1,630,518, a $258,617 or 19%
increase compared to $1,371,901 for the year ended June 30, 1995.
Superior Solutions, Inc., contributed approximately $1,592,000 in
revenues for the year ended June 30, 1996 compared with approximately $2,499,000
for the year ended June 30, 1995. Superior Solutions, Inc.'s performance was
disappointing and it appears that this below-standard performance will continue
into the next fiscal year. In late January 1996, the local manager of the
subsidiary was replaced. In addition, certain employees, including an
experienced sales representative, resigned. Computer Marketplace, Inc., has
implemented a strategy to more fully integrate Superior Solutions, Inc.'s
networking and sales operations and networking products lines into its
California based networking and sales operations. This integration has resulted,
effective July 1, 1996, in these operations becoming a branch of Computer
Marketplace rather than remaining a separate legal entity.
Medical Marketplace, Inc. contributed approximately $2,880,000 in
revenues for the year ended June 30, 1996, compared to approximately $601,000
for the year ended June 30, 1995. Continuing investments made by Medical
Marketplace, Inc. in experienced sales representatives and technical staff, as
well as a growing recognition within the industry as an established reseller of
previously owned and upgraded magnetic resonance imaging, computed tomography
scanner and ultrasound equipment have positively impacted the sales of this
subsidiary. Continued revenue growth and sustained profitability for this
subsidiary are expected into the next fiscal year.
26
<PAGE>
The Company believes that the rapid technological advances in computer
products enhance its market. Many companies purchase used equipment at
significant discounts from new equipment to handle most of their computing
needs, as most applications do not require the latest technology available.
Previously owned medical equipment is just beginning to gain acceptance
in the health care community as a cost effective alternative to new equipment.
The Company believes that its field representative program, financial strength
and support structure will provide Medical Marketplace, Inc. a distinct
advantage over many of the subsidiary's competitors.
Aggregate cost of revenues for the years ended June 30, 1996 and 1995
were $25,386,732 or 85% of revenues and $26,669,092 or 85% of revenues,
respectively. Cost of revenue percentages are expected to remain relatively
stable during the next fiscal year with small decreases anticipated. Factors
which will favorably reduce the cost of revenues percentage include; a company
focus toward higher margin transactions through a focus on our end user customer
base, a change in computer sales representative compensation plans which
includes a substantially higher base salary and less of a commission component
than prior periods and the positive effect that higher margin medical equipment
sales has on the consolidated percentage.
Selling, general and administrative ("SG&A") expenses for the years
ended June 30, 1996 and 1995 were $5,601,670 or 19% of revenues and $5,827,722
or 18% of revenues, respectively. The aggregate decrease in SG&A expenses from
the prior period was $226,052 or 4%. The decrease in SG&A expenses is attributed
to cost reduction efforts which were partly offset by increases in costs
associated with the expanded operations of Medical Marketplace, Inc. and the
change in computer sales representative compensation plans mentioned above. SG&A
expenses attributed to Medical Marketplace, Inc. were approximately, $472,000
and $254,000 for the years ended June 30, 1996 and 1995, respectively.
Operating loss was $987,450 and $972,449 for the years ended June 30,
1996 and 1995, respectively. This $15,001 or 2% unfavorable change was due
primarily to losses incurred in the first and fourth quarters of fiscal 1996.
Interest expense for the year ended June 30, 1996, was $371,728
compared to $207,281 for the year ended June 30, 1995. Management anticipates
that interest expense will remain stable in the next fiscal year. Decreases in
interest expense are possible depending on the success of selling the Company's
headquarters facility and the success in raising additional money through a
private placement.
The Company's net loss was $1,331,431 or $.98 per share for the year
ended June 30, 1996, versus $1,224,709 or $.91 per share for the year ended June
30, 1995. The net loss was a result of the business conditions described herein.
27
<PAGE>
Variability of Periodic Results and Seasonality
Results from any one period cannot be used to predict the results for
other fiscal periods. Revenues fluctuate from period to period; however,
management does not see any seasonality or predictability to these fluctuations.
Liquidity and Capital Resources
The Company has historically financed its growth and cash needs
primarily through borrowings and cash generated from operations. The funds
received through the initial public offering in June 1993, in the amount of
approximately $6.6 million, enabled the Company to eliminate most of its
long-term debt at that time. Working capital at March 31, 1997 and 1996 was
$1,612,072 and $3,424,823, respectively.
During the nine months ended March 31, 1997, the Company used the
June 30, 1996 available cash and cash equivalents of approximately $595,000, the
availability of borrowing under the Company's revolving Credit Facility, vendor
extended credit and approximately $1,111,000 of reductions in the Company's
inventory levels in order to fund the operations of the Company.
Management has continued to emphasize an inventory reduction program
encompassing both the stored inventory, as well as the inventory on short-term
rental contracts. The effects of this program are clearly reflected in this
quarter. Management believes this disciplined strategic reduction will
enhance the Company's operating effectiveness, provide additional liquidity, and
reduce the exposure to negative inventory valuation adjustments caused by
changing market conditions. Certain temporary increases in inventory amounts
are due to selected purchases made by the Company which are intended to be sold
quickly. Additional inventory increases are expected relating to Medical
Marketplace, Inc.'s growth.
In addition, management intends to investigate alternative financing
options to be utilized for our foreign customers in order to enhance the
opportunities for the Company's medical equipment subsidiary's growth. The
Company has delayed implementation of these financing options as the medical
equipment subsidiary has been focused on domestic sales. In addition, the
Company has listed for sale two properties located in Corona, California.
Management intends to use the additional funding and proceeds from the building
sales in order to pay down related long-term debt and borrowings on the
revolving credit facility in addition to significantly growing the business of
our medical equipment subsidiary.
During the year ended June 30, 1996, the Company used the June 30, 1995
available cash and cash equivalents of approximately $748,000 and the
availability of borrowing under the Company's Revolving Credit Facility in order
to fund the operations of the Company. Investments made by the Company include
improvements to its facilities of approximately $123,000, the purchase of mobile
medical equipment to be used for rental of approximately $114,000 and
investments of approximately $150,000 for other equipment.
28
<PAGE>
In October 1996, the Company amended its employment agreement with L.
Wayne Kiley, the Company's Chairman of the Board, President and Chief Executive
Officer. Pursuant to such amendment, (i) the employment agreement's expiration
date of October 16, 1997 was extended to October 16, 1999, (ii) Mr. Kiley was
granted the right to purchase a number of shares of Common Stock for a period of
four (4) years, at a price equal to seventy five percent (75%) of the closing
bid price of the Company's shares of Common Stock on the date of grant equal to
2.5%, 3% and 3.5% of the shares outstanding, should the Company report annual
earnings before the payment of interest and taxes of $635,000, $875,000 and
$1,000,000, respectively, (iii) Mr. Kiley will be paid a cash bonus equal to 5%
of any profit realized by the Company from the sale of assets outside the
ordinary course of business, and (iv) an insurance policy covering the life of
Mr. Kiley whereby Mr. Kiley's estate will be paid $2,000,000 in exchange for the
redemption of the shares of the Company's capital stock beneficially owned by
Mr. Kiley. The employment agreement contains other customary terms and
conditions including termination for cause, non-competition and confidentiality
provisions.
In December 1996, the Company entered into a one year consulting
agreement with Victoria Holdings, Inc. ("Victoria Holdings"), an affiliate of
Biltmore Securities, Inc. ("Biltmore"). Pursuant to the consulting agreement,
Victoria Holdings agreed to assist the Company in identifying new business
partners suitable for the Company and in structuring, negotiating and financing
such transactions. Pursuant to the terms of the consulting agreement, the
Company issued to Victoria Holdings options (the "Victoria Holdings
Options") to purchase 1,000,000 shares of Common Stock at an exercise price of
$1.00 per share. In addition, the Company agreed to issue 1,000,000 shares of
Common Stock to Victoria Holdings (the "Victoria Fee Shares") upon consummation
by the Company of (i) an acquisition of a company (or companies) introduced to
the Company by Victoria Holdings with net assets of at least $2,500,000 or (ii)
a divestiture of the Company's assets, or a sale of a controlling interest
in the Company's capital stock, to a purchaser introduced to the Company by
Victoria Holdings resulting in net proceeds to the Company in excess of
$2,000,000.
In December 1996, the Company issued to certain employees, officers and
directors options to purchase an aggregate of 1,000,000 shares of the Company's
Common Stock during a four (4) year period commencing on January 1, 1997 at an
exercise price of $1.00 per share (the "Management Options"). In exchange for
the issuance of certain of the Management Options, certain option holders
surrendered for cancellation an aggregate of 242,500 options previously issued
in June 1996 for 722,500 of the Management Options.
On December 31, 1996 the Company concluded a private placement of
500,000 Units (the "December 1996 Private Placement") which were placed by
Biltmore Securities, Inc., a broker-dealer and a member of the National
Association of Securities Dealers ("Biltmore"), on a firm commitment basis. Each
Unit was offered at a price of $2.00 per Unit, and consisted of one (1) share of
Common Stock of Medical Marketplace, Inc., a subsidiary of the Company, and
eighteen (18) Class D Redeemable Common Stock Warrants (the "Class D Warrants").
Each six (6) Class D Warrants are currently exercisable for one (1) share of
the Company's Common Stock commencing
29
<PAGE>
March 31, 1997 at an exercise price of $2.50 per share for a one (1) year
period. The Company intends to use the proceeds from the December 1996 Private
Placement to expand the business of Medical Marketplace, repay advances made by
the Company to Medical Marketplace, and for working capital purposes. Prior to
the December 1996 Private Placement, Medical Marketplace issued options to
certain key employees to purchase an aggregate of 1,000,000 shares of Medical
Marketplace Common Stock at $.80 per share.
The Company, its officers, directors and employees and holders of 5% or
more of the outstanding shares of Common Stock have agreed not to sell, pledge,
transfer or hypothecate any shares of Common Stock of the Company or any
securities convertible into, or exercisable or exchangeable for, shares of
Common Stock of the Company for a period of eighteen (18) months from December
31, 1996 without Biltmore's prior consent.
The Company cautions readers that there can be no assurance that actual
results or business conditions will not differ materially from those projected
or suggested in such forward-looking statements as a result of various factors.
Such forward-looking statements are intended to come within the "safe harbor"
provision of the Private Securities Litigation Reform Act of 1995.
30
<PAGE>
MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Company's securities commenced trading on The Nasdaq SmallCap
Market system upon the effectiveness of the Company's Initial Public Offering on
June 22, 1993. The Initial Public Offering consisted of 2,070,000 Units, each
Unit consisting of one (1) share of Common Stock, one (1) Class A Redeemable
Common Stock Purchase Warrant and one (1) Class B Redeemable Common Stock
Purchase Warrant (without giving effect to the stock split or the Reverse Stock
Split mentioned above). Effective June 22, 1993, the Common Stock, the Class A
Warrants and the Class B Warrants comprising the Units were separated and began
trading under the symbols "MKPL" and "MKPLW" and "MKPLZ", respectively. The
Units began trading under the symbol "MKPLU". The Common Stock is regularly
quoted and traded on The Nasdaq SmallCap Market system. On the close of
business on May 10, 1994, at the request of the Company, the Units were
delisted. The Class A Warrants and Class B Warrants were delisted from The
Nasdaq SmallCap Market as of the close of business on December 18, 1996. As of
February 10, 1997, there were approximately 57 holders of record of the
Company's common stock and approximately 1,300 beneficial owners.
In March 1994, the Company's Board of Directors approved a two-for-one
stock split (the "Stock Split") with respect to each outstanding share of the
Company's Common Stock, such approval to be contingent upon the approval of a
majority of the stockholders of an increase of the Company's Common Stock from
15,000,000 shares to 50,000,000 shares. In March 1994, stockholders representing
a majority of the shares outstanding approved by written consent in lieu of a
special meeting of stockholders an amendment to the Company's Certificate of
Incorporation increasing the number of authorized shares of common stock. In May
1994, the Company distributed to its stockholders an Information Statement
summarizing these transactions. On June 6, 1994, each holder of an outstanding
share of the Company's common stock received an additional share of Common Stock
as a result of the Stock Split. In March 1997, the Company's Board of Directors
approved the Reverse Stock Split which was subsequently approved by the
Company's shareholders on April 4, 1997 and became effective on April 17, 1997.
All price per share references contained herein reflect the consummation of the
Stock Split, but not the consummation of the Reverse Stock Split.
The following table indicates the high and low bid prices for the
Company's, Common Stock, the Class A Warrants and the Class B Warrants for each
of the quarters in the period from July 1, 1995, through March 31, 1997, based
upon information supplied by the Nasdaq system. Prices represent quotations
between dealers without adjustments for retail markups, markdowns or
commissions, and may not represent actual transactions.
31
<PAGE>
For the Period from July 1, 1995 to March 31, 1997
Quoted Bid Price
<TABLE>
<CAPTION>
1st Quarter 2nd Quarter* 3rd Quarter* 4th Quarter*
----------- ----------- ------------ ------------
1997
- ----
<S> <C> <C> <C> <C>
Common Stock:
High 21/32 12/32 7/32
Low 11/31 1/32 1/32
Class A Warrants
High 1/8 1/16
Low 1/16 1/32
Class B Warrants
High 3/32 1/32
Low 1/32 1/32
<CAPTION>
1996 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
- ---- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Common Stock:
High 3/4 9/16 17/32 21/32
Low 9/32 9/32 1/4 1/4
Class A Warrants
High 5/32 1/8 1/8 5/32
Low 1/32 1/32 1/16 1/32
Class B Warrants
High 1/16 3/32 1/16 3/32
Low 1/16 1/16 1/16 1/32
</TABLE>
- --------------
* The Class A and Class B Warrants were delisted from The Nasdaq SmallCap
Market on December 18, 1996.
On May 14, 1997, the closing bid prices of the Common Stock, as
reported on The Nasdaq SmallCap Market System was $1.25 (which gives effect to
the Reverse Stock Split). As of February 10, 1997 there were approximately 1,300
beneficial owners and 57 holders of record of the Company's Common Stock.
The Company's Common Stock is traded on The Nasdaq SmallCap Market
("Nasdaq"). Under the rules of Nasdaq in order to qualify for continued
quotation of securities on Nasdaq, the Company, among other things, must have
either (i) $2,000,000 in assets, $1,000,000 in stockholder equity and a minimum
bid price of $1.00 per share (the "Minimum Bid Requirement") or alternatively
(ii) $2,000,000 in total capital and surplus, and $1,000,000 in market value of
public float (the "Capital Market Value Requirement"). On January 21, 1997, the
Staff of Nasdaq advised the Company that the Company failed to satisfy the
Capital Market Value Requirement and the Minimum Bid Requirement with respect to
32
<PAGE>
its shares of Common Stock. The Company was then provided 90 days to comply with
either of such requirements in order to continue the listing of its Common Stock
on Nasdaq. Failure to do so would have resulted in delisting the Company's
shares of Common Stock. On March 21, 1997 the Company was informed by Nasdaq
that the Company complied with the Minimum Bid Requirement. On April 3, 1997 the
Staff of Nasdaq advised the Company that the Company's shares of Common Stock
failed to meet the Capital Market Value Requirement and the Minimum Bid
Requirement. In order to continue the listing of its Common Stock on Nasdaq, the
Company, was provided 90 days to meet the Capital Market Value Requirement or
the Minimum Bid Requirement. On May 21, 1997, the Company was advised by the
staff of Nasdaq that it is in compliance with the continued listing
requirements. It should be noted that, Nasdaq filed in early March 1997, with
the SEC, proposed rule changes to the maintenance standards required by Nasdaq.
Upon SEC approval the Company would have six (6) months to meet the new
maintenance standards.
Under the proposed new standards for continued inclusion on The Nasdaq SmallCap
Market the Company would have to maintain net tangible assets of $2,000,000 or
net income of $500,000 in two of the last three years or a market capitalization
of at least $35,000,000. If the proposed rule changes are approved by the SEC
and adopted by Nasdaq, it is unlikely that the Company would be able to comply
with such new standards.
Computer Marketplace has no dividend policy, is restricted by its
revolving credit agreement to pay cash dividends, and does not intend to pay any
dividends in the foreseeable future.
33
<PAGE>
BUSINESS
General
Computer Marketplace, Inc. a California corporation, was incorporated
on July 19, 1983, as Quality Associates, Inc. and changed its name to Computer
Marketplace, Inc. in June 1987. In March 1993, Computer Marketplace changed its
name to Computer Marketplace(R), Inc. ("Computer Marketplace(R)") and its state
of incorporation from California to Delaware, Computer Marketplace(R) is
currently engaged in the national wholesale distribution of new and used
computer equipment to dealers, computer maintenance companies, leasing
companies, equipment brokers, and end-users. A majority of this equipment is
manufactured by International Business Machine Corporation ("IBM") and includes
computer peripheral equipment, upgrades and parts, particularly for AS/400, and
RISC System/6000 computer systems. Computer Marketplace(R) also sells new
computer equipment produced by IBM, Digital Equipment Corporation, Compaq,
Hewlett Packard, Motorola, as well as a number of other manufacturers. Many of
the new product lines require value added services, software or hardware.
Computer Marketplace(R) has made significant investments in its employees in
order to increase their technical knowledge of the new product lines and
Computer Marketplace(R) has attracted various value added software products,
many in the document imaging and document management areas, in order to enhance
its value added portfolio. The new product lines generally require Computer
Marketplace(R) not to remarket used equipment manufactured by the Original
Equipment Manufacturer ("OEM").
In June 1993, prior to the 2-for-1 stock split and the Reverse Stock
Split mentioned above, the Company consummated its initial public offering of
2,070,000 units, each unit consisting of one (1) share of Common Stock, one (1)
Class A Warrant and one (1) Class B Warrant (the "IPO Units"). See "Description
of Securities." The Company received net proceeds of approximately $6,594,179
from its initial public offering.
In March of 1994, Computer Marketplace(R) formed Medical Marketplace,
Inc. ("Medical Marketplace") as a wholly owned subsidiary to engage in worldwide
distribution of used medical equipment to health care providers. In September
1994, Computer Marketplace(R) formed Marketplace Asset Recovery Services, Inc.
("MARS") as a wholly owned subsidiary to perform asset recovery assignments,
repossessions and asset verifications. The operations of MARS to date, have not
been material to the consolidated financial statements. In June 1996, management
began the process of closing down the operations of MARS. In August 1996, MARS
was renamed Marketplace Leasing, Inc., ("MLI"). Management intends to utilize
MLI for equipment leasing transactions. In January 1994, Computer Marketplace(R)
formed a wholly owned subsidiary, Superior Solutions, Inc. ("SSI") (formerly
called Computer Marketplace-SSI, Inc.), to purchase certain assets and assume
certain obligations of Synergy Solutions, Inc. and International Associated
Marketing Corporation, both located in Livonia, Michigan. These companies were
engaged principally in the development, installation and maintenance of local
and wide area networks, were Novell Platinum Authorized Resellers, and were also
selling computer hardware. On July 1, 1996,
34
<PAGE>
the employees of SSI began operating as a sales and networking branch of
Computer Marketplace(R). The distinct business operations of SSI., will be
gradually phased down as its operations are fully integrated into Computer
Marketplace(R). In June 1996, the Company discontinued the operation of SSI.
Computer Marketplace(R) and its subsidiaries are hereinafter referred to as the
"Company".
Computer Marketplace(R) purchases computer equipment from a variety of
sources and suppliers and sells or rents the equipment nationwide and in Europe
to companies ranging in size from small companies to Fortune 500 corporations.
Computer Marketplace's operations and primary selling efforts are conducted from
its principal office in Corona, California. Computer Marketplace(R), which
maintains a service and inventory storage center at its Corona headquarters,
also has arrangements to inventory its equipment on a temporary basis at
independent service centers across the country.
Medical Marketplace buys and resells a wide variety of medical
equipment including Magnetic Resonance Imaging ("MRI"), Computed Tomography
Scanners ("CT") and Ultrasound equipment. In addition Medical Marketplace
provides customers with consulting services related to equipment acquisition,
equipment layout and facility design. Medical Marketplace also has a small
rental program which provides new equipment and contract service with mobile MRI
and CT equipment. Medical Marketplace conducts its primary distribution
operations from its main office in Corona, California, which is shared with the
Company. It also has sales representatives in Northern California, Kansas,
Washington State and North Carolina.
In December 1996, the Company entered into a one year consulting
agreement with Victoria Holdings, Inc. ("Victoria Holdings"), an affiliate of
Biltmore Securities, Inc. ("Biltmore"). Pursuant to the consulting agreement,
Victoria Holdings agreed to assist the Company in identifying new business
partners suitable for the Company and in structuring, negotiating and
financing such transactions. Pursuant to the terms of the consulting
agreement, the Company issued to Victoria Holdings options (the "Victoria
Holdings Options") to purchase 1,000,000 shares of Common Stock at an exercise
price of $1.00 per share. In addition, the Company agreed to issue 1,000,000
shares of Common Stock to Victoria Holdings (the "Victoria Fee Shares") upon
consummation by the Company of (i) an acquisition of a company (or companies)
introduced to the Company by Victoria Holdings with net assets of at least
$2,500,000 or (ii) a divestiture of the Company's assets, or a sale of a
controlling interest in the Company's capital stock, to a purchaser introduced
to the Company by Victoria Holdings resulting in net proceeds to the Company in
excess of $2,000,000.
In December 1996, the Company issued to certain employees, directors
and consultants of the Company (the "Management Optionholders") options (the
"Management Options") to purchase an aggregate of 1,000,000 shares of the
Company's Common Stock during a four (4) year period commencing on January 1,
1997 at an exercise price of $1.00 per share (the "Management Options").
On December 31, 1996 the Company concluded a private placement of
500,000 Units (the
35
<PAGE>
"December 1996 Private Placement") which were placed by Biltmore, on a firm
commitment basis. Each Unit was offered at a price of $2.00 per Unit, and
consisted of one (1) share of Common Stock of Medical Marketplace, Inc., and
eighteen (18) Class D Redeemable Common Stock Purchase Warrants (the "Class D
Warrants"). Each six (6) Class D Warrants are exercisable for one (1) share of
the Company's Common Stock commencing March 31, 1997 at an exercise price of
$2.50 per share for a one (1) year period.
On January 21, 1997 the Staff of Nasdaq advised the Company that the
Company failed to satisfy the Capital Market Value Requirement and the Minimum
Bid Requirement with respect to its shares of Common Stock. The Company was
provided 90 days to comply with either of such requirements in order to continue
the listing of its Common Stock on Nasdaq. Failure to comply would have resulted
in delisting the Company's shares of Common Stock. On March 21, 1997, the
Company was informed by Nasdaq that the Company complied with the Minimum Bid
Requirement.
In March 1997, the Company's Board of Directors approved a 1-for-6
reverse stock split (the "Reverse Stock Split") with respect to each outstanding
share of the Company's Common Stock, such approval to be contingent upon the
approval of a majority of the Company's Stockholders. The Company's Board of
Directors conducted its annual meeting of shareholders on April 4, 1997 (the
"Annual Meeting") where, among other things, the Company's shareholders voted to
approve the Reverse Stock Split. At the Annual Meeting the Company's
shareholders also voted (i) to elect five (5) directors to the Board of the
Company for a one (1) year term, including, L. Wayne Kiley, Nancy Kiley, Rick C.
Garian, J.R. Achten and Thomas E. Evans, Jr. and (ii) to ratify the appointment
of Moore Stephens, P.C. as the Company's independent certified public
accountant.
On April 3, 1997 the Staff of Nasdaq advised the Company that the
Company's shares of Common Stock failed to meet the Capital Market Value
Requirement and the Minimum Bid Requirement. In order to continue the listing of
its Common Stock on Nasdaq, the Company, was provided 90 days to meet the
Capital Market Value Requirement or the Minimum Bid Requirement. On May 21,
1997, the Company was advised by the Staff of Nasdaq that it is in compliance
with the continued listing requirements.
In light of the fact that the Company has been unable to operate
profitably since fiscal year ended June 1994, the Company believes that
substantial measures need to be taken to address the Company's financial
difficulties. The Board of Directors, after having considered numerous
alternatives, has concluded that the Company must significantly reduce its
expenses in order to reduce the Company's net losses. Therefore, the Company has
embarked upon a cost cutting plan by reducing its workforce, closing
unprofitable locations and discontinuing under performing product lines.
Specifically, the Company (i) closed its branch offices in Livonia, Michigan,
Traverse City, Michigan and Mariposa, California and (ii) reduced the number of
employees from a high of ninety six (96) in September 1995 to twenty two (22)
full-time and six (6) part-time as of April 15, 1997. See "The Company." In the
event that the Company determines that these measures are insufficient
36
<PAGE>
to achieve profitability, the Company may reduce further its existing business
or pursue divesting the Company's computer business and/or acquiring an
alternative business. As of the date of this Prospectus, the Company has not
entered into a definitive agreement with any third party with respect to such a
transaction.
The Company's executive office is located at 1490 Railroad Street,
Corona, California. It's telephone number is (909) 735-2102.
The Computer Industry
The computer industry has been characterized by rapid and continuous
technological advances permitting cost reductions, increases in computer
processing capacity and broadened user applications. Users frequently upgrade or
replace their equipment in order to take advantage of technological advances or
to increase data processing capacity. As a result, the equipment which is
replaced by different or newer models becomes available to the secondary market,
total sales revenue for the secondary computer market, both leasing and
"buy-sells" combined, exceeds $25 billion annually. The Company is a member in
good standing of the Computer Dealers and Lessor's Association ("CDLA"), a trade
association headquartered in Washington, DC, as well as the Association of
Service and Computer Dealers International ("ASCDI") and the Computer Broker
Exchange ("CBE"), a European computer dealer network.
The large number and diversity of computer resellers renders it more
cost efficient for many manufacturers to rely on wholesale distributors to
assume responsibility for at least some portion of their distribution, marketing
and support requirements. Similarly, due to the large number of computer product
manufacturers, computer resellers often choose not to or cannot efficiently
establish direct purchasing relationships with manufacturers and instead look to
wholesale distributors to satisfy a significant portion of their product,
marketing and technical support needs.
Computer Products
The Company buys and resells computers, features, parts, peripherals,
which include hard disk drives, memory, plug-in boards, modems, monitors and
printers, and other related computer equipment. Sales of computer equipment
constitutes a significant source of revenue for the Company, accounting for
approximately ninety-four percent (94%) and ninety-six (96%) of computer related
revenues in fiscal years 1996 and 1995, respectively. The Company is constantly
adjusting its inventory to respond to shifts in product development, new
technology, and shifting consumer demands.
Modems/Communications
The Company has a distributor agreement with Motorola, which is a
leading manufacturer of modems, protocol converters and multiplexes, and is one
of the world's largest OEM modem suppliers, which results in the ability of the
Company to offer a broad range of communication products (UDS and Codex). The
Company has entered into franchise agreements for related communication products
with other vendors in order to significantly increase the breath of product
offerings to its customers.
37
<PAGE>
RISC System/6000 Rental Program
The Company has a rental program which provides software developers,
hardware developers and other customers with equipment necessary to meet their
short-term requirements in this rapidly expanding market. The Company's rental
program is primarily related to the RISC System/6000 market. Rental periods
typically range from one (1) month to over a year with the average rental period
being approximately two (2) months. The Company does not generally rent
equipment with an option to purchase; however, will respond to customer requests
to convert rentals into purchases. Rental rates are based upon the product's
original list price as well as market conditions. The Company provides rental
customers with manufacturers' warranties relating to the rented equipment or
repair or replacement at the Company's option. The Company may, from time to
time, perform repair work when requested to do so; however, IBM, as well as
other manufacturers, often provide technical support, including the repair and
replacement of defective or non-functioning parts.
Computer Products Sales and Marketing
The Company had a total of five (5) computer sales representatives and
four (4) sales support and marketing personnel as of April 15, 1997. These
representatives are located at the Company's headquarters in Corona, California.
In addition to making calls to existing and potential customers, the sales team
solicits new business by personal visits and advertising in trade magazines. The
Company currently advertises in approximately thirteen (13) specialized national
and international trade publications. The Company's customers consist of
companies of all sizes, ranging from small companies to Fortune 50 corporations.
A substantial portion of the Company's transactions are with repeat customers,
such as computer maintenance companies, as well as computer parts suppliers. The
loss of one of these companies as a customer could have a material adverse
effect on the Company's business.
Computer Products Distribution Operations
The Company conducts its primary distribution operations from its main
office located in Corona, California. It has also developed relationships with
stocking distributors and numerous independent refurbishing and warehouse
facilities throughout the United States and other parts of the world to handle
distribution, engineering and warehousing. By using stocking distributors, the
Company has directly benefited by minimizing the costs of freight, engineering
and distribution.
Computer Equipment Warranty Policy
The Company, like other competing distributors, does not grant any
warranties on the used products it sells. However, most of the new and used
computer equipment which the Company sells is covered under either the
manufacturer's warranty or the manufacturer's maintenance programs. Some of the
new and used computer equipment which the Company sells is still under
manufacturer's warranty. Before any returned merchandise is accepted by the
Company for processing under the original manufacturer's warranty, the customer
must call the Company and obtain a return merchandise authorization number. This
procedure allows the Company to verify the availability of manufacturer's
warranties on a case-by-case basis.
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<PAGE>
Computer Products Suppliers
The Company has established distributor arrangements with a number of
manufacturers of computer equipment which provide generally that the Company may
sell certain products within a designated territory and with a targeted amount
of value-added service. In addition, the Company has an established network of
dealers and retail customers that provide products. The Company is not dependent
upon any supplier or dealer an although the Company currently purchases a
significant amount of products from certain suppliers, management believes the
Company would be able to obtain similar products and pricing from other
suppliers.
Computer Products Competition
The Company competes directly with hundreds of other companies which
buy, sell or lease new and used IBM, SUN, Hewlett Packard, Digital Equipment and
Motorola equipment as well as equipment produced by other computer
manufacturers. In addition, the Company also competes with hundreds of
competitors in the area of providing value added services to its customers.
Certain of the Company's competitors have substantially greater financial
resources and larger staffs than the Company. The Company's principal
competitors include IBM, Comdisco, Inc., Sun Data, Inc. and El Camino
Resources, Inc. The Company does not believe that a significant amount of used
equipment is sold independently by owner-users of the equipment. While the
aforementioned companies are listed as competitors, they also are customers of
the Company. The majority of the competing companies subscribe to either of two
national databases: "CDLANET" and/or "ATC Network" nationally and the "CBE
Network" internationally. These databases provide the Company with access to
inventory listings from competing companies, similar to the multiple-listing
services to which most real estate companies subscribe.
The Company's continued ability to compete effectively may be affected
by the policies of the large equipment manufacturers. The Company attempts to
provide customers with an unmatched selection of products, a high level of
customer service, the knowledge and competence of its employees, and competitive
pricing.
Used Medical Equipment Industry
The used medical equipment industry is relatively young as compared to
the more established computer industry. Sales of used medical equipment have
been slowed due to a lack of acceptance of used equipment by health care
providers stemming in part from the uncertainty of the equipment's operating
condition and more generous cost reimbursement formulas given to providers by
governmental agencies and insurance companies. Medical Marketplace believes that
recent growth in the domestic market stems from the uncertainty caused by
various proposals on the domestic health care reform program, and as a result,
health care providers are attempting to minimize their capital expenditures by
purchasing lower-cost used equipment. In addition, foreign-based health care
providers are undergoing significant expansion and have found used equipment a
cost-effective alternative to new equipment.
Medical Marketplace believes that there are no dominant providers of
used equipment in the
39
<PAGE>
industry. In addition, Medical Marketplace believes that many of the equipment
suppliers operate on a cash basis and only a few companies can deal in larger
transaction sizes of greater than $100,000. The association which provides a
forum for used equipment is relatively new, unlike the association established
for the computer business.
Medical Equipment and Services
Medical Marketplace buys and resells a wide variety of equipment
including Magnetic Resonance Imaging ("MRI"), Computed Tomography Scanner ("CT")
and Ultrasound equipment. In addition, Medical Marketplace provides customers
with consulting services related to equipment acquisition, equipment layout and
facility design.
Medical Equipment Rental Program
Medical Marketplace has a small rental program which provides new
equipment providers and contract service providers with mobile MRI and CT
equipment. This service allows these customers to meet their short-term
equipment needs. Rentals are for approximately one month, however, weekly
rentals can also occur. This program needs additional capital in order to become
a significant revenue source to Medical Marketplace.
Medical Equipment Warranty Policy
Medical Marketplace, like other competing resellers, does not grant any
warranties on the used products it sells. However, most of the used medical
equipment which Medical Marketplace sells is covered under either the
manufacturer's warranty or the manufacturer's or third party maintenance
programs.
