SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
REPORT ON FORM 10-KSB
[X] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended June 30, 1999.
[ ] Transition Report pursuant Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from ________ to ________.
Commission File No. 0-22014
eMARKETPLACE, INC.
(formerly Computer Marketplace, Inc.)
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(Exact name of registrant as specified in its charter)
Delaware 33-0558415
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(State of or other jurisdiction of (IRS Employer Identification No.)
incorporation of organization)
255 West Julian Street
Suite 100
San Jose, CA 95110
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(Address of Principal (Zip Code)
Executive Offices)
Registrant's telephone number, including area code: (408) 295-6500
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.0001 per share
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of the Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
Issuer's revenues for its most recent fiscal year were $2,208,855.
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, computed by reference to the closing price of such stock as of
September 30, 1999, was approximately $36,208,676.
Number of shares outstanding of the Issuer's common stock, as of September 30,
1999, was 12,691,460.
DOCUMENTS INCORPORATED BY REFERENCE: None.
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TABLE OF CONTENTS
Page
DESCRIPTION OF BUSINESS........................................................1
DESCRIPTION OF PROPERTY.......................................................22
LEGAL PROCEEDINGS.............................................................23
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...........................23
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.........23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.........................................................25
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...................................31
CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE..........................................................31
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.............................31
EXECUTIVE COMPENSATION........................................................32
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................36
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................37
EXHIBITS AND REPORTS ON FORM 8-K..............................................39
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
Quality Associates, Inc., a California corporation, was incorporated in
July 1983, and changed its name to Computer Marketplace in June 1987. In March
1993, Computer Marketplace changed its name to Computer Marketplace, Inc. and
its state of incorporation from California to Delaware. On August 27, 1999, the
Company changed its trading symbol on the OTC Bulletin Board from "MKPL" to
"EMKT" in contemplation of its name change to eMarketplace, Inc. which was
effected on September 17, 1999. eMarketplace and its subsidiaries shall be
referred to as the "Company" in this Annual Report.
In April 1999, by acquiring E-Taxi, Inc. ("E-Taxi") and its
wholly-owned subsidiary, TechStore, LLC ("TechStore"), the Company adopted a new
corporate strategy focused on developing, acquiring and operating Internet
businesses. The Company is presently pursuing a business plan to become an
Internet holding company engaged primarily in development and operation of a
network of Internet properties ("Portfolio Companies") that provide content,
commerce and online services to demographically-targeted audiences. Until April
1999, the Company was primarily engaged in the purchase and sale of new and used
computer equipment, and through its Medical Marketplace, Inc. subsidiary, the
purchase and sale of used medical equipment. However, the Company in April 1999
adopted a plan in conjunction with its new corporate strategy with the
acquisition of E-Taxi and TechStore to divest its ownership interest in Medical
Marketplace because the used medical equipment business no longer conformed to
the Company's business strategy.
RECENT DEVELOPMENTS
Set forth below is a summary of the Company's significant developments
since April 1999:
As of April 9, 1999, the Company and Gateway Advisors, Inc. ("Gateway
Advisors"), a company majority owned and controlled by Robert M. Wallace (the
Company's current Chairman of the Board), entered into a Financial Advisory
Agreement, pursuant to which Gateway Advisors agreed to provide certain business
development and financial advisory services for a period of two (2) years in
exchange for the issuance by the Company of 1,500,000 Common Stock Purchase
Warrants. Each warrant entitles the holder to purchase one (1) share of the
Company's Common Stock at an exercise price of $2.50 per share until April 8,
2000.
As of April 9, 1999, the Company and each of the holders of 1,500,000
Class D Common Stock Purchase Warrants entered into a Settlement Agreement,
pursuant to which the Company issued 375,000 shares of the Company's Common
Stock in exchange for (i) the cancellation of all Class D Common Stock Purchase
Warrants, (ii) the surrender and transfer to the Company of an aggregate of
500,000 shares of Common Stock of Medical Marketplace, Inc. (a majority owned
subsidiary of the Company), and (iii) a general release, releasing the Company
from all liabilities. In addition, as of April 9, 1999, the Company and Victoria
Holdings, Inc., the Company's former financial advisor, entered into a
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Settlement Agreement, pursuant to which the Company issued 250,000 shares of the
Company's Common Stock in exchange for (i) the cancellation of Options
exercisable for 1,000,000 shares of the Company's Common Stock at an exercise
price of $1.00 per share, and (ii) a general release, releasing the Company from
all liabilities. As part of the foregoing Settlement Agreements, the Company
agreed to include the shares issued in connection therewith in the next
registration statement filed by the Company with the Securities and Exchange
Commission (other than on a Form S-4 or Form S-8), subject to certain
limitations and restrictions.
As of April 9, 1999 (and clarified as of October 12, 1999), the Company
entered into an Agreement with L. Wayne Kiley, the Company's President, Chief
Executive Officer and at that time Chairman of the Board, pursuant to which Mr.
Kiley waived (i) his rights to accrued and unpaid salary in the amount of
$314,135 (ii) all of his rights under his employment agreement with the Company,
including without limitation, all future compensation, and (iii) on behalf of
Quality Associates, Inc. (a company owned and controlled by Mr. Kiley), its
rights to accrued and unpaid rent with respect to the Company's executive
offices, in the amount of $64,536. In exchange for the foregoing, the Company
reduced the exercise price of (a) 661,667 options held by Mr. Kiley from $1.00
to $.60 per share and (b) 29,167 options held by Mr. Kiley from $1.68 to $.60
per share. In addition, the Company agreed to include the shares issuable upon
the exercise of such options as well as certain other options issued to
management and certain consultants under a Registration Statement on Form S-8 to
be filed with the Commission in the near future.
As of April 21, 1999, the Company and each of the stockholders of
E-Taxi entered into a Stock Purchase Agreement, pursuant to which the Company
acquired all of the issued and outstanding capital stock of E-Taxi (the "E-Taxi
Acquisition") on April 23, 1999 (the "Closing Date") in a business combination
accounted for a reverse acquisition for accounting purposes. See Notes 1 and 3
of the Notes to the Company's Consolidated Financial Statements. As
consideration for 9,074,000 shares of the E-Taxi's common stock and 400,000
shares of the E-Taxi's Series A Preferred Stock, the Company issued an aggregate
of 9,074,000 shares of the Company's common stock, par value $.0001 per share
(the "Common Shares"), and 400,000 shares of the Company's Series A Preferred
Stock, par value $.0001 per share (the "Preferred Shares").
As a result of the E-Taxi Acquisition, (i) E-Taxi became a wholly-owned
subsidiary of the Company, (ii) the stockholders of E-Taxi became the beneficial
owners of (a) the Common Shares, or 81.8% of the shares of Company's common
stock outstanding, and (b) the Preferred Shares, or 100% of the shares of
Company's preferred stock outstanding, and (iii) two of the four existing
members of the Company's Board of Directors resigned and Robert M. Wallace was
appointed as Chairman of the Board of Directors. L. Wayne Kiley and Thomas Evans
remain as directors of the Company. Mr. Kiley will remain as the Company's Chief
Executive Officer, President and Chief Accounting Officer until the Company
hires suitable replacements which the Company expects to occur in the near
future. The Company has also granted to each of the former holders of E-Taxi
capital stock the right to have the Common Shares and the shares of Common Stock
issuable upon conversion of the Preferred Shares included in the next
registration statement filed by the Company with the Securities and Exchange
Commission (other than on a Form S-4 or Form S-8), subject to certain
limitations and restrictions. The number of shares constituting the Series A
Preferred Stock is 400,000, $.0001 par value per share, all of which were issued
to the former holders of Series A Preferred Stock of E-Taxi. As of the close of
business on April 28, 1999, the shares of Common Stock had a closing price of
greater than $3.75 per share for more than three (3) consecutive days, and based
upon the terms of the Preferred Shares, as of May 3, 1999, the Preferred Shares
were automatically converted into 1,600,000 shares of Common Stock.
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E-Taxi was incorporated in April 1998 to develop a vertical Internet
portal for the small office, home office ("SOHO") market. Immediately prior to
the closing of the E-Taxi Acquisition, E-Taxi closed (i) a private offering of
its shares of preferred stock and common stock raising an aggregate of
approximately $1,400,000 therefrom and (ii) on the acquisition of all of the
outstanding limited liability company interests of TechStore LLC, a California
limited liability company ("TechStore"). As of March 31, 1999, Gateway Advisors,
Inc., Bejan Aminifard, Mosen Aminifard and Derek Wall entered into a
Contribution Agreement, pursuant to which each of the owners of TechStore
contributed his ownership interest in TechStore, or rights to acquire ownership
interests in TechStore to E-Taxi in exchange for shares of Common Stock and
Preferred Stock of E-Taxi. Since its incorporation in March 1998, TechStore has
been engaged in the business of selling computer hardware and software as well
as consumer electronics products through its world wide web site,
http://www.techstore.com. Through the acquisition of E-Taxi and TechStore, and
additional planned acquisitions, joint ventures and other combined marketing
efforts, the Company intends to provide products, services and information
specifically tailored to the needs of the SOHO community.
As of June 14, 1999, E-Taxi entered into (i) a Stock Purchase Agreement
(the "Stock Purchase Agreement") with all of the shareholders of SSPS, Inc., a
California corporation ("SSPS"), pursuant to which E-Taxi has agreed to
purchase, and the shareholders of SSPS have agreed to sell, approximately 94.6%
of the outstanding shares of capital stock of SSPS, and (ii) a Membership
Interest Purchase Agreement with all of the members of Impact Team
International, LLC, a California limited liability company and an affiliate of
SSPS ("Impact"), pursuant to which E-Taxi has agreed to purchase, and the
members of Impact have agreed to sell, all of the outstanding membership
interests of Impact. SSPS, and its operating divisions TRISTEP, GIG2GIG.COM, and
IT WORLDNET.COM, and Impact, provide short term and long term temporary
workforce solutions primarily to rapidly growing technology firms.
The closing of the transactions contemplated by the Stock Purchase
Agreement and the Membership Interest Purchase Agreement (the "Closing") are
subject to the satisfaction of certain conditions, including without limitation,
the execution and delivery of employment agreements with certain members of the
senior management team of SSPS, the release of a principal stockholder of SSPS
of his guaranty of certain indebtedness of SSPS, the waiver of certain rights of
first refusal to purchase the shares of SSPS capital stock owned by a principal
stockholder, the termination and release of certain obligations of SSPS under
existing employment agreements and other customary conditions to closing. At the
Closing, the Company will issue approximately 2.9 million shares of it's Common
Stock and pay cash and notes of approximately $1.5 million for SSPS. The Company
has also agreed to provide the sellers of the SSPS shares and the Impact
interests with demand and piggyback registration rights. It is presently
anticipated that the Company's acquisition of SSPS and Impact will occur during
October 1999.
On July 16, 1999, the Company commenced a private offering (the
"Offering") of up to 1,200,000 shares of its Common Stock (each a "Share" and
collectively the "Shares"). The Offering is being conducted under the exemptions
from the registration requirements of the Securities Act of 1933, as amended
(the "Act"), provided by Section 4(2) of the Act and the provisions of Rule 506
of Regulation D. Sales of the Shares will be made only to "accredited
investors," as such term is defined in Rule 501(a) under the Act. The Shares are
being offered at a purchase price of $3.875 per share and on a "best efforts all
or none" basis with respect to the first 400,000 Shares (the "Minimum
Offering"), and on a "best efforts" basis thereafter with respect to the
remaining 800,000 Shares (the "Maximum Offering"). The Offering was originally
scheduled to terminate on August 30, 1999, but has been extended at the option
of the Company. Subscriptions for less than 20,000 Shares (or $77,550) may be
accepted at the discretion of the Company. Upon completion of the Minimum
Offering and the Maximum Offering, the Company expects to receive gross proceeds
of approximately $1,550,000 and $4,650,000, respectively, before deducting
commissions (placement agent) and expenses of the Offering (consisting of
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accounting and legal fees, "blue sky" fees and other related expenses). On
October 8, 1999, the Company conducted an interim closing receiving gross
proceeds of $2,883,872 from the sale of 744,225 shares of Common Stock. The
proceeds of the Offering will be used to fund the acquisition of SSPS and Impact
and the working capital needs of the Company..
In August 1999, TopTeam, Inc., a newly formed subsidiary of the Company
("TopTeam") entered into letters of intent with Full Moon Interactive Group,
Inc. and Orrell Communications, Inc., and in September, 1999, TopTeam entered
into letters of intent with Paradigm 3 Marketing, De Vries Data Systems, Inc.,
Image Network and Muccino Design Group, Inc. Under the letters of intent, it is
contemplated that together the Company and Top Team will acquire all of the
outstanding capital stock of these interactive architect companies (the "TopTeam
Candidates") in exchange for the issuance of shares of common stock of both the
Company and Top Team. The closing of each of the proposed transactions is
subject to the completion of legal, business and accounting due diligence and
the execution and delivery of definitive acquisition agreements. In connection
with the acquisition of the TopTeam Candidates, the Company also anticipates
capitalizing TopTeam with approximately $1.5 million in cash.
HISTORICAL INFORMATION
Since the Company has been unprofitable since the fiscal year ended
June 1994, management implemented substantial measures to address its financial
difficulties. The Board of Directors, after having considered numerous
alternatives, concluded that the Company must significantly reduce its expenses
in order to decrease the Company's net losses. Therefore, during the Company's
fiscal year ended June 30, 1997, the Company embarked upon a cost cutting plan
by reducing its workforce, closing unprofitable locations and discontinuing
under performing product lines. Specifically, the Company (i) closed all of its
branch offices and (ii) reduced the number of employees from a high of ninety
six (96) in September 1995 to twenty four (24) full-time and five (5) part-time
as of September 30, 1997. Despite implementing this business reorganization
strategy, the Company failed to regain profitability during the fiscal year
ended June 30, 1998. As a result, the Company determined to reduce further its
existing computer equipment business and in April 1999 adopted a plan to divest
Medical Marketplace, Inc., the Company's subsidiary engaged in the sale and
lease of used medical equipment.
During the past fiscal year, the Company has further reduced the size
and scope of its computer equipment business. The Company believes that because
of significant changes in the computer industry, the market is more competitive
and opportunities to engage in certain business are no longer available. The
increase in the importance and dominance of personal computers (with relatively
low sales prices) and the reduced usage of mid-sized computer systems has
severely reduced the Company's business in the RISC 6000 and AS400 mid-range
systems. Further, the Company has seen major OEM manufacturers (such as, IBM,
and Digital Equipment Corporation) enter into the reselling business. As a
consequence, the Company actively pursued acquiring an alternative business
and/or assets resulting in the E-Taxi Acquisition in April 1999.
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. Medical
Marketplace has bought and resold 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 had 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 Apple Valley, California. Since the Company has adopted a new
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strategic plan regarding its development, acquisition and operation of Internet
businesses, the Company decided to accelerate its efforts to divest its
ownership of Medical Marketplace. On October 12, 1999, the Company entered into
a Stock Purchase Agreement with two employees (together, the "Buyers") of
Medical Marketplace, pursuant to which the Company has agreed to sell, and the
Buyers have agreed to purchase for cash and promissory notes in the amount of
$65,000 all of the issued and outstanding capital stock of Medical Marketplace.
The closing of the transaction will be effected as of June 30, 1999 for
accounting purposes.
THE eMARKETPLACE STRATEGY
The Company is pursuing a business plan to become an Internet holding
company engaged primarily in development and operation of a network of Internet
properties ("Portfolio Companies") that provide content, commerce and online
services to demographically-targeted audiences. The Company believes that highly
targeted audience profiles of our Portfolio Companies may make them valuable for
advertisers, retailers and service providers who are increasingly allocating
marketing resources to target markets online. The Company's strategy is to
develop and promote synergistic business relationships among the Portfolio
Companies, and to provide numerous operational and management services. These
services include active strategic direction, operating guidance, merger and
acquisition assistance, board and management recruitment, and innovative
financing.
DEVELOP PREMIER NARROWCAST DESTINATION SITES
Responding to market opportunities, our goal is to become a premier
Internet "Studio" for timely development of Internet media properties. Through
acquisitions and investments, the Company intends to develop a series of
valuable, narrowcast destination sites in major segments of the economy.
The Company's programming strategy is to establish destination sites to
attract affinity audiences of demographically valuable users, and serve them
with premier advertisers, sponsors and electronic commerce partners. Due to the
high-value demographics of our audiences, believes that it will attract premier
Internet advertisers at higher a cost per thousand impressions (CPM) than is
paid to portals and other Internet destinations. Our sales strategy is to
develop context-driven, long-term relationships with leading corporate sponsors.
These sponsorships may go beyond banner advertising to focus on the advertiser's
broader marketing objectives. Exclusive category opportunities will be offered
to certain sponsors within the context of each site's audience. For example, a
Small Office Home Office (SOHO) site will offer opportunities for exclusive
relationships for insurance, benefits, financial services and other
relationships.
For electronic commerce, we hope to develop strategic arrangements with
premier online retailers and service providers whose goods and services tie
closely to specific areas of content within the sites of our Portfolio
Companies. Each Portfolio Company site will have its own opportunities for
electronic commerce tie-ins. Sponsorship fees and revenue sharing arrangements
will be established in return for a measure of exclusivity in the sponsor's
industry and market segments.
PROVIDE STRATEGIC GUIDANCE AND SUPPORT, AND PROMOTE COLLABORATION
Responding to market challenges, our operating strategy is to work with
our Portfolio Companies to actively develop their business strategies,
operations and management teams, and to establish a collaborative network that
leverages their collective strengths and strategic relationships. We will
provide strategic guidance to Portfolio Companies regarding market positioning,
business model development and market trends. In addition, our Portfolio
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Companies who provide Internet Architecture, Human Resources and other
Administrative services will be engaged to accelerate the new Portfolio
Company's development and relieve them of certain day-to-day management and
operational issues.
We intend to assist our Portfolio Companies by providing access to
companies and individuals who serve them in the following areas:
- Recruiting, Staffing and Human Resource Management Support
- Web Strategy, Development and Site Hosting
- Information Technology and Electronic Commerce
- Finance and Administration
- Business Development and Strategic Relationships
The collaboration of our Portfolio Companies is the result of our role
as the hub of our network. Through the network we identify prospective
alliances, assist in strategic planning and monitor the ongoing relationships
among our Portfolio Companies. We encourage and regulate the information flow
among our Portfolio Companies. We also control the information flow by
determining the composition of the network. If we believe that a Portfolio
Company is not contributing to our network or has lost its strategic importance
to the network, we may sell our interest in that Portfolio Company.
PORTFOLIO COMPANY CRITERIA
Portfolio acquisition and investment opportunities will be assessed
with these factors:
- AUDIENCE DEMOGRAPHIC. We will assess companies that we believe have the
content, products, services and skills to attract a valuable narrowcast
audience.
- MANAGEMENT QUALITY. We will assess management's overall quality and
industry expertise.
- SIGNIFICANT OWNERSHIP. We will assess whether we will be able to obtain
a significant position in the company and exert influence over the
company.
- NETWORK SYNERGY. We consider the degree to which a potential Portfolio
Company may contribute to our network, and benefit from our network and
operational resources.
To ensure our ability to provide active guidance to the Portfolio
Company, we will require representation on the company's Board of Directors as a
condition to an acquisition or investment. For proper incentives, the Portfolio
Company's management and key personnel will retain an equity stake in the
company. During negotiations with potential Portfolio Companies we will
emphasize the value of our collaborative network and the opportunity to
efficiently take their company public through a rights offering to our
shareholders. Our Portfolio Companies, strategic investors and Advisory Board
members may assist in these discussions and in other stages of the acquisition
process, including the initial evaluation of potential Portfolio Companies and
due diligence.
eMARKETPLACE PORTFOLIO COMPANIES
E-TAXI, INC. - VERTICAL PORTAL FOR SMALL OFFICE, HOME OFFICE MARKET
In April 1999, the Company acquired all of the outstanding capital
stock of E-Taxi which is currently developing a SOHO web site, commonly referred
to as a VERTICAL PORTAL for the Small Office, Home Office (SOHO) market. The
Company believes a SOHO portal will offer valuable proprietary and aggregated,
community content of such a nature that this targeted affinity audience will
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regard the site as a valuable destination. E-Taxi has acquired the domain name
emarketplace.com and has begun development of the web site. It anticipates
launching the site sometime in the first quarter of 2000.
ATTEMPT TO CAPITALIZE ON MARKET OPPORTUNITY. The Internet continues to
experience an exponential rate of user growth, with estimates ranging from
300,000 to 1 million new users per month, and an estimated 20% of the North
American population over the age of 15 has Internet access in some form.
According to CommerceNet/Nielsen, this rapid growth has led to combined
US/Canada market in June 1998 of over 78.6 million Internet subscribers, and
corresponding increases in subscription revenues, and transaction revenues. IDC
research anticipates that the amount of commerce conducted over the Internet is
expected to grow from $2.6 billion in 1996 to more than $220 billion in 2001.
AFFINITY GROUP. The SOHO market represents 89% of all U.S. companies.
As a consequence, it is an attractive consumer group to a variety of industries,
but difficult to reach due to its fragmentation. When defined as companies with
fewer than 25 employees, the SOHO market accounts for 49.5% of all U.S.
employment. This segment within the SOHO market collectively spent over $54
billion on office technology alone, in 1998. Fifty-two percent of SOHO
businesses identified the use of the Internet to reduce costs and increase
efficiency. Despite its attractive size and purchasing power, it is a difficult
market to reach due to its fragmentation. However, as these SOHO businesses
increasingly rely on the Internet to increase productivity and efficiency, the
Internet should provide a vehicle with which to reach this market group.
Aggregating this type of affinity group generates a number of revenue
opportunities: (i) sponsorship; (ii) advertising; (iii) e-commerce; (iv) content
creation and ownership; and (vi) distance education and training.
TECHSTORE LLC
TechStore LLC was acquired by E-Taxi in April 1999 immediately prior to
the Company's acquisition of E-Taxi. Founded in 1997, TechStore offers for sale
through its Web site, WWW.TECHSTORE.COM, more than 40,000 name brand computer
hardware and software and consumer electronics products. The site has
distinguished itself by offering consumers a user-friendly Web site, low prices,
large selection, detailed product information, real-time availability, online
secure ordering, online invoice history and online order tracking.
Based upon the demographics of TechStore's customers, the Company
believes that SOHO businesses make up a large group of those consumers using the
Internet for procurement of office technology products. In fact, nearly 40% of
e-commerce transactions on the Internet involved computer related products in
1998, and 27% of advertising revenue was generated by technology advertising. To
attract prospective computer equipment purchasers to its site, TechStore spends
ad dollars at major portals, such as CNET, in the hope of generating e-commerce
revenue. The Company believes those ads are inefficient because a large portion
of those portals' audiences are outside of their targeted consumer, SOHO
businesses. The Company intends to better utilize those ad dollars by having
TechStore directly target SOHO customers via the EMARKETPLACE.COM web site. Once
identified by TechStore as a SOHO consumer, we intend to use the TechStore site
to introduce them to other valuable content, products, and services within
EMARKETPLACE.COM. This will not only add new revenue sources to TechStore, such
as sponsorship and ad revenue, but will lower the cost of reaching the SOHO
audience for our other proprietary and aggregated content.
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ORDER FULFILLMENT
TechStore is entirely dependent upon a third party for order
fulfillment. Currently, TechStore utilizes fulfillment services offered by
TechData Corporation, a leading full-line distributor of more than 75,000
technology products worldwide. TechData offers fulfillment services via 6
regional distribution centers. TechStore has no long-term contracts or
arrangements with TechData that guarantee the availability, shipping, or quality
of merchandise.
TechStore relies upon TechData to ship merchandise directly to
customers. Consequently, TechStore has limited control over the goods shipped,
and at times these shipments have been subject to delays. If the quality of
service provided by the distributor, TechData, falls below a satisfactory
standard or if our level of returns exceeds our expectations, this could have a
harmful effect on our business. The Company believes that it could establish a
similar relationship with other distributors; however, there can be no assurance
that such a distributor could provide the fulfillment, service and pricing
currently offered by TechData to TechStore.
RESEARCH AND DEVELOPMENT/TECHNOLOGY
TechStore is attempting to provide complete eCommerce integration
throughout the entire sales process. To accomplish this goal, TechStore is
utilizing the latest generation of industry standard eBusiness software and
computer hardware technologies. A Virtual Private Network (VPN) connection to
the distributor, TechData, allows custom software agents to pull invoice and
shipping data for accounting analysis and customer service applications.
TechStore maintains another secure Internet based connection to Electronic Data
Systems Corporation (EDS) for credit card processing services. Web and database
servers are co-located at a locally based business grade Internet Service
Provider (ISP), MasterLink, that offers high premises security and extensive
redundant power and Internet backbone connectivity. TechStore depends upon the
data and network communications systems at EDS, MasterLink, as well as TechData
and all of their respective service providers, for uninterrupted operation of
the Web site and other business communications. An interruption of data and
network communications services could have a materially adverse effect on our
business.
OFFICE EXPRESS, INC.
In August 1999, the Company's subsidiary Office Express, Inc., launched
its web site, www.officeexpress.com. Offering over 20,000 brand name office
products, the site enables online customers to purchase office products and
supplies at highly competitive prices. Products are generally shipped for next
day delivery for most domestic US destinations and the site features advanced
online customer service features, including customer shopping lists, which
allows users to manage lists of frequently purchased items.
Office Express is entirely dependent upon a third party for order
fulfillment. Currently OfficeExpress utilizes fulfillment services offered by
United Stationers Supply Co., the nation's largest wholesale distributor of
office, computer, and facilities management products. United Stationers offers
fulfillment services via 40 regional distribution centers. Office Express has no
long-term contracts or arrangements with United Stationers that guarantee the
availability, shipping, or quality of merchandise. The Company believes that it
could establish a similar relationship with other distributors; however, there
can be no assurance that such a distributor could provide the fulfillment,
service and pricing currently offered by United Stationers to Office Express.
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PROPOSED BUSINESS OPPORTUNITIES
TOP TEAM, INC.
In August 1999, the Company formed a wholly-owned Delaware subsidiary,
TopTeam, Inc., to undertake a strategic consolidation of businesses that provide
strategic consulting and comprehensive Internet based solutions to corporate
users of information technology.
To businesses across a variety industries, the Internet represents both
a significant opportunity for growth, as well as a significant threat from new
competition. International Data Corp. (IDC) estimates Internet users will grow
from nearly 100 million in 1998 to 320 million by 2002, with a corresponding
growth in e-commerce transactions from $32 billion in 1998 to $426 billion in
2002. This is forcing companies to rapidly develop and deploy Internet
strategies. Since most companies are outsourcing all or portion of this process,
demand for Internet professional services is soaring, jumping from $2.4 billion
in 1997 to $7 billion in 1998 and expected to exceed $40 billion in 2002,
according to IDC.
The complexity of the Internet goes beyond the scope of traditional
computer systems integrators and information technology (I.T.) professionals.
Total e-business solutions require business strategy, brand management, the
marketing skills required to develop an audience and the creative and design
skills to develop compelling content and engaging user interface, as well as the
technology skills to enable a site for e-commerce transactions. A new class of
professionals have emerged to meet these complex needs, which some Wall Street
analysts refer to as "Interactive Architects." These firms combine traditional
I.T. skills, with business consulting and advertising skills in one integrated
company. They include such firms as USWEB/CKS, Viant, IXL, Razorfish and Scient.
In August 1999, TopTeam entered into letters of intent with Full Moon
Interactive Group, Inc. and Orrell Communications, Inc. and in September 1999
TopTeam entered into letters of intent with Paradigm 3 Marketing, De Vries Data
Systems, Inc., Image Network and Muccino Design Group, Inc (collectively,
"TopTeam Candidates"). It is the objective of e-Marketplace to build a world
class "interactive architect" through the acquisition of companies involved in
Internet consulting. The TopTeam Candidates service a blue chip customer list in
California and represent approximately $25 million in annual revenue.
Under the terms of the letters of intent, the Company will acquire all
of the outstanding capital stock of the TopTeam Candidates in exchange for the
issuance of shares of common stock of both the Company and TopTeam. At the time
of closing of the acquisition of the TopTeam Candidates it is expected that the
Company will also capitalize TopTeam with approximately $1.5 million in cash.
The closing of each of the proposed transactions is subject to the completion of
legal, business, and accounting due diligence and the execution and delivery of
a definitive acquisition agreement. In light of the fact that these conditions
have yet to be fully satisfied, there can be no assurance that acquisitions of
the TopTeam Candidates will occur or that we will complete a sufficient number
of acquisitions to gain the critical mass, experienced professionals, industry
expertise, technical skills, and geographic coverage necessary to make TopTeam
an economically viable investment.
SSPS, INC.
The terms of the definitive agreement executed by the Company and
E-Taxi with the owners of SSPS requires the payment of (i) $450,000 in cash;
(ii) 2,300,000 shares of Common Stock; (iii) a promissory note in the amount of
$150,000; and (iv) a convertible promissory note in the amount of $900,000,
convertible into 600,000 shares of Common Stock. Pursuant to the SSPS Agreement,
a portion of the consideration will be subject to adjustment in the event that
certain financial thresholds are not achieved. It is the intent of the Company
to complete the SSPS Acquisition within a reasonable period from the Closing of
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this Offering. The SSPS Acquisition is subject to certain closing conditions. In
addition to the execution of Employment and Non-Competition Agreements by the
owners of SSPS and the issuance of a legal opinion on behalf of the owners, the
closing is subject to the absence of any events which has a material adverse
effect on SSPS' financial condition or operations. In addition, all
representations and warranties made by the parties in the Acquisition Agreement
must be true at the time of closing.
The operating divisions of SSPS consist of TriStep, Gig2Gig.com,
ITWorldnet.com, and Impact Team International. TriStep is a leader in using
Internet-based systems to provide outsourced management of corporate recruiting
and staffing, contractor payment and benefits administration -- sometimes
referred to as client-side management of the contingent workforce. Gig2Gig,
ITWorldnet and Impact Team employ TriStep's systems, software and services to
focus on market opportunities in the Information Technology (IT) industry.
ITWorldnet and Impact Team help clients identify and engage IT contract
professionals through multiple sources, including agencies, direct solicitation
and Internet resume postings. Gig2Gig is a Web site to be launched later this
year to deliver services to IT contractors, technical writers and other
independents who work "gig to gig." The site will allow them to engage
personalized employment services, including access to insurance and benefits,
vacation pay, billing and collection, contracting and compliance, accounting and
tax, and other business-related services.
TriStep's proprietary software allows hiring managers to initiate and
fill job orders interactively on the Internet and electronically access
TriStep's service bureau for Employment Transaction Processing (ETP). The
company provides each client with a secure intranet ordering site where they can
identify, assess, engage, track and account for contract employees from any and
all sources. TriStep is able to receive, process and manage the client's
contractor and employee resumes directly from its servers. From resumes
submitted by agencies, from candidates or directly from the Web, Tri-Step's
software provides real-time extraction and grading of job-skills and
automatically submits those that meet the client's specific requirements.
Clients have access to real-time and historical analyses of the entire
contingent workforce and Consolidated Billing Services to places all agency
bills on one convenient invoice. All data is uploadable to ERP systems, like SAP
and PeopleSoft, allowing employers to model both their permanent and contingent
workforces.
GOVERNMENT REGULATION
Our business may face increased government regulation.
TAXATION. The tax treatment of the Internet and electronic commerce is
currently unsettled. A number of proposals have been made at the federal, state
and local levels and by certain foreign governments that could impose taxes on
the sale of goods and services and certain other Internet activities. Recently,
the Internet Tax Freedom Act was signed into law, placing a three-year
moratorium on new state and local taxes on Internet commerce which moratorium
ends on December, 2002. Our business may be harmed by the passage of laws in the
future imposing taxes or other burdensome regulations on Internet commerce.
NEW INTERNET LAWS. Due to the increasing popularity and use of the
Internet, it is possible that a number of laws and regulations may be adopted
with respect to the Internet generally, covering issues such as user privacy,
pricing, and characteristics and quality of products and services. Similarly,
the growth and development of the market for Internet commerce may prompt calls
for more stringent consumer protection laws that may impose additional burdens
on those companies conducting business over the Internet. The adoption of any
additional laws or regulations may decrease the growth of commerce over the
Internet, increase our cost of doing business or otherwise have a harmful effect
on our business.
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INTERNET ACCESS FEES. Certain local telephone carriers have asserted
that the increasing popularity and use of the Internet has burdened the existing
telecommunications infrastructure, and that many areas with high Internet use
have begun to experience interruptions in telephone service. These carriers have
petitioned the Federal Communications Commission to impose access fees on
Internet service providers and online service providers. If such access fees are
imposed, the costs of communicating on the Internet could increase
substantially, potentially slowing the increasing use of the Internet, which
could in turn decrease the demand for our services or increase our cost of doing
business and thus have a harmful effect on our business.
QUALIFICATION TO DO BUSINESS We may have to qualify to do business in
other jurisdictions. As our service is available over the Internet in multiple
states and foreign countries, and as we sell to numerous consumers resident in
such states and foreign countries, such jurisdictions may claim that we are
required to qualify to do business as a foreign corporation in each such state
and foreign country. We are qualified to do business in only three states, and
our failure to qualify as a foreign corporation in a jurisdiction where we are
required to do so could subject us to taxes and penalties.
PATENTS, TRADEMARKS, LICENSES, AND FRANCHISES
TechStore and Office Express do not hold any patents or registered
trademarks. TechStore holds various web domain names relating to our brand,
including the "TechStore.com" and "OfficeExpress.com" domain names. The
regulation of domain names in the United States and in foreign countries is
subject to change in the near future. Such changes in the United States are
expected to include a transition from the current system of governmental
regulation to a system, which is controlled by a non-profit corporation and the
creation of additional top-level domains. We may not be able to acquire or
maintain relevant domain names in all countries in which we conduct or intend to
conduct business. Furthermore, the relationship between regulations governing
domain names and the laws protecting trademarks and similar proprietary rights
is unclear. Therefore, we may be unable to prevent third parties from acquiring
domain names that are similar to, infringe upon or otherwise decrease the value
of or dilute the TechStore brand.
Our proprietary software is protected by copyright and applicable trade
secret law. As part of our confidentiality procedures, we generally enter into
agreements with our employees and consultants and limit access to and
distribution of our software, documentation and other proprietary information.
Notwithstanding these precautions, it might be possible for a third party to
copy or otherwise obtain and use our software or other proprietary information
without authorization or to develop similar software independently. Policing
unauthorized use of our technology is difficult, particularly because the global
nature of the Internet makes it difficult to control the ultimate destination or
security of software or other data transmitted. The laws of other countries may
afford us little or no effective protection of our intellectual property.
We may in the future receive, notices from third parties claiming
infringement by our software or other aspects of our business. While we are not
currently subject to any such claim, any future claim, with or without merit,
could result in significant litigation costs and diversion of our management and
other resources and could require us to enter into royalty and licensing
agreements, either or both of which could seriously harm our business. Such
royalty and licensing agreements, if required, may not be available on terms
acceptable to us or at all. In the future, we may also need to file lawsuits to
enforce our intellectual property rights, to protect our trade secrets or to
determine the validity and scope of the proprietary rights of others. Such
litigation, whether it is successful or not, could result in substantial costs
and diversion of resources and could seriously harm our business.
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We rely on a variety of technologies that we license from third
parties, including our database and Internet server software, which we use in
our web site to perform key functions. We cannot assure you that these third
party technology licenses will continue to be available to us on commercially
reasonable terms. Our loss of or inability to maintain or obtain upgrades to any
of these technology licenses could result in delays in completing our
proprietary software enhancements and new development until equivalent
technology could be identified, licensed or developed, and integrated. Any such
delays could seriously harm our business.
COMPETITION
We face competition from other capital providers including
publicly-traded Internet companies, venture capital companies and large
corporations. Many of these competitors have greater financial resources and
brand name recognition than we do. These competitors may limit our opportunity
to acquire interests in new Portfolio Companies. If we cannot acquire interests
in attractive companies, our strategy to build a collaborative network of
Portfolio Companies may not succeed.
Competition for Internet products and services is intense. Traditional
media companies, such as television broadcasters, magazine publishers and radio
stations, are continuously refining their content and strategies to increase
their audiences and advertising and sponsorship revenues. Additionally, the
number of Web sites competing for the attention and spending of users,
advertisers and sponsors is increasing exponentially. Our sites will compete for
users, advertisers and sponsors based on the value of their demographics.
If our Portfolio Companies are unable to compete successfully, they may
fail. Competition is likely to increase significantly as new companies enter the
market and competitors expand their services. Competitors for our Portfolio
companies are likely to enjoy substantial competitive advantages, including the
following:
- larger numbers of users and advertisers;
- greater brand recognition;
- more fully-developed electronic commerce opportunities;
- larger technical, marketing and production staffs; and
- greater financial, marketing, technical and other resources.
CREDIT FACILITIES
In connection with TechStore's distribution arrangement with TechData
Corporation, TechStore currently has lines of credit in the amount of $300,000
with each of Deutche Financial Services and TechData Credit Services
Corporation. The Credit Lines accrue interest at a rate of 1.1875% per month.
EMPLOYEES
As of August 31, 1999, the Company had 15 employees. The Company also
retains the services of independent contractors for software development,
accounting services, and product fulfillment. None of our employees is
represented by a labor union, and we consider our employee relations to be good.
We believe that our future success will depend in part on our continued ability
to attract, hire and retain qualified personnel.
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IN ADDITION TO OTHER INFORMATION IN THIS ANNUAL REPORT ON FORM 10-KSB,
THE FOLLOWING IMPORTANT FACTORS SHOULD BE CAREFULLY CONSIDERED IN EVALUATING THE
COMPANY AND ITS BUSINESS BECAUSE SUCH FACTORS CURRENTLY HAVE A SIGNIFICANT
IMPACT ON THE COMPANY'S BUSINESS, PROSPECTS, FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
RISKS PARTICULAR TO THE COMPANY
WE HAVE INCURRED OPERATING LOSSES AND WE MAY NOT BE PROFITABLE IN THE NEAR
FUTURE
Since we began operations, we have incurred operating losses. Although
management believes it could reduce the Company's operating losses in the
future, no assurance can be given that management will be successful in
achieving this objective. In addition, our plan to acquire additional Portfolio
Companies may result in additional operating expenses. Failure to achieve
profitability within the timeframe expected by investors may adversely affect
the market price of our Common Stock. We have incurred net losses of $1,331,431,
$3,347,435 and $2,207,131 for the years ended June 30, 1996, 1997 and 1998,
respectively, and a net loss of $728,297 for the year ended June 30, 1999,
although such net losses for such periods resulted from the Company's operations
prior to the implementation of its new business plan.
LIMITED OPERATING HISTORY
Currently, the Company's business is principally operated through its
TechStore, LLC and Office Express, Inc. subsidiaries. It is anticipated that the
Company will close on the acquisition of SSPS, Inc. and its affiliated companies
("Tri-Step") during the second quarter of 2000. The Company and its Portfolio
Companies are among the many companies that have entered into the relatively new
Internet markets. Our Portfolio Companies are in the early stages of their
development. Our business and prospects must be considered in light of the risk,
expense and difficulties frequently encountered by companies in an early stage
of development, particularly companies in new and rapidly evolving markets such
as the Internet. If we are unable to effectively allocate our resources and help
grow our Portfolio Companies, our stock price may be adversely affected and we
may be unable to execute our strategy of developing a collaborative network of
Portfolio Companies. Our business depends upon the performance of our Portfolio
Companies, which is uncertain. Economic, governmental, industry and internal
company factors outside our control may affect each of our Portfolio Companies.
A significant portion of our assets will be comprised of ownership interests in
our Portfolio Companies. If our Portfolio Companies do not succeed, the value of
our assets will decline.
WE MAY NEED ADDITIONAL FINANCING
We believe that proceeds from the issuance of securities together with
anticipated cash flow from operations could be adequate to fund our operations
for the next fiscal year. There can be no assurance, however, that we will not
require additional financing prior to or after such time. There can be no
assurance that any additional financing will be available to the Company on
acceptable terms, or at all. If adequate funds are not available, the Company
may be required to delay, scale back or eliminate its plans for expansion. Our
inability to obtain additional financing could have a material adverse effect on
the Company's business, financial condition and results of operations.
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BUSINESS MODEL IS UNPROVEN
Our strategy is based on an unproven business model. Our business model
depends on the willingness of companies to join our network of Internet
businesses and the ability of the network to assist our Portfolio Companies. If
we cannot convince companies of the value of our business model, our ability to
attract new companies will be adversely affected and our strategy of building a
collaborative network may not succeed.
We may be unable to identify companies that complement our strategy,
and even if we identify a company that complements our strategy, we may be
unable to acquire an interest in the company for many reasons, including:
- a failure to agree on the terms of the acquisition, such as the amount
or price of our acquired interest;
- incompatibility between us and management of the company;
- competition from other acquirors;
- a lack of capital to acquire an interest in the company; and the
unwillingness of the company to partner with us.
If we cannot acquire interests in attractive companies, our strategy to
build a collaborative network of Portfolio Companies may not succeed.
DEPENDENCE ON CONTINUED GROWTH OF THE INTERNET AND INTERNET INFRASTRUCTURE
The Company's future success is highly dependent upon continued growth
in the use of the Internet generally and, in particular, as a medium for
advertising, marketing, services and commerce. Commercial use of the Internet is
at an early stage of development, and market acceptance of the Internet as a
medium for advertising, information services and commerce is subject to a high
level of uncertainty. The relative effectiveness of the Internet as an
advertising medium as compared to traditional advertising media, for example,
has not been determined. Further, there can be no assurance that the required
infrastructure to support future Internet user and traffic growth or
complementary products or services necessary to make the Internet a viable
commercial marketplace will be developed, or, if they are developed, that the
Internet will become a viable commercial marketplace for products and services
such as those offered by the Company. If commercial use of the Internet fails to
continue to expand, the Company's business, results of operations and financial
condition would be adversely affected.
