UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB/A
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
Commission File No.: 0-27878
MCGLEN INTERNET GROUP, INC.
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(Name of small business issuer in its charter)
Delaware 13-3779546
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(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
3002 Dow Avenue Suite 114 Tustin, California 92780
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(Address of principal executive offices)(Zip code)
Issuer's telephone number: (714) 838-1240
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Title of each class
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Common Stock, $.03 par value
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 No
Check if there is no disclosure of delinquent filers in response to Item 405 of
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.
The issuer's revenues for the year ended December 31, 1999 were $27,494,000.
The aggregate market value of shares of Common Stock held by non-affiliates of
the registrant as reported by the NASDAQ SmallCap Market on April 12, 2000 was
$79,594,170 (computed on the basis of $2.50 per share, April 13, 2000 the last
reported sale price for shares of the Company's Common Stock on the NASDAQ
SmallCap Market as of such date).
As of April 12, 2000, the registrant had 31,837,668 outstanding shares of Common
Stock.
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Table of Contents
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Forward Looking Statements...................................................................................4
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PART I............................................................................................................4
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ITEM 1. BUSINESS..............................................................................................4
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General......................................................................................................4
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Business.....................................................................................................4
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Discontinued Operations......................................................................................5
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Industry Background..........................................................................................5
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Strategy.....................................................................................................5
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Websites.....................................................................................................5
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Products, Services, And Expansion............................................................................6
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Marketing....................................................................................................6
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Customer Service.............................................................................................8
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Warehousing, Fulfillment And Distribution....................................................................8
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Technology...................................................................................................8
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Competition..................................................................................................8
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Sales Tax....................................................................................................9
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Government Regulation........................................................................................9
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Employees...................................................................................................10
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Research and Development....................................................................................10
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Backlog.....................................................................................................10
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We may be unable to manage our growth.......................................................................13
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The electronic commerce market is intensely competitive.....................................................14
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The Company's stock has a small amount of public float and low trading volume...............................17
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Shipping and postage could increase our operating expenses..................................................17
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ITEM 2. DESCRIPTION OF PROPERTY..............................................................................18
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ITEM 3. LEGAL PROCEEDINGS....................................................................................18
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................................................18
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PART II..........................................................................................................18
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ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.............................................18
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................19
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Overview....................................................................................................19
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Results of Operations.......................................................................................20
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Liquidity and Capital Resources.............................................................................21
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Year 2000...................................................................................................23
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Inflation...................................................................................................24
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ITEM 7. FINANCIAL STATEMENTS..................................................................................24
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ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE..................24
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PART III.........................................................................................................24
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ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE
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EXCHANGE ACT..................................................................................................24
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(a) Information Relating to Executive Officers and Directors................................................24
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(b) Section 16(a) Reporting Delinquencies...................................................................26
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ITEM 10. EXECUTIVE COMPENSATION...............................................................................26
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(d) Executive Officer Employment Contracts.................................................................27
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ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.......................................27
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ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................................................28
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Acquisition of AMT..........................................................................................28
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Reverse Acquisition (Merger) with Mcglen Micro, Inc.........................................................28
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Mackenzie Shea, Inc.........................................................................................28
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Convertible Notes...........................................................................................28
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Finance Transaction with Synnex Information Technologies, Inc...............................................29
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Brokers Fees for the Synnex Transaction.....................................................................29
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Pre-Merger Mcglen Financings................................................................................29
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Pre-Merger Adrenalin Financing by Escaldade.................................................................29
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ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.....................................................................30
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SIGNATURES.......................................................................................................32
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Deferred.........................................................................................................39
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Pre-Merger Mcglen Financings................................................................................46
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Pre-Reverse Acquisition (Merger) Adrenalin Financing........................................................46
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Forward Looking Statements
This Annual Report on Form 10-K and the documents incorporated herein by
reference contain forward-looking statements based on current expectations,
estimates and projections about Mcglen Internet Group, Inc.'s industry,
management's beliefs and certain assumptions made by management. When used in
this report and elsewhere by management, from time to time, the words
"believes," "plans," "estimates," "intends," "anticipates," "seeks," and
"expects" and similar expressions are intended to identify forward-looking
statements. These forward-looking statements are not guarantees of future
performance and are subject to certain risks and uncertainties that are
difficult to predict. Accordingly, actual results may differ materially from
those anticipated or expressed in such statements. Potential risks and
uncertainties include, among others, those set forth herein under "Additional
Factors That May Affect Future Results." Particular attention should be paid to
the cautionary statements involving Mcglen Internet Group, Inc.'s limited
operating history, anticipated losses, unpredictability of future revenues,
potential fluctuations in operating results, systems failures, business
interruptions, capacity constraints, systems development, management of growth,
the intensely competitive nature of the electronic commerce industry and
reliance on third parties, manufacturers, distributors and suppliers. Readers
are cautioned not to place undue reliance on the forward-looking statements,
which speak only as of the date made. Except as required by law, Mcglen Internet
Group, Inc. undertakes no obligation to update any forward-looking statement,
whether as a result of new information, future events or otherwise. Readers,
however, should carefully review the factors set forth in other reports or
documents that Mcglen Internet Group, Inc. files from time to time with the
Securities and Exchange Commission ("SEC").
PART I
ITEM 1. BUSINESS
General
As used herein, "Mcglen", "we", "us", "the Company" and "our" refer to Mcglen
Internet Group, Inc. and our subsidiaries including Western Technologies, Inc.
("Western"), Mcglen Micro, Inc., and AMT Components, Inc. unless the context
requires otherwise. Western is the operating subsidiary of Adrenalin
Interactive, Inc., see paragraph immediately below and "Discontinued Operations"
below.
We were incorporated in Delaware in May 1994. In March 1995, we changed our name
to Wanderlust Interactive, Inc., and in May 1998, we changed our name to
Adrenalin Interactive, Inc. On December 2, 1999, we completed a reverse
acquisition with Mcglen Micro, Inc. in which the stockholders of Mcglen Micro,
Inc. acquired control of the Company through a reverse acquisition. As a result
of the acquisition, each share of Mcglen Micro, Inc. was converted into 0.988961
shares of the Company, with approximately 25,485,527 shares being issued to
Mcglen shareholders. On December 17, 1999, we changed our name to Mcglen
Internet Group, Inc., and changed our ticker symbol listed under NASDAQ SmallCap
System to MIGS.
Business
Mcglen Internet Group, Inc. is an Internet operating company focused on creating
multiple on-line business divisions targeting specific business-to-business and
business-to-consumer markets. Our centralized technology backbone and operations
infrastructure allows us to rapidly create focused on-line business divisions,
operate at low overhead cost, and maximize return on investment by creating
synergy among our business divisions. Our centralized operations division, which
includes call center, sourcing, warehousing, fulfillment, accounting, business
development, and information technology, supports order processing, logistics,
customer service, financial transactions, and core technology for our business
divisions are located in Tustin, California. Our business divisions may include
sales, marketing, content management, product management, and service management
teams to focus on building unique customer experiences for each business
division.
We currently offer more than 150,000 computer products on our three operating
on-line retail websites: Mcglen.com, AccessMicro.com, and Techsumer.com. We
offer different mixtures of computing technology, entertainment, and
communications products on these three websites based on the different target
market segment's buying patterns. Mcglen.com, launched in May 1996, and
AccessMicro.com, launched in June 1996, both have achieved Customer Certified
Gold Merchant status on BizRate.com, an independent on-line retail rating guide.
Gomez Advisor, an independent business rating guide, consistently rank
Mcglen.com and Accessmicro.com among the best sites to purchase computing
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products on the web in their Internet Computer Store Scorecard. Techsumer.com
was launched in November 1999. Net sales increased from $10.9 million for the
year ended December 31, 1998 to $27.5 million for the year ended December 31,
1999 with the Company's acquisition of AccessMicro.com in March 1999 and the
launch of Techsumer.com in November 1999.
The Company operates in one industry segment.
Discontinued Operations
In connection with the reverse acquisition of Adrenalin Interactive, Inc. in
December 1999, the Board of Directors of Mcglen voted to discontinue the
operations of Western Technologies, Inc, Adrenalin's operating subsidiary.
Western principally developed video games for use with Sony, Nintendo and Sega
video game consoles pursuant to funded contracts with video game developers,
entertainment titles for PCs and electronic toys including interactive,
Web-powered toys that are refreshed from a PC via the Internet. Western also
created interactive television games for digital set-top boxes and published or
licensed PC games in 24 countries and 15 languages. The Company anticipates
fulfilling two of the software development contract obligations currently being
conducted by Western during April 2000. Western has requested for two other
contracts to be terminated. An additional contract has been assigned to
Western's former Vice President of Operations for completion, releasing Mcglen
from any further contractual liability. However, Mcglen would still be
responsible for any product liability issues that may arise from the two
completed contracts.
Industry Background
The Internet allows millions of consumers and businesses to share information
and conduct business electronically. International Data Corporation ("IDC")
estimates that the worldwide Internet economy will grow past $1 trillion in
2001, and reach $2.8 trillion by 2003. IDC also reports that the number of users
who make purchases over the Web will jump from 31 million in 1998 to more than
183 million in 2003.
The growth of Internet is dependent upon a number of factors, including:
o Increased install-base and usage of personal computers and Internet devices
o Widely available and affordable access to the Internet
o Awareness and acceptance of Internet among consumers and businesses
o Increase in the capability and availability of network infrastructure
Strategy
Our goal is to create and operate market focused on-line businesses. We will
continue to expand our existing operating business divisions by enhancing brand
recognition, building awareness to our websites, and increasing the products and
services offerings provided on the websites. We intend to capitalize on our
existing technology backbone and operations infrastructure by developing and
operating new businesses targeting specific market segments worldwide. We intend
to create synergy among our operating businesses to maximize return on
investment.
Websites
We believe our market-focused websites provide unique on-line experience to
different target market segments. Based on the target market segment's
expectations and requirements, each of our websites' content design and product
mixture maximizes the perceived value of our offerings. Mcglen.com offers
computing technology products, targeting information technology professionals.
Accessmicro.com offers computing technology products, targeting small
businesses. Techsumer.com offers computing technology, communication products,
and entertainment products, targeting technology proficient consumers. We
believe ease of use is essential in any successful web site. To provide simple
and convenient purchasing experience, we developed key features for our
operating websites. The key features for our websites include:
o Browsing - We have categorized our current offering of more than 150,000
products into product groups, categories, and subcategories. Links to
product groups and categories are placed on each page for convenient
"one-click" access. Special sections are created for special offers and
promotional products to enhance exposure for hot selling, high margin
products that we update daily.
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o Specialized Browsing - Conventional categorization system assigns one
department, category, and subcategory to each product. For certain product
groups, finding the desired product under this categorization system is
difficult. We developed specialized categorization system for certain
product groups to minimize the search effort.
o Searching - We developed general keyword search, specific product
identification number search, and interactive guided criteria search to
facilitate precise product selection with minimal effort.
o Product Information - We provide detailed technical information for many of
the products we offer. Manufacturer technical support and contact
information is also provided.
o Custom Configuration - We developed a configuration engine that allows our
customers to interactively configure a personal computer based on the
customer's specification.
o Customizable display format - To facilitate the purchasing decision
process, visitors can customize the display format, sorting order, and
selection criteria for product listings.
o Related Products Links - At each product detail page, links to related
categories are conveniently placed for one-click access to relevant
products. Links to selected products' options and accessories are placed on
the same page for easy access.
o On-line Account and Ordering System - Our on-line ordering engine is
designed for intuitive usage and minimal data entry for first-time and
repeat customers. Customers can create an on-line account as they make the
purchase for the first time. Each subsequent visit the customer will be
able to check order status, review past orders, and place new orders
without entering shipping, billing, and credit card information again.
Our websites also incorporate features that allow us to leverage web site
traffic to generate additional revenue sources:
o Advertising - Several locations on each page of our websites are available
for advertisers seeking exposure to our targeted audience base. These
locations are also available for in-house promotions and cross-promotional
activities.
o Manufacturer Stores - We offer manufacturers the promotional opportunity to
create a "manufacturer store" within our websites. Each manufacturer store
is dedicated to one manufacturer's product offerings. Manufacturers can
create promotional programs, detailed literature, and enhanced product
images to merchandise their products.
Products, Services, And Expansion
We intend to offer additional products and services on our existing on-line
stores. We intend to create additional on-line stores for different market
segments. We intend to expand into Asia/Pacific regions by forming strategic
partnerships with established companies in the region.
Marketing
Our Marketing strategy is to promote and increase brand awareness of our current
storefronts, including AccessMicro.Com (the leading marketplace for small
business), Mcglen.Com (the leading marketplace for IT professionals), and
Techsumer.com (the leading marketplace for technology consumers). Through
various incentive programs and excellent customer care and support, we also
intend to build customer loyalty, and encourage repeat purchases. We also use
innovative marketing tactics to acquire low cost, high quality customers.
We are executing this strategy through the following channels:
o forming alliance with various shopping portals
o actively maintaining opt-in customer mailing list
o broadening product offering o creating repeat buyer incentive programs
o building partnerships with manufacturers and vendors
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We believe that the use of multiple marketing channels reduces reliance on
anyone source of customers, lowers customer acquisition costs and maximizes
brand awareness.
On-line and Traditional Advertising
We have implemented a broad-based, multi-media advertising campaign that
includes both on-line and traditional advertising, designed to drive high-value
traffic to our Web site. Our current on-line advertising focuses on a variety of
Websites that have a proven ability to drive buyers to our site. These partners
include Ziff Davis, CNET, and various smaller partner sites. In April 1999, we
began deploying various brand-building print ads with great success. We plan to
increase our brand exposure by moving part of our acquisition program into
catalog printings. We believe these traditional advertising venues can increase
awareness of our websites, increase customer loyalty and repeat customer buy
rates, and promote the benefits of e-commerce to a much broader audience than
can be addressed on the Internet alone. Additionally, effort in direct marketing
in 1999 resulted in high levels of success through e-mail marketing as well as a
weekly promotional newsletter. We are currently working with our advertising
vendors to bring more content and choice to enhance existing mailers. At Mcglen,
we believe our newsletter to be very effective in informing subscribers of the
latest and the best products availability today. Our no-nonsense approach has
met with great success and in 2000 we intend to increase our effort to
personalize these offerings based on specific customer shopping habits.
Clicktrade.com, a site of Link-Exchange, is our primary outsource partner to
support our affiliate program. Mcglen pays Link-Exchange on a per click basis to
affiliate partners. Our affiliate program has been in place since early 1998,
and Mcglen intends to increase its exposure in the Link-Exchange network to
align itself with additional affiliate partners in 2000.
Merchandising
Mcglen currently hosts three sites with product compositions ranging from
computing, entertainment, and communication products. By utilizing these three
sites (www.Mcglen.com, www.AccessMicro.com, and www.Techsumer.com), Mcglen has
the ability to gear its marketing campaigns to three different segments of the
market--the consumer market, the SOHO market, and the IT Professionals market.
Our approach to merchandising allows Mcglen to offer each segment of our target
audience an unique shopping experience; therefore, giving us the advantage of:
pricing flexibility, the ability to offer our customers only what is relevant to
their needs, focused cross-selling and up-selling of products, and the potential
of expanding our products and services to each one of these niche markets.
By utilizing three distinct websites, Mcglen is also able to tailor a unique
shopping experience for each segment of its target audience. For example,
targeting IT professionals, Mcglen's Mcglen.com site offers a clean design, easy
access, together with a no-nonsense functionality that allows them to find their
desired products and purchase them in the shortest amount of time possible.
Because each web site is targeted to a specific audience, Mcglen is able to
cross-sell and up-sell its products more effectively than its competitors. For
example, knowing that the customers from our AccessMicro.Com site is of the SOHO
market segment, we may up-sell a customer who is purchasing an ink-jet printer a
entry-level laser printer because speed of print jobs would be a major concern
with these customers.
Since Mcglen already has three concentrated customer bases, we are able to
expand our services to best benefit each individual market. For example,
Techsumer.com offers and will continue to expand its offering of DVDs, while
Mcglen.com and Accessmicro.com will not carry this product line. Mcglen will
continue to add products and services that will enhance, rather than fragment,
the shopping experience of each individual market segment.
These advantages are, of course, in addition to the advantages Mcglen and other
e-tailers already enjoy over traditional retailers such as: the ability to
instantly change prices when our costs change, a virtually unlimited amount of
display and shelf space, and the ability of offer our customers much greater
access to product information.
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Customer Service
We believe that our ability to establish and maintain long-term relationships
with our customers, and to encourage repeat visits and purchases depends, in
part, on the strength of our customer support and service operations as well as
our staff. We seek to achieve frequent automated e-mail communication with our
customers to continually improve customer service for our stores and services.
We offer toll-free phone numbers and e-mail addresses for sales, technical
support, return merchandise, and general customer service. We will continue to
acquire new tools and technology to improve customer satisfaction.
Warehousing, Fulfillment And Distribution
We obtain our products from a network of distributors, wholesalers,
manufacturers and software publishers. We carry a limited amount of our most
popular products in inventory. A substantial amount of products that we carry in
inventory is purchased and shipped "on demand" (i.e., after we receive orders,
we purchase products required to fill orders received.). We "cross dock" on a
daily basis (i.e., receive products from vendors and ship those same products to
customers the same day). We carry approximately 4 days worth of inventory in
house. We also rely on our distributors and wholesalers to ship products
directly to our customers. Our distribution partners, such as Ingram Micro, Tech
Data, and Synnex Technologies, have multiple distribution centers throughout
United States and can fulfill a majority of in stock products within 24 hours.
We have established strategic partnerships with manufacturers to custom
configure personal computers based on our customer's requirement, and ship the
configured system directly to our customers.
Technology
Our site management, search, customer interaction, transaction processing and
fulfillment systems consist of a combination of our own proprietary technologies
and third-party technology. We plan to enhance the capability and scalability of
our systems through acquisition of new third-party technologies and in-house
development. The software applications we use have the capability for accepting
and verifying orders, managing orders, creating customer interaction
instructions, automatically selecting fulfillment methods, assigning inventory
to customer orders, managing shipment of products to customers, recording
tracking numbers, and authorizing and charging customer credit cards with
address verification.
The hosting of our Web servers is subcontracted to an Internet data center
specialist, Exodus Communications, Inc. Exodus Communications, Inc. has an
extensive national network backbone with redundant Internet connections to
multiple Internet access points, a secure physical environment, climate control
and redundant power supply. Exodus provides us access to the facility 24 hours a
day, seven days a week. Exodus also monitors our Web servers 24 hours a day,
seven days a week.
We have acquired third party technology to track customer buying patterns and
make additional purchase recommendations. We are in the process of implementing
this technology.
Competition
Although the electronic commerce industry is still in its infancy, it has
matured substantially in recent years as witnessed by the consolidation of its
major players. Furthermore, we have seen competition arise from manufacturers
and suppliers who have not traditionally sold their products through the
Internet. This has resulted in Mcglen Internet Group being wedged in between the
large, market-share dominating, razor-thin profit margin, money-loosing
"e-giants" and the small, low cost, high profit margin, mom-and-pop "e-shops."
We currently compete with a variety of companies that sell computer,
electronics, and communication products to consumers and businesses through a
variety of mediums. These companies are larger and have more financial resources
than we do and include:
o Traditional catalog-based merchants that have developed a significant
electronic commerce offering, such as CDW Computers Centers, Inc., Micro
Warehouse, Inc., Insight Enterprises, Inc., Multiple Zones International,
Inc., and Creative Computers, Inc.;
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o Companies with electronic commerce sites such as Beyond.com Corporation,
Buy.com Inc., Outpost.Com, Dell Computer Corporation and NECX Office and
Personal Technology Center (in which Gateway 2000, Inc. has a minority
stake), and electronic software distributors such as Digital River, Inc.;
o Companies offering Internet auctions, such as ONSALE, Inc., uBid, Inc.,
Amazon.com, Inc., Yahoo! Inc., Internet Shopping Network, Inc. and eBay
Inc.;
o Companies whose primary business is not on-line retailing but who derive
significant revenue from electronic commerce, including America Online,
Inc., Yahoo! Inc. and QVC, Inc.;
o Traditional retailers of personal computer products such as CompUSA, Inc.
and Computer City;
o Manufacturers such as Dell Computer Corporation and Gateway 2000, Inc. who
sell directly to the consumer via the Internet;
o Mass merchandisers such as Wal-Mart Stores, Inc., Costco Wholesale
Corporation and Best Buy Co., Inc. that primarily sell through traditional
retail channels but have also developed an Internet presence; and
o Office product retailers such as Office Depot Inc. and Staples, Inc. that
primarily sell through traditional retail channels but also sell over the
Internet.
We believe our the principal competitive factors affecting our market are
competitive pricing, quality of customer service, accuracy of technical product
information, quality and ease of use of websites, breadth of product offerings,
brand recognition, and cost of customer acquisition. We believe we compete
adequately in all these areas with the exception of brand recognition, where
companies with much greater financial and marketing resources have made the
establishment of a strong brand name much more costly and difficult. To maintain
and improve our competitive position, we must continue to be competitive in all
the areas mentioned above, while boosting our brand recognition without
significantly increasing our cost of customer acquisition.
Sales Tax
We currently collect sales tax on sales of products delivered to residents in
the state of California and dropped shipped from Ingram Micro to residents of
Massachusetts. Various states have tried to impose, on direct marketers, the
burden of collecting sales taxes on the sale of products shipped to state
residents. The United States Supreme Court affirmed its position that it is
unlawful for a state to impose sales tax collection obligations on an
out-of-state mail order company whose only contacts with the state are the
distribution of catalogs and other advertising materials through the mail and
subsequent delivery of purchased goods from out of state locations by parcel
post and interstate common carriers. It is possible that legislation may be
passed to supersede the United State Supreme Court's decision or the Court may
change its position. Additionally, it is uncertain whether any new rules and
regulations may be spawn, in terms of sales tax collection obligations, to
govern electronic commerce companies as the industry continues on its explosive
pace of growth. The imposition of new sales tax collection obligations on us in
states to which we ship products would result in additional administrative
expenses to us. More importantly, though, we may lose one of our most
competitive advantages in terms of a higher total price of products for our
customers.
Government Regulation
We are subject, both directly and indirectly, to various laws and governmental
regulations relating to our business. There are currently few laws or
regulations directly applicable to commercial on-line services or the Internet.
However, due to the increasing popularity and use of commercial on-line services
and the Internet, it is possible that a number of laws and regulations may be
adopted. These laws and regulations may cover issues including, for example,
user privacy, pricing and characteristics and quality of products and services.
Moreover, the applicability to commercial on-line services and the Internet of
existing laws governing issues including, for example, property ownership, libel
and personal privacy is uncertain and could expose us to substantial liability.
Any new legislation or regulation or the application of existing laws and
regulations to the Internet could have a material and adverse effect on our
business.
In addition, because our services and products are available over the Internet
anywhere in the world, multiple jurisdictions may claim that we are required to
qualify to do business as a foreign corporation in each of those jurisdictions.
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 for the failure to
qualify. It is possible that state and foreign governments might also attempt to
regulate our transmissions of content on our Web site or prosecute us for
violations of their laws. There can be no assurance that violations of local
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laws will not be alleged or charged by state or foreign governments, that we
might not unintentionally violate these laws or that these laws will not be
modified, or new laws enacted, in the future.
For a period of three years, the Internet Tax Freedom Act (ITFA) effectively
bars state or local governments from imposing taxes that would subject on-line
commerce transactions to taxation in multiple states. The ITFA does not prohibit
state or local taxation on on-line commerce products or services that would
otherwise be taxed, such as in states where a company has a physical presence.
The ITFA also provides for the establishment of a commission to study on-line
commerce and to recommend a fair method of taxing Internet transactions. We
cannot be certain that upon expiration of the ITFA, we will not be subject to
further taxation by state or local governments on the sale of merchandise.
Employees
As of December 31, 1999, Mcglen employed 84 people as full-time employees and 19
persons as part-time employees. The Company considers its employee relations to
be good. None of the Company's employees are represented by a labor union, and
the Company has experienced no work stoppages. Competition for qualified
personnel in the electronic commerce industry is intense; particularly for
software development and other technically orientated positions.
Research and Development
During the years ended December 31, 1999 and 1998, $91,000 and $63,000 was
expensed, respectively for research and development related to our websites. As
of December 31, 1999, there was $229,000 capitalized software development costs,
net of accumulated amortization of $21,000.
Backlog
At December, 31, 1999 and 1998, the Company did not have a significant backlog
of customer orders.
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
In addition to other information contained in this report, the following factors
could affect our actual results and could cause such results to differ
materially from those achieved in the past or expressed in our forward-looking
statements.
Risk Factors
Loss in 1999
The Company incurred loss of approximately $3.5 million in 1999. As of December
31, 1999, the Company had a working capital deficit of approximately $1.6
million and stockholders' deficit of approximately $864,000. The Company's
auditors have included an explanatory paragraph in their report for the year
ended December 31, 1999, indicating there is substantial doubt regarding the
Company's ability to continue as a going concern. There can be no assurance that
the Company will be profitable in the future. Furthermore, future profits, if
any, will be dependant on many factors, including, but not limited to, the
Company's ability to return its operations to profitability in a timely manner,
the need for additional financing, and competition from other electronic
commerce retailers. If the Company is not able to significantly improve its
operating results, it may be required to cease or substantially curtail its
operations.
Need for Additional Financing
The Company's capital requirements associated with the expanding operations have
been and will continue to be substantial. The Company anticipates (based on
management's internal forecasts and assumptions related to operations) that its
existing capital resources may not be sufficient to permit it to maintain and
expand operations and marketing. The Company is, therefore, likely to require
additional financing to execute its business plan. However, no assurance is
given that the Company will be able to obtain additional financing when needed,
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or that, if available, such financing will be on terms acceptable to the
Company. In any such financing, the interests of the Company's existing security
holders could be substantially diluted.
We have a limited on-line operating history that provides little information
with which to evaluate our electronic commerce business
As a result, there is little information on which to evaluate our business and
prospects as an electronic commerce company. An investor in our common stock
must consider the risks and difficulties that early-stage companies frequently
encounter in the new and rapidly evolving market of electronic commerce. Such
risks for us include:
o our evolving and unpredictable business model;
o our competitors that have more established electronic commerce operations;
o our need and ability to manage growth; and
o the rapid evolution of technology in electronic commerce.