Medical Equipment Suppliers
Medical Marketplace has established relationships with a small but
growing number of equipment brokers and leasing companies across the United
States. In addition, Medical Marketplace by expanding its sales force is able to
procure equipment directly from the end-user. Generally, Medical Marketplace
physically inspects all major equipment before committing to purchase the item.
Medical Equipment Distribution Operations
Medical Marketplace conducts its primary distribution operations from
its main office in Corona, California. This facility is shared with the
Company's computer business. Physically large pieces of medical equipment such
as MRI's and CT's are often transported by Medical Marketplace from their last
installed location directly to our customer's site. This allows Medical
Marketplace to minimize storage and transportation costs in the transaction.
40
<PAGE>
Medical Equipment Sales and Marketing
Medical Marketplace had a total sales force at March 25, 1997 of six (6)
people. Three (3) inside sales representatives who are located in Corona,
California, an outside direct sales representative located in Northern
California, Kansas and Washington State. In addition, Medical Marketplace
attends various industry trade shows and advertises on the Internet and in
selected national and international trade publications. Medical Marketplace has
prospected for sales to Latin American countries however, sales have been
constrained by the difficulty of foreign purchasers obtaining the necessary
financing. As U.S. based financing companies develop foreign based lending
operations in these countries, Medical Marketplace intends to become the
financing company's used equipment vendor of choice.
Medical Marketplace intends to significantly grow the number of
domestically based outside sales representatives. This expansion will enable
Medical Marketplace to call on a far greater number of end-users which will
increase the number of opportunities to provide equipment and to purchase
equipment at the most favorable prices. Medical Marketplace has generally
focused on larger transaction sizes (i.e. greater than $50,000). Due to the
complex technical nature of the equipment, the potential need for the customer
to prepare the equipment site, including obtaining government permits and the
significant sale prices involved in a transaction, a transaction can take up to
a year to complete, although most transactions are completed in four months or
less. Consequently, Medical Marketplace's revenue and operating results can vary
materially from month to month.
Medical Equipment Competition
Medical Marketplace competes directly with the new medical equipment OEM's
like GE Medical Systems, Picker, Toshiba, Philip's and Siemens. Many of these
new equipment OEM's have used equipment divisions. In addition, Medical
Marketplace competes with a growing number of equipment brokers and leasing
companies such as Comdisco, Finova, Access Medical and Remed Par. Certain of
Medical Marketplace's competitors have substantially greater financial resources
and larger staffs than Medical Marketplace. Medical Marketplace believes that
only the largest of our competitors can match the technical ability of our
employees in the Imaging, X-ray and Ultrasound technologies and only our largest
competitors have the financial strength to inventory expensive MRI, CT or
Ultrasound equipment. Consequently, Medical Marketplace feels that it can
effectively compete against the large OEM's in used equipment transactions and
will have competitive advantages over specialized equipment brokers on end-user
transactions.
Government Regulation
Neither the Company nor Medical Marketplace has been materially affected by
government regulations applicable to either its computer products or its medical
equipment business, respectively.
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<PAGE>
Patents, Trademarks, Licenses and Franchises
The Company has been granted by the United States Patent and Trademark
Office (i) a trademark for the AcceleRAIDer(R), on October 6, 1992, (ii) a
servicemark for Computer Marketplace(R), on November 3, 1992, and (iii) a
servicemark for Medical Marketplace, Inc. on August 20, 1996.
The Company does not own any other patents, trademarks, licenses, or
franchises which would be considered significant to the Company's business.
Credit Facilities
In September 1995, the Company entered into a revolving credit facility
agreement ("Credit Facility") with a financing company. This Credit Facility
replaced the then outstanding $2,000,000 revolving credit line with a bank. The
Credit Facility allows the Company to borrow up to $2,500,000 and bears interest
at a rate of 2.25% above the lender's "reference rate" (as defined). The
borrowing capacity under the Credit Facility is dependent upon "eligible" (as
defined) accounts receivable and inventory, and fluctuates daily. The Credit
Facility is collateralized by substantially all of the Company's assets, except
for real property. The Credit Facility expires in September 1997.
Additionally, as of December 31, 1996, the Company had long-term debt
financing collateralized by its Corona headquarters and Mariposa locations, in
the amounts of $1,275,000 and $150,000, respectively.
Employees
As a result of management's focus to reduce costs and capitalize on the
efficiencies gained by administrative improvements, as of March 31, 1997, the
Company employed twenty two (22) full-time persons and six (6) part-time
persons, including eleven (11) persons in sales, marketing and related
activities, seven (7) persons in technical operations and maintenance, and nine
(9) persons in general administration and finance. The Company has experienced
no work stoppages and considers its employee relations to be satisfactory. The
Company's employees are not represented by a labor union.
Properties
On April 23, 1987, L. Wayne Kiley and Nancy Kiley, the Company's President
and Secretary, respectively, purchased a fifty percent (50%) undivided interest
in the land and 5,000 square-foot building at 205 East Fifth Street, Corona,
California, which had, until February 1994, served as the Company's
headquarters, and subsequently was used as an interim sales office and temporary
headquarters for Medical Marketplace until October, 1995. On June 30, 1987, the
Kiley's deeded their fifty percent (50%) interest in the land and building to
the Company in exchange for 952,623 shares of common stock of the Company. The
other fifty percent (50%) interest in the land and building is owned by Jack
Mooney, an unrelated third party. In 1996, the Company listed this property for
sale.
On October 27, 1993, the Company purchased, at a trustee sale, a 68,457
square-foot building
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in Corona, California, for approximately $1,757,000. The building, which
currently has over 12,000 square feet of office space, is used as the Company's
headquarters. Due to favorable local real estate market conditions, in August
1996, the Company listed this facility for sale.
On January 21, 1994, the Company purchased a two-story, 6,300 square-foot
office building located in Mariposa, California, for $215,000. The Company
intends to sell this facility in the near future. The Company has renovated
this facility and has leased fifty percent of the unused space.
On May 12, 1997, the Company entered into a Standard Offer Agreement and
Escrow Instructions for Purchase of Real Estate whereby the Company agreed to
sell its headquarters facility in Corona, California for the purchase price of
two million five hundred thousand dollars ($2,500,000). This transaction is
expected to close in June 1997. The Company has also recently closed certain
satellite locations in Michigan and Mariposa, California.
Management believes that the above properties are adequately covered by
insurance.
Legal Proceedings
The Company commenced an unfair trade name infringement action entitled
Computer Marketplace(R), Inc. v. RK Productions/Case No. 260667 in Riverside
County, California Superior Court on January 20, 1995. The defendant failed to
respond to the Company's complaint, and is therefore, in default. Subsequently,
the defendant (under the name National Productions, Inc.) filed a Federal
lawsuit in the Central District of California entitled National Productions,
Inc. v. Computer Marketplace(R), Inc./Case No. 95-3225 on May 19, 1995. Computer
Marketplace(R) has counterclaimed in the Federal action which supersedes the
earlier state court action. Discovery in the case is substantially complete and
currently the case is in the negotiation phase. The outcome of this lawsuit
cannot be predicted, but the Company intends to vigorously defend the action and
is of the opinion that the lawsuit will not have a material effect on the
results of operations, cash flows and financial position of the Company.
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MANAGEMENT
Directors and Executive Officers
The following persons are the current executive officers, directors and key
employees of the Company:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
L. Wayne Kiley 53 President, Chief Executive Officer
and Director
Rick C. Garian 50 Chief Operating Officer and Director
Carmella Hume 32 Controller (Chief Accounting Officer)
Nancy Kiley 38 Secretary and Director
J. R. Achten 53 Director
Thomas E. Evans, Jr. 56 Director
</TABLE>
All Directors hold office until the next annual meeting of stockholders and
the election and qualification of their successors. Officers are elected
annually by the Board of Directors and, subject to existing employment
agreements, serve at the discretion of the Board.
Outside Directors shall receive $10,000 per year as compensation for their
services. Directors who are also officers of the Company do not receive any
compensation for serving on the Board of Directors. All Directors are reimbursed
by the Company for any expenses incurred in attending Directors' meetings.
Background of Executive Officers and Directors
L. Wayne Kiley has been the President and Chief Executive Officer of the Company
since March 2, 1984, and a director since June 19, 1983. From 1978 to 1983, he
was a self-employed independent real estate developer in Tucson, Arizona. From
1970 to 1978, he was the owner of the Business Exchange in Santa Ana,
California. He graduated in 1969 from Michigan State University with a Bachelor
of Arts degree in Political Science.
Rick C. Garian has served as Chief Operating Officer of the Company since
January, 1997 and as a Director since April 1997. Prior to becoming Chief
Operating Officer, Mr. Garian served as an executive consultant to the Company,
as part of his own management consulting practice,
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<PAGE>
which was established in 1991. He graduated from Michigan State University with
a Business Administration degree.
Carmella Hume has served as Controller of the Company since January 1997 and
previously served as a Senior Accountant from July 1995 to January 1997. From
1993 to 1995, Ms. Hume served as a Controller of Triple M. Apparel, a clothing
manufacturer, and from 1991 to 1993 she was the Controller of LeaJoy
Corporation, an artificial plant manufacturer. Ms. Hume received her Bachelor of
Science Degree in Business Administration from Chapman University.
Nancy Kiley has served as Secretary and director of the Company since March 2,
1984, and is the wife of L. Wayne Kiley, the Company's President and Chief
Executive Officer.
J. R. Achten has been a director of the Company since May 1993. Mr. Achten has
been President and Chief Executive Officer of Millennium Enterprises, Inc.,
located in Laguna Niguel, California, since 1987. Millennium Enterprises, Inc.
is in the business of real estate sales and development, as well as computer
sales. Mr. Achten attended Long Beach State College and graduated with a
Bachelor of Arts degree in Economics.
Thomas E. Evans, Jr. has been a director since February 1994. Mr. Evans, since
July 1995, has been the President, Orange County Division, of Fidelity National
Title Insurance Company. Since 1993, he served as Vice President, and prior to
that, held various senior management positions with that same company since
1980. Mr. Evans is a member of the American Land Title Association and is
President of California Land Title Association. Mr. Evans served from 1984 to
1992 as a director of Fidelity National Financial, Inc., which is listed on the
New York Stock Exchange.
There are no family relationships among any of such persons, except that L.
Wayne Kiley, the Company's President and Chief Executive Officer, is married to
Nancy Kiley, the Company's Secretary.
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EXECUTIVE COMPENSATION
The following table shows all the cash compensation paid or to be paid by
the Company to the Chief Executive Officer, three of the Company's executive
officers and a former officer who received in excess of $100,000 in annual
salary and bonus, for the fiscal years ended June 30, 1996, 1995, and 1994:
<TABLE>
<CAPTION>
Annual Compensation
Compensation Awards
(a) (b) (c) (d) (g) (i)
Number of All Other
Name and Principal Position Year Salary Bonus Options Compensation
- --------------------------- ---- ------ ----- --------- ------------
<S> <C> <C> <C> <C> <C>
L. Wayne Kiley, President 1996 $ 303,814 $ -- 195,833(5) $ 1,313
Chief Executive Officer and 1995 $ 302,500 $ -- 166,667 $ 3,702
Director 1994 $ 275,000 $1,077 --- $ 4,966
David L. Roekle, 1996 $ 223,717 $ -- 41,667(5) $ --
Senior Vice President 1995 $ 218,400 $ -- -- $ --
Chief Operating Officer and 1994 $ 84,618 $ -- 16,667 $ 921
Director(1)
Thomas Iwanski
Vice President
Chief Financial Officer 1996 $ 97,885 $ -- 30,000(5) $ --
Assistant Secretary and 1995 $ 87,561 $ -- -- $ --
Director(2)
Richard S. Pisapia
Senior Vice President 1996 $ 80,808 $19,423 20,833 $ 3,461
Sales(3)
Joanne Mitchell 1995 $ 18,386 $ -- -- $ --
Account Executive(4) 1994 $ 305,214 $ 468 -- $ 4,285
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Mr. Roekle's employment with the Company terminated in August 1996.
(2) Mr. Iwanski's employment with the Company terminated in January 1997.
(3) Mr. Pisapia's employment with the Company terminated in December 1996.
(4) Ms. Mitchell's employment with the Company terminated in June 1994. Her
1995 salary includes amounts paid in July 1994 related to prior sales.
(5) The number of stock options awarded includes 166,667, 16,667 and 5,000 for
L. Wayne Kiley, David L. Roekle and Thomas Iwanski, respectively, which
were replacements for an equal number of stock options previously issued
to these individuals.
The 1995 and 1994 salaries for David L. Roekle do not include $8,000
and $128,307, respectively, of consulting fees paid to Mr. Roekle's wholly owned
company, Solid Rock Computer Group, Inc. See "Certain Transactions."
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<PAGE>
The Company adopted a profit sharing plan in January 1991. The plan
provided for voluntary employee contributions and discretionary contributions by
the Company. The plan was intended to qualify as a defined contribution plan
under the Internal Revenue Code of 1986. The amounts earned under the plan by
the named individuals in the Executive Compensation table are reflected under
the column headed "All Other Compensation". Due to the differences between the
plan year and the Company's fiscal year, the 1994 amount represents fifty
percent (50%) of the 1993 plan year contribution for L. Wayne Kiley and David L.
Roekle.
In January 1995, the Company adopted a new combined 401(k) and profit
sharing plan (the "Plan") which replaced the prior plans. The new Plan covers
substantially all of the Company's eligible employees. The new Plan is available
to all employees with more than one (1) year of service or, to employees
employed by the Company on February 1, 1995. Company contributions to the profit
sharing component of the Plan will be at the discretion of management. Company
contributions to the 401(K) component of the Plan will be based on a percentage
of employee contributions as determined by management. The charge to operations
related to the Plan for the years ended June 30, 1996 and 1995, was $18,421 and
$23,398, respectively.
In February 1995, the stockholders approved the Company's 1994 Stock
Plan which allows for the issuance of stock options, restricted stock, deferred
stock, bonus shares performance awards, dividend equivalent rights, limited
stock appreciation rights and other stock-based awards, or any combination
thereof. The maximum number of shares of Common Stock with respect to which
awards may be granted is initially 166,667 shares.
The Board of Directors may, in the future, adopt such other employee
benefit and executive compensation programs as it deems advisable and consistent
with the best interest of the stockholders and the financial condition of the
Company.
In May 1994, the Board of Directors of the Company approved the
issuance of up to 300,000 options to certain employees and consultants of the
Company (the "Options"). The Options vested immediately upon the grant thereof
and are exercisable at $14.40 per share (or 80% of the fair market value on the
date of grant) at any time prior to May 10, 1997. The Company granted 133,333 of
the available Options during fiscal year 1994. The remaining 166,667 Options
were granted in July 1994 to L. Wayne Kiley, the President and Chief Executive
Officer of the Company. In June 1996, the Board of Directors of the Company
approved the issuance of new non-qualified stock options to those employees and
consultants who currently held the Options. These replacement options required
the cancellation of the prior options, vested immediately and were exercisable
at $6.00 per share at any time prior to June 11, 2000. A total of 280,500
options were issued at $6.00 per share. In December 1996, the Company's
Compensation Committee approved the issuance to certain employees, officers and
directors options to purchase an aggregate of 1,000,000 shares of Common Stock
(the "December Options"). In exchange for the issuance of these options, certain
option holders surrendered for cancellation an aggregate of 242,500 options
issued in June 1996 for 722,500 of the December Options. These options vest
immediately and are exercisable over a four (4) year period at $1.00 per share.
On January 3, 1996, the Company's Board of Directors approved the
issuance of 158,083 non-qualified stock options to substantially all employees
of the Company, its subsidiaries, and the non-employee directors, to purchase
shares of the Company's common stock at an exercise price equal to 100% of the
market value of the
47
<PAGE>
Company's common stock on the date of grant. The stock options require future
employment or services to the Company and vest one third each on January 3,
1997, January 3, 1998, and January 3, 1999, respectively. The stock options must
be exercised by January 3, 2006. On January 3, 1996, 157,083 stock options were
granted at an exercise price of $1.6875 per share of which 69,333 are currently
outstanding.
On June 11, 1996, the Company's Board of Directors approved the
issuance of 10,833 non-qualified stock options to seven employees of the
Company. These stock options require future employment with the Company and vest
one third each on June 11, 1997, June 11, 1998 and June 11, 1999, respectfully.
The stock options must be exercised by June 11, 2006. On June 11, 1996, 10,833
stock options were granted at an exercise price of $3.375 per share.
As of December 1996, the Company's subsidiary, Medical Marketplace,
Inc., issued to certain employees of, and a consultant to, Medical Marketplace
options to purchase an aggregate of 1,000,000 shares of Medical Marketplace
common stock at an exercise price of $.80 per share. Such options vest over a
two (2) year period commencing in December 1997; provided however, that in the
event of an initial public offering of Medical Marketplace such options vest
immediately.
As of December 1996, the Company issued to certain employees, officers
and directors options to purchase an aggregate of 1,000,000 shares of the
Company's Common Stock during a four (4) year period commencing on January 1,
1997 at an exercise price of $1.00 per share (the "Management Options"). In
exchange for the issuance of certain of the Management Options, certain option
holders surrendered for cancellation an aggregate of 240,833 options previously
issued in June 1996 for 722,500 of the Management Options.
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<PAGE>
The following table contains information concerning the grant of stock
options to executive officers of the Company during the fiscal year ended June
30, 1996:
<TABLE>
<CAPTION>
Potential Realizable
% of Total Value at Assumed
Number of Options Annual Rates of Stock
Options Granted in Exercise Expiration Price Appreciation
Name Granted Fiscal Year Price ($/sh) Date for Option Term
5% 10%
-- ---
<S> <C> <C> <C> <C> <C> <C>
L. Wayne Kiley,
President 29,167(5) 44% $1.6875 1/03/06 $ 30,953 $ 78,442
Chief Executive 166,667(6) $6.00 6/10/00 $215,506 $464,100
Officer and
Director
David L. Roekle 25,000(5) 9% $1,6875 1/03/06 $26,531 $ 67,236
Senior Vice 16,667(6) $6.00 6/10/00 $21,550 $ 46,410
President(1)
Thomas Iwanski 25,000(5) 7% $1.6875 1/03/06 $26,531 $ 67,236
Vice President 5,000(6) $6.00 6/10/00 $ 6,465 $ 13,923
Chief Fin. Officer
Asst. Sec. and
Director (2)
Richard S. Pisapia 20,833(5) 5% $1.6875 1/03/06 $19,818 $ 52,382
Senior Vice --- ---- --- --- --- ----
President Sales (3)
A. Evan Windholz 8,333(5) 3% $1.6857 1/03/06 $ 8,843 $ 22,412
Vice President - 6,667(6) $6.00 6/10/00 $ 8,620 $ 18,564
Sales Eastern
Region(7)
Michael MacQueen 1,667(5) 1% $1.6875 1/03/06 $ 1,768 $ 4,482
Controller (4) 2,500(6) $6.00 6/10/00 $ 3,232 $ 6,961
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Mr. Roekle's employment with the Company terminated in August 1996.
(2) Mr. Iwanski's employment with the Company terminated in January 1997.
(3) Mr. Pisapia's employment with the Company terminated in December 1996.
(4) Mr. MacQueen's employment with the Company terminated in January 1997,
although Mr. MacQueen continues to serve as a consultant to the Company.
(5) Stock options granted in January 1996.
(6) Stock options granted in June 1996.
(7) Mr. Windholz's employment with the Company terminated in March 1997.
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<PAGE>
The following table contains information concerning the aggregated
option exercises during the last fiscal year and option positions at June 30,
1996, by executive officers of the Company:
<TABLE>
<CAPTION>
Aggregated Option Exercises in Last Fiscal Year
and FY-End Option Values
(a) (b) (c) (d) (e)
Number of Value of
Securities Unexercised
Underlying In-the-Money
Unexercised Options Options at
Number of at FY-End, FY-End,
Shares Acquired Dollar Value Exercisable/ All
Name on Exercise Realized Unexercisable Unexercisable
- ---------------- --------------- ------------ -------------- -------------
<S> <C> <C> <C> <C>
L. Wayne Kiley - - 166,667/
29,167 $54,688
David L. Roekle - - 16,667/
25,000 $46,875
Richard S. Pisapia - - 0/
20,833 $39,063
Thomas Iwanski - - 5,000/
25,000 $46,875
A. Evan Windholz - - 6,667/
8,333 $15,625
Michael MacQueen - - 2,500/
1,667 $ 3,125
</TABLE>
50
<PAGE>
Employment Agreements
On October 16, 1992, the Company entered into an employment agreement for a
five (5) year term (the "Employment Term") including an additional one (1) year
renewal term with L. Wayne Kiley, President and Chief Executive Officer of the
Company. Pursuant to such employment agreement, Mr. Kiley will receive an annual
salary of $275,000 per annum with an annual ten percent (10%) increase,
effective on the agreement anniversary date, so long as the Company is
profitable for the preceding fiscal year. The employment agreement also provides
for the use by Mr. Kiley of a Company car, disability insurance and for bonuses
and other incentive compensation as the Board of Directors deems appropriate,
based upon the Company's operating performance or other reasonable criteria. In
addition, Mr. Kiley will have the option (the "Original Option") to purchase up
to eighteen percent (18%) of the Company's common stock, so long as the Company
achieves certain earnings before the payment of interest and taxes ("EBIT"),
such targets to commence with EBIT of $1,250,000 during any of the Company's
fiscal years occurring during the Employment Term. The purchase price for the
shares of common stock purchased pursuant to the Original Option was equal to
$1.60 per share, which was eighty percent (80%) of the per share price offered
to the public in connection with the Company's initial public offering.
In October 1996, the Company amended its employment agreement with L. Wayne
Kiley, the Company's Chairman of the Board, President and Chief Executive
Officer. Pursuant to such amendment, (i) the employment agreement's expiration
date of October 16, 1997 was extended to October 16, 1999, (ii) in exchange for
termination of the Original Option Mr. Kiley was granted the right to purchase a
number of shares of Common Stock for a period of four (4) years, at a price
equal to seventy five percent (75%) of the closing bid price of the Company's
shares of Common Stock on the date of grant equal to 2.5%, 3% and 3.5% of the
shares outstanding, should the Company report annual earnings before the payment
of interest and taxes of $635,000, $875,000 and $1,000,000, respectively, (iii)
Mr. Kiley will be paid a cash bonus equal to 5% of any profit realized by the
Company from the sale of assets outside the ordinary course of business, and
(iv) an insurance policy covering the life of Mr. Kiley whereby Mr. Kiley's
estate will be paid $2,000,000 in exchange for the redemption of the shares of
the Company's capital stock beneficially owned by Mr. Kiley. The Agreement
contains other customary terms and conditions including termination for cause,
non-competition on confidentiality provisions.
Nancy Kiley entered into a five (5) year employment agreement with the
Company as Secretary, effective October 1992. This agreement provides for a base
salary of $18,000 for fiscal year 1992 with increases of $2,000 per year
thereafter. The employment agreement also provided annual cost of living
increases, the use of a Company car, bonuses and other incentive compensation as
the Board of Directors deemed appropriate, based upon the Company's operating
performance or other reasonable criteria. As of March 1, 1997, the Company
suspended, indefinitely, Ms. Kiley's employment agreement.
51
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information, as of May 14, 1997,
with respect to the beneficial ownership of the outstanding Common Stock by (i)
any holder of more than five percent (5%) of the outstanding shares of the
Company's Common Stock; (ii) each of the Company's executive officers and
directors; and (iii) the directors and executive officers of the Company as a
group:
<TABLE>
<CAPTION>
Approximate
Name and Address Amount and Nature of Percent
of Beneficial Owner (1) Beneficial Ownership of Class
- ----------------------- -------------------- -----------
<S> <C> <C>
L. Wayne Kiley (2) 1,013,905 (3) 49.6%
Nancy Kiley (2) 342,794 (4) 25.3%
Kiley Children's Trust (5) 83,333 6.2%
J. R. Achten 113,611 (6) 8.3%
A. Evan Windholz 32,779 (7) 2.4%
Thomas E. Evans, Jr. 10,278 (8) .8%
Rick Garian 75,000 (9) 5.2%
Carmella Hume 10,167 (10) 0.7%
Victoria Holdings, Inc. 1,000,000 (11) 42.5%
c/o Biltmore Securities, Inc.
6700 North Andrews Avenue
Ft. Lauderdale, FL 333094
Directors and Executive 1,184,711 53.2%
Officers as a Group
(7 persons) (3)(4)(6)(7)(8)(9)(10)
</TABLE>
(1) Unless otherwise indicated, the address of the beneficial owner is:
c/o Computer Marketplace(R), Inc., 1490 Railroad Street, Corona,
California, 91720.
(2) L. Wayne Kiley and Nancy Kiley are the joint owners of 249,183 shares
of the common stock. The children of L. Wayne Kiley and Nancy Kiley are
the beneficiaries of the Kiley Children's Trust, which trust holds
83,333 shares of common stock. In addition L. Wayne Kiley and Nancy
Kiley formed and are directors of a charitable organization called
Operation Frontline which holds 10,000 shares of common stock. The
Kiley's disclaim beneficial ownership with respect to the shares of
common stock held by the Kiley Children's Trust and Operation
Frontline.
(3) Includes (a) 83,333 shares of Common Stock held by the Kiley Children's
Trust, (b) 10,000 shares of Common Stock held by Operation Frontline,
(c) options issued in January 1996 exercisable for 29,166 shares of
Common Stock at $1.6875 per share, one-third of which vested on January
3, 1997 and (d) options issued as of December 1996 exercisable for
52
<PAGE>
661,667 shares of Common Stock at $1.00 per share. See "Executive
Compensation." Mr. Kiley disclaims the beneficial ownership of the
Company's securities held individually by his wife, Nancy Kiley.
(4) Includes (a) 83,333 shares of Common Stock held by the Kiley Children's
Trust, (b) 10,000 shares of Common Stock held by Operation Frontline,
and (c) options issued in January 1996 exercisable for 833 shares of
Common Stock at $1.6875 per share, one-third of which vested on January
3, 1997. Ms. Kiley disclaims the beneficial ownership of the Company's
securities held individually by her husband, L. Wayne Kiley.
(5) The Kiley Children's Trust was formed by L. Wayne Kiley and Nancy Kiley
for the benefit of their children.
(6) Includes (a) 833 shares of common stock held by the Kiley Children's
Trust of which Mr. Achten is the sole trustee, (b) 10,000 shares of
common stock held by Operation Frontline of which Mr. Achten is a
director, (c) options issued in January 1996 exercisable for 833 shares
of Common Stock at $1.6875 one-third of which vested on January 3,
1997, and (d) options issued as of December 1996 exercisable for 20,000
shares of Common Stock at $1.00 per share. Mr. Achten disclaims
beneficial ownership with respect to the shares of common stock held by
the Kiley Children's Trust and Operation Frontline.
(7) Includes (a) options issued in January 1996 exercisable for 8,333
shares of Common Stock at $1.6875 per share, one-third of which vested
on January 3, 1997 and (b) options issued as of December 1996
exercisable for 30,000 shares of Common Stock at $1.00 per share.
(8) Includes (a) options issued in January 1996 exercisable for 833 shares
of Common Stock at $1.6875 per share, one-third of which vested on
January 3, 1997, and (b) options issued as of December 1996 exercisable
for 10,000 shares of Common Stock at $1.00 per share.
(9) Includes options issued as of December 1996 exercisable for 75,000
shares of Common Stock at $1.00 per share.
(10) Includes (a) options issued as of January 1996 exercisable for 167
shares of Common Stock at $1.6875 per share, one-third of which vested
on January 3,1997, and (b) options issued in December 1996 exercisable
for 10,000 shares of Common Stock at $1.00 per share.
(11) Includes options issued as of December 1996 exercisable for 1,000,00
shares of Common Stock at $1.00 per share pursuant to a Consulting
Agreement with the Company. See "Certain Transactions."
53
<PAGE>
CERTAIN TRANSACTIONS
On April 16, 1987, the Board of Directors of the Company approved the
issuance of shares of the Company's common stock to L. Wayne Kiley and Nancy
Kiley as the purchase price for their one-half (1/2) interest in the premises
located at 205 East Fifth Street, Corona, California, along with the assumption
of certain debt owing on such premises.
The Company leased, on a month-to-month basis, 3,000 square feet of
warehouse space located at 8509 Bedford Motorway, Corona, California, from L.
Wayne Kiley, the Company's President and founder, for $1,000 per month. The
Company terminated this arrangement shortly after the Company's closing on the
Corona headquarters/warehouse facility. Total rent paid on this lease was $8,000
for fiscal year 1994.
In January 1994, the Company entered into a one-year consulting
agreement with Alan M. Novich, a director of the Company pursuant to which it
paid Mr. Novich $10,000 per month. This agreement expired and was not renewed.
In May 1994, the Board of Directors of the Company approved the
issuance of up to 300,000 options to certain employees and consultants of the
Company (the "Options"). The Options vest immediately upon the grant thereof and
are exercisable at $14.40 per share (or 80% of the fair market value on the date
of grant) at any time prior to May 10, 1997. The Company granted 133,333 of the
available Options during fiscal year 1994. The remaining 166,667 Options were
granted in July 1994 to L. Wayne Kiley, the President and Chief Executive
Officer of the Company.
In February 1995, the stockholders approved the Company's 1994 Stock
Plan which allows for the issuance of stock options, restricted stock, deferred
stock, bonus shares performance awards, dividend equivalent rights, limited
stock appreciation rights and other stock-based awards, or any combination
thereof. The maximum number of shares of Common Stock with respect to which
awards may be granted is initially 166,667 shares. No awards or shares have been
granted under this Plan.
The Company has made consulting fee payments to David L. Roekle's
wholly owned Company, Solid Rock Computer Group, Inc., in the amounts of $8,000
and $128,307 for fiscal years 1995 and 1994, respectively. On August 15, 1994,
the consulting arrangement with Solid Rock Computer Group, Inc. was terminated.
The Company leases office space for its branch office at Traverse City,
Michigan, from the Company's President. The rent for this approximately 2,700
square foot location is $2,700 per month. The three-year lease, which contains
an option for the Company or the landlord to cancel with six (6) months notice
after each full year, expires on July 31, 1998. The Company has closed this
office and on April 21, 1997 the Company provided the landlord with six (6)
months prior written notice of its intent to cancel the lease upon the
expiration of the six month notice period.
54
<PAGE>
In January 1996, the Board of Directors of the Company approved the
issuance of up to 158,083 options to certain employees and consultants of the
Company (the "Options"). The Options vest over a three (3) year period of time
and are exercisable at $1.6875 per share (the fair market value on the date of
grant) at any time prior to January 3, 2006.
As of October 1996, the Company amended its employment agreement with
L. Wayne Kiley, the Company's Chairman of the Board, President and Chief
Executive Officer. Pursuant to such amendment, (i) the employment agreement's
expiration date of October 16, 1997 was extended to October 16, 1999, (ii) Mr.
Kiley was granted the right to purchase a number of shares of Common Stock for a
period of four (4) years, at a price equal to seventy five percent (75%) of the
closing bid price of the Company's shares of Common Stock on the date of grant
equal to 2.5%, 3% and 3.5% of the shares outstanding, should the Company report
annual earnings before the payment of interest and taxes of $635,000, $875,000
and $1,000,000, respectively, (iii) Mr. Kiley will be paid a cash bonus equal to
5% of any profit realized by the Company from the sale of assets outside the
ordinary course of business, and (iv) an insurance policy covering the life of
Mr. Kiley whereby Mr. Kiley's estate will be paid $2,000,000 in exchange for the
redemption of the shares of the Company's capital stock beneficially owned by
Mr. Kiley. The Agreement contains other customary terms and conditions including
termination for cause, non-competition on confidentiality provisions.
In December 1996, the Company entered into a one year consulting
agreement with Victoria Holdings, Inc. ("Victoria Holdings"), an affiliate of
Biltmore Securities, Inc. ("Biltmore"). Pursuant to the consulting agreement,
Victoria Holdings agreed to assist the Company in identifying new business
partners suitable for the Company and in structuring, negotiating and
financing such transactions. Pursuant to the terms of the consulting
agreement, the Company issued to Victoria Holdings options (the "Victoria
Holdings Options") to purchase 1,000,000 shares of Common Stock at an exercise
price of $1.00 per share . In addition, the Company agreed to issue 1,000,000
shares of Common Stock to Victoria Holdings (the "Victoria Fee Shares") upon
consummation by the Company of (i) an acquisition of a company (or companies)
introduced to the Company by Victoria Holdings with net assets of at least
$2,500,000 or (ii) a divestiture of the Company's assets, or a sale of a
controlling interest in the Company's capital stock, to a purchaser introduced
to the Company by Victoria Holdings resulting in net proceeds to the Company in
excess of $2,000,000.