WE WILL RELY ON MERCHANDISE VENDORS FOR SUPPLY, SHIPPING AND QUALITY OF
PRODUCTS.
Supply. We rely on vendors to supply us with merchandise. We do not
have any long-term contracts or arrangements with our vendors that guarantee the
availability of merchandise. As a result, we may not be able to obtain
sufficient quality and quantities of merchandise at competitive prices. Also,
the quality of service provided by such parties may fall below the standard
needed to enable us to conduct our business effectively. TechStore and Office
Express cannot assure you that their current vendors will continue to supply
merchandise or that we will be able to establish new vendor relationships that
will ensure that merchandise will be available.
Customer service--shipping and quality of products (returns).
Currently, TechStore utilizes fulfillment services offered by TechData
Corporation, and Office Express utilized fulfillment services offered by United
Stationers Supply Co. The vendors ship merchandise directly to customers.
Consequently, we will have limited control over the goods shipped by these
vendors, and shipments of goods may be subject to delays. In addition, we may
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accept returns from customers for which we will not receive reimbursements from
manufacturers or vendors. If the quality of service provided by such vendors
falls below a satisfactory standard or if our level of returns exceeds
expectations, this could have a harmful effect on our business.
WE RELY ON OTHER THIRD PARTIES IN CONDUCTING OUR OPERATIONS
In conducting our operations, we depend on several other third parties,
including the following:
o Fulfillment. Third parties fulfill all of our sales. Any service
interruptions experienced by these distribution centers as a result of
labor problems or otherwise could disrupt or prevent fulfillment of
customer orders;
o Operating software. Our internally-developed software depends on
operating systems, database and server software that have been
developed, produced by and licensed from third parties;
o Payment processing. We rely on one or two processors of credit card
transactions. If computer systems failures or other problems were to
prevent them from processing our credit card transactions, we would
experience delays and business disruptions; and
o Shipping. We use one or two primary delivery services to ship our
products. Our business would suffer if labor problems or other causes
prevented these or any other major carriers from delivering our
products for significant time periods.
OUR SUCCESS IS DEPENDENT ON KEY PERSONNEL
We believe that our success will depend on continued employment by us
and our Portfolio Companies of senior management and key technical personnel. If
one or more members of our senior management or our Portfolio Companies' senior
management would become unable or unwilling to continue in their present
positions, our business and operations could be disrupted. In addition, we may
be unable to find and hire additional qualified management and professional
personnel to help lead us and our Portfolio Companies. The success of some of
our Portfolio Companies also depends on their having highly trained technical
and marketing personnel. Our Portfolio Companies will need to continue to hire
additional personnel as their businesses grow. A shortage in the number of
trained technical and marketing personnel could limit the ability of our
Portfolio Companies to grow their business.
POTENTIAL FOR OPERATING LOSSES
Our expenses will increase as we build an infrastructure to implement
our business model. For example, we expect to hire additional employees and
expand our information technology systems. In addition, we plan to significantly
increase our operating expenses to broaden our Portfolio Company support
capabilities, explore acquisition opportunities and alliances with other
companies, and facilitate business arrangements among our Portfolio Companies.
Expenses may also increase due to the potential effect of goodwill amortization
and other charges resulting from completed and future acquisitions. If any of
these and other expenses are not accompanied by increased revenue, our operating
losses will be greater than we anticipate.
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Y2K COMPLIANCE
Although management believes that the computer systems of the Company
and its the Portfolio Companies are Year 2000 compliant, it is possible that our
systems and those of our Portfolio Companies as well as third parties (over whom
we have little or no control) may not be Year 2000 compliant. Should any of
these computer systems fail to be Year 2000 compliant, our operations and the
operations of our Portfolio Companies could be disrupted. Many software programs
have been written using two digits rather than four digits to define the
applicable year. This poses a problem at the end of the century because these
programs may recognize a date using "00" as the year 1900, rather than the year
2000. This in turn could result in major system failures or miscalculations and
is generally referred to as the Year 2000 issue. We may realize exposure and
risk if our systems and the systems on which our Portfolio Companies are
dependent to conduct their operations are not Year 2000 compliant. Our potential
areas of exposure include products purchased from third parties, computers,
software, telephone systems and other equipment used internally. If our present
efforts and the efforts of our Portfolio Companies to address the Year 2000
compliance issues are not successful, or if distributors, suppliers and other
third parties with which we and our Portfolio Companies conduct business do not
successfully address such issues, our business and the businesses of our
Portfolio Companies may not be operational for a period of time. If the
Web-hosting facilities of our Portfolio Companies are not Year 2000 compliant,
their production Web sites would be unavailable and they would not be able to
deliver services to their users.
RISKS PARTICULAR TO OUR PROPOSED ACQUISITIONS AND PROSPECTIVE PORTFOLIO
COMPANIES
UNCERTAINTY OF CONSUMMATION OF PROPOSED ACQUISITIONS
Although the Company and its E-Taxi subsidiary have entered into a
definitive agreement with the stockholders of SSPS, each party's obligation to
consummate the acquisition is subject to the satisfaction of numerous
conditions, including the absence of material adverse changes in business,
financial condition and results of operations. In addition, TopTeam has entered
into letters of intent with the TopTeam Candidates, none of which are binding.
Therefore, no assurance can be provided that E-Taxi will consummate its proposed
acquisition of SSPS nor that TopTeam and the Company will consummate the
proposed acquisition of the TopTeam Candidates.
RISKS INHERENT TO COMPANY'S ACQUISITION STRATEGY
The Company has in the past, and intends in the future, to expand
through the acquisition of businesses, technologies, products and services, such
as the recent acquisitions of E-Taxi and the proposed acquisitions of the SSPS
companies and the TopTeam Candidates. Acquisitions may result in the potentially
dilutive issuance of equity securities, the incurrence of additional debt, the
write-off of in-process research and development of software acquisition and
development costs, and the amortization of goodwill and other intangible assets.
For example, for the year ended June 30, 1999, the Company recorded in-process
research and development expense of approximately $20,000, primarily in
connection with the acquisition of TechStore. In September, 1998, a
representative of the Securities and Exchange Commission (the SEC) advised the
American Institute of Certified Public Accountants with respect to factors to be
considered in the valuation of in-process research and development. Although the
release of this new guidance presents the potential risk of adjustments to
reported amounts, if the Company's valuation methodology were to be challenged
by the SEC, the Company believes that its recorded in-process research and
development expenses were determined in compliance with such guidance. Any such
adjustment could result in an increase in the amount of goodwill recorded, which
would result in higher amortization expenses and, therefore, adversely affect
the Company's operating results. Further, acquisitions involve a number of
special problems, including difficulty integrating technologies, operations and
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personnel and diversion of management attention in connection with both
negotiating the acquisitions and integrating the assets. There can be no
assurance that the Company will be successful in addressing such problems. In
addition, growth associated with numerous acquisitions places significant strain
on the Company's managerial and operational resources. The Company's future
operating results will depend to a significant degree on its ability to
successfully manage growth and integrate acquisitions. Furthermore, many of
Company's investments are in early-stage companies, with limited operating
histories and limited or no revenues. Although management believes that it can
manage these acquisitions profitably in the future, there can be no assurance
that the Company will be successful in developing such companies.
UNCERTAINTIES ASSOCIATED WITH SELLING ASSETS
A significant element of the Company's business plan involves selling,
in public or private offerings, portions of the companies it has acquired and
developed. The Company's ability to engage in any such transactions, the timing
of such transactions and the amount of proceeds from such transactions are
dependent on market and other conditions largely beyond the Company's control.
Accordingly, there can be no assurance that the Company will be able to engage
in such transactions in the future or that when the Company is able to engage in
such transactions they will be at favorable prices. If the Company were unable
to liquidate portions of its portfolio companies at favorable prices, the
Company's business, financial condition and results of operations would be
adversely affected.
MANAGEMENT OF GROWTH
The Company's growth has placed, and is expected to continue to place,
a significant strain on the Company's managerial, operational and financial
resources. Further, as the number of the Company's users, advertisers and other
business partners grows, the Company is required to manage multiple
relationships with various customers, strategic partners and other third
parties. These requirements will be exacerbated in the event of further growth
of the Company or in the number of its strategic relationships or sponsorship
arrangements. There can be no assurance that the Company's systems, procedures
or controls will be adequate to support the Company's operations or that the
Company management will be able to achieve the rapid execution necessary to
successfully offer its services and implement its business plan.
COMPETITION
Competition for Internet products and services is intense. Our
Portfolio Companies will compete for their share of a customer's purchasing
budget for services, materials and supplies with other online providers and
traditional distribution channels; dollars spent on consulting services with
many established information systems and management consulting firms; and
advertising budget with online services and traditional off-line media, such as
print and trade associations. Furthermore, our Portfolio Companies' competitors
may develop Internet products or services that are superior to, or have greater
market acceptance than, the solutions offered by our Portfolio Companies. If our
Portfolio Companies are unable to compete successfully against their
competitors, our Portfolio Companies may fail. Many of our Portfolio Companies'
competitors will have greater brand recognition and greater financial, marketing
and other resources than our Portfolio Companies. This may place our Portfolio
Companies at a disadvantage in responding to their competitors' pricing
strategies, technological advances, advertising campaigns, strategic
partnerships and other initiatives.
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PROPRIETARY RIGHTS
Proprietary rights may be important to the success and competitive
position of our Portfolio Companies. Although our Portfolio Companies may seek
to protect their proprietary rights, their actions may be inadequate to protect
any trademarks and other proprietary rights. In addition, effective copyright
and trademark protection may be unenforceable or limited in certain countries,
and the global nature of the Internet may make it impossible for some of our
Portfolio Companies to control the dissemination of their work and use of their
services. Some of our Portfolio Companies may also license content from third
parties and it is possible that they could become subject to infringement
actions based upon the content licensed from those third parties. Our Portfolio
Companies may obtain representations as to the origin and ownership of such
licensed content; however, this may not adequately protect them. Any of these
claims, with or without merit, could subject our Portfolio Companies to costly
litigation and the diversion of their technical and management personnel. If our
Portfolio Companies incur costly litigation and their personnel are not
effectively deployed, the expenses incurred by our Portfolio Companies will
increase and their profits, if any, will decrease.
LEGAL LIABILITY
Some of our Portfolio Companies may be subject to legal claims relating
to the content on their Web sites, or the downloading and distribution of this
content. Claims could involve matters such as defamation, invasion of privacy
and copyright infringement. Providers of Internet products and services have
been sued in the past, sometimes successfully, based on the content of material.
In addition, some of the content provided by our Portfolio Companies on their
Web sites may be drawn from data compiled by other parties, including
governmental and commercial sources, and rely on our Portfolio Companies
re-entering the data. This data may have errors. If any of our Portfolio
Companies' Web site content is improperly used or if any of our Portfolio
Companies supply incorrect information, it could result in unexpected liability.
Any of our Portfolio Companies that incur this type of unexpected liability may
not have insurance to cover the claim or its insurance may not provide
sufficient coverage. If our Portfolio Companies incur substantial cost because
of this type of unexpected liability, the expenses incurred by our Portfolio
Companies will increase and their profits, if any, will decrease.
SYSTEM FAILURE
Some of our Portfolio Companies' businesses may depend on the efficient
and uninterrupted operation of their computer and communications hardware
systems. Any system interruptions that cause our Portfolio Companies' Web sites
to be unavailable to Web browsers may reduce the attractiveness of our Portfolio
Companies' Web sites to third party content providers. If third party content
providers are unwilling to use our Portfolio Companies' Web sites, our business,
financial condition and operating results could be adversely affected.
Interruptions could result from natural disasters as well as power loss,
telecommunications failure and similar events. Capacity limits on some of our
Portfolio Companies' technology, transaction processing systems and network
hardware and software may be difficult to project and they may not be able to
expand and upgrade their systems to meet increased use. As traffic on our
Portfolio Companies' Web sites increases, they must expand and upgrade their
technology, transaction processing systems and network hardware and software.
Our Portfolio Companies may be unable to accurately project the rate of increase
in use of their Web sites. In addition, our Portfolio Companies may not be able
to expand and upgrade their systems and network hardware and software
capabilities to accommodate increased use of their Websites. If our Portfolio
Companies are unable to appropriately upgrade their systems and network hardware
and software, the operations and processes of our Portfolio Companies may be
disrupted.
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WEB SITE ADDRESSES
Our Portfolio Companies may be unable to acquire or maintain easily
identifiable Web site addresses or prevent third parties from acquiring Web site
addresses similar to theirs. In these instances, our Portfolio Companies may not
grow as we expect. The acquisition and maintenance of Web site addresses
generally is regulated by governmental agencies and their designees. The
regulation of Web site addresses in the United States and in foreign countries
is subject to change. As a result, our Portfolio Companies may not be able to
acquire or maintain relevant Web site addresses in all countries where they
conduct business. Furthermore, the relationship between regulations governing
such addresses and laws protecting trademarks is unclear.
RISKS RELATED TO THE INTERNET INDUSTRY
SECURITY CONCERNS
Concern regarding the security of confidential information transmitted
over the Internet may prevent potential customers from engaging in online
transactions. If our Portfolio Companies that depend on such transactions do not
add sufficient security features to their future product releases, our Portfolio
Companies' products may not gain market acceptance or there may be additional
legal exposure to them. Despite the measures some of our Portfolio Companies may
take, the infrastructure of each of them is potentially vulnerable to physical
or electronic break-ins, viruses or similar problems. If a person circumvents
the security measures imposed by any one of our Portfolio Companies, he or she
could misappropriate proprietary information or cause interruption in operations
of the Portfolio Company. Security breaches that result in access to
confidential information could damage the reputation of any one of our Portfolio
Companies and expose the Portfolio Company affected to a risk of loss or
liability. Some of our Portfolio Companies may be required to make significant
investments and efforts to protect against or remedy security breaches.
Additionally, as e-commerce becomes more widespread, our Portfolio Companies'
customers will become more concerned about security. If our Portfolio Companies
are unable to adequately address these concerns, they may be unable to sell
their goods and services.
RAPID TECHNOLOGY CHANGE
The markets in which our Portfolio Companies will operate are
characterized by rapid technological change, frequent new product and service
introductions and evolving industry standards. Significant technological changes
could render their existing Web site technology or other products and services
obsolete. The e-commerce market's growth and intense competition exacerbate
these conditions. If our Portfolio Companies are unable to successfully respond
to these developments or do not respond in a cost-effective way, our business,
financial condition and operating results will be adversely affected. To be
successful, our Portfolio Companies must adapt to their rapidly changing markets
by continually improving the responsiveness, services and features of their
products and services and by developing new features to meet the needs of their
customers. Our success will depend, in part, on our Portfolio Companies' ability
to license leading technologies useful in their businesses, enhance their
existing products and services and develop new offerings and technology that
address the needs of their customers. Our Portfolio Companies will also need to
respond to technological advances and emerging industry standards in a
cost-effective and timely manner.
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GOVERNMENT REGULATIONS AND LEGAL UNCERTAINTIES
Because of the Internet's popularity and increasing use, new laws and
regulations may be adopted. These laws and regulations may cover issues such as
the collection of and use of data from Web site visitors and related privacy
issues, pricing, content, copyrights, online gambling, distribution and the
quality of goods and services. The enactment of any additional laws or
regulations may impede the growth of the Internet and e-commerce, which could
decrease the revenue of our Portfolio Companies and place additional financial
burdens on our business and the businesses of our Portfolio Companies. Laws and
regulations directly applicable to e-commerce or Internet communications are
becoming more prevalent. For example, Congress recently enacted laws regarding
online copyright infringement and the protection of information collected online
from children. Although these laws may not have a direct adverse effect on our
business or those of our Portfolio Companies, they add to the legal and
regulatory burden faced by our Portfolio Companies.
RISK RELATED TO THE MARKET
VOLATILE MARKET PRICE FOR COMMON STOCK
The market price for our common stock is likely to be highly volatile.
The trading prices of many technology and Internet-related company stocks have
reached historical highs within the last year and have reflected relative
valuations substantially above historical levels. During the same period, the
stocks of these companies have also been highly volatile and have recorded lows
well below such historical highs. We cannot assure you that our common stock
will trade at the same levels of other Internet stocks or that Internet stocks
in general will sustain their current market prices. The following factors may
add to our common stock price's volatility:
- actual or anticipated variations in our quarterly operating results and
those of our Portfolio Companies;
- changes in our financial estimates and those of our Portfolio Companies
by securities analysts;
- conditions or trends in the Internet industry in general and Internet
media properties in particular;
- announcements by our Portfolio Companies and their competitors of
technological innovations;
- announcements by us or our Portfolio Companies or our competitors of
significant acquisitions, strategic partnerships or joint ventures;
- changes in the market valuations of our Portfolio Companies and other
Internet companies;
- our capital commitments;
- additions or departures of our key personnel and key personnel of our
Portfolio Companies; and
- sales of our common stock.
Many of these factors are beyond our control. These factors may
decrease the market price of our common stock, regardless of our operating
performance.
THE SIGNIFICANT CONTROL OVER STOCKHOLDER VOTING MATTERS WHICH MAY BE EXERCISED
BY OUR EXECUTIVE OFFICERS AND DIRECTORS WILL DEPRIVE YOU OF THE ABILITY TO
INFLUENCE CORPORATE ACTIONS
Our executive officers and directors and their affiliates beneficially
own approximately 65.6% of the Company's Common Stock as of September 30, 1999.
As a result, these stockholders, if they act together, will be able to control
all matters requiring stockholder approval, including the election of directors
and approval of significant corporate transactions. This concentration of
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ownership may have the effect of delaying, preventing or deterring a change in
control of the Company, could deprive our stockholders of an opportunity to
receive a premium for their Common Stock as part of a sale of the Company and
might affect the market price of our Common Stock.
FUTURE SALES BY EXISTING SECURITY HOLDERS COULD DEPRESS THE MARKET PRICE OF OUR
COMMON STOCK
If our existing stockholders sell a large number of shares of our
Common Stock, the market price of the Common Stock could decline significantly.
Moreover, the perception in the public market that our existing stockholders
might sell shares of Common Stock could depress the market price of the Common
Stock. Approximately 14,500,000 shares are outstanding as of September 27, 1999
of which approximately 11,000,000 shares will be available for resale in the
public market without registration, subject to compliance with Rule 144. Many of
our existing stockholders have the right to include their shares of Common Stock
in a registration statement with the Securities and Exchange Commission should
the Company elect to file a registration statement with the Commission (other
than on Forms S-4 or S-8). If we register their shares of Common Stock, they can
freely sell those shares in the public market which may adversely effect the
market for, and trading price of our Common Stock.
FLUCTUATIONS IN QUARTERLY RESULTS MAY ADVERSELY AFFECT OUR STOCK PRICE
We expect that our quarterly results could fluctuate significantly due
to many factors, including:
- the operating results of our Portfolio Companies;
- changes in our methods of accounting for our Portfolio Company
interests, which may result from changes in our ownership percentages
of our Portfolio Companies;
- sales of equity securities by our Portfolio Companies, which could
cause us to recognize gains or losses under applicable accounting
rules;
- intense competition;
- management of our growth and the growth of our Portfolio Companies; and
- divestitures of interests in our Portfolio Companies.
We believe that period-to-period comparisons of our operating results
are not meaningful. Additionally, if our operating results in one or more
quarters do not meet investors' expectations, the price of our common stock
could decrease.
PENNY STOCK REGULATIONS MAY IMPOSE CERTAIN RESTRICTIONS ON MARKETABILITY OF OUR
SHARES.
The Securities and Exchange Commission (the "Commission") has adopted
regulations which generally define a "penny stock" to be any equity security
that has a market price (as defined) of less than $5.00 per share, subject to
certain exceptions. Since our Common Stock is not listed on The Nasdaq Stock
Market, such securities are not exempt from the definition of "penny stock."
Therefore, our Common Stock may be 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
"penny stock" and have received the purchaser's written consent to the
transaction prior to the purchase. Also, for any transaction involving a "penny
stock", unless exempt, the rules require the delivery, prior to the transaction,
of a risk disclosure document mandated by the Commission relating to the penny
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stock market. The broker-dealer must also disclose the commission 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 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 this Offering to sell the Company's
securities in the secondary market (assuming the Shares are registered or an
exemption from the registration requirements is available) and the price at
which such purchasers can sell any such securities.
UNCERTAINTY ELIGIBILITY OF THE COMMON STOCK FOR LISTING ON THE NASDAQ SMALLCAP
MARKET
In the event the Company files an application with the National
Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ") to
list the Company's Common Stock for quotation on the NASDAQ SmallCap Market, no
assurance can be given that such application will be approved. In addition, it
should be noted that the Company's shares of Common Stock were delisted from The
NASDAQ SmallCap Market in July 1998 because of the failure to satisfy the
continued listing requirements. It should be noted that the initial listing
requirements applicable to an application which may be submitted by the Company
are more rigorous than the continued listing requirements.
ABSENCE OF DIVIDENDS
The Company has never declared or paid, nor does it intend or pay in
the foreseeable future, cash dividends on its Common Stock, but intends instead
to retain any future earnings to finance expansion and operations.
ITEM 2. DESCRIPTION OF PROPERTY
In July 1999, the Company relocated its executive offices from Corona,
California to San Jose California. It closed its office in Corona and entered
into a month-to-month lease arrangement for the Company's executive offices
located at 255 West Julian Street, Suite 100, San Jose, CA with Crown Services,
Inc. ("Crown"), pursuant to which the Company reimburses Crown $5,421.56 per
month, the direct rental cost for approximately 3,200 square feet of office
space. Robert M. Wallace, the Company's Chairman of the Board, is the Chairman
and principal stockholder of Crown. Additionally, in April 1998, TechStore
entered into a month to month lease agreement with Bejan Aminifard, the Chief
Executive Officer of TechStore, pursuant to which TechStore leases 1,200 square
feet for its executive offices located at 14 Commercial Boulevard, Novato,
California for $1,400 per month.
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 was owned by Jack
Mooney, an unrelated third party, who, in June, 1997, sold such interest to the
Company in exchange for the cancellation of certain indebtedness. In October
1998, the Company transferred the property as consideration for cancellation of
outstanding indebtedness in the aggregate principal amount of $200,000. Shortly
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thereafter, Mr. Mooney sold the property to the Kiley Children's Trust, a trust
created for the benefit of the children of L. Wayne Kiley, the Company's Chief
Executive Officer and former Chairman of the Board.
On December 1, 1997, the Company entered into a lease with Quality
Associates, Inc., a company owned and controlled by L. Wayne Kiley, the
Company's Chairman of the Board, Chief Executive Officer and President. The
lease was for the Company's executive offices located at 1171 Railroad Street,
Corona, CA 91720, and for warehouse space located at 340 North Grant Street,
Corona, CA, each for a three year term ending October 31, 2000. The office space
and the warehouse space required the payment of $9,000 and $4,000 in monthly
rent, respectively. Maintenance of the premises was at the Company's expense.
The Company has failed to pay rent since September 1998. In April 1999, the
Company's landlord, Quality Associates, Inc., a company owned by L. Wayne Kiley,
the Company's Chief Executive Officer and former Chairman of the Board, agreed
to cancel all rent due and payable by the Company $64,536 to Quality Associates,
Inc. in exchange for the reduction of the exercise price of certain options
granted to Mr. Kiley. See "Certain Relationships and Related Transactions."
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings nor are
any material legal proceedings threatened against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On August 12, 1999, the Company received written consents in lieu of a
meeting of stockholders from holders of 6,873,734 shares of Common Stock
representing approximately 51.6% of the total issued and outstanding shares of
voting stock of the Company approving (i) the adoption of the Company's 1999
Stock Plan and (ii) an amendment to the Company's Certificate of Incorporation
changing the Company's name to "eMarketplace, Inc.".
PART II
ITEM 5. 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. As of that date, the Company's Common Stock, the Class A Warrants
and the Class B Warrants began trading under the symbols "MKPL" and "MKPLW" and
"MKPLZ", respectively. The Common Stock is presently quoted and traded on the
OTC Bulletin Board as a result of the Company's failure to satisfy the continued
listing requirements of The Nasdaq SmallCap Market in July, 1998. 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 and expired in June 1998. The
Company also had Class D Warrants which were registered for trading on the OTC
Bulletin Board under the symbol "MKPLH" which expired on April 15, 1999. On
August 27, 1999, the Company changed its trading symbol to "EMKT" to reflect the
Company's name change to eMarketplace, Inc. As of September 30, 1999, there were
approximately 135 holders of record of the Company's common stock and
approximately 800 beneficial owners.
The following table indicates the high and low bid prices for the
Company's Common Stock for each of the quarters in the period from July 1, 1998,
through June 30, 1999, based upon information supplied by the Nasdaq system and
the OTC Bulletin Board. Prices represent quotations between dealers without
adjustments for retail markups, markdowns or commissions, and may not represent
actual transactions.
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FOR THE PERIOD FROM JULY 1, 1997 TO JUNE 30, 1999
QUOTED BID PRICE
<TABLE>
<CAPTION>
1999 FY 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
(ended 9/30/98) (ended 12/31/98) (ended 3/31/99) (ended 6/30/99)
---------------- ----------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Common Stock:
High $1.50 $.875 $1.56 $6.375
Low $.875 $.688 $.875 $1.375
1998 FY 1st Quarter 2nd Quarter* 3rd Quarter* 4th Quarter*
(ended 9/30/97) (ended 12/31/97) (ended 3/31/98) (ended 6/30/98)
---------------- ----------------- ---------------- ---------------
Common Stock:
High 1.06 1.53 1.00 1.56
Low 1.00 1.00 1.00 1.50
</TABLE>
On September 30, 1999, the closing bid price of the Common Stock as
reported on OTC Bulletin Board was $7.00. eMarketplace has no dividend policy,
and does not intend to pay any dividends in the foreseeable future.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD LOOKING STATEMENTS
The following Management's Discussion and Analysis contains
forward-looking statements, which involve risks and uncertainties. The Company's
actual results may differ materially from those anticipated in these
forward-looking statements as a result of the acquisition of TechStore and
E-taxi, and the proposed acquisition of SSPS, which is expected to close during
the second quarter of fiscal 2000, and other factors, including, without
limitation, those risk factors set forth under "Risk Factors" included in Part
I, Item 1, - "Description of Business" of this Annual Report on Form 10-KSB.
OVERVIEW
eMarketplace, Inc. (the "Company") consists of eMarketplace, Inc. and
its wholly owned subsidiaries. Until April 1999, the Company was primarily in
engaged in the purchase and sale of new and used computer equipment, and through
its Medical Marketplace, Inc. subsidiary, the purchase and sale of used medical
equipment. However, the Company has been in the process of winding down its
computer equipment business because it has failed to operate profitably since
the fiscal year ended June 1994. In April 1999, the Board of Directors, in
connection with their shift in business strategy, announced its intention to
divest of Medical Marketplace, resulting in the classification of the business
as a discontinued operation. Therefore, the results of Medical Marketplace have
been excluded from the results of operations of the Company, and a liability was
recorded as an estimate of the total loss to be incurred upon the sale.
In April 1999, the Company adopted a new corporate strategy focused on
developing, acquiring and operating Internet businesses by acquiring E-Taxi,
Inc. ("E-Taxi"). The Company is presently pursuing a business plan to become an
Internet holding company engaged primarily in the development and operation of a
network of Internet properties ("Portfolio Companies") that provide content,
commerce and online services to demographically-targeted audiences.
On April 23, 1999, the Company acquired E-Taxi, which is accounted for
as a "reverse acquisition." As consideration for the 9,074,000 shares of
E-Taxi's common stock and 400,000 shares of the E-Taxi's Series A Preferred
Stock, the Company issued an aggregate of 9,074,000 shares of common stock, par
value $.0001 per share, and 400,000 shares of Series A Preferred Stock, par
value $.0001 per share. For accounting purposes, E-Taxi is deemed to be the
acquirer, and the Company is deemed to be acquired, under the purchase method of
accounting. Therefore, the financial information presented herein represents the
historical results of E-Taxi and the results of the Company from April 23, 1999
(date of acquisition) only. E-Taxi was incorporated in the State of Delaware on
April 14, 1998 to develop a vertical Internet portal for the small office, home
office ("SOHO") market.
Immediately prior to the closing of the E-Taxi Acquisition, E-Taxi
closed (i) a private offering of its shares of preferred stock and common stock
raising an aggregate of approximately $1,400,000 and (ii) the acquisition of
TechStore. LLC, a California limited liability company ("TechStore"), is an
online retailer of computer hardware and software.
The acquisition was accounted for as a purchase. The results of
operations include the results of TechStore from the date of acquisition.
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As of June 14, 1999, E-Taxi entered into (i) a Stock Purchase Agreement
(the "Stock Purchase Agreement") with all of the shareholders of SSPS, Inc., a
California corporation ("SSPS"), pursuant to which E-Taxi has agreed to
purchase, and the shareholders of SSPS have agreed to sell, approximately 94.6%
of the outstanding shares of capital stock of SSPS, and (ii) a Membership
Interest Purchase Agreement with all of the members of Impact Team
International, LLC, a California limited liability company and an affiliate of
SSPS ("Impact"), pursuant to which E-Taxi has agreed to purchase, and the
members of Impact have agreed to sell, all of the outstanding membership
interests of Impact. SSPS, and its operating divisions TRISTEP, GIG2GIG.COM, and
IT WORLDNET.COM, and Impact, provide short term and long term temporary
workforce solutions primarily to rapidly growing technology firms.
The closing of the transactions contemplated by the Stock Purchase
Agreement and the Membership Interest Purchase Agreement (the "Closing") are
subject to the satisfaction of certain conditions, including without limitation,
the execution and delivery of employment agreements with certain members of the
senior management team of SSPS, the release of a principal stockholder of SSPS
of his guaranty of certain indebtedness of SSPS, the waiver of certain rights of
first refusal to purchase the shares of SSPS capital stock owned by a principal
stockholder, the termination and release of certain obligations of SSPS under
existing employment agreements and other customary conditions to closing. At the
Closing, the Company will issue approximately 2.9 million shares of it's Common
Stock and pay cash and notes of approximately $1.5 million for SSPS. The Company
has also agreed to provide the sellers of the SSPS shares and the Impact
interests with demand and piggyback registration rights. It is presently
anticipated that the Company's acquisition of SSPS and Impact will occur during
the second quarter of 2000.
In August 1999, the Company's newly formed subsidiary, Office Express,
Inc., launched its web site, WWW.OFFICEEXPRESS.COM. Offering over 20,000 brand
name office products, the site enables online customers to purchase office
products and supplies at competitive prices. Products are generally shipped for
next day delivery for most domestic US destinations and the site features
advanced online customer service features, including customer shopping lists,
which allows users to manage lists of frequently purchased items.
RESULTS OF OPERATIONS
Because the Company had no revenues and nominal expenses for the period
from inception (April 14, 1998) to June 30, 1998 (total operating expenses were
$8,071), any comparison of fiscal 1999 results to fiscal 1998 would not be
meaningful and have been excluded from the following discussion. The E-Taxi
Acquisition was accounted for as a reverse acquisition. The historical financial
statements reflect the operations of E-Taxi for twelve months and the operations
of Computer Marketplace from April 1999 to June 30, 1999. In addition, any
forward looking information does not include the impact, if any, of the proposed
acquisition of SSPS discussed above.
The Company may experience significant fluctuations in operating results in
future periods due to a variety of factors, including but not limited to, the
following factors which are discussed at more length elsewhere in this Annual
Report on Form 10-KSB:
- The Company has incurred operating losses and there can be no assurance
that these losses will be reduced in the future.
- The Company has a limited operating history on which to base estimates
of future performance.
- The Company may need additional financing in order to carry out its
business plans.
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- The Company's business model is unproven and could fail.
- The Company is dependent on continued growth of the Internet and
Internet infrastructure.
- The completion of proposed acquisitions cannot be assured.
- The Company must manage its growth and the integration of acquired
businesses, which diverts management's' attention from the day-to-day
operations of existing businesses.
- Competition for Internet products and services is intense.
- Some of the Company's businesses may be dependent on the efficient and
uninterrupted operation of their computer and communications hardware
systems.
- The market in which the Company operates is subject to rapid
technological change, which could render the Company's products and
services obsolete.
FISCAL YEAR ENDED JUNE 30, 1999
NET LOSS
The Company recorded a net loss of $728,297 for the year ended June 30,
1999 because the cost of revenues and expenses were not sufficient to cover
revenues generated. Management believes that (i) the discontinuation of its
computer resale operations; (ii) the divestiture of Medical Marketplace; (iii)
the operations of TechStore for a complete 12 month period; and (iv) interest
income resulting from interest on financing proceeds could result in improved
profitability. There can be no assurance that the Company will be successful in
reducing net losses.
REVENUE
Total revenue for the year ended June 30, 1999 was $2,208,855, which
consists almost exclusively of revenue from the sale of computer hardware and
software and consumer electronics by the Company's wholly owned subsidiary,
TechStore, through its web site. Revenue is expected to increase in fiscal 2000
with the inclusion of the result of TechStore for full twelve months.
COST OF REVENUE
Total cost of revenue for the year ended June 30, 1999 was $2,061,725
or 93.3% of revenue. Cost of revenue includes the cost of product sold, credit
card processing fees and freight costs. The Company utilizes vendor
drop-shipments directly to customers, and therefore does not maintain inventory.
The Company expects margins to remain low in the near future as it uses
competitive pricing as a means to obtain increased market share.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Total selling, general and administrative expenses for the year ended
June 30, 1999 were $453,616 or 20.5% of revenue. Selling, general and
administrative expenses consist of salaries and other personnel related
expenses, facilities related expenses, legal and other professional fees,
advertising costs and travel expenses. The fiscal year ended June 30, 1999 also
included $88,661 in non-cash expenses associated with stock issued to three
directors for services rendered and stock options issued to an accounting
consultant. The Company expects to incur approximately $88,000 in the first
quarter of fiscal 2000 for the amortization of the deferred compensation
associated with the options. Selling, general and administrative expenses over
the next year will include the expenses of TechStore for a full year,
advertising expenses to market the Company's expanded product offerings,
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<PAGE>
administrative expenses associated with conforming to public reporting
requirements of the Company, and expenses associated with the Company's
acquisition and expansion strategy discussed in the "Business" section of this
annual report on Form 10-KSB.
PRODUCT DEVELOPMENT EXPENSES
Product development expenses were $19,173 for the year ended June 30,
1999. Product development expenses consist of personnel and related expenses
associated with the development of the Company's web site.
AMORTIZATION OF GOODWILL AND OTHER ACQUIRED INTANGIBLES
During the fourth quarter of fiscal 1999, the Company incurred $404,174
in amortization expenses associated with the acquisition of TechStore and the
reverse merger between the Company and E-Taxi. The intangible assets associated
with these acquisitions, consisting in total of $9,972,630 in goodwill, $140,000
in acquired technology $160,000 in established workforce and $280,000 in
trademarks, are being amortized over their estimated useful lives of four to
five years. In the event that the Company continues to acquire other companies,
amortization of acquisitions will continue to have an impact on the Company's
results of operations in the future. Based on acquisitions completed as of June
30, 1999, and assuming no impairment of the value resulting in an acceleration
of the amortization, future amortization will reduce net income from
operations.. If the Company completes additional acquisitions in the future,
this could result in additional amortization charges of the resulting goodwill
from the acquisition.
INTEREST INCOME AND EXPENSE
Interest income, net of interest expense, was $1,536 for the year ended
June 30, 1999. Interest expense related primarily to interest on loans to the
Company and interest income resulted primarily from interest earned on the $1.4
million proceeds on the private placement completed by E-Taxi in April 1999.
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
At June 30, 1999, the Company had a cash balance of $1,255,966 and
negative working capital of ($377,642). The primary source of cash and working
capital to the Company during 1999 was approximately $1.4 million in proceeds
from a private placement in April 1999. Of the total proceeds, $53,000 was used
to repay loans assumed in acquisitions and $114,323 was used to fund operations.
The acquisition of TechStore and the reverse acquisition between the Company and
E-Taxi resulted in cash acquired of approximately $21,550. The Company believes
that its projected cash flow from operations, cash balances as of June 30, 1999
of approximately $1,255,000, and the proceeds from the Company's subsequent
capital raising activities will be sufficient to meet the working capital needs
of the Company through June 30, 2000.
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Operations for the period from inception (April 14,1998) to June 30,
1998 were funded primarily by increases in liabilities, with no investing or
financing activities occurring during that period.
The Company's principle commitments at June 30, 1999 consist of monthly
operating rental payments, compensation of employees and accounts payable. In
addition, the accrued loss on the disposal of Medical Marketplace (see Note 13
of Notes to Consolidated Financial Statements) includes notes payable and
capital lease obligations which would, should the subsidiary not close as
anticipated by the Company in the fourth quarter of fiscal 2000, remain
obligations of the Company. Also, at the closing of the proposed acquisition of
SSPS, which is anticipated to be in the second quarter of fiscal 2000, the
Company has committed to pay cash and notes of approximately $1.5 million for
SSPS.
On July 16, 1999, the Company commenced a private offering (the
"Offering") of up to 1,200,000 shares of its common stock (each a "Share" and
collectively the "Shares"). The Offering is being conducted under an exemption
from the registration requirements of the Securities Act of 1933, as amended
(the "Act"), provided by Section 4(2) of the Act and the provisions of Rule 506
of Regulation D. Sales of the Shares will be made only to "accredited
investors," as such term is defined in Rule 501(a) under the Act. The Shares are
being offered at a purchase price of $3.875 per share and on a "best efforts all
or none" basis with respect to the first 400,000 Shares (the "Minimum
Offering"), and on a "best efforts" basis thereafter with respect to the
remaining 800,000 Shares (the "Maximum Offering"). The Offering was originally
scheduled to terminate on August 30, 1999, but has been extended at the option
of the Company. Subscriptions for less than 20,000 Shares (or $77,550) may be
accepted at the discretion of the Company. Upon completion of the Minimum
Offering and the Maximum Offering, the Company expects to receive gross proceeds
of approximately $1,550,000 and $4,650,000, respectively, before deducting
commissions (placement agent) and expenses of the Offering (consisting of
accounting and legal fees, "blue sky" fees and other related expenses). On
October 8, 1999, the Company conducted an interim closing receiving gross
proceeds of $2,883,872 from the sale of 744,225 shares of Common Stock.. The
proceeds of the Offering will be used to fund the acquisition of SSPS and Impact
and the working capital needs of the Company.
The Company will rely upon its projected cash flow from operations and
additional debt and equity financing for its long-term capital needs.
YEAR 2000 COMPLIANCE
Many currently installed computer systems are not capable of
distinguishing 21st century dates from 20th century dates or have been
programmed with default dates ending in 99, the common two-digit reference for
1999. As a result, as the Company transitions from the 20th century to the 21st
century, computer systems and used by many companies and organizations in a wide
variety of industries will produce erroneous results or fail unless they have
been modified or upgraded to process date information correctly. Significant
uncertainty exists concerning the scope and magnitude of problems associated
with the year 2000 issue.
STATE OF READINESS. Although the Company has not conducted a formal
audit internally or by any third party, based on its current assessment, the
Company believes its internal systems are year 2000 compliant. The Company has
confirmed that the accounting systems used by it and its wholly owned
subsidiaries are year 2000 compliant. However, such a review has not yet been
completed on potential acquisition targets. The Company is beginning to
communicate with its significant suppliers to determine their year 2000
readiness. The Company has not completed its year 2000 investigation and overall
compliance initiative.
29
<PAGE>
COSTS. To date, the Company has not incurred any material costs
directly associated with its year 2000 compliance efforts, except for
compensation expenses associated with its salaried employees who have devoted
some of their time to the year 2000 assessment. The Company does not expect the
total cost of year 2000 problems to be material to its business. During the
months prior to the century change, the Company will continue to evaluate new
software and information systems provided to it by third parties and any new
infrastructure systems that the Company acquires to determine whether they are
year 2000 compliant. Despite the Company's current assessment, the Company may
not identify and correct all significant year 2000 problems on a timely basis.
Year 2000 compliance efforts may involve significant time and expense and
unremediated problems could substantially harm its business. The Company
currently has no contingency plans to address the risks associated with
unremediated year 2000 problems.
RISKS. The Company is not currently aware of any year 2000 readiness
problems relating to its internally-developed proprietary systems that would
substantially harm its business. The Company may discover year 2000 readiness
problems in these systems that will require substantial revision. In addition,
third-party software, hardware or services incorporated into the Company's
material systems may need to be revised or replaced, all of which could be
time-consuming and expensive. The Company's failure to fix or replace its
internally developed proprietary software or third-party software, hardware or
services on a timely basis could result in lost revenues, increased operating
costs, the loss of customers and other business interruptions, any of which
could substantially harm the Company's business. In addition, governmental
agencies, utility companies, Internet access companies, third-party service
providers and others outside of the Company's control may not be year 2000
ready. The failure by these entities to be year 2000 ready could result in a
systemic failure beyond the Company's control, such as a prolonged Internet,
telecommunications or electrical failure, which could also prevent the Company
from delivering goods to the Company's customers, decrease the use of the
Internet or prevent users from accessing the Company's web sites.