To address these risks and uncertainties, we must take several steps, including:
o improving our customer service and providing outstanding order fulfillment;
o continuing to develop and upgrade our technology, infrastructure and
systems that support our on-line stores;
o expanding the number of products and categories of merchandise offered at
our on-line stores;
o increasing our customer base to achieve economies of scale;
o attracting, retaining and motivating qualified personnel; and
o making our on-line stores more user-friendly and appealing to customers.
We may not be successful in implementing any of our strategies or in addressing
these risks and uncertainties. Even if we accomplish these objectives, we still
may not be profitable in the future.
We incurred substantial losses from operations in 1999. As of December 31, 1999,
we had an accumulated deficit of approximately $3.4 million. We expect to
continue to incur substantial net losses through at least 2000. We plan to
continue to enhance our brand name through competitive pricing, marketing and
advertising programs, offer additional categories of merchandise for sale at our
on-line stores and improve and enhance our technology, infrastructure and
systems. These initiatives will likely result in operating expenses that are
higher than current operating expenses. We will need to generate significant
revenues to achieve profitability and to maintain profitability if it is
achieved. Although our revenues from electronic commerce have grown in recent
quarters, such growth rates may not be sustainable and we may not become
profitable in the future.
Our future revenues are unpredictable and our operating results may fluctuate
significantly
Because electronic commerce is a new, emerging market, we cannot accurately
forecast our revenues. Although our revenues from electronic commerce have grown
in recent quarters, an investor should not use these past results to predict our
future results. We base our current and future expenditures on our plans and
estimates of future revenues. Our expenses are, to a large degree, fixed. We may
be unable to adjust spending in a timely manner if we experience an unexpected
shortfall in our revenues.
We expect that our future quarterly operating results will fluctuate
significantly because of many factors, several of which we do not control. Such
factors include:
Our ability to satisfy customers, retain existing customers and attract new
customers at a steady rate;
o pricing competition, including, but not limited to, pricing which results
in no gross margin on certain products;
o our ability to acquire, price and market merchandise inventory such that we
maintain gross margins in our existing business and in future product lines
and markets;
o the level of traffic at our Websites;
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o our ability to fulfill customer orders;
o the development, announcement or introduction of new sites, services or
products by us or by our competitors;
o the amount the Internet is used generally and, more specifically, for the
purchase of products such as those that we offer;
o our ability to upgrade and develop our systems and infrastructure and
attract new employees;
o the occurrence of technical or communications failures, system downtime and
Internet disruptions;
o the amount and timing of operating costs and capital expenditures that we
incur to expand our business;
o governmental regulation and taxation policies;
o disruptions in service by common carriers such as United Parcel Service;
o unanticipated increases in shipping and transaction-processing costs; and
o general economic conditions and economic conditions specific to the
Internet, electronic commerce and the computer industry.
Our revenues depend on the number of times customers make purchases at our
on-line stores
The amount of sales at our on-line stores depends in part on the number of
customers, the competitive pricing of our products and the availability of
merchandise from our suppliers. We cannot forecast the number of future
customers, the future pricing strategies of our competitors or the future
availability of merchandise with any degree of certainty. It is clear, however,
that if the number of customers does not increase, if our gross margins decrease
or if the amount of merchandise available to us decreases substantially, our
business will suffer.
Because of these and other factors, we believe that period-to-period comparisons
of our historical results of operations are only partial indicators of our
future performance.
Our operating results may fluctuate depending on the season
We expect to experience fluctuations in our operating results because of
seasonal fluctuations in traditional retail patterns. Retail sales in the
traditional retail industry tend to be significantly higher in the fourth
calendar quarter of each year than in the preceding three quarters. As a result
of such factors, our operating results in one or more future quarters may
fluctuate and, therefore, period-to-period comparisons of our historical results
of operations may not be good indicators of our future performance.
We will require additional capital in 2000
We anticipate we will need to raise additional funds in 2000 in order to fund
our current operations, pursue sales growth opportunities, to develop new or
enhance our existing websites, to respond to competitive pressures, or to
acquire other businesses.
If we raise additional funds through the issuance of equity or convertible debt
securities, the percentage ownership of our stockholders will be reduced,
stockholders may experience additional dilution and these securities may have
powers, preferences and rights that are senior to those of the rights of our
common stock. We cannot be certain that additional financing will be available
on terms favorable to us, if at all. If adequate funds are not available or not
available on acceptable terms, we may be unable to fund our operations, promote
our websites, take advantage of unanticipated acquisition opportunities, develop
or enhance services or respond to competitive pressures. Any inability to do so
would have a negative effect on our business, revenues, financial condition and
results of operations.
We may suffer systems failures and business interruptions
Our success, especially our ability to receive and fulfill customer orders,
largely depends on the efficient and uninterrupted operation of our computer and
telephone communications systems. Almost all of our computer and communications
systems are located at a single leased facility in Tustin, California. We have
experienced temporary power failures and telecommunications failures from time
to time at this facility. Our systems are vulnerable to damage from fire,
earthquakes, floods, power loss, telecommunications failures, break-ins, and
other events. Although we have implemented network security measures, our
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<PAGE>
servers are vulnerable to computer viruses, physical or electronic break-ins,
attempts by third parties deliberately to exceed the capacity of our systems and
similar disruptions. Any of these events could lead to interruptions or delays
in service, loss of data or the inability to accept and confirm customer orders.
Generally, we do not have redundant systems or a formal disaster recovery plan,
and our coverage limits on our property and business interruption insurance may
not be adequate to compensate us for losses that may occur.
We face risks of capacity constraints
Our revenues depend to a significant degree on the number of customers who use
our on-line stores to buy merchandise. We depend on the satisfactory
performance, reliability and availability of our Websites,
transaction-processing systems, network infrastructure, customer support center,
and delivery and shipping systems. These factors are critical to our reputation,
our ability to attract and retain customers and to maintain adequate customer
service levels, and our operating results. Our on-line stores have experienced
periodic temporary capacity constraints from time to time, and we continue to
experience capacity constraints at our customer support center primarily related
to inbound customer telephone inquiries. Capacity constraints could prevent
customers from gaining access to our on-line stores or our customer support
center for extended periods of time and decrease our ability to fulfill customer
orders or decrease our level of customer acquisition or retention. Such
constraints would also decrease the appeal of our on-line stores and decrease
our sales. If the amount of traffic, the number of orders or the amount of
traffic to our Websites increases substantially, we may experience capacity
constraints and may need to further expand and upgrade our technology,
transaction-processing systems and network infrastructure. We may be unable to
sufficiently predict the rate or timing of increases in the use of our on-line
stores to enable us to quickly upgrade our systems to handle such increases.
Also, we may be unable to increase our capacity at our customer support center
to handle the amount of current or future customer telephone inquiries.
We face risks relating to systems development
We are heavily dependent on our technological systems, some of which were not
designed for electronic commerce but have been modified by us for that use.
at our on-line
stores. We will also need to upgrade our systems to improve its scalability. We
also plan to upgrade and expand our systems to add automated customer service,
proactive e-mail and customer feedback features to provide enhanced customer
service, more complete customer data and better management reporting
information. These efforts will require us to integrate newly developed and/or
purchased technologies into our existing systems and to hire more engineering
and information technology personnel in the near future. If we are unable in a
timely manner to hire required personnel, to add new software and hardware, or
to develop and upgrade our existing systems to handle increased traffic, we
could experience unanticipated system disruptions, slower response times,
degraded customer service and a decrease in our ability to fulfill customer
orders.
We may be unable to manage our growth
Since our formation in 1996, we have experienced rapid growth. We intend to
pursue the continuation of this growth through the following: - further
developing our marketing programs; - hiring additional technical support
personnel and operations personnel; and - investing in additional facilities and
systems. However, we cannot be certain that our growth rate will continue at a
rapid pace even if we effectively implement these programs and initiatives. Our
ability to successfully implement our business plan in a rapidly evolving market
requires an effective planning and growth-management process. If we are unable
to manage our growth, we may not be able to implement our business plan, and our
business may suffer as a result. We expect that we will have to expand our
business to address potential growth in the number of customers, to expand our
product and service offerings and to pursue other market opportunities. We
expect that we will need to expand existing operations, particularly those
relating to information technology, customer service and merchandising. We
expect that we will also need to continue to improve our operational, financial
and inventory systems, procedures and controls, and will need to expand, train
and manage our workforce, particularly our information technology staff.
Furthermore, we expect that we will need to continue to manage multiple
relationships with various suppliers, freight companies, warehouse operators,
Websites, Internet service providers and other third parties to keep control
over our strategic direction as the electronic commerce business evolves.
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The electronic commerce market is intensely competitive
The electronic commerce industry is new, rapidly evolving and intensely
competitive. We may not be successful in competing against our current and
future competitors. It is not difficult to enter the electronic commerce market,
and current and new competitors can launch new electronic commerce Websites at
relatively low cost. We expect competition in electronic commerce to increase as
retailers, suppliers, manufacturers and direct marketers who have not
traditionally sold computer products and consumer goods directly to consumers
through the Internet enter this market segment. Furthermore, competition may
increase to the extent that mergers and acquisitions result in electronic
commerce companies with greater market share and revenues. Increased
competition, or failure by us to compete successfully, is likely to result in
price reductions, fewer customer orders, reduced gross margins, increased
marketing costs, loss of market share, or any combination of these problems.
We believe that the principal competitive factors affecting our market are brand
name recognition, competitive pricing, quality of customer service, quality of
product information, breadth of merchandise offerings, cost of customer
acquisition, and ease of use of electronic commerce sites. Although we believe
we compete adequately with respect to such factors, we cannot assure you that we
can maintain our competitive position against current and potential competitors,
especially those with greater financial, marketing, customer support, technical
and other resources. Recently some competitors have begun selling certain
products at or near the purchase price paid by them to acquire the products. To
improve our competitive position, we are focused on increasing our level of
customer service and maintaining competitive pricing.
Current and potential competitors have established or may establish cooperative
relationships among themselves or directly with suppliers to obtain exclusive or
semi-exclusive sources of merchandise. New competitors or alliances among
competitors, or among competitors and suppliers, may emerge and rapidly acquire
market share. For example, Dell Computer Corporation and Amazon.com, Inc. have
agreed to provide links from their Websites to new Web pages that advertise
their respective products. Many of our current and potential competitors have
significantly greater financial, marketing, customer support, technical and
other resources than we do. As a result, they may be able to secure merchandise
from suppliers on more favorable terms than we can, and they may be able to
respond more quickly to changes in customer preference or to devote greater
resources to the development, promotion and sale of their merchandise than we
can.
We rely heavily on certain third parties, including Internet service providers
and telecommunications companies
Our operations depend on a variety of third parties for Internet access,
telecommunications, operating software, order fulfillment, merchandise delivery,
and credit card transaction processing. We have limited control over these third
parties, and we cannot assure you that we will be able to maintain satisfactory
relationships with any of them on acceptable commercial terms. We cannot assure
you that the quality of products and services that they provide will remain at
the levels needed to enable us to conduct our business effectively.
We rely on Internet service providers to connect our Websites to the Internet.
From time to time, we have experienced temporary interruptions in our Web site's
connections and also our telecommunications access. Frequent or prolonged
interruptions of these Web site connection services could result in significant
losses of revenues. Our Web site software depends on operating systems, database
and server software that were produced by and licensed from third parties. From
time to time, we have discovered errors and defects in such software and, in
part, we rely on these third parties to correct these errors and defects
promptly.
Third-party distribution centers fulfill a significant portion of the sales for
which we are responsible. Accordingly, any service interruptions experienced by
these distribution centers as a result of labor problems or otherwise could
disrupt or prevent the fulfillment of some of our customers' orders. In
addition, we use United Parcel Service as the primary delivery service for our
products. Our business would suffer if labor problems or other causes prevented
this carrier from delivering our products for significant time periods.
Furthermore, American Credit Card Processing is our sole processor of credit
card transactions. If computer systems failures or other problems were to
prevent American Credit Card Processing from processing our credit card
transactions, we would experience delays and business disruptions. Any such
delays or disruptions in customer service may damage our reputation or result in
loss of customers.
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We rely heavily on certain manufacturers, distributors and suppliers
We rely heavily on certain manufacturers, distributors and suppliers to supply
us with merchandise for sale at our on-line stores. We cannot assure you that we
will be able to develop and maintain satisfactory relationships with such
parties on acceptable commercial terms, or that we will 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. We acquire products for
sale both directly from manufacturers and indirectly through distributors and
suppliers. Purchases from Ingram Micro Inc., a distributor of computers and
related products, accounted for approximately 35% of our aggregate merchandise
purchases for 1999. We have no long-term contracts or arrangements with
manufacturers, distributors or suppliers that guarantee availability of
merchandise for our on-line stores. We cannot assure you that current
manufacturers, distributors and suppliers will continue to sell merchandise to
us or otherwise provide merchandise for sale by us or that we will be able to
establish new manufacturer, distributor or supplier relationships that ensure
merchandise will be available for sale by us. We also rely on many of our
distributors and suppliers to ship merchandise to customers. We have limited
control over the shipping procedures of these distributors and suppliers, and
such shipments have often been subject to delays.
Most merchandise sold by us carries a warranty from the manufacturer or the
supplier, and we are not obligated to accept merchandise returns
Nevertheless, we in fact have accepted returns from customers for which we did
not receive reimbursements from our manufacturers or suppliers, and the levels
of returned merchandise in the future might exceed our expectations. We may also
find that we have to accept more returns in the future to maintain customer
satisfaction.
We face the risks of expanding into new services and business areas
To increase our revenues, we will need to expand, over time, our operations by
promoting new or complementary products or by expanding the breadth and depth of
our product or service offerings. If we expand our operations in this manner, we
will require significant additional development resources and such expansion may
strain our management, financial and operational resources. We may not
significantly benefit in such expansion from the Mcglen brand name or from the
early entry advantage that we have experienced in the on-line computer products
market. Gross margins attributable to new business areas may be lower than those
associated with our existing business activities. We cannot assure you that our
expansions into new product categories, on-line sales formats or products or
service offerings will be timely or will generate enough revenue to offset their
costs. Also, any new product category or product or service offering that is not
favorably received by consumers could damage our brand reputation.
Electronic commerce poses security risks to us
A significant barrier to electronic commerce and communications is the secure
transmission of confidential information over public networks. We rely upon
encryption and authentication technology licensed from third parties to provide
secure transmission of confidential information. We cannot assure you that our
security measures will prevent security breaches, and such breaches could expose
us to operating losses, litigation and possible liability. Advances in computer
capabilities, new discoveries in the field of cryptography or other events or
developments may result in a compromise or breach of the algorithms that we use
to protect customer transaction data. A party who is able to circumvent our
security measures could steal proprietary information or interrupt our
operations. We may need to spend a great deal of money and use other resources
to protect against the threat of such security breaches or to alleviate problems
caused by such breaches. Concerns over the security of on-line transactions and
the privacy of users may also inhibit the growth of the Internet generally, and
the World Wide Web in particular, especially as a means of conducting commercial
transactions.
We face risks relating to our inventory
We directly purchase the majority of the merchandise that we sell at our on-line
stores. We assume the inventory risks, inventory obsolescence risks and price
erosion risks for products that we purchase directly. These risks are especially
significant because much of the merchandise we sell at our on-line stores (for
example, computer hardware, software and consumer electronics) is characterized
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by rapid technological change, obsolescence and price erosion. In the recent
past we have recorded charges for obsolete inventory and have had to sell
certain merchandise at a discount or loss. It is impossible to determine with
certainty whether an item will sell for more than the price we pay for it.
Because we rely heavily on purchased inventory, our success will depend on our
ability to liquidate our inventory rapidly, the ability of our buying staff to
purchase inventory at attractive prices relative to its resale value, and our
ability to manage customer returns and the shrinkage resulting from theft, loss
and misrecording of inventory. If we are unsuccessful in any of these areas, we
may be forced to sell our inventory at a discount or loss.
We are dependent on intellectual property
Our performance and ability to compete are dependent to a significant degree on
our proprietary technology. We rely on a combination of trademark, copyright and
trade secret laws to establish and protect our proprietary rights. Although we
have applied for trademark protection for the Mcglen.com name, this name is not
currently a registered trademark in the United States. We cannot assure you that
we will be able to secure significant protection for this trademark and our
other trademarks or service marks. It is possible that our competitors or others
will adopt product or service names similar to "Mcglen.com" or other service
marks or trademarks of ours, thereby impeding our ability to build brand
identity and possibly confusing customers.
Copyright laws protect our proprietary software. The source code for our
proprietary software also is protected under applicable trade secret laws. We
cannot assure you that the steps we take to protect our software will prevent
misappropriation of our technology or that the agreements we enter into for that
purpose will be enforceable. 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
not adequately protect our intellectual property.
We may, in the future, receive notices from third parties that claim
infringement by our software or other intellectual property used in 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
distraction of management and require us to enter into costly and burdensome
royalty and licensing agreements. Such royalty and licensing agreements, if
required, may not be available on terms acceptable to us, or may not be
available at all. In the future, we may also need to file lawsuits to defend the
validity of our intellectual property rights and trade secrets, or to determine
the validity and scope of the proprietary rights of others. Such litigation,
whether successful or unsuccessful, could result in substantial costs and
diversion of resources.
We also rely on a variety of technologies that we license from third parties,
such as the database and Internet commerce server applications that we license.
We cannot assure you that these third- party technology licenses will continue
to be available to us on commercially reasonable terms. If we lose any such
licenses, or if we are unable to maintain or obtain upgrades to any of these
licenses, it could delay completion of our proprietary software enhancements
until equivalent technology is identified, licensed or developed, and
integrated.
We are vulnerable to the rapid evolution of electronic commerce and related
technology
The Internet and the electronic commerce industry are characterized by rapid
technological change, changes in user and customer requirements, frequent new
service or product introductions embodying new technologies, and the emergence
of new industry standards and practices. Changes in the Internet, electronic
commerce and the related technology could render our Web site and technology
obsolete. To remain competitive, we must continue to enhance and improve the
customer service features, responsiveness and functionality of our Web site. Our
success in achieving these goals depends on our ability to develop or license
new technologies and respond promptly and cost-effectively to technological
advances and emerging industry standards and practices. The development and
licensing of technologies relating to the Internet and electronic commerce
involve significant technical, financial and business risks. We may not be
successful in developing, licensing or integrating new technologies or promptly
adapting our Websites, proprietary technology and transaction-processing systems
to customer needs or emerging industry standards.
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We are dependent on the continued development of the Internet infrastructure
We depend almost entirely on the Internet for revenue and the increased use of
the Internet for commerce is essential for our business to grow. Accordingly,
our success depends in large part on the continued development of the
infrastructure for providing Internet access and services. The Internet could
lose its viability or its usage could decline due to many factors, including:
o delays in the development of the Internet infrastructure;
o power outages;
o the adoption of new standards or protocols for the Internet; or
o changes or increases in governmental regulation.
We cannot be certain that the infrastructure or complementary services necessary
to maintain the Internet as a useful and easy means of buying goods will be
developed or that, if they are developed, the Internet will remain a viable
marketing and sales channel for the types of products and services that we offer
at our on-line stores.
We face risks associated with maintaining the value of our domain names
We currently hold various Web domain names relating to our brand, including the
Mcglen.com, Accessmicro.com and Techsumer.com domain names. We cannot assure you
that we will be able to acquire or maintain relevant domain names in all
jurisdictions in which we conduct business. Governmental agencies and their
designees generally regulate the acquisition and maintenance of domain names.
The regulation of domain names in the United States and in foreign countries is
subject to change. Governing bodies may establish additional top-level domains,
appoint additional domain name registrars or modify the requirements for holding
domain names. The relationship between regulations governing domain names and
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 on or otherwise decrease the value of our brand and our
trademarks and other proprietary rights.
Volatility in the United States stock market, NASDAQ Small Cap market, and the
technology sector may affect the market price of the common stock
The technology sector of the United States stock markets has experienced
substantial volatility in recent periods. Numerous conditions which impact the
technology sector or the stock market in general could adversely affect the
market price of the Common Stock, regardless of whether or not such conditions
relate to or reflect upon our operating performance.
The Company's stock has a small amount of public float and low trading volume
George Lee, Mike Chen and Alex Chen influence all fundamental matters affecting
Mcglen. Currently, Mr. Lee, Mr. Mike Chen, and Mr. Alex Chen control more than
70% of the total combined voting power of the outstanding Common Stock.
Accordingly, these individuals are able to: determine the outcome of all
corporate decisions, effect all corporate transactions (including mergers,
consolidations and the sale of all or substantially all of our assets), or
prevent or cause a change in control in the Company without the consent of the
other holders of the Common Stock.
Shipping and postage could increase our operating expenses
We ship our products to customers generally by United Parcel Service, and other
overnight delivery and surface services. We generally invoice customers for
shipping and handling charges. If we are unable to pass on to our customers
future increases in the cost of commercial delivery services, our operating
results will be adversely affected. Additionally, strikes or other service
interruptions by such shippers could adversely affect our ability to market or
deliver product on a timely basis. However, any increases in postal costs could
have an adverse effect on our operating results.
We are exposed to the risks of a global marketplace
A portion of our products are either produced in, or have major components
produced in, the Asia Pacific region. While we do not have business
relationships with companies located in the region directly, we do engage in
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U.S. Dollar denominated transactions with U.S. divisions and subsidiaries of
these companies. As a result, we may be indirectly affected by risks associated
with international events, including economic and labor conditions, political
instability, tariffs and taxes, availability of products and currency
fluctuations in the U.S. Dollar versus the regional currencies. Countries in the
Asia Pacific region, including Japan, have experienced weaknesses in their
currency, banking and equity markets from time to time. These weaknesses could
adversely affect the supply and price of products and components and ultimately,
our results of operations.
ITEM 2. DESCRIPTION OF PROPERTY
Mcglen leases approximately 8,000 square feet of office space and warehouse
space in Tustin, California pursuant to two non-cancelable leases expiring in
2003 and 2004. This facility serves as Mcglen's primary distribution center,
call center, and administrative offices.
Mcglen also leases approximately 13,140 square feet of office space in Los
Angeles, California pursuant to a non-cancelable lease expiring on January 31,
2002. Approximately 50% of such office space is currently subleased to a former
Vice president of Western under a sub-lease expiring in September 2000, with an
option for an extension for an additional six months. Mcglen is currently
pursuing subleasing the remaining office space due to the discontinuance of the
operations of Western.
The Company believes that its present facilities are adequate for its current
needs.
ITEM 3. LEGAL PROCEEDINGS
The Company is not presently a party to any pending litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On November 11, 1999, the Company's shareholders approved the merger between
Adrenalin Interactive, Inc. and Mcglen Micro, Inc. (the "Merger") and the
issuance of shares to the shareholders of Mcglen Micro, Inc. necessary to
consummate the previously announced merger between Adrenalin and Mcglen. The
Meeting was noticed as an annual meeting of the Company's shareholders.
In addition, the shareholders approved: 1) the election of George Lee, Mike
Chen, Peter Janssens, and Calbert Lai to serve as Directors of the Company until
the merger was consummated or until the next annual meting; 2) an amendment to
the Company's Articles of Incorporation increasing the number of authorized
shares from 20 million to 50 million and changing the name of the Company to
the" Mcglen Internet Group," 3)ratification of past and future issuances of
common stock to Escaldade under terms of an agreement entered into in July 1999;
4) approve the Company's 1999 Long-Term Incentive Plan and the reservation of
2.5 million shares for issuance thereunder. All such information is included in
the Company's Proxy Statement for the annual meting which was field with the
Commission on October 6, 1999.
The items before the shareholders at the annual meeting were approved with
1,992,842 votes in favor and 2,491 against. A quorum was established with
approximately 57% of the total outstanding shares voting.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Mcglen's Common Stock is traded on the NASDAQ SmallCap Market under the symbol
"MIGS". In December 1999, the Company changed its ticker symbol from ADRN to
MIGS as a result of the consummation of the reverse acquisition between
Adrenalin Interactive, Inc. and Mcglen Micro, Inc. The following table sets
forth the range of the high and low closing sales prices for the Company's
Common Stock, for the periods indicated, as reported by the NASDAQ SmallCap
Market:
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<TABLE>
<CAPTION>
Price Range of Common Stock*
High Low
<S> <C> <C>
Year Ended December 31, 1998
$0.88 $0.38
First Quarter
3.81 0.63
Second Quarter
4.60 1.85
Third Quarter
1.85 1.50
Fourth Quarter
Year Ended December 31, 1999
$3.70 $0.75
First Quarter
8.50 3.38
Second Quarter
4.63 2.25
Third Quarter
15.00 2.50
Fourth Quarter
</TABLE>
* Figures through December 31, 1998 have been adjusted to reflect Adrenalin's
3-for-1 reverse stock split effected on December 29, 1998.
On April 13, 2000, the closing price of the Company's Common Stock as reported
on the NASDAQ SmallCap Market was $2.50 per share. On April 13, 2000, there were
272 holders of record of our Common Stock.
The Company has never paid cash dividends on our Common Stock, and does not
anticipate paying cash dividends on our Common Stock. The Company intends to
retain its earnings to finance the growth and development of its business.
During the fourth quarter of 1999, Mcglen sold 698,090 shares of Common Stock
for $1,935,000, net of costs associated with the sale of such securities. These
shares were not registered under the Securities Act of 1934
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of the Company's financial condition and
results of operations should be read in conjunction with the Company's
consolidated financial statements and notes thereto included elsewhere herein.
Overview
Mcglen Internet Group (Mcglen or the Company), formerly Adrenalin Interactive,
Inc. (Adrenalin), was acquired by Mcglen Micro, Inc. in December 1999 through a
transaction in which the stockholders of Mcglen Micro, Inc. acquired control of
the Company through a reverse acquisition. As a result of the acquisition, each
share of Mcglen Micro, Inc. was converted into 0.9889611 shares of the Company,
with 25,485,527 shares being issued.
In connection with the acquisition, the Board of Directors of the Company
adopted a formal plan to discontinue the operations of Western Technologies,
Inc. (Western), the operating subsidiary of Adrenalin that developed video
games. As such, the accounting treatment for the reverse acquisition is that of
a recapitalization. The net liabilities of Western have been reclassified as
discontinued operations on the balance sheets for all periods presented. The
operations of Adrenalin and Western are not included in the tables below. See
Note 12 to the consolidated financial statements included in this 10-KSB.