As of December 1996, the Company issued to certain employees,
directors and consultants of the Company options to purchase an aggregate of
1,000,000 shares of the Company's Common Stock during a four (4) year period
commencing on January 1, 1997 at an exercise price of $1.00 per share. In
exchange for the issuance of certain of the Management Options, certain option
holders surrendered for cancellation an aggregate of 240,832 options previously
issued in June 1996 for 722,500 of the Management Options.
As of December 1996, the Company's subsidiary, Medical Marketplace,
Inc., issued to certain employees of, and a consultant to, Medical Marketplace
options to purchase an aggregate of 1,000,000 shares of Medical Marketplace
common stock at an exercise price of $.80 per share. Such
55
<PAGE>
options vest over a two (2) year period commencing in December 1997; provided
however, that in the event of an initial public offering of Medical Marketplace
such options vest immediately.
On December 31, 1996 the Company concluded a private placement of
500,000 Units (the "December 1996 Private Placement") which were placed by
Biltmore, on a firm commitment basis. Each Unit was offered at a price of $2.00
per Unit, and consisted of one (1) share of Common Stock of Medical Marketplace,
Inc., and eighteen (18) Class D Redeemable Common Stock Purchase Warrants (the
"Class D Warrants"). Each six (6) Class D Warrants are exercisable for one (1)
share of the Company's Common Stock commencing March 31, 1997 at an exercise
price of $2.50 per share for a one (1) year period.
The Company, its officers, directors and employees and holders of 5% or
more of the outstanding shares of Common Stock have agreed not to sell, pledge,
transfer or hypothecate any shares of capital stock of the Company or any
securities convertible into, or exercisable or exchangeable for, shares of
capital stock of the Company for a period eighteen (18) months from December
31, 1996 without Biltmore's prior consent.
56
<PAGE>
With respect to each of the foregoing transactions, the Company
believes that the terms of such transactions were as fair to the Company as
could be obtained from an unrelated third party. Future transactions with
affiliates will be on terms no less favorable than could be obtained from
unaffiliated parties and will be approved by a majority of independent and/or
disinterested members of the board of directors.
DESCRIPTION OF SECURITIES
Preferred Stock
The Certificate of Incorporation of the Company authorizes the issuance
of up to 1,000,000 shares of preferred stock, $.0001 par value per share, none
of which are issued and outstanding as of the date of this Prospectus. Pursuant
to the Certificate of Incorporation, the Company's Board of Directors is
authorized to issue shares of Preferred Stock from time to time in one or more
series and, subject to the limitations contained in the Certificate of
Incorporation and any limitations prescribed by law, to establish and designate
any such series and to fix the number of shares and the relative conversion
rights, voting rights and terms of redemption (including sinking fund
provisions) and liquidation preferences.
Common Stock
The Company is currently authorized to issue up to 50,000,000 shares of
Common Stock, of which 1,352,424 shares were issued and outstanding as of the
date of this Prospectus. All of the issued and outstanding shares of Common
Stock are fully paid, validly issued and non-assessable.
Subject to the rights of holders of Preferred Stock, holders of shares
of Common Stock of the Company are entitled to share equally on a per share
basis in such dividends as may be declared by the Board of Directors out of
funds legally available therefor. There are presently no plans to pay dividends
with respect to the shares of Common Stock. See "Dividend Policy." Upon
liquidation, dissolution or winding up of the Company, after payment of
creditors and the holders of any senior securities of the Company, including
Preferred Stock, if any, the assets of the Company will be divided pro rata on a
per share basis among the holders of the shares of Common Stock. The Common
Stock is not subject to any liability for further assessments. There are no
conversion or redemption privileges nor any sinking fund provisions with respect
to the Common Stock and the Common Stock is not subject to call. The holders of
Common Stock do not have any preemptive or other subscription rights.
Holders of shares of Common Stock are entitled to cast one vote for
each share held at all stockholders' meetings including the Annual Meeting, for
all purposes, including the election of directors. The Common Stock does not
have cumulative voting rights.
Class A Warrants
Each six (6) Class A Warrants entitles the holder to purchase two (2)
shares of Common Stock at a price of $28.50 per two shares for a period of four
(4) years commencing one (1) year from June 22, 1993. Each Class A Warrant is
redeemable by the Company for $.05 per Warrant, at any time after June 22, 1994,
upon thirty (30) days' prior written notice, if the average closing price or bid
price of the Common Stock, as reported by the principal exchange on which the
Common
57
<PAGE>
Stock is traded, Nasdaq or the National Quotation Bureau Incorporated, as the
case may be, equals or exceeds $27.00 per share for twenty (20) consecutive
trading days ending within ten (10) days prior to the date of the notice of
redemption. Upon thirty (30) days' written notice to all holders of Class D
Warrants, the Company shall have the right, subject to compliance with Rule
13e-4 under the Securities Exchange Act of 1934 and the filing of Schedule
13e-4, to reduce the exercise price and/or extend the term of the Class D
Warrants.
Class B Warrants
Each six (6) Class B Warrants entitles the holder to purchase two (2)
shares of Common Stock at a price of $33.00 per two shares for a period of four
(4) years commencing one (1) year from June 22, 1993. Each Class B Warrant is
redeemable by the Company for $.05 per Warrant, at any time after June 22, 1994,
upon thirty (30) days' prior written notice, if the average closing price or bid
price of the Common Stock, as reported by the principal exchange on which the
Common Stock is traded, Nasdaq or the National Quotation Bureau Incorporated,
as the case may be, equals or exceeds $33.00 per share for twenty (20)
consecutive trading days ending within ten (10) days prior to the date of the
notice of redemption. Upon thirty (30) days' written notice to all holders of
Class B Warrants, the Company shall have the right, subject to compliance with
Rule 13e-4 under the Securities Exchange Act of 1934 and the filing of Schedule
13e-4, to reduce the exercise price and/or extend the term of the Class B
Warrants.
Class C Warrants
Each six (6) Class C Warrants entitles the holder to purchase two (2)
shares of Common Stock at a price of $93.00 per two shares for a period of four
(4) years commencing one (1) year from June 22, 1993. Each Class C Warrant is
redeemable by the Company for $.05 per Warrant, at any time after June 22, 1994,
upon thirty (30) days' prior written notice if the average closing price or bid
price of the Common Stock, as reported by the principal exchange on which the
Common Stock is traded, Nasdaq or the National Quotation Bureau Incorporated,
as the case may be, equals or exceeds $33.00 per share for twenty (20)
consecutive trading days ending within ten (10) days prior to the date of the
notice of redemption. Upon thirty (30) days' written notice to all holders of
Class C Warrants, the Company shall have the right, subject to compliance with
Rule 13e-4 under the Securities Exchange Act of 1934 and the filing of Schedule
13e-4, to reduce the exercise price and/or extend the term of the Class B
Warrants.
Class D Warrants
Each six (6) Class D Warrants entitles the holder to purchase one (1)
share of Common Stock at a price of $2.50 per share for a period of one (1) year
commencing March 31, 1997. Each Class D Warrant is redeemable by the Company for
$.05 per Warrant, at any time upon thirty (30) days' prior written notice, if
the average closing price or bid price of the Common Stock, as reported by the
principal exchange on which the Common Stock is traded, Nasdaq or the National
Quotation Bureau Incorporated, as the case may be, equals or exceeds $30.00 per
share for twenty
58
<PAGE>
(20) consecutive trading days during a thirty (30) day period ending within 10
days prior to the date of the notice of redemption, which Notice shall be mailed
no later than five (5) days thereafter. Upon thirty (30) days' written notice to
all holders of Class D Warrants, the Company shall have the right, subject to
compliance with Rule 13e-4 under the Securities Exchange Act of 1934 and the
filing of Schedule 13e-4, to reduce the exercise price and/or extend the term of
the Class D Warrants.
Delaware Anti-Takeover Law
The Company is governed by the provisions of Section 203 of the General
Corporation Law of Delaware, an anti-takeover law enacted in 1988. In general,
the law prohibits a Delaware public corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three (3) years
after the date of the transaction in which the person became an interested
stockholder, unless it is approved in a prescribed manner. As a result of
Section 203, potential acquirors of the Company may be discouraged from
attempting to effect acquisition transactions with the Company, thereby possibly
depriving holders of the Company's securities of certain opportunities to sell
or otherwise dispose of such securities at above-market prices pursuant to such
transactions.
Limitation on Liability of Directors
Section 145 of the Delaware General Corporation Law empowers a
corporation to indemnify its directors and officers and to purchase insurance
with respect to liability arising out of the performance of their duties as
directors and officers provided that this provision shall not eliminate or limit
the liability of a director (i) for any breach of the director's duty of loyalty
to the corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) arising under Section 174 of the Delaware General Corporation Law, or (iv)
for any transaction from which the director derived an improper personal
benefit.
The Delaware General Corporation Law provides further that the
indemnification permitted thereunder shall not be deemed exclusive of any other
rights to which the directors and officers may be entitled under the
corporation's by-laws, any agreement, vote of stockholders or otherwise.
Article Ninth of the Company's Certificate of Incorporation eliminates
the personal liability of directors to the fullest extent permitted by Section
102 of the Delaware General Corporation Law.
The effect of the foregoing is to require the Company to the extent
permitted by law to indemnify the officers and directors of the Company for any
claim arising against such persons in their official capacities if such person
acted in good faith and in a manner that he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. Insofar as indemnification for liabilities arising under the Act
may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that
59
<PAGE>
in the opinion of the "Commission), such indemnification is against public
policy as expressed in the Act and is therefore unenforceable.
Securities and Exchange Commission Policy
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and other agents of the Company, the Company
has been informed that in the opinion of the Commission such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.
Transfer Agent and Registrar
The transfer agent for the Company's shares of Common Stock, Class A
Warrants, Class B Warrants and Class D Warrants is American Stock Transfer &
Trust Company, located at 40 Wall Street, New York, NY 10005.
60
<PAGE>
SELLING SECURITYHOLDERS
The Registration Statement of which this Prospectus forms a part
relates to the resale of an aggregate of 9,000,000 Class D Warrants held by Gulf
Stream Financial Group, Inc. (900,000 Class D Warrants), Irving Kraut Pension
Plan (4,500,000 Class D Warrants), Martin Rothstein (2,700,000 Class D Warrants)
and Paramount Funding Corporation (900,000 Class D Warrants).
The Registration Statement of which this Prospectus forms a part also
relates to the resale of (i) 1,000,000 shares of Common Stock issuable to
Victoria Holdings, Inc., a consultant to the Company, upon the exercise of an
option held thereby, and (ii) the resale of an aggregate of 1,000,000 shares of
Common Stock issuable to the employees, directors and consultants of the Company
set forth below upon the exercise of the Management Options held thereby:
<TABLE>
<CAPTION>
Percent of
Shares of Common Shares of Common Common Stock
Stock Beneficially Shares of Stock Beneficially Beneficially
Owned before Common Stock Owned After Owned After
Name Offering(1) Offered Hereby Offering Offering
------ ----------- ------- --------- --------------
<S> <C> <C> <C> <C>
Robert Aguilar........ 500 500 0 0.00
Sharon Allen.......... 10,000 10,000 0 0.00
Kathy Banuelos........ 5,000 5,000 0 0.00
Bruce Bowen........... 2,500 2,500 0 0.00
Dave DeGroff.......... 500 500 0 0.00
Trina Gomer........... 2,500 2,500 0 0.00
Rick Garian........... 75,000 75,000 0 0.00
Shiping He............ 500 500 0 0.00
Brian Hintergardt..... 33,333 33,333 0 0.00
Mella Hume............ 10,167 (2) 10,000 167 0.01
L. Wayne Kiley........ 1,013,905 (3) 661,667 284,738 21.05
Charlie Lewis......... 5,000 5,000 0 0.00
Pat Martin............ 2,500 2,500 0 0.00
Tom Mason............. 50,000 50,000 0 0.00
Julie Newberry........ 10,000 10,000 0 0.00
Jean Pettis............ 10,000 10,000 0 0.00
Michael Reeves......... 2,500 2,500 0 0.00
Phil Sitko............. 500 500 0 0.00
Craig Stephens......... 5,500 5,500 0 0.00
Patty Wall............. 15,000 15,000 0 0.00
George Walter.......... 7,500 7,500 0 0.00
J.R. Achten............ 113,611 (4) 20,000 93,611 6.92
Thomas Evans........... 10,278 (5) 10,000 278 0.01
Bernstein &
Wasserman, LLP......... 60,000 60,000 0 0.00
</TABLE>
1. Unless otherwise identified, all shares of Common Stock beneficially owned
are shares of Common Stock issuable upon exercise of the Management Options.
61
<PAGE>
2. Includes options issued as of January 1996 exercisable for 167 shares of
Common Stock at $1.6875 per share.
3. Includes (a) 83,333 shares of Common Stock held by the Kiley Children's
Trust, (b) 10,000 shares of Common Stock held by Operation Frontline, (c)
options issued in January 1996 exercisable for 29,166 shares of Common Stock at
$1.6875 per share, one-third of which vested on January 3, 1997 and (d) options
issued as of December 1996 exercisable for 661,667 shares of Common Stock at
$1.00 per share. See "Executive Compensation." Mr. Kiley disclaims the
beneficial ownership of the Company's securities held individually by his wife,
Nancy Kiley.
4. Includes (a) 833 shares of common stock held by the Kiley Children's Trust
of which Mr. Achten is the sole trustee, (b) 10,000 shares of common stock held
by Operation Frontline of which Mr. Achten is a director, (c) options issued in
January 1996 exercisable for 833 shares of Common Stock at $1.6875 one-third of
which vested on January 3, 1997, and (d) options issued as of December 1996
exercisable for 20,000 shares of Common Stock at $1.00 per share. Mr. Achten
disclaims beneficial ownership with respect to the shares of common stock held
by the Kiley Children's Trust and Operation Frontline.
5. Includes (a) options issued in January 1996 exercisable for 833 shares of
Common Stock at $1.6875 per share, one-third of which vested on January 3, 1997,
and (b) options issued as of December 1996 exercisable for 10,000 shares of
Common Stock at $1.00 per share.
Sales of securities by the Selling Securityholder or even the potential
of such sales would likely have an adverse effect on the market prices of the
securities offered hereby.
PLAN OF DISTRIBUTION
The Class D Warrants and the shares of Common Stock issuable upon the
exercise of the Victoria Holdings Option and the Management Options offered
hereby may be sold from time to time directly by the Selling Securityholders.
Alternatively, the Selling Securityholders may from time to time offer such
securities through underwriters, dealers or agents. The distribution of
securities by the Selling Securityholders may be effected in one or more
transactions that may take place on the over-the-counter market, including
ordinary broker's transactions, privately-negotiated transactions or through
sales to one or more broker-dealers for resale of such shares as principals, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. Usual and customary or
specifically negotiated brokerage fees or commissions may be paid by the Selling
Securityholders in connection with such sales of securities. The securities
offered by the Selling Securityholders may be sold by one or more of the
following methods, without limitations: (a) a block trade in which a broker or
dealer so engaged will attempt to sell the shares as agent but may position and
resell a portion of the block as principal to facilitate the transaction; (b)
purchases by a broker or dealer as principal and resale by such broker or dealer
for its account pursuant to this
62
<PAGE>
Prospectus; (c) ordinary brokerage transactions and transactions in which the
broker solicits purchasers, and (d) face-to-face transactions between sellers
and purchasers without a broker-dealer. In effecting sales, brokers or dealers
engaged by the Selling Securityholders may arrange for other brokers or dealers
to participate. The Selling Securityholders and intermediaries through whom such
securities are sold may be deemed "underwriters" within the meaning of the Act
with respect to the securities offered, and any profits realized or commissions
received may be deemed underwriting compensation.
The Class D Warrants and the shares of Common Stock issuable upon
exercise of the Management Options may not be sold or transferred by the
Warrantholders or the Management Optionholders, as the case may be, until July
1, 1998 and June 17, 1998, respectively, without the prior written consent of
Biltmore Securities, Inc., a licensed broker-dealer and member of the National
Association of Securities Dealers ("Biltmore"). The shares of Common Stock
issuable upon exercise of the Victoria Holdings Options may be sold from time to
time after the effectiveness of this Registration Statement. Victoria Holdings
is an affiliate of Biltmore. No underwriting arrangements have been entered into
by the Selling Securityholders. The distribution of the securities by the
Selling Securityholders may be effected in one or more transactions that may
take place on the over-the-counter market including ordinary broker's
transactions, privately-negotiated transactions or through sales to one or more
dealers for resale of such shares as principals at market prices prevailing at
the time of sale, at prices related to such prevailing market prices or at
negotiated prices. Usual and customary or specifically negotiated brokerage fees
or commissions may be paid by the Selling Securityholders in connection with
sales of such securities.
At the time a particular offer of securities is made by or on behalf of
the Selling Securityholders, to the extent required, a Prospectus will be
distributed which will set forth the number of shares being offered and the
terms of the Offering, including the name or names of any underwriters, dealers
or agents, if any, the purchase price paid by any underwriter for sales
purchased from the Selling Securityholders and any discounts, commissions or
concessions allowed or reallowed or paid to dealers and the proposed selling
price to the public.
Sales of securities by the Selling Securityholders or even the
potential of such sales would likely have an adverse effect on the market prices
of the securities offered hereby.
Since the average closing bid price for the shares of Common Stock does
not satisfy the requirements necessary to enable the Company to call the Class A
Warrants, Class B Warrants, Class C Warrants and Class D Warrants for
redemption, the Company does not currently anticipate calling the Warrants for
redemption in the near future. However, in the event that the average closing
bid price of the Common Stock does satisfy the requirements necessary to enable
the Company to call the Class A Warrants, Class B Warrants, Class C Warrants and
Class D Warrants, the Company may, in accordance with the terms of the Warrants,
call such securities for redemption.
SHARES ELIGIBLE FOR FUTURE SALE
Rule 144
At the time of this Offering there are 1,352,424 shares of
Common Stock issued and outstanding, and, upon the exercise of the Class D
Warrants, the Victoria Holdings Options and the Management Options there will be
an additional 3,500,000 shares of Common Stock issued and outstanding. All of
these shares will be freely tradeable without restrictions under the Act. None
of the shares of Common Stock are "restricted securities" within the meaning of
Rule 144 and are eligible for sale in public markets subject to the resale
limitations of Rule 144. In the event that any of the other warrants or options
issued by the Company are exercised, such shares of capital stock underlying
such securities will be deemed to be "restricted securities," except for any
securities registered under any stock option plan, or pursuant to other
registration rights granted by the Company, if any. In general, under Rule 144,
a person (or persons whose shares are aggregated) including persons who may be
deemed to be "affiliates" of the Company, as that term is defined under the Act,
is entitled to sell within any three (3) month period, the amount of shares
beneficially owned for at least one (1) year that does not exceed the greater of
(i) 1% of the then outstanding shares of Common Stock, or (ii) the average
weekly trading volume in the Common Stock in the four (4) calendar weeks
preceding such sale. Sales under Rule 144 are also subject to certain
63
<PAGE>
requirements as to the manner of sale, notice and availability of certain public
information about the Company. A person who has not been an affiliate of the
Company for the three months prior to any proposed sale, and has beneficially
owned such shares for at least two (2) years is entitled to sell all such shares
without regard to the volume, manner of sale, notice requirements or any
restrictions.
No predictions can be made as to the effect, if any, that sales of
shares under Rule 144 or the availability of shares for sale will have on the
market, if any, prevailing from time to time. Sales of substantial amounts of
the Common Stock pursuant to Rule 144 may adversely affect the market price of
the Common Stock or the Class D Warrants offered hereby.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for
the Company by Bernstein & Wasserman, LLP, 950 Third Avenue, New York, NY 10022.
Bernstein & Wasserman, LLP is the beneficial owner of certain options to
purchase shares of Common Stock which shares are being registered under the
Registration Statement of which this Prospectus forms a part. See "Selling
Securityholders."
EXPERTS
Certain of the financial statements and financial statement schedules
of the Company included in this Prospectus and elsewhere in the Registration
Statement, to the extent and for the periods indicated in their reports, have
been audited by Moore Stephens, P.C., independent certified public accountants,
whose reports thereon appear elsewhere herein and in the Registration Statement.
Such financial statements have been included in reliance upon the reports of
Moore Stephens, P.C., given upon their authority as experts in accounting and
auditing.
ADDITIONAL INFORMATION
This Prospectus constitutes part of a Registration Statement on Form
SB-2 filed by the Company with the Securities and Exchange Commission (the
"Commission") under the Securities Act and omits certain information contained
in the Registration Statement. Reference is hereby made to the Registration
Statement and to its exhibits for further information with respect to the
Company and the Units, Common Stock and Warrants offered hereby. Statements
contained herein concerning provisions of documents are necessarily summaries of
such documents, and each statement is qualified in its entirety by reference to
the copy of the applicable document filed with the Commission.
The Registration Statement, including the exhibits thereto, may be
inspected without charge at the public reference facilities maintained by the
Commission at 450 Fifth Street, Washington, D.C. 20549; and copies of such
material may be obtained from the Public Reference Section of the Commission at
450 Fifth Street, Washington, D.C. 20549 at prescribed rates. Pursuant to
Release 33-7289, the Commission maintains a web site that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission (including the Company). The
address for the Commission web site is http://www.sec.gov.
64
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditor's Report........................................ F-1
Balance Sheets as of March 31, 1997 [Unaudited]
and June 30, 1996................................................... F-2 - F-3
Statements of Operations for the three and nine months ended,
March 31, 1997 and 1996 [Unaudited] and the years ended
June 30, 1996 and 1995.............................................. F-4 - F-5
Statements of Stockholders' Equity for the years ended
June 30, 1996 and 1995.............................................. F-6
Statements of Cash Flows for the nine months ended
March 31, 1997 and 1996 [Unaudited] and the
years ended June 30, 1996 and 1995.................................. F-7 - F-9
Notes to Financial Statements, March 31, 1997
[Unaudited] and June 30, 1996 ...................................... F-10 - F-29
<PAGE>
Report of Independent Auditors
To the Board of Directors and Stockholders of Computer Marketplace(R), Inc.
We have audited the accompanying consolidated balance sheet of Computer
Marketplace(R), Inc., and its subsidiaries, as of June 30, 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the two fiscal years in the period ended June 30, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Computer Marketplace(R), Inc. and its subsidiaries, as of June 30, 1996, and the
consolidated results of their operations and their cash flows for each of the
two fiscal years in the period ended June 30, 1996, in conformity with generally
accepted accounting principles.
MOORE STEPHENS, P.C.
Certified Public Accountants
Cranford, New Jersey
August 16, 1996
F-1
<PAGE>
Computer Marketplace, Inc. and Subsidiaries
Condensed Consolidated Balance Sheet
March 31, 1997
(Unaudited)
Assets
- ------
Current assets:
Cash and cash equivalents $ 397,710
Accounts receivable, less allowance for
doubtful accounts of $157,149 3,280,617
Inventory, net (note 2) 1,826,446
Notes receivable - related parties 250,000
Other current assets 172,474
-----------
Total current assets 6,150,585
Property held for sale, net (note 3) 2,146,713
Property and equipment, net (note 3) 700,453
Other assets 85,495
-----------
Total assets $ 9,083,246
===========
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Notes payable (note 4) $ 1,489,191
Accounts payable 2,421,369
Accrued payroll and payroll related liabilities 128,737
Current portion of long-term debt 50,432
Other current liabilities 448,784
-----------
Total current liabilities 4,538,513
Long-term debt 1,494,929
Other liabilities 44,265
Minority interest in net assets of subsidiary (note 5) 143,367
Commitments and contingencies (note 5)
Stockholders' equity:
Preferred stock - $.0001 par value, 1,000,000 shares
authorized, no shares issued and outstanding
Common stock - $.0001 par value, 50,000,000 shares
authorized, 1,352,424 shares issued and outstanding 135
Capital in excess of par value 8,406,741
Accumulated deficit (5,056,944)
Deferred compensation (note 5) (487,760)
-----------
Total stockholders' equity 2,862,172
-----------
Total liabilities and stockholders' equity $ 9,083,246
===========
See notes to condensed consolidated financial statements.
F-2
<PAGE>
Computer Marketplace(R), Inc., and Subsidiaries
Consolidated Balance Sheet
June 30, 1996
Assets
- ------
Current assets:
Cash and cash equivalents $ 594,921
Accounts receivable (less allowance for
doubtful accounts of $108,464) 3,045,740
Inventory, net (note 3) 3,151,837
Notes receivable - related parties 295,744
Other current assets 394,748
------------
Total current assets 7,482,990
Property held for sale, net 2,183,453
Property and equipment, net (note 4) 969,684
Other assets 73,832
------------
Total assets $ 10,709,959
============
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Notes payable (note 5) $ 2,174,841
Accounts payable 1,959,425
Accrued payroll and payroll related liabilities 295,193
Current portion of long-term debt (note 6) 63,152
Other current liabilities 265,395
------------
Total current liabilities 4,758,006
Long-term debt (note 6) 1,526,606
Other liabilities 136,491
Commitments and contingencies (note 10)
Stockholders' equity:
Preferred stock - $.0001 par value, 1,000,000 shares
authorized, no shares issued and outstanding
Common stock - $.0001 par value, 50,000,000 shares --
authorized, 1,352,424 shares issued and outstanding 135
Capital in excess of par value 6,907,269
Accumulated deficit (2,618,548)
------------
Total stockholders' equity 4,288,856
------------
Total liabilities and stockholders' equity $ 10,709,959
============
See notes to consolidated financial statements.
F-3
<PAGE>
Computer Marketplace, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, March 31,
1997 1996 1997 1996
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Revenues -
Product sales, rental,
service and other $ 5,689,355 $ 9,238,465 $ 19,557,647 $ 23,737,114
Cost and expenses:
Cost of revenues -
product sales, rental,
service and other 5,065,512 7,837,161 17,201,269 20,002,889
Selling, general and
administrative 1,547,059 1,289,163 4,505,810 3,943,243
----------- ------------ ------------ ------------
6,612,571 9,126,324 21,707,079 23,946,132
----------- ------------ ------------ ------------
Operating Income (Loss) (923,216) (112,141) (2,149,432) (209,018)
----------- ------------ ------------ ------------
Other income (expense):
Interest expense (94,927) (96,666) (301,035) (277,655)
Interest income 3,819 10,546 4,053 43,166
Miscellaneous income 9,762 0 29,136 0
----------- ------------ ------------ ------------
(81,346) (86,120) (267,840) (234,489)
----------- ------------ ------------ ------------
Loss before income taxes
and minority interest (1,004,562) 26,021 (2,417,276) (443,507)
Provision for income taxes -- -- -- --
----------- ------------ ------------ ------------
Loss before minority
interest (1,004,562) 26,021 (2,417,276) (433,507)
Minority interest (2,020) -- (21,120) --
----------- ------------ ------------ ------------
Net loss $(1,006,582) $ 26,021 $ (2,438,396) $ (443,507)
=========== ============ ============ ============
Net loss per share $ (0.74) $ (0.02) $ (1.80) $ (0.33)
=========== ============ ============ ============
Weighted average common
shares outstanding 1,352,424 1,352,424 1,352,424 1,352,424
=========== ============ ============ ============
</TABLE>
See notes to condensed consolidated financial statements.
F-4
<PAGE>
Computer Marketplace(R), Inc. and Subsidiaries
Consolidated Statements of Operations
Years ended June 30, 1996 and 1995
1996 1995
-------- --------
Revenues -
Product sales, rental, service and other $ 30,000,952 $ 31,524,365
Cost and expenses:
Cost of revenues - product sales, rental,
service and other 25,386,732 26,669,092
Selling, general and administrative 5,601,670 5,827,722
------------ ------------
30,988,402 32,496,814
------------ ------------
Operating loss (987,450) (972,449)
------------ ------------
Other income (expense):
Interest expense (371,728) (207,281)
Interest income 3,840 14,116
Miscellaneous income 23,907 2,577
------------ ------------
(343,981) (190,588)
------------ ------------
Loss before income taxes (1,331,431) (1,163,037)
Provision for income taxes (note 12) -- 61,672
------------ ------------
Net loss $ (1,331,431) $ (1,224,709)
------------ ------------
Net loss per share $ (.98) $ (.91)
============ ------------
Weighted average common shares outstanding 1,352,424 1,350,144
============ ============
See notes to consolidated financial statements.
F-5
<PAGE>
Computer Marketplace(R), Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
Years ended June 30, 1996 and 1995
<TABLE>
<CAPTION>
Common Stock
------------ Capital in Total
excess of Accumulated stockholders'
Shares Amount par value deficit equity
------ ------ --------- ------- ------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1994 1,348,384 $135 $6,891,362 $ (62,408) $ 6,829,089
Issuance of common stock
in connection with asset
purchase (note 16) 4,040 0 15,907 -- 15,907
Net loss $(1,224,709) $(1,224,709)
----------- -----------
Balance, June 30, 1995 1,352,424 $135 $6,907,269 $(1,287,117) $ 5,620,287
Net loss (1,331,431) (1,331,431)
----------- -----------
Balance, June 30, 1996 1,352,424 $135 $6,907,269 $(2,618,548) $ 4,288,856
========= ==== ========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
Computer Marketplace, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine months ended
March 31
1997 1996
---------- --------
Cash flows from operating activities:
Net loss $(2,438,396) $ (443,507)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 250,701 217,473
Provisions for losses on accounts receivable 48,685 (49,234)
Provisions for losses on inventory 307,881 94,905
Other valuation provisions -- (2,653)
Loss on sale of equipment 61,292 1,278
Net write-off of other assets 23,600 --
Minority interest in subsidiary 143,367 --
Changes in assets and liabilities:
Accounts receivable (283,562) 184,311
Inventory 1,111,021 (31,199)
Other current assets 222,274 86,451
Accounts payable 326,751 (107,808)
Accrued payroll and payroll related
liabilities (166,456) (8,855)
Other current liabilities 183,389 331,991
Other liabilities 42,968 (0)
----------- -----------
Net cash used in operating activities (166,485) (972,453)
----------- -----------
Cash flows from investing activities:
Decrease in notes receivable -
related parties 45,744 8,855
Purchase of property and equipment (18,986) (359,601)
Proceeds from sale of equipment -- 10,775
Decrease (increase) in other assets 54,099 (43,084)
----------- -----------
Net cash provided by (used in)
investing activities (27,341) (383,055)
----------- -----------
Cash flows from financing activities:
Net increase in notes payable (685,650) 1,192,568
Proceeds from long-term debt -- 21,255
Net proceeds from issuance of stock 950,000 --
Payments on long-term debt (44,397) (43,920)
----------- -----------
Net cash provided by financing activities 219,953 1,169,903
----------- -----------
(continued)
F-7
<PAGE>
Computer Marketplace, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows, Continued
(Unaudited)
Nine months ended
March 31
1997 1996
---------- --------
Decrease (Increase) in cash and cash equivalents $ (26,127) $ (185,605)
----------- -----------
Cash and cash equivalents, beginning of period 594,921 747,665
----------- -----------
Cash and cash equivalents, end of period $ 621,048 $ 562,060
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid for interest $ 301,033 $ 259,663
=========== ===========
Supplemental disclosures of non-cash operating activities:
During the nine months ended March 31, 1997 $135,194 of other liabilities
were reclassified to accounts payable, and fixed assets with a net book
value of $93,511 were reclassified to inventory.
During the nine months ended March 31, 1996, $274,235 of accounts payable
was reclassified to other liabilities to reflect the negotiated payment
terms.
See notes to condensed consolidated financial statements.