In particular, the Company has identified the following vendors and
service providers as significant to its business: Wells Fargo Bank for credit
card processing, Masterlink, Inc. for Internet services, Tech Data Corporation
for inventory and Deutsche Financial Services for banking and financing
services. The Company has not yet received any written assurance from these
vendors and service providers as to their readiness for year 2000 issues.
However, the Company does monitor the progress of these companies in their year
2000 preparations by reviewing their respective web sites, each of which
contains detailed information about their year 2000 preparations. Because the
Company has not received written assurances, the Company has assumed that these
vendors and services may not be ready for the year 2000 before January 1, 2000,
and that their processing capabilities could fail at that time. Based on this
assumption, the Company believes such a failure would be the most reasonably
likely worst case year 2000 scenarios. If the credit card service fails, the
Company would seek to complete credit card transaction manually using temporary
staff. If service were not restored promptly, the Company believes switching to
another financial institution for automated credit card processing would require
approximately 15 days. Similarly, finding alternative vendors for inventory, web
site hosting and banking could take approximately 15 to 30 days.
CONTINGENCY PLAN. As discussed above, the Company is engaged in an
ongoing year 2000 assessment and has not yet developed any contingency plans.
30
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has considered the provisions of Financial Reporting
Release No. 48 "Disclosure of Accounting Policies for Derivative Financial
Instruments and Derivative Commodity Instruments, and Disclosure of Quantitative
and Qualitative Information about Market Risk Inherent in Derivative Financial
Instruments, Other Financial Instruments and Derivative Commodity Instruments."
The Company had no holdings of derivative financial or commodity instruments at
June 30, 1999. However, the Company is exposed to financial market risks,
including changes in interest rates. All of the Company's revenue, operating
expenses and capital spending is transacted in U.S. dollars. The Company's
investments portfolio comprises amounts invested in short term cash deposits and
therefore the Company believes that the fair value of its investment portfolio
or related income would not be significantly impacted by increases or decreases
in interest rates due mainly to the short-term nature of the Company's
investment portfolio. However, a sharp increase in interest rates could have a
material adverse effect on the fair value of The Company's investment portfolio.
Conversely, sharp declines in interest rates could seriously harm interest
earnings of the Company's investment portfolio. At June 30, 1999 all of the
Company's cash and cash equivalents mature in three months or less, and there
were no short-term investments.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See financial statements following Item 13 of this Annual Report on
Form 10-KSB.
ITEM 8. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The following table sets forth certain information regarding the
executive officers and directors of the Company:
Name Age Position
- ---- --- --------
Robert Wallace 51 Chairman of the Board
L. Wayne Kiley 56 Director, Chief Executive Officer and
Principal Accounting Officer
Bejan Aminifard 25 Chief Executive Officer of TechStore
Derek Wall 29 President of TechStore
Brian Hintergardt 41 President of Medical Marketplace
Thomas E. Evans, Jr. 59 Director
ROBERT WALLACE has been Chairman of the Board since April 1999. Since April 1999
he served as Chairman, President and Secretary of E-Taxi, Inc. In addition, Mr.
Wallace is the founder and has been the Chairman and President of Gateway
Advisors, Inc., a financial advisory firm, since its inception in 1987.
Previously, Mr. Wallace served as a director of, among other companies,
International Family Entertainment, Inc. and Media Arts Group, Inc. Gateway
Advisors, Inc. has been retained by the Company as its financial advisor.
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L. WAYNE KILEY has been the President and Chief Executive Officer of the Company
since March 1984, and a director since June 1993. Mr. Kiley was also President
of Medical Marketplace from its inception through August 1998. From 1978 to
1983, he was self-employed independent real estate developer in Tuscon, Arizona.
From 1970 to 1978, he was the owner of the Business Exchange in Santa Ana,
California.
BEJAN AMINIFARD is the founder and has been the Chief Executive Officer of
TechStore since its inception in November 1997. Prior to this, Mr. Aminifard was
employed by Eversys Corporation as an applications programmer, from June 1996
until June 1997. Prior to that, Mr. Aminfard was a student at the University of
California - Berkeley, where he received his Bachelor of Arts degree in
Cognitive Sciences in May 1996.
DEREK WALL has served as President of TechStore since April 1998. From January
1997 until March 1998, Mr. Wall served as Senior Vice President of Sales for
Dita Eyewear Inc., a high fashion optical company. Prior to that, he served as
Chief Executive Officer of Purged Sled Company Inc., a manufacturer and
distributor of snowboard equipment, from June 1993 until September 1995.
BRIAN HINTERGARDT has been Executive Vice President of Medical Marketplace from
March 1994 to August 1998 and since that time he has served as the President of
Medical Marketplace. From 1987 until 1993, Mr. Hintergardt was the Chief
Executive Officer, Administrator and Engineer of Coalinga Regional Medical
Center. Mr. Hintergardt has an engineering degree from California State
Polytechnical University.
THOMAS E. EVANS, JR. has been a director since February 1994. Since July 1995,
he has held various senior management positions with the Orange County Division,
of Fidelity National Title Insurance, most recently he has served as President
since 1995. Mr. Evans is a member of the American Land Title Association and
serves as its current President. Mr. Evans served from 1984 to 1992 as a
director of Fidelity National /financial, Inc. which is listed on the New York
Stock Exchange.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent (10%) of a registered class of the Company's equity securities, to file
with the Securities and Exchange Commission ("SEC") initial reports of ownership
and reports of changes in ownership of common stock and other equity securities
of the Company. Officers, directors and greater than ten percent (10%)
stockholders are required by SEC regulation to furnish the Company with copies
of all Section 16(a) forms they file.
To the Company's knowledge, based solely on its review of the copies of
such reports furnished to the Company during the year ended June 30, 1999, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent (10%) beneficial owners were satisfied, except that
Bejan Aminifard filed a Form 3 late and Derek Wall failed to file a Form 3.
ITEM 10. EXECUTIVE COMPENSATION
The following table shows all the cash compensation paid by the Company
to the Chief Executive Officer and two of the Company's officers who received in
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excess of $100,000 in annual salary and bonus during the fiscal years ended June
30, 1999, 1998, and 1997:
<TABLE>
<CAPTION>
Annual Compensation
Compensation Awards
(a) (b) (c) (d) (g) (i)
Name and Principal Number of
Position - Compensation Year Salary Bonus Options All Other
- ----------------------- ---- ------ ----- ------- ---------
<S> <C> <C> <C> <C> <C>
L. Wayne Kiley, President Chief 1999 $-------(1) $---- 100,000 $-----
Executive Officer and Director 1998 $269,228 $---- ----- $-----
1997 $306,977 $---- 661,667 4,476
Thomas Mason(2) Vice President 1999 $------- $---- ----- $-----
1998 $178,800 $---- ----- $-----
1997 $211,976 $---- 143,000 $-----
Brian Hintergardt Chief Executive 1999 $120,000 $-----
Officer -- Medical Marketplace 1998 $ 20,168 41,666
1997 $ 19,033
Mauri Lathouwers, Jr. 1999 $120,000 $---- ----- $3,900
1998 $------- $---- -----
</TABLE>
- ----------
(1) Mr. Kiley did not receive a salary for the year ended June 30, 1999.
However, the exercise price of certain options were reduced to $.60 per
share. The Company recorded $ as additional compensation as a result of
the exercise price adjustment.
(2) Mr. Mason's employment with the Company terminated in May, 1998.
During the year ended June 30, 1999, the Company issued a total of
300,000 options to L. Wayne Kiley, a director and the Company's Chief Executive
Officer, and Joe Achten, then a director of the Company, in exchange for loans
made to the Company. The exercise price of the 200,000 options issued to Mr.
Achten is $.50 per share and the exercise price of the 100,000 options issued to
Mr. Kiley is $.60 per share. The options are exercisable until December 31,
2002. See "Certain Relationships and Related Transactions."
1999 STOCK PLAN
As of April 13, 1999 the Board of Directors of the Company and as of
July 12, 1999 a majority of the shares of the Company's voting stock outstanding
approved the adoption of the Company's 1999 Stock Plan (hereinafter called the
"1999 Plan"). The 1999 Plan has been adopted for the purpose of attracting and
retaining persons of ability as directors, employees or consultants or advisors
of the Company and its subsidiaries, motivate and reward good performance,
encourage such employees to continue to exert their best efforts on behalf of
the Company and its subsidiaries and provide opportunities for stock ownership
by such employees in order to increase their proprietary interest in the Company
by providing incentive awards to key employees, whose responsibilities and
decisions directly affect the performance of the Company and its subsidiaries.
The maximum number of shares of Common Stock with respect to which
awards may be granted pursuant to the 1999 Plan is initially 1,700,000 shares.
Shares issuable under the 1999 Plan may be either treasury shares or authorized
but unissued shares. The number of shares available for issuance will be subject
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<PAGE>
to adjustment to prevent dilution in the event of stock splits, stock dividends
or other changes in the capitalization of the Company.
Subject to compliance with Rule 16b-3 of the Securities Exchange Act of
1934, the Plan shall be administered by the Board of Directors of the Company
(the "Board") or, in the event the Board shall appoint and/or authorize a
committee, such as the Compensation Committee, of two or more members of the
Board to administer the Plan, by such committee. The administrator of the Plan
shall hereinafter be referred to as the "Plan Administrator". Except for the
terms and conditions explicitly set forth herein, the Plan Administrator shall
have the authority, in its discretion, to determine all matters relating to the
options to be granted under the Plan, including, without limitation, selection
of whether an option will be an incentive stock option or a nonqualified stock
option, selection of the individuals to be granted options, the number of shares
to be subject to each option, the exercise price per share, the timing of grants
and all other terms and conditions of the options.
Upon a Change in Control of the Company, any award carrying a right to
exercise that was not previously exercisable shall become fully exercisable, the
restrictions, deferral limitations and forfeiture conditions applicable to any
other award granted shall lapse and any performance conditions imposed with
respect to awards shall be deemed to be fully achieved.
Awards under the 1999 Plan may not be transferred, pledged, mortgaged,
hypothecated or otherwise encumbered other than by will or under the laws of
descent and distribution, except that the Committee may permit transfers of
awards for estate planning purposes if, and to the extent, such transfers do not
cause a participant who is then subject to Section 16 of the Exchange Act to
lose the benefit of the exemption under Rule 16b-3 for such transactions.
The Board may amend, alter, suspend, discontinue or terminate the 1999
Plan at any time, except that any such action shall be subject to stockholder
approval at the annual meeting next following such Board action if such
stockholder approval is required by federal or state law or regulation or the
rules of any exchange or automated quotation system on which the Common Stock
may then be listed or quoted, or if the Board of Directors otherwise determines
to submit such action for stockholder approval. In addition, no amendment,
alteration, suspension, discontinuation or termination to the 1999 Plan may
materially impair the rights of any participant with respect to any award
without such participant's consent. Unless terminated earlier by action of the
Board of Directors, the 1999 Plan shall terminate ten (10) years after adoption
by the stockholders.
TYPES OF AWARDS
STOCK OPTIONS. Options granted under the 1999 Plan may be "incentive
stock options" ("Incentive Options") within the meaning of Section 422 of the
Code or stock options which are not incentive stock options ("Non-Incentive
Options" and, collectively with Incentive Options, hereinafter referred to as
"Options") will be granted, the number of shares subject to each Option granted,
the prices at which Options may be exercised (which in the case of an Incentive
Option shall not be less than the Fair Market Value of shares of Common Stock on
the date of grant), whether an Option will be an Incentive Option or a
Non-Incentive Option, the time or times and the extent to which Options may be
exercised and all other terms and conditions of Options will be determined by
the Committee.
RESTRICTED AND DEFERRED STOCK. An award of restricted stock or deferred
stock may be granted under the 1999 Plan. Restricted stock is subject to
restrictions on transferability and other restrictions as may be imposed by the
Committee at the time of grant. In the event that the holder of restricted stock
ceases to be employed by the Company during the applicable restrictive period,
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<PAGE>
restricted stock that is at the time subject to restrictions shall be forfeited
and reacquired by the Company. Except as otherwise provided by the Committee at
the time of grant, a holder of restricted stock shall have all the rights of a
stockholder including and receive other distribution, without limitation, the
right to vote restricted stock and the right to recover dividends thereon. An
award of deferred stock is an award that provides for the issuance of stock upon
expiration of a deferral period established by the Committee. Except as
otherwise determined by the Committee, upon termination of employment of the
recipient of the award during the applicable deferral period, all stock that is
at the time subject to deferral shall be forfeited. Until such time as the stock
which is the subject of the award is unissued, the recipient of the award has no
rights as a stockholder.
PERFORMANCE UNITS. Performance Units may be granted by the Committee to
individuals or groups of individuals participating under the 1999 Plan.
Performance Units are tied to the successful completion of certain performance
driven Company goals during a given period of time and will be assigned a dollar
value by the Committee. Upon the satisfactory attainment of the goal identified
by the Committee during the period prescribed for its completion, the
participant or participants reaching such goal shall be entitled to a payment in
settlement of each Performance Unit earned by such participant. Certain
adjustments to the amount of the cash payment, if any, to be made incident to a
grant of Performance Units may be made by the Committee in the event a
participant ceases to be employed by the Company during the performance period
or upon the occurrence of a significant event that causes the attainment of the
prescribed goal more or less likely to occur during the performance period. Each
Performance Unit may be paid in whole shares of Common Stock, including
restricted stock and deferred stock, or cash, or in any combination of Common
Stock and cash.
EMPLOYMENT AGREEMENTS
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 certain options, 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 $625,000, $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
contained other customary terms and conditions including termination for cause,
non-competition on confidentiality provisions. On April 9, 1999 (and clarified
as of October 12, 1999), the Company, Quality Associates, Inc. and Mr. Kiley
entered into a settlement agreement (the "Settlement Agreement") whereby Mr.
Kiley waived all rights to, certain debts and liabilities owed to Mr. Kiley and
Quality Associates ("Liabilities") in the amount of $64,536, and accrued and
unpaid salary in the amount of $314,135, in exchange for the repricing of
690,834 options outstanding, resulting in a compensation charge of $204,557, an
amount equal to the difference between the fair market value of the repriced
options and the Liabilities forgiven under the Settlement Agreement.
Effective March 31, 1999, E-Taxi entered into an employment agreement
for a five (5) year term with Bejan Aminifard covering his employment as Chief
Executive Officer of TechStore. Pursuant to such employment agreement, Mr.
Aminifard is to receive an annual salary of $75,000 per annum, which may be
increased annually in the discretion of the Board of Directors. The employment
agreement also provides for an automobile allowance of $500 per month,
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<PAGE>
disability insurance and for bonuses and other incentive compensation as the
Board deems appropriate. In connection with such employment agreement, E-Taxi
entered into a restricted stock agreement with Mr. Aminifard that provided
grants of shares of common stock, so long as TechStore achieves for the twelve
(12) months ended March 31, 2000, certain (i) revenue targets; and (ii) earnings
before the payment of interest, taxes, and depreciation ("EBITD") targets, such
targets commencing with revenue of not less than $18,500,000 and EBITD of not
less than ($185,000).
Effective March 31, 1999, E-Taxi entered into an employment agreement
for a five (5) year term with Derek Wall covering his employment as President of
TechStore. Pursuant to such employment agreement, Mr. Wall is to receive an
annual salary of $75,000 per annum, which may be increased annually in the
discretion of the Board of Directors. The employment agreement also provides for
an automobile allowance of $500 per month, disability insurance and for bonuses
and other incentive compensation as the Board deems appropriate. In connection
with such employment agreement, E-Taxi entered into a restricted stock agreement
with Mr. Wall that provided grants of shares of common stock, so long as
TechStore achieves for the twelve (12) months ended March 31, 2000, certain (i)
revenue targets; and (ii) earnings before the payment of interest, taxes, and
depreciation ("EBITD") targets, such targets commencing with revenues of not
less than $18,500,000 and EBITD of not less than ($185,000).
CONSULTING AGREEMENT
In April 1999, the Company entered into a consulting agreement with
Thomas Browne, dated April 13, 1999, whereby Mr. Browne agreed to provide
financial accounting services to the Company for a period of five (5) months. As
consideration, the Company granted Mr. Browne an option to purchase 125,000
shares of common stock at an exercise price of $2.50 per share. Prior to his
consultancy with the Company, Mr. Browne was employed by Infoseek in a variety
of accounting positions, most recently as Corporate Controller.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of September 30,
1999, 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 named executive officers
and directors; and (iii) the directors and named executive officers of the
Company as a group:
NAME AND ADDRESS OF SHARES OF COMMON STOCK
BENEFICIAL OWNER(1) BENEFICIALLY OWNED(2) PERCENT OF CLASS(3)
------------------- --------------------- -------------------
Robert M. Wallace(4) 6,426,800(5) 45.3%
L. Wayne Kiley(6) 1,123,351(7) 8.3%
Thomas Evans(8) 50,833(9) *
Bejan Aminifard(10) 1,824,500 13.7%
Derek Wall(11) 414,975 3.3%
Brian Hintergardt(12) 41,666(13)
All Officers and Directors 9,882,125(5)(7)(9)(13) 65.6%
as a Group (4 persons)
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<PAGE>
- ----------
* Represents less than 1% of the total number of shares of the Company's
Common Stock outstanding,
1. Unless noted otherwise, the address for such person is c/o
eMarketplace, Inc., 255 West Julian Street, Suite 100, San Jose, CA
95110,
2. Unless noted otherwise, all shares indicated as beneficially owned are
held of record by and the right to vote and transfer such shares lies
with the person indicated. A person is deemed to be a beneficial owner
of any securities of which that person has the right to acquire
beneficial ownership within sixty (60) days.
3. Calculated based upon 12,691,460 shares of common stock outstanding.
4. Mr. Wallace is the Chairman of the Board of the Company and E-Taxi,
Inc., a wholly-owned subsidiary of the Company ("E-Taxi").
5. Includes (i) 24,000 shares of the Issuer's common stock owned by
Gateway Advisors, Inc. ("Gateway Advisors"), a company majority owned
and controlled by Mr. Wallace, (ii) 1,500,000 shares of Common Stock
issuable to Gateway Advisors upon the exercise of a Common Stock
Purchase Warrant held thereby, and (iii) 102,800 shares of Common Stock
held by the Gateway Advisors Profit Sharing Plan.
6. Mr. Kiley is a director, Chief Executive Officer and Chief Accounting
Officer of the Company
7. Includes (i) 249,184 shares of Common Stock owned jointly with Mr.
Kiley's wife, (ii) 790,834 shares of Common Stock issuable upon the
exercise of stock options at an exercise price $.60 per share, and
(iii) 83,333 shares of Common Stock held by the Kiley Children's Trust,
a trust maintained for the benefit of Mr. Kiley's children.
8. Mr. Evans is a director of the Company.
9. Includes 30,833 shares of Common Stock issuable upon the exercise of
options at an exercise prices of $1.00 per share and $1.68 per share.
10. Mr. Aminifard is the Chief Executive Officer of TechStore LLC.
11. Mr. Wall is the President of TechStore.
12. Mr. Hintergardt is the Chief Executive Officer of Medical Marketplace.
13. Includes 41,666 shares issuable upon the exercise of stock options.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As of April 9, 1999, the Company and Gateway Advisors, Inc. ("Gateway
Advisors"), a company owned and controlled by Robert M. Wallace (the Company's
current Chairman of the Board), entered into a Financial Advisory Agreement,
pursuant to which Gateway Advisors agreed to provide certain business
development and financial advisory services for a period of two (2) years in
exchange for the issuance by the Company of 1,500,000 Common Stock Purchase
Warrants. Each warrant entitles the holder to purchase one (1) share of the
Company's Common Stock at an exercise price of $2.50 per share until April 8,
2000.
As of April 9, 1999, the Company and Victoria Holdings, Inc., the
Company's former financial advisor, entered into a Settlement Agreement,
pursuant to which the Company issued 250,000 shares of the Company's Common
Stock in exchange for (i) the cancellation of Options exercisable for 1,000,000
shares of the Company's Common Stock at an exercise price of $1.00 per share,
and (ii) a general release, releasing the Company from all liabilities. As part
of the foregoing Settlement Agreements, the Company agreed to include the shares
issued in connection therewith in the next registration statement filed by the
Company with the Securities and Exchange Commission (other than on a Form S-4 or
Form S-8), subject to certain limitations and restrictions.
As of April 9, 1999 (and clarified as of October 12, 1999), the Company
entered into an Agreement with L. Wayne Kiley, the Company's President, Chief
Executive Officer and at that time Chairman of the Board, pursuant to which Mr.
Kiley waived (i) his rights to accrued and unpaid salary in the amount of
$314,135 (ii) all of his rights under his employment agreement with the Company,
including without limitation, all future compensation, and (iii) on behalf of
Quality Associates, Inc. (a company owned and controlled by Mr. Kiley) its
rights to accrued and unpaid rent with
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<PAGE>
respect to the Company's executive offices, in the amount of $64,536. In
exchange for the foregoing, the Company reduced the exercise price of (a)
661,667 options held by Mr. Kiley from $1.00 to $.60 per share and (b) 29,167
options held by Mr. Kiley from $1.68 to $.60 per share. In addition, the Company
agreed to include the shares issuable upon the exercise of such options as well
as certain other options issued to management and certain consultants under a
Registration Statement on Form S-8 to be filed with the Commission in the near
future.
As of April 21, 1999, the Company and each of the stockholders of
E-Taxi, Inc., a Delaware corporation ("E-Taxi"), entered into a Stock Purchase
Agreement, pursuant to which the Company acquired all of the issued and
outstanding capital stock of E-Taxi on April 23, 1999. As consideration for
9,074,000 shares of the E-Taxi's common stock and 400,000 shares of the E-Taxi's
Series A Preferred Stock, the Company issued an aggregate of 9,074,000 shares of
the Company's common stock, par value $.0001 per share, and 400,000 shares of
the Company's Series A Preferred Stock, par value $.0001 per share. Messrs.
Wallace, Aminifard and Wall were significant stockholders of E-Taxi. See
"Business" and "Principal Stockholders."
On April 1, 1998, TechStore, a subsidiary of the Company, entered into
a month-to-month lease agreement for office space owned by Bejan Aminifard, an
officer and a 10% stockholder of the Company. The lease is for the operations of
TechStore and Office Express located at 14 Commercial Boulevard, Suite 127 and
129, Novato, CA. The lease payments are approximately $1,500 per month and
require the tenant to maintain the premises at its expense.
On October 1, 1998, E-Taxi entered into a Consulting Agreement with
Gateway Advisors, Inc., a financial advisory firm principally owned and
controlled by Robert Wallace, Chairman of the Board. Pursuant to the Consulting
Agreement, Gateway agreed to, among other things (i) conduct a search for
acquisition candidates; (ii) conduct market research and analysis; (iii)
evaluate, negotiate, and structure the acquisition of target companies. In
exchange for its services, Gateway is paid a quarterly fee of $30,000, plus
reimbursement for any expenses associated with its consultancy. By its terms,
the Consulting Agreement expired on September 30, 1999.
In each of January and April 1999, Joseph Achten, a former Director of
the Company, loaned the Company $50,000 (for a total of $100,000) to fund the
Company's the working capital needs of the Company. Under promissory notes
executed by the Company (the "Notes"), $50,000 was to be repaid in each of July
and September 1999 and all amounts under the Notes accrued interest at 10% per
annum. The maturity dates of the notes have been extended to December 31, 1999.
As additional consideration for the loans the Company issued to Mr. Achten
options to purchase 200,000 shares of the Company's common stock exercise at any
time prior to December 31, 2002 at an exercise price of $.50 per share.
In November and December 1998 and January 1999, the Company borrowed a
total of $67,000 from L. Wayne Kiley, the Company's Chief Executive Officer and
former Chairman of the Board. In exchange for the loans, the Company (i) issued
to Mr. Kiley promissory notes in the aggregate principal amount of $67,000
bearing interest at a rate of 10% per annum which are due three (3) days
following written demand for payment, (ii) granted Mr. Kiley a security interest
in the Company's assets, and (iii) issued to Mr. Kiley options to purchase
100,000 shares of the Company's common stock exercisable at any time prior to
December 31, 2002 at an exercise price of $.60 per share.
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 the independent
and/or disinterested members of the board of directors.
38
<PAGE>
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
The following is a list of exhibits filed as part of this Annual Report. Where
so indicated by footnote, the exhibits have either been previously filed, and
are hereby incorporated by reference:
Exhibit No.
- -----------
3.01 Certificate of Incorporation of the Company. (1)
3.02 Articles of Incorporation of TechStore, LLC
3.03 Certificate of Incorporation of TopTeam, Inc.
3.04 By-Laws of the Company. (1)
3.05 By-Laws of TopTeam, Inc.
3.06 Certificate of Designation with respect to the Series A
Preferred Stock.
3.07 Certificate of Amendment of Certificate of Incorporation.
4.01 Certificate for shares of Common Stock. (1)
10.01 Operating Agreement for TechStore, LLC.
10.2 Stock Purchase Agreement, dated as of April 21, 1999, among
the Company and the stockholders of E-Taxi, Inc. (1)
10.3 Financial Advisory Agreement, dated as of April 9, 1999,
between the Company and Gateway Advisors, Inc.(1)
10.4 Consulting Agreement, dated as of October 1, 1999, between
E-Taxi, Inc. and Gateway Advisors, Inc.
10.5 Form of Settlement Agreement with the Class D Common Stock
Warrantholders. (1)
10.6 Settlement Agreement, dated as of April 9, 1999, between the
Company and Victoria Holdings, Inc. (1)
10.7 Letter Agreement, dated as of April 9, 1999, among the
Company, L. Wayne Kiley and Quality Associates, Inc.
39
<PAGE>
10.8 Contribution Agreement dated as of March 31, 1999 by and among
Gateway Advisors, Inc., Bejan Aminifard, Mosen Aminifard and
Derek Wall.
10.9 Consulting Agreement between the Company and Thomas Browne
dated as of April 26, 1999.
10.10 Stock Purchase Agreement, dated as of June 14, 1999, among
E-Taxi, Inc. and all of the shareholders of SSPS, Inc. (1)
10.11 Membership Interest Purchase Agreement dated as of June 14,
1999 among E-Taxi, Inc. and all of the interest holders of
Impact Team International, LLC. (1)
10.12 Stock Purchase Agreement entered into on October 12, 1999 and
dated as of June 30, 1999 among the Company, Brian Hintergardt
and Maruice Lathouwers.
21.01 Subsidiaries of the Registrant
- ----------
(1) Previously filed with the Securities and Exchange Commission.
(B) REPORTS ON FORM 8-K
(1) Current Report on Form 8-K filed on May 10, 1999, Items 1,2 and 5.
(2) Current Report on Form 8-K filed on April 1, 1999, Item 5.
40
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGES
-----
<S> <C>
Report of Independent Auditors................................................. F-1
Consolidated Balance Sheet as of June 30, 1999................................. F-2
Consolidated Statements of Operations for the year ended June 30, 1999 and
the period from April 14, 1998 (inception) to June 30, 1998.................... F-3
Consolidated Statements of Stockholders' Equity for the year ended
June 30, 1999 and the period from April 14, 1998 (inception) to June 30, 1998.. F-4
Consolidated Statements of Cash Flows for the year ended
June 30, 1999 and the period from April 14, 1998 (inception) to June 30, 1998.. F-5
Notes to Consolidated Financial Statements..................................... F-6
</TABLE>
. . . . . . . . .
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of eMarketplace, Inc.
We have audited the accompanying consolidated balance sheet of
eMarketplace, Inc. (formerly Computer Marketplace, Inc.) and its subsidiaries as
of June 30, 1999, 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, 1999. 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 eMarketplace, Inc. and its subsidiaries as of June 30, 1999, and the
consolidated results of their operations and their cash flows for each of the
two fiscal years in the period ended June 30, 1999, in conformity with generally
accepted accounting principles.
MOORE STEPHENS, P. C.
Certified Public Accountants.
Cranford, New Jersey
September 16, 1999
[Except for Notes 17A, B and E as to which
the dates are October 12, 12 and 11, 1999, respectively]
F-1
<PAGE>
EMARKETPLACE, INC. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1999.
<TABLE>
<CAPTION>
ASSETS:
CURRENT ASSETS:
<S> <C>
Cash and Cash Equivalents $ 1,255,966
Accounts Receivable (Less Allowance For Doubtful Accounts of $5,032) 57,318
Prepaids and Other Current Assets 35,060
------------
TOTAL CURRENT ASSETS 1,348,344
------------
PROPERTY AND EQUIPMENT (LESS ACCUMULATED DEPRECIATION OF $294,503) 43,955
------------
OTHER ASSETS:
Intangible Assets (Less Accumulated Amortization of $404,174) 11,335,749
Deposits 105,765
------------
TOTAL OTHER ASSETS 11,441,514
TOTAL ASSETS $ 12,833,813
============
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Notes Payable to Related Party $ 167,000
Notes Payable 12,167
Accounts Payable 776,856
Accrued Loss on Disposal of Acquired Subsidiary (13)(17A) 661,287
Other Accrued Liabilities 175,676
------------
TOTAL CURRENT LIABILITIES 1,792,986
------------
COMMITMENTS AND CONTINGENCIES --
STOCKHOLDER'S 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, 12,691,460 Shares Issued and Outstanding 1,269
Capital in Excess of Par Value 12,491,501
Common Stock Subscription Notes Receivable (70,020)
Accumulated Deficit (735,428)
Deferred Compensation (646,495)
------------
TOTAL STOCKHOLDERS' EQUITY 11,040,827
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 12,833,813
============
</TABLE>
See Notes to Consolidated Financial Statements.
F-2
<PAGE>
EMARKETPLACE, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 14, 1998
YEAR ENDED (INCEPTION) TO
JUNE 30, JUNE 30,
1999 1998
------------ ------------
<S> <C> <C>
REVENUE $ 2,208,855 $ --
------------ ------------
OPERATING COSTS AND EXPENSES:
Cost of Revenue 2,061,725 --
Selling, General and Administrative 453,616 8,071
Product Development 19,173 --
Amortization of Goodwill and Other Acquired Intangibles 404,174 --
------------ ------------
TOTAL OPERATING COSTS AND EXPENSES 2,938,688 8,071
------------ ------------
LOSS FROM OPERATIONS (729,833) (8,071)
INTEREST INCOME 5,795 940
INTEREST EXPENSE (4,259) --
------------ ------------
NET LOSS $ (728,297) $ (7,131)
============ ============
NET LOSS PER SHARE:
Basic and Diluted $ (0.06) $ --
============ ============
Weighted Average Common Shares Outstanding 11,224,793 11,091,460
============ ============
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
EMARKETPLACE, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
CAPITAL IN SUBSCRIPTION
PREFERRED STOCK COMMON STOCK EXCESS OF NOTES
SHARES AMOUNT SHARES AMOUNT PAR VALUE RECEIVABLE
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of Subscribed Common
Stock in April 1998 -- $ -- 6,360,000 $ 636 $ 63,924 $ (64,560)
Issuance of Common Stock in
April 1998 for Consulting
Services -- -- 100,000 10 90 --
Issuance of Common Stock in
E-Taxi Combination [1] 400,000 40 9,074,000 907 (942) --
Interest Income Accrued -- -- -- -- -- (940)
Net Loss -- -- -- -- -- --
Recapitalization Adjustment -- -- (6,460,000) (646) 646 --
------------ ------------ ------------ ------------ ------------ ------------
BALANCE - JUNE 30, 1998 400,000 40 9,074,000 907 63,713 (65,500)
Issuance of Common Stock in
April 1999 for Consulting
Services -- -- 60,000 6 29,994 --
Issuance of Common and
Preferred Stock in April 1999
for Acquisition of TechStore 310,000 31 1,744,000 174 1,491,795 --
Sale of Common and Preferred
Stock for Cash in April 1999 90,000 9 810,000 81 1,406,160 --
Recapitalization Adjustment (400,000) (40) (2,614,000) (261) 301 --
Acquired Deficiency of CMP [1] -- -- 2,017,460 202 (472,972) --
Goodwill Recorded on E-Taxi
Combination [1] -- -- -- -- 9,972,630 --
Amortization of Deferred
Compensation Associated
with Stock Options Issued to a
Consultant by Acquired Company -- -- -- -- -- --
Amortization of Deferred
Compensation Associated with
Financial Advisory Agreement -- -- -- -- -- --
Conversion of Preferred Stock
to Common in May 1999 (400,000) (40) 1,600,000 160 (120) --
Interest Income Accrued -- -- -- -- -- (4,520)
Net Loss -- -- -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
BALANCE - JUNE 30, 1999 -- -- 12,691,460 $ 1,269 $ 12,491,501 $ (70,020)
============ ============ ============ ============ ============ ============
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
EMARKETPLACE, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
TOTAL
DEFERRED ACCUMULATED STOCKHOLDERS'
COMPENSATION DEFICIT EQUITY
------------ ------------ ------------
<S> <C> <C> <C>
Issuance of Subscribed Common
Stock in April 1998 $ -- $ -- $ --
Issuance of Common Stock in
April 1998 for Consulting
Services -- -- 100
Issuance of Common Stock in
E-Taxi Combination [1] -- -- --
Interest Income Accrued -- -- (940)
Net Loss -- (7,131) (7,131)
Recapitalization Adjustment -- -- --
------------ ------------ ------------
BALANCE - JUNE 30, 1998 -- (7,131) (7,971)
Issuance of Common Stock in
April 1999 for Consulting
Services -- -- 30,000
Issuance of Common and
Preferred Stock in April 1999
for Acquisition of TechStore -- -- 1,492,000
Sale of Common and Preferred
Stock for Cash in April 1999 -- -- 1,406,250
Recapitalization Adjustment -- -- --
Acquired Deficiency of CMP [1] (757,156) -- (1,229,926)
Goodwill Recorded on E-Taxi
Combination [1] -- -- 9,972,630
Amortization of Deferred
Compensation Associated
with Stock Options Issued to a
Consultant by Acquired Company 58,661 -- 58,661
Amortization of Deferred
Compensation Associated with
Financial Advisory Agreement 52,000 -- 52,000
Conversion of Preferred Stock
to Common in May 1999 -- -- --
Interest Income Accrued -- -- (4,520)
Net Loss -- (728,297) (728,297)
------------ ------------ ------------
BALANCE - JUNE 30, 1999 $ (646,495) $ (735,428) $ 11,040,827
============ ============ ============
See Notes to Consolidated Financial Statements.
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
EMARKETPLACE, INC. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 14, 1998
YEAR ENDED (INCEPTION) TO
JUNE 30, JUNE 30,
1999 1998
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Loss $ (728,297) $ (7,131)
Adjustments to Reconcile Net Loss to Net Cash Provided
(Used) by Operating Activities:
Consulting Services Paid for by Issuance of Common Stock 30,000 100
Amortization of Deferred Compensation Associated with
Issuance of Stock Options and Warrants 110,661 --
Depreciation 5,815 --
Amortization 404,174 --
Interest Accrued on Stockholder Notes (4,520) (940)
Changes in Assets and Liabilities:
Accounts Receivable (31,480) --
Other Assets (33,781) --
Accounts Payable 175,432 649
Accrued Liabilities (42,327) 7,322
----------- -----------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (114,323) --
----------- -----------
INVESTING ACTIVITIES:
Purchase of Fixed Assets (4,511) --
Cash Received from Acquisitions - Net of Cash Paid 21,550 --
----------- -----------
NET CASH PROVIDED BY INVESTING ACTIVITIES 17,039 --
----------- -----------
FINANCING ACTIVITIES:
Repayment of Loans Assumed in Acquisitions (53,000) --
Proceeds from Issuance of Common and Convertible Preferred Stock 1,406,250 --
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,353,250 --
----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS 1,255,966 --
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIODS -- --
----------- -----------
CASH AND CASH EQUIVALENTS - END OF PERIODS $ 1,255,966 $ --
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for the periods:
Interest $ 4,259 $ --
Income Taxes $ -- $ --
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of Common and Convertible Preferred Stock for
Acquisition of TechStore $ 1,492,000 $ --
Issuance of Common and Convertible Preferred Stock for Reverse
Acquisition of E-taxi $ 9,499,860 $ --
Deferred Compensation Assumed in Reverse Acquisition of E-taxi $ (757,157) $ --
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
EMARKETPLACE, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
(1) ORGANIZATION AND BUSINESS
eMarketplace, Inc. (formerly Computer Marketplace, Inc.) (the "Company") is a
California corporation, that 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. In September of 1999, the name of the Company was again changed to
eMarketplace, Inc. Until April 1999, the Company was primarily engaged in the
wholesale distribution of new and used computer equipment to dealers, computer
maintenance companies, leasing companies, equipment brokers, and end users,
despite the fact that the Company was in the process of winding down its
business because it failed to operate profitably since the fiscal year ended
June 1994. Computer Marketplace's wholly owned subsidiary, Medical Marketplace,
which engages in the distribution of used medical equipment to health care
providers, was reflected as disposed of at the time of the merger between
Computer Marketplace and E-Taxi, Inc. ("E-Taxi"). An estimated loss on disposal
was recorded.
[See Notes 3 and 17]
On April 23, 1999, the Company acquired E-Taxi, Inc. ("E-Taxi") in a business
combination accounted for as a "reverse acquisition." As consideration for
9,074,000 shares of E-Taxi's common stock and 400,000 shares of E-Taxi's Series
A preferred stock, the Company issued an aggregate of 9,074,000 shares of common
stock, par value $.0001 per share, and 400,000 shares of Series A Preferred
Stock, par value $.0001 per share. For accounting purposes, E-Taxi is deemed to
be the acquirer, and the Company is deemed to be acquired, under the purchase
method of accounting. Therefore, the financial information presented herein
represents the historical results of E-Taxi and the results of the Company from
April 23, 1999 (date of acquisition) only, and the Statement of Stockholders'
Equity reflects the acquisition of the outstanding shares of Computer
Marketplace, Inc.'s outstanding common shares as of April 23, 1999 of 2,017,460.
E-Taxi was incorporated in the state of Delaware on April 14, 1998 to develop a
vertical Internet portal for the small office, home office ("SOHO") market.
The acquisition of E-Taxi by the Company signified the adoption by the Company
of a new corporate strategy to develop, operate and acquire Internet businesses
that provide content, commerce and online services to demographically-targeted
audiences.
In April 1999, immediately prior to the Company's acquisition of E-Taxi, E-Taxi
acquired TechStore, L.L.C. ("TechStore"), an online retailer of computer
hardware and software, in a business combination accounted for as a purchase.
The results of operations include the results of TechStore from the date of
acquisition (See Note 3).
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SALE OF STOCK BY A SUBSIDIARY - Changes in the Company's proportionate share of
subsidiary equity are accounted for as equity
transactions.
BASIS OF CONSOLIDATION - The accompanying consolidated financial statements
include the accounts of eMarketplace and various subsidiaries in which the
Company holds a majority ownership interest. The subsidiaries are: Computer
Marketplace, Inc., E-Taxi, Inc. and TechStore, LLC. All material intercompany
balances and transactions have been eliminated.
REVENUE RECOGNITION - The Company records product sales revenue when goods have
been shipped.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid instruments
with a maturity of three months or less when purchased to be cash equivalents.
There are no cash equivalents at June 30, 1999.
F-6
<PAGE>
EMARKETPLACE, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #2
================================================================================
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORY - The Company's policy is to state inventory at the lower of cost or
net realizable value. The company did not have any inventory at June 30, 1999.
PROPERTY AND EQUIPMENT AND DEPRECIATION - Property and equipment are stated at
cost. Depreciation is computed using the straight-line method over the estimated
useful lives of the related assets, which range from three to seven years.
INTANGIBLES AND AMORTIZATION - Intangible assets are stated at cost.
Amortization is computed using the straight-line method over the estimated
useful lives of the related assets, which is generally four to five years.
IMPAIRMENT - Long-lived assets of the Company are reviewed at least annually as
to whether their carrying value has become impaired pursuant to Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 121
requires long-lived assets, if impaired, to be remeasured at fair value,
whenever events or changes in circumstances indicate that the carrying amount of
the asset may not be recoverable. Management also reevaluates the periods of
amortization of long-lived assets to determine whether events and circumstances
warrant revised estimates of useful lives.
NET LOSS PER SHARE OF COMMON STOCK - Net loss per share of common stock is
computed reflecting the shares issued in the reverse acquisition as outstanding
for all periods presented and on the basis of the weighted average shares of
common stock outstanding. Potential common shares arising from the effect of
dilutive stock options and warrants using the treasury stock method are included
if dilutive. For fiscal years 1999 and 1998, 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. See
Notes 8 and 10 for further details on contingently issuable shares.
COMPREHENSIVE INCOME - The Company does not have any transactions included in
comprehensive income.
SEGMENTS - Effective July 1, 1998, the Company adopted the provisions of SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information."
The Company identifies its operating segments based on business activities,
management responsibility and geographical location. During the years ended June
30, 1999 and 1998, the Company operated in a single business segment, primarily
in the United States. Through June 30, 1999, foreign operations have not been
significant in either revenue or investment in long-lived assets.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
ADVERTISING COSTS - Advertising costs are expensed when incurred. Advertising
costs amounted to $45,917 and $-0- for the years ended June 30, 1999 and 1998,
respectively.
RESEARCH AND DEVELOPMENT - Research and development costs are charged to expense
as incurred. Research and development costs amounted to $19,173 and $-0- for the
years ended June 30, 1999 and 1998, respectively.
F-7
<PAGE>
EMARKETPLACE, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #3
================================================================================
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK OPTIONS ISSUED TO EMPLOYEES - The Company adopted SFAS No. 123 on July 1,
1996 for financial note disclosure purposes and will continue to apply the
intrinsic value method of Accounting Principles Board ("APB") Opinion No. 25 for
financial reporting purposes.