19
<PAGE>
Mcglen Micro, Inc. was formed in May 1996 to sell computer products over the
Internet. Mcglen has since grown into a global Internet retailer of computer
hardware and peripheral products servicing individuals, small offices/home
offices, and the corporate market. As a leading aggregator of hi-tech products,
Mcglen offers over 150,000 stockkeeping units (SKUs) at its virtual superstore,
www.Mcglen.com. The Mcglen.com superstore has been in operation for more than
three years and already has brand recognition across 120,000 current customers.
Mcglen purchased AMT Component, Inc., in March 1999 (operating under the dba
AccessMicro.com) selling similar products at typically lower price points. In
November 1999, Mcglen opened the Techsumer.com website which focus on
"technologically minded consumers."
Mcglen has a marketing and promotion program in place that includes web
advertising, hyperlink allegiances, portal alliances, and direct one-to-one
marketing. For website development, Mcglen plans to enhance its virtual
superstore to provide a community-like experience while shopping online. The
objectives behind the website enhancement will be to increase customer
interaction and to offer a more comprehensive array of value-added services.
Net sales of the Company are primarily derived from the sale of personal
computer hardware, software, peripherals and accessories to individual
consumers, small office- home offices (SOHO), small and large corporations, and
the government through the Internet. Gross profit consists of net sales less
product and shipping costs.
The Company derived a substantial percentage of its inventory from a single
provider, Ingram Micro. Mcglen has no long-term contracts or arrangements with
its vendors that guarantee the availability of merchandise. Management believes
that other suppliers could provide similar inventory on comparable terms. A
change in suppliers, however, could cause a delay in fulfillment of customer
orders and a possible loss of sales, which would affect operating results
adversely.
Results of Operations
The following table sets forth for the years indicated the percentage of net
sales represented by certain items reflected in the Company's consolidated
statements of operations. There can be no assurance that the trends in sales
growth or operating results will continue in the future. The discussion of the
"Results of Operations" includes Mcglen Micro, Inc. for twelve months and AMT
Components, Inc. since the date of acquisition, March 31, 1999.
20
<PAGE>
Percentage of Net Sales
-----------------------
Year Ended December 31,
1999 1998
---- ----
Net sales 100.00% 100.00%
Cost of sales 92.47 84.23
------ -----
Gross profit 7.53 15.77
Operating expenses 17.50 15.26
Deferred compensation expenses 2.80 --
------ ------
(Loss) income before income taxes (12.77) 0.52
------ ------
Provision for income taxes 0.00 0.01
------ ------
Net (loss) income (12.77%) 0.51%
====== ======
Net sales increased by $16.0 million, or 138.6%, to $27.5 million for the year
ended December 31, 1999, compared to $11.5 million for the year ended December
31, 1998. The increase in net sales was primarily a result of the acquisition of
AMT Components, Inc. by Mcglen in March 1999, as well as the Company
aggressively seeking to increase its customer base through increased advertising
expenditures. Proforma net sales, including AMT for all of 1998 and 1999,
increased by $13.2 million or 81.8%, to $29.4 million for the year ended
December 31, 1999, compared to $16.2 million for the year ended December 31,
1998; (see Notes to the consolidated financial statements included herein).
Gross profit increased by $251,000 or 13.8% to $2,069,000 for the year ended
December 31, 1999, compared to $1,818,000 for the year ended December 31, 1998.
The increase in gross profit was due primarily to the AMT Components, Inc.
acquisition in March 1999, which resulted in increased sales. Gross profit, and
proforma gross profit, as a percentage of net sales declined to 7.5% and 7.8%,
respectively for 1999 from 15.8% and 14.1%, respectively, in 1998. The decrease
in gross profit margin was the result of increased margin pressure in the
overall marketplace, particularly in the fourth quarter of 1999, combined with a
shift in the Company's product mix to a higher proportion of complete systems
and CPU's which traditionally have a lower gross profit as a percentage of
sales. Many of the Company's larger competitors were selling their products at
or below cost for most of the year, e.g. Buy.com, eCost.com. Mcglen responded
with price decreases of its own, especially in the fourth quarter of 1999,
combined with an aggressive customer acquisition plan, see advertising below.
Open account sales, which typically have a lower gross margin, also increased in
1999.
Operating expenses increased by $3,822,000 or 217.4%, to $5,580,000 for the year
ended December 31, 1999, from $1,758,000 for the prior year. The increase in
operating expenses was attributable to an increase in personnel costs associated
with the increased sales volume, an increase in advertising costs resulting from
increased spending on the AccessMicro.com website acquired in March 1999 and the
launch of the Techsumer.com website in November 1999. Advertising increased by
approximately $557,000 on a proforma basis as Mcglen increased spending to
promote its brand name awareness. Mcglen conducted almost all of its advertising
on the Internet, primarily through price comparison websites. Additionally,
Mcglen added additional facilities, staff and capital infrastructure to support
growth in 1999 and the future. Depreciation and amortization increased by
approximately $120,000 due to the infrastructure development. On a proforma
basis, payroll and related costs increased by approximately $924,000 in 1999
compared to 1998, as Mcglen began to hire mid-level managers and senior
management to help build the Company. Deferred compensation charges of
approximately $769,079, or 2.8% of sales, was recorded in 1999 resulting from
options granted to key management and consultants; no such charges occurred in
1998. Finally, as a result of the Company's growth, credit card processing and
phone charges increased by approximately $464,000 and $94,000, respectively, in
1999 compared to 1998.
Liquidity and Capital Resources
The Company's primary capital need has been the funding of operations and
working capital requirements created by its rapid growth. Historically, the
Company's primary sources of financing have been private placements of stock and
borrowings from its stockholders, private investors, and financial institutions.
21
<PAGE>
Cash used by operations was $1.8 million in 1999 primarily due to the Company's
loss from operations and costs incurred to fuel the Company's growth in sales,
establish brand name awareness of its websites, expenses related to the reverse
merger completed in December 1999, and the building of the Company's
infrastructure to support Mcglen's operations.
The Company incurred a loss from operations as of December 31, 1999 and had a
working capital deficit and a shareholders' deficit at December 31, 1999. The
Company's independent certified public accountants have included a modification
to their opinion, which indicates there is substantial doubt about the Company's
ability to continue as a going concern. See Note 1 to Consolidated Financial
Statements for additional information. The Company is attempting to raise
additional capital to meet future working capital requirements, but may not be
able to do so. Should the Company not be able to raise additional capital, it
may have to severely curtail operations.
During the year ended December 31, 1999, the Company's capital expenditures were
approximately $208,000 as compared to $40,000 in 1998, primarily for computer
software and hardware, and distribution equipment. An additional $376,000 in
infrastructure additions and improvements were acquired through capital leases.
The Company has two credit facilities of up to $1.5 million with financial
institutions. The credit facilities function in lieu of a vendor trade payable
for inventory purchases and are included in accounts payable. The facilities are
cancelable upon 30 days or less advance notice and do not bear interest if paid
within 30 days of the date the inventory is purchased. The credit facilities are
secured by substantially all of the Company's assets and are personally
guaranteed by the Company's majority shareholders. One of the credit facilities
required the Company to maintain a minimum level of subordinated debt plus
tangible net worth. At December 31, 1999, the Company was not in compliance with
this covenant and the finance company can initiate a default on the facility at
any time. Management is attempting to re-negotiate the covenants at March 27,
2000.
Since computer retailers typically have low product gross margins, Mcglen's
ability to regain profitability is dependent upon its ability to increase net
sales. To the extent that Mcglen's marketing efforts do not result in
significantly higher net sales, Mcglen will be materially adversely affected.
There can be no assurance that sufficient revenues will be generated from the
sale of its products to enable Mcglen to regain profitability on a quarterly or
annual basis. In view of the rapidly evolving nature of Mcglen's business and
its limited operating history, Mcglen believes that period-to-period comparisons
of its operating results, including gross profit and operating expenses as
percentage of net sales, or similar results concerning AMT, are not necessarily
meaningful and should not be relied upon as an indication of future performance.
Mcglen believes that the key factor affecting its long-term financial success is
its ability to attract and retain customers in a cost effective manner.
Currently, Mcglen seeks to expand its customer base and encourage repeat buying
through internal and other sales and marketing programs. Such programs include:
(i) brand development, (ii) online and offline marketing and promotional
campaigns, (iii) linking programs with targeted Mcglen sites, (iv) personalized
direct marketing programs designed to generate repeat sales from existing
customers, (v) strategic alliances with Internet content providers and portal
sites, and (vi) the development of a one-stop online marketplace.
Mcglen expects to experience significant fluctuations in its future operating
results due to a variety of factors, many of which are outside its control.
Factors that may affect its operating results include the frequency of new
product releases, success of strategic alliances, mix of product sales and
seasonality of sales typically experienced by retailers. Sales in the computer
retail industry are significantly affected by the release of new products.
Infrequent or delayed new product releases can negatively impact the overall
growth in retail sales. Gross profit margins for hardware, software and
peripheral products vary widely, with computer hardware generally having the
lowest gross profit margins. While Mcglen has some ability to affect its product
mix through effective upselling of high margin products, its sales mix will vary
from period to period and Mcglen's gross margins will fluctuate accordingly.
The Company incurred a net loss from operations for the year ended December 31,
1999 and had a working capital deficit and a shareholders' deficit at December
31, 1999. The Company will require additional equity and/or debt capital in
order to meet future working capital needs and to accomplish its combined
short-term and long-term business objectives. The Company has identified several
corporate finance consultants who have signed agreements to assist the Company
in raising additional capital. However, the Company presently has no preliminary
or definitive agreement to complete any such additional financing with any other
22
<PAGE>
person or persons. Accordingly, it cannot make any assurances that it will be
able to raise any such required additional capital. In addition, its ability to
complete any such future equity and/or debt financing will depend upon our then
financial condition, results of operations and future business prospects as well
as market conditions at the time such additional equity and/or debt financing is
consummated. Many of the factors that will influence the Company's ability to
conduct any such future financing will be outside of its control. For these
reasons, it cannot make any assurances that it will successfully complete any
such required equity and/or debt financing. Should the Company be unable to
raise additional capital, it may have to severely curtail operations.
If Mcglen is successful in securing additional capital, the Company anticipates
expenditures of up to $2.5 million for improvements in software, hardware, and
other infrastructure investments.
As part of its growth strategy, the Company may, in the future, acquire other
companies or websites, in the same or complementary lines of business. Any such
acquisition and the ensuing integration of the operations of the acquired
company with those of Mcglen would place additional demands on Mcglen's
management and operating and financial resources. Additionally, the Company is
engaged in an ongoing evaluation of potential new websites which may be created
internally. Any such development and the ensuing integration of the operations
of the new website with those of Mcglen would place additional demands on
Mcglen's management and operating and financial resources.
Income Taxes
Prior to March 1999, Mcglen elected to be taxed under the provisions of
Subchapter S of the Internal Revenue Code and California Franchise tax reporting
purposes. Accordingly, results of operations of Mcglen for the year ended
December 31, 1998 and the period ended March 15, 1999 are reported on Mcglen's
stockholders' federal income tax returns. No federal income tax is therefore
reported in the Statement of Operations for 1998. Income taxes in 1998 and 1999
represent the California franchise tax applied to S Corporations at a rate of
1.5% and minimum taxes due.
For the period March 16, 1999 to December 31, 1999, the difference between the
amount of income tax benefit recorded and the amount of income tax benefit
calculated using the federal statutory rate of 34% is due to net operating
losses having a valuation allowance, due to uncertainties regarding Mcglen's
realization of these benefits in future years. Accordingly, no tax benefit has
been provided for the period ended December 31, 1999
As of December 31, 1999, Mcglen had federal and state net operating loss
carryforwards of approximately $8,759,000 and $3,803,000, respectively. The net
operating loss carryforwards will expire at various dates beginning in 2012
through 2014 for federal purposes and 2002 through 2004 for state purposes, if
not utilized. Utilization of the net operating loss carryforwards may be subject
to a substantial annual limitation due to the ownership change limitations
provided by the Internal Revenue Code of 1986, as amended, and similar state
provisions. The annual limitation may result in the expiration of net operating
loss carryforwards prior to utilization.
Year 2000
Computer systems, software packages, and microprocessor dependent equipment may
cease to function or generate erroneous data during the year 2000 or thereafter.
The problem affects those systems or products that are programmed to accept a
two-digit code in date code fields. To correctly identify dates after December
31, 1999, a four-digit date code field must be created to be what is commonly
termed "year 2000 compliant."
In prior reports, the Company has discussed the nature and progress of its plans
to become year 2000 ready. The Company experienced no significant disruptions in
mission critical information technology and non-information technology systems,
and the Company believes those systems successfully responded to the year 2000
date change. The Company is not aware of any material problems resulting from
year 2000 issues, either with its products, its internal systems, or the
products and services of third parties. Although the Company has not experienced
any material year 2000 problems or disruptions since January 1, 2000, there can
be no assurance that such problems or disruptions will not occur in the future.
The Company will continue to monitor its mission critical computer applications
and those of its suppliers and vendors throughout the year 2000 to ensure that
any latent year 2000 matters that may arise are addressed promptly.
23
<PAGE>
Inflation
Inflation has not had a material impact upon operating results, and the Company
does not expect it to have such an impact in the future. There can be no
assurances; however, that the Company's business will not be affected by
inflation.
New accounting pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, which the Company
is required to adopt effective in its fiscal year 2000. SFAS No. 133 will
require the Company to record all derivatives on the balance sheet at fair
value. The Company does not currently engage in hedging activities. The Company
will adopt SFAS No. 133 for the year ending December 31, 2000 and the adoption
is expected to have no effect.
Additional Factors Affecting Future Results
The reader should review "Additional Factors That May Affect Future Results"
included herein in Part I, Item 1, "Business" as the factors listed there may
affect the Company's future results.
ITEM 7. FINANCIAL STATEMENTS
The Company's financial statements listed below are included on pages F-1
through F-18 following the signature page to this report:
<TABLE>
<CAPTION>
Title of Document Page
<S> <C>
Reports of Independent Auditors. F-1
Consolidated Financial Statements:
Balance Sheets as of December 31, 1999 and 1998 F-3
Statements of Operations for the Years Ended December 31, 1999 and 1998 F-4
Statements of Cash Flows for the Years Ended December 31, 1999 and 1998 F-5
Statements of Changes in Stockholders' (Deficit) Equity for the Years Ended
December 31, 1999 and 1998 F-6
Notes to Financial Statements F-7
</TABLE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
In connection with the reverse acquisition of Adrenalin in December 1999, the
Board of Directors of Mcglen changed accountants to BDO Seidman LLP replacing
Adrenalin's prior accountants, Drucker, Math & Whitman, and Mcglen Micro's prior
accountants, Singer, Lewak, Greenbaum and Goldstein LLP. There were no
disagreements with the Company's current or prior accountants.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT.
(a) Information Relating to Executive Officers and Directors
The following table sets forth certain information relating to our current
executive officers and directors*:
<TABLE>
<CAPTION>
Name Age Position with the Company
--- -------------------------
<S> <C> <C>
George Lee 29 Chief Executive Officer and Director
Mike Chen 26 President, Chief Technology Officer, Secretary, and Director
Peter Janssen 57 Chairman and Director
Calbert Lai 43 Director
Grant Trexler 38 Chief Financial Officer
Alex Chen 26 Executive Vice President Business Development
David Chou 28 Chief Information Officer
</TABLE>
The following is a biographical summary of the experience of the executive
officers.
George Lee
Mr. Lee is responsible for capital growth, organizational growth, development of
sales, marketing, and internal operations, for the Company. Prior to founding
the Company in 1996, he held positions in sales at Eva Airways, and in freight
forwarding at Immortal Service. Mr. Lee received his Bachelor of Arts degree in
Economics in 1993 from the University of California at Irvine.
Mike Chen
Mr. Chen is responsible for the capital growth, organizational growth,
coordination of corporate activities, and development of proprietary
technologies. Prior to founding the Company in 1996, he was an independent
software programmer. Mr. Chen received his Bachelor of Science degree in
Electrical Engineering and Computer Science in 1995 from the University of
California at Berkeley.
Peter Janssen
Mr. Janssen is the founder of Peter Janssen & Associates ("PJA"), a technology
consulting firm specializing in sales marketing and channel marketing
strategies. Prior to founding PJA, Mr. Janssen was head of Merchandising and
Marketing at Egghead Software, where he helped implement one of the first
Internet retail sites, Egghead.com. Before joining Egghead, Mr. Janssen headed
sales and marketing for several technology start-ups including Mindset, Amdek (a
division of Wyse), Nexgen Microsystems and Acer. At Acer, he developed the
company's consumer channel into a $500 million business. Early in his career,
Mr. Janssen spent 18 years at Sears, where he helped develop the Sears Business
System Center. He received his Bachelor of Arts degree in Economics from UCLA.
Calbert Lai
A 15-year veteran of Silicon Valley, Mr. Lai is the President, Co-Founder and
senior business strategist at I-Storm, a publicly traded e-commerce consulting
firm. Prior to joining I-Storm and its subsidiary, Mr. Lai was a founding
partner and Chief Executive Officer of Lai, Venuti and Lai Advertising ("LVL"),
where he provided strategic marketing and consulting services for technology
clients such as IBM, HP, Sun Microsystems, Cisco and NEC. LVL underwent a
pre-packaged Chapter 11 bankruptcy reorganization while Mr. Lai was an executive
officer, prior to merging with I-Storm in 1999. He has also helped to launch
many successful hi-tech products such as the Palm Pilot. Mr. Lai previously held
executive positions in business affairs and community relations department at
Stanford University, where he also received a Bachelor of Arts degree in English
and Creative Writing.
Grant Trexler
Prior to joining the Company in January 2000, Mr. Trexler served as the Director
of Finance and Administration for El Monte RV, the nation's second largest motor
home rental dealer from July 1996, leading the company to profitability and
through the development of its Licensee program. Before joining El Monte, Mr.
Trexler was the CFO of Creative Computers from August 1994 through May 1996. Mr.
Trexler was CFO during Creative's IPO and secondary offerings in 1995. At
Creative Computers, he was responsible for implementing internal accounting and
budgeting systems, financial reporting, and financial due diligence. Prior to
joining Creative, Mr. Trexler spent nine years at PricewaterhouseCoopers, most
recently as a Senior Manager in its Mergers and Acquisitions group. Mr. Trexler
holds Masters of Business Administration and Bachelor of Arts degrees from
California Polytechnic State University - San Luis Obispo and is a Certified
Public Accountant.
24
<PAGE>
Alex Chen
Mr. Chen joined the Company in March 1999 to take charge of the Company's
business development and alliance program activities, oversee general operation
of the company. Prior to joining the Company, Mr. Chen was the founder,
President and CEO of AMT Components, Inc., where he was selected by Entrepreneur
Magazine as one of the "Top 100 Entrepreneurs" in 1998. Under Mr. Chen 's
direction, AMT Components, Inc. grew to an annual revenue base of nearly $4.5
million just two years after its inception in 1996. Mr. Chen graduated from the
University of California at Berkeley in 1996.
David Chou
Mr. Chou joined the Company in October 1999, to design and develop the technical
infrastructure for the Company, set the technical architectural direction in
which the Company is to evolve into, and build/manage an efficient IT
organization. From 1994 until joining the Company, Mr. Chou was a Java
Consultant for Sun Microsystems, where he helped major corporations design and
develop enterprise applications and system architectures, as well as providing
consultation on the latest Internet technologies. Mr. Chou received his Bachelor
of Science in Industrial Engineering and Operations Research in 1994 from the
University of California at Berkeley.
* There are no family relationships among any of our directors or executive
officers.
(b) Section 16(a) Reporting Delinquencies
No executive officer or director failed to file on a timely basis any report
required to be filed by them under Section 16(a) of the Exchange Act since the
Company's last 10-KSB filing for the year ended June 30, 1999.
As of the date hereof, we are not aware of the continued failure of any of our
current officers or directors to file such required reports.
ITEM 10. EXECUTIVE COMPENSATION
(a) The following Summary Compensation Table sets forth the names, positions
and annual compensation paid by us for the years ended December 31, 1999,
1998, and 1997 to George Lee, our Chief Executive Officer. No other current
executive officer or key employee had compensation which exceeded $100,000
in these years.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation Awards
Securities
Fiscal Underlying Options All Other
Name and Position Year Salary ($) Bonus ($) (#) Compensation ($)
- ----------------- ---- ---------- --------- --- ----------------
<S> <C> <C> <C> <C>
George Lee, Chief Executive Officer 1999 49,000 - 500,000(1) 1,800(2)
1998 48,000 - - -
1997 12,000 - - -
</TABLE>
(1) In connection with the Company's reverse acquisition of Adrenalin in
December 1999, all unvested options were canceled. Mr. Lee had 400,000
options canceled as a result thereof.
(2) Reflects health insurance costs paid by the Company on Mr.Lee's behalf.
(b) The following table sets forth certain information with respect to all stock
options granted by us during 1999 to Mr. Lee:
25
<PAGE>
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
Number of Securities % of Total Options
Underlying Options Granted to Employees Exercise Price
Name Granted (#) in Fiscal Year ($/Sh) Expiration Date
---- ----------- -------------- ------ ---------------
<S> <C> <C> <C> <C>
George Lee 500,000 17.5% $0.10 2/28/05(1)
</TABLE>
(1) In connection with the Company's reverse acquisition of Adrenalin in
December 1999, all unvested options were canceled. Mr. Lee had 400,000
options canceled as a result thereof.
(c) The following table sets forth certain information with respect to the
exercise of stock options during 1999 and the value of unexercised stock
options held by Mr. Lee at December 31, 1999:
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST
YEAR AND YEAR-END (YE) OPTION VALUES
Value of Unexercised Shares Number of Securities Underlying
In-the-Money Options YE ($) Acquired On Unexercised Options at YE
Name Exercisable/Unexercisable Exercise (#) Value Realized Exercisable/ Unexercisable
---- ------------------------- ------------ -------------- --------------------------
<S> <C> <C> <C> <C>
George Lee $400,000/0 None N/A 100,000/0
</TABLE>
(d) Executive Officer Employment Contracts
George Lee Employment Agreement
Upon completion of the reverse merger on December 2, 1999, the Company entered
into a 3 year employment agreement with Mr. Lee (the "Lee Employment
Agreement"). The Lee Employment Agreement provides that Mr. Lee serve as
Company's Chief Executive Officer and receive a base salary of $80,000 per year
for his services. Mr. Lee is also entitled to receive bonuses and stock options
as determined by our Board of Directors. The Lee Employment Agreement also
provides that Mr. Lee devotes all of his business time, attention and energy to
our business and provides for Mr. Lee to paid by the full value of the agreement
if he is terminated without cause. Mr. Lee is also entitled to participate in
all group health and insurance programs, paid by the Company, and other fringe
benefits or retirement plans available to other of our employees.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 31, 1999, the number of shares of
our Common Stock held of record or beneficially: (i) by each person who held of
record, or was known by us to own beneficially, more than 5% of the outstanding
shares of the our Common Stock; (ii) by each of our current executive officers
and directors; and (iii) by all of our current executive officers and directors
as a group:
<TABLE>
<CAPTION>
Name and Address of Percent of Outstanding Shares of
Beneficial Owner Number of Shares Owned (1)(2) Common Stock
---------------- ----------------------------- ------------
<S> <C> <C>
George Lee 9,691,819 30.5%
3002 Dow Avenue Ste 114
Tustin, CA 92780
Mike Chen 9,335,793 29.4%
3002 Dow Avenue Ste 114
Tustin, CA 92780
Mackenzie Shea, Inc. 2,010,932 (3) 6.3%
657 Third Street
San Francisco, CA 94107
ACST Computers, Inc. 4,520,325 (4) 14.2%
3002 Dow Avenue Ste 114
Tustin, CA 92780
Peter Janssen 100,000 0.3%
3002 Dow Avenue Ste 114
Tustin, CA 92780
Calbert Lai 100,000 0.3%
3002 Dow Avenue Ste 114
Tustin, CA 92780
All current executive officers and 23,747,397 75.0%
directors as a group (5 persons)
</TABLE>
26
<PAGE>
(1) Except as otherwise indicated and subject to applicable community
property and similar statutes, the persons listed as beneficial owners
of the shares of our Common Stock have sole voting and dispositive
power with respect of such shares.
(2) For purposes of computing the percentages, the number of shares of
Common Stock outstanding includes shares purchasable within 60 days
upon exercise of outstanding stock options, as follows: Mr. Lee
(100,000 shares), Mr. M. Chen (120,000 shares), Mr. A. Chen (principal
shareholder of ACST Computers, Inc.), Mr. Janssen and Mr. Lai (100,000
shares), and all executive officers and directors as a group (490,000
shares).
(3) Includes shares beneficially owned by Mackenzie Shea distributed to
various companies under its control in January 2000.
(4) Includes 70,000 shares purchasable within 60 days upon exercise of
outstanding options by Mr. A. Chen and 4,450,325 shares owned by ACST
Computers, Inc. At December 31, 1999, Mr. A. Chen owned approximately
50% of the outstanding shares of ACST Computers, Inc. and had sole
voting power over the shares owned by such company. In March 2000,
ACST Computers, Inc. was dissolved. Mr. A. Chen's ownership of the
Company's shares was reduced to 2,150,526, including 70,000 shares
purchasable within 60 days upon exercise of outstanding options.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Acquisition of AMT
On March 15, 1999, Mcglen Micro, Inc. (Mcglen) completed the acquisition of AMT
Components, Inc. (AMT). Alex Chen, Mcglen's Vice President of Business
Development was a principal shareholder of AMT. Under the terms of the
acquisition, Mcglen exchanged 450,000 shares of Mcglen's common stock
(calculated prior to Mcglen's 10 for 1 stock split), which constituted
approximately 17.5% of Mcglen's common stock at the time of the acquisition for
all of AMT's assets.
Reverse Acquisition (Merger) with Mcglen Micro, Inc.
On December 3, 1999, Adrenalin consummated a reverse acquisition with Mcglen
Micro, Inc. The resulting reorganization was to form this Company. Under the
terms of the Agreement and Plan of Merger (the "Merger Agreement"), Adrenalin
agreed to exchange approximately 87.5% of the shares of Adrenalin common stock
for all of the outstanding shares of Mcglen. One share of Mcglen's common stock
will be converted into approximately one share of Adrenalin's common stock. The
Merger Agreement is set forth in full in Adrenalin's Form 8-K, dated April 30,
1999.