F-8
<PAGE>
Computer Marketplace(R), Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Years ended June 30, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,331,431) $(1,224,709)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 302,062 220,446
Provisions for losses on accounts receivable (104,253) 187,717
Provisions for losses on inventory (289,823) 351,372
Other valuation provisions (5,004) 162,223
Write-off of other assets and goodwill 174,218 204,298
Other (1,492) (2,770)
Changes in assets and liabilities:
Accounts receivable 429,137 (516,175)
Inventory 441,264 (1,728,253)
Other current assets (86,656) (49,068)
Accounts payable 5,261 414,810
Accrued payroll and related liabilities (171,063) 157,526
Other current liabilities 28,977 (71,163)
----------- -----------
Net cash used in operating activities (608,803) (1,893,746)
----------- -----------
Cash flows from investing activities:
Cash paid for acquisition -- (36,791)
Decrease in notes receivable - related parties 14,485 9,276
Purchase of property and equipment (370,631) (572,949)
Proceeds from sale of equipment 10,775 --
Increase in other assets (41,317) (433)
----------- -----------
Net cash used in investing activities (386,688) (600,897)
----------- -----------
Cash flows from financing activities:
Net increase in notes payable 874,841 700,000
Proceeds from long-term debt 21,255 1,320,688
Payments on long-term debt (53,349) (92,656)
----------- -----------
Net cash provided by financing activities 842,747 1,928,032
----------- -----------
Decrease in cash and cash equivalents (152,744) (566,611)
Cash and cash equivalents, beginning of year 747,665 1,314,276
----------- -----------
Cash and cash equivalents, end of year $ 594,921 $ 747,665
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid for interest $ 354,553 $ 197,537
Net cash paid for (received from) income taxes $ 4,776 $ (129,011)
</TABLE>
Supplemental disclosures of non-cash operating and investing activities:
In September 1995, $274,235 of accounts payable was reclassified to other
liabilities to reflect the negotiated payment terms. During the year
ended June 30, 1995, capital stock valued at $15,907 was issued as
consideration for acquisitions.
See notes to consolidated financial statements.
F-9
<PAGE>
Computer Marketplace, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION
---------------------
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements include all adjustments (consisting
only of normal recurring accruals) necessary for a fair presentation of
the consolidated financial position of Computer Marketplace, Inc. and
subsidiaries (the "Company") as of March 31, 1997, the consolidated
results of its operations for the three and nine month periods ending
March 31, 1997 and 1996 and its cash flows for the nine month periods
ending March 31, 1997 and 1996. Although the Company believes that the
disclosures in these financial statements are adequate to make the
information presented not misleading, certain information and footnote
information normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. Results of operations for the
period ended March 31, 1997 are not necessarily indicative of results
to be expected for the full year. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's Form 10-KSB for the year ended June 30, 1996.
Certain amounts in the three and nine month periods ended March 31,
1997 condensed consolidated financial statements have been reclassified
to conform to the current presentation.
2. INVENTORY
---------
Computer Medical
Products Products Total
---------- ---------- ----------
Inventory $1,221,685 $ 438,146 $1,659,831
Inventory on short-term rental 695,712 -- 695,712
---------- ---------- ----------
1,917,397 438,146 2,355,543
---------- ---------- ----------
Less inventory valuation allowance 529,097 -- 529,097
---------- ----------
Inventory, net $1,388,300 $ 438,146 $1,826,446
========== ========== ==========
Inventory on short-term rental consists of new and previously owned
computer-related equipment which is typically rented to customers for a
few months to fulfill their temporary computing needs. The Company,
based on the satisfactory economics of the transaction, will allocate
existing inventory to the transaction if the product is available
in-house, or purchase the equipment to meet the customer's needs. At
the expiration of the rental period, upon the return of the equipment
to the Company, the equipment is re-marketed for sale along with
similar equipment in the Company's inventory. The Company charges
operations for an estimate of the inventory's valuation decrease while
it is on temporary rental. Net increases to the inventory valuation
allowance were $127,391 and $94,905 for each of the nine month periods
ending March 31, 1997 and 1996, respectively.
F-10
<PAGE>
Computer Marketplace, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
3. PROPERTY AND EQUIPMENT
----------------------
Property and equipment at March 31, 1997, consists of the following:
Land $ 53,750
Buildings and property improvements 251,118
Machinery and equipment 745,161
Furniture and fixtures 143,549
Automobiles and trucks 142,644
Long-term rental equipment 16,513
----------
1,336,222
Less accumulated depreciation 635,769
----------
Property and equipment, net $ 700,453
==========
PROPERTY HELD FOR SALE
----------------------
Property held for sale consists of the fifty percent (50%) Company
owned facility at 205 East Fifth Street in Corona, California and the
Company's main facility located at 1490 Railroad Street in Corona.
Accumulated depreciation associated with the two facilities at March
31, 1997 was $23,459 and $132,252, respectively. The decision to
classify this property as held for sale was made at June 30, 1996.
4. NOTES PAYABLE
-------------
In September 1995, the Company entered into a new revolving credit
facility agreement ("Credit Facility") with a financing company. This
Credit Facility allows the Company to borrow up to $2,500,000 and bears
interest at a rate of 2.25% above the lender's "reference rate" (as
defined). The borrowing capacity under the Credit Facility is dependent
upon "eligible (as defined) accounts receivable and inventory, and
fluctuates daily. At December 31, 1996, borrowings under the Credit
Facility and additional amounts available for borrowing under the
Credit Facility were $2,363,840 and $26,562, respectively. The Credit
Facility is collateralized by substantially all of the Company's
assets, except for real property. The Credit Facility expires on
September 30, 1997, but is automatically renewed for an additional one
(1) year term unless either party provides written notice to the other
party of the desire to cancel the Credit Facility.
5. COMMITMENTS AND CONTINGENCIES
-----------------------------
In October 1996, the Company amended its employment agreement with L.
Wayne Kiley, the Company's Chairman of the Board, President and Chief
Executive Officer. Pursuant to such amendment, (i) the employment
agreement's expiration date of October 16, 1997 was extended to October
16, 1999, (ii) Mr. Kiley was granted the right to purchase a number of
shares of Common Stock for a period of four (4) years, at a price equal
to seventy five percent (75%) of the closing bid price of the Company's
shares of Common Stock on the date of grant equal to 2.5%, 3% and 3.5%
of the shares outstanding, should the Company report annual earnings
before the payment of interest and taxes of $635,000, $875,000 and
$1,000,000, respectively, (iii) Mr. Kiley will be paid a cash bonus
equal to 5% of any profit realized by the Company from the sale of
assets outside the ordinary course of business, and (iv) an insurance
policy covering the life of Mr. Kiley whereby Mr. Kiley's estate will
be paid $2,000,000 in exchange for the redemption of the shares of the
Company's
F-11
<PAGE>
Computer Marketplace, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
capital stock beneficially owned by Mr. Kiley. The employment agreement
contains other customary terms and conditions including termination for
cause, non-competition and confidentiality provisions.
In December 1996 the Company entered into a one (1) year consulting
agreement with Victoria Holdings, Inc. an affiliate of Biltmore
Securities, Inc. (Victoria Holdings and Biltmore, respectively).
Pursuant to the consulting agreement, Victoria Holdings agreed to act
as a consultant to the Company in connection with, among other things,
corporate finance and evaluations of possible business partners and
will seek to find business partners suitable for the Company. In
addition, Victoria Holdings has agreed to assist the Company in the
structuring, negotiating and financing of such transactions. The
consulting agreement provides for the issuance to Victoria Holdings of
options (the Victoria Holdings Options) exercisable to purchase
1,000,000 shares of Common Stock at an exercise price of $1.00 per
share and for the additional issuance to Victoria Holdings of 166,667
shares (the "Victoria Fee Shares) of Common Stock upon consummation by
the Company of (i) an acquisition of a company (or companies)
introduced to the Company by Victoria Holdings with net assets of at
least $2,500,000 or (ii) a divestiture of the Company's assets, or the
sale of a controlling interest in the Company's capital stock, to a
purchaser introduced to the Company by Victoria Holdings resulting in
net proceeds to the Company in excess of $2,000,000.
In December 1996, the Company issued to certain employees, officers and
directors options to purchase an aggregate of 1,000,000 shares of the
Company's Common Stock during a four (4) year period commencing on
January 1, 1997 at an exercise price of $1.00 per share (the Management
Options). In exchange for the issuance of certain of the Management
Options, certain option holders surrendered for cancellation an
aggregate of 242,500 options previously issued in June 1996 for 722,500
of the Management Options.
On December 31, 1996 the Company concluded a private placement of
500,000 Units (the December 1996 Private Placement) which were placed
by Biltmore Securities, Inc., a broker-dealer and a member of the
National Association of Securities Dealers ("Biltmore"), on a firm
commitment basis. Each Unit was offered at a price of $2.00 per Unit,
and consisted of one (1) share of Common Stock of Medical Marketplace,
Inc., a subsidiary of the Company, and eighteen (18) Class D Redeemable
Common Stock Warrants (the "Class D Warrants"). Six (6) the Class D
Warrants are currently exercisable for one (1) share of the Company's
Common Stock commencing March 31, 1997 at an exercise price of $2.50
per share for a one (1) year period. The Company intends to use the
proceeds from the December 1996 Private Placement to expand the
business of Medical Marketplace, repay advances made by the Company to
Medical Marketplace, and for working capital purposes. Prior to the
December 1996 Private Placement, Medical Marketplace issued options to
certain key employees to purchase an aggregate of 1,000,000 shares of
Medical Marketplace Common Stock at $.80 per share.
The Company, its officers, directors and employees and holders of 5% or
more of the outstanding shares of Common Stock have agreed not to sell,
pledge, transfer or hypothecate any shares of Common Stock of the
Company or any securities convertible into, or exercisable or
exchangeable for, shares of Common Stock of the Company for a period of
eighteen (18) months from December 31, 1996 without Biltmore's prior
consent.
The Company's Common Stock is traded on The Nasdaq SmallCap Market
("Nasdaq"). Under the rules of Nasdaq in order to qualify for continued
quotation of securities on Nasdaq, the Company, among other things,
must have either (i) $2,000,000 in assets, $1,000,000 in stockholder
equity and a minimum bid price of $1.00 per share (the "Minimum Bid
Requirement") or alternatively (ii) $2,000,000 in total capital and
surplus, and $1,000,000 in market value of public float (the
"Capital/Market Value Requirement"). On May 12, 1997, the Company's
Common Stock had a closing price of $1.25. On January 21, 1997, the
Staff of Nasdaq advised the Company that the Company failed to satisfy
the Capital/Market Value Requirement and the Minimum Bid Requirement
with respect to its shares of Common Stock. The Company was then
provided 90 days to comply with either of such requirements in order to
continue the listing of its Common Stock on Nasdaq. Failure to do so
would result in delisting the Company's shares of Common Stock. On
March 21, 1997, the Company was informed by Nasdaq that the Company
complied with the Minimum Bid Requirement. On April 3, 1997 the Staff
of Nasdaq advised the Company that the Company's shares of Common stock
failed to meet the Capital Market Value Requirement and the Minimum Bid
Requirement. In order to continue the listing of its Common Stock on
Nasdaq, the Company was provided 90 days to meet the Capital Market
Value Requirement or the Minimum Bid Requirement. Following the Reverse
Stock split, the Company's shares were trading at $1.25 and therefore
the Company believes that it meets such requirements. Although the
Company beleives it is in compliance with the Minimum Bid Requirement,
it should be noted that, Nasdaq filed in early March 1997, with the
SEC, proposed rule changes to the maintenance standards required by
Nasdaq. Upon SEC approval the Company would have six (6) months to meet
the new maintenance standards. Under the proposed new standards for
continued inclusion on the Small Cap Market the Comapny will have to
have net tangible assets of $2,000,000 or net income of $500,000 in two
of the last three years or a market capitalization of at least
$35,000,000. If the
F-12
<PAGE>
Computer Marketplace, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
proposed rule changes are approved by the SEC and adopted by Nasdaq, it
is unlikely that the Company would be able to comply with such new
standards.
In March 1997, the Company's Board of Directors approved a 1-for-6
reverse stock split (the "Reverse Stock Split") with respect to its
shares of Common Stock, such approval to be contingent upon the
approval of a majority of the Company's shareholders. The Company
conducted its annual meeting of shareholders on April 4, 1997 (the
"Annual Meeting") where, among other things, the Company's shareholders
voted to approve the Reverse Stock Split. All per share references
contained herein reflect the consummation of the Reverse Stock Split.
At the Annual Meeting the Company's shreholders also voted (i) to elect
five (5) directors to the Board of the Comapny for a one (1) year term,
including; L. Wayne Kiley, Nancy Kiley, Rick C. Garian, J.R. Achten and
Thomas E. Evans, Jr. and (ii) to ratify the appointment of Moore
Stephens, P.C. as the Comapny's independent certified public
accountant.
In light of the fact that the Company has been unable to operate
profitably since the fiscal year ended June 1994, the Company believes
that substantial measures need to be taken to address the Comapny's
financial difficulties. The Board of Directors, after having considered
numerous alternatives, has concluded that the Company must
significantly reduce its expenses in order to reduce the Company's net
losses. Therefore, the Company has embarked upon a cost cutting plan by
reducing its workforce, closing unprofitable locations and
discontinuing under-performing product lines. Specifically, the Company
(it closed its branch offices in Livonia, Michigan, Traverse City,
Michigan and Mariposa, California (ii) reduced the number of employees
form a high of ninety-six (96) in September 1995 to twenty-two (22)
full-time and six (6) part-time as of April 15, 1997 and (iii) intends
to lease or sell its underutilized headquarters facility in Corona,
California. In the event that the Company determines that these
measures are insufficient to achieve profitability, the Company may
pursue divesting the Company's computer business and/or acquiring an
alternative business.
6. Subsequent Events
-----------------
On April 25, 1997, the Company entered into an agreement to sell the
net amount of its inventory on short-term rental. The Company does not
expect to incur any losses in connection with the sale of its inventory
on short-term rental.
7. Stock Split
-----------
In April, 1997, the Company effected a 1-for-6 reverse stock split of
the outstanding shares of Common Stock of the Company by changing the
8,114,542 then outstanding shares of Common Stock par value $.0001 per
share, into 1,352,424 shares of Common Stock of the Company, par value
$.0001 per share. All share data has been adjusted to reflect this
change.
F-13
<PAGE>
Computer Marketplace(R), Inc. and Subsidiaries
Notes to Consolidated Financial Statements
1. Organization and Business
-------------------------
Computer Marketplace, a California corporation, was incorporated on
July 19, 1983, as Quality Associates, Inc. and changed its name to
Computer Marketplace in June 1987. In March 1993, Computer Marketplace
changed its name to Computer Marketplace(R), Inc. ("Computer
Marketplace") and its state of incorporation from California to
Delaware. Computer Marketplace is currently engaged in the national
wholesale distribution of new and used computer equipment to dealers,
computer maintenance companies, leasing companies, equipment brokers,
and end-users. Computer Marketplace purchases computer equipment from a
variety of sources and suppliers and sells or rents the equipment
nationwide and in Europe to companies ranging in size from small
companies to Fortune 50 corporations. The computer industry is highly
competitive and may be affected by rapid changes in technology and
customer spending habits. Management believes the Company's ability to
provide customers with an unmatched selection of products, a high level
of customer service and competitive pricing allows it to compete
effectively against other companies in the industry. In March 1994, a
wholly owned subsidiary, Medical Marketplace, Inc. ("Medical
Marketplace"), was formed to engage in distribution of used medical
equipment to health care providers. In September 1994, a wholly owned
subsidiary, Marketplace Asset Recovery Services, Inc. ("MARS") was
formed to perform asset recovery assignments, repossessions and asset
verifications. In June 1996, management began the process of closing
down the operations of MARS. In August 1996, the subsidiary was renamed
Marketplace Leasing, Inc., ("MLI"). Management intends to utilize MLI
as the Company's future equipment leasing subsidiary. The operation of
MARS to date, has not been material to the consolidated financial
statements. In January 1994, Computer Marketplace formed a wholly owned
subsidiary, Superior Solutions, Inc. ("SSI") (formerly called Computer
Marketplace-SSI, Inc.), located in Livonia, Michigan, to purchase
certain assets and assume certain obligations of Synergy Solutions,
Inc., and International Associated Marketing Corporation. These
companies were engaged principally in the development, installation and
maintenance of local and wide area networks, were Novell Platinum
Authorized Resellers, and were also selling computer hardware. On July
1, 1996, the employees of SSI began operating as a sales and networking
branch of Computer Marketplace. The distinct business operations of SSI
will be gradually phased down as the operations are better integrated
into Computer Marketplace. Computer Marketplace and its subsidiaries
are hereinafter referred to as the "Company".
2. Summary of Significant Accounting Policies
------------------------------------------
Basis of Consolidation
-----------------------
The accompanying consolidated financial statements include the accounts
of Computer Marketplace, Medical Marketplace, SSI and MARS. All
material intercompany balances and transactions have been eliminated.
F-14
<PAGE>
Computer Marketplace(R), Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
Revenue Recognition
-------------------
The Company records product sales revenue when goods have been shipped
and rental revenue ratably over the term of the rental.
Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid instruments with a maturity of
three (3) months or less when purchased to be cash equivalents.
Inventory
---------
Inventory, which consists primarily of previously owned finished goods,
is stated at the lower of cost or net realizable value. Cost is
generally determined by specific identification.
Property and Equipment
----------------------
Property and equipment are stated at cost. Depreciation is provided
using the straight-line method over the estimated useful lives of the
related assets. Improvements to rented office space are amortized over
the shorter of the lease term or the life of the improvement.
Impairment
----------
The Company's intangible assets, including software development costs,
and customer lists, are reviewed at least annually as to whether their
carrying value has become impaired. Management considers these assets
to be impaired if the carrying value exceeds the discounted future
projected cash flows from related operations. If impairment is deemed
to exist, these assets will be written down to the lower of projected
discounted cash flow or management's estimate of fair value. Management
also evaluates the periods of amortization to determine whether later
events and circumstances warrant revised estimates of the useful life
of these assets. In June 1996, the Company charged operations $174,218
related to the write-off of goodwill. In June 1995, the Company charged
operations $162,050 related to impaired software development costs and
deferred offering costs. As of June 30, 1996, management expects the
remaining intangible assets to be fully recoverable.
Other Liabilities
-----------------
Other liabilities represents the long-term portion of a balance owed to
a vendor under negotiated extended payment terms. The final payment
under this arrangement is expected to be made in March, 1998.
F-15
<PAGE>
Computer Marketplace(R), Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
Net Loss Per Share of Common Stock
----------------------------------
Net loss per share of common stock is computed on the basis of the
weighted average share of common stock outstanding plus equivalent
shares arising from the effect of dilutive stock options and warrants
using the treasury stock method. For fiscal years 1996 and 1995, the
per share results were computed without consideration for contingently
issuable shares underlying stock options and warrants as the effect on
the per share results would be anti-dilutive. Fully diluted and primary
loss per share are the same of all periods presented.
Estimates
---------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Reclassification
----------------
Certain reclassifications have been made to prior year consolidated
financial statements to conform to classifications used in the current
year.
3. Inventory
---------
Inventory $2,182,448
Inventory on short-term rental 1,190,605
----------
3,373,053
Less inventory valuation allowance 221,216
----------
Inventory, net $3,151,837
==========
F-16
<PAGE>
Computer Marketplace(R), Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
Inventory on short-term rental consists of new and previously owned
computer-related equipment which is typically rented to customers for a
few months to fulfill their temporary computing needs. The Company,
based on the satisfactory economics of the transaction, will allocate
existing inventory to the transaction if the product is available
in-house, or purchase the equipment to meet the customer's needs. At
the expiration of the rental period, upon the return of the equipment
to the Company, the equipment is remarketed for sale along with similar
equipment in the Company's inventory. The Company charges operations
for an estimate of the inventory's valuation decrease while it is on
temporary rental. Net (decreases) increases to the inventory valuation
allowance associated with the Company's inventory were $(289,823) and
$351,372 for the years ending June 30, 1996 and 1995, respectively.
4. Property and Equipment
----------------------
Property and equipment consists of the following as of June 30, 1996:
Land $ 53,750
Building and property improvements 252,816
Machinery and equipment 782,577
Furniture and fixtures 147,503
Automobiles and trucks 170,507
Long-term rental equipment 129,763
----------
1,536,916
Less accumulated depreciation 567,232
----------
Property and equipment, net $ 969,684
==========
Property Held For Sale
----------------------
Property held for sale consists of the fifty percent (50%) Company
owned facility at 205 East Fifth Street in Corona, California and the
Company's main facility located at 1490 Railroad Street in Corona.
Accumulated depreciation associated with the two facilities at June 30,
1996 was $21,122 and $119,155, respectively. The decision to classify
this property as held for sale was made at June 30, 1996.
F-17
<PAGE>
Computer Marketplace(R), Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
5. Notes Payable
-------------
In September 1995, the Company entered into a new revolving credit
facility agreement ("Credit Facility") with a financing company. This
Credit Facility replaced the then outstanding $2,000,000 revolving
credit line with a bank. The Credit Facility allows the Company to
borrow up to $2,500,000 and bears interest at rate of 2.25% above the
lender's "reference rate" (as defined). The borrowing capacity under
the Credit Facility is dependent upon "eligible" (as defined) accounts
receivable and inventory, and fluctuates daily. At June 30, 1996,
borrowings under the Credit Facility and additional amounts available
for borrowing under the Credit Facility were $2,174,841 and $195,758,
respectively. The Credit Facility is collateralized by substantially
all of the Company's assets, except for real property. The Credit
Facility expires in September 1997.
6. Long-term Debt
--------------
As of June 30, 1996, long-term debt consisted of the following:
Note payable, due August 1, 2004, interest at
9.50%, payment of principal and interest of
$11,364 per month, balloon payment of
$1,086,485 due August 1, 2004, collateralized
by a real estate deed of trust $1,274,336
Note payable to a bank, due February 2, 1999,
interest at 9.25%, payment of principal and
interest of $1,391 per month, balloon payment
of $151,421 due February 2, 1999,
collateralized by real estate deed of trust 156,671
Note payable to a bank, due July 15, 2018,
interest at a variable rate, collateralized
by a real estate deed of trust(note 8 "Notes
Receivable - Related Parties") 99,959
Note payable to a bank due February 5, 1997,
interest at a variable rate, balloon payment
of $19,554 due February 5, 1997,
collateralized by a real estate deed of trust
(note 8 "Other Transactions") 25,554
Other 33,238
---------
1,589,758
Less current portion of long-term debt 63,152
---------
Total long-term debt $1,526,606
==========
F-18
<PAGE>
Computer Marketplace(R), Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
The prime rate at June 30, 1996, was 8.25%
Maturities of principal due in the following years are set forth below:
Year ending
June 30,
-----------
1997 $63,152
1998 30,842
1999 179,073
2000 23,712
2001 23,550
Thereafter 1,269,429
---------
Total $1,589,758
=========
7. Employment Contracts
--------------------
The Company has employment contracts with most of its sales
representatives for terms ranging from one (1) to three (3) years.
Commissions are paid monthly based on a Company formula. As part of the
contracts, the sales representatives agree to a restrictive covenant
not-to-compete upon termination.
In October 1992, the Company entered into 5-year employment agreements
with two (2) officers for an aggregate annual salary of $293,000. These
agreements provide for an aggregate increase of approximately ten
percent (10%) each year, if the Company is profitable. One of the
agreements provides for stock purchase rights (aggregating up to 18% of
the Company's outstanding common stock) priced at $1.60 per share if
certain earnings before the payment of interest and taxes are met.
In January 1994, the Company, in connection with an asset purchase
agreement (note 16), entered into 5-year employment agreements with two
(2) individuals for an initial annual salary of $40,000 each, then
increasing to $45,000 for the second year. The agreements provide for
annual ten percent (10%) increases, if the Company is profitable, and
for sales and performance bonuses. In addition, in January 1995, each
of the four (4) individuals associated with Synergy Solutions, Inc. and
International Associated Marketing Corporation received 6,060 shares of
common stock of the Company.
F-19
<PAGE>
Computer Marketplace(R), Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
8. Related Party Transactions
--------------------------
At June 30, 1996, amounts due to or from related individuals have been
included in the accompanying consolidated financial statements as
follows:
Notes Receivable - Related Parties
----------------------------------
On June 30, 1990, the Company sold an investment in residential
property to a business associate of the principal stockholder. The
Company received an all-inclusive note and deed of trust for $250,000.
The note was originally due on December 31, 1993, and interest-only
payments are due monthly at twelve percent (12%). This note is
currently in default; however, management has decided not to call the
note as interest payments continue to be made. The Company is obligated
to pay the underlying mortgages on the property (note 6). Additional
advances are made to cover repairs and other related expenses on the
above property. The balance owed on these advances amounted to $63,209
as of June 30, 1996. The original amount of the note is personally
guaranteed by the Company's President and a reserve has been
established for amounts in excess of the guaranteed amount.
Short-term loans were made to several employees during the years ended
June 30, 1996 and 1995. These loans, which bear interest at rates
between ten percent (10%) and twelve percent (12%), amounted to $18,999
and $32,235 as of June 30, 1996 and 1995, respectively.
The Company's subsidiary, Superior Solutions, Inc., has two (2)
agreements outstanding with the former owners of Synergy Solutions,
Inc. and International Associated Marketing Corporation, totaling, with
interest $26,745, as of June 30, 1996. The agreements bear interest at
five percent (5%) and are due by November 1, 1997.
Other Transactions
------------------
The Company owns an undivided fifty percent (50%) interest in its
former Corona headquarters building. The other fifty percent (50%)
interest is owned by a business associate of the principal stockholder.
Accordingly, the Company recorded fifty percent (50%) of the total cost
of land and building on its financial statement, as well as fifty
percent (50%) of the mortgage balance (note 6).
Effective August 1, 1995, the Company entered into a lease with the
Company's President for office space at the Traverse City, Michigan
location. The rent for this approximately 2,700 square foot location is
$2,700 per month. Rent Expense for the year ended June 30, 1996 was
$29,700. The three-year lease, which contains an option for the Company
or the landlord to cancel with six (6) months notice after each full
year, expires on July 31, 1998.
The Company paid consulting fees to a company owned by an officer in
the amount of $8,000 for fiscal year 1995. The consulting arrangement
with the company was terminated in August 1994.
F-20
<PAGE>
Computer Marketplace(R), Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
9. Fair Value Of Financial Instruments
-----------------------------------
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of Statement of
Financial Accounting Standards No. 107, "Disclosures about Fair Value
of Financial Instruments" ("Statement 107"). The estimated fair value
amounts have been determined using available market information and
appropriate valuation methodologies. However, considerable judgment is
necessarily required to interpret market data to develop the estimates
of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts that could be realized in a
current market exchange. The use of different market assumptions or
estimation methodologies may have a material effect on the estimated
fair value assumptions.
Estimated fair values of the Company's financial instruments (all of
which are held for nontrading purposes) are as follows:
June 30, 1996
-----------------------
Carrying Fair
Amount Value
-----------------------
Financial assets:
Cash and cash equivalents $ 594,921 $ 594,921
Notes receivable - related parties 295,744 295,744
Financial liabilities:
Notes payable 2,174,841 2,174,841
Long-term debt 1,589,758 1,584,432
Cash and Cash Equivalents
--------------------------
The fair value of cash and cash equivalents approximates the carrying
amount reported in the balance sheet.
Notes Receivable - Related Parties
-----------------------------------
The fair value of notes receivable - related parties is based on
current rates at which the Company would lend funds with similar
characteristics and maturities. At June 30, 1996, the fair value of
these notes approximates the carrying amounts reported in the balance
sheets.
Notes Payable
-------------
The fair value of notes payable is based on current rates at which the
Company could borrow funds with similar characteristics. At June 30,
1996, the fair value of notes payable approximates the carrying amount
reported in the balance sheet.
F-21
<PAGE>
Computer Marketplace(R), Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
Long-term Debt
--------------
The fair value of long-term debt is based on current rates at which the
Company could borrow funds with similar remaining maturities.
10. Commitments and Contingencies
-----------------------------
Litigation
----------
The Company commenced an unfair trade name infringement action entitled
Computer Marketplace, Inc. v. RK Productions/Case No. 260667 in
Riverside County, California Superior Court on January 20, 1995. The
defendant failed to respond to the Company's complaint, and was
therefore, in default. Subsequently, the defendant (under the name
National Productions, Inc.) filed a Federal lawsuit in the Central
District of California entitled National Productions, Inc. v. Computer
Marketplace, Inc./Case No. 95-3225 on May 19, 1995. Computer
Marketplace has counter claimed in the Federal action which supersedes
the earlier state court action. Discovery in the case is substantially
complete and currently the case is in the negotiation phase. The
outcome of this lawsuit cannot be predicted, but the Company intends to
vigorously defend the action and is of the opinion that the lawsuit
will not have a material effect on the results of operations, cash
flows and financial position of the Company.
Lease Commitments
-----------------
The Company leases various office facilities and equipment under
operating leases expiring through 1999. Rent expense related to these
leases for the years ended June 30, 1996 and 1995, was $114,629 and
$102,314, respectively.
As of June 30, 1996, aggregate future minimum rental payments on
noncancelable operating leases with initial terms in excess of one (1)
year, which are all for office space, are as follows:
June 30,
----------
1997 $56,400
1998 32,400
1999 2,700
-------
$91,500
=======
F-22
<PAGE>
Computer Marketplace(R), Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
11. Profit Sharing Plan and 401(k) Plan
-----------------------------------
In January 1995, the Company adopted a new combined 401(k) and profit
sharing plan (the "Plan") which replaced the prior plans. The new Plan
will cover substantially all of the Company's eligible employees. The
new Plan is available to all employees with more than one (1) year of
service or, to employees employed by the Company on February 1, 1995.
Company contributions to the profit sharing component of the Plan will
be at the discretion of management. Company contributions to the 401(k)
component of the Plan is based on a percentage of employee
contributions, but is at the discretion of management. The charge to
operations related to the Plan for the years ended June 30, 1996 and
1995, was $18,421 and $23,398, respectively.
12. Income Taxes
------------
Deferred income taxes reflect the impact of temporary differences
between amounts of assets and liabilities for financial reporting
purposes and tax purposes. Temporary differences are caused primarily
by depreciation, inventory valuation allowances and accounts receivable
allowance for doubtful accounts.
Generally accepted accounting principles require the establishment of a
deferred tax asset for all deductible temporary differences and
operating loss carryforwards. The deferred tax asset attributable to
operating loss carryforwards amounted to approximately $1,000,000 at
June 30, 1996. Because the Company does not as yet have a history of
continuing profitability, any deferred tax asset established for the
operating loss carryforward would correspondingly require a valuation
of allowance of the same amount. Accordingly, no deferred tax asset is
reflected in these consolidated financial statements.
No provision for Federal income taxes has been made during the fiscal
years ended June 30, 1996 and 1995, because of the Company's net loss
position and utilization of net operating losses. The 1995 provision
for income taxes reflects current and prior year provisions for minimum
state taxes, as well as adjustments for prior year state tax refunds
not realized in 1995.
The Company has net operating loss carryforwards of approximately
$2,600,000 which begin to expire in 2005.
F-23
<PAGE>
Computer Marketplace(R), Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
13. Stockholders' Equity
--------------------
Initial Public Offering
-----------------------
On June 22, 1993, the Company completed the initial public offering of
2,070,00 units (including the 270,000 underwriters over-allotment
units) at $4.00 per unit resulting in net proceeds to the Company of
$6,594,179. Each unit consists of one (1) share of common stock and one
(1) Class A Redeemable Common Stock Purchase Warrant and one (1) Class
B Redeemable Common Stock Purchase Warrant. Each six (6) Class A and B
Redeemable Common Stock Purchase Warrant entitles the holder to
purchase two (2) shares of common stock for $28.50 and $33.00,
respectively, commencing one (1) year from the effective date of the
offering. In connection with the offering, the Company sold to the
Underwriter, for nominal consideration, warrants to purchase an
aggregate of 360,000 units ("Underwriters Unit Purchase Options"). The
Underwriters Unit Purchase Option is exercisable for a four (4) year
period commencing two (2) years after the effective date of the
offering at an exercise price of $3.30 per Unit.
Stock Split
-----------
In June 1994, the Company effected a two-for-one stock split of the
outstanding shares of common stock of the Company by changing the
4,045,151 then outstanding shares of common stock, par value $.0001 per
share, into 8,090,302 shares of common stock of the Company, par value
$.0001 per share. All share data has been adjusted to reflect this
change.
Stock Options and Other Stock-Based Awards
------------------------------------------
In May 1994, the Board of Directors of the Company approved the
issuance of up to 300,000 options to certain employees and consultants
of the Company (the "Options"). The Options vest immediately upon the
grant thereof and are exercisable at $14.40 per share (or 80% of the
fair market value on the date of grant) at any time prior to May 10,
1997. The Company granted 166,667 options in July 1994 to the President
of the Company. In June 1996 the Board of Directors of the Company
approved the issuance of new non-qualified stock options to those
employees and consultants who currently held any of the options
exercisable at $14.40 per share. These replacement options required the
cancellation of the prior options are immediately vested and are
exercisable at $6.00 per share at any time prior to June 11, 2000. A
total of 280,500 options were issued at $6.00 per share.
F-24
<PAGE>
Computer Marketplace(R), Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
On January 3, 1996, the Company's Board of Directors approved the
issuance of 158,083 non-qualified stock options to substantially all
employees of the Company, its subsidiaries, and the non-employee
directors, to purchase shares of the Company's common stock at an
exercise price equal to 100% of the market value of the Company's
common stock on the date of grant. The stock options require future
employment or services to the Company and vest one third each on
January 3, 1997, January 3, 1998, and January 3, 1999, respectively.