(3) ACQUISITIONS
On April 23, 1999, Computer Marketplace, Inc., (or "CMP") acquired E-Taxi, Inc.
("E-Taxi") in a business combination accounted for as a "reverse acquisition."
As consideration for 9,074,000 shares of E-Taxi's common stock and 400,000
shares of E-Taxi's Series A preferred stock, CMP issued an aggregate of
9,074,000 shares of common stock, par value $.0001 per share, and 400,000 shares
of Series A Preferred Stock, par value $.0001 per share. For accounting
purposes, E-Taxi is deemed to be the acquirer, and CMP is deemed to be acquired,
under the purchase method of accounting. Therefore, the financial information
presented herein represents the historical results of E-Taxi and the results of
CMP from April 23, 1999 (date of acquisition) only. The total purchase price,
including stock valued at approximately $9.5 million and acquisition related
expenses of approximately $95,700 was allocated to net liabilities of CMP of
$(472,972), and $9,972,630 of goodwill, which is being amortized using the
straight-line method over its estimated useful life of five years.
In April 1999, E-Taxi acquired TechStore, an online retailer of computer
hardware and software, in a business combination accounted for using the
purchase method of accounting. The results of operations include the results of
TechStore from the date of acquisition. The purchase price, which consisted of
stock valued at $1,492,000, cash of $66,667 and acquisition related expenses of
approximately $38,300, was allocated $(170,300) to net tangible liabilities
acquired, $140,000 to developed technology, $160,000 to established workforce,
$280,000 to trademarks, and $1,187,300 to goodwill. The value and estimated
lives of the identified intangible assets was determined by a third-party
valuation. The intangible assets are being amortized over their estimated useful
lives of four years.
The following unaudited pro forma financial information reflects the results of
operations for the year ended June 30, 1999 as if the acquisitions had occurred
on July 1, 1998, and after giving effect to purchase accounting adjustments.
These unaudited pro forma results have been prepared for comparative purposes
only and do not purport to be indicative of what operating results would have
been had the acquisitions actually taken place on July 1, 1998 and may not be
indicative of future operating results. (Data for the year ended June 30, 1998
are not meaningful).
YEAR ENDED
JUNE 30,
1 9 9 9
[UNAUDITED]
-----------
Revenues $ 9,756,060
Income (Loss) from Operations (4,390,304)
Net Income (Loss) (4,842,488)
Net Loss per Share:
Basic and Diluted (.43)
F-8
<PAGE>
EMARKETPLACE, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #4
================================================================================
(4) INTANGIBLE ASSETS
Intangible assets consists of the following as of June 30, 1999:
Goodwill $ 11,159,923
Acquired Technology 140,000
Established Workforce 160,000
Trademarks 280,000
----------------
Total 11,739,923
Less: Accumulated Amortization (404,174)
TOTAL $ 11,335,749
----- ================
Amortization expense for the years ended June 30, 1999 and 1998 was $404,173 and
$-0-, respectively.
(5) PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of June 30, 1999:
Computer Hardware and Software $ 253,616
Office Equipment 12,360
Furniture and Fixtures 67,632
Automobiles and Trucks 4,850
----------------
Total 338,458
Less: Accumulated Depreciation (294,503)
TOTAL $ 43,955
----- ================
Depreciation expense for the years ended June 30, 1999 and 1998 was $5,815 and
$-0-, respectively.
(6) COMMITMENTS
The Company leases office space under month-to-month leases. See Note 15 for
related party lease.
Total rent expense under all operating leases for the years ended June 30, 1999
and 1998 was $4,450 and $-0-, respectively.
(7) NOTES PAYABLE - RELATED PARTY
$100,000 is payable to a director of the Company, and consists of two secured
promissory notes, each for $50,000 bearing interest at 10% and payable within
three days of demand dated on January 26, 1999 and April 15, 1999, respectively.
These notes are fully collateralized by all real and personal property. In
conjunction with these notes, the Company granted the director fully vested
options to purchase a total of 200,000 shares of common stock at $0.50 per
share. Prior to it's reverse merger with E-Taxi, CMP recorded the difference
between the market value of the options on the date of grant and the exercise
price, totaling $125,000, in compensation expense associated with these options
(See Note 17E).
$67,000 is payable to an officer of the Company and consists of the following:
Secured Promissory Note $ 50,000 10% interest
Promissory Note 10,000 12% interest
Promissory Note 7,000 12% interest
----------------
TOTAL $ 67,000
================
F-9
<PAGE>
EMARKETPLACE, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #5
================================================================================
(7) NOTES PAYABLE - RELATED PARTY (CONTINUED)
These notes are payable within three days of demand. The secured promissory note
is fully collateralized by all real and personal property. In conjunction with
these notes, the Company granted the director fully vested options to purchase a
total of 100,000 shares of common stock at $.60 per share. Prior to it's reverse
merger with E-Taxi, CMP recorded the difference between the market value of the
options on the date of grant and the exercise price, totaling $33,000, in
compensation expense associated with these options.
The prime rate at June 30, 1999, was 8.25%.
(8) EMPLOYMENT CONTRACTS
The Company has employment contracts with two officers of one of its wholly
owned subsidiaries. These contracts are for a term of five years. Under the
terms of the contracts, the two officers are each eligible for cash performance
bonuses based on the subsidiary's revenue and earnings before interest, taxes
and deprecation ("EBITD"), up to a maximum of 100% of their base salary. The
base salary of $75,000 is subject to reviewed and adjustment annually. In
addition, each officer is entitled to a $500 per month automobile allowance. In
connection with these employment agreements, the Company also granted each of
the two officers a Restricted Stock Award for 500,000 shares each which vest
100% on March 31, 2000 subject to continued employment and attainment of certain
revenue and EBITD targets. Because the likelihood of attainment of the targets
is considered by management to be remote, these shares have not been issued as
of June 30, 1999 and no expense has been recorded associated with these shares.
(9) INCOME TAXES
The Tax Reform Act of 1986 imposes substantial restrictions on the utilization
of net operating loss and tax credits in the event of a change in ownership as
defined in the Internal Revenue Code. Accordingly, the Company's ability to
utilize net operating loss and credit carryforwards may be limited as a result
of such an "ownership change." Management has not determined whether such an
ownership change has occurred.
Generally accepted accounting principles require the establishment of a deferred
tax asset for all deductible temporary differences and operating loss
carryforwards. At June 30, 1999, management cannot estimate the deferred tax
asset attributable to operating loss carryforwards. However, 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, 1999 and 1998, because of the Company's net loss position.
(10) STOCKHOLDERS' EQUITY
PRIVATE PLACEMENT - In April 1999, E-Taxi, Inc. completed a private placement of
810,000 shares of common stock at $0.625 per share and 90,000 shares of Series A
convertible preferred stock at $10.00 per share, realizing proceeds of
$1,406,250.
CONVERSION OF PREFERRED STOCK - As of the close of business on April 28, 1999,
the Company's common stock had a closing price of greater than $3.75 per share
for more than three consecutive days, and based upon the terms of the Series A
convertible preferred stock, all outstanding shares of preferred stock converted
into common stock at a one to four ratio, resulting in the cancellation of
400,000 shares of preferred stock and the issuance of 1,600,000 shares of common
stock.
F-10
<PAGE>
EMARKETPLACE, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #6
================================================================================
(10) STOCKHOLDERS' EQUITY (CONTINUED)
STOCK COMPENSATION PLANS - All of the stock option activity presented below was
recorded by Computer Marketplace prior to its reverse merger with E-Taxi.
Because these financial statements represent the historical results of E-Taxi
and combine the results of Computer Marketplace only from its date of
acquisition of April 23,1999, no charges are included in the income statement
for options issued to consultants other than the amortization of deferred
compensation after April 23, 1999.
In January 1996, 157,083 non-qualified stock options were granted to employees
of Computer Marketplace and its subsidiaries, and to non-employee directors, to
purchase shares of Computer Marketplace's common stock at an exercise price
equal to $1.6875, which was equal to 100% of the market value of the Company's
common stock on the date of grant. The stock options required future employment
or services to Computer Marketplace and vested 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. As of June 30, 1999, 13,666 of these options
are outstanding and exercisable.
In December 1996, the Company issued to certain employees, officers and
directors options to purchase an aggregate of 1,000,000 shares of Computer
Marketplace's Common Stock during a four 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 242,250 options previously
issued in June 1996 for 722,500 of the Management Options.
As of June 30, 1999, 153,333 of these options are outstanding and exercisable.
In September 1998, 185,000 options were issued to employees and consultants at
$1.00 per share, which was higher than the market value of the shares on the
date of grant. Compensation expense associated with the options issued to
consultants computed using the Black-Scholes model of $36,632 was recorded.
In November 1998, options to purchase a total of 100,000 shares were granted to
an officer of Computer Marketplace, with an exercise prices less than market
value on the date of grant, in conjunction with loans to Computer Marketplace of
$50,000. Compensation charges equal to the difference between the market value
and the exercise price of $33,000 were recorded by the predecessor company prior
to its merger with E-Taxi.
In January and April 1999, options to purchase a total of 200,000 shares were
granted to a director of Computer Marketplace, with an exercise prices less than
market value on the date of grant, in conjunction with loans to Computer
Marketplace of $100,000. Compensation charges equal to the difference between
the market value and the exercise price of $125,000 were recorded by the
predecessor company prior to its merger with E-Taxi.
In March 1999, 60,000 shares of common stock were granted to consultants as
payment for services rendered to E-Taxi, resulting in a charge to compensation
expense of $30,000.
In April 1999, 690,834 options outstanding for the chief executive officer of
the Company were repriced in conjunction with the cancellation of liabilities,
resulting in a compensation charge of $204,557, which was equal to the
difference between the fair value of the repriced options and the liabilities
forgiven.
In April 1999, 40,000 shares of common stock were granted to Directors as
payment for services rendered to the Company, resulting in a charge to
compensation expense of $150,000.
In April of 1999, pursuant to a settlement agreements, the Company cancelled
options issued to non-employees in addition to obligations for 1,000,000 shares
of the Company's common stock in exchange for the issuance of 250,000 shares of
common stock. The options had a unamortized deferred compensation balance of
$274,372, and accordingly, expensed the $274,372 as the fair value of the shares
issued.
F-11
<PAGE>
EMARKETPLACE, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #7
================================================================================
(10) STOCKHOLDERS' EQUITY (CONTINUED)
In April 1999, the Company granted to a consultant options to purchase 125,000
shares of the Company's common stock. The options vest monthly in increments of
25,000, commencing May 1, 1999. As a result, deferred compensation of $146,653
was recorded and cumulative compensation expense of approximately $58,000 has
been recognized.
As of April 9, 1999, the Company and each of the holders of 1,500,000 Class D
Common Stock Purchase Warrants entered into a Settlement Agreement, pursuant to
which the Company issued 375,000 shares of the Company's common stock in
exchange for (i) the cancellation of all Class D Common Stock Purchase Warrants,
(ii) the surrender and transfer to the Company of an aggregate of 500,000 shares
of common stock of Medical Marketplace, Inc., and (iii) a general release,
releasing the Company from all liabilities.
In June 1999, a majority of the shareholders approved the adoption of the
Company's 1999 Stock Plan (the "1999 Plan"). A total of 1,700,000 shares of
common stock have been reserved for issuance under this plan. The 1999 plan
permits the granting of incentive or non-incentive options to employees,
directors, consultants or advisors of the Company and its subsidiaries.
Incentive options may be granted to employees only and may not have an exercise
price less than 100% of fair market value (110% for 10% Stockholders) on the
date of grant, and terminate no later than ten years from date of grant (five
years for 10% Stockholders). Awards of restricted stock or deferred stock may
also be granted under the 1999 Plan.
The following is a summary of transactions under the stock option plans:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF WEIGHTED AVERAGE AVERAGE
COMMON SHARES EXERCISE PRICE FAIR VALUE
------------- -------------- ----------
<S> <C> <C> <C>
Options Outstanding at June 30, 1997 2,054,917 $ 1.02 $ 0.14
Granted 98,000 1.00 0.14
Cancelled (137,917) 1.97 0.15
-----------
Options Outstanding at June 30, 1998 2,015,000 1.02 0.14
Granted 1,300,834 0.82 0.93
Cancelled (1,848,001) 1.01 0.14
-----------
OPTIONS OUTSTANDING AT JUNE 30, 1999 1,467,833 0.86 0.84
===========
OPTIONS EXERCISABLE AT JUNE 30, 1999 1,392,833 0.77 0.83
===========
</TABLE>
The following is a summary of the status of fixed options outstanding at June
30, 1999:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS EXERCISABLE OPTIONS
- ---------------------------------------------------- --------------------------------------------
WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
EXERCISE CONTRACTUAL EXERCISE EXERCISE EXERCISE
PRICE NUMBER LIFE PRICE NUMBER PRICE PRICE
----- ------ ---- ----- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C>
$ 0.50 200,000 3.7 years $ 0.50 200,000 $ 0.50 $ 0.50
$ 0.60 790,834 2.7 years $ 0.60 790,834 $ 0.60 $ 0.60
$ 1.00 338,333 2.6 years $ 1.00 338,333 $ 1.00 $ 1.00
$ 1.69 13,666 6.8 years $ 1.69 13,666 $ 1.68 $ 1.69
$ 2.50 125,000 0.4 years $ 2.50 50,000 $ 2.50 $ 2.50
------------ -----------
1,467,833 2.6 years $ 0.86 1,392,833 $ 0.77
============ =========== ========
</TABLE>
F-12
<PAGE>
EMARKETPLACE, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #8
================================================================================
(10) STOCKHOLDERS' EQUITY (CONTINUED)
WARRANTS - In April 1999, the Company and Gateway Advisors, Inc. ("Gateway
Advisors"), a company owned and controlled by the Company's current Chairman of
the Board, entered into a Financial Advisory Agreement, pursuant to which
Gateway Advisors agreed to provide certain business development and financial
advisory services for a period of two years in exchange for the issuance by the
Company of 1,500,000 Common Stock Purchase Warrants. Each warrant, which was
fully vested on the date of grant, entitles the holder to purchase one share of
the Company's Common Stock at an exercise price of $2.50 per share until April
8, 2000. Deferred compensation associated with the options issued to consultants
computed using the Black-Scholes model of $636,504 was recorded by the
predecessor company prior to its merger with E-Taxi. Compensation expense for
the two months ended June 30, 1999 was $52,000 (See Note 15).
VALUATION OF STOCK OPTIONS AND WARRANTS - The Company applies Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees and
related interpretations, for stock options issued to employees in accounting for
its stock option plans.
Had compensation cost been determined on the basis of fair value pursuant to
SFAS No. 123, for the employee options, net income and earnings per share would
have been as follows:
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 14, 1998
YEAR ENDED (INCEPTION) TO
JUNE 30, JUNE 30,
1999 1998
--------------- ---------------
<S> <C> <C>
Net Loss as Reported $ (728,297) $ (7,131)
=============== ===============
Pro Forma Net Loss $ (1,129,657) $ (7,131)
=============== ===============
Basic and Diluted Net Loss per Share as Reported $ (0.06) $ --
=============== ===============
Pro Forma Basic and Diluted Net Loss per Share $ (0.10) $ --
=============== ===============
</TABLE>
The fair value used in the pro forma data was estimated by using an option
pricing model which took into account as of the grant date, the exercise price
and the expected life of the option, the current price of the underlying stock
and its expected volatility, expected dividends on the stock and the risk-free
interest rate for the expected term of the option. The following is the average
of the data used for the following items.
WEIGHTED WEIGHTED
AVERAGE AVERAGE
YEAR ENDED RISK-FREE EXPECTED EXPECTED EXPECTED
JUNE 30, INTEREST RATE LIFE VOLATILITY DIVIDENDS
-------- ------------- ---- ---------- ---------
1998 5.80% 2 90.74% None
1999 4.76% 2 106.80% None
SHARES RESERVED FOR FUTURE ISSUANCE - In addition to the options discussed
above, the Company has reserved 1,000,000 shares of common stock for issuance
under certain employment agreements. See Note 8 above.
F-13
<PAGE>
EMARKETPLACE, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #9
================================================================================
(11) CONCENTRATIONS
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, 1999 these uninsured amounts totaled
approximately $1,129,000.
Generally, the Company does not require collateral or other security to support
financial instruments, 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. At June 30, 1999, no single customer
accounted for 10% or more of trade receivables, and no single customer accounted
for more than 10% of total revenues for the year ended June 30, 1999.
OTHER - One of the Company's subsidiaries purchases all of its finished goods
from one supplier. The Company is entirely dependent on this supplier for order
fulfillment and for shipping merchandise directly to customers. Management
believes that there is no business vulnerability regarding this concentration of
purchases as the goods are available from other sources. However, there can be
no assurance that such a distributor could provide the fulfillment, service and
pricing currently offered by its current supplier.
The Company's future success is highly dependent upon continued growth in the
use of the Internet generally and, in particular, as a medium for advertising,
marketing, services and commerce. If commercial use of the Internet fails to
continue to expand, the Company's business, results of operations and financial
condition would be adversely affected.
In addition, it is possible that a number of laws and regulations may be adopted
with respect to the Internet generally and the adoption of any such additional
laws or regulations may decrease the growth of commerce over the Internet,
increase the Company's cost of doing business or otherwise have a harmful effect
on the Company's business.
(12) NEW AUTHORITATIVE PRONOUNCEMENTS
The Financial Accounting Standards Board ["FASB"] has issued Statement of
Financial Accounting Standards ["SFAS"] No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. SFAS No. 133
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. The accounting for changes in the fair value of a derivative
depends on the intended use of the derivative and how it its designated, for
example, gain or losses related to changes in the fair value of a derivative not
designated as a hedging instrument is recognized in earnings in the period of
the change, while certain types of hedges may be initially reported as a
component of other comprehensive income [outside earnings] until the
consummation of the underlying transaction.
SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. Initial application of SFAS No. 133 should be as of the
beginning of a fiscal quarter; on that date, hedging relationships must be
designated anew and documented pursuant to the provisions of SFAS No. 133.
Earlier application of all of the provisions of SFAS No. 133 is encouraged, but
it is permitted only as of the beginning of any fiscal quarter. SFAS No. 133 is
not to be applied retroactively to financial statements of prior periods.
F-14
<PAGE>
EMARKETPLACE, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #10
================================================================================
(12) NEW AUTHORITATIVE PRONOUNCEMENTS [CONTINUED]
The Company does not currently have any derivative instruments and is not
currently engaged in any hedging activities.
In October 1998, the FASB issued SFAS No. 134, "Accounting for Mortgage-Backed
Securities Retained after the Securitization of Mortgage Loans Held for Sale by
a Mortgage Banking Enterprises." SFAS No. 134 is not expected to have a material
impact on the Company.
In February 1999, the FASB issued SFAS No. 135, which is a recission of SFAS No.
75 "Deferral of the Effective Date of Certain Accounting Requirements for
Pension Plans of State and Local Government Units." SFAS No. 135 is not expected
to have a material impact on the Company.
The FASB has had on its agenda a project to address certain practice issues
regarding Accounting Principles Board ["APB"] Opinion No. 25, "Accounting for
Stock Issued to Employees." The FASB plans on issuing various interpretations of
APB Opinion No. 25 to address these practice issues. The proposed effective date
of these interpretations would be the issuance date of the final Interpretation,
which is expected to be in September 1999. If adopted, the Interpretation would
be applied prospectively but would be applied to plan modification and grants
that occur after December 15, 1998. The FASB's tentative interpretations are as
follows:
* APB Opinion No. 25 has been applied in practice to include in its
definition of employees, outside members of the board or directors and
independent contractors. The FASB's interpretation of APB Opinion No. 25
will limit the definition of an employee to individuals who meet the common
law definition of an employee [which also is the basis for the distinction
between employees and nonemployees in the current U.S. tax code]. Outside
members of the board of directors and independent contractors would be
excluded from the scope of APB Opinion No. 25 unless they qualify as
employees under common law. Accordingly, the cost of issuing stock options
to board members and independent contractors not meeting the common law
definition of an employee will have to be determined in accordance with
FASB Statement No. 123, "Accounting for Stock-Based Compensation," and
usually recorded as an expense in the period of the grant [the service
period could be prospective, however, depending on the terms of the
options].
* Options [or other equity instruments] of a parent company issued to
employees of a subsidiary should be considered options, etc. issued by the
employer corporation in the consolidated financial statements, and,
accordingly, APB Opinion No. 25 should continue to be applied in such
situations. This interpretation would apply to subsidiary companies only;
it would not apply to equity method investees or joint ventures.
* If the terms of an option [originally accounted for as a fixed option] are
modified during the option term to directly change the exercise price, the
modified option should be accounted for as a variable option. Variable
grant accounting should be applied to the modified option from the date of
the modification until the date of exercise. Consequently, the final
measurement of compensation expense would occur at the date of exercise.
The cancellation of an option and the issuance of a new option with a lower
exercise price shortly thereafter [for example, within six months] to the
same individual should be considered in substance a modified [variable]
option.
* Additional interpretations will address how to measure compensation expense
when a new measurement date is required.
F-15
<PAGE>
EMARKETPLACE, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #11
================================================================================
(13) ACCRUED LOSS ON DISPOSAL OF SUBSIDIARY
In April of 1999, the Company decided to adopt a plan to sell a subsidiary,
Medical Marketplace and its wholly-owned subsidiary, New Millineum Leasing,
which was finalized in September of 1999. The combined assets and liabilities of
Medical Marketplace and New Millineum Leasing as of April 1999 are presented
below including the accrued loss on their disposal. This plan of disposition
occurred prior to combination with E-Taxi.
<TABLE>
<CAPTION>
Assets and Liabilities:
<S> <C>
Cash $ 101,377
Accounts Receivable - Net 28,403
Residual Value of Equipment 375,000
Deposits 20,000
Property and Equipment, Net 723,418
Notes Payable (213,406)
Accounts Payable (102,855)
Accrued Liabilities (190,244)
Capital Lease Obligations (334,962)
-------------
Net Assets of Entity to be Disposed of: 406,731
Estimated Additional Losses to be Incurred through Disposal Date 314,556
Estimated Net Proceeds upon Sale (60,000)
-------------
TOTAL ACCRUED LOSS ON DISPOSAL OF SUBSIDIARY $ 661,287
=============
</TABLE>
The revenues of Medical Marketplace and New Millineum Leasing for the year ended
June 30, 1998 were approximately $4,414,000.
(14) PENDING ACQUISITION
As of June 14, 1999, the Company's legal subsidiary, E-Taxi entered into (i) a
Stock Purchase Agreement (the "Stock Purchase Agreement") with all of the
shareholders of SSPS, Inc., a California corporation ("SSPS"), pursuant to which
E-Taxi has agreed to purchase, and the shareholders of SSPS have agreed to sell,
approximately 94.6% of the outstanding shares of capital stock of SSPS, and (ii)
a Membership Interest Purchase Agreement with all of the members of Impact Team
International, LLC, a California limited liability company and an affiliate of
SSPS ("Impact"), pursuant to which E-Taxi has agreed to purchase, and the
members of Impact have agreed to sell, all of the outstanding membership
interests of Impact. SSPS, and its operating divisions TRISTEP, GIG2GIG.COM, and
IT WORLDNET.COM, and Impact, provide short term and long term temporary
workforce solutions primarily to rapidly growing technology firms.
The closing of the transactions contemplated by the Stock Purchase Agreement and
the Membership Interest Purchase Agreement (the "Closing") are subject to the
satisfaction of certain conditions, including without limitation, the execution
and delivery of employment agreements with certain members of the senior
management team of SSPS, the release of a principal stockholder of SSPS of his
guaranty of certain indebtedness of SSPS, the waiver of certain rights of first
refusal to purchase the shares of SSPS capital stock owned by a principal
stockholder, the termination and release of certain obligations of SSPS under
existing employment agreements and other customary conditions to closing. At the
Closing, the Company will issue approximately 2.9 million shares of its Common
Stock and pay cash and notes of approximately $1.5 million for SSPS. The Company
has also agreed to provide the sellers of the SSPS shares and the Impact
interests with demand and piggyback registration rights. It is presently
anticipated that the Company's acquisition of SSPS and Impact will close second
quarter of fiscal 2000 (See Note 17B).
F-16
<PAGE>
EMARKETPLACE, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #12
================================================================================
(15) RELATED PARTY TRANSACTIONS
In April 1998, TechStore, a subsidiary of the Company, entered into a month to
month lease agreement for office space with an entity owned by an officer and a
10% stockholder of the Company. The lease payments are approximately $1,500 per
month.
In September 1998, E-Taxi retained Gateway Advisors, Inc., a company owned and
controlled by the Company's Chairman of the Board, as financial advisor for a
three year term, pursuant to which Gateway receives quarterly fee payments of
$30,000 plus reimbursement of expenses (See Note 10).
In October 1998, the Company repaid a $200,000 promissory note to a lender by
transferring its ownership interest in certain property. Shortly thereafter, the
lender sold the property to the trust fund (the Kiley Children's Trust) of the
children of the then President and Chairman of the Board.
In January and April of 1999, a director of the Company loaned proceeds totaling
$100,000 to the Company with repayment terms of July and September of 1999 and
an annual interest rate of 10%. These notes are fully collateralized by all real
and personal property (See Note 17E).
(16) FAIR VALUE OF FINANCIAL INSTRUMENTS
Generally accepted accounting principles require disclosing the fair value of
financial instruments to the extent practicable for financial instruments which
are recognized or unrecognized in the balance sheet. The fair value of the
financial instruments disclosed herein is not necessarily representative of the
amount that could be realized or settled, nor does the fair value amount
consider the tax consequences of realization or settlement.
For certain financial instruments, including cash and cash equivalents, trade
receivables, trade payables, and short-term debt, it was estimated that the
carrying amount approximated fair value for the majority of these items because
of their short maturities.
(17) SUBSEQUENT EVENTS
(A) SALE OF SUBSIDIARY - MEDICAL MARKETPLACE - On October 12, 1999, the Company
entered into a definitive agreement to sell 100% of its interest in Medical
Marketplace to a third party effective June 30, 1999 for $65,000 in cash and
notes (See Note 13). In connection with the sale of the capital stock of Medical
Marketplace, the Company received $40,000 in cash and a promissory note in the
aggregate principal amount of $25,000. The note is secured by the assets and
stock of Medical Marketplace and bears interest at a rate of 8% per annum.
Interest and principal shall be paid quarterly commencing on January 1, 2000 in
eleven (11) payments of two thousand eighty five dollars ($2,085) (with the
twelfth and final payment being in the amount of $2,065) plus interest on the
outstanding balance. In addition, in the event that (i) the Company receives not
less than $225,000 in proceeds from a specified account receivable (the
"Specified Receivable") or (ii) all liabilities of Medical Marketplace have
terminated to the satisfaction of Seller, the obligations to the Company under
the Note shall be deemed satisfied in full. Further, the outstanding principal
amount of the Note shall be reduced (i) proportionately based upon the proceeds
received by the Company with respect to the Specified Receivable divided by
$225,000 and (ii) to the extent that Medical Marketplace incurs any tax
liabilities from the non-payment of taxes by Medical Marketplace prior to June
30, 1999, subject to certain limitations.
F-17
<PAGE>
EMARKETPLACE, INC. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #13
================================================================================
(17) SUBSEQUENT EVENTS (CONTINUED)
(B) PRIVATE PLACEMENT - On July 16, 1999, the Company commenced a private
offering (the "Offering") of up to 1,200,000 shares of its Common Stock (each a
"Share" and collectively the "Shares"). The Offering is being conducted under
the exemptions from the registration requirements of the Securities Act of 1933,
as amended (the "Act"), provided by Section 4(2) of the Act and the provisions
of Rule 506 of Regulation D. Sales of the Shares will be made only to
"accredited investors," as such term is defined in Rule 501(a) under the Act.
The Shares are being offered at a purchase price of $3.875 per share and on a
"best efforts all or none" basis with respect to the first 400,000 Shares (the
"Minimum Offering"), and on a "best efforts" basis thereafter with respect to
the remaining 800,000 Shares (the "Maximum Offering"). The Offering was
originally scheduled to terminate on August 30, 1999, but has been extended at
the option of the Company. Subscriptions for less than 20,000 Shares (or
$77,550) may be accepted at the discretion of the Company. Upon completion of
the Minimum Offering and the Maximum Offering, the Company expects to receive
gross proceeds of approximately $1,550,000 and $4,650,000, respectively, before
deducting commissions (placement agent) and expenses of the Offering (consisting
of accounting and legal fees, "blue sky" fees and other related expenses). The
Company has received proceeds from the Offering of approximately $2,884,000 as
of October 12, 1999 which will be used to fund the acquisition of SSPS and
Impact and the working capital needs of the Company.
(C) NEW SUBSIDIARIES AND OTHER AGREEMENTS - On August 12, 1999, Top Team, Inc.,
a newly formed subsidiary of the Company ("Top Team") entered into letters of
intent with Full Moon Interactive Group, Inc. and Orrell Communications, Inc.,
and on September 7, 1999, Top Team entered into letters of intent with Paradigm
3 Marketing, De Vries Data Systems, Inc., Image Network and Muccino Design
Group, Inc. Under the letters of intent, it is contemplated that together the
Company and Top Team will acquire all of the outstanding capital stock of these
interactive architect companies in exchange for the payment of cash and the
issuance of shares of common stock of both the Company and Top Team. The closing
of each of the proposed transactions is subject to the completion of legal,
business and accounting due diligence and the execution and delivery of
definitive acquisition agreements.
In August 1999, Office Express, Inc. a newly formed subsidiary of the Company,
began its operations to sell office products and supplies through its Web site.
(D) RELATED PARTY TRANSACTIONS - In July 1999, the Company terminated a real
property lease agreement with Quality Associates, Inc., a company owned and
controlled by the Company's Chief Executive Officer.
As of July 15, 1999, the Company has agreed to reimburse a company owned by the
Company's Chairman of the Board for the use of office space. The reimbursement
is $5,422 per month. The Company has not agreed to any term for this
arrangement.
(E) EXTENSION ON RELATED PARTY NOTES PAYABLE - On October 11, 1999, the Company
received an extension on notes payable aggregating $100,000 which were due in
July and September of 1999 until December 31, 1999 (See Note 7).
. . . . . . . . . .
F-18
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
executed on this day of October 13, 1999.
EMARKETPLACE, INC.
By: /s/ L. WAYNE KILEY
--------------------------------------------
L. Wayne Kiley
President, Chief Executive Officer,
(Chief Accounting Officer) and Director
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant in the capacities and on the dates
indicated.
Signature Title Date
- --------- ----- ----
L. WAYNE KILEY President, October 13, 1999
- ------------------------- Chief Executive
l. Wayne Kiley Officer (Chief Accounting
Officer) and Director
ROBERT M. WALLACE Chairman of the Board October 13, 1999
- -------------------------
Robert M. Wallace
THOMAS E. EVANS, JR. Director October 13, 1999
- -------------------------
Thomas E. Evans, Jr.
EXHIBIT 3.02
ARTICLES OF INCORPORATION OF TECHSTORE, LLC
<PAGE>
STATE OF CALIFORNIA
BILL JONES
SECRETARY OF STATE
LIMITED LIABILITY COMPANY
ARTICLES OF ORGANIZATION
IMPORTANT - Read the instructions before completing the form.
This document is presented for filing pursuant to Section 17050 of the
California Corporations Code.
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1. Limited liability company name:
(end the name with "LLC" or "Limited Liability Company". No periods
between the letters in "LLC", "Limited" and "Company" may be
abbreviated to Llc" and "Co."
TechStore LLC
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2. Latest date (monthly/day/year) on which the limited liability company
is to dissolve:
12/31/2038
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3. The purpose of the limited liability company is to engage in any
lawful act or activity for which a limited liability company may be
organized under the Beverly-Killea Limited Liability Company Act.
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4. Enter the name of initial agent for service of process and check the
appropriate provision below:
Bejan Aminifard
[X] an individual residing in California. Proceed to Item 5.
[ ] a corporation which has filed pursuant to Section 1505 of
the California Corporations Code. Skip Item 5 and proceed to
Item 6.
5. If the initial agent for service of process is an individual, enter a
business or residential street address in California:
Street Address: 1525 Indian Valley Rd.
City: Novato State: California Zip Code: 94947
6. The limited liability company will be managed by (check one)
[ ] one manager [ ] more than one manager [X] limited liability
company members
7. If other matters are to be included in the Articles of Organization
attach one or more separate pages. Number of pages attached, if any:
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8. It is hereby declared that I am the FOR SECRETARY OF STATE USE
person who executed this instrument,
which execution is my act and deed.
Signature of organizer
/s/ RICHARD OSTER
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Type or print name of organizer
Date March 13, 1999
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EXHIBIT 3.03
CERTIFICATE OF INCORPORATION OF TOPTEAM, INC.
<PAGE>
CERTIFICATE OF INCORPORATION
OF
TOPTEAM, INC.
ARTICLE I
The name of this corporation is TopTeam, Inc. (hereinafter called the
"corporation").
ARTICLE II
The address of the registered office of this corporation in the State
of Delaware is 15 East North Street, in the City of Dover, County of Kent. The
name of its registered agent at such address is PARACORP Incorporated.
ARTICLE III
The nature of the business or purposes to be conducted or promoted is
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
ARTICLE IV
A. CLASSES OF STOCK. This corporation is authorized to issue two
classes of stock to be designated, respectively, "Common Stock" and "Preferred
Stock." The total number of shares that this corporation is authorized to issue
is thirty-one million (31,000,000) shares. Thirty million (30,000,000) shares
shall be Common Stock and one million (1,000,000) shares shall be Preferred
Stock, each with a par value of $.001 per share.
The Board of Directors is authorized, subject to limitations prescribed
by law, to provide for the issuance of the shares of Preferred Stock in series,
and by filing a certificate pursuant to the applicable law of the State of
Delaware, to establish from time to time the number of shares to be included in
such series, and to fix the designation, voting, powers, preferences and rights
of the shares of each such series and any qualifications, limitations or
restrictions thereof. The number of authorized shares of Preferred Stock may be
increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a majority of the
outstanding shares of Common Stock, without a vote of the holders of the
Preferred Stock, or of any series thereof, unless a vote of any such holders is
required pursuant to the certificate or certificates establishing any series of
Preferred Stock.
ARTICLE V
Except as otherwise provided in this Certificate of Incorporation, in
furtherance and not in limitation of the powers conferred by statute, the Board
of Directors is expressly authorized to make, repeal, alter, amend and rescind
any or all of the Bylaws of this corporation.
<PAGE>
ARTICLE VI
The number of directors of this corporation shall be fixed from time to
time by a bylaw or amendment thereof duly adopted by the Board of Directors or
by the stockholders.
ARTICLE VII
Elections of directors need not be by written ballot unless the Bylaws
of this corporation shall so provide.
ARTICLE VIII
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of this corporation may be kept
(Subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of this corporation.
ARTICLE IX
A director of this corporation shall, to the fullest extent permitted
by the General Corporation Law as it now exists or as it may hereafter be
amended, not be personally liable to this corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to this
corporation or its stockholders, (ii) for acts or omissions not in good faith or
that involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the General Corporation Law, or (iv) for any transaction from
which the director derived any improper personal benefit. If the General
Corporation Law is amended, after the filing of the Certificate of
Incorporation, to authorize corporation action further eliminating or limiting
the personal liability of directors, then the liability of a director of this
corporation shall be eliminated or limited to the fullest extent permitted by
the General Corporation Law, as so amended.
Any amendment, repeal or modification of this Article IX, or the
adoption of any provision of this Certificate of Incorporation inconsistent with
this Article IX, by the stockholders of this corporation shall not apply to or
adversely affect any right or protection of a director of this corporation
existing at the time of such amendment, repeal, modification or adoption.
ARTICLE X
This corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
ARTICLE XI
To the fullest extent permitted by applicable law, this corporation is
authorized to provide indemnification of (and advancement of expenses to) agents
of this corporation (and any other persons to which General Corporation Law
permits this corporation to provide indemnification) through bylaw provisions,
agreements with such agents or other persons, vote of stockholders or
disinterested directors or otherwise, in excess of the indemnification and
advancement otherwise permitted by Section 145 of the General Corporation Law,
subject only to limits created by applicable General Corporation Law (statutory
or non-statutory), with respect to actions for breach of duty to this
corporation, its stockholders, and others.
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Any amendment, repeal or modification of the foregoing provisions of
this Article XI shall not adversely affect any right or protection of a
director, officer, agent, or other person existing at the time of, or increase
the liability of any director of this corporation with respect to any acts or
omissions of such director, officer or agent occurring prior to, such amendment,
repeal or modification.
* * *
ARTICLE XII
INCORPORATOR
The incorporator is Michael L. Violanti whose mailing address is c/o
Leland, Parachini, Steinberg, Matzger & Melnick, LLP, 333 Market Street, 27th
Floor, San Francisco, California 94105.
I, THE UNDERSIGNED, for the purposes of forming a corporation under the
laws of the State of Delaware, do make, file and record this Certificate, and to
certify that the facts herein stated are true, and I have accordingly hereunto
set my hand this 14th day of July, 1999.
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Incorporator
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EXHIBIT 3.05
BY-LAWS OF TOPTEAM, INC.
<PAGE>
TOPTEAM, INC.
BY-LAWS
STOCKHOLDERS
SECTION 1. ANNUAL MEETING OF STOCKHOLDERS.
The annual meeting of stockholders of the Corporation for the purpose
of electing directors and of transacting such other business as may properly
come before the meeting shall be held at such place and time as shall be
designated by the Board of Directors.
SECTION 2. SPECIAL MEETINGS OF STOCKHOLDERS.
Subject to the rights of the holders of any class or series of stock
having a preference over the Common Stock as to dividends or upon liquidation,
special meetings of the stockholders for any purpose may be called only by a
majority of the entire Board of Directors.
SECTION 3. NOTICE OF MEETING.
The Secretary shall cause written notice of the time, place and
purposes of each meeting to be mailed, or delivered personally, not less than 10
nor more than 60 days before the date of the meeting, to each stockholder of
record entitled to vote at the meeting.
Attendance of a person at a meeting of stockholders, in person or by
proxy, constitutes a waiver of notice of the meeting, except when the
stockholder attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transactions of any business because the
meeting is not lawfully called or convened.
SECTION 4. QUORUM.
At any meeting of stockholders the holders of a majority of the shares
of the capital stock of the Corporation issued and outstanding and entitled to
vote, present in person or represented by proxy, shall constitute a quorum of
the stockholders for all purposes unless a greater or lesser quorum shall be
provided by law or by the Certificate of Incorporation and in such case the
representation of the number so required shall constitute a quorum. The
stockholders present in person or by proxy at a meeting at which a quorum is
present may continue to do business until adjournment, notwithstanding
withdrawal of enough stockholders to leave less than a quorum.
Whether or not a quorum is present, the meeting may be adjourned from
time to time by the Chairman of the meeting or upon a vote of the shares
present. At any such adjourned meeting, at which a quorum shall be present, any
business may be transacted which might have been transacted at the meeting if
held at the time specified in the notices thereof.
SECTION 5. ORGANIZATION.
The Chairman of the Board of Directors, the Vice Chairman of the Board
of Directors, the President, or such Executive Vice President, Senior Vice
President or Vice President as the Chairman of the Board of Directors may
designate, shall act as Chairman of meetings of the stockholders. The Board of
Directors or the stockholders may appoint any stockholder to act as Chairman of
any meeting in the absence of the Chairman of the Board of Directors, the Vice
<PAGE>
Chairman of the Board of Directors, the President, the Executive Vice
Presidents, the Senior Vice Presidents and the Vice Presidents.
The Secretary of the Corporation shall act as Secretary at all meetings
of the stockholders; but in the absence of the Secretary, the Chairman of the
meeting may appoint any person to act as Secretary of the meeting.
SECTION 6. VOTING.
At any meeting of the stockholders, every stockholder entitled to vote
may vote in person or by proxy authorized by an instrument in writing or by a
transmission permitted by law filed in accordance with the procedure established
for the meeting. Any copy, facsimile telecommunication or other reliable
reproduction of the writing or transmission created pursuant to this paragraph
may be substituted or used in lieu of the original writing or transmission for
any and all purposes for which the original writing or transmission could be
used, provided that such copy, facsimile telecommunication or other reproduction
shall be a complete reproduction of the entire original writing or transmission.
All voting, including on the election of directors but excepting where
otherwise required by law, may be by a voice vote; provided, however, that upon
demand therefore by a stockholder entitled to vote or by his or her proxy, a
stock vote shall be taken. Every stock vote shall be taken by ballots, each of
which shall state the name of the stockholder or proxy voting and such other
information as may be required under the procedure established for the meeting.
The Corporation may, and to the extent required by law, shall, in advance of any
meeting of stockholders, appoint one or more inspectors to replace any inspector
who fails to act. If no inspector or alternate is able to act at a meeting of
stockholders, the person presiding at the meeting may, and to the extent
required by law, shall, appoint one or more inspectors to act at the meeting.
Each inspector, before entering upon the discharge of his duties, shall take and
sign an oath faithfully to execute the duties of inspector with strict
impartiality and according to the best of his ability. Every vote taken by
ballots shall be counted by an inspector or inspectors appointed by the chairman
of the meeting.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law, all other matters shall be determined by a
majority of the votes cast affirmatively or negatively.
SECTION 7. INSPECTORS OF ELECTIONS.
The Board of Directors or Chairman of the meeting and stockholders may
appoint one or more inspectors to count and tabulate the votes and to perform
such other acts or duties as may be requested by the Chairman or required by
law. On request of the Chairman of the meeting or as otherwise required by law,
the inspectors shall make and execute a written report to the Chairman of the
meeting of any facts found by them and matters determined by them. The report is
prima facie evidence of the facts stated and of the vote certified by the
inspectors.