Mackenzie Shea, Inc.
Mcglen was introduced to Adrenalin by Mackenzie Shea, Inc. ("MSI"). Pursuant to
its engagement letter, MSI received 2,010,932 of the outstanding shares of the
Company, for coordinating the Merger and advising and assisting Adrenalin and
Mcglen in raising a minimum of $3,000,000. Mcglen was also required to pay MSI
$7,500 per month during the term of MSI's engagement with Mcglen.
Convertible Notes
On June 16, 1999, Mcglen borrowed $200,000 from two investors. As a result of
this transaction, Mcglen executed two Convertible Promissory Notes (the "Notes")
with identical terms and conditions whereby Mcglen promised to repay each
investor the loan amount 18 months from the execution of the Notes (the "Due
Date"), plus 10% interest per annum payable quarterly in arrears. The investors
have the right to convert the loan amount into Mcglen common stock at $2.00 per
share any time prior to the Due Date. The common stock issued upon conversion of
27
<PAGE>
the Notes will provide the investors with "piggyback" registration rights. As a
commission for arranging the loans, Mcglen paid Pacific Rim Access, a commission
of $20,000 and issued a warrant to Keiji Miyagawa, President of Pacific Rim
Access to purchase 10,000 shares of Mcglen's common stock for $2.00 per Share
(pre reverse merger split), which shares also had "piggyback" registration
rights, subject to underwriter approval, limitation and lockups. Each of the
rights to receive shares of Mcglen common stock related to the Notes is an
obligation of the Company following the Merger.
Finance Transaction with Synnex Information Technologies, Inc.
On May 11, 1999, Mcglen entered into an alliance with Synnex Information
Technologies, Inc. ("Synnex"), which is the wholly-owned U.S. subsidiary of
Synnex, one of the largest computer manufacturers in Taiwan. Pursuant to the
terms of the Synnex agreement, Synnex will provide payment terms of net 30 days
on up to $1,000,000 in trade payables and will provide Mcglen with favorable
pricing terms on products Synnex distributes in the United States and other
markets serviced by Mcglen. In exchange, Mcglen has provided to Synnex the
following: (i) the option to elect a member of Mcglen's Board of Directors; (ii)
the ability to convert the entire $1,000,000 into common stock at the price of
$4,.125 any time for 3 years; (iii) demand and "piggyback" registration rights;
(iv) information rights; (v) antidilution rights; and (vi) certain other
favorable rights. Mcglen promised to pay a commission consisting of cash and
warrants to Triangle Associates, LLC, as described below. There are no
assurances that Synnex will not cancel the credit terms in the future.
Brokers Fees for the Synnex Transaction
Mcglen paid a commission to Triangle Associates, LLC, in the form of warrants to
purchase Mcglen's common stock at various prices between $4.125 and $5.50 per
share up to a maximum aggregate exercise price of $337,500, at any time for 3
years. Mcglen has also agreed to pay Triangle Associates, LLC, a cash commission
equal to 5% of the amount of a trade credit line extended or investment made by
Synnex over an 18 month period. The cash commission was paid in 1999. Steve
Chang is the principal owner and manager of Triangle Associates, LLC.
Pre-Merger Mcglen Financings
In September 1999, Mcglen entered into an agreement with Pacific Rim Access (the
"PacRim Agreement") to raise $800,000. Pursuant to the PacRim Agreement, Mcglen
sold 320,000 shares of common stock to a group of Japanese investors for $2.50
per share, which shares will have "piggyback" registration rights, subject to
underwriter approval, limitations and lockups. As commission for arranging the
loans, Mcglen paid Pacific Rim Access a commission of $80,000 and issued
warrants to Keiji Miyagawa, President of Pacific Rim Access to purchase 42,000
shares of Mcglen's common stock, (10,000 shares at $2.00 per share with the
remainder for $2.50 per share, both pre reverse acquisition split), which shares
also have "piggyback" registration rights, subject to underwriter approval,
limitations and lockup. The placement was made in accordance with the provision
of Rule 506 promulgated under Regulation D of the Act.
Immediately prior to the Merger, Mcglen sold 600,000 shares of common stock for
$2.50 per share in a private placement pursuant to Rule 506. Redstone
Securities, Inc., acted as placement agent in the Offering for which Redstone
received a commission equal to 10% of the gross proceeds of the offering.
Pre-Merger Adrenalin Financing by Escaldade
Prior to the Merger, Adrenalin consummated a financing pursuant to a purchase
agreement to sell 293,255 shares of common stock to Escaldade Investors, LLC
("Escaldade") for gross proceeds of $1,250,000 ($4.2625 per share, which was
110% of the closing price of Adrenalin's common stock on July 9, 1999) and
received an irrevocable commitment from Escaldade to purchase an additional
$750,000 of Adrenalin's common stock upon the completion of the Merger. The
$750,000 was placed into escrow until the SEC approved the proxy statement
soliciting the consent of the Company's shareholders for the Merger and was
released upon the closing of the Merger. The price per share of common stock
paid by Escaldade for the $750,000 in escrow, $5.43, was equal to 110% of the
closing price for the common stock on the trading day prior to such funding.
138,090 shares were issued to Escaldade in the $750,000 financing.
28
<PAGE>
Escaldade received a three year warrant to purchase 29,325 additional shares of
common stock at an exercise price of $4.843 per share (which was 125% of the
closing price of the common stock on July 9, 1999). Upon the funding of the
$750,000, Escaldade also received an additional three year warrant to purchase
13,809 additional shares of common stock at an exercise price of $6.79 per share
(which was 125% of the closing price of the common stock for the common stock on
the trading day prior to such funding).
The warrants issued by the Company to Escaldade may be exercised on a "cashless
exercise" basis to the extent that the average market value of the shares of
common stock issuable upon exercise of such warrants for the five trading days
prior to exercise exceeds the aggregate exercise price for the shares as to
which the warrants are being exercised.
The agreement with Escaldade allowed for rerpicing rights if Mcglen's stock
price dropped below certain prices as defined in the agreement. Escaldade
exercised its repricing rights relating to two-thirds of the shares it obtained
in the financing in January 2000 and received 103,775 shares of the Company's
common stock. Escaldade exercised its repricing rights relating to the final
one-third of the shares it obtained in the financing in April 2000 and received
39,352 shares of the Company's common stock.
Pursuant to the purchase agreement, the Company filed an S-3 Registration
Statement to register all shares of common stock issued or issuable to
Escaldade, including shares of common stock issued upon exercise of the warrants
described above. The Company is required to keep the Registration Statement
effective until July 12, 2001, until Escaldade no longer holds or has the right
to acquire shares or until all of its shares may be sold pursuant to Rule 144
under the Act, whichever comes first.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit
No. Description Page No.
--- ----------------------------------------------------------------------- --------
<S> <C>
Agreement and Plan of Merger, dated as of April 28, 1999, among Adrenalin,
Adrenalin's subsidiary, Mcglen and Mcglen's principal shareholders,
incorporated by reference from Exhibit 2.1 to our Current Report on Form
2.1 8-K, dated April 30, 1999 ("April 30 Form 8-K"). N/A
2.2 First Amendment to Agreement and Plan of Merger, dated July 23, 1999, N/A
among Adrenalin, Adrenalin's subsidiary, Mcglen and Mcglen's
principal shareholders, incorporated by reference from Exhibit 2.1
to our Current Report on Form 8-K, dated July 23, 1999 ("July 23,
1999 Form 8-K").
2.3 Second Amendment to Agreement and Plan of Merger, dated October 4, 1999, *
by and among Adrenalin Interactive, Inc., Adrenalin Acquisition
Corporation, Mcglen Micro, Inc. an the shareholders of Mcglen Micro, Inc.
2.4 Third Amendment to Agreement and Plan of Merger, dated December 2, 1992, *
by and among Adrenalin Interactive, Inc., Adrenalin Acquisition
Corporation, Mcglen Micro, Inc. an the shareholders of Mcglen Micro, Inc.
3.1 Amended Certificate of Incorporation of Adrenalin Interactive, Inc., filed N/A
as Exhibit 3.1 to our Current Report on Form 8-K, dated December 8, 1999
("December 8, 1999 Form 8-K).
3.2 Bylaws of Mcglen Internet Group *
3.3 Certificate of Amendment of Certificate of Incorporation of Adrenalin, N/A
filed with the Delaware Secretary of State on December 6, 1999,
incorporated by reference from Exhibit 3.1 to our Current Report on
Form 8-K, dated February 1, 2000.
4.1 Common Stock Purchase Agreement, dated July 12, 1999, between
Adrenalin N/A and Escaldade, incorporated by reference from Exhibit
4.1 to our Current Report on Form 8-K, dated July 12, 1999 ("July
12, 1999 Form 8-K").
4.2 Registration Rights Agreement, dated July 12, 1999, between
Adrenalin and N/A Escaldade, incorporated by reference from Exhibit
4.2 to our July 12, 1999 Form 8-K.
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description Page No.
--- ----------------------------------------------------------------------- --------
<S> <C>
4.3 Form of Warrant issued and to be issued by Adrenalin to Escaldade,
N/A incorporated by reference from Exhibit 4.3 to our July 12, 1999
Form 8-K.
4.4 Form of Escrow Instructions to be entered into between Adrenalin and N/A
Escaldade, incorporated by reference from Exhibit 4.4 to our July 12, 1999
Form 8-K.
4.5 Form of Warrant issued to affiliates and transferees of Mackenzie
Shea, N/A Inc. ("MSI"), incorporated by reference from Exhibit 4.1
to our Quarterly Report on Form 10-QSB for our quarterly period
ended March 31, 1998 ("March 1998 Form 10-QSB").
4.6 Warrant to Purchase Common Stock issued Redstone Securities, Inc. *
(Redstone), dated August 12, 1999.
4.7 Private Placement Memorandum, dated September 30, 1999, between
Mcglen and N/A Redstone, incorporated by reference from Exhibit 3.1
to our Current Report on Form 8-K, dated February 1, 2000.
10.1 1999 Stock Option Plan, of Mcglen Micro, Inc., as amended, as adapted by *
the Company after the merger with Adrenalin Interactive, Inc.
10.2 Consulting Agreement, dated October 1, 1997, as amended, between
Adrenalin N/A Interactive, Inc., and MSI, incorporated by reference
from Exhibit 10.1 to our Form 10-KSB for the year ended June 30,
1998.
10.3 Letter Agreement, dated November 18, 1997, as amended on April 21,
1998 N/A and August 31, 1998, between Adrenalin and Kayne relating
to management consulting services provided to Adrenalin by Kayne,
incorporated by reference from Exhibit 10.2 to our Form 10-KSB for
the year ended June 30, 1998.
10.4 Employment Agreement, dated December 16, 1997, between Adrenalin and
Jay N/A Smith, III, incorporated by reference from Exhibit 10.1 to
our March 1998 Form 10-QSB.
10.5 Consulting Agreement, dated April 10, 1998, between Adrenalin and
Robert N/A A.D. Wilson relating to general consulting services
provided to Adrenalin by Mr. Wilson, incorporated by reference from
Exhibit 10.5 to our Form 10-KSB for the year ended June 30, 1998.
10.6 Optional Advance Note ("Variable Note") for $400,000 Plus Interest,
dated N/A June 30, 1998, issued by Adrenalin to Bay Area Financial
Corporation, incorporated by reference from Exhibit 10.8 to our Form
10-KSB for the year ended June 30, 1998.
10.7 Secured Promissory Note, dated July 23, 1999, by Mcglen to Adrenalin
in N/A the principal amount of $500,000 and payable on July 23,
2000, incorporated by reference from Exhibit 10.1 to our Current
Report on Form 8-K, dated July 23, 1999.
10.8 Adrenalin's 1995 Stock Option Plan, as amended, incorporated by reference N/A
from Exhibit 10.4 to our Registration Statement on Form SB-2, No.
333-00178 ("1996 Registration Statement").
10.9 Amendment No. 2 to Adrenalin's 1995 Stock Option Plan, dated December 1, N/A
1997, incorporated by reference from Exhibit 10.13 to our Form 10-KSB for
the year ended June 30, 1998.
10.10 Adrenalin's 1996 Stock Option Plan, as amended, incorporated by
reference N/A from Exhibit A to Adrenalin's definitive proxy
materials in respect of Adrenalin's 1996 Annual Meeting of
Shareholders.
10.11 Amendment No. 2 to Adrenalin's 1996 Stock Option Plan, dated December 1, N/A
1997, incorporated by reference from Exhibit 10.15 to our Form 10-KSB for
the year ended June 30, 1998.
10.12 Acquisition Agreement among Adrenalin, Western and Jay Smith III
d/b/a N/A Smith Engineering, dated as of December 30, 1996,
incorporated by reference from Exhibit 7(c)(1) to our Current Report
on Form 8-K, dated February 4, 1997 ("1997 Form 8-K").
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description Page No.
--- ----------------------------------------------------------------------- --------
<S> <C>
10.13 License Agreement, dated February 4, 1997, between Western and Jay
Smith, N/A III, incorporated by reference from Exhibit 7(c)(2) to
our 1997 Form 8-K.
10.14 Convertible Promissory Note, dated March 20, 2000, by and between Mcglen *
Internet Group, Inc. and various Lenders introduced by Institutional
Equity Holdings Corporation.
10.15 Employment Agreement, dated January 1, 2000, between Mcglen Internet *
Group, Inc. and Grant Trexler.
10.16 Employment Agreement, dated December 2, 1999, between Adrenalin *
Interactive, Inc. and George Lee.
10.17 Employment Agreement, dated December 2, 1999, between Adrenalin *
Interactive, Inc. and Mike Chen.
10.18 Employment Agreement, dated December 2, 1999, between Adrenalin *
Interactive, Inc. and Alex Chen.
10.19 Employment Agreement, dated October 1, 1999, between Mcglen Micro, Inc. *
and David Chou.
10.20 Employment Agreement, dated September 1, 1999, between Mcglen Micro, Inc. *
and Robert Brown.
21 Subsidiaries of Mcglen Internet Group, Inc. *
22 Definitive Proxy submitted for shareholder vote on November 11, 1999. N/A
Filed on October 6, 1999 and incorporated by reference.
27 Financial Data Schedules. *
</TABLE>
(b) Reports on Form 8-K.
1. On November 16, 1999, we filed a Current Report on Form 8-K
announcing the issuance of shares to the shareholders of Mcglen
Micro, Inc.("Mcglen") necessary to consummate the previously
announced merger between Adrenalin Interactive, Inc. and Mcglen
which was approved by the shareholders of Adrenalin at its annual
meeting held on November 11, 1999.
2. On December 8, 1999, we filed a Current Report on Form 8-K
announcing the consummation of the merger by Mcglen into Adrenalin
Interactive, Inc.
3. On February 1, 2000, we filed a Current Report on Form 8-K
announcing the change of control of the Company, acquisition and
disposition of assets, change in certified accountants, the
closing of an offering of Common Stock for $750,000 with
Escaldade, the closing of an private placement of common stock for
$1.5 million with Redstone Securities, Inc., the resignation of
former directors, Jay Smith, Edward Mackay, Robert Wilson, and a
change in our fiscal year end to December 31.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, this report has been
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Tustin, Sate of California, on April 13, 2000.
MCGLEN INTERENET GROUP, INC.
By: /s/ George Lee
--------------
George Lee, Chief Executive Officer
31
<PAGE>
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C>
/S/ George Lee April 13, 2000
- -------------------
George Lee Chief Executive Officer and Director
/S/ Mike Chen April 13, 2000
- -------------------
Mike Chen President, Chief Technology Officer, Secretary, and Director
/S/ Grant Trexler April 13, 2000
- -------------------
Grant Trexler Chief Financial Officer
/S/ Peter Janssen April 13, 2000
- -------------------
Peter Janssen Chairman and Director
/S/ Calbert Lai April 13, 2000
- ------------------
Calbert Lai Director
</TABLE>
32
<PAGE>
The Company's financial statements listed below are included on pages F-1
through F-18 following the signature page to this report:
<TABLE>
<CAPTION>
Title of Document Page
----------------- ----
<S> <C>
Reports of Independent Certified Public Accountants. F-1
Consolidated Financial Statements:
Balance Sheets as of December 31, 1999 and 1998 F-3
Statements of Operations for the Years Ended December 31, 1999 and 1998 F-4
Statements of Cash Flows for the Years Ended December 31, 1999 and 1998 F-5
Statements of Changes in Stockholders' (Deficit) Equity for the Years Ended
December 31, 1999 and 1998 F-6
Notes to Financial Statements F-7
</TABLE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders of the Mcglen Internet Group, Inc.
Tustin, CA
We have audited the accompanying consolidated balance sheet of the Mcglen
Internet Group, Inc., as of December 31, 1999 and the related consolidated
statements of operations, cash flows and changes in stockholders' (deficit)
equity for the year ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Mcglen Internet
Group, Inc., at December 31, 1999, and the results of their operations and their
cash flows for the year ended December 31, 1999, in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has suffered a loss from
operations, has negative working capital, is in violation of debt covenants, and
needs to raise additional funds to accomplish its objectives. These matters
raise substantial doubt about the Company's ability to continue as a going
concern. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/BDO Seidman, LLP
- -------------------
BDO Seidman, LLP
Los Angeles, CA
March 11, 2000
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders of the Mcglen Internet Group, Inc.
Tustin, CA
We have audited the accompanying balance sheet of the Mcglen Internet Group,
Inc., as of December 31, 1998 and the related statements of operations, cash
flows and changes in stockholders' (deficit) equity for the year ended December
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Mcglen Internet Group,
Inc., at December 31, 1998, and the results of its operations and its cash flows
for the year ended December 31, 1998, in conformity with generally accepted
accounting principles.
/s/Singer Lewak Greenbaum & Goldstein LLP
- -----------------------------------------
Singer Lewak Greenbaum & Goldstein LLP
Santa Ana, CA
April 14, 1999
F-2
<PAGE>
<TABLE>
<CAPTION>
MCGLEN INTERNET GROUP, INC.
CONSOLIDATED BALANCE SHEETS
December 31,
ASSETS (Note 4) 1999 1998
---------- ---------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $961,666 $436,692
Accounts receivable, net of allowance for doubtful accounts and
estimated returns of $70,000 and $0 at December 31, 1999 and 1998 558,356 350,048
Inventories (Note 1) 436,017 115,184
Prepaid expenses and other current assets 52,776 8,112
Deposits (Note 1) 386,074 148,189
---------- ---------
Total current assets 2,394,889 1,058,225
---------- ---------
Equipment, net (Note 3) 519,576 41,750
Intangible assets (Note 1) 337,584 --
Other assets (Note 1) 52,314 700
------- ---
$3,304,363 $1,100,675
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current Liabilities:
Accounts payable (Note 4) $1,933,122 $610,429
Accrued expenses 379,768 79,736
Capital lease obligations - current portion (Note 3) 96,989 -
Convertible notes payable - related parties (Note 5) -- 200,000
Convertible notes payable (Note 5) 200,000 -
Net current liabilities of discontinued operations (Note 1 and 12) 1,342,620 -
---------- ---------
Total current 3,952,499 890,165
---------- ---------
liabilities
Capital lease obligations (Note 3) 216,172 -
---------- ---------
Total liabilities 4,168,671 890,165
========== =========
Commitments and contingencies (Note 9)
Stockholders' (deficit) equity (Notes 1, 5, 7, and 12) Preferred stock, $0.01
par value; 5,000,000 shares authorized,
none issued or outstanding -- -
Common stock, $0.03 par value; authorized 50,000,000 shares,
31,733,893 in 1999 and 20,750,000 in 1998 shares issued and outstanding 952,017 62,250
Additional paid in capital 2,204,143 72,250
Deferred compensation (575,971) -
Accumulated (deficit) earnings (3,444,497) 75,510
---------- ---------
Total Stockholders' (Deficit) Equity (864,308) 210,510
---------- ---------
$3,304,363 $1,100,675
========== =========
</TABLE>
See accompanying notes to the consolidated financial statements
F-3
<PAGE>
<TABLE>
<CAPTION>
MCGLEN INTERNET GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
Net sales $27,493,774 $11,525,307
Cost of sales 25,424,325 9,707,247
------------ ----------
Gross profit 2,069,449 1,818,060
------------ ----------
Operating expenses
Selling, general and administrative (including $769,079
amortization of deferred compensation in 1999) 5,548,993 1,778,646
Interest expense (income) 31,463 (20,305)
------------ ----------
Total operating expenses 5,580,456 1,758,341
------------ ----------
(Loss) income before income taxes (3,511,007) 59,719
========== ==========
Provision for income taxes 1,000 1,300
---------- ----------
Net (loss) income ($3,512,007) $ 58,419
------------ ----------
Basic and diluted net (loss) income per share ($0.11) $ --
========== ==========
Weighted average shares of common stock outstanding:
Basic and diluted 31,733,893 20,750,000
========== ==========
</TABLE>
See accompanying notes to the consolidated financial statements
F-4
<PAGE>
<TABLE>
<CAPTION>
MCGLEN INTERNET GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
Additional Accumulated Total
Common Stock Paid -in Deferred Earnings Stockholders'
Shares Amount Capital Compensation (Deficit) Equity (Deficit)
------- ------------ --------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1998 20,000,000 $60,000 -- -- $101,091 $ 161,091
Distributions to stockholders (84,000) (84,000)
Common stock issued in
exchange for accounts payable 750,000 2,250 72,750 75,000
Net income 58,419 58,419
--
---------- --------- ----------- ---------- ------------ ----------
Balance at December 31, 1998 20,750,000 62,250 72,750 -- 75,510 210,510
Distributions to stockholders (8,000) (8,000)
Conversion of notes payable 200,000 600 19,400 20,000
Shares issued in acquisition
of AMT Components, Inc. 4,500,000 13,500 388,594 402,094
Private placements prior
to reverse acquisition 320,000 960 719,040 720,000
Deferred compensation
relating to stock options 1,345,050 $(1,345,050) -
Amortization of
deferred compensation
relating to stock options 769,079 769,079
Stock split in connection
with reverse acquisition (284,472) 687,256 (687,256) --
Shares issued in recapitalization 3,539,343 106,179 7,384,287 7,490,466
Costs related to reverse
acquisition transaction (Note 1) 2,010,932 60,328 (8,962,248) (8,901,920)
Private placements of stock 698,090 20,943 1,924,057 1,945,470
Net loss (3,512,007) (3,512,007)
Balance at December 31, 1999 31,733,893 $ 952,017 $2,204,143 ($575,971) $(3,444,497) $(864,308)
=========== ========= =========== ========== ============ ==========
</TABLE>
See accompanying notes to the consolidated financial statements
F-5
<PAGE>
<TABLE>
<CAPTION>
MCGLEN INTERNET GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
December 31,
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income ($3,512,007) $ 58,419
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities:
Depreciation and amortization 171,888 6,614
Amortization of deferred compensation 769,079 --
Increase in allowance for doubtful accounts 70,000 --
Increase in inventory reserves 92,949 7,608
Common stock issued for services -- 75,000
Changes in operating assets and liabilities:
Accounts receivable (278,308) (92,575)
Inventories (413,782) (56,654)
Prepaid expenses and other current assets (44,664) (8,112)
Deposits (237,885) (145,624)
Other assets (17,821) --
Accounts payable 1,322,692 277,029
Accrued expenses 300,032 49,889
----------- -----------
Total adjustments 1,734,180 113,175
----------- -----------
Net cash (used in) provided by operating activities (1,777,827) 171,594
----------- -----------
Cash flows from investing activities:
Purchases of equipment (208,772) (39,949)
Acquisition of Adrenalin (68,834) --
Notes receivable - related parties (33,793) --
----------- -----------
Net cash used in investing activities (311,399) (39,949)
----------- -----------
Cash flows from financial activities:
Borrowings under convertible notes payable 200,000 --
Payments on convertible notes payable - related parties (180,000) (24,061)
Borrowings under convertible notes payable - related parties -- 200,000
Distributions to stockholders' (8,000) (84,000)
Payments on capital lease obligations (63,270) --
Net proceeds from sale of common stock 2,665,470 --
----------- -----------
Net cash provided by financing activities 2,614,200 91,939
----------- -----------
Net increase in cash and cash equivalents 524,974 223,584
Beginning of period 436,692 213,108
----------- -----------
End of period $ 961,666 $ 436,692
=========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements
F-6
<PAGE>
1. Description of Company and Summary of Significant Accounting Policies
Description of Company
Mcglen Internet Group (Mcglen or the Company), formerly Adrenalin Interactive,
Inc. (Adrenalin), was acquired by Mcglen Micro, Inc. in December 1999 through a
transaction in which the stockholders of Mcglen Micro, Inc. acquired control of
the Company through a reverse acquisition. As a result of the acquisition, each
share of Mcglen Micro, Inc. was converted into 0.9889611 shares of the Company,
with 25,485,527 shares being issued. In addition, under the terms of the
acquisition agreement between the Company, Mcglen Micro, Inc., and a consulting
firm, who arranged the acquisition, the consulting firm received 2,010,932
shares of common stock upon completion of the acquisition. The value of these
shares has been accounted for as a cost of the recapitalization. The equity
section of the balance sheet and earnings per share information have been
retroactively restated to reflect the exchange ratio established in the
acquisition agreement and the issuance of shares to the consulting firm.
In connection with the acquisition, the Board of Directors of the Company
adopted a formal plan to discontinue the operations of Western Technologies,
Inc. (Western), the operating subsidiary of Adrenalin that developed video
games. As such, the accounting treatment for the reverse acquisition is that of
a recapitalization. The net liabilities of Western have been reclassified as
discontinued operations on the balance sheets for all periods presented. See
Note 12.
In March 1999, the Company acquired all of the assets and assumed the
liabilities of AMT Components, Inc., (AMT) dba AccessMicro.com, in exchange for
4,500,000 shares of stock (pre recapitalization). The purchase price of the AMT
acquisition was allocated to the acquired assets based on the estimated fair
values at the date of acquisition. This resulted in an excess of purchase price
over net assets acquired of approximately $400,000 which has been allocated to
goodwill and customer lists acquired and is being amortized on a straight-line
basis over 3 to 7 years. The operating results for AMT have been included in the
consolidated financial statements from the date of acquisition. At December 31,
1999, included in Other Assets is a $33,793 loan, due in 2002, from Mcglen to
the former President of AMT, and currently an officer of Mcglen, with interest
at 5%.