The stock options must be exercised by January 3, 2006. On January 3,
1996, 157,083 stock options were granted at an exercise price of
$1.6875 per share.
On June 11, 1996, the Company's Board of Directors approved the
issuance of 10,833 non-qualified stock options to seven employees of
the Company. These stock options require future employment to the
Company and vest one third each on June 11, 1997, June 11, 1998 and
June 11, 1999, respectfully. The stock options must be exercised by
June 11, 2006. On June 11, 1996, 10,833 stock options were granted at
an exercise price of $3.375 per share.
The following is a summary of transactions under the plan:
Options outstanding at July 1, 1994 133,333 $ 14.40
Granted 169,167 14.40
Cancelled (6,667) 14.40
---------
Options outstanding at June 30, 1995 295,833 14.40
Granted 448,417 1.6875-6.00
Cancelled (298,333) 1.6875-14.40
---------
Options outstanding at June 30, 1996 $ 445,917 $ 1.6875-6.00
========= =============
Options exercisable at June 30, 1996 280,500 $ 6.00
========= =============
In February 1995, the stockholders approved the Company's 1994 Stock
Plan which allows for the issuance of stock options, restricted stock,
deferred stock, bonus shares performance awards, dividend equivalent
rights, limited stock appreciation rights and other stock-based awards,
or any combination thereof. The maximum number of shares of Common
Stock with respect to which awards may be granted is initially 166,667
shares. No awards or shares have been granted under the 1994 stock
plan.
F-25
<PAGE>
Computer Marketplace(R), Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
14. Concentrations of Credit Risk
-----------------------------
The Company currently maintains cash accounts with financial
institutions which exceed the maximum amounts insured by the Federal
Depository Insurance Corporation. At June 30, 1996, these uninsured
amounts totaled approximately $555,000.
Generally, the Company does not require collateral or other security to
support customer receivables, however the Company routinely assesses
the financial strength of its customers and, as a consequence, believes
that its trade receivable credit risk exposure is limited.
15. New Authoritative Pronouncements
--------------------------------
Effective July 1, 1996, the Company will adopt Statement of Financial
Accounting Standards ("SFAS") 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of". Under
SFAS 121, management will consider its long-lived assets to be impaired
if the carrying value exceeds the sum of net cash flows generated by
the asset (and from it disposition). These cash flows are not
discounted for this purpose. Currently, management evaluates impairment
utilizing a discounted cash flow approach. Adoption of this SFAS is not
expected to have a material effect on these consolidated financial
statements.
The Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation," in October 1995. SFAS No.
123 uses a fair value based method of accounting for stock options and
similar equity instruments as contrasted to the intrinsic value based
method of accounting prescribed by Accounting Principles Board [APB]
Opinion No. 25, "Accounting for Stock Issued to Employees." The Company
has not decided if it will adopt SFAS No. 123 or continue to apply APB
Option No. 25 for financial reporting purposes. SFAS No. 123 will have
to be adopted for financial note disclosure purposes in any event. The
accounting and disclosure requirements of SFAS No. 123 are effective
for transactions entered into in fiscal years that begin after December
15, 1995. SFAS No. 123 also applies to transactions on which an entity
issues its equity instruments to acquire goods or services from
non-employees. Those transactions must be accounted for based on the
fair value of the consideration received or the fair value of the
equity instrument issued, whichever is more reliably measurable. This
requirement is effective for transactions entered into after December
15, 1995. This provision of SFAS No. 123 did not have a material effect
on the consolidated financial statements as of and for the year ended
June 30, 1996.
F-26
<PAGE>
Computer Marketplace(R), Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
16. Asset Purchase Agreement
------------------------
In January 1994, the Company signed an asset purchase agreement to
acquire certain assets and assume certain obligations of Synergy
Solutions, Inc. and International Associated Marketing Corporation
(note 1) in exchange for $20,000 and 24,242 shares of common stock of
the Company, which had a fair market value of $100,000. In January
1995, the Company issued an additional 4040 shares of common stock,
which had a fair market value of approximately $15,907.
The acquisition was recorded under the purchase method of accounting
and, accordingly, the operating results of Synergy Solutions, Inc. and
International Associated Marketing Corporation have been included in
the consolidated operating results since the date of acquisition. The
total purchase price of $120,000 was allocated to assets acquired based
on their estimated fair values. Acquisition related expenses totaling
$52,759 were included in goodwill.
At June 30, 1996, the Company expensed the unamortized goodwill of
$174,218 due to the substantial uncertainty that the future cash flows
from operations will adequately support the previously recorded
goodwill amount.
F-27
<PAGE>
Computer Marketplace(R), Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
17. Industry Segments
-----------------
The Company classifies its product lines into two segments: Computer
Products and Medical Products. Information about those segments for the
year ended June 30, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1996
----------------------------------------
Computer Medical
Products Products Consolidated
------------ ----------- ------------
<S> <C> <C> <C>
Operating revenue $ 27,120,944 $ 2,880,008 $ 30,000,952
============ =========== ============
Operating profit (loss) $ (10,291.82) $ (41,732) $ (987,450)
============ =========== ------------
Interest expense (371,728)
Other nonoperating revenues and expenses 27,747
------------
Loss before income taxes $ (1,331,431)
============
Identifiable assets at June 30, 1996 $ 9,513,177 $ 1,196,782 $ 10,709,959
============ =========== ============
<CAPTION>
1995
----------------------------------------
Computer Medical
Products Products Consolidated
------------ ----------- ------------
<S> <C> <C> <C>
Operating revenue $ 30,923,670 $ 600,695 $ 31,524,365
============ =========== ============
Operating loss $ (926,085) $ (46,364) $ (972,449)
============ =========== ============
Interest expense (207,281)
Other nonoperating revenues and expenses 16,693
------------
Loss before income taxes $ (1,163,037)
============
Identifiable assets at June 30, 1995 $ 10,543,744 $ 794,493 $ 11,338,237
============ =========== ============
</TABLE>
Operating profit (loss) is total operating revenue less operating
expenses, and excludes interest expense and other nonoperating revenues
and expenses. Intersegment sales during 1996 and 1995 were immaterial
to the consolidated financial statements. Shared operating expenses
were allocated to the Medical Products segment at a rate of $5,000 per
month for a total of $60,000 in 1996. For 1996, depreciation and
amortization expense for the Computer Products and Medical Products
industry segments was $264,197 and $11,767, respectively. For 1995,
deprecation and amortization expense for the Computer Products and
Medical Products industry segments was $217,343 and $3,103,
respectively. Capital expenditures for the two segments in 1996 were
$224,475 and $146,156, respectively. Capital expenditures for the two
segments in 1995 were $548,014 and $24,935, respectively.
F-28
<PAGE>
Computer Marketplace(R), Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Continued)
Identifiable assets are those used by each segment of the Company's
operations and do not include advances from the Computer Products
segment to the Medical Products segment totaling $1,219,628 and
$787,223 as of June 30, 1996 and 1995, respectively.
18. Fourth Quarter Adjustments
--------------------------
There were certain adjustments recorded in the fourth quarter of fiscal
1996, and 1995, and the aggregate effect of such adjustments was
material to the results of that quarter.
The Company beginning in January 1995, moved to more aggressively
reduce the quantity of inventory on hand in a concerted effort to
enhance operating efficiency and improve cash flow. During the fourth
quarter 1995, the Company charged operations approximately $225,000 for
increases to the inventory valuation allowance in excess of normal
quarterly charges.
In addition, the Company, after an extended focus on accounts
receivable collections, took charges in the fourth quarter of 1995, of
approximately $240,000 related to valuation of the remaining accounts
receivable. Approximately $130,000 of this charge related to a single
customer. Management continues to actively pursue timely collection on
all of the Company's customer accounts.
Equally significant, in June 1996, the Company charged operations
$174,218 related to the write off of goodwill. In June 1995, the
Company charged operations $162,050 related to impaired software
development costs and deferred offering costs (note 2).
19. Management's Plans
------------------
The Company has experienced significant losses during each of the past
two years aggregating $2,556,140. These losses have caused a
corresponding reduction in the Company's working capital. While
Management believes that the Company has sufficient working capital,
Management has nevertheless, developed plans to improve the working
capital position of the Company. During the first quarter of the next
fiscal year, Management anticipates a further reduction of operating
expenses through additional personnel cutbacks and additional operating
expense consolidation. Management's plans also include the sale of the
Company's two Corona, California facilities which are expected to
reduce substantially all of the Company's long-term debt and are
expected to provide an additional $1,000,000 in working capital. In
addition, Management intends to seek either a private placement of
funds involving either Medical Marketplace or Computer Marketplace or
initiate a secondary stock offering. The Company intends to expand the
sales forces of both Medical Marketplace and Computer Marketplace as a
means to increase sales production and obtain better operating
leverage.
F-29
<PAGE>
No dealer, salesman or other person has been authorized to give any
information or to make any representations not contained in this Prospectus and
if given or made, such information or representations must not be relied upon as
having been authorized by the Company or any Underwriter. Neither the delivery
of this Prospectus nor any sale made hereunder shall under any circumstances
create any implication that there has been no change in the affairs of the
Company since the date hereof. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any of the securities offered hereby
in any jurisdiction to any person to whom it is unlawful to make such offer or
solicitation in such jurisdiction.
--------------------
TABLE OF CONTENTS
Page
Available Information.........
Prospectus Summary............
The Company...................
The Offering..................
Summary of Financial
Information.................
Risk Factors..................
Use of Proceeds...............
Capitalization................
Selected Financial Data.......
Management's Discussion and
Analysis of Financial
Condition and Results of
Operations...........
Business......
Properties........
Legal Proceedings.........
Management.........
Executive Compensation......
Principal Stockholders..........
Certain Relationships and
Related Transactions..........
Description of
Securities...................
Selling Securityholders.......
Plan of Distribution...........
Shares Eligible for
Future Sale..................
Legal Matters...............
Experts...........
Additional Information........
Financial Statements..........
--------------------
COMPUTER MARKETPLACE(R), INC.
9,000,000 Class D Redeemable Common Stock
Purchase Warrants and
3,500,000 Shares of Common Stock
----------------
PROSPECTUS
----------------
June __, 1997
-------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law empowers a
corporation to indemnify its directors and officers and to purchase insurance
with respect to liability arising out of the performance of their duties as
directors and officers provided that this provision shall not eliminate or limit
the liability of a director (i) for any breach of the director's duty of loyalty
to the corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) arising under Section 174 of the Delaware General Corporation Law, or (iv)
for any transaction from which the director derived an improper personal
benefit.
The Delaware General Corporation Law provides further that the
indemnification permitted thereunder shall not be deemed exclusive of any other
rights to which the directors and officers may be entitled under the
corporation's by-laws, any agreement, vote of Stockholders or otherwise.
Article Tenth of the Company's Certificate of Incorporation eliminates
the personal liability of directors to the fullest extent permitted by Section
102(b)(7) of the Delaware General Corporation Law.
The effect of the foregoing is to require the Company to the extent
permitted by law to indemnify the officers and directors of the Company for any
claim arising against such persons in their official capacities if such person
acted in good faith and in a manner that he reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling
the Company pursuant to the foregoing provisions, the Company has been informed
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
Item 25. Other Expenses of Issuance and Distribution.
The estimated expenses in connection with this offering are as follows:
SEC filing fee.......................... $ 1,815.89
Accounting fees and expenses*........... $ 25,000.00
Legal fees and expenses*................ $ 25,000.00
Printing and engraving*................. $ 25,000.00
Miscellaneous expenses*................. $ 25,000.00
Total................................... $101,815.89
-----------
- ----------------
* Estimated
II-1
<PAGE>
Item 26. Recent Sales of Unregistered Securities.
In May 1994, the Board of Directors of the Company approved the
issuance of up to 250,000 options to certain employees and consultants of the
Company in exchange for services rendered (the "Options"). The Options vest
immediately and are exercisable at $14.40 per share (or 80% of the fair market
value on the date of grant) at any time prior to May 10, 1997. L. Wayne Kiley,
the President and Chief Executive Officer of the Company, has been issued
166,667 Options of the 250,000 Options authorized for issuance.
In February 1995, the stockholders approved the Company's 1994 Stock
Plan which allows for the issuance of stock options, restricted stock, deferred
stock, bonus shares performance awards, dividend equivalent rights, limited
stock appreciation rights and other stock-based awards, or any combination
thereof. The maximum number of shares of Common Stock with respect to which
awards may be granted is initially 166,667 shares. No awards or shares have been
granted under this Plan.
On January 3, 1996, the Company's Board of Directors approved the
issuance of 158,083 non-qualified stock options to substantially all employees
of the Company, its subsidiaries, and the non-employee directors, to purchase
shares of the Company's common stock at an exercise price equal to 100% of the
market value of the Company's common stock on the date of grant. The stock
options require future employment or services to the Company and vest one third
each on January 3, 1997, January 3, 1998, and January 3, 1999, respectively. The
stock options must be exercised by January 3, 2006. On January 3, 1996, 157,083
stock options were granted at an exercise price of $1.6875 per share.
On June 11, 1996, the Company's Board of Directors approved the
issuance of 10,833 non-qualified stock options to seven employees of the
Company. These stock options require future employment to the Company and vest
one third each on June 11, 1997, June 11, 1998 and June 11, 1999, respectfully.
The stock options must be exercised by June 11, 2006. On June 11, 1996, 10,833
stock options were granted at an exercise price of $3.375 per share.
In December 1996, the Company entered into a one year consulting
agreement with Victoria Holdings, Inc. ("Victoria Holdings"), an affiliate of
Biltmore Securities, Inc. ("Biltmore"). Pursuant to the consulting agreement,
Victoria Holdings agreed to assist the Company in identifying new business
partners suitable for the Company and in structuring, negotiating and financing
such transactions. Pursuant to the terms of the consulting agreement, the
Company issued to Victoria Holdings options (the "Victoria Holdings Options") to
purchase 1,000,000 shares of Common Stock at an exercise price of $1.00 per
share. In addition, the Company agreed to issue 1,000,000 shares of Common Stock
to Victoria Holdings (the "Victoria Fee Shares") upon consummation by the
Company of (i) an acquisition of a company (or companies) introduced to the
Company by Victoria Holdings with net assets of at least $2,500,000 or (ii) a
divestiture of the Company's assets, or a sale of a controlling interest in the
Company's capital stock, to a purchaser introduced to the Company by Victoria
Holdings resulting in net proceeds to the Company in excess of $2,000,000.
II-2
<PAGE>
In December 1996, the Company issued to certain members as management
options to purchase an aggregate of 1,000,000 shares of the Company's Common
Stock during a four (4) year period commencing on January 1, 1997 at an exercise
price of $1.00 per share.
On December 31, 1996 the Company concluded a private placement of
500,000 Units (the "December 1996 Private Placement") which were placed by the
Biltmore Securities, Inc., on a firm commitment basis. Each Unit, which was
offered at a price of $2.00 per Unit, and consisted of one (1) share of Common
Stock of Medical Marketplace, Inc., a wholly owned subsidiary of the Company,
and eighteen (18) Class D Redeemable Common Stock Purchase Warrants (the "Class
D Warrants"). Each six (6) Class D Warrants are exercisable for one (1) share
of the Company's Common Stock commencing three (3) months following the date of
issuance at an exercise price of $2.50 per share during a one (1) year period.
Item 27. Exhibits.
The following is a list of exhibits filed as part of the Registration
Statement. Where so indicated by footnote, the exhibits have either been
previously filed, and are hereby incorporated by reference, or will be filed by
amendment:
Exhibit
Number
1.01 Form of Underwriting Agreement.(1)
1.02 Form of Selected Dealers Agreement.(1)
3.01 Certificate of Incorporation of the Company.(1)
3.02 By-Laws of the Company.(1)
3.03 Certificate of Amendment of Certificate of Incorporation.(3)
4.01 Certificate for shares of Common Stock.(1)
4.02 Specimen Certificate for Class A Warrants.(1)
4.03 Specimen Certificate for Class B Warrants.(1)
4.04 Intentionally left blank.
4.05 Specimen Certificate for Class D Warrants
4.06 Form of Class A and Class B Warrant Agreement.(1)
4.07 Form of Underwriter's Unit Purchase Option.(1)
4.08 Form of Class D Warrant Agreement
II-3
<PAGE>
5.01 Opinion of Bernstein & Wasserman, LLP, as counsel to the Company.
10.01 Agreement between International Business Machines Corporation and the
Company.(1)
10.02 Employment Agreement between the Company and L. Wayne Kiley.(1)
10.03 Stock Purchase Agreement among the Company, L. Wayne Kiley, Nancy Kiley
and Jordan Belfort.(1)
10.04 Loan Documents between the Company and Sharon Allen.(1)
10.05 Lease for office space at 205 East Fifth Street, Corona, California.(1)
10.06 Lease for office space at 3439-B Woodland Drive, Mariposa, California.(1)
10.07 Lease for office space at Pennington, New Jersey.(1)
10.09 Form of Bridge Loan Documents.(1)
10.10 Lease for office space at Traverse City Michigan.(1)
10.11 Lease for office space at Dallas, Texas.(1)
10.12 Lease for office space at Livonia, Michigan.(1)
10.13 Lease for office space at Apple Valley, California.(1)
10.14 Installment Payment Master Agreement between IBM Credit Corporation
and the Company.(1)
10.15 Non-exclusive Domestic Dealer Agreement between Autodesk, Inc. and the
Company.(1)
10.16 Distributorship Agreement between Sparks Ind., Inc., Delphi Data
Division, and the Company.(1)
10.17 End-User Distribution Agreement between Universal Software, Inc. and
the Company.(1)
10.18 Non-exclusive Sales Distributorship Agreement between Universal Data
Systems, Inc. and the Company.(1)
10.19 Changes in Terms Agreement between Western Community Bank and the
Company.(1)
10.20 Term Loan Promissory Note issued by the Company in favor of Jack
Mooney.(1)
10.21 Consulting and List Purchase Contract between David L. Wieseler and
the Company.
II-4
<PAGE>
(1)
10.22 Stock Purchase Agreement by and between L. Wayne Kiley, Nancy Kiley
and Jordan Belfort dated as of June 10, 1993.
10.23 Commercial Real Estate Contract between the Company and Mariposa County
Unified School District dated August 25, 1993.(2)
10.24 Retainer Agreement dated January 3, 1994, between the Company and Alan
M. Novich, Esq.(3)
10.25 Revolving Credit Agreement between Union Bank and Computer Marketplace,
Inc.(3)
10.26 Commercial Promissory Note between Union Bank and Computer Marketplace,
Inc.(3)
10.27 Note Secured by Deed of Trust dated July 8, 1994, between The J. David
Gladstone Institutes and Computer Marketplace, Inc.(3)
10.28 Deed of Trust with Assignment of Rents and Fixtures filing by Computer
Marketplace, Inc. dated July 8, 1994.(3)
10.29 Absolute Assignment of Leases and Rents by Computer Marketplace, Inc.
to The J. David Gladstone Institutes, dated July 8, 1994.(3)
10.30 Security Agreement dated July 8, 1994, by Computer Marketplace, Inc.,
in favor of The J. David Gladstone Institutes.(3)
10.31 Representations and Warranties to The J. David Gladstone Institutes
made by Computer Marketplace, Inc. dated July 11, 1994.(3)
10.32 Environmental Indemnity dated July 8, 1994, by Computer Marketplace,
Inc. for the benefit of The J. David Gladstone Institutes.(3)
10.33 Promissory Note dated December 28, 1993, between Computer Marketplace,
Inc. and Yosemite Bank.(3)
10.34 Business Loan Agreement dated December 28, 1993, between Computer
Marketplace, Inc. and Yosemite Bank.(3)
10.35 Deed of Trust dated December 28, 1993, among Computer Marketplace,
Inc., Yosemite Bank and Fidelity National Title.(3)
10.36 Commercial Guaranty of Computer Marketplace, Inc. Indebtedness, dated
January 18, 1991, by L. Wayne Kiley to Western Community Bank.(3)
10.37 Promissory Note dated January 18, 1991, by Computer Marketplace and
Western Community Bank.(3)
II-5
<PAGE>
10.38 Business Loan Agreement dated January 18, 1991, between Computer
Marketplace, Inc. and Western Community Bank.(3)
10.39 Asset Purchase Agreement by and among SSI/PC Outlet Acquisition
Corporation, Synergy Solutions, Inc., International Associated
Marketing Corporation, and The Dean Family, dated as of January 1,
1994.(3)
10.40 Assignment and Assumption Agreement dated as of January 1, 1994, by
and among SSI/PC Outlet Acquisition Corporation, Synergy Solutions,
Inc., International Associated Marketing Corporation, Donald Dean,
Mark Dean, Randy Dean and Katherine Vitale.(3)
10.41 Bill of Sale dated January 1, 1994, by Synergy Solutions, Inc., and
International Associated Marketing Corporation to SSI/PC Outlet
Acquisition Corporation.(3)
10.42 Software Purchase Agreement, dated as of January 1, 1994, between
SSI/PC Outlet Acquisition Corp. and Donald Dean, Mark Dean, Randy Dean
and Katherine Vitale.(3)
10.43 Asset Purchase Agreement, dated November 12, 1993, between Computer
Marketplace, Inc. and International Computer Sales, Inc.(3)
10.44 Sun Microsystems Computer Corporation U.S. Indirect Value Added
Reseller ("IVAR") Agreement dated September 7, 1994, between Sun
Microsystems Computer Company and Computer Marketplace, Inc.(3)
10.45 IBM Surplus PC Reseller Profile Agreement dated June 15, 1994, between
IBM and Computer Marketplace, Inc.(3)
10.46 Loan Agreement dated October 24, 1994, between Computer Marketplace,
Inc. and Union Bank.(4)
10.47 Commercial Promissory Note between Union Bank and Computer Marketplace,
Inc.(4)
10.48 Security Agreement dated October 24, 1994, by Computer Marketplace
Inc., in favor of Union Bank.(4)
10.49 Arbitration Agreement between Union Bank and Computer Marketplace,
Inc.(4)
10.50 Loan and Security Agreement dated September 14, 1995, by Computer
Marketplace, Inc., Superior Solutions, Inc. and Medical Marketplace,
Inc., in favor of CoastFed Business Credit Corporation.(5)
10.51 Accounts Collateral Security Agreement dated September 14, 1995, by
Computer Marketplace, Inc., Superior Solutions, Inc. and Medical
Marketplace, Inc., in favor of CoastFed Business Credit Corporation.(5)
II-6
<PAGE>
10.52 Inventory Collateral Security Agreement dated September 14,1995, by
Computer Marketplace, Inc., Superior Solutions, Inc. and Medical
Marketplace, Inc., in favor of CoastFed Business Credit Corporation.(5)
10.53 Joint and Several Borrower Rider dated September 14, 1995, by Computer
Marketplace, Inc., Superior Solutions, Inc. and Medical Marketplace,
Inc., in favor of CoastFed Business Credit Corporation.(5)
10.54 Amended Employment Agreement between the Company and L.Wayne Kiley
10.55 Consulting Agreement between the Company and Victoria Holdings, Inc.(7)
10.56 Option to Purchase Common Stock of the Company issued to Victoria
Holdings, Inc.
10.57 Form of Option Agreement
10.58 Standard Offer, Agreement and Escrow Instructions for Purchase of Real
Estate regarding the sale of Computer Marketplace's, Inc. headquarters
facility located in Corona, CA
21.01 Subsidiaries of the Registrant (6)
23.01 Consent of Bernstein & Wasserman, LLP (to be included in Exhibit 5.01)
23.02 Consent of Moore Stephens, P.C.
- ---------------
(1) Previously filed with the Securities and Exchange Commission as
Exhibits to the Registrant's Registration Statement on Form SB-2,
File No. 33-60346LA, dated June 22, 1993, and incorporated herein by
reference.
(2) Incorporated herein by reference to the Form 10-KSB of the
Registrant for the year ended June 30,1993.
(3) Incorporated herein by reference to the Form 10-KSB of the
Registrant for the year ended June 30,1994.
(4) Incorporated herein by reference to the Form 10-QSB of the
Registrant for the quarterly period ended December 31, 1994.
(5) Incorporated herein by reference to the Form 10-KSB of the
Registrant for the year ended June 30, 1995.
(6) Incorporated herein by reference to the Form 10-KSB of the
Registrant for the year ended June 30, 1996.
(7) Previously filed with the Securities and Exchange Commission as
Exhibits to the Registrant's Registration Statement on Form SB-2,
File No. 333-26445 dated May 2, 1997 and incorporated herein
by reference.
Item 28. Undertakings.
(a) Rule 415 Offering
The undersigned registrant will:
1. File, during any period in which offers or
sales are being made, a post-effective
amendment to this Registration Statement to:
II-7
<PAGE>
(i) Include any prospectus required by
Section 10(a)(3) of the Securities
Act;
(ii) Reflect in the prospectus any facts or
events which, individually or in the
aggregate, represent a fundamental change in
the information set forth in the
registration statement; notwithstanding the
foregoing, any increase or decrease in
volume of securities offered (if the total
dollar value of securities offered would not
exceed that which was registered) of any
deviation from the low or high end of the
estimated maximum offering range may be
reflected in the form of prospectus filed
with the Commission pursuant to Rule 424 (b)
if, in the aggregate, the changes in volume
and price represent no more than a 20
percent change in the maximum aggregate
offering price net profit in the
"Calculation of Registration Fee" table in
the effective registration statement.
(iii) Include any additional or changed material
information on the plan of distribution;
2. For determining liability under the Securities Act,
treat each such Post-effective amendment as a new
registration statement of the securities offered,
and the offering of such securities at that time
shall be deemed to be the initial bona fide
offering.
3. File a post-effective amendment to remove from
registration any of the securities that remain
unsold at the end of the offering.
(b) Indemnification
Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to directors, officers
or controlling persons of the Registrant pursuant to the
provisions referred to in Item 22 of this Registration
Statement or otherwise, the Registrant has been advised
that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy
as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for
indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by
a director, officer or controlling person of the
Registrant in the successful defense of any action, suit
or proceeding) is asserted by such director, officer or
controlling person connection with the securities being
registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will
be governed by the final adjudication of such issue.
(c) Rule 430A
II-8
<PAGE>
The undersigned Registrant will:
1. For determining any liability under the Securities
Act, treat the information omitted from the form of
Prospectus filed as part of this Registration
Statement in reliance upon Rule 430A and contained
in the form of a prospectus filed by the small
business issuer under Rule 424(b)(1) or (4) or
497(h) under the Securities Act as part of this
Registration Statement as of the time the
Commission declared it effective.
2. For any liability under the Securities Act, treat
each post-effective amendment that contains a form
of prospectus as a new registration statement for
the securities offered in the Registration
Statement, and that the offering of the securities
at that time as the initial bona fide offering of
those securities.
II-9
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as amended,
the Registrant, certifies that it has reasonable grounds to believe that it
meets all the requirements for filing on Form SB-2 and authorized this
Registration Statement No. 333-26445 to be signed on its behalf by the
undersigned, in the City of Corona, State of California on June 11, 1997
COMPUTER MARKETPLACE(R), INC.
By: /s/ L. Wayne Kiley
-------------------------------------
L. Wayne Kiley
President, Chief Executive Officer
and Director
By: /s/ Carmella Hume
-------------------------------------
Carmella Hume
Controller (Chief Accounting Officer)
In accordance with the requirements of the Securities Act of 1933, as amended,
this Registration Statement No. 333-26445 was signed by the following persons
in the capacities and on the dates stated.
<TABLE>
Signature Title Date
<S> <C> <C>
/s/ L. Wayne Kiley
- ---------------------------------- President, Chief Executive Officer June 11, 1997
L. Wayne Kiley and Director
/s/ Nancy Kiley
- ---------------------------------- Secretary and Director June 11, 1997
Nancy Kiley
/s/ Rick C. Garian
- ---------------------------------- Chief Operating Officer and June 11, 1997
Rick C. Garian Director
/s/ Carmella Hume
- ---------------------------------- Controller June 11, 1997
Carmella Hume (Chief Accounting Officer)
/s/ J.R. Achten
- ---------------------------------- Director June 11, 1997
J.R. Achten
/s/ Thomas E. Evans, Jr.
- ---------------------------------- Director June 11, 1997
Thomas E. Evans, Jr.
</TABLE>
II-10
<PAGE>
Exhibit
Number
- ------
1.01 Form of Underwriting Agreement.(1)
1.02 Form of Selected Dealers Agreement.(1)
3.01 Certificate of Incorporation of the Company.(1)
3.02 By-Laws of the Company.(1)
3.03 Certificate of Amendment of Certificate of Incorporation.(3)
4.01 Certificate for shares of Common Stock.(1)
4.02 Specimen Certificate for Class A Warrants.(1)
4.03 Specimen Certificate for Class B Warrants.(1)
4.04 Intentionally left blank.
4.05 Specimen Certificate for Class D Warrants
4.06 Form of Class A and Class B Warrant Agreement.(1)
4.07 Form of Underwriter's Unit Purchase Option.(1)
4.08 Form of Class D Warrant Agreement
<PAGE>
5.01 Opinion of Bernstein & Wasserman, LLP, as counsel to the Company.
10.01 Agreement between International Business Machines Corporation and
the Company.(1)
10.02 Employment Agreement between the Company and L. Wayne Kiley.(1)
10.03 Stock Purchase Agreement among the Company, L. Wayne Kiley, Nancy
Kiley and Jordan Belfort.(1)
10.04 Loan Documents between the Company and Sharon Allen.(1)
10.05 Lease for office space at 205 East Fifth Street, Corona,
California.(1)
10.06 Lease for office space at 3439-B Woodland Drive, Mariposa,
California.(1)
10.07 Lease for office space at Pennington, New Jersey.(1)
10.09 Form of Bridge Loan Documents.(1)
10.10 Lease for office space at Traverse City Michigan.(1)
10.11 Lease for office space at Dallas, Texas.(1)
10.12 Lease for office space at Livonia, Michigan.(1)
10.13 Lease for office space at Apple Valley, California.(1)
10.14 Installment Payment Master Agreement between IBM Credit Corporation and
the Company.(1)
10.15 Non-exclusive Domestic Dealer Agreement between Autodesk, Inc. and the
Company. (1)
10.16 Distributorship Agreement between Sparks Ind., Inc., Delphi Data
Division, and the Company.(1)
10.17 End-User Distribution Agreement between Universal Software, Inc. and the
Company.(1)
10.18 Non-exclusive Sales Distributorship Agreement between Universal Data
Systems, Inc. and the Company.(1)
10.19 Changes in Terms Agreement between Western Community Bank and the
Company.(1)
10.20 Term Loan Promissory Note issued by the Company in favor of Jack
Mooney.(1)
10.21 Consulting and List Purchase Contract between David L. Wieseler and the
Company.
<PAGE>
(1)
10.22 Stock Purchase Agreement by and between L. Wayne Kiley, Nancy Kiley and
Jordan Belfort dated as of June 10, 1993.