SECTION 8. STOCK LIST.
A complete list of stockholders entitled to vote at any meeting of
stockholders, arranged in alphabetical order for each class of stock and showing
the address of each such stockholder and the number of shares registered in his
or her name, shall be open to the examination of any such stockholder, for any
purpose germane to the meeting, during ordinary business hours for a period of
at least ten (10) days prior to the meeting, either at the Corporation's
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principal place of business or at a place within the city where the meeting is
to be held, which place shall be specified in the notice of the meeting, or if
not so specified, at the place where the meeting is to be held.
The stock list shall also be kept at the place of the meeting during
the whole time thereof and shall be open to the examination of any such
stockholder who is present. This list shall presumptively determine the identity
of the stockholders entitled to vote at the meeting and the number of shares
held by each of them.
SECTION 9. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING.
Any action required to be taken at any annual or special meeting of
stockholders of the Corporation, or any action which may be taken at any annual
or special meeting of the stockholders, may be taken without a meeting, without
prior notice and without a vote, if a consent or consents in writing, setting
forth the action so taken, shall be signed by the holders of outstanding stock
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
thereon were present and voted and shall be delivered to the Corporation by
delivery to its registered office in Delaware, its principal place of business,
or an officer or agent of the Corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to the
Corporation's registered office shall be made by hand or by certified or
registered mail, return receipt requested.
Every written consent shall bear the date of signature of each
stockholder who signs the consent and no written consent shall be effective to
take the corporate action referred to therein unless, within sixty (60) days of
the date the earliest dated consent is delivered to the Corporation, a written
consent or consents signed by a sufficient number of holders to take action are
delivered to the Corporation in the manner prescribed in the first paragraph of
this Section.
DIRECTORS
SECTION 1. NUMBER.
The business and affairs of the Corporation shall be managed under the
direction of the Board of Directors which, subject to any right of the holders
of any series of Preferred Stock then outstanding to elect additional directors
under specified circumstances, shall consist of not less than 1 nor more than 5
persons. The exact number of directors within the minimum and maximum
limitations specified in the preceding sentence shall be fixed from time to time
by the Board of Directors pursuant to a resolution adopted by a majority of the
total authorized number of Directors.
SECTION 2. TERMS.
The directors, other than those who may be elected by the holders of
any class or series of stock having a preference over the Common Stock as to
dividends or upon liquidation, shall be divided into three classes, as nearly
equal in number as reasonably possible, with the term of office of the first
class to expire at the 2000 Annual Meeting of Stockholders, the term of office
of the second class to expire at the 2001 Annual Meeting of Stockholders and the
term of office of the third class to expire at the 2002 Annual Meeting of
Stockholders. At each Annual Meeting of Stockholders following such initial
classification and election, directors elected to succeed those directors whose
terms expire shall be elected for a term of office to expire at the third
succeeding Annual Meeting of Stockholders after their election.
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SECTION 3. NEWLY CREATED DIRECTORSHIPS AND VACANCIES.
Subject to the rights of the holders of any series of Preferred Stock
then outstanding, newly created directorships resulting from any increase in the
authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause shall be filled by a majority vote of the directors
remaining in office, although less than a quorum, and directors so chosen shall
hold office for a term expiring at the Annual Meeting of Stockholders at which
the term of the class to which they have been elected expires. No decrease in
the number of directors constituting the Board of Directors shall shorten the
term of any incumbent director.
SECTION 4. REMOVAL.
Subject to the rights of the holders of any series of Preferred Stock
then outstanding, any director, or the entire Board of Directors, may be removed
from office at any time, but only for cause and only by the affirmative vote of
the holders of at least 80% of the voting power of all of the shares of the
Corporation entitled to vote generally in the election of directors, voting
together as a single class.
SECTION 5. NOMINATIONS OF DIRECTOR CANDIDATES.
NOMINATIONS OF CANDIDATES FOR ELECTION AS DIRECTORS OF THE CORPORATION
AT ANY MEETING OF STOCKHOLDERS CALLED FOR ELECTION OF DIRECTORS (AN "ELECTION
MEETING") MAY BE MADE BY THE BOARD OF DIRECTORS OR BY ANY STOCKHOLDER ENTITLED
TO VOTE AT SUCH ELECTION MEETING WHO COMPLIES WITH THE REQUIREMENTS OF THIS
SECTION 4.
NOMINATIONS MADE BY THE BOARD OF DIRECTORS SHALL BE MADE AT A MEETING
OF THE BOARD OF DIRECTORS, OR BY WRITTEN CONSENT OF DIRECTORS IN LIEU OF A
MEETING, NOT LESS THAN 30 DAYS PRIOR TO THE DATE OF THE ELECTION MEETING. AT THE
REQUEST OF THE SECRETARY OF THE CORPORATION EACH PROPOSED NOMINEE SHALL PROVIDE
THE CORPORATION WITH SUCH INFORMATION CONCERNING THEMSELVES AS IS REQUIRED,
UNDER THE RULES OF THE SECURITIES AND EXCHANGE COMMISSION, TO BE INCLUDED IN THE
CORPORATION'S PROXY STATEMENT SOLICITING PROXIES FOR THEIR ELECTION AS A
DIRECTOR.
NOT LESS THAN 90 DAYS PRIOR TO THE DATE OF THE ELECTION MEETING IN THE
CASE OF AN ANNUAL MEETING AND NOT MORE THAN 7 DAYS FOLLOWING THE DATE OF NOTICE
OF THE MEETING IN THE CASE OF A SPECIAL MEETING, ANY STOCKHOLDER WHO INTENDS TO
MAKE A NOMINATION AT THE ELECTION MEETING SHALL DELIVER A NOTICE TO THE
SECRETARY OF THE CORPORATION SETTING FORTH (I) THE NAME, AGE, BUSINESS ADDRESS
AND RESIDENCE ADDRESS OF EACH NOMINEE PROPOSED IN SUCH NOTICE, (II) THE
PRINCIPAL OCCUPATION OR EMPLOYMENT OF EACH SUCH NOMINEE, (III) THE NUMBER OF
SHARES OF CAPITAL STOCK OF THE CORPORATION WHICH ARE BENEFICIALLY OWNED BY EACH
SUCH NOMINEE, (IV) A STATEMENT THAT THE NOMINEE IS WILLING TO BE NOMINATED AND
(V) SUCH OTHER INFORMATION CONCERNING EACH SUCH NOMINEE AS WOULD BE REQUIRED,
UNDER THE RULES OF THE SECURITIES AND EXCHANGE COMMISSION, IN A PROXY STATEMENT
SOLICITING PROXIES FOR THE ELECTION OF SUCH NOMINEES.
IN THE EVENT THAT A PERSON IS VALIDLY DESIGNATED AS A NOMINEE IN
ACCORDANCE WITH PARAGRAPH (B) OR PARAGRAPH (C) HEREOF AND SHALL THEREAFTER
BECOME UNABLE OR UNWILLING TO STAND FOR ELECTION TO THE BOARD OF DIRECTORS, THE
BOARD OF DIRECTORS OR THE STOCKHOLDER WHO PROPOSED SUCH NOMINEE, AS THE CASE MAY
BE, MAY DESIGNATE A SUBSTITUTE NOMINEE.
IF THE CHAIRMAN OF THE ELECTION MEETING DETERMINES THAT A NOMINATION
WAS NOT MADE IN ACCORDANCE WITH THE PROCEDURES AS SET FORTH IN THESE BY-LAWS,
SUCH NOMINATIONS SHALL BE VOID.
SECTION 6. REGULAR MEETINGS.
Regular meetings of the Board of Directors shall be held at such place
or places, on such date or dates, and at such time or times as shall have been
established by the Board of Directors and publicized among all directors. A
notice of each regular meeting shall not be required.
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SECTION 7. SPECIAL MEETINGS.
Special meetings of the Board of Directors shall be held whenever
called by direction of the Chairman of the Board of Directors or three of the
directors.
SECTION 8. NOTICE OF MEETINGS.
The Secretary shall give notice of the time and place of holding each
meeting (except for the meeting immediately following the annual meeting of
stockholders) by mailing such notice at least three (3) days before the meeting,
or by telegraphing the same at least two (2) days before the Meeting to each
Director.
SECTION 9. PRESENCE AT MEETING.
A member of the Board of Directors or of a Committee thereof, may
participate in a meeting by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other. Participation in this manner constitutes presence
in person at the meeting.
SECTION 10. QUORUM.
A majority of the members of the Board of Directors then in office, or
of a committee thereof, shall constitute a quorum for the transaction of
business, except that the Chairman of the Board and two additional members shall
constitute a quorum of the Executive Committee of the Board of Directors, and
the vote of a majority of the members present at a meeting of which a quorum is
present shall be the act of the Board of Directors or of the Committee thereof,
except for the amendment of the By-laws which shall require a vote of not less
than a majority of the members of the Board of Directors then in office.
SECTION 11. ACTION WITHOUT A MEETING.
Action required or permitted to be taken at a meeting of the Board of
Directors, or a committee thereof, may be taken without a meeting, if all
members of the Board of Directors or of the committee consent thereto in
writing. The written consents shall be filed with the minutes of the proceedings
of the Board of Directors or Committee. The consent shall have the same effect
as a vote of the Board of Directors or Committee thereof for all purposes.
SECTION 12. ORGANIZATION.
At all meetings of the Board of Directors the Chairman of the Board of
Directors, the Vice Chairman of the Board of Directors, the President, an
Executive Vice President, a Senior Vice President or a Vice President, or in
their absence a member of the Board to be selected by the members present, shall
preside as Chairman of the meeting. The Secretary or an Assistant Secretary of
the Corporation shall act as secretary of all meetings of the Board, except that
in their absence the Chairman of the meeting may designate any other person to
act as secretary.
At meetings of the Board of Directors business shall be transacted in
such order as from time to time the Board may determine.
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SECTION 13. COMMITTEES OF THE BOARD.
The Board of Directors may designate one or more Committees, including
an Executive Committee, each consisting of one or more Directors of the
Corporation as members and one or more Directors as alternate members, with such
power and authority as prescribed by the By-laws or as provided in a resolution
of the Board of Directors. Each Committee, and each member thereof, shall serve
at the pleasure of the Board of Directors.
SECTION 14. COMPENSATION.
The Directors may be paid their expenses, if any, of attendance at each
meeting of the Board of Directors and may be paid a fixed sum for attendance at
each meeting of the Board of Directors or a stated salary as Director. No such
payment shall preclude any Director from serving the Corporation in any other
capacity and receiving compensation therefor. Members of Committees of the Board
of Directors may be allowed like compensation for attending Committee meetings.
OFFICERS
SECTION 1. OFFICERS.
The officers of the Corporation shall be a Chairman of the Board of
Directors, one or more Vice Chairmen of the Board of Directors, a President, one
or more Executive Vice Presidents, one or more Senior Vice Presidents, one or
more Vice Presidents, a Secretary, a Treasurer and a Controller, all of whom
shall be subject to the control of the Board of Directors. The Board of
Directors, immediately after each annual meeting of stockholders, shall select a
Chairman of the Board of Directors, one or more Vice Chairmen of the Board of
Directors, a President and one or more Executive Vice Presidents, Senior Vice
Presidents and Vice Presidents, and a Secretary, a Treasurer and a Controller.
Any two or more of the above offices may be held by the same persons except as
prohibited by law, but no officer shall execute, acknowledge or verify an
instrument in more than one capacity if the instrument is required by law or by
the Certificate of Incorporation or By-laws to be executed, acknowledged or
verified by two or more officers. The Board of Directors may select at any time
such additional officers or assistant officers as they may deem desirable and
who shall have such authority and shall perform such duties as from time to time
may be prescribed by the Board of Directors.
All officers shall be subject to removal with or without cause at any
time by the affirmative vote of a majority of the members of the Board of
Directors then in office.
SECTION 2. TERM OF OFFICE.
The term of each officer shall be until the succeeding Board of
Directors meeting immediately following the next annual meeting of stockholders
and until his successor is elected and qualified unless sooner terminated as
provided or permitted by the By-laws or by law.
SECTION 3. POWERS AND DUTIES OF THE CHAIRMAN OF THE BOARD OF
DIRECTORS.
The Chairman of the Board of Directors shall be the chief executive
officer of the Corporation and, subject to the direction of the Board of
Directors, shall have the general management and control of the affairs and
business of the Corporation; shall preside at all meetings of shareholders and
directors; shall perform all other duties and shall have all other powers
commonly incident to the office or delegated by the Board of Directors, or which
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are or may at any time be authorized or required by law; and shall, in the
absence or incapacity of the President, perform all the duties and functions and
exercise all the powers of the President.
SECTION 4. VICE CHAIRMAN OF THE BOARD OF DIRECTORS.
The Vice Chairman of the Board of Directors shall have such powers and
perform such duties as may be assigned by the Board of Directors or be delegated
by the Chairman of the Board of Directors.
SECTION 5. PRESIDENT.
The President shall be the chief operating officer of the Corporation
and, subject to the direction of the Board of Directors and the Chairman of the
Board of Directors, shall have general charge, control and supervision over the
administration and operations of the Corporation; shall perform all the duties
and functions and exercise all the powers of the Chairman of the Board of
Directors in the absence or disability of the Chairman of the Board of
Directors; and shall have all other powers and perform all other duties commonly
incident to the office or delegated by the Board of Directors or by the Chairman
of the Board of Directors, or which are or may at any time be authorized or
required by law.
SECTION 6. VICE PRESIDENT.
Each Executive Vice President, each Senior Vice President and each of
the other Vice Presidents shall have such powers and perform such duties as may
be assigned by the Board of Directors or be delegated by the Chairman of the
Board of Directors and the President. In case of death, disability or absence of
the Chairman of the Board of Directors and the President, the powers, duties and
functions of the President shall be temporarily performed and exercised by the
Vice Chairman of the Board of Directors or such one of the Executive Vice
Presidents, Senior Vice Presidents or the Vice Presidents as shall be designated
by the Board of Directors, or if not designated by the Board of Directors, by
the Chairman of the Board of Directors or the President.
SECTION 7. POWERS AND DUTIES OF THE SECRETARY.
The Secretary shall keep the minutes of all meetings of the
stockholders and of the Board of Directors, and also (unless otherwise directed)
the minutes of all meetings of committees. The Secretary shall procure and keep
in the files copies of the minutes of all meetings of stockholders and Boards of
Directors of all corporations which the Corporation controls by ownership of
stock or otherwise. The Secretary shall attend to the giving and serving of all
notices and shall be custodian of the seal of the Corporation. The Secretary may
sign with the Chairman of the Board of Directors, the Vice Chairman of the Board
of Directors, the President or a Vice President, in the name of the Corporation,
all bonds, contracts and instruments of conveyance authorized by the Board of
Directors, and when so ordered by the Board of Directors shall affix the seal of
the Corporation thereto. The Secretary shall have charge of all such books and
papers as the Board of Directors may direct; all of which shall at all
reasonable times be open to the examination of any director upon application at
the office of the Corporation during business hours. The Secretary shall publish
promptly to stockholders any action in respect to dividends or the allotment of
rights for subscription to securities. The Secretary shall, in general, perform
all the duties incident to the office of the Secretary, and shall be subject in
all matters to the control of the Board of Directors.
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SECTION 8. ASSISTANT SECRETARY.
The Board of Directors may appoint an Assistant Secretary or more than
one Assistant Secretary. Each Assistant Secretary shall have such powers and
shall perform such duties as may be delegated by the Board of Directors.
SECTION 9. POWERS AND DUTIES OF THE TREASURER.
The Treasurer shall have custody of all funds of the Corporation. The
Treasurer is authorized and empowered to receive and collect all moneys due to
the Corporation and to receipt therefor. All moneys received by the Treasurer
shall be deposited to the credit of the Corporation with such depositories as
may be designated by the Board of Directors; the Treasurer may endorse for
deposit therein, or for collection, all checks, drafts, vouchers, notes or other
obligations drawn to the order of the Corporation or payable to it. The
Treasurer is authorized to pay, by check or otherwise, vouchers, payrolls,
drafts and other accounts payable when approved for payment by the Controller or
such person or persons as may be designated by the Controller with the approval
of the Chairman of the Board of Directors or the President; also to make
disbursements which have been otherwise ordered or provided for by the Board of
Directors, and for dividends or stock when due and payable. The Treasurer is
also authorized to draw checks against any funds to the credit of the
Corporation with any of its depositories; but all checks drawn by the Treasurer
except as otherwise provided for by resolution of the Board of Directors, shall
be countersigned by the Controller or such person or persons as may be
designated by the Controller with the approval of the Board of Directors, the
Chairman of the Board of Directors, or the President from time to time to
countersign the same. The Treasurer shall sign, with the Chairman of the Board
of Directors or the President or such other person or persons as may be
designated for the purpose by the Board of Directors, all bills of exchange and
promissory notes of the Corporation. The Treasurer shall enter regularly in the
books of the Corporation, to be kept by the Treasurer for that purpose, a full
and accurate account of all moneys received and paid by the Treasurer on account
of the Corporation; and shall render reports thereof to the Controller at such
times and in such form as the latter may prescribe. The Treasurer shall have
charge of the capital stock transfer records, ledgers and unissued and cancelled
certificates and shall prepare and certify for use at the annual meeting of
stockholders a list, alphabetically arranged, of the stockholders entitled to
vote at such meeting. Whenever required by the Board of Directors the Treasurer
shall render a statement of the cash and security accounts, and shall at all
reasonable times exhibit the books and accounts to any director of the
Corporation upon application at the office of the Corporation during business
hours. The Treasurer shall perform all acts incident to the position of the
Treasurer, and be subject in all matters to the control of the Board of
Directors. The Treasurer shall give a bond for the faithful discharge of his or
her duties in such sum as the Board of Directors may require.
SECTION 10. ASSISTANT TREASURER.
The Board of Directors may appoint an Assistant Treasurer or more than
one Assistant Treasurer. Each Assistant Treasurer shall have such powers and
perform such duties as may be delegated by the Board of Directors.
SECTION 11. POWERS AND DUTIES OF THE CONTROLLER.
The Board of Directors shall appoint a Controller who shall prescribe
the system of accounts. The Controller shall have immediate charge of all books
and records of account kept in Santa Clara, except as otherwise provided for by
resolution of the directors, and the Controller shall have the supervision and
direction for all other accounts of the Corporation and of any corporation which
this Corporation controls by ownership of stock or otherwise. The Controller
shall require reports from the Treasurer and from all other officers and agents
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of the Corporation who receive or disburse funds for its account, at such time
and in such form as the Controller may deem advisable, showing all receipts and
disbursement for the Corporation's account, the Controller shall be responsible
for the auditing and vouching of all disbursements, and shall have the custody
of all vouchers, drafts, invoices and other evidences of such disbursements. The
Controller shall maintain, or cause to be maintained, necessary records of the
Corporation's personal property so that proper accounting may be had therefor,
and may require such periodical reports from the custodians thereof as the
Controller may deem necessary. The Controller shall approve for payment all
vouchers, payrolls, drafts and other accounts payable when authorized and
approved by the Chairman of the Board of Directors or the President or by such
person or persons as may be designated by the Chairman of the Board of Directors
or the President in writing, the Controller shall countersign all warrants for
the depositing of securities in the safe deposit boxes of the Corporation or
their withdrawal therefrom, the Controller shall countersign all checks drawn by
the Treasurer against any funds to the credit of the Corporation with any of its
depositaries except as otherwise provided for by resolution of the Board of
Directors; and the Controller may, with the approval of the Board of Directors
or of the Chairman of the Board of Directors or the President, delegate such
duties by designation in writing, to one or more of his/her assistants. The
Controller shall compile and maintain such accounting and statistical records
and data as may be required, and shall prepare and submit to the executive
officers and to the Board of Directors such periodical and special financial
statements as may be called for by them. The Controller shall be subject in all
matters to the control of the Board of Directors.
SECTION 12. ASSISTANT CONTROLLER.
The Board of Directors may appoint an Assistant Controller, or more
than one, each of whom shall have such powers and shall perform such duties of
the Controller as shall be assigned by the Board of Directors.
SECTION 13. POWERS AND DUTIES OF THE GENERAL AUDITOR.
The Board of Directors may appoint a General Auditor who shall be under
the direction of the Chief Financial Officer of the Corporation and who shall
have such powers and perform such duties as may be delegated by the Board of
Directors. Included among the General Auditor's responsibilities may be the
review of accounting, financial and other operations to assure effective
controls and follow-through of policies and procedures, the safeguarding and
proper use of assets, the appropriateness of financial statements, underlying
records and reports, and the compliance with accounting standards and
requirements. The General Auditor shall have the right to report directly to the
Audit Committee of the Board of Directors on any matters of significance coming
to the General Auditor's attention in the conduct of the office.
CAPITAL STOCK
SECTION 1. CERTIFICATES OF STOCK.
The certificates for shares of the capital stock of the Corporation
shall be in such form as shall be approved by the Board of Directors. The
certificates shall be signed by the Chairman of the Board of Directors or the
Vice Chairman of the Board of Directors, the President, Executive Vice
President, Senior Vice President or Vice President and also by the Treasurer or
the Secretary, and may be sealed with the seal of the Corporation, or a
facsimile thereof.
The signatures of the aforesaid officers may be facsimiles if the
certificate is countersigned by a transfer agent or registered by a registrar
other than the Corporation or its employee. The validity of any stock
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certificate of the Corporation signed and executed by or in the name of duly
qualified officers of the Corporation shall not be affected by the subsequent
death, resignation, or the ceasing for any other reason of any such officer to
hold such office, whether before or after the date borne by or the actual
delivery of such certificates.
The name of the person owning the shares represented thereby, with the
number of such shares and the date of issue, shall be entered on the
Corporation's capital stock records.
All certificates surrendered to the Corporation shall be cancelled, and
no new certificates shall be issued until the former certificate for the same
number of shares shall have been surrendered and cancelled except in case of a
lost or destroyed certificate.
The Corporation may treat the holder of record of any share or shares
of stock as the holder in fact thereof, and shall not be bound to recognize any
equitable or other claim to or interest in any such share or shares on the part
of any other person, whether or not it shall have express or other notice
thereof, save as expressly provided by law.
SECTION 2. LOST CERTIFICATE.
The Corporation may issue a new certificate for shares in place of a
certificate theretofore issued by it, alleged to have been lost or destroyed,
and the Board of Directors may require the owner of the lost or destroyed
certificate, or his legal representative, to give the Corporation a bond in
forms satisfactory to the Corporation sufficient to indemnify the Corporation,
its transfer agents and registrars against any claim that may be made against
them on account of the alleged lost or destroyed certificate or the issuance of
such a new certificate.
SECTION 3. TRANSFER OF SHARES.
Shares of the capital stock of the Corporation shall be transferable by
the owner thereof in person or by a duly authorized attorney, upon surrender of
the certificates therefor properly endorsed. The Board of Directors, at its
option, may appoint a transfer agent and registrar, or one or more transfer
agents or one or more registrars, or either, for the stock of the Corporation.
SECTION 4. REGULATIONS.
The Board of Directors shall have power and authority to make all such rules and
regulations as they may deem expedient concerning the issuance, transfer and
registration of certificates for shares of the capital stock of the Corporation.
SECTION 5. CORPORATE SEAL.
The Seal of the Corporation shall be in substantially the following
form:
[Seal]
The seal of the Corporation shall be in the charge of the Secretary and
whenever used shall be attested by an officer of the Corporation. If and when so
directed by the Board of Directors, a duplicate of the seal may be kept and used
by an officer of the Corporation.
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MISCELLANEOUS
SECTION 1. DIVIDENDS.
Dividends upon the capital stock of the Corporation may be declared by
the Board of Directors at any regular or special meeting and may be paid from
any source permitted by law.
SECTION 2. FISCAL YEAR.
The fiscal year of the Corporation shall begin on the first day of
January and terminate on the thirty-first day of December.
SECTION 3. VOTING OF SHARES HELD BY CORPORATION.
Shares in another corporation owned by the Corporation may be voted by
the Chairman of the Board of Directors, the Vice Chairman of the Board of
Directors, the President, any Executive Vice President, any Senior Vice
President, any Vice President, Treasurer or Secretary, or by proxy appointed by
such officer unless some other person, by resolution of the Board of Directors,
shall be appointed to vote such shares. The Corporation shall not directly or
indirectly vote any shares issued by it.
SECTION 4. CUSTODY, SALE AND TRANSFER OF SECURITIES.
Custody of the Corporation's securities shall be with such person or
persons, individual or corporate, as from time to time may be designated by
resolution of the Board of Directors. Securities directed to be kept in safe
deposit boxes shall be deposited and withdrawn therefrom only on orders issued
by the Chairman of the Board of Directors, the Vice Chairman of the Board of
Directors, the President, an Executive Vice President, a Senior Vice President,
a Vice President, the Secretary or an Assistant Secretary, the Treasurer or an
Assistant Treasurer, and counter-signed by the Controller or an Assistant
Controller. The Chairman of the Board of Directors, the Vice Chairman of the
Board of Directors, the President, any Executive Vice President, any Senior Vice
President or any Vice President shall each have power to endorse and/or to
deliver for sale, assignment or transfer certificates of stock or bonds or other
securities or receipts therefor registered in the name of or belonging to the
Corporation, whether issued by the Corporation or by any corporation,
government, state or municipality; and the Board of Directors from time to time
may confer like power upon any other officer, agent or person by resolution
fully adopted at any regular or special meeting of the Board of Directors. Every
such endorsement must be countersigned by the Controller or an Assistant
Controller.
SECTION 5. TAKING RECORDS OF STOCKHOLDERS.
For the purpose of determining stockholders entitled to notice of and
to vote at a meeting of stockholders or an adjournment thereof, or to express
consent or to dissent from a proposal without a meeting, or for the purpose of
determining stockholders entitled to receive payment of a dividend or allotment
of a right, or for the purpose of any action, the Board of Directors shall fix,
in advance, the record date for any such determination of stock-holders. The
date shall not be more than 60 nor less than 10 days before the date of the
meeting, nor more then 60 days before any other action.
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NOTICES
SECTION 1. NOTICES.
Except as otherwise specifically provided herein or required by law,
all notices required to be given to any stockholder, director, officer, employee
or agent shall be in writing and may in every instance be effectively given by
hand delivery to the recipient thereof, by depositing such notice in the mails,
postage paid, or by sending such notice by facsimile transmission. Any such
notice shall be addressed to such stockholder, director, officer, employee or
agent at his or her last known address as the same appears on the books of the
Corporation. The time when such notice is received, if hand delivered, or
dispatched, if delivered through the mails or by facsimile transmission, shall
be the time of the giving of the notice.
SECTION 2. WAIVERS.
A written waiver of any notice, signed by a stockholder, director,
officer, employee or agent, whether before or after the time of the event for
which notice is to be given, shall be deemed equivalent to the notice required
to be given to such stockholder, director, officer, employee or agent. Neither
the business nor the purpose of any meeting need be specified in such a waiver.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
SECTION 1. RIGHT TO INDEMNIFICATION.
Each person who was or is made a party or is threatened to be made a
party to or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative, or investigative (hereinafter a "proceeding"),
by reason of the fact that he or she is or was a director or an officer of the
Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to an
employee benefit plan (hereinafter an "Indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as a director, officer,
employee or agent or in any other capacity while serving as a director, officer,
employee or agent shall be indemnified and held harmless by the Corporation to
the fullest extent authorized by the Delaware General Corporation Law, as the
same exists or may hereafter be amended (but, in the case of any such amendment,
only to the extent that such amendment permits the Corporation to provide
broader indemnification rights than such law permitted the Corporation to
provide prior to such amendment), against all expense, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or penalties or
amounts paid in settlement) reasonably incurred or suffered by such indemnitee
in connection therewith; provided, however, that, except as provided in Section
3 of this ARTICLE VII with respect to proceedings to enforce rights to
indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee only
if such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation.
SECTION 2. RIGHT TO ADVANCEMENT OF EXPENSES.
The right to indemnification conferred in Section 1 of the ARTICLE VII
shall include the right to be paid by the Corporation the expenses (including
attorney's fees) incurred in defending any such proceeding in advance of its
final disposition (hereinafter an "advancement of expenses"); provided, however,
that, if the Delaware General Corporation Law requires, an advancement of
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expenses incurred by an indemnitee in his or her capacity as a director or
officer (and not in any other capacity in which service was or is rendered by
such indemnitee, including, without limitation, service to an employee benefit
plan) shall be made only upon delivery to the Corporation of an undertaking
(hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay all
amounts so advanced if it shall ultimately be determined by final judicial
decision from which there is no further right to appeal (herein after a "final
adjudication") that such indemnitee is not entitled to be indemnified for such
expenses under this Section 2 or otherwise. The rights to indemnification and to
the advancement of expenses conferred in Sections 1 and 2 of this ARTICLE VII
shall be contract rights and such rights shall continue as to an indemnitee who
has ceased to be a director, officer, employee or agent and shall inure to the
benefit of the indemnitee's heirs, executors and administrators.
SECTION 3. RIGHT OF INDEMNITEE TO BRING SUIT.
If a claim under Section 1 or 2 of this ARTICLE VII is not paid in full
by the Corporation within sixty (60) days after a written claim has been
received by the Corporation, except in the case of a claim for an advancement of
expenses, in which case the applicable period shall be twenty (20) days, the
indemnitee may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim. If successful in whole or in part in any
such suit, or in a suit brought by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the indemnitee shall be
entitled to be paid also the expense of prosecuting or defending such suit. In
(i) any suit brought by the indemnitee to enforce a right to indemnification
hereunder (but not in a suit brought by the indemnitee to enforce a right to an
advancement of expenses) it shall be a defense that, and (ii) in any suit
brought by the Corporation to recover an advancement of expenses pursuant to the
terms of undertaking, the Corporation shall be entitled to recover such expenses
upon a final adjudication that, the indemnitee has not met any applicable
standard for indemnification set forth in the Delaware General Corporation Law.
Neither the failure of the Corporation (including its Board of Directors,
independent legal counsel, or its stock-holders) to have made a determination
prior to the commencement of such suit that indemnification of the indemnitee is
proper in the circumstances because the indemnitee has met the applicable
standard of conduct set forth in the Delaware General Corporation Law, nor an
actual determination by the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) that the indemnitee has not met
such applicable standard of conduct, shall create a presumption that the
indemnitee has not met the applicable standard of conduct, or, in the case of
such a suit brought by the indemnitee to enforce a right to indemnification or
to an advancement of expenses hereunder, or brought by the Corporation to
recover an advancement of expenses pursuant to the terms of an undertaking, the
burden of proving that the indemnitee is not entitled to be indemnified, or to
such advancement of expenses, under this ARTICLE VII or otherwise shall be on
the Corporation.
SECTION 4. NON-EXCLUSIVITY OF RIGHTS.
The rights to indemnification and to the advancement of expenses
conferred in this ARTICLE VII shall not be exclusive of any other right which
any person may have or hereafter acquire under any statute, the Corporation's
Certificate of Incorporation, By-laws, agreement, vote of stockholders or
disinterested directors or otherwise.
SECTION 5. INSURANCE.
The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
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have the power to indemnify such person against such expense, liability or loss
under the Delaware General Corporation Law.
SECTION 6. INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE
CORPORATION.
The Corporation may, to the extent authorized from time to time by the
Board of Directors, grant rights to indemnification and to the advancement of
expenses to any employee or agent of the Corporation to the fullest extent of
the provisions of this Article with respect to the indemnification and
advancement of expenses of directors and officers of the Corporation.
SECTION 7. AUTOMATIC CONFORMITY TO LAW.
The intention of this By-law is to provide indemnification with the
broadest and most inclusive coverage permitted by law (a) at the time of the act
or omission to be indemnified against or (b) so permitted at the time of
carrying out such indemnification, whichever of (a) or (b) may be broader or
more inclusive and permitted by law to be applicable. If the indemnification
permitted by law at this present time, or at any future time, shall be broader
or more inclusive than the provisions of this By-law, then indemnification shall
nevertheless extend to the broadest and most inclusive permitted by law at any
time and this By-law shall be deemed to have been amended accordingly. If any
provision or portion of this Article shall be found, in any action, suit or
proceeding, to be invalid or ineffective, the validity and effect of the
remaining parts shall not be affected.
AMENDMENTS
The stockholders or the Board of Directors of the Corporation may amend
or repeal the By-laws or adopt new By-laws. Except as otherwise required by law,
the Certificate of Incorporation or these By-laws, the vote of a majority of the
shares present or represented by proxy and entitled to vote at the meeting shall
be required to amend or repeal the By-laws or to adopt new By-laws. Except as
otherwise required by law, the Certificate of Incorporation or these By-laws,
such action by the Board of Directors requires an affirmative vote of not less
than a majority of the members of the Board of Directors then in office.
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EXHIBIT 3.06
CERTIFICATE OF DESIGNATION WITH RESPECT
TO THE SERIES A PREFERRED STOCK
<PAGE>
CERTIFICATE OF DESIGNATION OF
SERIES A PREFERRED STOCK OF
COMPUTER MARKETPLACE, INC.
Acting pursuant to Sections 151(a) and (g) of the Delaware
General Corporation Law, the undersigned hereby certifies that the Board of
Directors of Computer Marketplace, Inc. (the "Corporation") duly approved the
following Certificate of Designation of Series A Preferred Stock of the
Corporation, and that the Certificate of Incorporation of the Corporation
expressly authorizes the Board to so designate and issue one or more series of
preferred stock. The designations, powers, preferences and relative,
participating, optional or other special rights, and the qualifications,
limitations and restrictions thereof in respect of the Preferred Stock are as
follows:
1. NUMBER OF SHARES; PAR VALUE. The Corporation shall be
authorized to issue 400,000 shares of Series A Preferred Stock, par value $.0001
per share (the "Preferred Stock").
2. DIVIDEND PROVISIONS.
The holders of shares of Preferred Stock shall not be entitled to receive any
dividends, except when and as lawfully declared by the Company's Board of
Directors.
3. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, either voluntary or involuntary, subject to the rights of series of
preferred stock that may from time to time come into existence, the holders of
Preferred Stock shall be entitled to receive, prior and in preference to any
distribution of any of the assets of the Corporation to the holders of Common
Stock by reason of their ownership thereof, an amount per share equal to the sum
of Ten Dollars ($10.00) for each outstanding share of Preferred Stock (the
"Original Issue Price"). If upon the occurrence of such event, the assets and
funds thus distributed among the holders of the Preferred Stock shall be
insufficient to permit the payment to such holders of the full aforesaid
preferential amounts, then, subject to the rights of series of preferred stock
that may from time to time come into existence, the entire assets and funds of
the Corporation legally available for distribution shall be distributed ratably
among the holders of the Preferred Stock in proportion to the amount of such
stock owned by each such holder.
(b) Upon completion of the distribution required by subsection (a) of
this Section 3 and any other distribution that may be required with respect to a
series of preferred stock that may from time to time come into existence, all of
the remaining assets of the Corporation available for distribution to
stockholders shall be distributed among the holders of Common Stock pro rata
based on the number of shares of Common Stock held by each (assuming full
conversion of all such Preferred Stock).
(i) For purposes of this Section 3, a liquidation, dissolution or
winding up of the Corporation shall be deemed to be occasioned by, or to include
(unless the holders of at least a majority of the Preferred Stock then
outstanding shall determine otherwise), (A) the acquisition of the Corporation
by another entity by means of any transaction or series of related transactions
(including, without limitation, any reorganization, merger or consolidation)
that results in the transfer of fifty percent (50%) or more of the outstanding
voting power of the Corporation (other than the transactions contemplated by
that certain Stock Purchase Agreement dated as of April 21, 1999 among the
Corporation and the stockholders of E-Taxi, Inc.); or (B) a sale of all or
substantially all of the assets of the Corporation.
<PAGE>
(ii) In any of such events, if the consideration received by the
Corporation is other than cash, its value will be deemed its fair market value.
Any securities shall be valued as follows:
(A) Securities not subject to investment letter or other
similar restrictions on free marketability are covered by (B) below:
(1) If traded on a securities exchange or through the Nasdaq
market, the value shall be deemed to be the average of the closing prices of the
securities on such exchange or system over the thirty (30) day period ending
three (3) days prior to the closing;
(2) If actively traded over-the-counter, the value shall be
deemed to be the average of the closing bid or sale prices (whichever is
applicable) over the thirty (30) day period ending three (3) days prior to the
closing; and
(3) If there is no active public market, the value shall be
the fair market value thereof, as mutually determined by the Corporation and the
holders of at least a majority of the voting power of all then outstanding
shares of Preferred Stock.
(B) The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a stockholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in (A) (1), (2) or (3) to reflect the approximate fair
market value thereof, as mutually determined by the Corporation and the holders
of at least a majority of the voting power of all then outstanding shares of
such Preferred Stock.
(iii) In the event the requirements of this subsection 3(b)
are not complied with, the Corporation shall forthwith either:
(A) cause such closing to be postponed until such time as the
requirements of this Section 3 have been complied with; or
(B) cancel such transaction, in which event the right.,
preferences and privileges of the holders of the Preferred Stock shall revert to
and be the same as such rights, preferences and privileges existing immediately
prior to the date of the first notice referred to in Subsection 3(b) (iv)
hereof.
(iv) The Corporation shall give each holder of record of
Preferred Stock written notice of such impending transaction not later than
twenty (20) days prior to the stockholders' meeting called to approve such
transaction, or twenty (20) days prior to the closing of such transaction,
whichever is earlier, and shall also notify such holders in writing of the final
approval of such transaction. The first of such notices shall describe the
material terms and conditions of the impending transaction and the provisions of
this Section 3, and the Corporation shall thereafter give such holders prompt
notice of any material changes. The transaction shall in no event take place
sooner than twenty (20) days after the Corporation has given the first notice
provided for herein or sooner than ten (10) days after the Corporation has given
notice of any material changes provided for herein; provided, however, that such
periods may be shortened upon the written consent of the holders of Preferred
Stock that are entitled to such notice rights or similar notice rights and that
represent at least a majority of the voting power of all then outstanding shares
of such Preferred Stock.
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4. CONVERSION. The holders of Preferred Stock shall have conversion
rights as follows (the "Conversion Rights"):
(a) RIGHT TO CONVERT. Each share or Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share at the office of the Corporation or any transfer agent
for such stock, into such number of fully paid and nonassessable shares of
Common Stock as is determined by dividing the Original Issue Price by the
Conversion Price applicable to such share, determined as hereafter provided, in
effect on the date the certificate is surrendered for conversion. The initial
Conversion Price per share for shares of Preferred Stock shall be Two and 50/100
Dollars ($2.50); provided, however, that the Conversion Price for the Preferred
Stock shall be subject to adjustment as set forth in subsection 4(d).
(b) AUTOMATIC CONVERSION. Each share of Preferred Stock shall
automatically be converted into shares of Common Stock at the Conversion Price
three (3) business days following the date on which the Common Stock has a Fair
Market Value (as hereinafter defined) of three dollars and seventy-five cents
($3.75). "Fair Market Value" shall mean the average closing price for the Common
Stock for three (3) consecutive days as reported by the OTC Bulletin Board, the
NASDAQ Stock Market or any stock exchange.
(c) MECHANICS OF CONVERSION. Before any holder of Preferred Stock shall
be entitled to convert the same into shares of Common Stock, he or she shall
surrender the certificate or certificates therefor, duly endorsed, at the office
of the Corporation or of any transfer agent for the Preferred Stock, and shall
give written notice to the Corporation at its principal corporate office, of the
election to convert the same and shall state therein the name or names in which
the certificate or certificates for shares of Common Stock are to be issued. The
Corporation shall, as soon as practicable thereafter, issue and deliver at such
office to such holder of Preferred Stock, or to the nominee or nominees of such
holder, a certificate or certificates for the number of shares of Common Stock
to which such holder shall be entitled am aforesaid. Such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of such surrender of the shares of Preferred Stock to be converted, and the
person or persons entitled to receive the shares of Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock as of such date.
(d) CONVERSION PRICE ADJUSTMENT FOR CERTAIN SPLITS AND COMBINATIONS.
The Conversion Price of the Preferred Stock shall be subject to adjustment from
time to time as follows:
(i) In the event the Corporation should at any time or from time to
time after the issuance date fix a record date for the effectuation of a split
or subdivision of the outstanding shares of Common Stock or the determination of
holders of Common Stock entitled to receive a dividend or other distribution
payable in additional shares of Common Stock, additional shares of Common Stock
(hereinafter referred to as "Common Stock Equivalents") without payment of any
consideration by such holder for the additional shares of Common Stock, then, as
of such record date (or the date of such dividend distribution, split or
subdivision if no record date is fixed), the Conversion Price of the Preferred
Stock shall be appropriately decreased so that the number of shares of Common
Stock issuable on conversion of each share of such series shall be increased in
proportion to such increase of the aggregate of shares of Common Stock
outstanding.
(ii) If the number of shares of Common Stock outstanding at any time
after the issuance date is decreased by a combination of the outstanding shares
of Common Stock, then, following the record date of such combination, the
Conversion Price for the Preferred Stock shall be appropriately increased so
that the number of shares of Common Stock issuable on conversion of each share
of such series shall be decreased in proportion to such decrease in outstanding
shares.
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(e) OTHER DISTRIBUTIONS. In the event the Corporation shall declare a
distribution payable in securities of other entities, evidences of indebtedness
issued by the Corporation or other entities, assets (excluding cash dividends)
or options or rights not referred to in subsection 3 (d), then, in each such
case for the purpose of this subsection 4(e), the holders of the Preferred Stock
shall be entitled to a proportionate share of any such distribution as though
they were the holders of the number of shares of common stock of the Corporation
into which their shares of Preferred Stock are convertible as of the record date
fixed for the determination of the holders of Common Stock of the Corporation
entitled to receive such distribution.