Mcglen Internet Group, Inc. is an Internet operating company focused on creating
multiple on-line business divisions targeting specific business-to-business and
business-to-consumer markets. The Company offers over 150,000 computer hardware,
software, and peripheral products servicing individuals, small offices/home
offices, and the corporate market through its three web sites; Mcglen.com,
AccessMicro.com, and Techsumer.com.
Going Concern
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business. The Company had a loss of approximately $3.5 million for the year
ended December 31, 1999 and had a negative working capital of approximately $1.6
million as of December 31, 1999. Additionally, the Company is in violation of
certain covenants related to a line of credit. As a result, the Company's
independent certified public accountants have expressed substantial doubt about
the Company's ability to continue as a going concern.
During 1999, the Company relied on the proceeds from short-term loans and
private placement of its common stock, which aggregated approximately $2.9
million, to fund its operating requirements. The Company is exploring various
options to raise additional operating capital during 2000.
The Company is currently in discussions with an investor and has signed
agreements which provide for a $1.5 million bridge loan and a $24 million
private placement of stock. The interest rate on the bridge loan is 10%, payable
quarterly, or in full upon redemption or conversion, and matures eighteen months
from the closing date. The bridge loan maybe converted by the investor 150 days
after the closing date at 90% of the daily volume weighted average price (VWAP)
of the Company's common stock for the 22 days prior to notice of conversion.
The investor will also receive warrants to purchase between 495,000 and 750,000
of the Company's common stock at 115% of the Company's closing common stock
price the day prior to the closing date.
F-7
<PAGE>
The $24 million equity private placement will be funded through twelve (12) $2
million draws on an equity line of credit with the same investor as the $1.5
million bridge loan commencing twelve months after the effective date of a
registration statement which the Company is required to file for the private
placement. The private placement will be at a price equal to 87% of the VWAP for
the Company's common stock for 22 days prior to the draw down, The private
placement agreement contains certain conditions whereby the investor's
obligation to fund the draw down is reduced if the Company's stock price drops
below a threshold price, as defined.
The Company is dependent on the proceeds fro the above financing effort and any
other such financing efforts for the continuation and expansion of the Company's
operations. The Company expects that its cash on hand, combined with the funds
that the Company expects to raise from new debt and/or equity financings during
2000, will be sufficient to fund operating and capital expenditures at least
through December 2000. However, there can be no assurances that the Company will
be able to complete such financings on a timely basis and/or under acceptable
terms and conditions. To the extend that adequate working capital is not
available to fund the Company's operations, management will consider a variety
of alternatives, including delaying the introduction of new marketing efforts
and reducing or suspending operations.
The consolidated financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries, Mcglen Micro, Inc. and Western Technologies, Inc.
All significant inter-company balances and transactions have been eliminated in
consolidation.
Cash Equivalents
All highly liquid debt instruments purchased with an original maturity of three
months or less are considered cash equivalents.
Revenue Recognition
For sales of merchandise owned and warehoused by the Company, Mcglen recognizes
the sales amount as revenue upon verification of the credit card transaction
authorization and shipment of the merchandise. The Company also sells
merchandise from suppliers on a "drop-ship" basis. The Company takes title to
this merchandise from the time it is shipped by the supplier until it is
received by the customer. Mcglen recognizes the sale upon verification of the
credit card transaction authorization and shipment of the merchandise to the
customer by the supplier. In instances where the credit card authorization has
been received but the merchandise has not yet been shipped, the Company defers
revenue recognition until the merchandise is shipped.
Inventories
The Company accounts for inventory under the first-in first-out method.
Inventory is carried at lower of cost or market realization. The Company had
reserves of $101,000 and $8,000 for lower of cost or market, and potential
excess and obsolete inventory at December 31, 1999 and 1998, respectively.
Merchandise Return Policy
Merchandise sold by the Company carries the return policy of the manufacturer of
the merchandise. The Company provides for allowances for estimated future
returns at the time of shipment to the customer based on historical experience.
Deposits
Deposits represent funds held by credit card processing companies as security
for potential credit card charge backs against the Company. Such funds can be
held up to 180 days subsequent to the termination of activity between the
Company and the processor.
F-8
<PAGE>
Equipment
Equipment is stated at cost. Depreciation is computed using the straight-line
method based on the estimated useful lives of the assets, which range from three
to five years. Leasehold improvements are stated at cost and depreciation is
computed using the straight-line method over the shorter of the useful life of
the asset or the term of the lease.
Software Development Costs
In accordance with SOP 98-1, internal and external costs incurred to develop
internal-use computer software are expensed during the preliminary project stage
and capitalized during the application development stage and amortized over
three years. During the years ended December 31, 1999 and 1998, $91,000 and
$63,000 was expensed, respectively. As of December 31, 1999, there was $229,000
capitalized software development costs, net of accumulated amortization of
$21,000.
Accounting for the Impairment of Long-Lived Assets
The Company reviews long-lived assets for impairment when events or changes in
circumstances indicate the carrying amount of an asset may not be recoverable.
In the event the sum of the expected undiscounted future cash flows resulting
from the use of the asset is less than the carrying amount of the asset, an
impairment loss equal to the excess of the asset's carrying value over its fair
value is recorded.
Advertising Costs
Advertising costs are charged to expense as incurred. Advertising expense was
$905,000 and $221,000 for the years ended December 31, 1999 and 1998,
respectively.
Income Taxes
The Company follows the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," which requires recognition of
deferred tax assets and liabilities for the expected future tax consequences of
events that have been included in the financial statements and tax returns.
Deferred tax assets and liabilities are determined based upon the difference
between the financial statement and tax bases of assets and liabilities, using
the enacted tax rates in effect for the year in which the differences are
expected to reverse. A valuation allowance is provided when it is more likely
than not that deferred tax assets will not be realized.
Fair value of Financial Instruments
The carrying value of the Company's financial instruments, consisting primarily
of stock subscriptions receivable, receivables, accounts payable and notes
payable, approximates fair value due to the maturity of these financial
instruments and the borrowing costs to the Company.
Stock-based compensation
The Company has adopted SFAS No. 123, "Accounting for Stock-Based Compensation."
SFAS No. 123 which requires disclosure of the compensation cost for stock-based
incentives granted after January 1, 1995 based on the fair value at grant date
for awards. The Company accounts for stock-based awards to employees using the
intrinsic value method in accordance with Accounting Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees."
Net (Loss) Income per Share
Basic net (loss) income per share excludes dilution and is computed by dividing
net loss by the weighted average number of common shares outstanding during the
reported periods. Diluted net loss per share reflects the potential dilution
that could occur if stock options and other commitments to issue common stock
were exercised. During the year ended December 31, 1999, 2,938,275 options and
493,264 warrants to purchase common shares were anti-dilutive and have been
excluded from the weighted average share computation. No options or warrants
were outstanding on December 31, 1998.
F-9
<PAGE>
Concentration of Credit Risk
Financial instruments that potentially subject the Company to a concentration of
credit risk consist of accounts receivable from individuals and merchants, and
deposits held by credit card processing companies, located in the United States.
Sales are generally made through credit cards and are pre-approved. The Company
maintains an allowance for doubtful accounts receivable based upon the expected
collectibility of accounts receivable and potential credit losses. Such losses
have been immaterial.
Concentration of Suppliers
The Company is dependent upon key distributors for merchandise. For the years
ended December 31, 1999 and 1998, one distributor accounted for approximately
34.9% and 75.0%, respectively, of total purchases. Management believes other
suppliers could provide similar merchandise on comparable terms. A change in
suppliers, however, could cause a delay in fulfillment of customer orders and a
possible loss of sales, which would affect operating results adversely.
New accounting pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, which the Company
is required to adopt effective in its fiscal year 2000. SFAS No. 133 will
require the Company to record all derivatives on the balance sheet at fair
value. The Company does not currently engage in hedging activities. The Company
will adopt SFAS No. 133 for the year ending December 31, 2000 and the adoption
is expected to have no effect.
Use of Estimates in the Preparation of Financial Statements
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 respective reporting
periods. Actual results could differ from those estimates.
Reclassifications
Certain reclassifications have been made to the December 31, 1998 financial
statements to conform to the December 31, 1999 presentation.
2. Business Combinations
As discussed in Note 1, the Company acquired all the assets of AMT Components,
Inc. in March 1999 (see Note 1).
The following unaudited pro forma combined results of operations for the Company
assumes that the AMT acquisition was completed on January 1, 1998:
December 31,
1999 1998
------------ ------------
Net sales $29,379,243 $16,160,050
Gross profit $2,291,545 $2,281,557
(Loss) income before taxes ($3,541,672) $191,129
Net (loss) income ($3,541,672) $188,366
Net (loss) income per share ($0.11) $0.01
F-10
<PAGE>
3. Equipment
Equipment consists of the following at December 31:
1999 1998
------------ ------------
Computer hardware and equipment $337,849 $55,533
Computer software 291,328 -
Other 11,560 -
------------ ------------
640,737 55,533
Less accumulated depreciation (121,161) (13,783)
------------ ------------
$519,576 $41,750
Mcglen leases certain equipment, computer hardware and software under capital
leases. The following is a summary of this equipment at December 31:
1999
--------
Computer hardware and equipment 244,232
Computer software 132,200
--------
376,432
Less accumulated depreciation (68,170)
--------
308,263
The following is a schedule of future minimum payments required under capital
leases, together with their estimated present values as of December 31, 1999:
2000 $124,775
2001 100,874
2002 76,905
2003 54,314
2004 17,849
--------
Total minimum lease payments 374,717
Less amount representing interest (61,556)
--------
Present value of minimum lease 313,161
payments
Current portion (96,989)
--------
$216,172
========
Certain of these leases are personally guaranteed by the majority stockholders
of the Company.
4. Accounts Payable Lines of Credit
At December 31, 1999, Mcglen had a $500,000 and a $1 million line of credit with
two finance companies to finance purchases from two of the Company's primary
suppliers. The lines of credit provide for borrowings secured by substantially
all of the Company's assets. The $500,000 line of credit is cancelable upon 30
days or less advance notice and is personally guaranteed by the majority
shareholders of the Company. The $1 million line contains an automatic renewal
feature unless canceled by either party upon thirty days written notice by
either party. Amounts owed under these lines are included in accounts payable.
Advances under the $1 million line do not bear interest, where advances under
the $500,000 line do not bear interest if paid within 30 days of the inventory
purchase date. Interest on the advances not paid within 30 days is charged at
the finance company's prime rate plus 3.25% (11% at December 31, 1999). The
$500,000 line contains certain covenants that require Mcglen to maintain a
minimum level of tangible net worth (as defined). At December 31, 1999, the
Company was not in compliance with this covenant, and, therefore, the finance
company can initiate a default on the facility at any time. Management is
attempting to re-negotiate the covenants.
F-11
<PAGE>
<TABLE>
<CAPTION>
5. Convertible Subordinated Debt and Related Party Convertible Notes Payable
Mcglen is obligated under the following at December 31: 1999 1998
-------- --------
<S> <C> <C>
Convertible notes payable to two individuals, dated June 18, 1999. Interest $200,000 --
payable at 10% per annum. Notes and accrued interest due December 18, 2000.
Notes are convertible at $2.00 per share.
Convertible notes payable to two individuals related to the Company's majority -- $200,000
-------- --------
shareholders, dated December 15, 1998. Interest payable at 5% per annum. In
1999 $20,000 of the notes were converted to common stock, with the remaining
balance being repaid.
$200,000 $200,000
======== ========
</TABLE>
6. Income Taxes
Prior to March 1999, Mcglen elected to be taxed under the provisions of
Subchapter S of the Internal Revenue Code and California Franchise tax reporting
purposes. Accordingly, results of operations of Mcglen for the year ended
December 31, 1998 and the period ended March 15, 1999 are reported on Mcglen's
stockholders' federal income tax returns. No federal income tax is therefore
reported in the Statement of Operations for 1998. Income taxes in 1998 and 1999
represent the California franchise tax applied to S Corporations at a rate of
1.5% and minimum taxes due.
For the period March 16, 1999 to December 31, 1999, the difference between the
amount of income tax benefit recorded and the amount of income tax benefit
calculated using the federal statutory rate of 34% is due to net operating
losses having a valuation allowance, due to uncertainties regarding Mcglen's
realization of these benefits in future years. Accordingly, no tax benefit has
been provided for the period ended December 31, 1999
As of December 31, 1999, Mcglen had federal and state net operating loss
carryforwards of approximately $8,759,000 and $3,803,000, respectively. The net
operating loss carryforwards will expire at various dates beginning in 2012
through 2014 for federal purposes and 2002 through 2004 for state purposes, if
not utilized. Utilization of the net operating loss carryforwards may be subject
to a substantial annual limitation due to the ownership change limitations
provided by the Internal Revenue Code of 1986, as amended, and similar state
provisions. The annual limitation may result in the expiration of net operating
loss carryforwards prior to utilization.
Under FAS 109, Accounting for Income Taxes, deferred tax assets and liabilities
are determined based on differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to reverse. At December
31, 1999, Mcglen had a deferred tax asset of approximately $2,978,000 resulting
from the operating loss carryforward. However, based upon uncertainties
regarding Mcglen's realization of this asset in future years, a valuation
allowance has been provided for the full amount of the deferred tax asset.
7. Stockholders' Equity
Pre-Merger Mcglen Financings
In September 1999, Mcglen entered into an agreement with a company to raise
$720,000, net of commission. Pursuant to the this agreement, Mcglen sold 320,000
shares of common stock for $2.50 per share,
Immediately prior to the Merger, Mcglen sold 600,000 shares of common stock for
$2.50 per share in a private placement pursuant to Rule 506. The placement agent
in the Offering received a commission equal to 10% of the gross proceeds of the
offering; the net proceeds to the Company were $1,350,000.
Pre-Reverse Acquisition (Merger) Adrenalin Financing
Prior to the Merger, Adrenalin received an irrevocable commitment from an
investor to purchase $750,000 of Adrenalin's common stock upon the completion of
F-12
<PAGE>
the Merger. The $750,000 was placed into escrow until the SEC approved the proxy
statement soliciting the consent of the Company's shareholders for the Merger
and was released upon the closing of the Merger. 138,090 shares were issued in
the $750,000 financing at $5.43 per share.
The investor received a three year warrant to purchase 29,325 additional shares
of common stock at an exercise price of $4.843 per share. Upon the funding of
the $750,000, they also received an additional three year warrant to purchase
13,809 additional shares of common stock at an exercise price of $6.79 per
share.
This financing agreement allowed for rerpicing rights if Mcglen's stock price
dropped below certain prices as defined in the agreement. The buyer exercised
its repricing rights relating to two-thirds of the shares it obtained in the
financing in January 2000 and received 103,775 shares of the Company's common
stock. The buyer exercised its repricing rights relating to the final one-third
of the shares it obtained in the financing in April 2000 and received 39,352
shares of the Company's common stock, see Note 13.
Pursuant to the purchase agreement, the Company filed an S-3 Registration
Statement to register all shares of common stock issued or issuable, including
shares of common stock issued upon exercise of the warrants described above. The
Company is required to keep the Registration Statement effective until July 12,
2001, or until the buyer no longer holds or has the right to acquire shares or
until all of its shares may be sold pursuant to Rule 144 under the Act,
whichever comes first.
Warrants
Warrant activity for the year ended December 31, 1999 is as follows:
<TABLE>
<CAPTION>
Number Warrant price Weighted Average
of shares per share Price per Share
--------- --------- ---------------
<S> <C> <C> <C>
Issued in connection with private placements 70,829 $1.98 to $6.17 $3.65
Issued in connection with development agreements 379,102 $4.08 to $5.44 $4.37
Assumed in connection with acquisition 43,333 $18.00 $18.00
Exercised 0
--
Outstanding at December 31, 1999 493,264 $1.98 to $18.00 $5.46
======== =============== =====
</TABLE>
F-13
<PAGE>
In 1996, the Company closed an initial public offering of common stock and
redeemable warrants. In connection with the offering, the investment banker
received, for nominal consideration, five year warrants to purchase 43,333
shares of common stock (which are included in the table above as "assumed in
connection with acquisition").
Conversion of notes payable
In December 1998, two individuals related to the majority stockholders of Mcglen
loaned the Company $200,000 as evidenced by convertible promissory notes. The
two notes bore interest at 5%, matured in January 2000, and contained a
conversion option to convert $10,000 of each note into 100,000 shares of the
Company's stock (prior to applying the reverse acquisition conversion ratio). In
1999, $10,000 of each note was converted into 100,000 shares of common stock
(200,000 shares in total) and the remaining balances were repaid.
Employee Stock Option Plans
The Company has several stock option plans under which options to acquire shares
may be granted to consultants, directors, officers and certain employees of the
Company including the stock option plans acquired through various acquisitions.
The Company accounts for these plans using the intrinsic value method under
Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to
Employees. Terms and conditions of the Company's option plans, including
exercise price and the period in which options are exercisable, generally are at
the discretion of the Board of Directors; however, no options are exercisable
for more than 10 years after date of grant.
Beginning in 1999, Mcglen granted stock options to attract and retain key
employees. In connection with the grant of options to employees Mcglen recorded
deferred compensation of $1,3045,050 for the aggregate differences between the
exercise price of the options at their date of grant and the fair market value
for accounting purposes of the common shares subject to these options. Such
amount is included as a reduction of stockholders' equity and is being amortized
on a straight line vesting method over the option vesting periods, which range
from one to three years. The Company recognized approximately $769,000 in
compensation expense for the year ended December 31, 1999 relating to these
options.
F-14
<PAGE>
The following table summarizes employee stock option plan activity:
<TABLE>
<CAPTION>
Options Outstanding
----------------------------------------------
Weighted
Number Price per Average Price
of shares share Per Share
--------- ----- ---------
Outstanding January 1, 1999 -- --
<S> <C> <C> <C>
Options granted 3,193,790 $0.10 - $3.63 $0.54
Assumed in connection with acquisition 92,156 $0.66 - $3.28 1.77
Options exercised -- --
Options forfeited (1,179,336) 0.10
----------- ----
Outstanding December 31, 1999 2,106,610 $0.91
========= =====
</TABLE>
In February 2000, the Board of Directors of Mcglen approved the 1999 Stock
Option Plan (the 1999 Plan) for issuance of common stock to eligible
participants. The Plan provides for the granting of incentive stock options and
non-qualified stock options. Options generally expire after 10 years. The
Company has granted non-qualified options to certain employees and directors of
the Company to purchase common stock. The terms of the options provide for
vesting, over a 1 to 3-year period, except for options to purchase 183,247
shares of common stock at December 31, 1999 which vested upon completion of the
Company's reverse acquisition.
Non -plan options
Non-plan option activity for the year ended December 31, 1999 is as follows:
<TABLE>
<CAPTION>
Options Outstanding
-------------------------------------------------
Weighted
Number Price per Average Price
of shares share Per Share
--------- ----- ---------
<S> <C> <C> <C>
Outstanding January 1, 1999 -- --
Options granted -- --
Assumed in connection with acquisition 831,665 $0.75 - $15.00 $3.05
Options exercised -- --
Options forfeited -- --
Outstanding December 31, 1999 831,665 $0.75 - $15.00 $3.05
======= =====
</TABLE>
The Company entered into an agreement with a consultant in August 1999 to
perform certain market consultation and corporate finance services. In
consideration for the services to be performed by the consultant, the Company
granted 500,000 stock options with various exercise prices between $2.50 and
$5.00 per share, included in the table above.
F-15
<PAGE>
The following table summarizes information about Mcglen's stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------------------------------------------
Number Weighted Weighted Number Weighted
Outstanding at Average Average Exercisable at Average
Range of December 31, Remaining Exercise December 31, Exercise
Exercise Price 1999 Contractual Life (Yrs) Price 1999 Price
-------------- ---- ---------------------- ----- ---- -----
<S> <C> <C> <C> <C> <C>
$ 0.10 637,385 1.9 $ 0.10 408,936 $ 0.10
0.75 - 1.20 53,333 0 0.82 53,333 0.82
0.99 1,255,981 2.7 0.99 182,958 0.99
1.00 8,328 4.0 1.00 5,496 1.00
1.50 25,000 1.2 1.50 25,000 1.50
1.88 82,162 2.7 1.88 66,227 1.88
1.88 239,999 0 1.88 239,999 1.88
2.47 1,088 1.8 2.50 494 2.50
2.50 - 5.00 500,000 0 3.45 500,000 3.45
3.28 1,666 3.4 3.28 1,100 3.28
3.63 120,000 3.0 3.63 0 3.63
15.00 13,333 2.0 15.00 13,333 15.00
------ ------
$0.10 - $15.00 2,938,275 1.8 $1.42 1,496,876 $1.88
============== ========= === ====== ========= =====
</TABLE>
Pro forma information regarding net loss and net loss per share is required by
SFAS 123, and has been determined as if the Company had accounted for its
employee stock purchase plan and employee stock options granted under the fair
value method of SFAS 123. The fair value for these options was estimated at the
date of grant using a Black-Scholes option pricing model for the single option
approach with the following assumptions: risk-free interest rate of 5.8%,
volatility factor of the expected market price of the Company's common stock of
30%, an expected life of the options of 3 years from the grant date, a 20%
forfeiture rate, and a dividend yield of zero. The average fair value of options
at the date of grant was $1.69 per share during 1999.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to pro forma net loss over the options' vesting period. The
Company's historical and pro forma information follows:
December 31, 1999
-----------------
Net loss As reported $3,512,007
Pro forma $4,293,106
Basic EPS As reported $0.11
Pro forma $0.14
Diluted EPS As reported $0.11
Pro forma $0.14
Stock Splits
On May 1, 1998, the Company effected a 33.33 for 1 split of its Common Stock. On
April 30, 1999, the Board of Directors of the Company approved a 10 for 1 stock
split. All common shares and per share data have been retroactively adjusted to
reflect the stock splits.
8. Segment Information
In 1998, the Company adopted Statement of Financial Accounting Standards No. 131
"Disclosure about Segments of an Enterprise and Related Information" (SFAS No.
131). SFAS No. 131 requires companies to report financial and descriptive
information about its reportable operating segments, including segment profit or
loss, certain specific revenue and expense items, and segment assets, as well as
information about the revenues derived from the Company's products or services,
the countries in which the company earns revenues and holds assets, and major
customers. SFAS No. 131 also requires companies that have a single reportable
segment to disclose information about products and services, information about
F-16
<PAGE>
geographic areas, and information about major customers. SFAS No. 131 requires
the use of the management approach to determine the information to be reported.
The management approach is based on the way management organizes the enterprise
to assess performance and make operating decisions regarding the allocation of
resources. It is management's opinion that the Company has only one reportable
segment, has no concentration of customers in one specific geographic area
within the United States and does not have any major customers, as defined.
9. Commitments
The Company leases its office facilities and equipment under non-cancelable
operating leases which provide for minimum annual rentals and escalations based
on increases in real estate taxes and other operating expenses. Minimum annual
operating lease commitments at December 31, 1999 were as follows:
Year Ending December 31,
- ------------------------
2000 $124,630
2001 110,994
2002 98,238
2003 66,026
2004 53,522
Thereafter 4,471
-----
Total minimum payments $346,887
========
Rent expense was $90,284 and $42,462 for the years ended December 31, 1999 and
1998, respectively. In January 2000, the Company agreed to lease additional
warehouse and office space. The amounts due under this lease are included in the
commitments listed above. In March 2000, the Company agreed to sub-lease certain
a portion of the facility previously occupied by Western to its former Vice
President. The sub lease is $7,026 per month for six months at which time there
is an option to extend the sub-lease for an additional six months.
The Company has entered into employment agreements with various officers for
periods of three to five years. These agreements require the Company to pay
annual salaries of approximately $465,000 and are generally terminable with
three to twelve months severance pay.
10. Supplemental Disclosures of Cash Flow Information
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Cash paid during the year ended December 31:
Interest $20,614 $285
Income Taxes $1,863 $2,201
Non-cash investing and financing activities:
Equipment acquired under capital lease obligations $376,432 -
Conversion of convertible notes payable - related parties to equity $20,000 -
Conversion of accounts payable to equity - $75,000
Acquisition of Adrenalin Interactive, Inc. $1,105,286
Acquisition of AMT Components, Inc. $402,164
Net current liabilities of discontinued operations assumed in $1,342,620 -
connection with acquisition of Adrenalin
</TABLE>
11. Fourth Quarter Adjustments
In the fourth quarter of 1999, the Company recorded net adjustments that
increased its net loss by approximately $981,000. These adjustments primarily
consist of $250,000 write-off of various accounts receivable, $167,000 write-off
of inventory, recording $101,000 of inventory reserves, recording $43,000
amortization of goodwill for the AMT acquisition, $344,000 of deferred
compensation expense, and other accruals of $76,000.
12. Discontinued Operations
Upon consummation of the reverse acquisition, the Board of Directors of Mcglen
adopted a formal plan to discontinue the operations of Western Technologies,
F-17
<PAGE>
Inc. (Western). Western is a wholly owned subsidiary of the Company and was
acquired as part of the reverse acquisition between Adrenalin Interactive, Inc.
and Mcglen Micro, Inc. The Company anticipates fulfilling two of the software
development contract obligations currently being conducted by Western during
April 2000. Western has requested for two other contracts to be terminated. An
additional contract has been assigned to Western's former Vice President of
Operations for completion, releasing Mcglen from any further contractual
liability. However, Mcglen would still be responsible for any product liability
issues that may arise from the two completed contracts.
As a result, Mcglen recorded an adjustment of $2,214,000 to write-down the
assets of Western to their estimated net realizable value and an accrual of
$650,000 for operating losses during the phase-out period. No income tax
benefits have been allocated to the write down or the losses as there are no
realizable taxable benefits available to allocate to the discontinued
operations.
The operations of Western have been reclassified as net liabilities of
discontinued operations on the balance sheet at December 31, 1999.
Information relating to the operations of Western for the years ended December
31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net revenue $3,234,315 $2,524,920
Expenses 6,271,714 4,660,223
--------- ---------
Loss from discontinued operations (3,037,399)
(2,135,303)
Loss from disposal of Western Technologies, Inc. (2,864,048) -
------------ -
Net loss ($5,901,447) ($2,135,303)
============ ============
</TABLE>
Included in the 1999 net loss are write-offs of patents, goodwill, and property
and equipment of $2,020,000, $1,579,000, and $217,000, respectively.