10.23 Commercial Real Estate Contract between the Company and Mariposa County
Unified School District dated August 25, 1993.(2)
10.24 Retainer Agreement dated January 3, 1994, between the Company and Alan
M. Novich, Esq.(3)
10.25 Revolving Credit Agreement between Union Bank and Computer Marketplace,
Inc.(3)
10.26 Commercial Promissory Note between Union Bank and Computer Marketplace,
Inc.(3)
10.27 Note Secured by Deed of Trust dated July 8, 1994, between The J. David
Gladstone Institutes and Computer Marketplace, Inc.(3)
10.28 Deed of Trust with Assignment of Rents and Fixtures filing by Computer
Marketplace, Inc. dated July 8, 1994.(3)
10.29 Absolute Assignment of Leases and Rents by Computer Marketplace, Inc. to
The J. David Gladstone Institutes, dated July 8, 1994.(3)
10.30 Security Agreement dated July 8, 1994, by Computer Marketplace, Inc., in
favor of The J. David Gladstone Institutes.(3)
10.31 Representations and Warranties to The J. David Gladstone Institutes made
by Computer Marketplace, Inc. dated July 11, 1994.(3)
10.32 Environmental Indemnity dated July 8, 1994, by Computer Marketplace,
Inc. for the benefit of The J. David Gladstone Institutes.(3)
10.33 Promissory Note dated December 28, 1993, between Computer Marketplace,
Inc. and Yosemite Bank.(3)
10.34 Business Loan Agreement dated December 28, 1993, between Computer
Marketplace, Inc. and Yosemite Bank.(3)
10.35 Deed of Trust dated December 28, 1993, among Computer Marketplace, Inc.,
Yosemite Bank and Fidelity National Title.(3)
10.36 Commercial Guaranty of Computer Marketplace, Inc. Indebtedness, dated
January 18, 1991, by L. Wayne Kiley to Western Community Bank.(3)
10.37 Promissory Note dated January 18, 1991, by Computer Marketplace and
Western Community Bank.(3)
<PAGE>
10.38 Business Loan Agreement dated January 18, 1991, between Computer
Marketplace, Inc. and Western Community Bank.(3)
10.39 Asset Purchase Agreement by and among SSI/PC Outlet Acquisition
Corporation, Synergy Solutions, Inc., International Associated Marketing
Corporation, and The Dean Family, dated as of January 1, 1994.(3)
10.40 Assignment and Assumption Agreement dated as of January 1, 1994, by and
among SSI/PC Outlet Acquisition Corporation, Synergy Solutions, Inc.,
International Associated Marketing Corporation, Donald Dean, Mark Dean,
Randy Dean and Katherine Vitale.(3)
10.41 Bill of Sale dated January 1, 1994, by Synergy Solutions, Inc., and
International Associated Marketing Corporation to SSI/PC Outlet
Acquisition Corporation.(3)
10.42 Software Purchase Agreement, dated as of January 1, 1994, between SSI/PC
Outlet Acquisition Corp. and Donald Dean, Mark Dean, Randy Dean and
Katherine Vitale.(3)
10.43 Asset Purchase Agreement, dated November 12, 1993, between Computer
Marketplace, Inc. and International Computer Sales, Inc.(3)
10.44 Sun Microsystems Computer Corporation U.S. Indirect Value Added Reseller
("IVAR") Agreement dated September 7, 1994, between Sun Microsystems
Computer Company and Computer Marketplace, Inc.(3)
10.45 IBM Surplus PC Reseller Profile Agreement dated June 15, 1994, between
IBM and Computer Marketplace, Inc.(3)
10.46 Loan Agreement dated October 24, 1994, between Computer Marketplace,
Inc. and Union Bank.(4)
10.47 Commercial Promissory Note between Union Bank and Computer Marketplace,
Inc.(4)
10.48 Security Agreement dated October 24, 1994, by Computer Marketplace,
Inc., in favor of Union Bank.(4)
10.49 Arbitration Agreement between Union Bank and Computer Marketplace,
Inc.(4)
10.50 Loan and Security Agreement dated September 14, 1995, by Computer
Marketplace, Inc., Superior Solutions, Inc. and Medical Marketplace,
Inc., in favor of CoastFed Business Credit Corporation.(5)
10.51 Accounts Collateral Security Agreement dated September 14, 1995, by
Computer Marketplace, Inc., Superior Solutions, Inc. and Medical
Marketplace, Inc., in favor of CoastFed Business Credit Corporation.(5)
<PAGE>
10.52 Inventory Collateral Security Agreement dated September 14, 1995, by
Computer Marketplace, Inc., Superior Solutions, Inc. and Medical
Marketplace, Inc., in favor of CoastFed Business Credit Corporation.(5)
10.53 Joint and Several Borrower Rider dated September 14, 1995, by Computer
Marketplace, Inc., Superior Solutions, Inc. and Medical Marketplace,
Inc., in favor of CoastFed Business Credit Corporation.(5)
10.54 Amended Employment Agreement between the Company and L.Wayne Kiley
10.55 Consulting Agreement between the Company and Victoria Holdings, Inc.(7)
10.56 Option to Purchase Common Stock of the Company issued to Victoria
Holdings, Inc.
10.57 Form of Option Agreement
10.58 Standard Offer, Agreement and Escrow Instructions for Purchase of Real
Estate regarding the sale of Computer Marketplace's, Inc. headquarters
facility located in Corona, CA
21.01 Subsidiaries of the Registrant (6)
23.01 Consent of Bernstein & Wasserman, LLP (to be included in Exhibit 5.01)
23.02 Consent of Moore Stephens, P.C.
- ---------------
(1) Previously filed with the Securities and Exchange Commission as Exhibits to
the Registrant's Registration. Statement on Form SB-2, File No. 33-60346LA,
dated June 22, 1993, and incorporated herein by reference.
(2) Incorporated herein by reference to the Form 10-KSB of the Registrant for
the year ended June 30, 1993.
(3) Incorporated herein by reference to the Form 10-KSB of the Registrant for
the year ended June 30, 1994.
(4) Incorporated herein by reference to the Form 10-QSB of the Registrant for
the quarterly period ended December 31, 1994.
(5) Incorporated herein by reference to the Form 10-KSB of the Registrant for
the year ended June 30, 1995.
(6) Incorporated herein by reference to the Form 10-KSB of the Registrant for
the year ended June 30, 1996.
(7) Previously filed with the Securities and Exchange Commission as Exhibits to
the Registrants Registration Statement on Form SB-2. File No. 333-26445
filed May 2, 1997 and incorporated herein by reference.
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS
OF ANY STATE. THESE SECURITIES MAY NOT BE SOLD, OFFERED FOR SALE, ASSIGNED,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED PURSUANT TO THE
PROVISIONS OF THAT ACT AND THE LAWS OF SUCH STATES UNDER WHOSE LAWS A TRANSFER
OF SECURITIES WOULD BE SUBJECT TO A REGISTRATION REQUIREMENT OR AN OPINION OF
COUNSEL TO THE COMPANY IS OBTAINED STATING THAT SUCH DISPOSITION IS IN
COMPLIANCE WITH AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION.
No. WD - _____
Class D Warrants
VOID AFTER MARCH 31, 1998
WARRANT CERTIFICATE FOR PURCHASE OF COMMON STOCK
COMPUTER MARKETPLACE, INC.
THIS CERTIFIES THAT FOR VALUE RECEIVED
or registered assigns (the "Registered Holder") is the owner of the number of
Class D Redeemable Common Stock Purchase Warrants ("Warrants") specified above.
Each Warrant initially entitles the Registered Holder to purchase, subject to
the terms and conditions set forth in this Certificate and the Warrant Agreement
(as hereinafter defined), one fully paid and nonassessable share of Common
Stock, $.0001 par value ("Common Stock"), of COMPUTER MARKETPLACE, INC., a
Delaware corporation (the "Company"), at any time between the Initial Warrant
Exercise Date (as herein defined) and the Expiration Date (as hereinafter
defined), upon the presentation and surrender of this Warrant Certificate with
the Subscription Form attached hereto duly executed, at the corporate office of
AMERICAN STOCK TRANSFER & TRUST COMPANY, as Warrant Agent, or its successor (the
"Warrant Agent"), accompanied by payment of $.417, or such other amount as
adjusted in accordance with the terms of the Warrant Agreement in
1
<PAGE>
lawful money of the United States of America in cash or by official bank or
certified check made payable to "Computer Marketplace, Inc."
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement (the "Warrant Agreement") dated December 31,
1996, by and between the Company and the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price or the number of shares of Common Stock subject to
purchase upon the exercise of each Warrant represented hereby are subject to
modifications or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company shall cancel this Warrant Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate or Warrant Certificates of
like tenor.
The term "Initial Warrant Exercise Date" shall mean March 31, 1997.
The term "Expiration Date" shall mean 5:00 p.m. (New York time on March
31, 1998, or such earlier date as the Warrants shall be redeemed. If such date
shall in the State of New York be a holiday or a day on which the banks are
authorized to close, then the Expiration Date shall mean 5:00 p.m. (New York
time) the next following day which in the State of New York is not a holiday or
a day on which banks are authorized to close.
This Warrant shall not be exercisable by a Registered Holder in any
state where such exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by
the Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
<PAGE>
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment with any transfer fee in addition
to any tax or other governmental charge imposed in connection therewith, for
registration of transfer of this Warrant Certificate at such office, a new
Warrant Certificate or Warrant Certificates representing an equal aggregate
number of Warrants will be issued to the transferee in exchange therefor,
subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
This Warrant may be redeemed at the option of the Company, at a
redemption price of $.05 per Warrant at any time after the Initial Warrant
Exercise Date, provided the Market Price (as defined in the Warrant Agreement)
for the securities issuable upon exercise of such Warrant shall equal or exceed
$5.00 per share and notice of redemption shall be given not later than the
thirtieth day before the date fixed for redemption, all as provided in the
Warrant Agreement. On and after the date fixed for redemption, the Registered
Holder shall have no rights with respect to this Warrant except to receive the
$.05 per Warrant upon surrender of this Certificate.
Prior to due presentment for registration of transfer hereof, the
Company and the Warrant Agent may deem and treat the Registered Holder as the
absolute owner hereof and of each Warrant represented hereby (notwithstanding
any notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary.
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of Delaware.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
COMPUTER MARKETPLACE, INC.
By: ______________________________
Name:
Title:
Date: ______________________________
COUNTERSIGNED:
American Stock Transfer & Trust Company
as Warrant Agent
By: ______________________________
Name:
Title:
<PAGE>
SUBSCRIPTION FORM
To Be Executed by the Registered Holder in Order to Exercise Warrants
THE UNDERSIGNED REGISTERED HOLDER hereby irrevocably elects to exercise
_____ Warrants represented by this Warrant Certificate, and to purchase the
securities issuable upon the exercise of such Warrants, and requests that
certificates for such securities shall be issued in the name of
--------------------------------------------
(please insert social security or other identifying number)
and be delivered to
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
(please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below:
--------------------------------------------
--------------------------------------------
--------------------------------------------
(Address)
---------------------------------
(Date)
---------------------------------
(Taxpayer Identification Number)
The undersigned represents that the exercise of the within Warrant was
solicited by a member of the National Association of Securities Dealers, Inc. If
not solicited by an NASD member, please write "unsolicited" in the space below.
<PAGE>
SIGNATURE GUARANTEED
ASSIGNMENT
To Be Executed by the Registered Holder in Order to Assign Warrants
FOR VALUE RECEIVED, hereby sells, assigns, and transfers unto
--------------------------------------------
(please insert social security or other identifying number)
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
(please print or type name and address)
of the Warrants represented by this Warrant Certificate, and hereby irrevocably
constitutes and appoints _________________________________ Attorney to transfer
this Warrant Certificate on the books of the Company, with full power of
substitution in the premises.
---------------------------------
(Date)
SIGNATURE GUARANTEED
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY AN ELIGIBLE INSTITUTION (AS DEFINED IN RULE 17Ad-15 UNDER THE
SECURITIES AND EXCHANGE ACT OF 1934) WHICH MAY INCLUDE A COMMERCIAL BANK OR
TRUST COMPANY, SAVINGS ASSOCIATION, CREDIT UNION OR A MEMBER FIRM OF THE
AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE OR
MIDWEST STOCK EXCHANGE.
<PAGE>
WARRANT AGREEMENT
AGREEMENT, dated as of this 31st day of December 1996, by and between
COMPUTER MARKETPLACE, INC., a Delaware corporation ("the Company"), and American
Stock Transfer & Trust Company, as Warrant Agent (the "Warrant Agent").
WITNESSETH:
WHEREAS, in connection with the Company's issuance of 9,000,000 Class D
Warrants (the "Class D Warrants" or the "Warrants") to certain Warrant holders
(the "Warrant Holders"), the Company desires the Warrant Agent to act on behalf
of the Company, and the Warrant Agent is willing to so act, in connection with
the issuance, registration, transfer, exchange and redemption of the Warrants,
the issuance of certificates representing the Warrants, the exercise of the
Warrants, and the rights of the holders thereof;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth and for the purpose of defining the terms and
provisions of the Warrants and the certificates representing the Warrants and
the respective rights and obligations thereunder of the Company, the holders of
certificates representing the Warrants and the Warrant Agent, the parties hereto
agree as follows:
1. Definitions. As used herein, the following terms shall
have the following meanings, unless the context shall otherwise
require:
(a) "Common Stock" shall mean the common stock of the Company
of which at the date hereof consists of 50,000,000 authorized shares, $.0001 par
value, and shall also include any capital stock of any class of the Company
thereafter authorized which shall not be limited to a fixed sum or percentage in
respect to the rights of the holders thereof to participate in dividends and in
the distribution of assets upon the voluntary liquidation, dissolution or
winding up of the Company; provided, however, that the shares issuable upon
exercise of the Warrants shall include (i)
1
<PAGE>
only shares of such class designated in the Company's Certificate of
Incorporation as Common Stock on the date of the original issue of the Warrants,
or (ii) in the case of any reclassification, change, consolidation, merger, sale
or conveyance of the character referred to in Section 9(c) hereof, the stock,
securities or property provided for in such section; or (iii) in the case of any
reclassification or change in the outstanding shares of Common Stock issuable
upon exercise of the Warrants as a result of a subdivision or combination or a
change in par value, or from par value to no par value, or from no par value to
par value, such shares of Common Stock as so reclassified or changed.
(b) "Corporate Office" shall mean the office of the Warrant
Agent (or its successor) at which at any particular time its principal business
shall be administered, which office is located at the date hereof at 40 Wall
Street, New York, NY 10005.
(c) "Exercise Date" shall mean, as to any Warrant, the date on
which the Warrant Agent shall have received both (a) the Warrant Certificate
representing such Warrant, with the exercise form thereon duly executed by the
Registered Holder (as defined below) thereof or his attorney duly authorized in
writing, and (b) payment in cash, or by official bank or certified check made
payable to the Company, of an amount in lawful money of the United States of
America equal to the applicable Purchase Price (as defined below).
(d) "Initial Warrant Exercise Date" shall mean
March 31, 1997.
(e) "Purchase Price" shall mean the purchase price per share
to be paid upon exercise of each Warrant in accordance with the terms hereof,
which price shall be $.417 per share for the Warrants, subject to adjustment
from time to time pursuant to the provisions of Section 9 hereof, and subject to
the Company's right, in its sole discretion, upon thirty (30) days' prior
written notice, to reduce the Purchase Price upon notice to all warrantholders.
(f) "Redemption Price" shall mean the price at which the
Company may, at its option, redeem the Warrants, in accordance with the terms
hereof, which price shall be $0.05 per Warrant.
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(g) "Registered Holder" shall mean as to any Warrant and as of
any particular date, the person in whose name the certificate representing the
Warrant shall be registered on that date on the books maintained by the Warrant
Agent pursuant to Section 6.
(h) "Transfer Agent" shall mean American Stock Transfer &
Trust Company, as the Company's transfer agent, or its authorized successor, as
such.
(i) "Warrant Expiration Date" shall mean 5:00 P.M. (New York
time) on March 31, 1998 or the Redemption Date as defined in Section 8,
whichever is earlier; provided that if such date shall in the State of New York
be a holiday or a day on which banks are authorized or required to close, then
5:00 P.M. (New York time) on the next following day which in the State of New
York is not a holiday or a day on which banks are authorized or required to
close. Upon thirty (30) days' written notice to all warrantholders, the Company
shall have the right to extend the warrant expiration date.
2. Warrants and Issuance of Warrant Certificates.
(a) A Warrant initially shall entitle the Registered Holder of
the Warrant representing such Warrant to purchase one share of Common Stock upon
the exercise thereof, in accordance with the terms hereof, subject to
modification and adjustment as provided in Section 9.
(b) Upon execution of this Agreement, Warrant Certificates
representing the number of Warrants sold shall be executed by the Company and
delivered to the Warrant Agent. Upon written order of the Company signed by its
President or a Vice President and by its Secretary or an Assistant Secretary,
the Warrant Certificates shall be countersigned, issued, and delivered by the
Warrant Agent.
(c) From time to time, up to the Warrant Expiration Date, the
Transfer Agent shall countersign and deliver stock certificates in required
whole number denominations representing up to an aggregate of 9,000,000 shares
of Common Stock, subject to adjustment as described herein, upon the exercise of
Warrants in accordance with this Agreement.
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(d) From time to time, up to the Warrant Expiration Date, the
Warrant Agent shall countersign and deliver Warrant Certificates in required
whole number denominations to the persons entitled thereto in connection with
any transfer or exchange permitted under this Agreement; provided that no
Warrant Certificates shall be issued except (i) those initially issued
hereunder, (ii) those issued on or after the Initial Warrant Exercise Date, upon
the exercise of fewer than all Warrants represented by any Warrant Certificate,
to evidence any unexercised warrants held by the exercising Registered Holder,
(iii) those issued upon any transfer or exchange pursuant to Section 6; (iv)
those issued in replacement of lost, stolen, destroyed or mutilated Warrant
Certificates pursuant to Section 7; and (vii) those issued at the option of the
Company, in such form as may be approved by the its Board of Directors, to
reflect any adjustment or change in the Purchase Price, the number of shares of
Common Stock purchasable upon exercise of the Warrants or the Redemption Price
therefor made pursuant to Section 9 hereof.
3. Form and Execution of Warrant Certificates.
(a) The Class D Warrant Certificates shall be substantially in
the forms annexed hereto as Exhibit A (the provisions of which are hereby
incorporated herein) and may have such letters, numbers or other marks of
identification or designation and such legends, summaries or endorsements
printed, lithographed or engraved thereon as the Company may deem appropriate
and as are not inconsistent with the provisions of this Agreement, or as may be
required to comply with any law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock exchange on which the
Warrants may be listed, or to conform to usage or to the requirements of Section
2(b). The Warrant Certificates shall be dated the date of issuance thereof
(whether upon initial issuance, transfer, exchange or in lieu of mutilated,
lost, stolen or destroyed Warrant Certificates) and issued in registered form.
Class D Warrant Certificates shall be numbered serially with the letters WD.
(b) Warrant Certificates shall be executed on behalf of
the Company by its President, or any Vice President and by its
Secretary or an Assistant Secretary, by manual signatures or by
facsimile signatures printed thereon, and shall have imprinted
thereon a facsimile of the Company's seal. Warrant Certificates
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shall be manually countersigned by the Warrant Agent and shall not be valid for
any purpose unless so countersigned. In case any officer of the Company who
shall have signed any of the Warrant Certificates shall cease to be an officer
of the Company or to hold the particular office referenced in the Warrant
Certificate before the date of issuance of the Warrant Certificates or before
countersignature by the Warrant Agent and issue and delivery thereof, such
Warrant Certificates may nevertheless be countersigned by the Warrant Agent,
issued and delivered with the same force and effect as though the person who
signed such Warrant Certificates had not ceased to be an officer of the Company
or to hold such office. After countersignature by the Warrant Agent, Warrant
Certificates shall be delivered by the Warrant Agent to the Registered Holder
without further action by the Company, except as otherwise provided by Section 4
hereof.
4. Exercise. Each Warrant may be exercised by the Registered
Holder thereof at any time on or after the Initial Warrant Exercise Date,
but not after the Warrant Expiration Date, upon the terms and subject to the
conditions set forth herein and in the applicable Warrant Certificate. A
Warrant shall be deemed to have been exercised immediately prior to the close
of business on the Exercise Date and the person entitled to receive the
securities deliverable upon such exercise shall be treated for all purposes as
the holder of those securities upon the exercise of the Warrant as of the
close of business on the Exercise Date. As soon as practicable on or after the
Exercise Date, the Warrant Agent shall deposit the proceeds received from the
exercise of a Warrant and shall notify the Company in writing of the exercise
of the Warrants. Promptly following, and in any event within five (5) business
days after the date of such notice from the Warrant Agent, the Warrant Agent,
on behalf of the Company, shall cause to be issued and delivered by the
Transfer Agent, to the person or persons entitled to receive the same, a
certificate or certificates for the securities deliverable upon such exercise
(plus a certificate for any remaining unexercised Warrants of the Registered
Holder), unless prior to the date of issuance of such certificates the Company
shall instruct the Warrant Agent to refrain from causing such issuance of
certificates pending clearance of checks received in payment of the Purchase
Price pursuant to such Warrants. Upon the exercise of any Warrant and clearance
of the funds received, the Warrant Agent shall promptly remit the payment
received for the Warrant (the "Warrant Proceeds")
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to the Company or as the Company may direct in writing.
5. Reservation of Shares; Listing; Payment of Taxes, etc.
(a) The Company covenants that it will at all times reserve
and keep available out of its authorized Common Stock, solely for the purpose of
issue upon exercise of Warrants, such number of shares of Common Stock as shall
then be issuable upon the exercise of all outstanding Warrants. The Company
covenants that all shares of Common Stock which shall be issuable upon exercise
of the Warrants shall, at the time of delivery, be duly and validly issued,
fully paid, nonassessable and free from all taxes, liens and charges with
respect to the issue thereof (other than those which the Company shall promptly
pay or discharge) and that upon issuance such shares shall be listed on each
national securities exchange or eligible for inclusion in each automated
quotation system, if any, on which the other shares of outstanding Common Stock
of the Company are then listed or eligible for inclusion.
(b) The Company covenants that if any securities to be
reserved for the purpose of exercise of Warrants hereunder require registration
with, or approval of, any governmental authority under any federal securities
law before such securities may be validly issued or delivered upon such
exercise, then the Company will, to the extent the Purchase Price is less than
the Market Price (as hereinafter defined), in good faith and as expeditiously as
reasonably possible, endeavor to secure such registration or approval and will
use its reasonable efforts to obtain appropriate approvals or registrations
under state "blue sky" securities laws. With respect to any such securities,
however, Warrants may not be exercised by, or shares of Common Stock issued to,
any Registered Holder in any state in which such exercise would be unlawful.
(c) The Company shall pay all documentary, stamp or similar
taxes and other governmental charges that may be imposed with respect to the
issuance of Warrants, or the issuance, or delivery of any shares upon exercise
of the Warrants; provided, however, that if the shares of Common Stock are to be
delivered in a name other than the name of the Registered Holder of the Warrant
Certificate representing any Warrant being exercised, then no such delivery
shall be made unless the person requesting the same has paid to the Warrant
Agent the amount of transfer taxes or charges incident thereto, if any.
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(d) The Warrant Agent is hereby irrevocably authorized for
such time as it is acting as such to requisition the Company's Transfer Agent
from time to time for certificates representing shares of Common Stock issuable
upon exercise of the Warrants, and the Company will authorize the Transfer Agent
to comply with all such proper requisitions. The Company will file with the
Warrant Agent a statement setting forth the name and address of the Transfer
Agent of the Company for shares of Common Stock issuable upon exercise of the
Warrants.
6. Exchange and Registration of Transfer.
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants of the same
class or may be transferred in whole or in part. Warrant Certificates to be
exchanged shall be surrendered to the Warrant Agent at its Corporate Office, and
upon satisfaction of the terms and provisions hereof, the Company shall execute
and the Warrant Agent shall countersign, issue and deliver in exchange therefor
the Warrant Certificate or Certificates which the Registered Holder making the
exchange shall be entitled to receive.
(b) The Warrant Agent shall keep at its office books in which,
subject to such reasonable regulations as it may prescribe, it shall register
Warrant Certificates and the transfer thereof in accordance with its regular
practice. Upon due presentment for registration of transfer of any Warrant
Certificate at such office, the Company shall execute and the Warrant Agent
shall issue and deliver to the transferee or transferees a new Warrant
Certificate or Certificates representing an equal aggregate number of Warrants.
(c) With respect to all Warrant Certificates presented for
registration or transfer, or for exchange or exercise, the subscription form on
the reverse thereof shall be duly endorsed, or be accompanied by a written
instrument or instruments of transfer and subscription, in form satisfactory to
the Company and the Warrant Agent, duly executed by the Registered Holder or his
attorney-in-fact duly authorized in writing.
(d) A service charge may be imposed by the Warrant Agent
for any exchange or registration of transfer of Warrant Certificates. In
addition, the Company may require payment by such holder of a sum sufficient to
cover any tax or other governmental
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charge that may be imposed in connection therewith.
(e) All Warrant Certificates surrendered for exercise or for
exchange in case of mutilated Warrant Certificates shall be promptly canceled by
the Warrant Agent and thereafter retained by the Warrant Agent until termination
of this Agreement or resignation as Warrant Agent, or disposed of or destroyed,
at the direction of the Company.
(f) Prior to due presentment for registration of transfer
thereof, the Company and the Warrant Agent may deem and treat the Registered
Holder of any Warrant Certificate as the absolute owner thereof and of each
Warrant represented thereby (notwithstanding any notations of ownership or
writing thereon made by anyone other than a duly authorized officer of the
Company or the Warrant Agent) for all purposes and shall not be affected by any
notice to the contrary. The Warrants which are being publicly offered in Units
with shares of Common Stock pursuant to the Underwriting Agreement will be
immediately detachable from the Common Stock and transferable separately
therefrom.
7. Loss or Mutilation. Upon receipt by the Company and the
Warrant Agent of evidence satisfactory to them of the ownership of and loss,
theft, destruction or mutilation of any Warrant Certificate and (in case of
loss, theft or destruction) of indemnity satisfactory to them, and (in the
case of mutilation) upon surrender and cancellation thereof, the Company shall
execute and the Warrant Agent shall (in the absence of notice to the Company
and/or Warrant Agent that the Warrant Certificate has been acquired by a
bona fide purchaser) countersign and deliver to the Registered Holder in lieu
thereof a new Warrant Certificate of like tenor representing an equal
aggregate number of Warrants. Applicants for a substitute Warrant Certificate
shall comply with such other reasonable regulations and pay such other
reasonable charges as the Warrant Agent may prescribe.
8. Redemption.
(a) Subject to the provision of paragraph 2(e) hereof, on not
less than thirty (30) days' notice given at any time after the Initial Warrant
Exercise Date, the Warrants may be redeemed, at the option of the Company, at a
redemption price of $0.05 per Warrant, provided the market price, as hereinafter
defined, of the
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Common Stock, equals or exceeds $5.00 per share (the "Class D Target Price"),
subject to adjustment as set forth in Section 8(f) below. Market Price for the
purpose of this Section 8 shall mean (i) the average closing bid price for any
twenty (20) consecutive trading days within a period of thirty (30) consecutive
trading days ending within ten (10) days prior to the date of the notice of
redemption, which notice shall be mailed no later than five (5) days thereafter,
of the Common Stock as reported by the principal exchange on which the Common
Stock is traded, NASD OTC Bulletin Board or the National Quotation Bureau
Incorporated, as the case may be.
(b) If the conditions set forth in Section 8(a) are met, and
the Company desires to exercise its right to redeem the Warrants, it shall mail
a notice of redemption to each of the Registered Holders of the Warrants to be
redeemed, first class, postage prepaid, not later than the thirtieth day before
the date fixed for redemption, at their last address as shall appear on the
records maintained pursuant to Section 6(b). Any notice mailed in the manner
provided herein shall be conclusively presumed to have been duly given whether
or not the Registered Holder receives such notice.
(c) The notice of redemption shall specify (i) the redemption
price, (ii) the date fixed for redemption, (iii) the place where the Warrant
Certificates shall be delivered and the redemption price paid, and (iv) that the
right to exercise the Warrant shall terminate at 5:00 P.M. (New York time) on
the business day immediately preceding the date fixed for redemption. The date
fixed for the redemption of the Warrant shall be the Redemption Date. No failure
to mail such notice nor any defect therein or in the mailing thereof shall
affect the validity of the proceedings for such redemption except as to a
Registered Holder (a) to whom notice was not mailed or (b) whose notice was
defective and then only to the extent that the Registered Holder is prejudiced
thereby. An affidavit of the Warrant Agent or of the Secretary or an Assistant
Secretary of the Company that notice of redemption has been mailed shall, in the
absence of fraud, be prima facie evidence of the facts stated therein.
(d) Any right to exercise a Warrant shall terminate at
5:00 P.M. (New York time) on the business day immediately preceding
the Redemption Date. On and after the Redemption Date, Registered
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Holders of the Warrants shall have no further rights except to receive, upon
surrender of the Warrant, the Redemption Price.
(e) From and after the Redemption Date specified for, the
Company shall, at the place specified in the notice of redemption, upon
presentation and surrender to the Company by or on behalf of the Registered
Holder thereof of one or more Warrant Certificates evidencing Warrants to be
redeemed, deliver or cause to be delivered to or upon the written order of such
Holder a sum in cash equal to the redemption price of each such Warrant. From
and after the Redemption Date and upon the deposit or setting aside by the
Company of a sum sufficient to redeem all the Warrants called for redemption,
such Warrants shall expire and become void and all rights hereunder and under
the Warrant Certificates, except the right to receive payment of the redemption
price, shall cease.
(f) If the shares of the Company's Common Stock are subdivided
or combined into a greater or smaller number of shares of Common Stock, the
Class D Target Price shall be proportionally adjusted by the ratio which the
total number of shares of Common Stock outstanding immediately prior to such
event bears to the total number of shares of Common Stock to be outstanding
immediately after such event.
9. Adjustment of Exercise Price and Number of Shares of
Common Stock or Warrants.
(a) Subject to the exceptions referred to in Section 9(g)
below, in the event the Company shall, at any time or from time to time after
the date hereof, sell any shares of Common Stock for a consideration per share
less than fifty percent (50%) of the Market Price of the Common Stock (as
defined in Section 8) on the date of the sale or issue any shares of Common
Stock as a stock dividend to the holders of Common Stock, or subdivide or
combine the outstanding shares of Common Stock into a greater or lesser number
of shares (any such sale, issuance, subdivision or combination being herein
called a "Change of Shares"), then, and thereafter upon each further Change of
Shares, the Purchase Price in effect immediately prior to such Change of Shares
shall be changed to a price (including any applicable fraction of a cent)
determined by multiplying the Purchase Price in effect immediately prior thereto
by a fraction, the numerator of which shall be the sum of the number of shares
of Common Stock outstanding immediately
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prior to the issuance of such additional shares and the number of shares of
Common Stock which the aggregate consideration received (determined as provided
in subsection 9(f) below) for the issuance of such additional shares would
purchase at such current market price per share of Common Stock, and the
denominator of which shall be the sum of the number of shares of Common Stock
outstanding immediately after the issuance of such additional shares. Such
adjustment shall be made successively whenever such an issuance is made.
Upon each adjustment of the Purchase Price pursuant
to this Section 9, the total number of shares of Common Stock purchasable upon
the exercise of each Warrant shall (subject to the provisions contained in
Section 9(b) hereof) be such number of shares (calculated to the nearest tenth)
purchasable at the Purchase Price in effect immediately prior to such adjustment
multiplied by a fraction, the numerator of which shall be the Purchase Price in
effect immediately prior to such adjustment and the denominator of which shall
be the Purchase Price in effect immediately after such adjustment.
(b) The Company may elect, upon any adjustment of the Purchase
Price hereunder, to adjust the number of Warrants outstanding, in lieu of the
adjustment in the number of shares of Common Stock purchasable upon the exercise
of each Warrant as hereinabove provided, so that each Warrant outstanding after
such adjustment shall represent the right to purchase one share of Common Stock.
Each Warrant held of record prior to such adjustment of the number of Warrants
shall become that number of Warrants (calculated to the nearest tenth)
determined by multiplying the number one by a fraction, the numerator of which
shall be the Purchase Price in effect immediately prior to such adjustment and
the denominator of which shall be the Purchase Price in effect immediately after
such adjustment. Upon each adjustment of the number of Warrants pursuant to this
Section 9, the Company shall, as promptly as practicable, cause to be
distributed to each Registered Holder of Warrant Certificates on the date of
such adjustment Warrant Certificates evidencing, subject to Section 10 hereof,
the number of additional Warrants to which such Holder shall be entitled as a
result of such adjustment or, at the option of the Company, cause to be
distributed to such Holder in substitution and replacement for the Warrant
Certificates held by him prior to the date of adjustment (and upon surrender
thereof, if
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required by the Company) new Warrant Certificates evidencing the number of
Warrants to which such Holder shall be entitled after such adjustment.
(c) In case of any reclassification, capital reorganization or
other change of outstanding shares of Common Stock, or in case of any
consolidation or merger of the Company with or into another corporation (other
than a consolidation or merger in which the Company is the continuing
corporation and which does not result in any reclassification, capital
reorganization or other change of outstanding shares of Common Stock), or in
case of any sale or conveyance to another corporation of the property of the
Company as, or substantially as, an entirety (other than a sale/leaseback,
mortgage or other financing transaction), the Company shall cause effective
provision to be made so that each holder of a warrant then outstanding shall
have the right thereafter, by exercising such Warrant, to purchase the kind and
number of shares of stock or other securities or property (including cash)
receivable upon such reclassification, capital reorganization or other change,
consolidation, merger, sale or conveyance by a holder of the number of shares of
Common Stock that might have been purchased upon exercise of such Warrant
immediately prior to such reclassification, capital reorganization or other
change, consolidation, merger, sale or conveyance. Any such provision shall
include provision for adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 9. The Company shall
not effect any such consolidation, merger or sale unless prior to or
simultaneously with the consummation thereof the successor (if other than the
Company) resulting from such consolidation or merger or the corporation
purchasing assets or other appropriate corporation or entity shall assume, by
written instrument executed and delivered to the Warrant Agent, the obligation
to deliver to the holder of each Warrant such shares of stock, securities or
assets as, in accordance with the foregoing provisions, such holders may be
entitled to purchase and the other obligations under this Agreement. The
foregoing provisions shall similarly apply to successive reclassification,
capital reorganizations and other changes of outstanding shares of Common Stock
and to successive consolidations, mergers, sales or conveyances.