(f) RECAPITALIZATIONS. If at any time or from time to time there shall
be a recapitalization of the Common Stock (other than a subdivision, combination
or merger or sale of assets transaction provided for elsewhere in this Section 4
or Section 3) provision shall be made so that the holders of the Preferred Stock
shall thereafter be entitled to receive upon conversion of the Preferred Stock
the number of shares of stock or other securities or property of the corporation
or otherwise, to which a holder of Common Stock deliverable upon conversion
would have been entitled on such recapitalization. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section 4
with respect to the rights of the holders of the Preferred Stock after the
recapitalization to the end that the provisions of this Section 4 (including
adjustment of the conversion price then in effect and the number of shares
purchasable upon conversion of the Preferred Stock) shall be applicable after
that event as nearly equivalent as may be practicable
(g) NO IMPAIRMENT. The Corporation will not, by amendment of its
certificate of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 3 and in the taking of all such action as may
be necessary or appropriate in order to protect the conversion rights of the
holders of the Preferred Stock against impairment.
(h) NO FRACTIONAL SHARES AND CERTIFICATE AS TO ADJUSTMENTS.
(i) No fractional shares shall be issued upon the conversion of any
share or shares of the Preferred Stock, and the number of shares of Common Stock
to be issued shall be rounded to the nearest whole share. Whether or not
fractional shares are issuable upon such conversion shall be determined on the
basis of the total number of shares of Preferred Stock the holder is at the time
converting into Common Stock and the number of shares of Common Stock issuable
Upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment of the
Conversion Price of Preferred Stock pursuant to this Section 4, the Corporation,
at its expense, shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and prepare and furnish to each holder of
Preferred Stock a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The Corporation shall, upon the written request at any time or any holder of
Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (A) such adjustment and readjustment, (B) the
Conversion Price for such series of Preferred Stock at the time in effect, and
(C) the number of shares of Common Stock and the amount, if any, of other
property that at the time would be received upon the conversion of a share of
Preferred Stock.
(i) NOTICES OF RECORD DATE. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
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<PAGE>
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, the Corporation
shall mail to each holder of Preferred Stock, at least ten (10) days prior to
the date specified therein, a notice specifying the date an which any such
record is to be taken far the purpose of such dividend, distribution or right,
and the amount and character of ouch dividend, distribution or right.
(j) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Corporation
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Preferred Stock, such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Preferred Stock; and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Preferred Stock, in
addition to such other remedies as shall be available to the holder of such
Preferred Stock, the Corporation will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall he sufficient for such
purposes.
(k) NOTICES. Any notice required by the provisions of this Section 4 to
be given to the holders of shares of Preferred Stock shall be deemed given if
deposited in the United States mail, postage prepaid, and addressed to each
holder of record at his or her address appearing on the books of the
Corporation.
5. VOTING RIGHTS. Except as otherwise required by law, holders of the
Preferred Stock shall have no voting rights.
6. REDEMPTION. The Corporation shall redeem, from any source of funds
legally available therefor, the Preferred Stock on such date as is three years
from the date of issuance of the Preferred Stock (the "Series A Redemption
Date"). The Corporation shall effect such redemption on the Original Redemption
Date by paying in cash in exchange for the shares of Preferred Stock to be
redeemed as sum equal to Original Issue Price (as adjusted for any stock
dividends, combinations or splits with respect to such shares).
7. PROTECTIVE PROVISIONS. Subject to the rights of a series of
preferred stock that may from time to time come into existence, so long as any
shares of Preferred Stock are outstanding, the Corporation shall not without
first obtaining the approval (by vote or written consent, as provided by law) of
the holders of at least a majority of the then outstanding shares of Preferred
Stock:
(a) alter or change the rights, preferences or privileges or the shares
of Preferred Stock so as to affect adversely the shares;
(b) increase or decrease (other than by redemption or conversion) the
total number of authorized shares of Preferred Stock;
8. STATUS OF REDEEMED OR CONVERTED STOCK. In the event any shares of
Preferred Stock shall be converted pursuant to Section 4 hereof, the shares so
redeemed or converted may, in the discretion of the Company's Board of
Directors, be canceled or issued by the Corporation.
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<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this
Certificate of Designation this 23rd day of April, 1999.
COMPUTER MARKETPLACE, INC.
By: /s/ L. WAYNE KILEY
-------------------------------
Name: L. Wayne Kiley
Title: President
6
EXHIBIT 3.07
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
COMPUTER MARKETPLACE, INC.
It is hereby certified that:
1. The name of the corporation is Computer Marketplace, Inc.
(hereinafter called the "Corporation").
2. The Certificate of Incorporation of the Corporation which was filed
by the Secretary of State of Delaware on February 16, 1993, is hereby amended by
striking out Article FIRST in its entirety and by submitting in lieu of said
Article the following new Article FIRST as follows:
FIRST: The name of the corporation is
eMarketplace, Inc. (hereinafter called the
"Corporation").
3. The amendment of the Certificate of Incorporation herein certified
has been duly adopted and written consent has been given in accordance with the
provisions of Section 228 and 242 of the General Corporation Law of the State of
Delaware.
4. The effective date of the amendment herein certified shall be
September 17, 1999.
Signed and attested to on September 17, 1999.
COMPUTER MARKETPLACE, INC.
By /s/ L. WAYNE KILEY
---------------------------
L. Wayne Kiley
Chief Executive Officer
EXHIBIT 10.01
================================================================================
OPERATING AGREEMENT
dated October 1, 1998
among
BEJAN AMINIFARD
Managing Member
and
MOHSEN AMINIFARD
DEREK WALL
Members
================================================================================
<PAGE>
OPERATING AGREEMENT
OF
TECHSTORE LLC
AGREEMENT, made October 1, 1998, among BEJAN AMINIFARD, having
an address at 14 COMMERCIAL BLVD., SUITE 127, NOVATO, CA 94949 ("Managing
Member"), and MOHSEN AMINIFARD, having an address at 14 COMMERCIAL BLVD., SUITE
127, NOVATO, CA 94949, and DEREK WALL, having an address at 14 COMMERCIAL BLVD.,
SUITE 127, NOVATO, CA 94949 (collectively hereinafter referred to as "Members").
W I T N E S S E T H :
WHEREAS, the parties hereto desire to form a limited liability
company pursuant to the laws of the State of California for the purposes
hereinafter set forth, and to establish their respective rights and obligations
in Connection with the limited liability Company;
NOW, THEREFORE, in consideration of the mutual covenants set
forth herein and other valuable consideration, the receipt and sufficiency
hereby are acknowledged, the Managing Member and Members agree as follows:
1. FORMATION
The parties hereby confirm that they have formed a limited
liability company (the "Limited Liability Company") pursuant to the provisions
of the California Beverly-Killea Limited Liability Company Act, for the purposes
and the period and upon the terms and conditions hereinafter set forth. The
parties have caused to be filed the Articles Of Organization of the Limited
Liability Company, and shall execute, acknowledge, swear to and file any other
documents required under applicable law.
2. NAME
The name of the Limited Liability Company shall be TECHSTORE
LLC, and all business of the Limited Liability Company shall be conducted under
said name, or such other name as the Members from time to time may determine.
<PAGE>
3. PURPOSES
The purposes of the Limited Liability Company are to engage in
any lawful activity; and to incur indebtedness, secured and unsecured; to enter
into and perform contracts and agreements of any kind necessary to, in
connection with or incidental to the business of the Limited Liability Company;
and to carry on any other activities necessary to, in connection with or
incidental to the foregoing, as the Managing Member in his discretion may deem
desirable.
4. PLACE OF BUSINESS
The principal place of business and specified office of the
Limited Liability Company at which the records required to be maintained by the
Limited Liability Company under the California Beverly-Killea Limited Liability
Company Act are to be kept shall be at 14 COMMERCIAL BLVD., SUITE 127, NOVATO,
CA 94949, or at such other or additional places of business within or outside of
the State of California as the Managing Member from time to time may designate.
The Managing Member shall notify the other Members of any change of the
principal place of business and specified office.
The Limited Liability Company hereby designates BEJAN
AMINIFARD, whose post office address is 1525 INDIAN VALLEY ROAD, NOVATO, CA
94947, as the Registered Agent of the Limited Liability Company for service or
process. The registered office and Registered Agent may be changed from time to
time by the Managing Member by filing the prescribed forms with the appropriate
governmental authorities.
5. TERM
The term of the Limited Liability Company shall commence on
the filing the Articles Of Organization of the Limited Liability Company, and
shall continue until the occurrence of an event hereinafter set forth which
causes the termination of the Limited Liability Company.
6. CAPITAL CONTRIBUTIONS
Except as specifically provided in this Agreement or required
by law, no Member shall have the right to withdraw or reduce his contributions
to the capital of the Limited Liability Company until the termination of the
Limited Liability Company. No Member shall have the right to demand and receive
any distribution from the Limited Liability Company in any form other than cash,
regardless of the nature of such Member's capital contribution. No Member shall
be paid interest on capital contributions to the Limited Liability Company.
The liability of any Member for the losses, debts, liabilities
and obligations of the Limited Liability Company shall be limited to paying: the
capital contribution of such Member when due under this Agreement; such Member's
share of any undistributed assets of the Limited Liability Company; and (only if
and to the extent at any time required by applicable law) any amounts previously
distributed to such Member by the Limited Liability Company.
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<PAGE>
7. LOAN AND ADVANCES BY MEMBERS
If any Member shall loan or advance any fluids to the Limited
Liability Company in excess of the capital contribution of such Member
prescribed herein, such loan or advance shall not be deemed a capital
contribution to the Limited Liability Company and shall not in any respect
increase such Member's interest in the Limited Liability Company.
8. ALLOCATIONS AND DISTRIBUTIONS
As used in this Agreement, the terms "net profits" and "net
losses" shall mean the profits or losses of the Limited Liability Company from
the conduct of the Limited Liability Company's business, after all expenses
incurred in connection therewith have been paid or provided for. The net profits
or net losses of the Limited Liability Company shall be determined by the
Limited Liability Company's accountants in accordance with generally accepted
accounting principles applied in deterring the income, gains, expenses,
deductions or losses, as the case may be, reported by the Limited Liability
Company for Federal income tax purposes.
The term "cash receipts" shall mean all cash receipts of the
Limited Liability Company from whatever source derived, including without
limitation capital contributions made by the Members; the proceeds of any sale,
exchange, or other disposition of all or any part of the assets of the Limited
Liability Company; the proceeds of any loan to the Limited Liability Company;
the proceeds of any insurance policy payable to the Limited Liability Company;
and the proceeds from the liquidation of the assets of the Limited Liability
Company following a termination of the Limited Liability Company.
The "capital account" for each Member shall mean the account
established, determined and maintained for such Member in accordance with
Section 7O4(b) of the Internal Revenue Code and Treasury Regulation Section
l.704-l(b)(2)(iv). The capital account for each Member shall be INCREASED BY (1)
the amount of money contributed by such Member to the Limited Liability Company,
(2) the fair market value of property contributed by such Member to the Limited
Liability Company (net of liabilities secured by such contributed property that
the Limited Liability Company is considered to assume or take subject to under
Section 752 of the Internal Revenue Code), and (3) allocations to such Member of
Limited Liability Company income and gain (or items thereof), including income
and gain exempt from tax and income and gain described in Trea. Reg. Section
1.704-1(b)(2)(iv)(g), but excluding income and gain described in subsection
(b)(4)(i) of said Regulation, and shall be DECREASED BY (4) the amount of money
distributed to such Member by the Limited Liability Company, (5) the fair market
value of property distributed to such Member by the Limited Liability Company
(net of liabilities secured by such distributed property that such Member is
considered to assume or take subject to under Section 752 of the Code)~ (6)
allocations to such Member of expenditures of the Limited Liability Company
described in Section 705(a)(2)(B) of the Code, and (7) allocations of Limited
3
<PAGE>
Liability Company loss and deduction (Or items thereof) including loss and
deduction described in Trea. Reg. Section 1.704-(b,)(2)(iv)(g), but excluding
items described in (6) above and loss or deduction described in subsections
(b)(4)(i) or (b)(4)(iii) of said Regulation Net profits and net losses of the
Limited Liability Company from other than capital transactions) as of the end of
any fiscal year or other period) shall be credited or charged to the capital
accounts of the Members prior to ally charge or credit to said capital accounts
for net profits and net losses of the Limited Liability Company from capital
transactions as of the end of such fiscal year or other period. The capital
account for each Member shall be otherwise adjusted in accordance with the
additional rules of Trea. Reg. Section l.7O4-l(b)(2)(iv).
The term "Members' Percentage Interests" shall mean the
percentages set forth opposite the name of each Member below:
MANAGING MEMBER PERCENTAGE INTEREST
BEJAN AMINIFARD -- 70 percent
OTHER MEMBERS PERCENTAGE INTEREST
MOHSEN ARMINIFARD - 15 percent
DEREK WALL -- 15 percent
During each fiscal year, the net profits and net losses of the
Limited Liability Company (other than from capital transactions), and each item
of income, gain, loss) deduction or credit entering into the computation
thereof, shall be credited or charged, as the case may be, to the capital
accounts of each Member in proportion to the Members' Percentage Interests, The
net profits of the Limited Liability Company from capital transactions shall be
allocated in the following order of priority: (a) to offset any negative balance
in the capital accounts of the Members in proportion to the amounts of the
negative balance in their respective capital accounts, until all negative
balances in the capital accounts have been eliminated; then (b) to the Members
in proportion to the Members' Percentage Interests, The net losses of the
Limited Liability Company from capital transactions shall be allocated in the
following order of priority: (a) to the extent that the balances in the capital
accounts of any Members are in excess of their original contributions, to such
Members in proportion to such excess balances in the capital accounts until all
such excess balances have been reduced to zero; then (b) to the Members in
proportion to the Members' Percentage Interests.
The cash receipts of the Limited Liability Company shall be
applied in the following order of priority: (a) to the payment by the Limited
Liability Company of amounts due on debts and liabilities of the Limited
Liability Company other than to any Member, and operating expenses of the
Limited Liability Company; (b) to the payment of interest and amortization due
on any loan made to the Limited Liability Company by any Member; (c) to the
establishment of cash reserves determined by the Managing Member to be necessary
or appropriate, including without limitation reserves for the operation of the
Limited Liability Company's business, taxes and contingencies; and (d) to the
4
<PAGE>
repayment of ally loans made to the Limited Liability Company by any Member.
Thereafter, the cash receipts of the Limited Liability Company shall be
distributed among the Members as hereafter provided.
The cash receipts of the Limited Liability Company shall be
distributed to the Members from time to time at such times as the Managing
Member shall determine. It is contemplated that distributions will be made if
the Managing Member deems such distributions to be prudent and feasible.
Except as otherwise provided in this Agreement or required by
law, distributions of cash receipts of the Limited Liability Company, other than
from capital transactions, shall be allocated among the Members in proportion to
the Members' Percentage Interests.
Except as otherwise provided in this Agreement or required by
law, distributions of cash receipts from capital transactions shall be allocated
in the following order of priority' (a) to the Members in proportion to their
respective capital accounts until each Member has received cash distributions
equal to any positive balance in his capital accounts; then (b) to the Members
in proportion to the Members' Percentage Interests.
SPECIAL ALLOCATIONS -- Notwithstanding the preceding
provisions of this Article 8 the following special allocations shall be made in
the following order:
(1) MINIMUM GAIN CHARGEBACK -. Except as otherwise provided in Trea.
Reg. Section 1.704.2(f), if there is a net decrease in partnership
minimum gain (within the meaning of Trea. Reg. Sections 1.704~2(b)(2)
and 1.704-2(d)) during any fiscal year, each Member shall be allocated
items of the Limited Liability Company 5 income and gain for such
fiscal year (and, if necessary, subsequent fiscal years) in an amount
equal to such Member's share of the net decrease in partnership minimum
gain, determined in accordance with Trea. Reg. Section 1.704-2(g).
Allocations made pursuant to the preceding sentence shall be made in
proportion to the respective amounts required to be allocated to each
Member pursuant thereto. The items to be so allocated shall be
determined in accordance with Trea. Reg. Sections 1.704-2(f)(6) and
l.7O4-2(j)(2). This provision is intended to comply with the minimum
gain chargeback requirement in Trea. Reg. Section 1.704-2(1) and shall
be interpreted consistently therewith.
(2) PARTNER MINIMUM GAIN CHARGEBACK -- Except as otherwise provided in
Treg. Reg. Section 1.704-2(i)(4), if there is a net decrease in partner
nonrecourse debt minimum gain attributable to a partner nonrecourse
debt during any fiscal year, each Member who has a share of the partner
nonrecourse debt minimum gain attributable to such partner nonrecourse
debt, determined in accordance with Treg. Reg. Section l.704.2(i)(5),
shall be allocated items of the Limited Liability Company's income and
gain for such fiscal year (and, if necessary, subsequent fiscal years)
in all amount equal to such Member's share of the net decrease in
partner nonrecourse debt minimum gain attributable to such partner
nonrecourse debt, determined in accordance with Treg. Reg. Section
1.704-2(i)(4). Allocations made pursuant to the preceding sentence
shall be made in proportion to the respective amounts required to be
5
<PAGE>
allocated to each Member pursuant thereto. The items to be so allocated
shall be determined in accordance with Trea. Reg. Sections
1.704-2(i)(4) and 1.704-2U)(2). As used herein, "partner nonrecourse
debt" has the meaning set forth in Treg. Reg. Section 1.704-2(b)(4). As
used herein, "partner nonrecourse debt minimum gain" shall mean an
amount, with respect to each partner nonrecourse debt, equal to the
partnership minimum gain (within the meaning of Trea. Reg. Sections
1.704-2(b)(2) and 1.704-2(d)) that would result if such partner
nonrecourse debt were treated as a nonrecourse liability (within the
meaning of Trea. Reg. Section 1.704-2(i)(3)) determined in accordance
with Trea. Reg. Section 1.704-2(i)(3). This provision is intended to
comply with the minimum gain chargeback requirement in Trea. Reg.
Section 1.704-2(i)(4) and shall be interpreted consistently therewith.
(3) QUALIFIED INCOME OFFSET -- In the event any Member unexpectedly
receives any adjustments, allocations or distributions described in
Trea. Reg. Sections 1.704-1(b(2)(ii)(4), (5) or (6), items of the
Limited Liability Company's income and gain shall be allocated to such
Member's amount and manner sufficient to eliminate, to the extent
required by the Regulations, any adjusted capital account deficit in
such Member's capital account, as quietly as possible, provided that an
allocation pursuant to this provision shall be made only if and to the
extent that such Member would have an adjusted capital account deficit
in such Member's capital account after all other allocations provided
for in this Article 8 have been tentatively made as if this provision
were not in this Agreement. As used herein, "adjusted capital account
deficit" shall mean the deficit balance, if any, in a Member's capital
account at the end of the relevant fiscal year after the following
adjustments: (i) credit to such capital account the minimum gain
chargeback which the Member is obligated to restore pursuant to the
penultimate sentences of Trea. Reg. Sections l.704-2(g)(l) and
1.704-2(i)(5); and (ii) debit to such capital account the items
described in Trea. Reg. Sections 1.704-(b)(2)(ii)(d)(4), (5) and (6).
This provision is intended to constitute a qualified income offset
within the meaning of Trea. Reg. Section 1.704-1(b)(2)(ii)(d) and shall
be interpreted consistently therewith.
(4) GROSS INCOME ALLOCATION -- In the event any Member has a deficit
capital account at the end of any fiscal year which is in excess of the
sum of the amounts such Member is deemed to be obligated to restore
pursuant to the penultimate sentences of Trea. Reg. Sections
1.704-2(g)(1) and 1.704.2(i)(5), each such Member shall be allocated
items of the Limited Liability Company's income and gain in the amount
of such excess as quickly as possible, provided that an allocation
pursuant to this provision shall be made only if and to the extent that
such Member would have a deficit in such Member's capital account in
excess of such sum after all other allocations provided for in this
Article 8 have been tentatively made as if this provision and the
provisions of clause (3) above were not in this Agreement.
(5) NONRECOURSE DEDUCTIONS -- Nonrecourse deductions (within the
6
<PAGE>
meaning of Trea. Reg. Section l.704-2(b)(1)) for any fiscal year shall
be allocated among the Members in proportion to the Members' Percentage
Interests.
(6) PARTNER NONRECOURSE DEDUCTIONS -- Any partner nonrecourse
deductions (within the meaning of Trea. Reg Sections 1.704-2(b)(1) and
1.704-2(b)(2)) for any fiscal year shall be allocated to the Member who
bears the economic risk of loss with respect to the partner nonrecourse
debt (within the meaning of Trea. Reg. Section l.704-2(b)(4)) to which
such partner nonrecourse deductions are attributable in accordance with
Trea. Reg. Section 1.702(i)(1).
(7) OTHER MANDATORY ALLOCATIONS -- In the event Section 704(c) of the
Internal Revenue Code or the Regulations thereunder require allocations
in a manner different than that set forth above in this Article 8, the
provisions of Section 704(c) and the regulations thereunder shall
control such allocations among the Members.
It is the intention of the Members that the allocations
hereunder shall be deemed to have "substantial economic effect" within the
meaning of Section 704 of the Internal Revenue Code and Trea. Reg. Section
1.704-1. Should the provisions of this Agreement be inconsistent with or in
conflict with Section 704 of the Code or the Regulations thereunder, then
Section 704 of the Code and the Regulations shall be deemed to override the
contrary provisions hereof. If Section 704 or the Regulations at any time
require that limited liability company operating agreements contain provisions
which are not expressly set forth herein, such provisions shall be incorporated
into this Agreement by reference and shall be deemed a part of this Agreement to
the same extent as though they had been expressly set forth herein, and the
Managing Member shal1 be authorized by an instrument in writing to amend the
terms of this Agreement to add such provisions, and any such amendment shall be
retroactive to whatever extent required to create allocations with a substantial
economic effect.
9. BOOKS, RECORDS AND TAX RETURNS
At all times during the continuance of the Limited Liability
Company, the Managing Member shall keep or cause to be kept complete and
accurate records and books of account in which shall be entered each transaction
of the Limited Liability Company in accordance with generally accepted
accounting principles.
The fiscal year of the Limited Liability Company for both
accounting and income tax purposes shall be the calendar year. The Limited
Liability Company shall report its operations, net income and net losses in
accordance with the methods of accounting selected by the Managing Member.
The Managing Member may employ on behalf of the Limited
Liability Company and at the expenses of the Limited Liability Company such firm
of certified public accountants as the Managing Member in his sole discretion
deems appropriate to serve as the Limited Liability Company's accountants.
7
<PAGE>
The books of account shall be audited at the expense of the
Limited Liability Company by certified public accountants promptly after the
close of each fiscal year.
The Managing Member shall furnish to each Member, within
seventy-five days after the end of each fiscal year, an annual report of the
Limited Liability Company (certified by the certified public accountants of the
Limited Liability Company) which shall include a balance as of the end of such
fiscal year; a profit and loss statement of the Limited Liability Company for
such fiscal year; a statement of the balance in the capital account of such
Member; and the amount of such Member's share of the Limited Liability Company's
income, gain, losses, deductions and other relevant items for Federal income tax
purposes.
The Managing Member shall prepare or cause to be prepared all
Federal, State and local income tax and information returns for the Limited
Liability Company, and shall cause such tax and information returns to be filed
timely with the appropriate governmental authorities. Within seventy-five days
after the end of each fiscal year, the Managing Member shall forward to each
person who was a Member during the preceding fiscal year a true copy of the
Limited Liability Company's information return filed with the Internal Revenue
Service for the preceding fiscal year. The Managing Member shall not be liable
to any Member if any taxing authority disallows or adjusts any deductions or
credits in the Limited Liability Company's income tax or information returns.
All elections required or permitted to be made by the Limited
Liability Company under the Internal Revenue Code, and the designation of a tax
matters partner pursuant to Section 6231 (a)(7) of the Internal Revenue Code for
all purposes permitted or required by the Code, shall be made by the Managing
Member. The tax matters partner shall take such action as may be necessary to
cause each other Member to become a notice member within the meaning of Section
6223 of the Code. The tax matters partner may not take any action contemplated
by Sections 6222 through 6232 of the Code without the consent of the Managing
Member.
All such record, books of account, tax and information
returns, and reports and statements, together with executed copies of this
Agreement, shall at all times be maintained at the principal place of business
of the Limited Liability Company, and shall be open to the inspection and
exemption of the Members or their duly authorized representatives during regular
business hours. Each Member, or a duly authorized representative of such Member,
may make copies of the Limited Liability Company's books of account and records
at the expense of such Member. Any Member, at the expense of such Member, may
conduct an audit of the Limited Liability Company's books of account and
records.
The Managing Member shall furnish to each Member, promptly
upon request a current list of the names and addresses of all of the Managing
Member and other Members of the Limited Liability Company, and any other persons
or entities having any financial interest in the Limited Liability Company.
8
<PAGE>
The cost of preparing all of the aforesaid records, books,
returns and other items shall be borne by the Limited Liability Company. Upon
request of the Managing Member, the Members shall pay to the Limited Liability
Company, in proportion to the Members' Percentage Interests, the cost of
preparing same, not to exceed in the aggregate $2,000 for each fiscal year.
10. BANK ACCOUNTS
All funds of the Limited Liability Company shall be deposited
in the Limited Liability Company's name in such bank account or accounts as
shall be designated by the Managing Member. Withdrawals from any such bank
accounts shall be made only in the regular course of business of the Limited
Liability Company and shall be made upon such signature or signatures as the
Managing Member from time to time may designate.
11. MANAGEMENT OF THE LIMITED LIABILITY COMPANY
The Members hereby designate BEJAN ARMINIFARD, having an
address at 14 COMMERCIAL, BLVD., SUITE 127, NOVATO, CA 94949 to serve as
Managing Member for the Limited Liability Company.
The business and affairs of the Limited Liability Company all
be conducted and managed by the Managing Member of the Limited Liability Company
in accordance with this Agreement and the laws of California.
At any time there is more than one Managing Member, any
difference arising as to any matter within the authority of Managing Members
shall be decided by a majority in number of the Managing Members.
If at any time the Managing Members do not own, in the
aggregate, at least 20 percent of the Members' Percentage Interests, all of the
Members shall be Managing Members until such time as the Members duly elect
Managing Members who do own at least 20 percent of the Members' Percentage
Interests.
The Managing Member shall have responsibility for the
day-to-day management of the business and affairs of the Limited Liability
Company and shall devote such time and attention as the Managing Member deems
necessary to the conduct and management of the business and affairs of the
Limited Liability Company.
The Managing Member hereby is given sole power and authority
to execute instruments on behalf of the Limited Liability Company and to
otherwise bind the Limited Liability Company, Unless authorized by the Managing
Member, no other person shall have the power or authority to execute instruments
on behalf of the Limited Liability Company and to otherwise bind the Limited
Liability Company. No person, firm or corporation dealing with the Limited
Liability Company shall be required to investigate the authority of the Managing
9
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Member or to secure the approval of or consummation by the Members of any act of
the Managing Member in connection with the business or affairs of the Limited
Liability Company.
No Member, other than the Managing Member or his designees,
shall have the authority, or shall take any action as a Member, to bind the
Limited Liability Company.
Except as provided elsewhere in this Agreement, or by
nonwaivable provisions of applicable law, the Managing Member shall possess and
enjoy all rights and powers necessary or appropriate for the conduct and
management of the business and affairs of the Limited Liability Company and
hereby is authorized to make all decisions relating to the business and affairs
of the Limited Liability Company. The Managing Member may make decisions
relating to. the purchase, sale, exchange, lease, transfer, encumbrance or other
acquisition or disposition of any property) for cash, other property, or on
terms; the borrowing of money and the obtaining of loans. secured and unsecured,
for the Limited Liability Company and in connection therewith the issuance of
notes, debentures and other debt securities and the securing of the same by
assigning for security purposes, pledging or hypothecating all or part of assets
of the Limited Liability Company; the expenditure of the capital and receipts of
the Limited Liability Company in furtherance of the business of the Limited
Liability Company; the purchase of equipment, supplies and services as the
Managing Member deems appropriate; the lending or advancing of money to third
parties in connection with the business of the Limited Liability Company; the
investment of funds of the Limited Liability Company in interest-bearing bank
deposits) governmental obligations, institutional and insured short-term debt
securities and short-term commercial paper, pending disbursement of the Limited
Liability Company's funds or to provide a source from which to meet
contingencies; the purchase of hazard, liability and other insurance which the
Managing Member may deem necessary or proper; the employment of attorneys,
accountants, brokers, consultants and other persons, firms and corporations to
render services to the Limited Liability Company as the Managing Member may deem
necessary or proper; the enforcement, compromise and settlement of any rights or
claims in favor of or against the Limited Liability Company or any nominee of
the Limited Liability Company; and the taking of all other actions and the
execution and delivery of any and all other instruments and agreements as the
Managing Member may deem appropriate to carry out the intents and purposes of
this Agreement.
The Managing Member may employ on behalf of the Limited
Liability Company, on such terms and for such compensation as the Managing
Member may determine, any persons, firms or corporations, including accountants
and attorneys, as the Managing Member, in his sole judgment shall deem desirable
for the business and affairs of the Limited Liability Company. Any such person,
firm or corporation may also be employed by the Managing Member in connection
with any other business of the Managing Member. The fact that any Member, or a
member of his family or any affiliate of a Member, is directly or indirectly
interested in or connected with any person, firm or corporation employed by the
Limited Liability Company or from whom the Limited Liability Company may buy
merchandise or services, shall not prohibit the Managing Member from employing
or dealing with such person, firm or corporation on behalf of the Limited
Liability Company upon reasonable terms and conditions.
10
<PAGE>
The Managing Member shall be reimbursed by the Limited
Liability Company for all direct out-of-pocket expenses incurred by the Managing
Member on behalf of the Limited Liability Company in connection with the
performance of his duties hereunder, including without 'imitation amounts
payable by the Managing Member for office, accounting, bookkeeping and other
services, materials, facilities and professional and legal services rendered or
furnished to the Limited Liability Company.
Except as expressly provided in this Agreement, no fees,
salary or other compensation shall be paid to the Managing Member for the
rendition of services to the Limited Liability Company.
A Managing Member's duty of care in the discharge of the
Managing Member's duties to the Limited Liability Company and the Members
limited to refraining from engaging in grossly negligent conduct2 intentional
misconduct, or a violation of law. In discharging the duties of a Managing
Member, the Managing Member shall be fully protected in relying in good faith
upon the records of the Limited Liability Company and upon such information,
opinions, reports or statements by other Managing Members, Members, agents or
other persons as to matters the Managing Member reasonably believes are within
such person's professional or expert competence, including without limitation
information, opinions, reports or statements as to the value or amount of the
assets, liabilities, profits or losses of the Limited Liability Company or any
other facts pertinent to the existence and amount of assets from which
distributions to Members might properly be paid.
To the extent of the Limited Liability Company's assets, and
to the extent permitted by law, the Limited Liability Company shall indemnity
and hold each Managing Member harmless from and against all liability, claim,
loss, damage or expense, including reasonable attorneys' fees, incurred by the
Managing Member by reason of any act or omission of the Managing Member made in
good faith on behalf of the Limited Liability Company.
Except as expressly provided elsewhere in this Agreement, any
decisions which are to be made by the Members, rather than the Managing Member,
shall be made by the affirmative vote or consent of Members holding a majority
of the Members' Percentage Interests.
12. ASSIGNMENT OF INTERESTS
Except as otherwise provided in this Agreement, no Member or
other person holding any interest in the Limited Liability Company may assign,
pledge, hypothecate, transfer or otherwise dispose of all or any part of his
interest in the Limited Liability Company, including without limitation the
capital, profits or distributions of the Limited Liability Company without the
prior Written consent of the other Members in each instance.
A Member may assign all or any part of such Member's interest
in the allocations and distributions of the Limited Liability Company to any of
the following (collectively the "permitted assignees") any person, corporation,
partnership or other entity as to which the Limited Liability Company has given
11
<PAGE>
consent to the assignment of such interest in the allocations and distributions
of the Limited Liability Company by the unanimous vote or consent of the
Members. An assignment to a permitted assignee shall only entitle the permitted
assignee to the allocations and distributions to which the assigned interest is
entitled, unless such permitted assignee applies for admission to the Limited
Liability Company and is admitted to the Limited Liability Company as a Member
in accordance with this Agreement.
An assignment, pledge, hypothecation, transfer or other
disposition of all or any part of the interest of a Member in the Limited
Liability Company or other person holding any interest in the Limited Liability
Company in violation of the provisions hereof shall be null and void for all
purposes.
No assignment, transfer or other disposition of all or any
part of the interest of any Member permuted under this Agreement shall be
binding upon the Limited Liability Company unless and until a duly executed and
acknowledged counterpart of such assignment or instrument of transfer, in form
and substance satisfactory to the Managing Member, has been delivered to the
Limited Liability Company.
No assignment or other disposition of any interest of any
Member may be made if such assignment or disposition, alone or when combined
with other transactions, would result in the termination of the Limited
Liability Company within the meaning of Section 708 of the Internal Revenue Code
or under any other relevant section of the Code or any successor statute. No
assignment or other disposition of any interest of any Member may be made
without an opinion of counsel satisfactory to the Managing Member that such
assignment or disposition is subject to an effective registration number, or
exempt from the registration requirements of, the applicable State and Federal
securities laws. No interest in the Limited Liability Company may be assigned or
given to any person below the age of 21 years or to a person who has been
adjudged to be insane or incompetent.
Anything herein contained to the contrary, the Managing Member
and the Limited Liability Company shall be entitled to treat the record holder
of the interest of a Member as the absolute owner thereof; and shall incur no
liability by reason of distributions made in good faith to such record holder,
unless and until there has been delivered to the Managing Member the assignment
or other instrument of transfer and such other evidence as may be reasonably
required by tile Managing Member to establish to the satisfaction of the
Managing Member that an interest has been assigned or transferred in accordance
with this Agreement.
13. ADMISSION OF NEW MEMBERS
The Managing Member may admit new Members (or transferees of
any interests of existing Members) into the Limited Liability Company by the
unanimous Vote or consent of the Managing Members.
12
<PAGE>
As a condition to the admission of a new Member, such Member
shall execute and acknowledge such instruments, in form and substance
satisfactory to the Managing Member, as the Managing Member may deem necessary
or desirable to effectuate such admission and to confirm the agreement of such
Member to be bound by all of the terms, covenants and conditions of this
Agreement, as the same may have been amended. Such new Member shall pay all
reasonable expenses in connection with such admission, including without
limitation reasonable attorneys' fees and the cost of the preparation, filing or
publication of any amendment to this Agreement or the Articles Of Organization)
which the Managing Member may deem necessary or desirable in connection with
such admission.
No new Member shall be entitled to any retroactive allocation
of income, losses, or expense deductions of the Limited Liability Company. The
Managing Member may make pro rata allocations of income, losses or expense
deductions to a new Member for that portion of the tax year in which the Member
was admitted in accordance with Section 706(d) or the Internal Revenue Code and
regulations thereunder.
In no event shall a new Member be entitled to the Limited
Liability Company if such admission would be in violation of applicable Federal
or State securities laws or would adversely affect the treatment of the Limited
Liability Company as a partnership for income tax purposes.
14. WITHDRAWAL EVENTS REGARDING MEMBERS AND
ELECTION TO CONTINUE THE LIMITED LIABILITY COMPANY
In the event of the death, retirement, withdrawal, expulsion,
or dissolution of a Managing Member, or an event of bankruptcy or insolvency, as
hereinafter defined, with respect to a Managing Member, or the occurrence of any
other event which terminates the continued membership of a Managing Member in
the Limited Liability Company pursuant to the laws of California (each of the
foregoing being hereinafter referred to as a "Withdrawal Event"), the Limited
Liability Company shall terminate sixty days after notice to the Members of such
Withdrawal Event unless the business of the Limited Liability Company is
continued as hereinafter provided.
Notwithstanding a Withdrawal Event with respect to a Managing
Member, the Limited Liability Company shall not terminate, irrespective of
applicable laws if within aforesaid sixty day period the remaining Members, by
the unanimous vote or Consent of the Members (other than the Managing Member who
caused the Withdrawal Event), shall elect to continue the business of the
Limited Liability Company.
If, after Withdrawal Event, there is only one remaining
Member, such Member may designate a second Member and give the second Member
such share of the interest of the remaining Member as the remaining Member may
designate, and thereafter the two Members may elect to continue the business of
the Limited Liability Company as aforesaid.
13
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In the event of a Withdrawal Event with respect to any
Managing Member, any successor in interest to such Managing Member (including
without limitation any executor, administrator, heir, committee, guardian, or
other representative or successor) shall not become entitled to any rights or
interest of such Managing Member in the Limited Liability Company, other than
the allocations and distributions to which such Managing Member is entitled,
unless such successor in interest is admitted as a Member in accordance with
this Agreement.
An "event of bankruptcy or insolvency" with respect to a
Member shall occur if such Member applies for or Consents to the appointment of
a receiver, trustee or liquidator of all or a substantial part of his assets; or
makes a general assignment for the benefit of creditors; or is adjudicated a
bankrupt or an insolvent; or files a voluntary petition in bankruptcy or a
petition or an answer seeking an arrangement with creditors or to take advantage
of any bankruptcy, insolvency, readjustment of debt or similar law or statute,
or an answer admitting the material allegations of a petition filed against him
in any bankruptcy, insolvency, readjustment of debt or similar proceedings; or
takes any action for the purpose of effecting any of the foregoing; or an order,
judgement or decree shall be entered, with or without the application, approval
or consent of such Member, by any court of competent jurisdiction, approving a
petition for or appointing a receiver or trustee of all or a substantial part of
the assets of such Member, and such order, judgment or decree shall continue
unstayed and in effect for thirty days.
15. DISSOLUTION AND LIQUIDATION
The Limited Liability Company shall terminate upon the
occurrence of any of the following: the expiration of the period fixed for the
duration of the Limited Liability Company pursuant to Article 5, as the same may
be extended by the Members; the election by the Members to dissolve the Limited
Liability Company made by the unanimous vote or consent of the Members; the
occurrence of a Withdrawal Event with respect to a Member and the failure of the
remaining Members to elect to continue the business of the Limited Liability
Company as provided for in Article 14 above; or any other event which pursuant
to this Agreement shall cause a termination of the Limited Liability Company.
The liquidation of the Limited Liability Company shall be
conducted and supervised by the Managing Member or if there be none then by a
person designated for such purposes by the affirmative vote or Consent 0(pound)
Members holding a majority of the Members' Percentage Interests (the
"Liquidating Agent"). The Liquidating Agent hereby is authorized and empowered
to execute any and all documents and to take any and all actions necessary or
desirable to effectuate the dissolution and liquidation of the Limited Liability
Company m accordance with this Agreement.
Promptly after the termination of the Limited Liability
Company, the Liquidating Agent shall cause to be prepared and furnished to the
Members a statement setting forth the assets and liabilities of the Limited
Liability Company as of the date of termination. The Liquidating Agent, to the
extent practicable, shall liquidate the assets of the Limited Liability Company
as promptly as possible, but in an orderly and businesslike manner so as not to
involve undue sacrifice.
14
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The proceeds of sale and all other assets of the Limited
Liability Company shall be applied and distributed in the following order of
priority.' (a) to the payment of the expenses of liquidation and the debts and
liabilities of the Limited Liability Company, other than debts and liabilities
to Members; (b) to the payment of debts and liabilities to Members; (c) to the
setting up of any reserves which the Liquidating Agent may deem necessary or
desirable for any contingent or unforeseen liabilities or obligations of the
Limited Liability Company, which reserves shall be paid over to an
attorney-at-law admitted to practice in the State of California as escrowee, to
be held for a period of two years for the purpose of payment of the aforesaid
liabilities and obligations, at the expiration of two year period the balance of
such reserves shall be distributed as hereinafter provided; (d) to the Member in
proportion to their respective capital accounts until each Member has received
cash distribution equal to any positive balance in his capital account, in
accordance with the rules and requirements of Trea. Reg. Section
1.704-1(b)(2)(ii)(b); and (e) to the Members in proportion to the Members'
Percentage Interests.
The liquidation shall be complete within the period required
by Trea. Reg. Section 1.704-1 (b)(2)(ii)(b).
If the Liquidating Agent shall determine that it is not
practicable to liquidate all of the assets of the Limited Liability Company, the
Liquidating Agent may retain assets having a fair market value equal to the
amount by which the net proceeds of liquidated assets are insufficient to
satisfy the debts and liabilities referred to above. If, in the absolute
judgement of the Liquidating Agent, it is not feasible to distribute to each
Member his proportionate share of each asset, the Liquidating Agent may allocate
and distribute specific assets to one or more Member in such manner as the
Liquidating Agent shall determine to be fair and equitable, taking into
consideration the basis for tax purposes of each asset.
Upon compliance with the distribution plan, the Members shall
cease to be such, and the Managing Member shall execute, acknowledge and cause
to be filed such certificates and other instruments as may be necessary or
appropriate to evidence the dissolution and termination of the Limited Liability
Company.