The assets and liabilities of Western are included in the accompanying
consolidated balance sheet as of December 31, 1999 as follows:
1999
---------
Current assets:
Cash $17,491
Accounts and other receivables
6,170
Prepaid expenses and other assets 69,010
Costs in excess of billings 394,134
---------
Total current assets 486,805
---------
Current liabilities:
Accounts payable and accrued liabilities 556,601
Billings in excess of costs on contracts 453,156
Accrued losses on development contracts
143,430
Notes payable 479,394
Loss on disposal 650,000
-------
Total current liabilities 1,829,425
---------
Net current liabilities $(1,342,620)
=========
Included in notes payable for Western at December 31, 1999, is a $396,000 note
to a finance company, interest only, at prime plus 3.5% (11.5% at December 31,
1999). The Note is personally guaranteed by the Company's former CEO and his
wife and is secured by a Second Trust Deed on their residence. In December 1999,
the note was extended until December 30, 2000. Two other notes to finance
companies in the amount of approximately $79,000 were repaid in January 2000.
F-18
<PAGE>
13. Subsequent events (unaudited)
In January 2000, Mcglen was notified by a stockholder of his desire to reprice
certain stock issued to the stockholder in July and December 1999 per the terms
of a private placement agreement. As a result, an additional 103,775 shares of
stock were issued to this stockholder. In April 2000, this stockholder exercised
its repricing rights relating to the final one-third of the shares it obtained
in the private placement agreement and received an additional 39,352 shares of
the Company's common stock.
In March 2000, Mcglen entered into $109,000 convertible promissory note
agreements with certain individuals (Lender). If Mcglen does not have a capital
infusion or any other type of financing within six months of the date of the
loan, the Lender's have an option to convert the debt into Mcglen's stock at 90%
of the low five day VWAP of Mcglen's common stock for 22 the consecutive days
prior to the trading date on which notice of conversion is given by the Lender.
In connection with the agreement, Mcglen also gave the Lender's warrants to
purchase Mcglen stock equal to 33% of the number of shares converted by the debt
holder, at 115% of the average closing price of Mcglen's common stock for 10
days prior to the date of the loan. If the loan is not repaid by the due date,
the Lender's receive an additional warrant to purchase Mcglen stock equal to 17%
of the number of shares converted by the debt holder, at 115% of the average
closing price of Mcglen's common stock for 10 days prior to the date of the
loan. The debt and accrued interest thereon is due September 30, 2000 with
interest payable at 10%.
F-19
SECOND AMENDMENT TO AGREEMENT AND PLAN OF MERGER
This Second Amendment dated October 4, 1999 ("Second
Amendment") hereby amends that certain Agreement and Plan of Merger, dated as of
April 28, 1999, as amended by that certain First Amendment to Agreement and Plan
of Merger, dated as of July 23, 1999 (collectively, the "Merger Agreement"),
entered into by and among Adrenalin Interactive, Inc., a Delaware corporation
(tae "Parent"), Adrenalin Acquisition Corporation, a California corporation and
a wholly owned subsidiary of the Parent ("Merger Sub"), McGlen Micro, Inc., a
California corporation (the "Company"), George Lee, Mike Chen, and ACST
Computers, Inc., a California corporation (collectively, the "Principal
Shareholders") (the Parent, the Merger Sub, the Company and the Principal
Shareholders, collectively, the "Parties"), with reference to the following
facts:
A. Pursuant to Section 11.4 of the Merger Agreement, the
Parties desire to amend the Merger Agreement to extend the termination date
thereof.
NOW, THEREFORE, IN CONSIDERATION OF the mutual promises set
forth herein and other good and valuable consideration, the receipt and adequacy
of which is hereby acknowledged, the Parties agree as follows:
1. Amendment of the Merger Agreement/Extension of Time. The date set
forth in Section 10.2(a) of the Merger Agreement is hereby changed to November
30, 1999.
2. Ratification: Except as amended pursuant to this Second Amendment,
the Merger Agreement is hereby ratified and confirmed and shall remain in full
force and effect in accordance with its terms.
3. Counterparts: This Second Amendment may be executed in any number
of counterparts, each of which shall be an original, but all of which together
shall constitute one instniment.
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Second, Amendment to
be executed as of the date first written above.
"PARENT" "THE PRINCIPAL SHAREHOLDERS"
ADRENALIN INTERACTIVE, ]NC., By:/s/ George Lee
a Delaware corporation -----------------
George Lee, an individual
By:/s/ Jay Smith
- ---------------- By:Mike Chen
Jay Smith, III ------------
President and Chairman Mike Chen, an individual
"MERGER SUB" ACST COMPUTERS, INC.,
a California corporation
ADRENALIN ACQUISITION
CORPORATION, By:/s/Alex Chen
A California corporation ---------------
Alex Chen
By:/s/ Jay Smith President and Chairman
- ----------------
Jay Smith, III
Secretary
"THE COMPANY"
MCGLEN MICRO INC.,
a California corporation
By:/s/ George Lee
- -----------------
George Lee
By:/s/ Mike Chen
- ----------------
Mike Chen
Secretary
EXHIBIT 2.4
THIRD AMENDMENT TO AGREEMENT AND PLAN OF MERGER
THIS AMENDMENT TO AGREEMENT AND PLAN OF MERGER (this
"Agreement"), is entered into as of December 2, 1999, among Adrenalin
Interactive, Inc., a Delaware corporation (the "Parent"), Adrenalin Acquisition
Corporation, a California corporation and a wholly owned subsidiary of the
Parent (the "Merger Sub"), McGlen Micro Inc., a California corporation (the
"Company"), George Lee, an individual, Mike Chen, an individual and ACST
Computer, Inc., a California corporation (collectively, the "Principal
Shareholders"), with reference to the following.
RECITALS
A. Parties to this Amendment entered that certain Agreement and
Plan of Merger, dated April 28, 1999 (the "Agreement").
B. The Agreement has been amended twice to extend the Closing
Date. The parties now desire to amend the Agreement as set forth herein.
AMENDMENT
NOW, THEREFORE, in consideration of the foregoing provisions,
representations, warranties, covenants and agreements contained herein and other
good and valuable consideration, the parties hereby amend the Agreement as
follows.
1. The Closing. Section 1.2 of the Agreement is hereby amended
and restated to read as follows:
"1.2 The Closing. Subject to the terms and conditions of this Agreement, the
closing of the Merger (the "Closing") shall take place at the offices of the
Company at 3002 Dow Avenue, Suite 212, Tustin, California 92780 at 10:00 a.m.,
on (i) the business day of the satisfaction of the conditions set forth in
Article X (other than those conditions that by their nature are to be satisfied
at the Closing, but subject to the satisfaction or, where permitted, waiver of
those conditions) and the date on which the Agreement of Merger is deemed filed
by the Secretary of State of California (ii) or at such other time, date, or
place as the Parent and the Company may agree. The date on which the Closing
occurs is hereinafter referred to as the 'Closing Date.'"
2. Parent Officers. Section 2.3 of the Agreement is hereby
amended and restated to read as follows:
<PAGE>
"2.3 Parent Officers. The Surviving Corporation and the Parent
shall take such actions as are necessary to elect as the officers of the Parent
effective immediately following the Effective Time: George Lee, Chief Executive
Officer and Chief Financial Officer; Mike Chen, President and Secretary (the
"Parent Officers").
3. Section 3.2(a). Section 3.2(a) is hereby modified to provide
that shares issued in exchange for unexercised options and warrants of the
Company described in the Exchange Ratio Calculation attached hereto as Exhibit
"A" shall be issued to an escrow agent to be held for the benefit of the
optionees and warrant holders and issued to them upon exercise. Shares
underlying the options and warrants which are not exercised and terminate or
which become unexercisable and terminate shall be distributed from the escrow
ratably to the shareholders of the Company as of the date hereof, based upon
their percentage ownership interest in the Company as of the date hereof. For
Rule 144 holding purposes, the issuance date of shares released from escrow to
the existing shareholders of the Company shall be December 2, 1999.
4. Section 4.8. Section 4.8(b)(ii) is modified and amended to
provide that since March 31, 1999, the Company has amended its Articles of
Incorporation and Bylaws. Reference is hereby made to Section 4.8(b)(ii) of the
disclosure schedules.
5. Section 5.3. The first sentence of Section "5.3
Capitalization" is hereby modified and amended to read as follows:
"Effective upon the filing of the Certificate of Amendment of Certificate of
Incorporation, the authorized capital of the Parent consists of 50,000,000
shares of Common Stock, $.03 par value and 5,000,000 shares of blank check
preferred stock, $.01 par value."
6. Section 5.7. Section "5.7 Financial Statements" is hereby
modified and amended to provide that the Financial Statements in Section 5.7
shall be the audited consolidated balance sheet and consolidated statement of
operations of the Parent as of and for the 12 months ending June 30, 1999, and
the unaudited consolidated balance sheet of the Parent as of September 30, 1999,
and the related consolidated statement of operations for the three months ended
on that date. The balance sheet of the Parent as of September 30, 1999, is
referred to in the Agreement as the "Parent Balance Sheet".
7. Section 5.9(a). The reference to "March 31, 1999" in Section
"5.9 Absence of Certain Changes or Events (a)" is hereby modified and amended to
read "September 30, 1999."
8. Section 10.2(a). Section "10.2 Termination" is hereby modified
and amended to change the November 30, 1999 as the last Closing Date to
"December 10, 1999."
9. Defined Terms. Each of the capitalized terms not defined this
Amendment shall maintain the meaning given to them in the Agreement.
<PAGE>
10. Controlling Provisions. Each and every provision of the
Agreement not modified or amended in this Amendment remains in force and effect,
as if set forth in its entirety in this Amendment . In the event of a conflict
between any of the terms of this Amendment and the provisions of the Agreement,
the terms and provisions set forth in this Amendment shall be controlling.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of
the date first set forth above.
"PARENT"
ADRENALIN INTERACTIVE, INC., a
California corporation
By: /s/Jay Smith lll
----------------------------
Jay Smith, III, President
By: /s/ Michael Cartabiano
----------------------------
Michael Cartabiano, Secretary
"MERGER SUB"
ADRENALIN ACQUISITION
CORPORATION, a California corporation
By: /s/Jay Smith lll
----------------------------
Jay Smith, III, President
By: /s/Jay Smith lll
----------------------------
Jay Smith, III, Secretary
"THE COMPANY"
MCGLEN MICRO INC., a California
corporation
By: /s/George Lee
----------------------------
George Lee, CEO
<PAGE>
By:/s/Mike Chen
---------------
Mike Chen, Secretary
"THE PRINCIPAL SHAREHOLDERS"
GEORGE LEE, an individual
MIKE CHEN, an individual
ACST COMPUTERS, INC., a California
corporation
By:Alex Chen
------------
Alex Chen, President and Chairman
EXHIBIT 3.2
BYLAWS
OF
MCGLEN INTERNET GROUP, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I - CORPORATE OFFICES.....................................................................................1
1.1 REGISTERED OFFICE...............................................................................1
1.2 OTHER OFFICES...................................................................................1
ARTICLE II - MEETINGS OF STOCKHOLDERS.............................................................................1
2.1 PLACE OF MEETINGS...............................................................................1
2.2 ANNUAL MEETING..................................................................................1
2.3 SPECIAL MEETING.................................................................................3
2.4 NOTICE OF STOCKHOLDER'S MEETINGS; AFFIDAVIT OF NOTICE...........................................3
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES..........................................................3
2.6 QUORUM..........................................................................................4
2.7 ADJOURNED MEETING; NOTICE.......................................................................4
2.8 CONDUCT OF BUSINESS.............................................................................4
2.9 VOTING..........................................................................................4
2.10 WAIVER OF NOTICE................................................................................5
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING......................................................5
2.12 PROXIES.........................................................................................5
ARTICLE III - DIRECTORS...........................................................................................7
3.1 POWERS..........................................................................................7
3.2 NUMBER OF DIRECTORS.............................................................................7
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS.........................................7
3.4 RESIGNATION AND VACANCIES.......................................................................7
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE........................................................8
3.6 REGULAR MEETINGS................................................................................8
3.7 SPECIAL MEETINGS; NOTICE........................................................................9
3.8 QUORUM..........................................................................................9
3.9 WAIVER OF NOTICE................................................................................9
3.10 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING..............................................10
3.11 FEES AND COMPENSATION OF DIRECTORS.............................................................10
3.12 APPROVAL OF LOANS TO OFFICERS..................................................................10
3.13 REMOVAL OF DIRECTORS...........................................................................10
3.14 CHAIRMAN OF THE BOARD OF DIRECTORS.............................................................10
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE IV - COMMITTEES..........................................................................................11
4.1 COMMITTEES OF DIRECTORS........................................................................11
4.2 COMMITTEE MINUTES..............................................................................11
4.3 MEETINGS AND ACTION OF COMMITTEES..............................................................12
ARTICLE V - OFFICERS.............................................................................................12
5.1 OFFICERS.......................................................................................12
5.2 APPOINTMENT OF OFFICERS........................................................................12
5.3 SUBORDINATE OFFICERS...........................................................................12
5.4 REMOVAL AND RESIGNATION OF OFFICERS............................................................12
5.5 VACANCIES IN OFFICES...........................................................................13
5.6 CHIEF EXECUTIVE OFFICER........................................................................13
5.7 PRESIDENT......................................................................................13
5.8 VICE PRESIDENTS................................................................................13
5.9 SECRETARY......................................................................................14
5.10 CHIEF FINANCIAL OFFICER........................................................................14
5.11 REPRESENTATION OF SHARES OF OTHER CORPORATIONS.................................................14
5.12 AUTHORITY AND DUTIES OF OFFICERS...............................................................15
ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER
AGENTS..................................................................................................15
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS......................................................15
6.2 INDEMNIFICATION OF OTHERS......................................................................15
6.3 PAYMENT OF EXPENSES IN ADVANCE.................................................................15
6.4 INDEMNITY NOT EXCLUSIVE........................................................................16
6.5 INSURANCE......................................................................................16
6.6 CONFLICTS......................................................................................16
ARTICLE VII - RECORDS AND REPORTS................................................................................16
7.1 MAINTENANCE AND INSPECTION OF RECORDS..........................................................16
7.2 INSPECTION BY DIRECTORS........................................................................17
7.3 ANNUAL STATEMENT TO STOCKHOLDERS...............................................................17
ARTICLE VI - GENERAL MATTERS.....................................................................................17
8.1 CHECKS.........................................................................................17
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS...............................................17
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES.........................................................18
8.4 SPECIAL DESIGNATION ON CERTIFICATES............................................................18
8.5 LOST CERTIFICATES..............................................................................19
8.6 CONSTRUCTION; DEFINITIONS......................................................................19
8.7 DIVIDENDS......................................................................................19
8.8 FISCAL YEAR....................................................................................19
8.9 SEAL...........................................................................................19
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
8.10 TRANSFER OF STOCK..............................................................................19
8.11 STOCK TRANSFER AGREEMENTS......................................................................20
8.12 REGISTERED STOCKHOLDERS........................................................................20
ARTICLE IX - AMENDMENTS..........................................................................................20
CERTIFICATE OF ADOPTION OF BYLAWS OF ADRENALIN INTERACTIVE, INC.,
ADOPTION BY INCORPORATOR................................................................................21
</TABLE>
<PAGE>
BYLAWS
OF
MCGLEN INTERNET GROUP, INC.
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE.
The address of the Corporation's registered office in the State of
Delaware is 32 Loockerman Square, Suite L-100, City of Dover 19901, County of
Kent. The name of its registered agent at such address is The Prentice-Hall
Corporation System, Inc.
1.2 OTHER OFFICES.
The Board of Directors may at any time establish other offices at any
place or places where the Corporation is qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS.
Meetings of stockholders shall be held at any place, within or outside
the State of Delaware, designated by the Board of Directors. In the absence of
any such designation, stockholders' meetings shall be held at the registered
office of the Corporation.
2.2 ANNUAL MEETING.
(a) The annual meeting of stockholders shall be held each year on a
date and at a time designated by the Board of Directors. In the absence of such
designation, the annual meeting of stockholders shall be held on the third
Tuesday of May in each year at 10:00 a.m. However, if such day falls on a legal
holiday, then the meeting shall be held at the same time and place on the next
succeeding full business day. At the meeting, directors shall be elected and any
other proper business may be transacted.
(b) Nominations of persons for election to the Board of Directors of
the Corporation and the proposal of business to be transacted by the
stockholders may be made at an annual meeting of stockholders (i) pursuant to
the Corporation's notice with respect to such meeting, (ii) by or at the
direction of the Board of Directors or (iii) by any stockholder of the
Corporation who was a stockholder of record at the time of giving of the notice
<PAGE>
provided for in this Section 2.2, who is entitled to vote at the meeting and who
has complied with the notice procedures set forth in this Section 2.2.
(c) In addition to the requirements of Section 2.5, for nominations or
other business to be properly brought before an annual meeting by a stockholder
pursuant to clause (iii) of paragraph (b) of this Section 2.2, the stockholder
must have given timely notice thereof in writing to the secretary of the
Corporation and such business must be a proper matter for stockholder action
under the General Corporation Law of Delaware. To be timely, a stockholder's
notice shall be delivered to the secretary at the principal executive offices of
the Corporation not less than 60 days nor more than 90 days prior to the first
anniversary of the preceding year's annual meeting of stockholders; provided,
however, that in the event that the date of the annual meeting is more than 30
days prior to or more than 60 days after such anniversary date, notice by the
stockholder to be timely must be so delivered not earlier than the 90th day
prior to such annual meeting and not later than the close of business on the
later of the 60th day prior to such annual meeting or the 10th day following the
day on which public announcement of the date of such meeting is first made. Such
stockholder's notice shall set forth (i) as to each person whom the stockholder
proposes to nominate for election or reelection as a director all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") (including such person's written consent to being named in
the proxy statement as a nominee and to serving as a director if elected); (ii)
as to any other business that the stockholder proposes to bring before the
meeting, a brief description of such business, the reasons for conducting such
business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (iii) as to the stockholder giving the notice and the beneficial
owner, if any, on whose behalf the nomination or proposal is made (A) the name
and address of such stockholder, as they appear on the Corporation's books, and
of such beneficial owner and (B) the class and number of shares of the
Corporation which are owned beneficially and of record by such stockholder and
such beneficial owner.
(d) Only such business shall be conducted at an annual meeting of
stockholders as shall have been brought before the meeting in accordance with
the procedures set forth in this Section 2.2. The chairman of the meeting shall
determine whether a nomination or any business proposed to be transacted by the
stockholders has been properly brought before the meeting and, if any proposed
nomination or business has not been properly brought before the meeting, the
chairman shall declare that such proposed business or nomination shall not be
presented for stockholder action at the meeting.
(e) For purposes of this Section 2.2, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or a comparable national news service.
(f) Nothing in this Section 2.2 shall be deemed to affect any rights of
stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
<PAGE>
2.3 SPECIAL MEETING.
A special meeting of the stockholders may be called at any time by the
Board of Directors, or by the chairman of the board, or by the president.
2.4 NOTICE OF STOCKHOLDER'S MEETINGS; AFFIDAVIT OF NOTICE.
All notices of meetings of stockholders shall be in writing and shall
be sent or otherwise given in accordance with this Section 2.4 of these Bylaws
not less than 10 nor more than 60 days before the date of the meeting to each
stockholder entitled to vote at such meeting (or such longer or shorter time as
is required by Section 2.5 of these Bylaws, if applicable). The notice shall
specify the place, date, and hour of the meeting, and, in the case of a special
meeting, the purpose or purposes for which the meeting is called. Written notice
of any meeting of stockholders, if mailed, is given when deposited in the United
States mail, postage prepaid, directed to the stockholder at his address as it
appears on the records of the Corporation. An affidavit of the secretary or an
assistant secretary or of the transfer agent of the Corporation that the notice
has been given shall, in the absence of fraud, be prima face evidence of the
facts stated therein.
2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES.
Only persons who are nominated in accordance with the procedures set
forth in this Section 2.5 shall be eligible for election as directors.
Nominations of persons for election to the Board of Directors of the Corporation
may be made at a meeting of stockholders by or at the direction of the Board of
Directors or by any stockholder of the Corporation entitled to vote for the
election of directors at the meeting who complies with the notice procedures set
forth in this Section 2.5. Such nominations, other than those made by or at the
direction of the Board of Directors, shall be made pursuant to timely notice in
writing to the secretary of the Corporation. To be timely, a stockholder's
notice shall be delivered to or mailed and received at the principal executive
offices of the Corporation not less than 60 days nor more than 90 days prior to
the meeting; provided, however, that in the event that less than 60 days' notice
or prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the 10th day following the day on which such
notice of the date of the meeting was mailed or such public disclosure was made.
Such stockholder's notice shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or re-election as a director, (i)
the name, age, business address and residence address of such person, (ii) the
principal occupation or employment of such person, (iii) the class and number of
shares of the Corporation which are beneficially owned by such person and (iv)
any other information relating to such person that is required to be disclosed
in solicitations of proxies for election of directors, or is otherwise required,
in each case pursuant to Regulation 14A under the Exchange Act (including,
without limitation, such person's written consent to being named in the proxy
statement as a nominee and to serving as a director if elected); and (b) as to
the stockholder giving the notice (i) the name and address, as they appear on
the Corporation's books, of such stockholder and (ii) the class and number of
shares of the Corporation which are beneficially owned by such stockholder. At
<PAGE>
the request of the Board of Directors any person nominated by the Board of
Directors for election as a director shall furnish to the secretary of the
Corporation that information required to be set forth in a stockholder's notice
of nomination which pertains to the nominee. No person shall be eligible for
election as a director of the Corporation unless nominated in accordance with
the procedures set forth in this Section 2.5. The chairman of the meeting shall,
if the facts warrant, determine and declare to the meeting that a nomination was
not made in accordance with the procedures prescribed by the Bylaws, and if he
or she should so determine, he or she shall so declare to the meeting and the
defective nomination shall be disregarded.
2.6 QUORUM.
The holders of a majority of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the Certificate of
Incorporation. If, however, such quorum is not present or represented at any
meeting of the stockholders, then either (a) the chairman of the meeting or (b)
the stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum is present or
represented. At such adjourned meeting at which a quorum is present or
represented, any business may be transacted that might have been transacted at
the meeting as originally noticed.
2.7 ADJOURNED MEETING; NOTICE.
When a meeting is adjourned to another time or place, unless these
Bylaws otherwise require, notice need not be given of the adjourned meeting if
the time and place thereof are announced at the meeting at which the adjournment
is taken. At the adjourned meeting the Corporation may transact any business
that might have been transacted at the original meeting. If the adjournment is
for more than 30 days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
2.8 CONDUCT OF BUSINESS.
The chairman of any meeting of stockholders shall determine the order
of business and the procedure at the meeting, including the manner of voting and
the conduct of business.
2.9 VOTING.
(a) The stockholders entitled to vote at any meeting of stockholders
shall be determined in accordance with the provisions of Section 2.11 of these
Bylaws, subject to the provisions of Sections 217 and 218 of the General
Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgers
and joint owners of stock and to voting trusts and other voting agreements).
<PAGE>
(b) Except as may be otherwise provided in the Certificate of
Incorporation, each stockholder shall be entitled to one vote for each share of
capital stock held by such stockholder.
2.10 WAIVER OF NOTICE.
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the Certificate of Incorporation or
these Bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the stockholders need be specified in any written waiver of notice unless so
required by the Certificate of Incorporation or these Bylaws.
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING.
In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date, which shall
not be more than 60 nor less than 10 days before the date of such meeting, nor
more than 60 days prior to any other action. If the Board of Directors does not
so fix a record date:
(a) The record date for determining stockholders entitled to notice of
or to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held.
(b) The record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
2.12 PROXIES.
Each stockholder entitled to vote at a meeting of stockholders may
authorize another person or persons to act for such stockholder by a written
proxy, signed by the stockholder and filed with the secretary of the
Corporation, but no such proxy shall be voted or acted upon after three years
from its date, unless the proxy provides for a longer period. A proxy shall be
deemed signed if the stockholder's name is placed on the proxy (whether by
manual signature, typewriting, telegraphic transmission or otherwise) by the
<PAGE>
stockholder or the stockholder's attorney-in-fact. The revocability of a proxy
that states on its face that it is irrevocable shall be governed by the
provisions of Section 212(e) of the General Corporation Law of Delaware.
ARTICLE III
DIRECTORS
3.1 POWERS.
Subject to the provisions of the General Corporation Law of Delaware
and any limitations in the Certificate of Incorporation or these Bylaws relating
to action required to be approved by the stockholders or by the outstanding
shares, the business and affairs of the Corporation shall be managed and all
corporate powers shall be exercised by or under the direction of the Board of
Directors.
3.2 NUMBER OF DIRECTORS.
Upon the adoption of these Bylaws, the number of directors constituting
the entire Board of Directors shall be seven (7). Thereafter, this number may be
changed by a resolution of the Board of Directors or of the stockholders,
subject to Section 3.4 of these Bylaws. No reduction of the authorized number of
directors shall have the effect of removing any director before that director's
term of office expires.
3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS.
Except as provided in Section 3.4 of these Bylaws, directors shall be
elected at each annual meeting of stockholders or may be appointed by the
Board's majority vote to hold office until the next annual meeting whereby the
majority stockholders must ratify such appointment. Directors need not be
stockholders unless so required by the Certificate of Incorporation or these
Bylaws, wherein other qualifications for directors may be prescribed. Each
director, including a director elected to fill a vacancy, shall hold office
until his or her successor is elected and qualified or until his earlier
resignation or removal.
Elections of directors need not be by written ballot.
3.4 RESIGNATION AND VACANCIES.
Any director may resign at any time upon written notice to the
attention of the secretary of the Corporation. When one or more directors so
resigns and the resignation is effective at a future date, a majority of the
directors then in office, including those who have so resigned, shall have power
to fill such vacancy or vacancies, the vote thereon to take effect when such
resignation or resignations shall become effective, and each director so chosen
shall hold office as provided in this section in the filling of other vacancies.
A vacancy created by the removal of a director by the vote of the stockholders
or by court order may be filled only by the affirmative vote of a majority of
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the shares represented and voting at a duly held meeting at which a quorum is
present (which shares voting affirmatively also constitute a majority of the
quorum. Each director so elected shall hold office until the next annual meeting
of the stockholders and until a successor has been elected and qualified.