(d) Irrespective of any adjustments or changes in the
Purchase Price or the number of shares of Common Stock purchasable
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upon exercise of the Warrants, the Warrant Certificates theretofore and
thereafter issued shall, unless the Company shall exercise its option to issue
new Warrant Certificates pursuant to Section 2(d) hereof, continue to express
the Purchase Price per share, the number of shares purchasable thereunder and
the Redemption Price therefor as the Purchase Price per share, the number of
shares purchasable and the Redemption Price therefor were expressed in the
Warrant Certificates when the same were originally issued.
(e) After each adjustment of the Purchase Price pursuant to
this Section 9, the Company will promptly prepare a certificate signed by the
President or a Vice President, and by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary, of the Company setting forth: (i) the
Purchase Price as so adjusted, (ii) the number of shares of Common Stock
purchasable upon exercise of each Warrant after such adjustment, and, if the
Company shall have elected to adjust the number of Warrants, the number of
Warrants to which the registered holder of each Warrant shall then be entitled,
and the adjustment in Redemption Price resulting therefrom, and (iii) a brief
statement of the facts accounting for such adjustment. The Company will promptly
file such certificate with the Warrant Agent and cause a brief summary thereof
to be sent by ordinary first class mail to each registered holder of Warrants at
his last address as it shall appear on the registry books of the Warrant Agent.
No failure to mail such notice nor any defect therein or in the mailing thereof
shall affect the validity thereof except as to the holder to whom the Company
failed to mail such notice, or except as to the holder whose notice was
defective. The affidavit of an officer of the Warrant Agent or the Secretary or
an Assistant Secretary of the Company that such notice has been mailed shall, in
the absence of fraud, be prima facie evidence of the facts stated therein.
(f) For purposes of Section 9(a) and 9(b) hereof, the
following provisions (i) to (vii) shall also be applicable:
(i) The number of shares of Common Stock
outstanding at any given time shall include shares of Common Stock owned or held
by or for the account of the Company and the sale or issuance of such treasury
shares or the distribution of any such treasury shares shall not be considered a
Change of Shares for purposes of said sections.
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(ii) No adjustment of the Purchase Price shall be
made unless such adjustment would require an increase or decrease of at least
$.10 in such price; provided that any adjustments which by reason of this
subsection (ii) are not required to be made shall be carried forward and shall
be made at the time of and together with the next subsequent adjustment which,
together with any adjustment(s) so carried forward, shall require an increase or
decrease of at least $.10 in the Purchase Price then in effect hereunder.
(iii) In case of (1) the sale by the Company for
cash of any rights or warrants to subscribe for or purchase, or any options for
the purchase of, Common Stock or any securities convertible into or exchangeable
for Common Stock without the payment of any further consideration other than
cash, if any (such convertible or exchangeable securities being herein called
"Convertible Securities"), or (2) the issuance by the Company, without the
receipt by the Company of any consideration therefor, of any rights or warrants
to subscribe for or purchase, or any options for the purchase of, Common Stock
or Convertible Securities, in each case, if (and only if) the consideration
payable to the Company upon the exercise of such rights, warrants, or options
shall consist of cash, whether or not such rights, warrants or options, or the
right to convert or exchange such Convertible Securities, are immediately
exercisable, and the price per share for which Common Stock is issuable upon the
exercise of such rights, warrants or options or upon the conversion or exchange
of such Convertible Securities (determined by dividing (x) the minimum aggregate
consideration payable to the Company upon the exercise of such rights, warrants
or options, plus the consideration received by the Company for the issuance or
sale of such rights, warrants or options, plus, in the case of such Convertible
Securities, the minimum aggregate amount of additional consideration, if any,
other than such Convertible Securities, payable upon the conversion or exchange
thereof, by (y) the total maximum number of shares of Common Stock issuable upon
the exercise of such rights, warrants or options or upon the conversion or
exchange of such Convertible Securities issuable upon the exercise of such
rights, warrants or options) is less than the fair market value of the Common
Stock on the date of the issuance or sale of such rights, warrants or options,
then the total maximum number of shares of Common Stock issuable upon the
exercise of such rights, warrants or options or upon the conversion or exchange
of such
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Convertible Securities (as of the date of the issuance or sale of such rights,
warrants or options) shall be deemed to be outstanding shares of Common Stock
for purposes of Sections 9(a) and 9(b) hereof and shall be deemed to have been
sold for cash in an amount equal to such price per share.
(iv) In case of the sale by the Company for cash
of any Convertible Securities, whether or not the right of conversion or
exchange thereunder is immediately exercisable, and the price per share for
which Common Stock is issuable upon the conversion or exchange of such
Convertible Securities (determined by dividing (x) the total amount of
consideration received by the Company for the sale of such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, other than such Convertible Securities, payable upon the conversion or
exchange thereof, by (y) the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of such Convertible Securities) is less
than the fair market value of the Common Stock on the date of the sale of such
Convertible Securities, then the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of such Convertible Securities (as of
the date of the sale of such Convertible Securities) shall be deemed to be
outstanding shares of Common Stock for purposes of Sections 9(a) and 9(b) hereof
and shall be deemed to have been sold for cash in an amount equal to such price
per share.
(v) In case the Company shall modify the rights
of conversion, exchange or exercise of any of the securities referred to in
subsection (iii) above or any other securities of the Company convertible,
exchangeable, or exercisable for shares of Common Stock, for any reason other
than an event that would require adjustment to prevent dilution, so that the
consideration per share received by the Company after such modification is less
than the market price on the date prior to such modification, the Purchase Price
to be in effect after such modification shall be determined by multiplying the
Purchase Price in effect immediately prior to such event by a fraction, of which
the numerator shall be the number of shares of Common Stock outstanding
multiplied by the market price on the date prior to the modification plus the
number of shares of Common Stock which the aggregate consideration receivable by
the Company for the securities affected by the modification would purchase at
the market price and of which the
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denominator shall be the number of shares of Common Stock outstanding on such
date plus the number of shares of Common Stock to be issued upon conversion,
exchange, or exercise of the modified securities at the modified rate. Such
adjustment shall become effective as of the date upon which such modification
shall take effect.
(vi) On the expiration of any such right, warrant
or option or the termination of any such right to convert or exchange any such
Convertible Securities, the Purchase Price then in effect hereunder shall
forthwith be readjusted to such Purchase Price as would have obtained (a) had
the adjustments made upon the issuance or sale of such rights, warrants, options
or Convertible Securities been made upon the basis of the issuance of only the
number of shares of Common Stock theretofore actually delivered (and the total
consideration received therefor) upon the exercise of such rights, warrants, or
options or upon the conversion or exchange of such Convertible Securities and
(b) had adjustments been made on the basis of the Purchase Price as adjusted
under clause (a) for all transactions (which would have affected such adjusted
Purchase Price) made after the issuance or sale of such rights, warrants,
options or Convertible Securities.
(vii) In case of the sale for cash of any shares of
Common Stock, any Convertible Securities, any rights or warrants to subscribe
for or purchase, or any options for the purchase of, Common Stock or Convertible
Securities, the consideration received by the Company therefor shall be deemed
to be the gross sales price therefor without deducting therefrom any expense
paid or incurred by the Company or any underwriting discounts or commissions or
concessions paid or allowed by the Company in connection therewith.
(g) No adjustment to the Purchase Price of the Warrants
or to the number of shares of Common Stock purchasable upon the
exercise of each Warrant will be made, however,
(i) upon the sale or exercise of the Warrants,
including without limitation, the sale or exercise of any warrants or options
outstanding as of the date hereof, or any options or warrants issued by the
Company to any employees, directors or consultants; or
(ii) upon the sale of any shares of Common Stock
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in the Company's initial public offering, including, without limitation, shares
sold upon the exercise of any over-allotment option granted to an Underwriter of
a public offering by the Company in connection with such offering; or
(iii) upon the issuance or sale of Common Stock or
Convertible Securities upon the exercise of any rights or warrants to subscribe
for or purchase, or any options for the purchase of, Common Stock or Convertible
Securities, whether or not such rights, warrants or options were outstanding on
the date of the original sale of the Warrants or were thereafter issued or sold;
or
(iv) upon the issuance or sale of Common Stock
upon conversion or exchange of any Convertible Securities, whether or not any
adjustment in the Purchase Price was made or required to be made upon the
issuance or sale of such Convertible Securities and whether or not such
Convertible Securities were outstanding on the date of the original sale of the
Warrants or were thereafter issued or sold; or
(v) upon the issuance or sale of Common Stock or
Convertible Securities in an exempt transaction unless the issuance or sale
price is less than 50% of the fair market value of the Common Stock on the date
of issuance, in which case the adjustment shall only be for the difference
between 50% of the fair market value and the issue or sale price; or
(vi) upon the issuance or sale of Common Stock or
Convertible Securities to shareholders of any corporation which merges and/or
consolidates into or is acquired by the Company or from which the Company
acquires assets and some or all of the consideration consists of equity
securities of the Company, in proportion to their stock holdings of such
corporation immediately prior to the acquisition but only if no adjustment is
required pursuant to any other provision of this Section 9.
(vii) upon the issuance or exercise of options or
upon the issuance or grant of stock awards granted to the Company's directors,
employees or consultants under a plan or plans adopted by the Company's Board of
Directors and approved by its stockholders. For the purposes of determining
whether the consideration received by the Company is less than the Market Price
in connection with any issuance of stock to the Company's
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directors, employees or consultants under plans adopted by the Company's Board
of Directors and approved by its stockholders, the consideration received shall
be deemed to be the amount of compensation to the director, employee or
consultant reported by the Company in connection with such issuances.
(viii) upon the issuance of Common Stock to the
Company's directors, employees or consultants under a plan or plans which are
qualified under the Internal Revenue Code; or
(ix) upon the issuance of Common Stock in a bona
fide public offering pursuant to a firm commitment underwriting.
(h) As used in this Section 9, the term "Common Stock" shall
mean and include the Company's Common Stock authorized on the date of the
original issue of the Units and shall also include any capital stock of any
class of the Company thereafter authorized which shall not be limited to a fixed
sum or percentage in respect of the rights of the holders thereof to participate
in dividends and in the distribution of assets upon the voluntary liquidation,
dissolution or winding up of the Company; provided, however, that the shares
issuable upon exercise of the Warrants shall include (i) only shares of such
class designated in the Company's Certificate of Incorporation as Common Stock
on the date of the original issue of the Units or (ii) in the case of any
reclassification, change, consolidation, merger, sale or conveyance of the
character referred to in Section 9(c) hereof, the stock, securities or property
provided for in such section or (iii) in the case of any reclassification or
change in the outstanding shares of Common Stock issuable upon exercise of the
Warrants as a result of a subdivision or combination or a change in par value,
or from par value to no par value, or from no par value to par value, such
shares of Common Stock as so reclassified or changed.
(i) Any determination as to whether an adjustment in the
Purchase Price in effect hereunder is required pursuant to Section 9, or as to
the amount of any such adjustment, if required, shall be binding upon the
holders of the Warrants and the Company if made in good faith by the Board of
Directors of the Company.
(j) If and whenever the Company shall grant to the
holders of Common Stock, as such, rights or warrants to subscribe
for or to purchase, or any options for the purchase of, Common
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<PAGE>
Stock or securities convertible into or exchangeable for or carrying a right,
warrant or option to purchase Common Stock, the Company shall concurrently
therewith grant to each Registered Holder as of the record date for such
transaction of the Warrants then outstanding, the rights, warrants or options to
which each Registered Holder would have been entitled if, on the record date
used to determine the stockholders entitled to the rights, warrants or options
being granted by the Company, the Registered Holder were the holder of record of
the number of whole shares of Common Stock then issuable upon exercise
(assuming, for purposes of this Section 9(j), that exercise of Warrants is
permissible during periods prior to the Initial Warrant Exercise Date) of his
Warrants. Such grant by the Company to the holders of the Warrants shall be in
lieu of any adjustment which otherwise might be called for pursuant to this
Section 9.
10. Fractional Warrants and Fractional Shares.
(a) If the number of shares of Common Stock purchasable upon
the exercise of each Warrant is adjusted pursuant to Section 9 hereof, the
Company nevertheless shall not be required to issue fractions of shares, upon
exercise of the Warrants or otherwise, or to distribute certificates that
evidence fractional shares. In such event, the Company may at its option elect
to round up the number of shares to which the Holder is entitled to the nearest
whole share or to pay cash in respect of fractional shares in accordance with
the following: With respect to any fraction of a share called for upon any
exercise hereof, the Company shall pay to the Holder an amount in cash equal to
such fraction multiplied by the current market value of such fractional share,
determined as follows:
(i) If the Common Stock is listed on a National
Securities Exchange or admitted to unlisted trading privileges on such exchange
or listed for trading on the NASDAQ Quotation System, the current value shall be
the last reported sale price of the Common Stock on such exchange on the last
business day prior to the date of exercise of this Warrant or if no such sale is
made on such day, the average of the closing bid and asked prices for such day
on such exchange; or
(ii) If the Common Stock is not listed or admitted
to unlisted trading privileges, the current value shall be the mean
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of the last reported bid and asked prices reported by the National
Quotation Bureau, Inc. on the last business day prior to the date
of the exercise of this Warrant; or
(iii) If the Common Stock is not so listed or
admitted to unlisted trading privileges and bid and asked prices are not so
reported, the current value shall be an amount determined in such reasonable
manner as may be prescribed by the Board of Directors of the Company.
11. Warrant Holders Not Deemed Stockholders. No holder of Warrants
shall, as such, be entitled to vote or to receive dividends or be deemed the
holder of Common Stock that may at any time be issuable upon exercise of such
Warrants for any purpose whatsoever, nor shall anything contained herein be
construed to confer upon the holder of Warrants, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action (whether upon any recapitalization,
issue or reclassification of stock, change of par value or change of stock to no
par value, consolidation, merger or conveyance or otherwise), or to receive
notice of meetings, or to receive dividends or subscription rights, until such
Holder shall have exercised such Warrants and been issued shares of Common Stock
in accordance with the provisions hereof.
12. Rights of Action. All rights of action with respect to this
Agreement are vested in the respective Registered Holders of the Warrants, and
any Registered Holder of a Warrant, without consent of the Warrant Agent or of
the holder of any other Warrant, may, in his own behalf and for his own benefit,
enforce against the Company his right to exercise his Warrants for the purchase
of shares of Common Stock in the manner provided in the Warrant Certificate and
this Agreement.
13. Agreement of Warrant Holders. Every holder of a Warrant,
by his acceptance thereof, consents and agrees with the Company,
the Warrant Agent and every other holder of a Warrant that:
(a) The Warrants are transferable only on the registry books
of the Warrant Agent by the Registered Holder thereof in person or by his
attorney duly authorized in writing and only if
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the Warrant Certificates representing such Warrants are surrendered at the
office of the Warrant Agent, duly endorsed or accompanied by a proper instrument
of transfer satisfactory to the Warrant Agent and the Company in their mutual
discretion, together with payment of any applicable transfer taxes; and
(b) The Company and the Warrant Agent may deem and treat the
person in whose name the Warrant Certificate is registered as the holder and as
the absolute, true and lawful owner of the Warrants represented thereby for all
purposes, and neither the Company nor the Warrant Agent shall be affected by any
notice or knowledge to the contrary, except as otherwise expressly provided in
Section 7 hereof.
14. Cancellation of Warrant Certificates. If the Company shall
purchase or acquire any Warrant or Warrants, the Warrant Certificate or Warrant
Certificates evidencing the same shall thereupon be delivered to the Warrant
Agent and canceled by it and retired. The Warrant Agent shall also cancel Common
Stock following exercise of any or all of the Warrants represented thereby or
delivered to it for transfer, split up, combination or exchange.
15. Concerning the Warrant Agent. The Warrant Agent acts
hereunder as agent and in a ministerial capacity for the Company, and its
duties shall be determined solely by the provisions hereof. The Warrant Agent
shall not, by issuing and delivering Warrant Certificates or by any other act
hereunder be deemed to make any representations as to the validity, value or
authorization of the Warrant Certificates or the Warrants represented thereby
or of any securities or other property delivered upon exercise of any Warrant
or whether any stock issued upon exercise of any Warrant is fully paid and
nonassessable.
The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to be made
any adjustment of the Purchase Price or the Redemption Price provided in this
Agreement, or to determine whether any fact exists which may require any such
adjustments, or with respect to the nature or extent of any such adjustment,
when made, or with respect to the method employed in making the same. It shall
not (i) be liable for any recital or statement of facts contained herein or for
any action taken, suffered or omitted by it
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in reliance on any warrant Certificate or other document or instrument believed
by it in good faith to be genuine and to have been signed or presented by the
proper party or parties, (ii) be responsible for any failure on the part of the
Company to comply with any of its covenants and obligations contained in this
Agreement or in any Warrant Certificate, or (iii) be liable for any act or
omission in connection with this Agreement except for its own negligence or
wilful misconduct.
The Warrant Agent may at any time consult with counsel
satisfactory to it (who may be counsel for the Company) and shall incur no
liability or responsibility for any action taken, suffered or omitted by it in
good faith in accordance with the opinion or advice of such counsel.
Any notice, statement, instruction, request, direction, order
or demand of the Company shall be sufficiently evidenced by an instrument signed
by its President, any Vice President, its Secretary, or Assistant Secretary,
(unless other evidence in respect thereof is herein specifically prescribed).
The Warrant Agent shall not be liable for any action taken, suffered or omitted
by it in accordance with such notice, statement, instruction, request,
direction, order or demand reasonably believed by it to be genuine.
The Company agrees to pay the Warrant Agent reasonable
compensation for its services hereunder and to reimburse it for its reasonable
expenses hereunder; it further agrees to indemnify the Warrant Agent and save it
harmless against any and all losses, expenses and liabilities, including
judgments, costs and counsel fees, for anything done or omitted by the Warrant
Agent in the execution of its duties and powers hereunder except losses,
expenses and liabilities arising as a result of the Warrant Agent's negligence
or wilful misconduct.
The Warrant Agent may resign its duties and be discharged from
all further duties and liabilities hereunder (except liabilities arising as a
result of the Warrant Agent's own negligence or wilful misconduct), after giving
thirty (30) days' prior written notice to the Company. At least fifteen (15)
days prior to the date such resignation is to become effective, the Warrant
Agent shall cause a copy of such notice of resignation to be mailed to the
Registered Holder of each Warrant Certificate at
22
<PAGE>
the Company's expense. Upon such resignation, or any inability of the Warrant
Agent to act as such hereunder, the Company shall appoint a new warrant agent in
writing. If the Company shall fail to make such appointment within a period of
fifteen (15) days after it has been notified in writing of such resignation by
the resigning Warrant Agent, then the Registered Holder of any Warrant
Certificate may apply to any court of competent jurisdiction in the State of New
York for the appointment of a new warrant agent. Any new warrant agent, whether
appointed by the Company or by such a court, shall be a bank or trust company
having a capital and surplus, as shown by its last published report to its
stockholders, of not less than $10,000,000 or a stock transfer company. After
acceptance in writing of such appointment by the new warrant agent is received
by the Company, such new warrant agent shall be vested with the same powers,
rights, duties and responsibilities as if it had been originally named herein as
the Warrant Agent, without any further assurance, conveyance, act or deed; but
if for any reason it shall be necessary or expedient to execute and deliver any
further assurance, conveyance, act or deed, the same shall be done at the
expense of the Company and shall be legally and validly executed and delivered
by the resigning Warrant Agent. Not later than the effective date of any such
appointment the Company shall file notice thereof with the resigning Warrant
Agent and shall forthwith cause a copy of such notice to be mailed to the
Registered Holder of each Warrant Certificate.
Any corporation into which the Warrant Agent or any new
warrant agent may be converted or merged or any corporation resulting from any
consolidation to which the Warrant Agent or any new warrant agent shall be a
party or any corporation succeeding to the trust business of the Warrant Agent
shall be a successor warrant agent under this Agreement without any further act,
provided that such corporation is eligible for appointment as successor to the
Warrant Agent under the provisions of the preceding paragraph. Any such
successor warrant agent shall promptly cause notice of its succession as warrant
agent to be mailed to the Company and to the Registered Holder of each Warrant
Certificate.
The Warrant Agent, its subsidiaries and affiliates, and any of
its or their officers or directors, may buy and hold or sell Warrants or other
securities of the Company and otherwise deal with the Company in the same manner
and to the same extent and with like
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<PAGE>
effects as though it were not the Warrant Agent. Nothing herein shall preclude
the Warrant Agent from acting in any other capacity for the Company if so
authorized by the Company or for any other legal entity.
16. Modification of Agreement. The Warrant Agent and the Company
may by supplemental agreement make any changes or corrections in this Agreement
(i) that they shall deem appropriate to cure any ambiguity or to correct any
defective or inconsistent provision or manifest mistake or error herein
contained; or (ii) that they may deem necessary or desirable and which shall not
adversely affect the interests of the holders of Warrant Certificates; provided,
however, that this Agreement shall not otherwise be modified, supplemented or
altered in any respect except with the consent in writing of the Registered
Holders of Warrant Certificates representing not less than fifty percent (50%)
of the Warrants then outstanding; and provided, further, that no change in the
number or nature of the securities purchasable upon the exercise of any Warrant,
or the Purchase Price therefor, or the acceleration of the Warrant Expiration
Date, shall be made without the consent in writing of the Registered Holder of
the Warrant Certificate representing such Warrant, other than such changes as
are specifically prescribed by this Agreement as originally executed or are made
in compliance with applicable law.
17. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
made when delivered or mailed first class registered or certified mail, postage
prepaid as follows: if to the Registered Holder of a Warrant Certificate, at
the address of such holder as shown on the registry books maintained by the
Warrant Agent; if to the Company, 1490 Railroad Street, Corona, CA 91720, or
at such other address as may have been furnished to the Warrant Agent in
writing by the Company; and if to the Warrant Agent, at its corporate office.
18. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York,
without reference to principles of conflict of laws.
19. Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the Company and the Warrant Agent, and
their respective successors and assigns, and the holders from time
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<PAGE>
to time of Warrant Certificates. Nothing in this Agreement is intended or shall
be construed to confer upon any other person any right, remedy or claim, in
equity or at law, or to impose upon any other person any duty, liability or
obligation.
20. Termination. This Agreement shall terminate at the close of
business on the Warrant Expiration Date of all the Warrants or such earlier date
upon which all Warrants have been exercised, except that the Warrant Agent shall
account to the Company for cash held by it and the provisions of Section 15
hereof shall survive such termination.
21. Counterparts. This Agreement may be executed in several
counterparts, which taken together shall constitute a single
document.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
COMPUTER MARKETPLACE, INC.
By: /s/ L. Wayne Kiley
----------------------
Name: L. Wayne Kiley,
Title:President
AMERICAN STOCK TRANSFER & TRUST COMPANY
By: /s/ Herbert J. Lemmer
----------------------
Name:Herbert J. Lemmer
Title:Vice President
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<PAGE>
[Letterhead of Bernstein & Wasserman]
May 2, 1997
Computer Marketplace, Inc.
1490 Railroad Street
Corona, California 91720
Ladies and Gentlemen:
We have acted as counsel for Computer Marketplace, Inc., a Delaware
company ("Company"), in connection with a Registration Statement on Form SB-2
("Registration Statement") being filed contemporaneously herewith by the Company
with the Securities and Exchange Commission under the Securities Act of 1933, as
amended (the "Securities Act"), covering, the offering of shares of Common
Stock, par value $.0001 ("Common Stock"), and Class D Redeemable Common Stock
Purchase Warrants (the "Class D Warrants"). The prospectus included in the
Registration Statement covers (i) the resale of 9,000,000 Class D Warrants being
offered by certain selling securityholders ("Warrantholders"), (ii) the issuance
by the Company of 1,500,000 shares of Common Stock upon the exercise of the
Class D Warrants by other than the Warrantholders, (iii) the resale of 1,000,000
shares of Common Stock issuable to Victoria Holdings, Inc., a consultant to the
Company, upon the exercise of an option held thereby, and (iv) the resale of
1,000,000 shares of Common Stock issuable to certain employees, directors and
consultants of the Company upon the exercise of options held thereby.
In that connection, we have examined the Certificate of Incorporation,
as amended, and the Amended and Restated By-Laws of the Company, the
Registration Statement and the Prospectus contained therein, the Consulting
Agreement, the Class D Warrant Agreement, the Class D Warrant Certificate,
corporate proceedings of the Company relating to the issuance of the Class D
Warrants and the Common Stock underlying such warrants, and such other
instruments and documents as we have deemed relevant under the circumstances.
<PAGE>
In making the aforesaid examinations, we have assumed the genuineness
of all signatures and the conformity to original documents of all copies
furnished to us as original or photostatic copies. We have also assumed that the
corporate records of the Company include all corporate proceedings taken by the
Company to date.
Based upon and subject to the foregoing, we are of the opinion that the
Class D Warrants being offered by the Warrantholders have been duly and validly
authorized and issued, fully paid and nonassessable and when sold in accordance
with the registration statement will continue to be duly and validly authorized
and issued, fully paid and nonassessable. The shares of Common Stock issuable
upon (i) the exercise of the Class D Warrants (ii) the exercise of options held
Victoria Holdings, Inc. and (iii) the exercise of options held by certain
employees, directors and consultants to the Company have been duly authorized
and reserved for issuance and when issued in accordance with the terms of the
(i) the Class D Warrants, (ii) the options held by Victoria Holdings, Inc. and
(iii) the options held by certain employees, directors and consultants to the
Company, as the case may be, will be duly authorized, validly issued, fully paid
and nonassessable.
We hereby consent to the use of this opinion as herein set forth as an
exhibit to the Registration Statement.
Very truly yours,
BERNSTEIN & WASSERMAN, LLP
<PAGE>
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of October 16,1996, by and between Computer
Marketplace, Inc. a Delaware corporation (the "Company"), having its principal
executive offices at 1490 Railroad Street, Corona, California 91720, and L.
WAYNE KILEY, an individual residing at 8401 Bedford Motorway, Corona, CA 91719
("Employee").
WHEREAS, the Company and the Employee entered into that certain employment
agreement dated as of October 16, 1992 (the Original Agreement"); and
WHEREAS, the Company and the Employee wish to amend certain terms of the
Original Agreement, including the term of employment thereunder; and
NOW, THEREFORE, in consideration of the provisions and covenants contained
herein, the parties hereto agree as follows:
1. TERM
The term of this Agreement shall be for a period of three (3) years
commencing on the date hereof (the "Employment Term"), and shall be renewed at
the end of the Employment Term for an additional one (1) year period upon mutual
agreement by the parties, in writing, at least sixty (60) days prior to the end
of the term of this Agreement.
2. COMPENSATION
(a) The Company shall pay to Employee an annual salary of $302,500 per
annum, payable biweekly or at such other intervals as the Company makes payment
of its payroll in the regular
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course of business (the "Base Amount"). The Base Amount shall be increased by
six percent (6%) during each year of the Employment Term.
(b) Employee may participate in the Company's group health insurance,
long-term disability and life insurance coverage that the Company makes
available to its employees generally. The respective carriers shall make all
determinations as to insurability and coverage.
(c) The Company and Employee contemplate that the Company will pay to
Employee bonuses, on an annual basis, based upon the operating performance of
the Company or other reasonable criteria. The Company and Employee will
negotiate in good faith to achieve a reasonable and fair bonus arrangement to
incentive and reward Employee for services performed and to be performed for the
Company hereunder.
(d) The Company shall provide the Employee with an automobile for his use.
(e) If the Company has certain pre-tax earnings during a fiscal year,
during the Employment Term, then Employee shall be granted an option exercisable
for a period of four (4) years to purchase from the Company shares of the
Company's common stock at an exercise price equal to seventy five percent (75%)
of the closing bid price of the Company's shares of Common Stock on the date of
grant, subject to customary anti-dilution adjustments. If the Company has
earnings before the payment of interest and taxes ("EBIT") of at least six
hundred twenty five thousand dollars ($625,000) during any fiscal year during
the Employment Term, then Employee shall have the right to purchase a number of
shares of common stock equal to two and one-half percent (2.5%) of the shares of
common stock outstanding on the date of grant of such option to Employee. If the
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<PAGE>
Company has EBIT of at least eight hundred seventy five thousand dollars
($875,000) during any fiscal year during the Employment Term then Employee shall
have the right to purchase a number of shares of common stock equal to three
percent (3%) of the shares of common stock outstanding on the date of grant of
such option to Employee. If the Company has EBIT of at least one million dollars
($1,000,000) during any fiscal year during the Employment Term, Employee shall
have the right to purchase a number of shares of common stock equal to three and
one-half percent (3.5%) of the shares of common stock outstanding on the date of
exercise of such option by the Employee. In no event shall Employee be entitled
to receive options for the Company's satisfaction of a financial target
described above on more than one occasion.
(f) In addition to other compensation hereunder, the Company shall pay for
and maintain a policy of disability income insurance to provide Employee with
income in the amount of seventy-five percent (75%) of Employee's salary if
Employee becomes disabled.
(g) In the event that Employee shall become permanently disabled,
(Employee's inability, by reason of physical or mental illness, or other cause,
to perform the majority of his usual duties in a normal and professional manner
on a full-time basis which continues for a period beyond six (6) months) then,
at Employer's option, Employer's obligation to said Employee to pay any part of
his salary shall cease and Employee shall assign its interest in Employee's
disability policy to Employee and Employee shall thereafter be responsible for
paying all subsequent premiums required to maintain and keep said policy in full
force and effect.
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<PAGE>
(h) The Company will promptly reimburse the Employee for all reasonable
business expenses incurred by the Employee in promoting the business of the
Company, including expenditures for entertainment, gifts, and travel, provided
that:
(i) each such expenditure is of a nature qualifying it as a proper
deduction on the Federal and State income tax return of the Company;
and
(ii) the Employee furnishes to the Company adequate records and other
documentary evidence required by Federal and State statutes and
regulations issued by the appropriate taxing authorities for the
substantiation of each such expenditure as an income tax deduction.
(i) The Company shall maintain a life insurance policy on the life of the
Employee providing Employee's spouse or other heirs with two million dollars
($2,000,000) in the event Employee becomes deceased prior to the end of the
Employment Term; provided however, that Employee's spouse or other heirs must
deliver to the Company for cancellation all of the shares of Common Stock of the
Company beneficially owned by Employee prior to his death. In addition, the
Company shall also maintain a $1,000,000 split dollar life insurance policy on
the life of the Employee, the policy amount to be paid to the Employee's
beneficiary and to the Company for reimbursement of premium amounts previously
paid.
(j) In the event that during the Term the Company sells assets outside the
ordinary course of business, the Employee shall be entitled to a cash bonus
equal to five percent (5%) of the amount
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<PAGE>
by which the sale price exceeds the book value for such asset(s) as reflected on
the Company's balance sheet for the quarter ending just prior to the date of
such sale.
3. SCOPE OF EMPLOYMENT
The Company agrees to employ Employee on the terms and conditions contained
herein during the Employment Term, and Employee agrees to be so employed.
Employee shall serve as President and Chief Executive Officer of the Company
during the Employment Term. Employee will serve the Company faithfully,
industriously, and to the best of Employee's ability, experience and talents.
Employee shall be responsible to carry out all corporate and administrative
duties, functions and responsibilities customarily incumbent upon chief
executive officers of companies such as the Company.
4. TERMINATION FOR CAUSE
The Company may terminate this Agreement, upon thirty (30) days prior
written notice, for cause prior to the end of its term because any of the
following have occurred: (i) Employee has materially breached this Agreement,
including without limitation the material breach of any of his duties hereunder;
(ii) Employee has misrepresented or failed to fully disclose facts to the
Company or has otherwise been dishonest to or with respect to the Company; (iii)
Employee has not worked for a period of 100 consecutive days or any 180 days
(other than vacation days) within any 12-month period; or (iv) death of
Employee; provided however, that the Company shall continue to pay Employee's
estate. If Employee has cured any of the foregoing reasons for termination of
this
5
<PAGE>
Agreement by the Company within thirty (30) days following receipt by him of
notice thereof, then the Company may not terminate this Agreement therefor.