16. REPRESENTATIONS OF MEMBERS
Each of the Members represents, warrants and agrees that the
Member is acquiring the interest in the Limited Liability Company for the
Member's own account as an investment and not with a view to the sale or
distribution thereof; the Member, if an individual, is over the age of 21, or if
the Member is an organization, such organization is duly organized, validly
existing and in good standing under the laws of its State of organization and
that it has full power and authority to execute and perform its obligations
under this Agreement; and the Member shall not dispose of such interest or any
part thereof in any manner which would constitute a violation of the Securities
Act of 1933, the Rules and Regulations of the Securities and Exchange
Commission, or any applicable laws, rules or regulations of any State or other
governmental authorities, as the same may be amended.
15
<PAGE>
17. NOTICES
All notices, demands, requests or other communications which
any of the parties to this Agreement may desire or be required to give hereunder
shall be in writing and shall be deemed to have been properly given if sent
registered or certified mail, return receipt requested, addressed as follows:
(a) if to the Limited Liability Company, to the Limited Liability Company c/o
the Managing Member at his address first above written or to such other address
or addresses as may be designated by the Limited Liability Company or the
Managing Member by notice to the Members pursuant to this Article 17; (b) if to
the Managing Member, to the Managing Member at his address first above written
or to such other address or addresses as may be designated by the Managing
Member by notice to the Limited Liability Company and the Members pursuant to
this Article 17; and (e) if to any Member, to the address of said Member first
above written, or to such other address as may be designated by said Member by
notice to the Limited Liability Company and the other Members pursuant to this
Article 17. Each Member shall keep the Limited Liability Company and the other
Members informed of such Member's current address.
18. POWER OF ATTORNEY
Each Member agrees to execute, acknowledge, swear to, deliver,
file, record and publish such further certificates, instruments and documents,
and do all such other acts and things as may be required by law, or as may, in
the opinion of the Managing Member, be necessary or desirable to carry out the
intents and purposes of this Agreement.
Each Member, whether a signatory hereto or a subsequently
admitted Member, hereby irrevocably constitutes and appoints the Managing Member
(including any successor Managing Member) the true and lawful attorney-in-fact
of such Member, and empower and authorize such attorney-in-fact, in the name,
place and stead of each Member, to execute, acknowledge, swear to and file the
Articles Of Organization and any amendments thereto, and any other certificates,
instruments and documents which may be required to be executed or filed under
laws of any State or of the United States, or which the Managing Member shall
deem advisable to execute or file, including without limitation all instruments
which may be required to effectuate the formation, continuation, termination,
distribution or liquidation of the Limited Liability Company.
It is expressly acknowledged by each Member that the foregoing
power of attorney is coupled with an interest and shall survive any assignment
by such Member of such Member interest in the Limited Liability Company;
provided, however, that if such Member shall assign all of his interest in the
Limited Liability Company and the assignee shall become a substituted Member in
accordance with this Agreement, then such power of attorney shall survive such
assignment only for the purpose of enabling the Managing Member to execute,
acknowledge, swear to and file all instruments necessary or appropriate to
effectuate such substitution.
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A power of attorney shall be one of the instruments which the
Managing Member may require a new Member to execute and acknowledge; however,
the power of attorney in this Agreement shall be binding upon any new Member
even in the absence of such separate power of attorney.
Upon the election of any new Managing Member, each Member at
the request of the Managing Member shall execute and acknowledge a new power of
attorney as provided above expressly in favor of such new Managing Member;
however, the power of attorney provided above shall inure to the benefit of each
new Managing Member even in the absence of such new confirmatory power of
attorney.
19. AMENDMENTS
This Agreement may not be altered, amended, changed,
supplemented, waived or modified in any respect or particular unless the same
shall be in writing and agreed to by the unanimous vote or consent of the
Members. No amendment may be made to Articles 6, 8, 12 and 15 hereof, insofar as
said Articles apply to the financial interests of the Members, except by the
vote or consent of all of the Members. No amendment of any provision of this
Agreement relating to the voting requirements of the Members on any specific
subject shall be made without the affirmative vote or consent of at least the
number or percentage of Members required to Vote on such subject.
20. MISCELLANEOUS
This Agreement and the rights and liabilities of the parties
hereunder shall be governed by and determined in accordance with the laws of the
State of California Every provision of this Agreement is intended to be
severable. If any provision of this Agreement shall be invalid or unenforceable,
such invalidity or unenforceability shall not affect the other provisions of
this Agreement, which shall remain in full force and effect.
The captions in this Agreement are for convenience only and
are not to be considered in construing this Agreement. All pronouns shall be
deemed to be the masculine, feminine, neuter, singular or plural as the identity
of the person or persons may require. References to a person or persons shall
include partnerships, corporations, limited liability companies, unincorporated
associations, trusts, estates and other types of entities. The Managing Member
and the Members collectively are referred to herein as the Members. Any one of
the Members is referred to herein as a Member. References to the Internal
Revenue Code shall mean the Internal Revenue Code of 1986, as amended, and any
successor or superseding Federal revenue statute.
This Agreement, and any amendments hereto may be executed in
counterparts all of which taken together shall constitute one agreement.
This Agreement sets forth the entire agreement of the parties
hereto with respect to the subject matter hereof. It is the intention of the
17
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Members that this Agreement shall be the sole source of agreement of the
parties, and, except to the extent a provision of this Agreement provides for
the incorporation of Federal income tax rules or is expressly prohibited or
ineffective under the California Beverly-Killea Limited Liability Company Act,
this Agreement shall govern even when inconsistent with, or different from, the
provisions of any applicable law or rule. To the extent any provision of this
Agreement is prohibited or otherwise ineffective under the California
Beverly-Killea Limited Liability Company Act, such provision shall be considered
to be ineffective to the smallest degree possible in order to make this
Agreement effective under the California Beverly-Killea Limited Liability
Company Act. If the California Beverly-Killea Limited Liability Company Act is
subsequently amended or interpreted in such a way to make any prevision of this
Agreement that was formerly invalid valid, such provision shall be considered to
be valid from the effective date of such interpretation or amendment.
Subject to the limitations on transferability contained
herein, this Agreement shall be binding upon and inure to the benefit of the
parties hereto and to their respective heirs, executors, administrators,
successors and assigns.
No provision of this Agreement is intended to be for the
benefit of or enforceable by any third party.
18
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the date first above written.
IN THE PRESENCE OF:
/s/ BEJAN AMINIFARD
-----------------------------
BEJAN AMINIFARD
- -----------------------------
- -----------------------------
IN THE PRESENCE OF:
/s/ MOSHEN AMINIFARD
-----------------------------
MOSHEN AMINIFARD
- -----------------------------
- -----------------------------
/s/ DEREK WALL
-----------------------------
DEREK WALL
- -----------------------------
- -----------------------------
19
EXHIBIT 10.04
CONSULTING AGREEMENT, DATED AS OF APRIL 9, 1999,
BETWEEN E-TAXI AND GATEWAY ADVISORS, INC.
<PAGE>
GATEWAY 675 NORTH 1ST STREET SUITE 1050 SAN JOSE, CA 95112
- --------------------------------------------------------------------------------
A d v i s o r s 408-280-0800 fax 408-287-7761
Mr. Robert M. Wallace
President
Gateway Advisors, Inc.
255 West Julian Street
San Jose, CA 95112
Re: CONSULTING AND MANAGEMENT SERVICES
Dear Mr. Wallace:
This letter will confirm that effective October 1, 1998, E-Taxi, Inc. (the
"Company") has engaged Gateway Advisors, Inc. (the "Advisor") to provide
consulting and management services related to (1) the identification and
evaluation of strategic acquisition candidates (the "Targets"), (2) the
negotiation and structure of investments in or acquisitions of the Targets by
the Company or any of its subsidiaries, and (3) the operations of the Company.
This engagement between the Company and the Advisor is pursuant to the following
terms and conditions.
1. TERM. The Advisor shall assist the Company for a period commencing as
of October 1, 1998 and ending on September 31, 1999, unless extended by mutual
consent of the parties (the "Term").
2. SCOPE OF SERVICES. The scope of services performed by the Advisor will
include assisting the Company with respect to the following:
a. Conduct a search for synergistic acquisition candidates.
b. Conduct Market Research including the small office/home office
market, on-line sales of technology equipment, and other Internet businesses.
c. Assist the Company in evaluating the Targets' prospects.
d. Negotiate and Structure the acquisitions or investment in the
Targets.
e. Assess the best financing alternatives within the capital
markets for funding transactions with Targets.
f. Facilitate discussions with investment bankers regarding
business strategy and access to public markets.
<PAGE>
g. Provide on-going management services for the Company and any
of its subsidiaries.
h. Provide advice on the negotiation and structure of investments
in, or acquisition of the Company or any of its subsidiaries.
3. CONFIDENTIALITY. The Company will provide information to the Advisor
regarding its business which will be deemed by the Advisor to be accurate at the
time furnished, to the best knowledge of the Company. The Advisor agrees to
maintain all non-public information the Company that is furnished by the Company
in a manner appropriate to the services being performed by the Advisor, unless
disclosure is required by law or requested by any government or regulatory
agency.
4. COMPENSATION.
a. CONSULTING FEE. The Company agrees to pay the Advisor a
consulting fee in the amount of $30,000 per quarter, beginning October 1, 1998.
b. EXPENSES. The Company agrees to reimburse the Advisor,
promptly upon invoicing, for out-of-pocket expenses incurred in connection with
the services rendered pursuant to this Engagement Letter, provided, however,
that out-of-pocket expenses in excess of $10,000, in the aggregate, are subject
to the Company's prior written approval.
5. INDEMNIFICATION. The Company agrees to indemnify the Advisor and its
employees from and against all losses, claims, damages and liabilities to which
the Advisor may become subject under any applicable federal or state law, or
otherwise, related to or arising out of the engagement of the Advisor pursuant
to, and the performance by the Advisor of the services contemplated by, this
Engagement Letter. The Company will not be liable to the extent that any loss,
claim, damage, liability or expense has resulted from the Advisor's bad faith,
gross negligence or misrepresentation.
If any action or proceeding shall be brought or asserted against the Advisor in
respect of which indemnity may be sought from the Company, the Advisor shall
promptly notify the Company in writing, and the Company may, in its discretion,
assume the defense therefore, including the employment of counsel reasonably
satisfactory to the Advisor and the payment of related expenses.
6. ENTIRE AGREEMENT. This Engagement Letter reflects the entire
understanding of the parties with respect to this agreement. This agreement has
been made solely for the benefit of the Company and the Advisor and no other
person shall acquire or have any rights under or by virtue of this Engagement
Letter.
7. GOVERNING LAW. This Engagement Letter shall be governed by the laws of
the State of California.
8. COUNTERPARTS. This Engagement Letter may be executed in any number of
counterparts, each of which shall be deemed to be an original including those
sent by facsimile.
<PAGE>
If the foregoing correctly sets forth the agreement, please indicate by signing
below in the signature block.
Sincerely,
E-Taxi Inc.,
a Delaware Corporation
by: /s/ BRIAN P. BURNS, JR.
-------------------------------------
Brian P. Burns, Assistant Secretary
Accepted by:
GATEWAY ADVISORS, INC.
/s/ ROBERT M. WALLACE
- --------------------------------
By: Robert M. Wallace, President
EXHIBIT 10.07
LETTER AGREEMENT, DATED AS OF APRIL 9, 1999, AMONG THE COMPANY,
L. WAYNE KILEY AND QUALITY ASSOCIATES, INC.
<PAGE>
L. WAYNE KILEY
April 9, 1999
Computer Marketplace, Inc.
1171 Railroad Street
Corona, CA 91720
Attention: The Board of Directors
Gentlemen:
I am writing to you to confirm our agreement with respect to the
cancellation of certain indebtedness of Computer Marketplace, Inc. to me and
Quality Associates, Inc., a company controlled by me.
It is my understanding that in exchange for the items listed below
(under A,B,C, and D), I will forgive the following obligations of the Company:
1. Waive all rights to accrued and unpaid compensation and all payments
(in cash , securities or otherwise) that may be due to me under that certain
Employment Agreement dated October 1992 and as amended in October 1996 between
me and the Company (collectively, the "Employment Agreement Obligations") which
amount is currently $314, 135; and
2. Waive all rights to accrued and unpaid rent and all payments (in
cash, securities or otherwise) that are or may become due to Quality Associates,
Inc. under that certain Commercial Lease dated December 1, 1997 between Quality
Associates and the Company (collectively, the "Lease Agreement Obligations")
which amount is currently $64,536; and
3. Except for the Company's obligations under this letter agreement,
waive all rights to receive any payments by the Company under rights I may
possess contractually or under federal, state, or local law ("Other
Obligations").
In exchange for my waiver of the Employment Agreement Obligations, the
Lease Obligations, and the Other Obligations, the Company agrees as follows:
A. That the following options (the "LWK Options") to purchase shares of
the Company's Common Stock have been validly issued, are in full force and
effect and the Company agrees upon valid exercise to issue the appropriate
number of shares:
(i) options to purchase 661,667 shares of the Company's common stock at
an exercise price of $.60 per share at any time prior to December 31, 2001; and
<PAGE>
(ii) options to purchase 29,167 shares of the Company's common stock at
an exercise price of $.60 per share at any time prior to January 2, 2000.
(iii) options to purchase 100,000 shares of the Company's common stock
at an exercise price of $.60 per share at any time prior to December 31, 2002.
B. That the following options (the "Other Options") to purchase shares
of the Company's Common Stock have been validly issued, are in full force and
effect and the Company agrees upon valid exercise to issue the appropriate
number of shares:
NAME OF OPTIONHOLDER NUMBER OF OPTIONS EXERCISE PRICE($) EXP. DATE
- -------------------- ----------------- ----------------- ---------
Sharon Allen 20,000 1.00 12/31/01
Bruce Bowen 7,500 1.00 12/31/01
Brian Hintergardt 33,333 1.00 12/31/01
Leon Kiley 10,000 1.00 12/31/01
Pat Martin 9,500 1.00 12/31/01
Patty O'Leary 53,000 1.00 12/31/01
Stephanie West 10,000 1.00 12/31/01
Joe Achten 30,000 1.00 12/31/01
Tom Evans 30,000 1.00 12/31/01
Berlack Israels 40,000 1.00 12/31/01
Bernstein & Wasserman 60,000 1.00 12/31/01
John Mooney 35,000 1.00 12/31/01
Nancy Kiley 833 1.68 01/02/00
Joe Achten 833 1.68 01/02/00
Brian Hintergardt 8,333 1.68 01/02/00
Tom Evans 833 1.68 01/02/00
Berlack Israels 1,667 1.68 01/02/00
Joe Achten 200,000 0.50 12/31/02
C. That the Company will honor the registration rights described in
Exhibit A attached hereto with respect to the shares issuable under the LWK
Options and the Other Options.
It is agreed and understood that the foregoing option holders may rely upon this
commitment to register such shares of common stock as if such individuals were a
party to this letter agreement.
D. That the Company will transfer ownership, title and possession to me
of the office equipment and furniture listed on Exhibit B.
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If you are in agreement with the foregoing, please indicate your
acceptance of the terms of this letter agreement by signing in the space
provided below:
Very truly yours,
/s/ L. WAYNE KILEY
-------------------------------
L. Wayne Kiley
Agreed to and Accepted as of the date first written above:
/s/ THOMAS EVANS
- -------------------------
Thomas Evans
abstaining
- -------------------------
Nancy Kiley
/s/ J.R. ACHTEN
- -------------------------
J.R. Achten
3
EXHIBIT 10.8
CONTRIBUTION AGREEMENT DATED AS OF MARCH 31, 1999 BY AND AMONG
GATEWAY ADVISORS, INC., BEJAN AMINIFARD, MOSEN AMINIFARD AND DEREK WALL
<PAGE>
CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT (this "Agreement") is entered into as of
March 31, 1999, by and among, Gateway Advisors ("Gateway"), Bejan Aminifard
("Bejan"), Mosen Aminifard ("Mosen"), and Derek Wall ("Derek") (collectively,
the "Contributors") and E-Taxi, Inc., a Delaware corporation (the "Company").
For purposes of this Agreement, Gateway shall include its affiliates. The
Company and the Contributors are referred to collectively herein as the
"Parties."
RECITALS
A. Gateway, Bejan, Mosen, and Derek own 24%, 52%, 12% and 12%,
respectively, of TechStore LLC, a California limited liability company
("TechStore"), representing all of the ownership interest in TechStore, as of
the date hereof.
B. Each of the Contributors desires to contribute to the Company his
or her equity interest in TechStore (collectively, the "Contributed
Interests"), in exchange for (i) shares of common stock of the Company (the
"Common Exchange Shares"); and (ii) shares of preferred stock of the Company
(the "Series A Preferred Stock") (together, the "Exchange Shares").
C. The exchange of shares of common stock (the "Exchange") and the
subsequent acquisitions of other e-commerce companies will be effected in
preparation for the merger of the Company with and into a publicly traded
company (the "Roll-Up").
AGREEMENT
The Parties hereby agree as follows:
ARTICLE I - CONTRIBUTION AND EXCHANGE
1.1 Exchange. On the date hereof (the "Exchange Date"), the
Contributors shall contribute to the Company all of their respective interests
in TechStore and the Company shall (i) issue 480,000, 1,040,000, 240,000 and
240,000 shares of common stock of the Company to Gateway, Bejan, Mosen and
Derek, respectively; and (ii) issue 96,000, 208,000, 48,000 and 48,000 shares
of the Series A Preferred Stock to Gateway, Bejan, Mosen and Derek,
respectively. The foregoing amounts of Series A Preferred Stock convert into
384,000, 832,000, 192,000, and 192,000 shares of common stock of E-Taxi,
respectively. The Series A Preferred Stock shall have the rights, preferences,
privileges and restrictions set forth in the Company's Certificate or
Incorporation, a copy of which is attached hereto as Exhibit A. (the
"Certificate"). The Company's issuance of the Common Exchange Shares, and the
issuance of the Series A Preferred Stock to each of the Contributors, shall be
the sole consideration for the Contributed Interests by the Company.
1.2 Stock Certificates. On the Exchange Date, the Seller shall deliver
to Buyer documents evidencing ownership in Purchased Interest (as hereinafter
defined).The Company will deliver to each Contributor on the Exchange Date a
duly issued and authenticated certificate evidencing the Common Exchange Shares
and the Series A Preferred Stock issuable to such Contributor pursuant to
Section 1.1.
<PAGE>
ARTICLE 2 - CONTRIBUTORS' REPRESENTATIONS, WARRANTIES AND AGREEMENTS
Each of the Contributor's represents, warrants and agrees, severally
for himself or herself, as follows:
2.1 Ownership of Contributed Interests Delivered in Exchange. All
ownership interests in TechStore shall be delivered by the Contributor in
exchange for the Exchange Shares are owned by the Contributor, of record and
beneficially, free and clear of any pledge, lien, security interest, charge,
claim, option or encumbrance of any kind, and upon the delivery of documents
evidencing such Contributed Interests, all of the Contributor's right, title
and interest in and to such Contributed Interests shall have been contributed,
transferred and assigned to the Company free and clear of any pledge, lien,
security interest, charge, claim, option or encumbrance of any kind.
2.2 Legend. The certificate representing the Exchange Shares to be
issued to the Contributor hereunder shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY
STATE SECURITIES LAWS AND MAY BE OFFERED, SOLD OR TRANSFERRED ONLY IF SO
REGISTERED OR IF EXEMPTIONS FROM SUCH REGISTRATION REQUIREMENTS ARE AVAILABLE.
NO TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE MADE
EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR (B) IF THE COMPANY HAS BEEN FURNISHED
WITH AN OPINION OF COUNSEL FOR THE HOLDER (WHICH COUNSEL SHALL BE ACCEPTABLE TO
THE COMPANY), SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY, TO THE EFFECT
THAT SUCH TRANSFER IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT AND
THE RULES AND REGULATIONS IN EFFECT THEREUNDER.
2.3 Securities Unregistered. The Contributor acknowledges that he or
she has been advised that (a) the Exchange Shares have not been registered
under the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder (the "Act"), (b) the Exchange Shares must be held
indefinitely, and the Contributor must continue to bear the economic risk of
the investment in the Exchange Shares unless they are subsequently registered
under the Act or an exemption from such registration is available, (c) there
currently is no public market for the Exchange Shares, (d) when and if Exchange
Shares can be transferred pursuant to this Agreement, Rule 144 promulgated
under the Act is not presently available with respect to the sale of any
securities of the Company, and the Company has made no covenant to make such
Rule available, (e) when and if Exchange Shares may be disposed of pursuant to
this Agreement without registration in reliance on Rule 144, such disposition
can be made only in limited amounts in accordance with the terms and conditions
of such Rule, (f) if the Rule 144 exemption is not available, public sale
without registration will require compliance with Regulation A or some other
exemption under the Act, (g) a restrictive legend in the form heretofore set
forth shall be placed on the certificates or instruments representing the
Exchange Shares, and (h) a notation shall be made in the appropriate records of
the Company indicating that the Exchange Shares are subject to restrictions on
transfer and, if the Company should at some time in the future engage the
services of a stock transfer agent, appropriate stop transfer restrictions will
be issued to such transfer agent with respect to the Exchange Shares.
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2.4 Sales. If any of the Exchange Shares are to be disposed of in
accordance with Rule 144 under the Act or otherwise, the Contributor shall
promptly notify the Company of such intended disposition and shall deliver to
the Company at or prior to the time of such disposition such documentation as
the Company may reasonably request in connection with such sale and, in the
case of a disposition pursuant to Rule 144, shall deliver to the Company an
executed copy of any notice on Form 144 required to be filed with the
Securities and Exchange Commission.
2.5 Investment Representations. Contributor is acquiring the Exchange
Shares for investment for his or her own account and not with a view to, or for
resale in connection with, the distribution or other disposition thereof. The
Contributor further represents and warrants that (a) Contributor has been given
the opportunity to obtain any information or documents relating to (and to ask
questions and receive answers about such documents) the Company and the business
and prospects of the Company which Contributor deems necessary to evaluate the
merits and risks related to his investment in the Exchange Shares and to verify
the information received; (b) Contributor's financial condition is such that
Contributor can afford to bear the economic risk of holding the unregistered
Exchange Shares for an indefinite period of time and has adequate means for
providing for his current needs and personal contingencies; (c) Contributor can
afford to suffer a complete loss of the investment in the Exchange Shares; (d)
all information which Contributor has provided to the Company concerning
Contributor and his financial position is correct and complete as of the date of
this Agreement; (e) Contributor understands and has taken cognizance of all risk
factors related to the acquisition of the Exchange Shares; (f) Contributor's
knowledge and experience in financial and business matters are such that
Contributor is capable of evaluating the merits and risks of Contributor's
acquisition of the Exchange Shares as contemplated by this Agreement.
ARTICLE 3 - ADDITIONAL REPRESENTATIONS OF CONTRIBUTORS
Each of Bejan, Mosen, and Derek represents, warrants and agrees,
severally for himself or herself, as follows, subject to the Representations
Schedule attached hereto as an Exhibit and incorporated by reference:
3.1. President of TechStore. Derek Wall is the duly elected President
of TechStore.
3.2. Business. TechStore is in the business of selling computer related
equipment and software over the internet (the "Business").
3.3. Organization and Good Standing. TechStore is a limited liability
company duly organized, validly existing and in good standing under the laws of
the State of California and has the corporate power and authority to own, lease
and operate its properties and to transact its business as it is now being
conducted, holds all material franchises, licenses and permits necessary and
required therefor, and is duly qualified or licensed to do business and is in
good standing in each jurisdiction where the nature of the business conducted by
it or the ownership, lease or operation of its properties requires a license or
qualification.
3.4. Consents and Approvals. Except as set forth in Schedule 3.4,
execution and delivery of this Agreement and the transactions contemplated
hereby will not: (a) violate any provision of the Articles of Organization or
Bylaws of TechStore; (b) violate any statute, rule, regulation, order or decree
of any public body or authority (including governmental self-regulatory
agencies) by which TechStore, any of its properties or assets, or the Seller may
be bound; (c) require any filing with or permit, consent or approval of any
public body or authority (including non-governmental self-regulatory agencies);
or (d)result in a violation or breach of, or constitute (with or without due
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notice or lapse of time or both) a default (or give rise to any right of
termination, cancellation or acceleration) under, any of the terms, conditions
or provisions of any note, bond, mortgage, pledge, indenture, license,
franchise, permit, agreement or other instrument or obligation to which
TechStore or the Seller, or any of the properties or assets of TechStore or any
shareholder, may be bound.
3.5. Capitalization. Immediately following the consummation of the
Purchase Agreements, by and between each of Bejan and TechStore and Gateway,
dated as of the date hereof (the "Purchase Agreements") and prior to the
consummation of the Roll-Up Transactions, all the issued and outstanding
Members' interest, on a percentage basis, will be as follows: Gateway=24%,
Bejan=52%, Mosen=12%, and Derek=12%. Since December 1, 1998, and except for
interests issued to Gateway, no ownership interest in TechStore has been issued
or have been transferred to or from TechStore. All issued and outstanding
ownership interests in TechStore have been validly issued and are fully paid and
non-assessable, have not been issued in violation of and are not currently
subject to, any preemptive rights. Except as disclosed in Schedule 3.5, there
are not, as of the date hereof, any outstanding or authorized convertible
securities, subscriptions, options, warrants, calls, rights, commitments, or any
other agreements of any character to which TechStore is a party that, directly
or indirectly (i) obligate TechStore to issue any ownership interests or any
securities convertible into, or exercisable or exchangeable for, or evidencing
the right to subscribe for any shares of capital stock, (ii)call for or relate
to the sale, pledge, transfer or other disposition by TechStore of its ownership
interests, or (iii)relate to the voting or control of the ownership interests.
3.6 Financial Statements.
(a)TechStore has previously provided to the Company audited financial
statements of TechStore since its inception, including Balance Sheets as of
December 31, 1998, and the related Statements of Operations and Statements of
Cash Flow for the year then ended (collectively, "TechStore Financial
Statements").
(b)TechStore Financial Statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis (except
as may be indicated therein or in the accompanying notes or schedules thereto)
and fairly present the financial position of TechStore as of the dates thereof
and the results of operations and changes in financial position of TechStore for
then ended, subject to any other adjustments described therein.
3.7. Status of Liabilities. Since December 1, 1998, and except as set
forth on Schedule 3.7, TechStore has paid all normal and recurring installments
(i) of bank and other long term debt, (ii) under leases and contractual
obligations and (iii) any and all other amounts due and payable to any persons
or entities. TechStore does not have any liabilities (whether absolute, accrued,
contingent, unliquidated or otherwise) except (a) liabilities, obligations or
contingencies which are accrues or reserved against in the balance sheet of
TechStore as of December 31, 1998 ("TechStore Balance Sheet"), (b) normally
recurring liabilities incurred after the date of the TechStore Balance Sheet in
the ordinary course of business and consistent with past practice, and (c)
liabilities incurred after the date of the TechStore Balance Sheet not incurred
in the ordinary course of business which do not exceed $25,000.
3.8. Assets. Except as set forth in Schedule 3.8, TechStore, has
good, valid and marketable title to all of the assets, properties (tangible and
intangible) and rights used in or related to the business as presently conducted
(the "Assets"), free and clear of all mortgages, liens, pledges, security
interests, charges, claims, restrictions, and encumbrances of any nature
whatsoever ("Encumbrances"), except for liens for current taxes not yet due and
payable.
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3.9. Taxes and Tax Returns. Except as set forth in Schedule 3.9,
TechStore has filed or caused to be filed on a timely basis all federal, state,
local, foreign and other tax returns, reports and declarations (collectively,
"Tax Returns") required to be filed by TechStore in connection with the
Business. All Tax Returns filed by or on behalf of TechStore in connection with
the Business are materially complete in all respects. To the knowledge of each
of the Contributors, TechStore has paid all income, estimated, excise,
franchise, gross receipts, capital stock, profits, stamp, occupation, sales,
use, transfer, value added, property (whether real, personal or mixed),
employment, unemployment, disability, withholding, social security, workers'
compensation and other taxes, and interest, penalties, fines, costs and
assessments (collectively, "Taxes"), due and payable with respect to the periods
covered by such Tax Returns (whether or not reflected thereon). To the knowledge
of each of the Contributors, there are no tax liens on any of the properties or
assets, real, personal or mixed, tangible or intangible, of TechStore. Since
January 1, 1999, TechStore has not incurred any Tax liability in connection with
the Business other than in the ordinary course of business. No deficiency in
Taxes for any period has been asserted in writing by any taxing authority which
remains unpaid at the date hereof, no written inquiries or notices have been
received by TechStore from any taxing authority with respect to possible claims
for Taxes, each Contributor has no reason to believe or has knowledge that such
an inquiry or notice is pending or threatened, and, to the knowledge of each
Contributor, there is no basis for additional claims or assessments for Taxes.
TechStore has not agreed to the extension of the statute of limitations with
respect to any Tax Return or tax period.
3.10. Material Changes. Since January 1, 1999 and except as set forth
in Schedule 3.10, there has not been (i) any material adverse change in the
Assets, the operations, prospects, or condition (financial or otherwise) of the
Business or of TechStore, (ii) any damage, destruction or loss, whether or not
covered by insurance, affecting the Assets, the operations, prospects or
condition (financial or otherwise) of the Business, (iii) any material increase
in the rate of compensation payable or to become payable by either of TechStore
to any of its employees engaged in the conduct of the Business or any material
increase in the rate of the amounts paid, payable or to become payable under any
bonus, insurance, pension or other benefit plan, or any arrangement made for or
with any such employees, (iv) any material actual or threatened trouble or
disruption of TechStore's relations with its agents, customers, or suppliers,
with respect to the Business, (v) any resignations or threatened resignations of
employees of the Business with salaries exceeding $50,000; or (vi) any material
liability incurred with respect to the Business, other than liabilities incurred
in the ordinary course of business consistent with past practice, or any lien or
encumbrance discharged or satisfied with respect to the Business or the Assets,
or any failure to pay or discharge when due any liability of which the failure
to pay or discharge has caused or will cause any material damage or risk of
material loss to the Business or any of the Assets. There has been no amendment,
waiver or termination of any material agreement, contract, commitment, lease,
plan, permit, authorization or arrangement ("Contract or License") which has
been delivered to the Company in connection with its due diligence review, or
any other Contract or License, which materially relates to TechStore or the
Business, or any waiver of any rights of substantial value with respect to the
Business or the Assets, whether or not in the ordinary course of business.
3.11. Legal Proceedings; Compliance with Law.
(a)Except as set forth in Schedule 3.11(a), to the
knowledge of each of the Contributors, there is no lawsuit, action,
arbitration, administrative or other proceeding, criminal prosecution or
governmental investigation or inquiry ("Litigation") that is pending or, to
the knowledge of each of the Contributors, threatened against or related to or
otherwise affecting TechStore, the Business, the Assets or any property leased
or rented to TechStore. There has been no material Default (defined below)
under any Regulations (defined below) applicable to TechStore with respect to
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the Business or the Assets, including Regulations relating to pollution or
protection of the environment. As used in this Agreement, "Default" means (a)
a breach, default or violation, or (b) the occurrence of an event that with
the passage of time or the giving of notice, or both, would constitute a
breach, default or violation. As used in this Agreement, "Regulation" means
any statute, law, ordinance, regulation, order or rule of any federal, state,
local, foreign or other governmental agency or body or of any other type of
regulatory body, including, without limitation, those covering environmental,
energy, safety, health, transportation, bribery, record keeping, zoning,
anti-discrimination, antitrust, wage and hour, and price and wage control
matters.
(b) Except as set forth in Schedule 3.11(b) and without
limiting the generality of subsection (a), there has not been at any time
since TechStore's inception, or otherwise, to the knowledge of each of the
Contributors (i) any Environmental Condition (defined below) at or relating to
the premises at which the Business has been conducted, or at or relating to
any property owned, leased or operated by TechStore (or any predecessor
thereof) with respect to the Business at any time, or at or relating to any
property at which wastes generated by TechStore or the Business have been
deposited or disposed of, nor have TechStore received written notice of any
such Environmental Condition, or (ii) any written notice received by TechStore
that TechStore violated any Regulation or Environmental Law governing the
shipment or storage of hazardous materials. "Environmental Condition" means
any condition or circumstance, whether created by TechStore or any third
party, that (i) requires abatement or correction under an Environmental Law
(defined below), (ii) is reasonably likely to give rise to any civil or
criminal liability under an Environmental Law, or (iii) is reasonably likely
to create a public or private nuisance, including, but not limited to, the
presence of asbestos, PCBs, hazardous substances, radioactive waste or radon.
"Environmental Law" includes all Statutes and Regulations relating to
pollution or protection of the environment as well as any principles of common
law under which a party may be held liable for the release or discharge of any
materials into the environment including, but not limited to, nuisance and
trespass.
(c) Except as set forth in Schedule 3.11(c), TechStore has
obtained all governmental permits, licenses, registrations, certificates of
occupancy, approval and other authorizations (the "Governmental Permits") that
are required for the complete operation of the Business as presently operated
and that if not obtained could have a material adverse effect on the Business.
To the knowledge of each of the Contributors all of the material Governmental
Permits are presently in full force, and, to the knowledge of each of the
Contributors, no revocation, modification, cancellation or withdrawal thereof
has been threatened. TechStore has filed such timely and complete renewal
applications as may be required with respect to their Governmental Permits
that if not obtained would have a material adverse effect on the Business.
TechStore are in full compliance with their Governmental Permits.
3.12. Intellectual Property.
(a) Except as set forth in Schedule 3.12(a), TechStore owns
or has the legal right to use without limitation and payment of royalties, the
patents, patent applications, inventions, copyrights, trademarks, trade names,
licenses, software (whether existing and under development) and other legally
protectable rights used in the Business (the "Intellectual Properties"). All
the Intellectual Properties are valid and in good standing, freely assignable,
and are subject to no material liens, charges, contractual rights or, to the
knowledge of each of the Contributors, claims or other interests of any other
person and are adequate and sufficient to permit TechStore to conduct the
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Business. No rights under any patents, inventions, copyrights, trademarks,
trade names, licenses or other legally protectable rights owned solely or
partially by others, including directors, officers or employees of TechStore,
are required by TechStore in connection with the conduct of the Business, and
the consummation of the transactions contemplated by this Agreement will not
materially alter or impair any such rights.
(b) Except as set forth in Schedule 3.12(b), each of the
Contributors has no knowledge of, and has received no notice to the effect
that any product TechStore manufactures or sells or distributes or any
services TechStore provides, or the marketing or use by TechStore of any such
product or service, may infringe any patent, trademark, trade name, copyright
or legally protectable right of another. All trade secrets, if any, owned or
used by TechStore are, to the knowledge of each Contributor, owned free of any
adverse claims, rights or encumbrances as to its exclusive rights thereto, and
TechStore has used reasonable efforts to protect its rights to continued
secrecy thereof.
3.13. Distributors, Customers or Suppliers. Neither of the
Contributors is aware that any customer, distributor or supplier intends to
cease doing business with TechStore or to alter materially the amount of
business done with TechStore due to consummation of the transactions
contemplated by this Agreement or any other reason.
3.14. Real Property.
(a) TechStore operates the Business on parcels of real
property located at 14 Commercial Blvd., Novato, California 94949
(collectively, the "Leased Parcels").
(b) TechStore has not received written notice of any
governmental assessments made against the Leased Parcels which are unpaid
(except any ad valorem taxes for the current tax year which are due or payable
and not delinquent).
(c) TechStore has not received any written notice of any
violation of any laws, rules, regulations or ordinances (including, without
limitation, zoning and environmental laws, regulations or ordinances) relating
to the Leased Parcels or requesting or requiring the performance of any
repairs, alterations or other work in order so to comply.
(d) TechStore has not received written notice of any
assessment for public improvements or otherwise which is due and remains
unpaid with respect to any portion of the Leased Parcels and TechStore has not
received any written notice of any currently proposed or pending assessment
for public improvements or otherwise with respect to the Leased Parcels.
(e) The plumbing, heating, electrical, ventilation and air
conditioning systems, elevator systems and all other mechanical systems and
equipment at the buildings and other improvements constituting of the Leased
Parcels are in good working order, subject to normal wear and tear and the age
and condition of the Leased Parcels.
(f) To the knowledge of each Contributor, the Leased
Parcels (or uses to which they are put) materially conform in all respects
with all applicable zoning regulations or ordinances.
3.15. Licenses. TechStore has the right to use all computer software,
including all property rights constituting part of the computer software, used
in connection with and material to the operation of the Business (the
"Computer Software").
3.16. Accounts Receivable; Inventories and Equipment. Except as set
forth in Schedule 3.16, the accounts receivable of the Business are in their
entirety valid accounts receivable, arising in the ordinary course of
business. The inventories and equipment of the Business are in all material
respects merchantable and fully usable in the ordinary course of business.
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3.17. Compensation. Each of the Contributors warrants that the
transactions contemplated by this Agreement will not result in any liability
for severance or separation pay to any employee or independent contractor of
the Business.
3.18. Employee Benefit Plans. Except as set forth in Schedule 3.18,
TechStore does not maintain or sponsor, nor are they required to make
contributions to, any pension, profit-sharing, savings, bonus, incentive or
deferred compensation, severance pay, medical, life insurance, welfare or
other employee benefit plan. All pension, profit-sharing, savings, bonus,
incentive or deferred compensation, severance pay, medical, life insurance,
welfare or other employee benefit plans within the meaning of Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended (hereinafter
referred to as "ERISA"), in which the employees participate (such plans and
related trust, insurance and annuity contracts, funding media and related
agreements and arrangements being hereinafter referred to as the "Benefit
Plans") materially comply with all requirements of the Department of Labor and
the Internal Revenue Service, and with all other applicable laws, and
TechStore has not taken or failed to take any action with respect to the
Benefit Plans which might create any liability on the part of the Contributors
or the Company. Each "fiduciary" (within the meaning of Section 3(21)(A) of
ERISA) as to each Benefit Plan has materially complied with all requirements
of ERISA and all other applicable laws in respect of each such Benefit Plan.
In addition:
(i) TechStore does not maintain, sponsor or contribute to,
and has never maintained, sponsored or contributed to, any "defined benefit
plan" (within the meaning of Section 3 (35) of ERISA);
(ii) TechStore does not maintain, sponsor, contribute to,
and has never maintained, sponsored or contributed to, any "Multiemployer
Plan" (within the meaning of Section 3(37) or 4001(a)(3) of ERISA;
(iii) Except as set forth on Schedule 3.18(iii), TechStore
does not maintain, sponsor or contribute to, and has never maintained,
sponsored or contributed to, any "defined contribution plan" (within the
meaning of Section 3(34),of ERISA);
(iv) other than claims in the ordinary course for benefits
with respect to the Benefit Plans, to the knowledge of each Contributor there
are no actions, suits or claims (including claims for income Taxes, interest,
penalties, fines or excise Taxes with respect thereto) pending with respect to
any Benefit Plan, or any circumstances which might give rise to any such
action, suit or claim (including claims for income Taxes, interest, penalties,
fines or excise Taxes with respect thereto);
(v) all materially required reports, returns and similar
documents with respect to the Benefit Plans required to be filed with any
governmental agency have been so filed on or before their due date; or
(vi) TechStore has no obligation to provide health or other
welfare benefits to former, retired or terminated employees, except as
specifically required under Section 4980B of the Code or Section 601 of ERISA.
TechStore has materially complied with the notice and continuation
requirements of Section 4980B of the Code or Section 601 of ERISA and the
regulations thereunder.
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3.19. Labor Relations and Employment Matters.
(a) Labor Relations. Except as set forth in Schedule
3.19(a), none of TechStore's employees is represented by any labor union.
There have been no material violations of any federal, state or local
statutes, laws, ordinances, rules, regulations, orders or directives with
respect to the employment of individuals by, or the employment practices or
work conditions of TechStore in connection with the Business or the terms and
conditions of employment or wages and hours. Except as set forth in Schedule
3.19(a), TechStore, in connection with the Business, is not engaged in any
unfair labor practice or other unlawful employment practice and there has not
been, nor to the knowledge of each of the Contributors is there threatened or
contemplated any charges of unfair labor practices or other employee-related
complaints or investigations pending or threatened against TechStore before
the National Labor Relations Board, the Equal Employment Opportunity
Commission, the Occupational Safety and Health Review Commission, the Internal
Revenue Service, the Pension Benefit Guaranty Corporation, the Immigration and
Naturalization Service, the Department of Labor, the state or local equal
employment opportunity authority, state department of labor (or labor
commission or wage and hour occupational safety and health authority, state
authority), state workers' compensation authority, state unemployment
insurance/ compensation authority or any other federal, state, local or other
governmental authority. Except as set forth in Schedule 3.19(a), there is no
strike, picketing, slowdown, work stoppage, grievance or organizational
attempt pending against TechStore nor, to the knowledge of each of the
Contributors, threatened against or involving the Business. No issue with
respect to union representation is pending against TechStore nor to the
knowledge of each of the Contributors, threatened with respect to the
employees of the Business. Except as set forth in Schedule 3.19(a), no union
or collective bargaining unit or other labor organization has ever been
certified or recognized by the Business as the representative of any of the
employees of the Business.
(b) No Litigation. Except as set forth in Schedule 3.19(b),
to the best of each Contributor's knowledge, no wrongful discharge, breach of
contract (written, oral or implied), discrimination, defamation or other
employment-related litigation of any kind is pending or threatened against
TechStore, nor does any basis therefor exist.
(c) Compliance with IRCA and COBRA. Each of the
Contributors warrants that TechStore has complied with all requirements and
regulations under the Immigration Reform and Control Act of 1986 ("IRCA"),
concerning the review, collection and retention of evidence of the legal right
of each of TechStore's covered employees to live and work in the United States
(including, but not limited to, Immigration and Naturalization Service "I-9"
forms), and under Consolidated Omnibus Budget Reconciliation Act of 1985
("COBRA"), concerning providing eligible employees and dependents notice of
their rights to continue group health insurance coverage, if any, at rates
permitted by COBRA in the event of certain qualifying events.