Unless otherwise provided in the Certificate of Incorporation or these
Bylaws:
(a) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(b) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions of the
Certificate of Incorporation, vacancies and newly created directorships of such
class or classes or series may be filled by a majority of the directors elected
by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
Corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the Certificate of Incorporation or these Bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware. If, at the time of
filling any vacancy or any newly created directorship, the directors then in
office constitute less than a majority of the whole Board of Directors (as
constituted immediately prior to any such increase), then the Court of Chancery
may, upon application of any stockholder or stockholders holding at least 10% of
the total number of the shares at the time outstanding having the right to vote
for such directors, summarily order an election to be held to fill any such
vacancies or newly created directorships, or to replace the directors chosen by
the directors then in office as aforesaid, which election shall be governed by
the provisions of Section 211 of the General Corporation Law of Delaware as far
as applicable.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE.
The Board of Directors of the Corporation may hold meetings, both
regular and special, either within or outside the State of Delaware. Unless
otherwise restricted by the Certificate of Incorporation or these Bylaws,
members of the Board of Directors, or any committee designated by the Board of
Directors, may participate in a meeting of the Board of Directors, or any
committee, by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and such participation in a meeting shall constitute presence in person at the
meeting.
<PAGE>
3.6 REGULAR MEETINGS.
Regular meetings of the Board of Directors may be held without notice
at such time and at such place as shall from time to time be determined by the
Board of Directors.
3.7 SPECIAL MEETINGS; NOTICE.
Special meetings of the Board of Directors for any purpose or purposes
may be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two directors. Notice of the time and place of
special meetings shall be delivered personally or by telephone to each director
or sent by first-class mail or telegram, charges prepaid, addressed to each
director at that director's address as it is shown on the records of the
Corporation. If the notice is mailed, it shall be deposited in the United States
mail at least four days before the time of the holding of the meeting. If the
notice is delivered personally or by telephone or by telegram, it shall be
delivered personally or by telephone or to the telegraph company at least 48
hours before the time of the holding of the meeting. Any oral notice given
personally or by telephone may be communicated either to the director or to a
person at the office of the director who the person giving the notice has reason
to believe will promptly communicate it to the director. The notice need not
specify the purpose or the place of the meeting, if the meeting is to be held at
the principal executive office of the Corporation.
3.8 QUORUM.
At all meetings of the Board of Directors, a majority of the authorized
number of directors shall constitute a quorum for the transaction of business
and the act of a majority of the directors present at any meeting at which there
is a quorum shall be the act of the Board of Directors, except as may be
otherwise specifically provided by statute or by the Certificate of
Incorporation. If a quorum is not present at any meeting of the Board of
Directors, then the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is present. A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for that
meeting.
3.9 WAIVER OF NOTICE.
Whenever notice is required to be given under any provision of the
General Corporation Law of Delaware or of the Certificate of Incorporation or
these Bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor the purpose of, any regular or special meeting
of the directors, or members of a committee of directors, need be specified in
any written waiver of notice unless so required by the Certificate of
Incorporation or these Bylaws.
<PAGE>
3.10 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING.
Unless otherwise restricted by the Certificate of Incorporation or
these Bylaws, any action required or permitted to be taken at any meeting of the
Board of Directors, or of any committee thereof, may be taken without a meeting
if all members of the Board of Directors or committee, as the case may be,
consent thereto in writing and the writing or writings are filed with the
minutes of proceedings of the Board of Directors or committee. Written consents
representing actions taken by the board or committee may be executed by telex,
telecopy or other facsimile transmission, and such facsimile shall be valid and
binding to the same extent as if it were an original.
3.11 FEES AND COMPENSATION OF DIRECTORS.
Unless otherwise restricted by the Certificate of Incorporation or
these laws, the Board of Directors shall have the authority to fix the
compensation of directors. No such compensation shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor.
3.12 APPROVAL OF LOANS TO OFFICERS.
The Corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the Corporation or of its
subsidiary, including any officer or employee who is a director of the
Corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
Corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the Board of
Directors shall approve, including, without limitation, a pledge of shares of
stock of the Corporation. Nothing in this Section 3.2 contained shall be deemed
to deny, limit or restrict the powers of guaranty or warranty of the Corporation
at common law or under any statute.
3.13 REMOVAL OF DIRECTORS.
Unless otherwise restricted by statute, by the Certificate of
Incorporation or by these Bylaws, any director or the entire Board of Directors
may be removed, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors; provided, however,
that if the stockholders of the Corporation are entitled to cumulative voting,
if less than the entire Board of Directors is to be removed, no director may be
removed without cause if the votes cast against his removal would be sufficient
to elect him if then cumulatively voted at an election of the entire Board of
Directors. No reduction of the authorized number of directors shall have the
effect of removing any director prior to the expiration of such director's term
of office.
3.14 CHAIRMAN OF THE BOARD OF DIRECTORS.
The Corporation may also have, at the discretion of the Board of
Directors, a chairman of the Board of Directors who shall not be considered an
officer of the Corporation.
<PAGE>
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS.
The Board of Directors may, by resolution passed by a majority of the
whole, Board of Directors, designate one or more committees, with each committee
to consist of one or more of the directors of the Corporation. The Board of
Directors may designate one or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. In the absence or disqualification of a member of a committee,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not such member or members constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors or
in the Bylaws of the Corporation, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers that may require it; but no such committee shall have the
power or authority to (a) amend the Certificate of Incorporation (except that a
committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the Board of Directors
as provided in Section 151(a) of the General Corporation Law of Delaware, fix
the designations and any of the preferences or rights of such shares relating to
dividends, redemption, dissolution, any distribution of assets of the
Corporation or the conversion into, or the exchange of such shares for, shares
of any other class or classes or any other series of the same or any other class
or classes of stock of the Corporation or fix the number of shares of any series
of stock or authorize the increase or decrease of the shares of any series), (b)
adopt an agreement of merger or consolidation under Sections 251 or 252 of the
General Corporation Law of Delaware, (c) recommend to the stockholders the sale,
lease or exchange of all or substantially all of the Corporation's property and
assets, (d) recommend to the stockholders a dissolution of the Corporation or a
revocation of a dissolution, or (e) amend the Bylaws of the Corporation; and,
unless the board resolution establishing the committee, the Bylaws or the
Certificate of Incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend, to authorize the issuance of
stock, or to adopt a certificate of ownership and merger pursuant to Section 253
of the General Corporation Law of Delaware.
4.2 COMMITTEE MINUTES.
Each committee shall keep regular minutes of its meetings and report
the same to the Board of Directors when required.
4.3 MEETINGS AND ACTION OF COMMITTEES.
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Section 3.5 (place of meetings and
<PAGE>
meetings by telephone), Section 3.6 (regular meetings), Section 3.7 (special
meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice), and
Section 3.10 (action without a meeting) of these Bylaws, with such changes in
the context of such provisions as are necessary to substitute the committee and
its members for the Board of Directors and its members; provided, however, that
the time of regular meetings of committees may be determined either by
resolution of the Board of Directors or by resolution of the committee, that
special meetings of committees may also be called by resolution of the Board of
Directors and that notice of special meetings of committees shall also be given
to all alternate members, who shall have the right to attend all meetings of the
committee. The Board of Directors may adopt rules for the government of any
committee not inconsistent with the provisions of these Bylaws.
ARTICLE V
OFFICERS
5.1 OFFICERS.
The officers of the Corporation shall be a chief executive officer, a
president, a secretary, and a chief financial officer. The Corporation may also
have, at the discretion of the Board of Directors, one or more vice presidents,
one or more assistant secretaries, one or more assistant treasurers, and any
such other officers as may be appointed in accordance with the provisions of
Section 5.3 of these Bylaws. Any number of offices may be held by the same
person.
5.2 APPOINTMENT OF OFFICERS.
The officers of the Corporation, except such officers as may be
appointed in accordance with the provisions of Sections 5.3 or 5.5 of these
Bylaws, shall be appointed by the Board of Directors, subject to the rights, if
any, of an officer under any contract of employment.
5.3 SUBORDINATE OFFICERS.
The Board of Directors may appoint, or empower the chief executive
officer or the president to appoint, such other officers and agents as the
business of the Corporation may require, each of whom shall hold office for such
period, have such authority, and perform such duties as are provided in these
Bylaws or as the Board of Directors may from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS.
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by an
affirmative vote of the majority of the Board of Directors at any regular or
special meeting of the Board of Directors or, except in the case of an officer
chosen by the Board of Directors, by any officer upon whom such power of removal
may be conferred by the Board of Directors. Any officer may resign at any time
by giving written notice to the attention of the secretary of the Corporation.
Any resignation shall take effect at the date of the receipt of that notice or
<PAGE>
at any later time specified in that notice; and, unless otherwise specified in
that notice, the acceptance of the resignation shall not be necessary to make it
effective. Any resignation is without prejudice to the rights, if any, of the
Corporation under any contract to which the officer is a party.
5.5 VACANCIES IN OFFICES.
Any vacancy occurring in any office of the Corporation shall be filled
by the Board of Directors.
5.6 CHIEF EXECUTIVE OFFICER.
Subject to such supervisory powers, if any, as may be given by the
Board of Directors to the chairman of the board, if any, the chief executive
officer of the Corporation shall, subject to the control of the Board of
Directors, have general supervision, direction, and control of the business and
the officers of the Corporation. He or she shall preside at all meetings of the
stockholders and, in the absence or nonexistence of a chairman of the board, at
all meetings of the Board of Directors and shall have the general powers and
duties of management usually vested in the office of chief executive officer of
a corporation and shall have such other powers and duties as may be prescribed
by the Board of Directors or these Bylaws.
5.7 PRESIDENT.
Subject to such supervisory powers, if any, as may be given by the
Board of Directors to the chairman of the board, if any, or the chief executive
officer, the president shall have general supervision, direction, and control of
the business and other officers of the Corporation. He or she shall have the
general powers and duties of management usually vested in the office of
president of a corporation and such other powers and duties as may be prescribed
by the Board of Directors or these Bylaws.
5.8 VICE PRESIDENTS.
In the absence or disability of the chief executive officer and
president, the vice presidents, if any, in order of their rank as fixed by the
Board of Directors or, if not ranked, a vice president designated by the Board
of Directors, shall perform all the duties of the president and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
president. The vice presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
Board of Directors, these Bylaws, the president or the chairman of the board.
5.9 SECRETARY.
The secretary shall keep or cause to be kept, at the principal
executive office of the Corporation or such other place as the Board of
Directors may direct, a book of minutes of all meetings and actions of
<PAGE>
directors, committees of directors, and stockholders. The minutes shall show the
time and place of each meeting, the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
stockholders' meetings, and the proceedings thereof. The secretary shall keep,
or cause to be kept, at the principal executive office of the Corporation or at
the office of the Corporation's transfer agent or registrar, as determined by
resolution of the Board of Directors, a share register, or a duplicate share
register, showing the names of all stockholders and their addresses, the number
and classes of shares held by each, the number and date of certificates
evidencing such shares, and the number and date of cancellation of every
certificate surrendered for cancellation. The secretary shall give, or cause to
be given, notice of all meetings of the stockholders and of the Board of
Directors required to be given by law or by these Bylaws. He or she shall keep
the seal of the Corporation, if one be adopted, in safe custody and shall have
such other powers and perform such other duties as may be prescribed by the
Board of Directors or by these Bylaws.
5.10 CHIEF FINANCIAL OFFICER.
The chief financial officer shall keep and maintain, or cause to be
kept and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the Corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director. The chief financial officer shall
deposit all moneys and other valuables in the name and to the credit of the
Corporation with such depositories as may be designated by the Board of
Directors. He or she shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, shall render to the president, the chief
executive officer, or the directors, upon request, an account of all his or her
transactions as chief financial officer and of the financial condition of the
Corporation, and shall have other powers and perform such other duties as may be
prescribed by the Board of Directors or the Bylaws.
5.11 REPRESENTATION OF SHARES OF OTHER CORPORATIONS.
The chairman of the board, the chief executive officer, the president,
any vice president, the chief financial officer, the secretary or assistant
secretary of this Corporation, or any other person authorized by the Board of
Directors or the chief executive officer or the president or a vice president,
is authorized to vote, represent, and exercise on behalf of this Corporation all
rights incident to any and all shares of any other corporation or corporations
standing in the name of this Corporation. The authority granted herein may be
exercised either by such person directly or by any other person authorized to do
so by proxy or power of attorney duly executed by the person having such
authority.
5.12 AUTHORITY AND DUTIES OF OFFICERS.
In addition to the foregoing authority and duties, all officers of the
Corporation shall respectively have such authority and perform such duties in
the management of the business of the Corporation as may be designated from time
to time by the Board of Directors or the stockholders.
<PAGE>
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER
AGENTS
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Corporation shall, to the maximum extent and in the manner
permitted by the General Corporation Law of Delaware, indemnify each of its
directors and officers against expenses (including attorneys' fees), judgments,
fines, settlements and other amounts actually and reasonably incurred in
connection with any proceeding, arising by reason of the fact that such person
is or was an agent of the Corporation. For purposes of this Section 6.1, a
"director" or "officer" of the Corporation includes any person (a) who is or was
a director or officer of the Corporation, (b) who is or was serving at the
request of the Corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, or (c) who was a director
or officer of a Corporation which was a predecessor corporation of the
Corporation or of another enterprise at the request of such predecessor
corporation.
6.2 INDEMNIFICATION OF OTHERS.
The Corporation shall have the power, to the maximum extent and in the
manner permitted by the General Corporation Law of Delaware, to indemnify each
of its employees and agents (other than directors and officers) against expenses
(including attorneys' fees), judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with any proceeding, arising by
reason of the fact that such person is or was an agent of the Corporation. For
purposes of this Section 6.2, an "employee" or "agent" of the Corporation (other
than a director or officer) includes any person (a) who is or was an employee or
agent of the Corporation, (b) who is or was serving at the request of the
Corporation as an employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or (c) who was an employee or agent of a
corporation which was a predecessor corporation of the Corporation or of another
enterprise at the request of such predecessor corporation.
6.3 PAYMENT OF EXPENSES IN ADVANCE.
Expenses incurred in defending any action or proceeding for which
indemnification is required pursuant to Section 6.1 or for which indemnification
is permitted pursuant to Section 6.2 following authorization thereof by the
Board of Directors shall be paid by the Corporation in advance of the final
disposition of such action or proceeding upon receipt of an undertaking by or on
behalf of the indemnified party to repay such amount if it shall ultimately be
determined that the indemnified party is not entitled to be indemnified as
authorized in this Article VI.
6.4 INDEMNITY NOT EXCLUSIVE.
The indemnification provided by this Article VI shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
<PAGE>
entitled under any Bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in an official capacity and as to
action in another capacity while holding such office, to the extent that such
additional rights to indemnification are authorized in the Certificate of
Incorporation.
6.5 INSURANCE.
The Corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the Corporation,
or is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him or her and incurred
by him or her in any such capacity, or arising out of his or her status as such,
whether or not the Corporation would have the power to indemnify him or her
against such liability under the provisions of the General Corporation Law of
Delaware.
6.6 CONFLICTS.
No indemnification or advance shall be made under this Article VI,
except where such indemnification or advance is mandated by law or the order,
judgment or decree of any court of competent jurisdiction, in any circumstance
where it appears:
(a) That it would be inconsistent with a provision of the Certificate
of Incorporation, these Bylaws, a resolution of the stockholders or an agreement
in effect at the time of the accrual of the alleged cause of the action asserted
in the proceeding in which the expenses were incurred or other amounts were
paid, which prohibits or otherwise limits indemnification; or (b) That it would
be inconsistent with any condition expressly imposed by a court in approving a
settlement.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS.
The Corporation shall, either at its principal executive offices or at
such place or places as designated by the Board of Directors, keep a record of
its stockholders listing their names and addresses and the number and class of
shares held by each stockholder, a copy of these Bylaws as amended to date,
accounting books, and other records. Any stockholder of record, in person or by
attorney or other agent, shall, upon written demand under oath stating the
purpose thereof, have the right during the usual hours for business to inspect
for any proper purpose the Corporation's stock ledger, a list of its
stockholders, and its other books and records and to make copies or extracts
therefrom. A proper purpose shall mean a purpose reasonably related to such
person's interest as a stockholder. In every instance where an attorney or other
agent is the person who seeks the right to inspection, the demand under oath
shall be accompanied by a power of attorney or such other writing that
authorizes the attorney or other agent to so act on behalf of the stockholder.
The demand under oath shall be directed to the Corporation at its registered
office in Delaware or at its principal place of business.
<PAGE>
7.2 INSPECTION BY DIRECTORS.
Any director shall have the right to examine the Corporation's stock
ledger, a list of its stockholders, and its other books and records for a
purpose reasonably related to his or her position as a director. The Court of
Chancery is hereby vested with the exclusive jurisdiction to determine whether a
director is entitled to the inspection sought. The Court may summarily order the
Corporation to permit the director to inspect any and all books and records, the
stock ledger, and the stock list and to make copies or extracts therefrom. The
Court may, in its discretion, prescribe any limitations or conditions with
reference to the inspection, or award such other and further relief as the Court
may deem just and proper.
7.3 ANNUAL STATEMENT TO STOCKHOLDERS.
The Board of Directors shall present at each annual meeting, and at any
special meeting of the stockholders when called for by vote of the stockholders,
a full and clear statement of the business and condition of the Corporation.
ARTICLE VI
GENERAL MATTERS
8.1 CHECKS.
From time to time, the Board of Directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the Corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS.
The Board of Directors, except as otherwise provided in these Bylaws,
may authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
Corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the Board of Directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the Corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES.
The shares of the Corporation shall be represented by certificates,
provided that the Board of Directors of the Corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply to
shares represented by a certificate until such certificate is surrendered to the
Corporation. Not withstanding the adoption of such a resolution by the Board of
<PAGE>
Directors, every holder of stock represented by certificates and upon request
every holder of uncertificated shares shall be entitled to have a certificate
signed by, or in the name of the Corporation by the chairman or vice-chairman of
the Board of Directors, or the chief executive officer or the president or
vice-president, and by the chief financial officer or an assistant treasurer, or
the secretary or an assistant secretary of the Corporation representing the
number of shares registered in certificate form. Any or all of the signatures on
the certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate has ceased to be such officer, transfer agent or registrar before
such certificate is issued, it may be issued by the Corporation with the same
effect as if he or she were such officer, transfer agent or registrar at the
date of issue. The Corporation may issue the whole or any part of its shares as
partly paid and subject to call for the remainder of the consideration to be
paid therefor. Upon the face or back of each stock certificate issued to
represent any such partly paid shares, upon the books and records of the
Corporation in the case of uncertificated partly paid shares, the total amount
of the consideration to be paid therefor and the amount paid thereon shall be
stated. Upon the declaration of any dividend on fully paid shares, the
Corporation shall declare a dividend upon partly paid shares of the same class,
but only upon the basis of the percentage of the consideration actually paid
thereon.
8.4 SPECIAL DESIGNATION ON CERTIFICATES.
If the Corporation is authorized to issue more than one class of stock
or more than one series of any class, then the powers, the designations, the
preferences, and the relative, participating, optional or other special rights
of each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the Corporation shall
issue to represent such class or series of stock; provided, however, that,
except as otherwise provided in Section 202 of the General Corporation Law of
Delaware, in lieu of the foregoing requirements there may be set forth on the
face or back of the certificate that the Corporation shall issue to represent
such class or series of stock a statement that the Corporation will furnish
without charge to each stockholder who so requests the powers, the designations,
the preferences, and the relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
8.5 LOST CERTIFICATES.
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the Corporation and canceled at the same time. The Corporation
may issue a new certificate of stock or uncertificated shares in the place of
any certificate previously issued by it, alleged to have been lost, stolen or
destroyed, and the Corporation may require the owner of the lost, stolen or
destroyed certificate, or the owner's legal representative, to give the
Corporation a bond sufficient to indemnify it against any claim that may be made
against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate or uncertificated shares.
<PAGE>
8.6 CONSTRUCTION; DEFINITIONS.
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Delaware General Corporation Law shall
govern the construction of these Bylaws. Without limiting the generality of this
provision, the singular number includes the plural, the plural number includes
the singular, and the term "person" includes both a corporation and a natural
person.
8.7 DIVIDENDS.
The directors of the Corporation, subject to any restrictions contained
in (a) the General Corporation Law of Delaware or (b) the Certificate of
Incorporation, may declare and pay dividends upon the shares of its capital
stock. Dividends may be paid in cash, in property, or in shares of the
Corporation's capital stock. The directors of the Corporation may set apart out
of any of the funds of the Corporation available for dividends a reserve or
reserves for any proper purpose and may abolish any such reserve. Such purposes
shall include but not be limited to equalizing dividends, repairing or
maintaining any property of the Corporation, and meeting contingencies.
8.8 FISCAL YEAR.
The fiscal year of the Corporation shall be fixed by resolution of the
Board of Directors and may be changed by the Board of Directors.
8.9 SEAL.
The Corporation may adopt a corporate seal, which may be altered at
pleasure, and may use the same by causing it or a facsimile thereof, to be
impressed or affixed or in any other manner reproduced.
8.10 TRANSFER OF STOCK.
Upon surrender to the Corporation or the transfer agent of the
Corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignation or authority to transfer, it shall be the
duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate, and record the transaction in its books.
8.11 STOCK TRANSFER AGREEMENTS.
The Corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock of
the Corporation to restrict the transfer of shares of stock of the Corporation
of any one or more classes owned by such stockholders in any manner not
prohibited by the General Corporation Law of Delaware.
8.12 REGISTERED STOCKHOLDERS.
The Corporation shall be entitled to recognize the exclusive right of a
person registered on its books as the owner of shares to receive dividends and
<PAGE>
to vote as such owner, shall be entitled to hold liable for calls and
assessments the person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of another person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE IX
AMENDMENTS
The Bylaws of the Corporation may be adopted, amended or repealed by
the stockholders entitled to vote; provided, however, that the Corporation may,
in its Certificate of Incorporation, confer the power to adopt, amend or repeal
Bylaws upon the directors. The fact that such power has been so conferred upon
the directors shall not divest the stockholders of the power, nor limit their
power to adopt, amend or repeal Bylaws.
CERTIFICATE OF ADOPTION OF BYLAWS
OF
MCGLEN INTERNET GROUP, INC.,
ADOPTION BY INCORPORATOR
The undersigned person appointed in the certificate of incorporation to
act as the Incorporator of McGlen Internet Group,Inc. hereby adopts the
foregoing bylaws as the Bylaws of the corporation.
Executed this __ day of _________,2000.
EXHIBIT 10.1
MCGLEN MICRO, INC.
1999 STOCK OPTION PLAN
1. Purpose. This Stock Option Plan (this "Plan") is established
as a compensatory plan to attract, retain and provide equity incentives to
selected persons to promote the financial success of MCGLEN MICRO, INC., a
California corporation or such successor entity upon merger or reincorporation
(the "Company"). Capitalized terms not previously defined herein are defined in
Section 17 of this Plan.
2. Types of Options and Shares. Options granted under this Plan (the
"Options") may be either (a) incentive stock options ("ISOs") within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or
(b) nonqualified stock options ("NQSOs"), as designated at the time of grant.
The shares of stock that may be purchased upon exercise of Options granted under
this Plan (the "Shares") are shares of Common Stock of the Company ("Common
Stock").
3. Number of Shares. The aggregate number of Shares that may be issued
pursuant to Options granted under this Plan is 2,000,000 Shares, subject to
adjustment as provided in this Plan. If any Option expires or is terminated
without being exercised in whole or in part, the unexercised or released Shares
from such Option shall be available for future grant and purchase under this
Plan. At all times during the term of this Plan, the Company shall reserve and
keep available such number of Shares as shall be required to satisfy the
requirements of outstanding Options under this Plan.
4. Eligibility.
-----------
(a) General Rules of Eligibility. Options may be granted to
employees, officers, directors, consultants, independent contractors and
advisors (provided such consultants, contractors and advisors render bona fide
services not in connection with the offer and sale of securities in a
capital-raising transaction) of the Company or any Parent, Subsidiary or
Affiliate of the Company. ISOs may be granted only to employees (including
officers and directors who are also employees) of the Company or a Parent or
Subsidiary of the Company. The Committee (as defined in Section 14) in its sole
discretion shall select the recipients of Options ("Optionees"). An Optionee may
be granted more than one Option under this Plan.
(b) Company Assumption of Options. The Company may also, from
time to time, assume outstanding options granted by another company, whether in
connection with an acquisition of such other company or otherwise, by either (i)
granting an Option under this Plan in replacement of the option assumed by the
Company, or (ii) treating the assumed option as if it had been granted under
this Plan if the terms of such assumed option could be applied to an option
granted under this Plan. Such assumption shall be permissible if the holder of
<PAGE>
the assumed option would have been eligible to be granted an Option hereunder if
the other company had applied the rules of this Plan to such grant.
5. Terms and Conditions of Options. The Committee shall determine
whether each Option is to be an ISO or an NQSO, the number of Shares subject to
the Option, the exercise price of the Option, the period during which the Option
may be exercised, and all other terms and conditions of the Option, subject to
the following:
(a) Form of Option Grant. Each Option granted under this Plan
shall be evidenced by a written Stock Option Grant (the "Grant") in
substantially the form attached hereto as Exhibit "A" or such other form as
shall be approved by the Committee.
(b) Date of Grant. The date of grant of an Option shall be the
date on which the Committee makes the determination to grant such Option unless
otherwise specified by the Committee and subject to applicable provisions of the
Code. The Grant representing the Option will be delivered to the Optionee with a
copy of this Plan within a reasonable time after the date of grant; provided,
however, that if, for any reason, including a unilateral decision by the Company
not to execute an agreement evidencing such option, a written Grant is not
executed within sixty (60) days after the date of grant, such option shall be
deemed null and void. No Option shall be exercisable until such Grant is
executed by the Company and the Optionee.
(c) Exercise Price. The exercise price of an NQSO shall be not
less than One Hundred percent (100%) of the Fair Market Value of the Shares on
the date the Option is granted. The exercise price of an ISO shall be not less
than one hundred percent (100%) of the Fair Market Value of the Shares on the
date the Option is granted. The exercise price of any Option granted to a person
owning more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or any parent or subsidiary of the Company ("Ten
Percent Shareholders") shall not be less than one hundred ten percent (110%) of
the Fair Market Value of the Shares on the date the Option is granted.