5. CONFIDENTIALITY AND NON-COMPETITION COVENANTS
All information concerning customers that Employee shall gain knowledge of,
all records concerning customers that shall come into Employee's possession, and
all other information pertaining to the Company's operations, are confidential
and shall not at any time be communicated by Employee to any person, firm,
corporation or entity not affiliated with the Company, other than in the
ordinary course of business. At the end of the Employment Period, Employee shall
surrender all copies of all such records, regardless of whether made by him or
otherwise created. During the Employment Term and for a period of two (2) years
after termination of the Employment Term, Employee shall not directly or
indirectly compete with the Company, solicit or otherwise communicate with any
customer of the Company, or otherwise interfere with the carrying on by the
Company of its business including without limitation by soliciting, directly or
indirectly, any other employee at the Company to leave his employment. Employee
recognizes that a breach of these provisions concerning confidentiality and
non-solicitation of customers of the Company will cause irreparable damage to
the Company. Employee therefore agrees, notwithstanding the provisions in
Section 7 herein for the resolution of all disputes by way of arbitration, that
the Company shall be entitled to the entry of a preliminary injunction by a
court of competent jurisdiction in California or elsewhere, restraining Employee
in accordance with the foregoing provisions concerning
6
<PAGE>
confidentiality and non-solicitation in the event of any breach or threatened
breach of any such provision, and submits to the jurisdiction of such court in
any such action.
If any of the restrictions contained in this Section 6 are deemed to be
unenforceable by reason of the extent, duration or geographical scope thereof,
or otherwise, then the Court making such determination shall have the right to
reduce such extent, duration, geographical scope or other provisions hereof and
in its reduced form this Section shall then be enforceable in the manner
contemplated hereby.
6. MISCELLANEOUS
Any dispute which the parties hereto are unable amicably to resolve shall
be submitted to binding arbitration in California in accordance with the Rules
and Constitution of the American Arbitration Association. Either party hereto
may request that any decision of the arbitrators set forth the findings of fact
and conclusions of law upon which their award is based. Judgment upon any such
arbitration award may be entered in any court of competent jurisdiction, and
Employee submits to the jurisdiction of any such court.
In the event any suit or other action is commenced with respect to the
interpretation or enforcement of any provision of this agreement, the prevailing
party shall be entitled, in addition to any other sums to which such party may
be entitled, to recover from the other party the reasonable fees and
disbursements of counsel retained to investigate and pursue such matter.
7. NOTICES
7
<PAGE>
Any notice required or permitted to be delivered hereunder shall be deemed
effective five (5) days after mailing when sent by United States mail, postage
prepaid, certified mail, return receipt requested, addressed to the Company or
Employee, as the case may be, at the addresses set forth below:
If to the Company:
Computer Marketplace
1490 Railroad Street
Corona, CA 91719
Attention: President
With a copy to:
Hartley T. Bernstein, Esq.
Bernstein & Wasserman
950 Third Avenue
New York, NY 10022
If to Employee:
Mr. L. Wayne Kiley
8401 Bedford Motorway
Corona, CA 91719
With a copy to:
Stuart Wallach, Esq.
20271 Southwest Birch Street
Suite 100
Newport Beach, CA 92660
(714) 474-2221
8. SURVIVAL
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The representations, warranties and agreements herein made shall survive
the expiration or termination of the Employment Term hereof.
9. SEVERABILITY
The invalidity of any section, paragraph, sentence or clause ("provision")
set forth in this Agreement shall not affect the validity of any other
provision. All provisions of this Agreement shall be enforced to the fullest
extent permitted by law.
10. ASSIGNMENT
Employee acknowledges that the services to be rendered by him are unique
and personal. Employee may not assign any of his rights or delegate any of his
duties or obligations under this Agreement. The rights and obligations of the
Company under this Agreement shall inure to the benefit of and shall be binding
upon the successors and assigns of the Company.
11. GOVERNING LAW
This Agreement is executed and delivered in the State of California and
shall be construed, governed and enforced in accordance with the laws and
decisions of the State of California without regard to its conflict of laws
doctrine. Each of the parties hereto irrevocably consents to the jurisdiction of
the Federal and State Courts located in the State of California.
12. WAIVER OF BREACH
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The waiver by either party of a breach of any of the provisions of this
Agreement shall not operate as or be construed as a waiver of any subsequent
breach thereof.
13. INDEMNIFICATION
The Company agrees to and shall indemnify, defend, and hold harmless
Employee, both during and following the term of this Agreement, from and against
any and all losses, claims, damages, liabilities, judgments, fines, penalties,
assessments, and costs and expenses as incurred (including attorneys' fees and
costs) which may arise from or be based upon: (i) Employee performance of
services pursuant to this Agreement; and (ii) any actions or alleged actions or
omissions or alleged omissions by Employee in his performance under this
Agreement, so long as Employee acted in good faith and in a manner which he
believes to be in the best interest of the Company. The foregoing
indemnification and hold harmless shall not apply if Employee is found by a
court of competent jurisdiction to be guilty of wanton or willful misconduct or
gross negligence with respect to the matter upon which a claim of
indemnification or hold harmless is made by Employee. In addition, the Company
agrees to use its best efforts to obtain, at a reasonable cost to the Company,
officers and directors liabilities insurance.
14. ENTIRE AGREEMENT
This Agreement contains the entire understanding of the parties. It may not
be changed orally but only by an agreement in writing signed by the party
against whom enforcement of any waiver, change, modification, extension or
discharge is sought.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first set forth above.
COMPUTER MARKETPLACE, INC.
By: /s/ L. Wayne Kiley
--------------------------
L. WAYNE KILEY
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NEITHER THIS OPTION NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS OPTION HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR UNDER THE SECURITIES LAWS OF ANY STATE, AND NEITHER THIS OPTION NOR SUCH
SHARES MAY BE SOLD, OFFERED FOR SALE, ASSIGNED, TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS REGISTERED PURSUANT TO THE PROVISIONS OF THAT ACT AND THE
LAWS OF SUCH STATES UNDER WHOSE LAWS A TRANSFER OF SECURITIES WOULD BE SUBJECT
TO A REGISTRATION REQUIREMENT OR AN OPINION OF COUNSEL TO THE COMPANY IS
OBTAINED STATING THAT SUCH DISPOSITION IS IN COMPLIANCE WITH AN AVAILABLE
EXEMPTION FROM SUCH REGISTRATION.
THIS OPTION IS SUBJECT TO FORFEITURE AS SET FORTH HEREIN.
Void after 5:00 p.m., Eastern Standard Time, on December 31, 2001.
OPTION TO PURCHASE COMMON STOCK
OF
COMPUTER MARKETPLACE, INC.
FOR VALUE RECEIVED, COMPUTER MARKETPLACE, INC., a Delaware corporation
(the "Company"), hereby certifies that Victoria Holdings, Inc. ("Victoria
Holdings"), or its permitted assigns, is entitled to purchase from the Company,
at any time or from time to time commencing on December 31, 1996 and prior to
5:00 p.m., Eastern Standard Time, on December 31, 2001, a total of six million
(6,000,000) fully paid and nonassessable shares of common stock, par value
$.0001 per share, of the Company for an aggregate purchase price of $1,000,000
(computed on the basis of $.166667 per share), subject to the terms and
conditions hereinafter set forth. (Hereinafter, (i) said Common Stock, together
with any other equity securities which may be issued by the Company with respect
thereto or in substitution therefor, is referred to as the "Common Stock," (ii)
the shares of Common Stock purchasable hereunder are referred to as the "Option
Shares," (iii) the aggregate purchase price payable hereunder for all the Option
Shares is referred to as the "Aggregate Option Price," (iv) the price payable
hereunder for each of the Option Shares is referred to as the "Per Share Option
Price," (v) this Option, and all options hereafter issued in exchange or
substitution for this Option are referred to as the "Option" and (vi) the holder
of this Option is referred to as the "Holder.") The Per Share Option Price is
subject to adjustment as hereinafter provided. In the event of any such
adjustment, the number of Option Shares shall be adjusted by dividing the
Aggregate Option Price by the Per Share Option Price in effect immediately after
such adjustment.
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This Option has been issued pursuant to the Consulting Agreement, dated
as of December 9, 1996, between the Company and Victoria Holdings (the
"Consulting Agreement").
1. Exercise of Option. This Option may be exercised, in whole at any
time or in part from time to time commencing on December 31, 1996 and prior to
5:00 p.m., Eastern Standard Time, on December 31, 2001, by the Holder by the
surrender of this Option (with the subscription form at the end hereof duly
executed) to the Company at the address set forth in Subsection 10(a) hereof,
together with proper payment of the Aggregate Option Price, or the proportionate
part thereof if this Option is exercised in part.
The Aggregate Option Price or Per Share Option Price shall be paid in
cash. Payment for Option Shares shall be made by certified or official bank
check payable to the order of the Company. If this Option is exercised in part,
this Option must be exercised for a minimum of one thousand (1,000) shares of
Common Stock, and the Holder is entitled to receive a new Option covering the
number of Option Shares in respect to which this Option has not been exercised
and setting forth the proportionate part of the Aggregate Option Price
applicable to such Option Shares. Upon such surrender of this Option, the
Company will (a) issue a certificate or certificates in the name of the Holder
for the largest number of whole shares of Common Stock to which the Holder shall
be entitled and, if this Option is exercised in whole, in lieu of any fractional
share of Common Stock to which the Holder shall be entitled, cash equal to the
fair value of such fractional share (determined in such reasonable manner as the
Board of Directors of the Company shall determine), and (b) deliver the
proportionate part thereof if this Option is exercised in part, pursuant to the
provisions of this Option.
Notwithstanding anything contained herein to the contrary, the Company
agrees, at the request of the Holder, to allow the cashless exercise hereof
through a brokerage firm acceptable to the Company whereby the Holder (to the
extent permitted by, and subject to, applicable law) can exercise this Option,
or a portion thereof, without making a direct payment of the Aggregate Option
Price or Per Share Option Price to the Company.
No right granted herein shall be exercisable after 5:00 p.m., Eastern
Standard Time, on the fifth anniversary of the date hereof.
2. Commencement of Exercisability; Forfeiture. This Option will become
exercisable, in its entirety, commencing on December 31, 1996.
3. Reservation of Option Shares. The Company agrees that until the
expiration of this Option, the Company will at all times have authorized and in
reserve, and will keep available, solely for issuance or delivery upon the
exercise of this Option, the shares of Common Stock as from time to time shall
be receivable upon the exercise of this Option.
4. Anti-Dilution Provisions.
(a) If, at any time or from time to time after the date of
this Option, the
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<PAGE>
Company shall distribute to the holders of the Common Stock (i) securities,
other than shares of Common Stock, or (ii) property, other than cash, without
payment therefor, with respect to the Common Stock, then, and in each such case,
the Holder, upon the exercise of this Option, shall be entitled to receive the
securities and properties which the Holder would have held on the date of such
exercise if, on the date of such distribution, the Holder had been the holder of
record of the number of shares of Common Stock subscribed for upon such exercise
and, during the period from the date of such distribution to and including the
date of such exercise, had retained such shares and the securities and
properties receivable by the Holder during such period. Notice of each such
distribution shall be forthwith mailed to the Holder.
(b) In case the Company shall hereafter (i) pay a dividend or
make a distribution on its capital stock in shares of Common Stock, (ii)
subdivide the outstanding shares of Common Stock into a greater number of
shares, (iii) combine the outstanding shares of Common Stock into a smaller
number of shares or (iv) issue by reclassification of the Common Stock any
shares of capital stock of the Company, the Per Share Option Price in effect
immediately prior to such action shall be adjusted so that if the Holder
surrendered this Option for exercise immediately thereafter the Holder would be
entitled to receive the number of shares of Common Stock or other capital stock
of the Company which he would have owned immediately following such action had
such Option been exercised immediately prior thereto. An adjustment made
pursuant to this subsection (b) shall become effective immediately after the
record date in the case of a dividend or distribution and shall become effective
immediately after the effective date in the case of a subdivision, combination
or reclassification. If, as a result of an adjustment made pursuant to this
subsection (b), the Holder shall become entitled to receive shares of two or
more classes of capital stock or shares of Common Stock and other capital stock
of the Company, the Board of Directors of the Company (whose determination shall
be conclusive and shall be described in a written notice to the Holder promptly
after such adjustment) shall determine the allocation of the adjusted Per Share
Option Price between or among shares of such classes of capital stock or shares
of Common Stock and other capital stock.
(c) In case of any consolidation or merger to which the
Company is a party other than a merger or consolidation in which the Company is
the continuing corporation, or in case of any sale or conveyance to another
entity of the property of the Company as an entirety or substantially as an
entirety, or in the case of any statutory exchange of securities with another
corporation (including any exchange effected in connection with a merger of a
third corporation into the Company), the Holder shall have the right thereafter
to convert this Option into the kind and amount of securities, cash or other
property which he would have owned or would have been entitled to receive
immediately after such consolidation, merger, statutory exchange, sale or
conveyance had such Option been converted immediately prior to the effective
date of such consolidation, merger, statutory exchange, sale or conveyance and
in any such case, if necessary, appropriate adjustment shall be made in the
application of the provisions set forth in this Section 4 with respect to the
rights and interests thereafter of the Holder to the end that the provisions set
forth in this Section 4 shall thereafter correspondingly be made applicable, as
nearly as may reasonably be, in relation to any shares of stock or other
securities or property thereafter deliverable on the conversion of this Option.
The above provisions of this subsection (c) shall similarly apply to successive
consolidations, mergers,
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<PAGE>
statutory exchanges, sales or conveyances. Notice of any such consolidation,
merger, statutory exchange, sale or conveyance and of said provisions so
proposed to be made, shall be mailed to the Holder not less than 30 days prior
to such event. A sale of all or substantially all of the assets of the Company
for a consideration consisting primarily of securities shall be deemed a
consolidation or merger for the foregoing purposes.
(d) If the Company shall at any time after the date of this Option
issue shares of Common Stock or rights, options or warrants to subscribe for or
purchase shares of Common Stock, or securities convertible into, or exchangeable
for, Common Stock (excluding shares, rights, options, warrants or convertible or
exchangeable securities issued or issuable in any of the transactions with
respect to which an adjustment rate is provided pursuant to clause (a), (b) or
(c) above), at a price per share (determined, in the case of such rights,
options, warrants or convertible or exchangeable securities, by dividing (i) the
total amount received or receivable by the Company in consideration of the sale
and issuance of such rights, options, warrants, or convertible, exercisable or
exchangeable securities, plus the maximum aggregate consideration payable to the
Company upon exercise, conversion or exchange thereof, by (ii) the maximum
number of shares issuable upon conversion, exercise or exchange as the case may
be, of such rights, options, warrants or convertible or exchangeable securities)
less than forty percent (40%) of the current Per Share Option Price in effect at
such time, then the Per Share Option Price shall be changed to a price
determined by multiplying the Per Share Option Price in effect immediately prior
thereto by a fraction, the numerator of which shall be the sum of (1) the number
of shares of Common Stock outstanding immediately prior to such issuance and (2)
the number of shares of Common Stock which could be purchased at the current Per
Share Option Price using the aggregate consideration received or receivable by
the Company in consideration of such sale and/or issuance (including any amounts
payable to the Company upon exercise, conversion or exchange of any rights,
options, warrants or convertible or exchangeable securities) and of which the
denominator shall be the number of shares of Common Stock outstanding
immediately after such issuance and/or sale.
For the purposes of such adjustment, the maximum number of
shares of Common Stock which the holders of any such rights, options, warrants
or convertible or exchangeable securities shall be entitled to initially
subscribe for or purchase or convert or exchange such securities into shall be
deemed to be issued and outstanding as of the date of such issuance, and the
consideration received by the Company therefor shall be deemed to be the
consideration received by the Company for such rights, options, warrants or
convertible or exchangeable securities, plus the maximum aggregate consideration
or premiums stated in such rights, options, warrants, or convertible or
exchangeable securities to be paid for the shares issuable thereby. No further
adjustment of the Per Share Option Price shall be made as a result of the actual
issuance of shares of Common Stock upon exercise of such rights, options or
warrants or on conversion or exchange of such convertible or exchangeable
securities. Upon the expiration or the termination of such rights, options, or
warrants, or the termination of such right to convert or exchange, the Per Share
Option Price shall be readjusted to such Per Share Option Price as would have
been obtained had the adjustments made upon the issuance of such rights,
options, warrants or convertible or exchangeable securities been made upon the
basis of the delivery of only the number of shares of Common Stock actually
delivered upon the
4
<PAGE>
exercise of such rights, options, or warrants or upon the conversion or exchange
of any such securities. In case the Company shall issue shares of Common Stock
or any such rights, options, warrants or convertible or exchangeable securities
for a consideration consisting, in whole or in part, of property other than cash
or its equivalent, then the "price per share" and the "consideration received by
the Company" for purposes of the first sentence of this Section 4(d) shall be
determined in good faith by the Company in its sole discretion.
Such adjustment shall become effective on the date of such
issuance. Shares of Common Stock owned by or held for the account of the Company
or any majority owned subsidiary shall not be deemed outstanding for the purpose
of any such computation.
Notwithstanding anything contained herein to the contrary, in
no event shall any adjustment be made with respect to the issuance of any
securities of the Company (i) in connection with the exercise of any options or
warrants outstanding as of the date of this Option, (ii) to any officer,
director, employee or consultant of the Company, whether or not such issuance is
pursuant to any stock option or other incentive compensation or employee benefit
plans adopted by the Company, (iii) to Victoria Holdings pursuant to the
Consulting Agreement and any amendments thereto or otherwise, and (v) to
shareholders of any other company which merges into the Company or from which
the Company acquires assets and some or all of the consideration for such merger
or acquisition consists of securities of the Company (except for any adjustments
required pursuant to clause (c) of this Section 4).
(e) No adjustment in the Per Share Option Price shall be
required unless such adjustment would require an increase or decrease of at
least $0.10 in such price, provided, however, that any adjustments which by
reason of this clause (e) are not required to be made shall be carried forward
cumulatively and taken into account in any subsequent calculation.
(f) In any case in which this Section 4 shall require that an
adjustment as a result of any event become effective from and after a record
date, the Company may elect to defer until the occurrence of such event (i) the
issuance to the Holder exercised after such record date and before the
occurrence of such event of the additional shares of Common Stock issuable upon
such exercise over and above the shares issuable immediately prior to adjustment
and (ii) the payment to the Holder of any amount in cash in lieu of a fractional
share of Common Stock; provided, however, that the Company shall deliver to the
Holder a due bill or other appropriate instrument evidencing the Holder's right
to receive such additional Common Stock or such payment in lieu of such
fractional shares.
(g) Whenever the Per Share Option Price is adjusted as
provided in this Section 4 and upon any modification of the rights of the Holder
in accordance with this Section 4, the Company shall promptly prepare a
certificate of an officer of the Company setting forth the Per Share Option
Price and the number of Option Shares after such adjustment or modification, a
brief statement of the facts requiring such adjustment or modification and the
manner of computing the same and cause a copy of such certificate to be mailed
to the Holder.
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<PAGE>
(h) If the Board of Directors of the Company shall declare any
dividend or other distribution in cash with respect to the Common Stock, other
than out of earned surplus, the Company shall mail notice thereof to the Holder
not less than 15 days prior to the record date fixed for determining
stockholders entitled to participate in such dividend or other distribution.
5. Fully Paid Stock; Taxes. The Company agrees that the shares of
Common Stock represented by each and every certificate for Option Shares
delivered on the exercise of this Option shall, at the time of such delivery, be
validly issued and outstanding, fully paid and nonassessable, and not subject to
preemptive rights, and the Company will take all such actions as may be
necessary to assure that the par value or stated value, if any, per share of the
Common Stock is at all times equal to or less than the then Per Share Option
Price. The Company further covenants and agrees that it will pay, when due and
payable, any and all federal and state stamp, original issue or similar taxes
that may be payable in respect of the issue of any Option Shares or certificates
therefor.
6. Transfer.
(a) Securities Laws. Neither this Option nor the Option Shares
issuable upon the exercise hereof have been registered under the Securities Act
of 1933, as amended (the "Securities Act"), or under any state securities laws
and unless so registered may not be transferred, sold, pledged, hypothecated or
otherwise disposed of unless an exemption from such registration is available.
In the event the Holder desires to transfer this Option or any of the Option
Shares issued, the Holder must give the Company prior written notice of such
proposed transfer including the name and address of the proposed transferee.
Such transfer may be made only either (i) upon publication by the Securities and
Exchange Commission (the "Commission") of a ruling, interpretation, opinion or
"no action letter" based upon facts presented to said Commission, or (ii) upon
receipt by the Company of an opinion of counsel to the Company in either case to
the effect that the proposed transfer will not violate the provisions of the
Securities Act, the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or the rules and regulations promulgated under either such act or any
state securities laws, or in the case of clause (ii) above, to the effect that
the Option or the Option Shares to be sold or transferred has been registered
under the Securities Act and that there is in effect a current prospectus
meeting the requirements of Subsection 10(a) of the Securities Act, which is
being or will be delivered to the purchaser or transferee at or prior to the
time of delivery of the certificates evidencing the Option or the Option Shares
to be sold or transferred.
(b) Lockup Agreements with Underwriters. In the event of a
public offering of the Company's securities, the Holder agrees to enter into an
agreement with the Underwriter or Underwriters' Representative for such offering
restricting the sale, transfer or other disposition of this Option or the Option
Shares to the extent that such agreement is required to be executed by the other
security holders of the Company generally.
(c) Conditions to Transfer. Prior to any such proposed
transfer, and as a condition thereto, if such transfer is not made pursuant to
an effective registration statement under the
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Securities Act, the Holder will, if requested by the Company, deliver to the
Company (i) an investment covenant signed by the proposed transferee, (ii) an
agreement by such transferee to the restrictive investment legend set forth on
the certificate or certificates representing the securities acquired by such
transferee, (iii) an agreement by such transferee that the Company may place a
"stop transfer order" with its transfer agent or registrar and (iv) an agreement
by the transferee to indemnity the Company to the same extent as set forth in
the next succeeding paragraph.
(d) Indemnity. The Holder acknowledges that the Holder
understands the meaning and legal consequences of this Section 6, and the Holder
hereby agrees to indemnity and hold harmless the Company and each of its
representatives, officers and directors from and against any and all loss,
damage or liability (including all attorney' fees and costs incurred in
enforcing this indemnity provision) due to or arising out of (i) the inaccuracy
of any representation or the breach of any warranty of the Holder contained in,
or any other breach of, this Option, (ii) any transfer of this Option or any of
the Option Shares in violation of the Securities Act, the Exchange Act or the
rules and regulations promulgated under either of such acts or any state
securities laws, (iii) any transfer of this Option or (iv) any untrue statement
or omission to state any material fact in connection with the investment
representations or with respect to the facts and representations supplied by the
Holder to counsel to the Company upon which its opinion as to a proposed
transfer shall have been based.
(e) Transfer. Except as restricted hereby, this Option and the
Option Shares issued may be transferred by the Holder in whole or in part at any
time or from time to time. Upon surrender of this Option to the Company with
assignment documentation duly executed and funds sufficient to pay any transfer
tax, and upon compliance with the foregoing provisions, the Company shall,
without charge, execute and deliver a new Option in the name of the assignee
named in such instrument of assignment, and this Option shall promptly be
canceled. Any assignment, transfer, pledge, hypothecation or other disposition
of this Option attempted contrary to the provisions of this Option, or any levy
of execution, attachment or other process attempted upon this Option, shall be
null and void and without effect.
(f) Legend and Stop Transfer Orders. Unless the Option Shares
have been registered under the Securities Act, upon exercise of any part of this
Option and the issuance of any of the Option Shares, the Company shall instruct
its transfer agent to enter "stop transfer orders" with respect to such shares,
and all certificates representing Option Shares shall bear on the face thereof
substantially the following legend, insofar as is consistent with New York law:
"The shares of common stock represented by this
certificate have not been registered under the
Securities Act of 1933, as amended, or under the
securities laws of any state, and may not be sold,
offered for sale, assigned, transferred or otherwise
disposed of unless registered pursuant to the
provisions of that Act and the laws of such states
under whose laws a transfer of securities would be
subject to a registration requirement
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<PAGE>
or an opinion of counsel to the Company is obtained
stating that such disposition is in compliance with
an available exemption from such registration."
7. Registration Rights. The Holder shall have registration rights with
respect to the Option Shares as set forth in Appendix B to the Consulting
Agreement.
8. Loss, etc, of Option. Upon receipt of evidence satisfactory to the
Company of the loss, theft, destruction or mutilation of this Option, and of
indemnity reasonably satisfactory to the Company, if lost, stolen or destroyed,
and upon surrender and cancellation of this Option, if mutilated, the Company
shall execute and deliver to the Holder a new Option of like date, tenor and
denomination.
9. Option Holder Not Stockholder. Except as otherwise provided herein,
this Option does not confer upon the Holder any right to vote, or to consent to,
or receive notice as a stockholder of the Company, as such, in respect of any
matters whatsoever, or any other rights or liabilities as a stockholder of the
Company, prior to the exercise hereof.
10. Communication. No notice or other communication under this Option
shall be effective unless the same is in writing and is mailed by first-class
mail, postage prepaid, addressed to:
(a) the Company at 1490 Railroad Street, Corona, CA 91720, or
such other address as the Company has designated in writing to the Holder, or
(b) the Holder at 6700 North Andrews Avenue, Fort Lauderdale,
Florida 33309, or such other address as- the Holder has designated in writing to
the Company.
11. Headings. The headings of this Option have been inserted as a
matter of convenience and shall not affect the construction hereof.
12. Applicable Law. This Option shall be governed by and construed in
accordance with the laws of the State of New York without giving effect to the
principles of conflicts of law thereof.
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IN WITNESS WHEREOF, COMPUTER MARKETPLACE, INC. has caused this Option
to be signed by its Chairman of the Board, President and Chief Executive Officer
this 31st day of December, 1996.
COMPUTER MARKETPLACE, INC.
By: /s/ L. Wayne Kiley
---------------------------------
Name: L. Wayne Kiley
Title: Chairman of the Board and
Chief Executive Officer
9
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SUBSCRIPTION
The undersigned, _________________________________________________ ,
pursuant to the provisions of the foregoing Option, hereby agrees to subscribe
for the purchase of ____________________ shares of Common Stock of COMPUTER
MARKETPLACE, INC. covered by said Option, and makes payment therefor in full in
cash at the price per share provided by said Option.
Dated Signature
------------------- -----------------------------------
Address
-----------------------------------
-----------------------------------
ASSIGNMENT
FOR VALUE RECEIVED ______________________ hereby sells, assigns and
transfers unto ___________________ the foregoing Option and all rights evidenced
thereby, and does irrevocably constitute and appoint
_______________________________, attorney, to transfer said Option on the books
of COMPUTER MARKETPLACE, INC.
Dated Signature
------------------- -----------------------------------
Address
-----------------------------------
-----------------------------------
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED _________________________ hereby assigns and
transfers unto _______________________________ the right to purchase
____________________ shares of Common Stock of COMPUTER MARKETPLACE, INC.
covered by the foregoing Option, and a proportionate part of said Option and the
rights evidenced thereby, and does irrevocably constitute and appoint
__________________________, attorney, to transfer that part of said Option on
the books of COMPUTER MARKETPLACE, INC.
Dated Signature
------------------- -----------------------------------
Address
-----------------------------------
-----------------------------------
<PAGE>
FORM OF OPTION AGREEMENT
THIS OPTION AGREEMENT (the "Agreement") dated as of the ____ day of
December, 1996 by and between Computer Marketplace, Inc., a Delaware corporation
(hereinafter the "Company"), and ______________________ (the "Optionholder").
W I T N E S S E T H:
WHEREAS, the Optionholder is an employee or director of [consultant to]
the Company; and
WHEREAS, the Company desires to compensate the Optionholder for
exemplary services rendered and to provide the Optionholder with an incentive to
assist in the Company's continued prosperity; and
WHEREAS, the Company would like to grant to the Optionholder an option
(the "Option") to acquire shares of common stock of the Company (the "Option
Shares"), pursuant to the terms herein.
NOW, THEREFORE, in consideration of the mutual covenants, conditions
and premises contained herein, the parties hereto agree, subject to the terms
and conditions herein, as follows:
1. The Option Grant.
<PAGE>
(a) Upon the execution hereof, the Company grants to the
Optionholder the right and option to purchase __________ (_____) Option Shares
(adjusted to reflect any stock splits, reverse splits recapitalizations or other
business combinations), at a price (the "Exercise Price") of $.1667 per share
(or $1.00 per share following the contemplated 1-for-6 reverse stock split).
(b) The Option shall be exercisable for a period of four (4)
years from the date hereof; provided however, that in the event that the
Optionholder ceases to be employed by [retained as a consultant to] the Company,
for any reason whatsoever, then this Option Agreement shall terminate 90 days
following the date of such termination, or resignation, as the case may be, and
the Optionholder shall have no further rights under this Option Agreement.
2. Method of Exercise. The exercise by an Optionholder of the rights
granted hereunder shall be by means of a notice of exercise (the "Notice of
Exercise") delivered to the Company spe cifying the number of Option Shares to
be purchased. Within five (5) days of receiving the Notice of Exercise, the
Company shall schedule a closing, which shall be no more than five (5) days
later. At the closing, the Company shall deliver the Option Shares to the
Optionholder with the appropriate transfer documents and the
<PAGE>
Optionholder shall pay to the Company the full purchase price of such exercised
Option Shares either in cash or by check payable to the order of "Computer
Marketplace, Inc." All Option Shares issued pursuant to such option shall be
fully paid and nonassessable and shall not be subject to any liens. In lieu of
the foregoing, so long as the Optionholder sells Option Shares to the public
(either pursuant to Rule 144 or a registered public offering) through a
broker-dealer registered with the National Association of Securities Dealers and
such a broker-dealer is given irrevocable instructions to transfer the aggregate
Exercise Price to the Company upon sales of the Option Shares, this Option may
be exercised by the Optionholder.
3. Stockholder Rights. Neither the Optionholder nor any other person
legally entitled to exercise the Option shall be entitled to any of the rights
or privileges of a stockholder of the Company with respect to any Option Shares
issuable upon any exercise of the Option unless and until the Option is
exercised.
4. No Waiver. The failure of any of the parties hereto to enforce any
provisions hereof on any occasion shall not be deemed to be a waiver of any
privilege given by any provision of this Agreement.
5. Entire Agreement. This Agreement constitutes the entire
<PAGE>
agreement on the understanding of the parties hereto, and no amendment,
modification or waiver of any provision herein shall be effective, unless in
writing, executed by the party charged therewith.
6. Governing Law. This Agreement shall be construed and interpreted and
enforced in accordance with and shall be governed by the internal laws of the
State of Delaware.
7. Binding Effect. This Agreement shall be binding upon, and inure to
the benefit of the parties and their successors and assigns.
8. Paragraph Headings. The paragraph headings herein have been inserted
for convenience of reference only and shall no way modify or restrict any of the
terms of the provisions hereof.
9. Notices. Any notice required or permitted to be delivered hereunder
shall be deemed effective five (5) days after mailing when sent by United States
mail, postage prepaid, certified mail, return receipt requested, addressed to
Optionholder or the Company, as the case may be, at the addresses set forth
below:
If to Optionholder:
[Name]
[Address]
<PAGE>
With a copy to:
If to the Company:
Computer Marketplace, Inc.
1490 Railroad Street
Corona, CA 91720
Attention: L. Wayne Kiley
With a copy to:
Bernstein & Wasserman, LLP
950 Third Avenue
New York, NY 10022
10. Unenforceability and Severability. If any provision of this
Agreement is found to be void or unenforceable by a court of competent
jurisdiction, then the remaining provisions of this Agreement shall nevertheless
be binding upon the parties with the same force and effect as though the
unenforceable part has been severed and deleted.
11. Counterparts. This Agreement may be executed in counterparts, all
of which shall be deemed to be duplicate originals.
12. Further Assurances. The Company and Optionholder agrees to execute
and deliver to each other such documents as the other party shall reasonably
request to effectuate the purposes of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement this ____ day of December, 1996.
COMPUTER MARKETPLACE, INC.
By: /s/ L. Wayne Kiley
---------------------------------
Name: L. Wayne Kiley
Title: President
------------------------------------
[Name of Optionholder]
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders of
Computer Marketplace(R), Inc.
We hereby consent to the use in the Registration Statement of our
report dated August 16, 1996 relating to the consolidated financial statements
of Computer Marketplace(R), Inc. and subsidiaries for the years ended June 30,
1996 and 1995.
We also consent to the reference to us under the caption "Experts" in
the Prospectus.
/s/ Moore Stephens, P.C.
MOORE STEPHENS, P.C.
Certified Public Accountants
Cranford, New Jersey
June 10, 1997