3.20. Increases in Compensation or Benefits. Subsequent to December
1, 1998 and except as set forth in Schedule 3.20, there have been no increases
in the compensation of any TechStore's employees' current salary payable or to
become payable to any of the employees of TechStore in connection with the
Business and there have been no payments or provisions for any awards,
bonuses, stock options, loans, profit sharing, pension, retirement or welfare
plans or similar or other disbursements or arrangements for or on behalf of
such employees (or related parties thereof), in each case, other than (i)
pursuant to currently existing plans or arrangements, or (ii) as was required
from time to time by governmental legislation affecting wages. All bonuses
heretofore granted to employees of the Business have been paid in full to such
employees.
3.21. Insurance. TechStore, in connection with the Business,
maintains insurance policies covering all the material Assets and properties
of the Business and the various occurrences that may arise in connection with
the operation of the Business. Such policies are in full force and effect and
no premiums are more than thirty (30) days past due. TechStore, in connection
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with the Business, has complied with all the material provisions of such
policies. To the knowledge of each Contributor, such insurance is of
comparable amounts and coverage as that which companies engaged in similar
businesses maintain in accordance with reasonable business practices. Each of
the Contributors has no knowledge of any written notices of any pending or
threatened termination or premium increases with respect to any of such
policies. Neither TechStore, in connection with the Business, nor the Business
has had any casualty loss or occurrence which may give rise to any claim of
any kind not covered by insurance and each of the Contributors has no
knowledge of any occurrence which may give rise to any claim of any kind not
covered by insurance, subject to a reasonable deductible. To the knowledge of
each Contributor, all claims against TechStore, in connection with the
Business, or the Business covered by insurance have been reported to the
insurance carrier on a timely basis. To the knowledge of each Contributor,
none of the insurance policies of TechStore, in connection with the Business,
or the Business will terminate or be adversely affected by the consummation of
the transactions contemplated by this Agreement.
3.22. Conduct of Business. TechStore is not restricted from
conducting the Business in any location by agreement or court decree.
3.23. Accounts Payable, Indebtedness, Etc. The accounts and notes
payable and accrued expenses reflected on the most recent balance sheet of
TechStore and the accounts and notes payable and accrued expenses incurred by
TechStore in connection with the Business after the date of such balance sheet
are in all respects valid claims that arose in the ordinary course of
business. Since December 31, 1998, the accounts and notes payable, accrued
expenses and debts of the Contributor in connection with the Business have
been paid in a manner consistent with past practice.
3.24. Licensure, Etc. To the knowledge of each Contributor, each
individual employed or contracted with by TechStore in connection with the
Business, who is required to be licensed by any governmental entity to perform
his or her job services is duly licensed to provide such services and is
otherwise in material compliance with all federal, state and local laws, rules
and regulations relating to such professional licensure and otherwise meets
the qualifications to provide such services.
3.25. Books and Records. The books and records of TechStore are
complete and correct in all material respects and have been maintained in
accordance with good business practices.
3.26. Accuracy of Information. No representation or warranty by the
Contributors in this Agreement and no information contained herein or
otherwise delivered to the Company contains any untrue statement of a material
fact or omits to state any material fact necessary in order to make the
statements contained herein or therein not misleading.
3.27. Transactions with Certain Persons. Except as set forth in
Schedule 3.27, none of the directors or officers of TechStore, nor any of the
Contributors or members of their respective families, is a party to any
transaction with TechStore, including, without limitation, any contract,
agreement or other arrangement (i)providing for the furnishing of services by,
(ii)providing for the rental of real estate or personal property from, or
(iii) otherwise requiring payments (other than for services as an officer,
director or employee) to any such person or to any corporation, partnership,
trust or other entity in which any such person has, directly or indirectly, an
interest as an officer, director, trustee, stockholder or partner. There is no
property, tangible or intangible, real or personal, valued in excess of
$10,000 which is (a) owned by any Contributor or member of his family, any
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current or former officer, director or stockholder of the Company, or persons
not dealing with any of them at arms length, and (b) which is presently used
by TechStore in connection with its business.
3.28. No Brokers. Neither of the Contributors has entered into any
agreement, arrangement or understanding with any person or firm which will
result in an obligation of any of the parties to this Agreement to pay any
finder's fee, brokerage commission or similar payment in connection with the
transactions contemplated hereby.
ARTICLE 4 - THE COMPANY'S REPRESENTATIONS AND WARRANTIES
As a condition to the performance by the Contributors of their
obligations under this Agreement, the Company hereby represents and warrants
to the Contributors as follows as of the execution date of this Agreement:
4.1. Execution and Delivery. This Agreement has been duly executed
and delivered by the Company and is valid and binding obligation enforceable
against the Company in accordance with its terms.
4.2. Consents and Approvals. Except for filings required by
applicable securities laws, no consent, approval or authorization of, or
declaration, filing or registration with, any United States federal or state
governmental or regulatory authority is required to be made or obtained by the
Company in connection with the execution, delivery and performance of this
Agreement and the consummation of the acquisition of the Contributed
Interests.
4.3. No Brokers. The Company has not employed, and is not subject to
the valid claim of, any broker, finder, consultant or other intermediary in
connection with the transactions contemplated by this Agreement who might be
entitled to a fee or commission in connection with such transactions.
4.4. No Conflict or Violation. Neither the execution and delivery of
this Agreement nor the consummation of the sale of the Contributed Interests
will result in a violation by the Company of any statute, rule, regulation,
ordinance, code, order, judgment, writ, injunction, decree or award.
4.5. Acquisition for Investment. The Contributed Interests being
purchased by the Company hereunder are being purchased by the Company in good
faith for investment for its own account and not with a view to a distribution
or resale of any of such Contributed Interests in violation of any applicable
securities laws, subject nevertheless to any requirement at law that the
disposition of the Company's property shall at all times be within the
Company's control.
4.6. Accredited Investor. The Company acknowledges that it is an
"accredited investor" as defined in Rule 501 under the Securities Act of 1933,
as amended (the "Securities Act").
4.7. Legend. The certificates representing the Contributed Interests
to be delivered to the Company hereunder shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
ANY STATE SECURITIES LAWS AND MAY BE OFFERED, SOLD OR TRANSFERRED ONLY IF SO
REGISTERED OR IF EXEMPTIONS FROM SUCH REGISTRATION REQUIREMENTS ARE AVAILABLE.
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NO TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE MADE
EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR (B) IF THE COMPANY HAS BEEN
FURNISHED WITH AN OPINION OF COUNSEL FOR THE HOLDER (WHICH COUNSEL SHALL BE
ACCEPTABLE TO THE COMPANY), SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY,
TO THE EFFECT THAT SUCH TRANSFER IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF
THE ACT AND THE RULES AND REGULATIONS IN EFFECT THEREUNDER."
4.8. Securities Unregistered. The Company acknowledges that it has
been advised that (a) the Contributed Interests to be delivered to the Company
hereunder will not have been registered under the Securities Act of 1933, as
amended, and the rules and regulations promulgated thereunder (the "Act"), (b)
such Contributed Interests must be held indefinitely, and the Company must
continue to bear the economic risk of the investment in such Contributed
Interests unless they are subsequently registered under the Act or an
exemption from such registration is available, (c) there may not be a public
market for such Contributed Interests, (d) Rule 144 promulgated under the Act
is not presently available with respect to the sale of any securities of the
Company, and the Company has made no covenant to make such Rule available, (e)
when and if the Contributed Interests may be disposed of without registration
in reliance on Rule 144, such disposition can be made only in limited amounts
in accordance with the terms and conditions of such Rule, (f) if the Rule 144
exemption is not available, public sale without registration will require
compliance with Regulation A or some other exemption under the Act and (g) a
restrictive legend in the form heretofore set forth shall be placed on the
certificates representing the Contributed Interests.
4.9. Issuance of Exchange Shares. The Exchange Shares have been duly
authorized by all necessary corporate action on the part of the Company and
are validly issued, fully paid, and non-assessable, and each of the
Contributors will acquire valid title to such shares, free and clear of any
encumbrances.
4.10. Stock. All issued and outstanding shares of Company Common
Stock and the Series A Preferred Stock have been validly issued and are fully
paid and non-assessable, have not been issued in violation of and are not
currently subject to, any preemptive rights.
4.11. Books and Records. The books and records of the Company are
complete and correct in all material respects and have been maintained in
accordance with good business practices.
4.12. Accuracy of Information. No representation or warranty by the
Company in this Agreement and no information contained herein or otherwise
delivered to the Contributors contains any untrue statement of a material fact
or omits to state any material fact necessary in order to make the statements
contained herein or therein not misleading.
ARTICLE 5 - ROLL-UP COVENANT OF THE CONTRIBUTORS
Each Contributor hereby covenants to the Company to use the
Contributor's good faith, reasonable efforts to effect the Roll-Up as soon as
practicable.
ARTICLE 6 - CONDITIONS
6.1 Conditions to Obligations of the Contributors and the Company. The
respective obligations of each party to consummate the Exchange shall be subject
to the fulfillment, at or prior to the Closing, of the following conditions:
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(a) No Injunction. Neither the Company nor TechStore
shall be subject any order, decree or injunction of a
court of competent jurisdiction within the United
States which i) prevents or materially delays the
consummation of the Exchange, or (ii) would impose
any material limitation on the ability of the Company
effectively to exercise full rights of ownership of
TechStore or the assets or business of TechStore.
(b) No governmental Proceeding or Litigation. No
investigation and no suit, action or proceeding
before any court or any governmental or regulatory
authority shall be pending or threatened by any state
or federal governmental or regulatory authority
against the Company, TechStore, or any of their
affiliates, associates, officers or directors seeking
to restrain, prevent or change in any material
respect the transaction contemplated hereby or
seeking damages in connection with such transactions.
(c) Consents. TechStore shall have obtained all permits,
authorizations, consents and approvals referred to in
Section 3.4 hereof in form and substance satisfactory
to such parties, and they shall have received
evidence satisfactory to them of the receipt of such
permits, authorizations, consents and approvals.
(d) Transaction. A definitive agreement to merge with and
into Computer Marketplace, Inc. or TriStep shall be
executed.
6.2 Conditions to Obligations of the Company. The obligations of the
Company to consummate the Exchange shall be subject to the fulfillment, at or
prior to the Closing, of the following additional conditions:
(a) Representations and Warranties True. The
representations and warranties of the Contributors
contained herein shall be true and correct in all
material respects on the date of this Agreement, and
(except as to representations that specify a
particular time) on the Closing Date as though such
representations and warranties were made on that
date.
(b) Performance. The Contributors shall have performed
and complied in all material respects with all
agreements, obligations and conditions required by
this Agreement to be performed or complied with by
them on or prior to the Closing.
(c) Absence of Material Adverse Change. Since December
31, 1998, there has been no material adverse change,
nor the occurrence of any event reasonably likely to
cause a material adverse change, in the business,
operations, properties, assets, liabilities,
condition (financial or otherwise), or future
prospects of the TechStore, whether or not occurring
in the ordinary course of business, except for any
change directly resulting from action of TechStore
that was disclosed to the Company and to which the
Company consented.
6.3 Conditions to Obligations of the Contributors. The obligations of
the Contributors to consummate the Exchange shall be subject to the fulfillment
at or prior to the Closing of the following additional conditions:
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(a) Representations and Warranties True. The
representations and warranties of the Company
contained herein shall be true and correct in all
material respects on the date of this Agreement and
on the Closing Date (except as to representations
that specify a particular time) as though such
representations and warranties were made on that
date.
(b) Performance. The Company shall have performed and
complied in all material respects with all agreements
obligations and conditions required by this Agreement
to be performed or complied with by them on or prior
to the Closing.
ARTICLE 7 - CLOSING
Subject to the provisions of Articles 6, the closing of the Exchange
(the "Closing") shall take place at the offices of Gateway Advisors, Inc., 675
North 1st Street, 10th Floor, San Jose, California, at 11:00 a.m., on March 31,
1999, or at such other time and place as the Contributors and the Company
mutually agree upon orally or in writing (which time and place are designated
as the "Closing") The date on which the Closing actually occurs is herein
referred to as the "Closing Date."
ARTICLE 8 - MISCELLANEOUS
8.1 Binding Effect. The provisions of this Agreement shall be binding
upon and inure to the benefit of the Parties hereto and their respective heirs,
legal representatives, successors and assigns.
8.2 Amendment. This Agreement may be amended only by a written
instrument signed by the Parties hereto which specifically states that it is
amending this Agreement.
8.3 Applicable Law. The laws of the State of California shall govern
the interpretation, validity and performance of the terms of this Agreement,
regardless of the law that might be applied under principles of conflicts of
law.
8.4 Notices. All notices and other communications provided for herein
shall be in writing and shall be deemed to have been duly given if delivered
personally or sent by registered or certified mail, return receipt requested,
postage prepaid, to the Party to whom it is directed at the address set forth
below each party's signature, or such other address as the Company shall have
specified by notice in writing to the Contributors or an Contributor shall have
specified by notice in writing to the Company.
8.5 Recapitalizations, etc. The provisions of this Agreement shall
apply, to the full extent set forth herein with respect to the Exchange Shares,
to any and all shares of capital stock of the Company or any capital stock,
partnership units or any other security evidencing ownership interests in any
successor or assign of the Company (whether by merger, consolidation, sale of
assets or otherwise) which may be issued in respect of, in exchange for, or in
substitution of the Common Stock by reason of any stock dividend, split,
reverse split, combination, recapitalization, liquidation, reclassification,
merger, consolidation or otherwise.
8.6 Remedies. The Parties acknowledge that it would be impossible to
fix money damages and that violations of this Agreement will cause irreparable
injury for which adequate remedy at law is not available and, therefore, this
Agreement must be enforced by specific performance or injunctive relief. The
Parties agree that any Party may, in its sole discretion, apply to any court of
competent jurisdiction for specific performance or injunctive or such other
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relief as such court may deem just and proper in order to enforce this
Agreement or prevent any violation hereof and, to the extent permitted by
applicable law, each Party waives any objection or defense to the imposition of
such relief. Nothing herein shall be construed to prohibit any party from
bringing any action for damages in addition to an action for specific
performance or an injunction for a breach of this Agreement.
8.7 Domain Names. The Parties hereto agree and acknowledge that the
following domain names are the personal property of Bejan Aminifard:
Sharam.com, mosen.com, mohsen.com, houtsma.com, mswallet.com,
techdeveloper.com, techcompare.com, techjournal.com, paid2much.com,
paidtoomuch.com, paidtomuch.com, msnstore.com, intelliprice.com,
inteliprice.com, builditbest.com, and vwallet.com.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of
the date hereof.
CONTRIBUTORS: E-Taxi, Inc.:
By: /s/ ROBERT M. WALLACE
- ------------------------------- ---------------------------------
Gateway Advisors Inc. Robert M. Wallace
President
- -------------------------------
Bejan Aminifard
- -------------------------------
Mosen Aminifard
- -------------------------------
Derek Wall
15
EXHIBIT 10.9
CONSULTING AGREEMENT BETWEEN THE COMPANY AND
THOMAS BROWNE DATED AS OF APRIL 26, 1999
<PAGE>
COMPUTER MARKETPLACE, INC.
CONSULTING AGREEMENT
THIS CONTRACT is made by and between Computer Marketplace, Inc., a Delaware
corporation (the "Company"), and Thomas Browne (the "Consultant"), as of April
13, 1999.
RECITALS
A. In connection with the conduct of the Company's business, the Company
desires to acquire the services of the Consultant in order to serve as a
financial advisor, providing financial accounting expertise and evaluations of
possible acquisitions; and
B. The Consultant is willing to make a commitment to serve as a consultant
to the Company upon the terms and conditions contained herein.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises below, the Company
hereby engages the Consultant and the Consultant hereby accepts engagement with
the Company in accordance with the terms and conditions set forth in this
Agreement.
1. Consulting Services. The Company hereby retains the Consultant and the
consultant hereby accepts such retention by Company, for the period and upon the
terms and conditions set forth in this Agreement. For the term of this
Agreement, the Consultant shall serve, to the best of the Consultant's ability,
as a financial advisor to the Company.
2. Duties.
(a) The Consultant shall serve the Company generally as a financial
advisor, providing financial accounting services, evaluations of possible
acquisitions, and such other matters relating to the Company as may be requested
by the Company from time to time. The Consultant will assist in the structuring,
negotiating, and financings of acquisitions.
(b) Throughout the Term (as defined herein), the Consultant shall
devote his best efforts to the performance of his duties hereunder in a manner
which will faithfully and diligently further the business interests of the
Company. It is anticipated that over the Term the Consultant will devote such
time to the performance of his duties hereunder as is reasonably requested by
the Company from time to time. The Company hereby acknowledges that his duties
under this Agreement will be subordinated to the performance of his current
employment obligations with Infoseek.
3. Term. This Agreement, and the Consultant's engagement hereunder, shall
terminate September 30, 1999, or upon delivery of thirty (30) day written notice
by one party to the other (the "Term"). At the earlier of the end of the Term or
the discontinuation of Consultant's employment with Infoseek, the parties agree
to negotiate in good faith towards establishing a permanent employment
arrangement that will include, among other terms, a stock option grant to
purchase 250,000 shares of common stock of the Company and a base salary of
$150,000. On termination of this Agreement, the Company's obligation to pay any
compensation, except for services or expenses already accrued or incurred, shall
terminate.
<PAGE>
4. Compensation.
(a) Grant of Options. As compensation for services to be rendered by
the Consultant during the Term, the Company hereby grants options (the
"Options") to purchase 125,000 shares of the Company's common stock, par value
$.0001 per share (the `Common Stock") under the Company's 1999 Stock Option
Plan, for an exercise price of $2.50 (based upon the closing price of $2.8125
for the Common Stock on the date hereof). The Options will vest monthly (on the
last day of each calendar month) in increments of 25,000, commencing May 1,1999.
The Company agrees to register these shares under a S-8 Registration Statement.
(b) Travel Expenses. The Company shall reimburse the Consultant for
all substantial out-of-pocket expenses ( transportation, hotel, meals)
reasonably incurred by the Consultant in connection with any trip made by the
Consultant at the specific request and with the prior approval of the Company.
(c) Other Expenses. The Company shall reimburse the Consultant for all
other reasonable expenses actually incurred that are incidental to the services
performed hereunder and that have been approved by the Company.
5. Independent Contractor. The Company shall neither exercise nor have any
right to control the Consultant as to the means by which the Consultant's work
is to be accomplished. The Consultant's relationship with the Company shall be
that of an independent contractor and nothing in this Agreement shall be
construed to create an employer-employee relationship between the parties. The
Consultant shall hold harmless the Company, its officers, agents and employees,
from and against any and all liability, loss or expenses of every kind on
account of injuries (including death) to the Consultant, the Consultant's
employees or agents, if any, or any other party, or loss of or damage to the
Company's, the Consultant's or any other party's property, arising out of the
Consultant's performance of services hereunder, unless caused by the negligence
of the Company or its employees.
6. Indemnification by Company. Company shall indemnify Consultant, its
affiliates, employees and agents, (the "Indemnitees"), for the cost of defense
and damages awarded, if any, arising out of any claim or lawsuit resulting from
the negligence of Company, provided such claim was not in any way caused by the
negligence or misconduct of Indemnitee.
7. Proprietary Information. The Consultant understands that during the
Consultant's arrangement with the Company the Consultant may produce, obtain,
make known or learn about certain information which has commercial value in the
business in which the Company is engaged and which is treated by the Company as
confidential. This information may have been created, discovered or developed by
the Company or otherwise received by the Company from third parties subject to a
duty to maintain the confidentiality of such information. All such information
is hereinafter called "Proprietary Information."
(a) Proprietary Information Defined. By way of illustration, but not
limitation, Proprietary Information includes trade secrets, ideas, processes,
formulas, materials, substances, source codes, data, programs, other original
works of authorship, know-how, improvements, discoveries, developments, designs,
inventions, techniques, marketing plans, strategies, forecasts, new products,
unpublished financial statements, budgets, projections, licenses, prices, costs
and customer and supplier lists.
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<PAGE>
(b) Ownership of Proprietary Information. The Consultant understands
that all Proprietary Information shall be the sole property of the Company and
its assigns (or, in some cases, its clients, suppliers or customers), and the
Company and its assigns (or, in some cases, its clients, suppliers or customers)
shall be the sole owner of all patents, copyrights and other rights in
connection therewith. The Consultant hereby assigns to the Company any rights
the Consultant may have or acquire in such Proprietary Information. At all
times, both during the Consultant's employment by the Company and after its
termination, the Consultant will keep in strictest confidence and trust all
Proprietary Information, and the Consultant will not use, reproduce or disclose
any Proprietary Information without the written consent of the Company, except
as may be necessary in the ordinary course of performing duties as a Consultant
to the Company.
(c) Maintenance of Records. The Consultant agrees to keep and maintain
adequate and current records of all Proprietary Information developed by the
Consultant (in the form of notes, sketches, drawings and as may be specified by
the Company), which records shall be available to and remain the sole property
of the Company at all times.
8. Conflicting Obligations
(a) Trade Secrets of Others. The Consultant represents that the
Consultant has not brought and will not bring with the Consultant to the
Company, or use in the performance of the Consultant's responsibilities at the
Company, any devices, materials or documents of a former employer or other party
that are proprietary or are not generally available to the public, unless the
Consultant has obtained express written authorization from the former employer
or other party for their possession and use.
(b) Conflicting Confidentiality Contracts. The Consultant agrees that
during the Consultant's arrangement with the Company, the Consultant will not
breach any obligation of confidentiality that the Consultant has to present or
former employers and others. The Consultant represents that the Consultant's
performance under the terms of this Agreement as a consultant to the Company
does not and will not breach any Agreement to keep in confidence proprietary
information acquired by the Consultant in confidence or in trust prior to the
Consultant's arrangement with the Company. The Consultant has not entered into,
and Consultant agrees the Consultant will not enter into, any Agreement, either
written or oral, in conflict herewith.
9. Termination of Consulting. In the event of the termination of the
Consultant's arrangement with the Company for any or no reason, the Consultant
will deliver to the Company all documents, notes, drawings, specifications,
programs, data, devices and other materials of any nature pertaining to the
Consultant's work with the Company and the Consultant will neither take with the
Consultant nor recreate any of the foregoing, any reproduction of any of the
foregoing or any Proprietary Information that is embodied in a tangible medium
of expression. Termination of the Consultant's Agreement shall not affect the
Consultant's obligation with respect to the Company's Proprietary Information
under this Agreement.
10. Assignment
(a) By the Consultant. The Consultant shall not be entitled to assign
(voluntarily or involuntarily) any of the Consultant's rights under this
Agreement (except the right to payment of money), nor to delegate any of the
Consultant's duties or obligations under this Agreement, without the prior
written consent of the Company.
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(b) By the Company. The rights of the Company hereunder may be
assigned by the Company to any other corporation or other business entity which
succeeds to all or substantially all of the business of the Company through
merger, consolidation, corporate reorganization, acquisition of all or
substantially all of the assets of the Company or otherwise, or to any parent or
majority-owned subsidiary of the Company; provided, however, that the
obligations of the Company under this Agreement shall be binding upon any such
transferee.
11. Equitable Remedies. The Consultant acknowledges and agrees that: (i)
the remedy of damages at law for any breach by the Consultant of the provisions
of Sections 7 or 8 would be inadequate and ineffective to protect the legitimate
interest of the Company; (ii) it would be extremely difficult to ascertain the
amount of monetary damages sustained by the Company and the amount of
compensation to the Company that would afford an adequate remedy in the event of
any breach by the Consultant of such provisions; and (iii) the Company would be
irrevocably harmed by any breach of such provisions. Accordingly, the Consultant
agrees that the Company shall be entitled to obtain injunctive or other
equitable relief in the event of any breach or threatened breach of any of the
provisions contained in Sections 7 or 8.
12. Entire Agreement. This Agreement and the Exhibit attached hereto
constitute the final, complete and exclusive Agreement of the parties and
supersede any prior agreements between the parties. The Consultant has not
relied on any previous oral or implied representations, inducements or
understandings of any kind or nature.
13. Waiver. No provision of this Agreement may be changed, modified,
released, discharged, abandoned or otherwise amended or waived, in whole or in
part, except by an instrument in writing signed by the party charged with such
an action.
14. Survival. The rights of either party for breach of this Agreement shall
survive any termination hereof.
15. Severability. To the extent that any of the Agreements set forth
herein, or any work, phrase, clause or sentence thereof, shall be found to be
illegal or unenforceable or unnecessary, it shall be deleted in such a manner so
as to make the Agreement, as modified, legal and enforceable under applicable
laws.
16. Miscellaneous
(a) Notices. Any notice required or permitted hereunder shall be given
in writing and shall be deemed effectively given upon personal delivery, telex
or facsimile transfer or three (3) days after deposit in the United States Post
Office, by registered or certified mail, with postage and fees prepaid,
addressed to the other party at the address shown on the last page hereof, or at
such other address as a party may designate by written notice to each of the
other parties hereto.
(b) Governing Law. This Agreement shall be governed for all purposes
by the law of the State of California as it applies to contract between
California residents, made and to be performed entirely within the State of
California.
(c) Arbitration. Any inability to agree on a matter to be agreed upon
by the parties hereto, or any dispute, controversy or claim arising out of, or
related to this Agreement, or the breach thereof, shall be settled by
arbitration in California in accordance with the then-existing rules of the
American Arbitration Association ("AAA"). Any award or decision by the
4
<PAGE>
arbitrators shall be final and binding upon the parties, and judgment thereon
may be entered in any court having jurisdiction thereof. The arbitrators shall
apply the law as set forth in Sub-Section 16(b) of this Agreement.
(d) Counterparts. This Agreement may be signed in two counterparts,
each of which shall be deemed an original and both of which shall together
constitute one Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
COMPUTER MARKETPLACE, INC., THOMAS BROWNE
a Delaware Corporation
/s/ ROBERT M. WALLACE /s/ THOMAS BROWNE
- --------------------------------- ----------------------------------
Robert M. Wallace Thomas Browne
Chairman of the Board
-----------------------------------
Consultant's Social Security or
Federal Employer Identification No.
5
EXHIBIT 10.12
STOCK PURCHASE AGREEMENT ENTERED INTO ON OCTOBER 12, 1999 AND
DATED AS OF JUNE 30, 1999 AMONG THE COMPANY,
BRIAN HINTERGARDT AND MAURICE LATHOUWERS
<PAGE>
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (the "Agreement") dated as of June 30,
1999, by and among Computer Marketplace, Inc., a Delaware corporation (the
"Seller"), Brian Hintergardt, an individual residing at 20215 Eyota Court, Apple
Valley, CA 92308 ("Hintergardt"), and Maurice Lathouwers, and individual
residing at 6271 Monita Street, Long Beach, CA 90803 ("Lathouwers" with
Hintergardt, the "Purchasers", and individually each a "Purchaser").
R E C I T A L S:
WHEREAS, the Seller is the owner of two million five hundred thousand
(2,500,000) shares (the "Shares") of Common Stock, par value $.0001 per share
("Common Stock"), of Medical Marketplace, Inc., a Delaware corporation (the
"Company"), constituting all of the issued and outstanding capital stock of the
Company; and
WHEREAS, New Millennium Leasing, Inc. is a wholly owned subsidiary of
Medical Marketplace, Inc.; and
WHEREAS, the Seller desires to sell to the Purchasers, and the
Purchasers desire to acquire from Seller the Shares, on the terms and conditions
set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and of the terms and
conditions herein contained, the parties mutually agree as follows and for other
good and valuable consideration the receipt and sufficiency of which is hereby
acknowledged:
1. PURCHASE OF SECURITIES; TERMS OF PAYMENT.
1.1 Sale and Purchase. Subject to the terms and conditions set forth in
this Agreement, the Seller agrees to sell and deliver to the Purchasers, and the
Purchasers agrees to purchase from the Seller on the closing date (the "Closing
Date") all of the Shares.
1.2 Purchase Price. On the Closing Date, the Purchasers shall deliver
to Seller an aggregate purchase price of sixty-five thousand dollars ($65,000)
payable (i) by wire transfer (or delivery of a certified check) by Purchasers to
Seller of forty thousand dollars ($40,000), and (ii) delivery of an executed
Secured Promissory Note by Purchasers in the principal amount of twenty five
thousand dollars ($25,000), a form of which is attached hereto as Exhibit A (the
"Note").
2. CLOSING.
2.1 Closing and Closing Date. The closing (the "Closing") shall take
place as of the date hereof (the "Closing Date"). The Purchasers and the Seller
agree that, at or before the Closing, they shall perform all such acts and
execute and deliver all such documents as may be required to consummate the
purchase of the Shares, including, but not limited to, the delivery of 50% of
the Shares accompanied by a stock power which evidences the transfer of the
Shares from Seller to each of the Purchasers.
2.2 Conditions to Closing. The Closing shall be subject to satisfaction
of the condition that on the Closing Date the representations, warranties and
covenants of (i) the Seller contained in Section 3 hereof, and (ii) the
Purchasers contained in Section 4 hereof, shall then be true in all respects.
<PAGE>
2.3 Books and Records. At or prior to the Closing, Seller will deliver
to the Purchasers a copy of (i) all audited financial statements of Seller,
including financial statements of the Company, and (ii) all state and federal
tax returns filed by the Company with the appropriate taxing authorities, since
the inception of the Company. In addition, upon filing of Seller's Annual Report
on Form 10-KSB for the year ended June 30, 1999, Seller shall deliver a copy
thereof to the Purchasers including the financial statements of the Company
included therein. Each of the parties agrees to assist the Purchasers (and the
Company) as reasonably necessary by delivering copies of books and records
within its control.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SELLER. The Seller
represents, warrants and covenant to Purchasers as follows:
3.1 Authorization. The Seller has the full legal right, power and all
authority and approval required to enter into, execute and deliver this
Agreement and to perform fully his obligations hereunder. The execution and
delivery of this Agreement and the performance of Seller's obligations hereunder
does not and will not conflict with any agreement, judgment or order to which
Seller is a party.
3.2 Binding Obligation. Assuming the due execution and delivery of this
Agreement by the Purchasers, this Agreement constitutes the valid and binding
obligation of the Seller, enforceable against the Seller in accordance with its
terms, subject, as to enforcement, (i) to bankruptcy, insolvency,
reorganization, arrangement, moratorium and other laws of general applicability
relating to or affecting creditors' rights and (ii) to general principles of
equity, whether such enforceability is considered in a proceeding in equity or
at law.
3.3 The Shares. The Seller warrants and represents that the Seller
holds the Shares free and clear of all liens, pledges, hypothecations, options,
contracts and other encumbrances ("Encumbrances"), and upon transfer from the
Seller to the Purchaser the Shares will remain free and clear of all
Encumbrances. Assuming execution and delivery by all holders of options to
purchase shares of the Company's capital stock of that certain option surrender
agreement, a form of which is attached hereto as Exhibit B, there are no
options, warrants or other securities convertible into or exercisable for any
shares of Company capital stock. All of the Shares have been fully paid and
validly issued in compliance will applicable laws.
3.4 Sale of Stock by Purchaser. At or prior to the Closing, the Seller
agrees to use its best efforts to assist Hintergardt in selling shares of
Seller's common stock beneficially owned by him.
3.5 Government Filings. So long as information provided by Purchasers
regarding the Company is accurate, correct and complete, the Seller believes
that all required state and federal governmental filings, including all tax
returns, have been timely and accurately filed with the appropriate taxing
authorities.
3.6 Obligations of the Company. To Seller's knowledge, Seller has not
incurred any undisclosed liability or other obligation on behalf of the Company.
3.7 True as of Closing Date. The Seller warrants and represents that
the warranties and representations contained in this Section 3 are true and
correct in all respects as of the Closing Date.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASERS. Each of
the Purchasers represent, warrant and covenant to Seller with respect to himself
as follows:
2
<PAGE>
4.1 Authorization. Each of the Purchasers has the full legal right,
power and all authority and approval required to enter into, execute and deliver
this Agreement and to perform fully his obligations hereunder. The execution and
delivery of this Agreement and the performance of Seller's obligations hereunder
does not and will not conflict with any agreement, judgment or order to which a
Purchaser is a party.
4.2 Binding Obligation. Assuming the due execution and delivery of this
Agreement by the Seller, this Agreement constitutes the valid and binding
obligation of each of the Purchasers, enforceable against each Purchaser in
accordance with its terms, subject, as to enforcement, (i) to bankruptcy,
insolvency, reorganization, arrangement, moratorium and other laws of general
applicability relating to or affecting creditors' rights and (ii) to general
principles of equity, whether such enforceability is considered in a proceeding
in equity or at law.
4.3 Investment Representations. The transfer of the Shares in this
transaction is intended to be a private transaction exempt from registration
under the Securities Act of 1933, as amended (the "Securities Act"), and is made
in reliance upon the representations set forth below:
(a) Each of the Purchasers is acquiring the Shares for his own account
for investment only and not with a view to, or for sale in connection with, a
distribution of the Shares in violation of the Securities Act and any applicable
state securities or blue-sky laws;
(b) Each of the Purchasers acknowledge to the Seller that:
(i) each Purchaser understands that the Shares have not been
registered under the Securities Act or under the laws of any state on the basis
that the transfer thereof contemplated by this Agreement is exempt from such
registration and the certificate representing the Shares shall contain a
restrictive legend reflecting the fact that the Shares have not been registered;
(ii) the Seller's reliance on the availability of such
exemption is, in part, based upon the accuracy and truthfulness of each
Purchaser's representations contained herein;
(iii) the Shares cannot be resold without registration or an
exemption under the Securities Act and such state securities laws, and that
certificates representing the Shares will bear a restrictive legend to such
effect; and
(iv) each Purchaser has evaluated the merits and risks of
acquiring the Shares and has such knowledge and experience in financial and
business matters and is capable of evaluating the merits and risks of such
acquisition, is aware of and has considered the financial risks and financial
hazards of acquiring the Shares, and is able to bear the economic risk of
acquiring the Shares, including the possibility of a complete loss with respect
thereto.
4.4 Operation of the Company. Except as set forth on Schedule 4.4 to
this Agreement, there are no liabilities, losses, claims or events or
circumstances, contingent or otherwise, which may because of the Company's
failure to perform, or the passage of time, or both, result in a liability, loss
or claim against the Seller (a "Company Liability"). Until (i) the Note has been
paid in full or the obligations thereunder have been deemed satisfied and (ii)
there are no potential Company Liabilities, each of the Purchasers shall use its
best efforts to operate the business of Medical Marketplace in compliance with
all applicable laws, rules and regulations and consistent with good business
practices. Further, until (i) the Note has been paid in full or the obligations
thereunder have been deemed satisfied and (ii) all Company Liabilities have
terminated to the reasonable satisfaction of Seller, the Purchasers shall not
permit the Company (or its affiliates) to pay more than a total of $23,600 (plus
3
<PAGE>
customary health benefits and life insurance payments made heretofore by the
Company) during any calendar month as salary, wages, bonuses or other
compensation to all employees, consultants, officers, directors, partners, and
co-venturers, without the Seller's prior written consent, except that the
Company may pay reasonable and customary fees to third parties who have
introduced transactions to the Company and such introduced transactions were
consummated prior to any payment thereto. Each of the Purchaser's acknowledge
and understand that a material breach of this covenant shall permit the Seller,
under the terms of the Note, to accelerate the Note, and seize the Pledged
Collateral (as defined in the Note).
4.5 Books and Records; Audits. Each of the Purchasers shall cause the
Company to prepare and maintain complete and accurate books of account and
records. Until (i) the Note has been paid in full or deemed satisfied, or (ii)
all Company Liabilities have terminated to the reasonable satisfaction of
Seller. Seller and its duly authorized representatives have the right upon two
(2) days prior notice, during regular business hours, to audit said books of
account and records and examine all other documents and material in the
possession or under the control of the Company. Seller shall use its best
efforts to conduct such audit in manner as not to interfere with the Company's
normal business activities.
4.6 Assignment of Receivable. Each of the Purchasers shall cause the
Company to execute and deliver at the Closing an assignment of all rights of the
Company to receive the first $225,000 paid by Tommy Fox, d/b/a Arkansas Imaging
with respect to that certain Stipulation for Entry of Judgment, Case No. 315251
in the Superior Court of California, County of Riverside, or any other payment
made by Mr. Fox (the "Arkansas Imaging Judgment"), a form of which is attached
hereto as Exhibit C.
4.7 True as of Closing Date. Each of the Purchasers warrant and
represent that the warranties, representations and covenants contained in this
Section 4 are true and correct in all respects as of the Closing Date.
5. MISCELLANEOUS.
5.1 Disclosure. The Purchasers acknowledge as the senior managers of
the Company's business that they are familiar with the Company and are relying
solely on their own knowledge of the Company's business when they considered
entering into this Agreement and whether to consummate the transactions
contemplated hereby.
5.2 Indemnification. Each of the parties hereto agree to indemnify the
other party for any losses, claims or liabilities incurred by such party as a
result of , or arising of out of, a breach of its representations and warranties
contained in this Agreement.
5.3 Survival of Terms. All representations, warranties and covenants
contained in this Agreement or in any certificates or other instruments
delivered by or on behalf of the parties hereto shall be continuous and survive
the execution of this Agreement and the Closing.
5.4 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware (without regard to conflict of
laws).
5.5 Assignment. This Agreement shall be binding upon the parties hereto
and may not be assigned without the prior written consent of the other parties
hereto.
4
<PAGE>
5.6 No Waiver. Any waiver by either party to this Agreement of any
provision of this Agreement shall not be construed as a waiver of any other
provision of this Agreement, nor shall such waiver be construed as a waiver of
such provision respecting any future event or circumstance.
5.7 Notices. Notices hereunder shall be given only by personal
delivery, registered or certified mail, return receipt requested, overnight
courier service, or telex, telegram, facsimile or other form of electronic mail
and shall be deemed transmitted when personally delivered or deposited in the
mail or delivered to a courier service or a carrier for electronic transmittal
or electronically transmitted by facsimile (as the case may be), postage or
charges prepaid, and properly addressed to the particular party to whom the
notice is to be sent. Unless and until changed by notice given as provided
herein, notices shall be sent (i) to the Seller, at its corporate headquarters,
and (ii) to each of the Purchasers, at his address set forth on the first page
of this Agreement.
5.8 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
5.9 Variations in Pronouns. All pronouns and any variations thereof
shall be deemed to refer to the masculine, feminine or neuter, singular or
plural, as the identity of the antecedent person or persons or entity or
entities may require.
5.10 Headings. The headings used in this Agreement are for convenience
only and shall not by themselves determine the interpretation, construction or
meaning of this Agreement.
5.11 Binding Effect; Release of Inter-Company Indebtedness. This
Agreement and the Note, constitute and contain the entire agreement of the
parties with respect to the subject matter hereof and supersede any and all
prior negotiations, correspondence, understandings and agreements between the
parties with respect hereto. This Agreement may be amended or modified only by a
written instrument signed by the parties hereto. The Seller and each of the
Purchasers, on behalf of themselves and the Company, hereby release and
discharge all indebtedness and other obligation existing as of the date hereof
from Seller to the Company, and from the Company to the Seller, except for the
indebtedness and obligations contemplated by this Purchase Agreement and the
Note.
5.12 Additional Assurances. Each of the parties agrees to furnish to
the other party, promptly upon request therefor, such additional documents or
instruments, if any, in connection with the sale of the Shares to the
Purchasers.
5
<PAGE>
IN WITNESS WHEREOF, the Purchaser and the Seller have caused this
Agreement to be executed as of the day and year first above written.
COMPUTER MARKETPLACE, INC.
By: /s/ L. Wayne Kiley
-------------------------------------
Name: L. Wayne Kiley
Title: Chief Executive Officer
/s/ Brian Hintergardt
-------------------------------------
Brian Hintergardt
/s/ Maurice Lathouwers
-------------------------------------
Maurice Lathouwers
6
EXHIBIT 21.01
SUBSIDIARIES OF THE REGISTRANT
<PAGE>
EXHIBIT 21.01
SUBSIDIARIES OF EMARKETPLACE, INC.
Medical Marketplace, Inc. a Delaware corporation.
New Millenium Leasing, Inc., a Delaware corporation and indirect subsidiary.
E-Taxi, Inc., a Delaware corporation.
TechStore LLC, a California limited liability company
TechStore, Inc., a Delaware corporation and indirect subsidiary.
Office Express, Inc., a Delaware corporation.
Tristep Acquisition, Inc., a Delaware corporation.
TopTeam, Inc., a Delaware corporation.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000900475
<NAME> eMarketplace, Inc.
<MULTIPLIER> 1
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 1,255,966
<SECURITIES> 0
<RECEIVABLES> 62,350
<ALLOWANCES> 5,032
<INVENTORY> 0
<CURRENT-ASSETS> 1,348,344
<PP&E> 338,458
<DEPRECIATION> 294,503
<TOTAL-ASSETS> 12,833,813
<CURRENT-LIABILITIES> 1,792,986
<BONDS> 0
0
0
<COMMON> 1,269
<OTHER-SE> 11,039,558
<TOTAL-LIABILITY-AND-EQUITY> 12,833,813
<SALES> 2,208,855
<TOTAL-REVENUES> 2,208,855
<CGS> 2,061,725
<TOTAL-COSTS> 2,938,688
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,259
<INCOME-PRETAX> (728,297)
<INCOME-TAX> 0
<INCOME-CONTINUING> (728,297)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (728,297)
<EPS-BASIC> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