(d) Exercise Period. Options shall be exercisable within the
times or upon the events determined by the Committee as set forth in the Grant;
provided, however, that each Option must become exercisable at a rate of at
least twenty percent (20%) per year over five (5) years from the date the Option
is granted; provided further, that no Option shall be exercisable after the
expiration of five (5) years from the date the Option is granted and no ISO and
NQSO granted to employees, officers or directors of the Company shall be
exercisable upon termination of Optionee's employment with the Company; and
provided further, that no ISO granted to a Ten Percent Shareholder shall be
exercisable after the expiration of four (4) years from the date the Option is
granted.
(e) Limitations on Incentive Stock Options. The aggregate Fair
Market Value (determined as of the time an Option is granted) of stock with
respect to which ISOs are exercisable for the first time by an Optionee during
any calendar year (under this Plan or under any other incentive stock option
<PAGE>
plan of the Company or any Parent or Subsidiary of the Company) shall not exceed
One Hundred Thousand Dollars ($100,000). To the extent that the Fair Market
Value of stock with respect to which ISOs are exercisable for the first time by
an Optionee during any calendar year exceeds $100,000, such Options shall be
treated as NQSOs. The foregoing shall be applied by taking options into account
in the order in which they were granted. In the event that the Code or the
regulations promulgated thereunder are amended after the effective date of this
Plan to provide for a different limit on the Fair Market Value of Shares
permitted to be subject to ISOs, such different limit shall be incorporated
herein and shall apply to any Options granted after the effective date of such
amendment. In the event Section 162(m) of the Code or any proposed or final
regulations promulgated thereunder are amended after the effective date of this
Plan to eliminate the requirement of a per Optionee limit on the number of
Options which may be granted, then the restriction in the immediately preceding
sentence shall not apply to any Options granted after the effective date of such
amendment.
(f) Options Non-Transferable. Options granted under this Plan,
and any interest therein, shall not be transferable or assignable by the
Optionee, and may not be made subject to execution, attachment or similar
process, otherwise than by will or by the laws of descent and distribution and
shall be exercisable during the lifetime of the Optionee only by the Optionee or
any permitted transferee.
(g) Assumed Options. In the event the Company assumes an
option granted by another company in accordance with Section 4(b) above, the
terms and conditions of such Options shall remain unchanged (except the exercise
price and the number and nature of shares issuable upon exercise, which will be
adjusted appropriately pursuant to Section 424 of the Code and the Treasury
Regulations applicable thereto). In the event the Company elects to grant a new
Option rather than assuming an existing option (as specified in Section 4), such
new Option need not be granted at Fair Market Value on the date of grant and may
instead be granted with a similarly adjusted exercise price.
6. Exercise of Options.
-------------------
(a) Notices. Options may be exercised only by delivery to the
Company of a written exercise agreement in a form approved by the Committee
(which need not be the same for each Optionee), stating the number of Shares
being purchased, the restrictions imposed on the Shares, if any, and such
representations and agreements regarding the Optionee's investment intent and
access to information, if any, as may be required by the Company to comply with
applicable securities laws, together with payment in full of the exercise price
for the number of Shares being purchased.
(b) Payment. Payment for the Shares may be made in cash (by
check) or, where approved by the Committee in its sole discretion at the time of
grant and where permitted by law: (i) by cancellation of indebtedness of the
Company to the Optionee; (ii) by surrender of shares of Common Stock of the
Company already owned by the Optionee, having Fair Market Value equal to the
exercise price of the Option; (iii) by waiver of compensation due or accrued to
Optionee for services rendered; (iv) through delivery of a promissory note for
<PAGE>
the full exercise price bearing interest at such rate with the note due at such
time, on a secured or unsecured basis, as determined by the Committee; (v)
provided that a public market for the Company's stock exists, through a "same
day sale" commitment from the Optionee and a broker-dealer that is a member of
the National Association of Securities Dealers, Inc. (an "NASD Dealer") whereby
the Optionee irrevocably elects to exercise the Option and to sell a portion of
the Shares so purchased to pay for the exercise price and whereby the NASD
Dealer irrevocably commits upon receipt of such Shares to forward the exercise
price directly to the Company; (vi) provided that a public market for the
Company's stock exists, through a "margin" commitment from the Optionee and an
NASD Dealer whereby the Optionee irrevocably elects to exercise the Option and
to pledge the Shares so purchased to the NASD Dealer in a margin account as
security for a loan from the NASD Dealer in the amount of the exercise price,
and whereby the NASD Dealer irrevocably commits upon receipt of such Shares to
forward the exercise price directly to the Company; (vii) by any combinations of
the foregoing or (viii) any other form of legal consideration that may be
acceptable to the Board of Directors in its discretion.
(c) Withholding Taxes. Prior to issuance of the Shares upon
exercise of an Option, the Optionee shall pay or make adequate provision for any
federal or state withholding obligations of the Company, if applicable. Where
approved by the Committee in its sole discretion, the Optionee may provide for
payment of withholding taxes upon exercise of the Option by requesting that the
Company retain Shares with a Fair Market Value equal to the minimum amount of
taxes required to be withheld. In such case, the Company shall issue the next
number of Shares to the Optionee by deduction the Shares retained from the
Shares exercised. The Fair Market Value of the Shares to be withheld shall be
determined on the date that the amount of tax to be withheld is to be determined
in accordance with Section 83 of the Code (the "Tax Date"). All elections by
Optionees to have Shares withheld for this purpose shall be made in writing in a
form acceptable to the Committee and shall be subject to the following
restrictions:
(i) the election must be made on or prior to the applicable
Tax Date;
(ii) once made, the election shall be irrevocable as to the
particular Shares as to which the election is made;
(iii) all elections shall be subject to the consent or
disapproval of the Committee;
(iv) if the Optionee is an officer or director of the Company
or other person (in each case, an "Insider") whose
transactions in the Company's Common Stock are subject to
Section 16(b) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and if the Company is
subject to Section 16(b) of the Exchange Act, the election
must be made at least six (6) months prior to the Tax Date
and must otherwise comply with Rule 16b-3 as promulgated
by the Securities and Exchange Commission ("Rule 16b-3").
(d) Limitations on Exercise. Notwithstanding anything
else to the contrary in the Plan or any Grant, no Option may be exercisable
later than the expiration date of the Option.
<PAGE>
7. Restrictions on Shares. At the discretion of the Committee, the
Company may reserve to itself and/or its assignee(s) in the Grant (a) a right of
first refusal to purchase all Shares that an Optionee (or a subsequent
transferee) may propose to transfer to a third party, and (b) for so long as the
Company's stock is not publicly traded, a right to repurchase a portion of or
all Shares held by an Optionee upon the Optionee's termination of employment or
service with the Company or its Parent, Subsidiary or Affiliate of the Company
for any reason within a specified time as determined by the Committee at the
time of grant at the higher of (i) the Optionee's original purchase price, or
(ii) the Fair Market Value of such Shares.
8. Modification Extension and Renewal of Options. The Committee shall
have the power to modify, extend or renew outstanding Options and to authorize
the grant of new Options in substitution therefor, provided that any such action
may not, without the written consent of the Optionee, impair any rights under
any Option previously granted. Any outstanding ISO that is modified, extended,
renewed or otherwise altered shall be treated in accordance with Section 424(h)
of the Code. The Committee shall have the power to reduce the exercise price of
outstanding options; provided, however, that the exercise price per share may
not be reduced below the minimum exercise price that would be permitted under
Section 5(c) of this Plan for options granted on the date the action is taken to
reduce the exercise price.
9. Privileges of Stock Ownership. No Optionee shall have any of the
rights of a shareholder with respect to any Shares subject to an Option until
such Option is properly exercised. No adjustment shall be made for dividends or
distributions or other rights for which the record date is prior to such date,
except as provided in this Plan.
10. No Obligation to Employ; No Right to Future Grants. Nothing in this
Plan or any Option granted under this Plan shall confer on any Optionee any
right (a) to continue in the employ of, or other relationship with, the Company
or any Parent or Subsidiary of the Company or limit in any way the right of the
Company or any Parent, Subsidiary or Affiliate of the Company to terminate the
Optionee's employment or other relationship at any time, with or without cause,
or (b) to have any Option(s) granted to such Optionee under this Plan, or any
other plan, or to acquire any other securities of the Company, in the future.
11. Adjustment of Option Shares. In the event that the number of
outstanding shares of Common Stock of the Company is changed by a stock
dividend, stock split, reverse stock split, combination, reclassification or
similar change in the capital structure of the Company without consideration, or
if a substantial portion of the assets of the Company are distributed, without
consideration in a spin-off or similar transaction, to the shareholders of the
Company, the number of Shares available under this Plan and the number of Shares
subject to outstanding Options and the exercise price per share of such Options
shall be proportionately adjusted, subject to any required action by the Board
or shareholders of the Company and compliance with applicable securities laws;
provided, however, that a fractional share shall not be issued upon exercise of
any Option and any fractions of a Share that would have resulted shall either be
cashed out at Fair Market Value or the number of Shares issuable under the
Option shall be rounded down to the nearest whole number, as determined by the
Committee; and provided further that the exercise price may not be decreased to
below the par value, if any, for the Shares.
<PAGE>
12. Assumption of Options by Successors.
(a) In the event of (i) a merger or consolidation in which the
Company is not the surviving corporation (other than a merger or consolidation
with a wholly-owned subsidiary or where there is no substantial change in the
shareholders of the corporation and the Options granted under this Plan are
assumed by the successor corporation), or (ii) the sale of all or substantially
all of the assets of the Company, any or all outstanding Options shall be
assumed by the successor corporation, which assumption shall be binding on all
Optionees. An equivalent option shall be substituted by such successor
corporation or the successor corporation shall provide substantially similar
consideration to Optionees as was provided to shareholders (after taking into
account the existing provisions of the Optionees' options such as the exercise
price and the vesting schedule), and, in the case of outstanding shares subject
to a repurchase option, issue substantially similar shares or other property
subject to repurchase restrictions no less favorable to the Optionee.
(b) In the event such successor corporation, if any, refuses
to assume or substitute, as provided above, pursuant to an event described in
subsection (a) above, or in the event of a dissolution or liquidation of the
Company, the Options shall, notwithstanding any contrary terms in the Grant,
expire on a date specified in a written notice given by the Committee to the
Optionees specifying the terms and conditions of such termination (which date
shall be at least twenty (20) days after the Committee gives the written
notice).
13. Adoption and Shareholder Approval. This Plan shall become effective
on the date that it is adopted by the Board of Directors of the Company (the
"Board"). This Plan shall be approved by the shareholders of the Company, in any
manner permitted by applicable corporate law, within twelve (12) months before
or after the date this Plan is adopted by the Board. Thereafter, after the
Company becomes subject to Section 16(b) of the Exchange Act, the Company will
comply with the requirements of Rule 16b-3 (or its successor) with respect to
shareholder approval.
14. Administration. This Plan may be administered by the Board or the
Committee appointed by the Board (the "Committee"). If, at any time after the
Company registers under the Exchange Act, all of the directors are not
Disinterested Persons, the Board shall appoint a Committee consisting of not
less than two directors, each of whom is a Disinterested Person and at all times
during which the Company is registered under the Exchange Act, the Committee
shall be comprised of Disinterested Persons. As used in this Plan, references to
the "Committee" shall mean either such Committee or the Board if no committee
has been established. The interpretation by the Committee of any of the
provisions of this Plan, any related agreements, or any Option granted under
this Plan shall be final and binding upon the Company and all persons having an
interest in any Option or any Shares purchased pursuant to an Option.
15. Term of Plan. Options may be granted pursuant to this Plan from
time to time on or prior to January 1, 2010, a date which is less than ten years
after the earlier of the date of approval of this Plan by the Board or the
shareholders of the Company pursuant to Section 13 of this Plan.
<PAGE>
16. Amendment or Termination of Plan. The Board or Committee may, at
any time, amend, alter, suspend or discontinue the Plan, but no amendment,
alteration, suspension or discontinuation shall be made which would impair the
rights of any Optionee under any Option theretofore granted, without his or her
consent, or which, without the approval of the shareholders of the Company
would:
(a) except as provided in Section 11 of the Plan, increase the total
number of Shares reserved for the purposes of the Plan;
(b) extend the duration of the Plan;
(c) extend the period during and over which Options may be exercised
under the Plan; or
(d) change the class of persons eligible to receive Options granted
hereunder (except as may be required to comport with changes in
the Code, ERISA or regulations promulgated thereunder).
Without limiting the foregoing, the Board or Committee may at any time
or from time to time authorize the Company, with the consent of the respective
Optionees, to issue new Options in exchange for the surrender and cancellation
of any or all outstanding Options.
17. Certain Definitions. As used in this Plan, the following terms
shall have the following meanings:
(a) "Parent" means any corporation (other than the Company) in
an unbroken chain of corporations ending with the Company if, at the time of the
granting of the Option, each of the corporations other than the Company owns
stock possessing fifty percent (50%) or more of the total combined voting power
of all classes of stock in one of the other corporations in such chain.
(b) "Subsidiary" means any corporation (other than the
Company) in an unbroken chain of corporations beginning with the Company if, at
the time of the granting of the Option, each of the corporations other than the
last corporation in the unbroken chain owns stock processing fifty percent (50%)
or more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
(c) "Affiliate" means any corporation that directly, or
indirectly through one or more intermediaries, controls or is controlled by, or
is under common control with, another corporation, where "control" (including
the terms "controlled by" and "under common control with") means the possession,
direct or indirect, of the power to cause the direction of the management and
policies of the corporation, whether through the ownership of voting securities,
by contract or otherwise.
<PAGE>
(d) "Disinterested Persons" shall have the meaning set forth
in Rule 16b-3(c)(2) as promulgated by the Securities and Exchange Commission
under Section 16(b) of the Exchange Act, as such rule is amended from time to
time and as interpreted by the Securities and Exchange Commission.
(e) "Fair Market Value" shall mean the fair market value of
the Shares as determined by the Committee from time to time in good faith. If a
public market exists for the Shares, the Fair Market Value shall be the average
of the last reported bid and asked prices for Common Stock of the Company on the
last trading day prior to the date of determination or, in the event the Common
Stock of the Company is listed on a stock exchange or is a NASDAQ National
Market security, the Fair Market Value shall be the closing price on such
exchange or quotation system on the last trading day prior to the date of
determination.
18. Applicable Law and Regulations. The obligations of the Company
under this Plan are subject to the approval of state and federal authorities or
agencies with jurisdiction over the subject matter hereof. The Company shall not
be obligated to issue or deliver shares under this Plan if such issuance or
delivery would violate applicable state or federal securities laws.
<PAGE>
EXHIBIT A
STOCK OPTION GRANT
Optionee:
Address:
Total Shares Subject to Option:
Exercise Price Per Share:
Date of Grant:
Expiration Date of Option:
Type of Stock Option: Incentive:
Nonqualified:
1. Grant of Option. McGlen Micro, Inc. (the "Company"), hereby grants
to the optionee named above ("Optionee") an option (this "Option") to purchase
the total number of shares of Common Stock ("Common Stock") of the Company set
forth above (the "Shares") at the exercise price per share set for the above
(the "Exercise Price"), subject to all of the terms and conditions of this Grant
and the Company's 1999 Stock Option Plan, as amended to the date hereof (the
"Plan"). If designated as an Incentive Stock Option above this Option is
intended to qualify as an "incentive stock option" ("ISO") within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
Unless otherwise defined herein, capitalized terms used herein shall have the
meanings ascribed to them in the Plan.
2. Exercise Period of Option. The Optionee has option rights hereunder
to purchase a total of Shares which shall become exercisable during the time
periods as set forth in this Section 2. [On and after the first anniversary of
the date of grant (the "First Anniversary"), this Option may be exercised by the
Optionee for the purchase of one-fourth (1/4) of the Shares covered by this
Option ( Shares), or any portion thereof. On or after the last day of each full
year following the First Anniversary this Option may be exercised by the
Optionee for the purchasee of an additional one-fourth (1/4) of the Shares
covered by this Option ( Shares), or any portion thereof.] (To be revised in
accordance with the Company's determined vesing schedule) Once a portion of this
Option becomes exercisable it shall remain exercisable until the Expiration
Date, or until it terminates pursuant to the terms of Section 4 hereof,
whichever is first to occur. The minimum number of Shares that may be purchased
upon any partial exercise of the Option is one hundred (100) shares, and (ii)
<PAGE>
this Option shall expire on the Expiration Date set forth above and must be
exercised, if at all, on or before the Expiration Date. The portion of Shares as
to which an Option is exercisable in accordance with the above schedule as of
the applicable dates shall be deemed "Vested Options."
3. Restriction on Exercise. This Option may not be exercised unless
such exercise is in compliance with the Securities Act of 1933, as amended, and
all applicable state securities laws, as they are in effect on the date of
exercise, and the requirements of any stock exchange or over the counter market
on which the Company's Common Stock may be listed or quoted at the time of
exercise. Optionee understands that the Company is under no obligation to
register, qualify or list Shares with the Securities and Exchange Commission,
any state securities commission or any stock exchange to effect such compliance.
4. Termination of Option. Except as provided below in this Section 4,
this Option shall terminate and may not be exercised if Optionee ceases to be
employed by, or provide services to, the Company or by any Parent or Subsidiary
of the Company (or, in the case of a nonqualified stock option, by or to any
Affiliate of the Company). Optionee shall be considered to be employed by the
Company for all purposes under this Section 4 if Optionee is an officer,
director or full-time employee of the Company or any Parent, Subsidiary or
Affiliate of the Company or if the Committee determines that Optionee is
rendering substantial services as a part-time employee, consultant, contractor
or advisor to the Company or any Parent, Subsidiary or Affiliate of the Company.
The Committee shall have discretion to determine whether Optionee has ceased to
be employed by the Company or any Parent, Subsidiary or Affiliate of the Company
and the effective date on which such employment terminated (the "Termination
Date").
5. Termination Generally. If Optionee ceases to be employed by the
Company and all Parents, Subsidiaries or Affiliates of the Company for any
reason except death or disability, the Vested Options, to the extent (and only
to the extent) exercisable by Optionee on the Termination Date, may be exercised
by Optionee, but only within thirty (30) days after the Termination Date;
provided that this Option may not be exercised in any event after the Expiration
Date.
6. Death of Disability. If Optionee's employment with the Company and
all Parents, Subsidiaries and Affiliates of the Company is terminated because of
the death of Optionee or the disability of Optionee within the meaning of
Section 22(e)(3) of the Code, the Vested Options, to the extent (and only to the
extent) exercisable by Optionee on the Termination Date, may be exercised by
Optionee (or Optionee's legal representative), but only within twelve (12)
months after the Termination Date; provided that this Option may not be
exercised in any event later than the Expiration Date.
7. No Right of Employment. Nothing in the Plan or this Grant shall
confer on Optionee any right to continue in the employ of, or other relationship
with, the Company or any Parent, Subsidiary, or Affiliate of the Company to
terminate Optionee's employment or other relationship at any time, with or
without cause.
<PAGE>
8. Manner of Exercise.
------------------
(a) Exercise Agreement. This Option shall be exercisable by
delivery to the Company of an executed written Stock Option Exercise Agreement
in the form attached hereto as Exhibit " 1", or in such other form as may be
approved by the Company, which shall set forth Optionee's election to exercise
some or all of this Option, the number of Shares being purchased, any
restrictions imposed on the Shares and such other representations and agreements
as may be required by the Company to comply with applicable securities laws.
(b) Exercise Price. The Stock Option Exercise Agreement shall
be accompanied by full payment of the Exercise Price for Shares being purchased.
Payment for the Shares may be made in cash (by check), or, where permitted by
law, by any of the following methods approved by the Committee at the date of
grant of this Option, or any combinations thereof.
(i) by cancellation of indebtedness of the
Company to the Optionee;
(ii) by surrender of shares of Common Stock of
the Company already owned by the Optionee,
or which were obtained by Optionee in the
open public market, having a Fair Market
Value equal to the exercise price of the
Option;
(iii) by waiver of compensation due or accrued to
Optionee for services rendered;
(iv) by delivery of a promissory note in the
amount of $ with terms as determined by the
Committee;
(v) provided that a public market for the
Company's stock exists, through a "same day
sale" commitment from the Optionee and a
broker dealer that is a member of the
National Association of Securities Dealers,
Inc. (an "NASD Dealer") whereby the Optionee
irrevocably elects to exercise price and
whereby the NASD Dealer irrevocably commits
upon receipt of such Shares to forward the
exercise price directly to the Company; or
(vi) provided that a public market for the
Company's stock exists, through a "margin"
commitment from Optionee and an NASD Dealer
whereby Optionee irrevocably elects to
exercise this option and to pledge Shares so
purchased to the NASD Dealer in a margin
account as security for a loan from the NASD
Dealer in the amount of the exercise price,
and whereby the NASD Dealer irrevocably
commits upon receipt of such Shares to
forward the exercise price directly to the
Company.
9. Withholding Taxes. Prior to the issuance of Shares upon exercises of
this Option, Optionee must pay or make adequate provision for any applicable
federal or state withholding obligations of the Company. Optionee may provide
for payment of Optionee's withholding obligations of the Company. Optionee may
provide for payment of Optionee's minimum statutory withholding taxes upon
exercise of the Option by requesting that the Company retain Shares with a Fair
Market Value equal to the minimum amount of taxes required to be withheld, all
<PAGE>
as set forth in Section 6(c) of the Plan. In such case, the Company shall issue
the net number of Shares to Optionee by deducting Shares retained from Shares
exercised.
10. Issuance of Shares. Provided that such Stock Option Exercise
Agreement and payment are in form and substance satisfactory to counsel for the
Company, the Company shall cause Shares to be issued in the name of Optionee or
Optionee's legal representative.
11. Notice of Disqualifying Disposition of ISO Shares. If the
Option granted to Optionee herein is an ISO, and if Optionee sells or otherwise
disposes of any Shares acquired pursuant to the ISO on or before the later of
(1) the date two years after the Date of Grant, or (2) the date one year after
exercise of the ISO with respect to Shares to be sold or disposed of, Optionee
shall immediately notify the Company in writing of such disposition. Optionee
acknowledges and agrees that Optionee may be subject to income tax withholding
by the Company on the compensation income recognized by Optionee from any such
early disposition by payment in cash or out of the current wages or other
earnings payable to Optionee.
12. Nontransferability of Option. This Option may not be
transferred in any manner other than by will or by laws of descent and
distribution and may be exercised during the lifetime of Optionee only by
Optionee or any permitted transferee. The terms of this Option shall be binding
upon the executors, administrators, successors and assigns of Optionee.
13. Restrictions on Shares. The Company reserves to itself (a) the
right of first refusal to purchase all Shares that Optionee (or a subsequent
transferee) may propose to transfer to a third party and/or (b) for so long as
the Company's stock is not publicly traded, the right to repurchase within one
year of Optionee's termination of employment or service with the Company or its
Parent, Subsidiary or Affiliate of the Company, a portion of or all Shares held
by an Optionee at the higher of (i) Optionee's original purchase price, or (ii)
the Fair Market Value of such Shares.
14. Federal Tax Consequences. Set forth below is a brief summary
as of the date this form of Option Grant was adopted of some of the federal tax
consequences of exercise of this Option and disposition of Shares. THIS SUMMARY
IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO
CHANGE. OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR
DISPOSING OF SHARES.
15. Exercise of ISO. If this Option qualifies as an ISO, there
will be no regular federal income tax liability upon the exercise of this
Option, although the excess, if any, of the Fair Market Value of such Shares on
the date of exercise over the Exercise Price will be treated as an adjustment to
alternative minimum taxable income for federal income tax purposes and may
subject Optionee to an alternative minimum tax liability in the year of
exercise.
16. Exercise of Nonqualified Stock Option. If this Option does not
qualify as an ISO, there may be a regular federal income tax liability upon the
exercise of the Option. Optionee will be treated as having received compensation
income (taxable at ordinary income tax rates) equal to the excess, if any, of
the Fair Market Value of Shares on the date of exercise over the Exercise Price.
<PAGE>
The Company will be required to withhold from Optionee's compensation or collect
from Optionee and pay to the applicable taxing authorities an amount equal to a
percentage of this compensation income at the time of exercise.
17. Disposition of Shares. In the case of a nonqualified stock
option, if Shares are held for at least one year before disposition, any gain on
disposition of Shares will be treated as long-term capital gain for federal and
California income tax purposes. In the case of an ISO, if Shares are held for at
least one year after the date of exercise and at least two years after the Date
of Grant, any gain on disposition of such Shares will be treated as long-term
capital gain for federal and California income tax purposes. If Shares acquired
pursuant to an ISO are disposed of within such one-year or two-year periods (a
"disqualifying disposition"), gain on such disqualifying disposition will be
treated as compensation income (taxable at ordinary income rates) to the extent
of the excess, if any, of the Fair Market Value of such Shares on the date of
exercise over the Exercise Price (the "Spread"). Any gain in excess of the
Spread shall be treated as capital gain.
18. Interpretation. Any dispute regarding the interpretation of
this Grant shall be submitted by Optionee or the Company to the Company's Board
of Directors or the Committee, which shall review such dispute at its next
regular meeting. The resolution of such a dispute by the Board or Committee
shall be final and binding on the Company and on Optionee.
19. Entire Agreement. The Plan and the Stock Option Exercise
Agreement attached hereto as Exhibit "1" are incorporated herein by this
reference. This Grant, the Plan and the Stock Option Exercise Agreement
constitute the entire agreement of the parties hereto and supersede all prior
undertakings and agreements with respect to the subject matter hereof.
By:
Name:
Title:
<PAGE>
ACCEPTANCE
Optionee hereby acknowledges receipt of a copy of the Plan, represents
that Optionee has read and understands the terms and provisions thereof, and
accepts this Option subject to all the terms and conditions of the Plan and this
Stock Option Grant. Optionee acknowledges that there may be adverse tax
consequences upon exercise of this Option or disposition of the Shares and that
Optionee should consult a tax adviser prior to such exercise or disposition.
OPTIONEE
Signature
Print Name
Date
<PAGE>
EXHIBIT "1"
TO STOCK OPTION GRANT
STOCK OPTION EXERCISE AGREEMENT
This Agreement is made this ___________ day of _________ between McGlen
Micro, Inc. (the "Company"), and Optionee named below ("Optionee").
Optionee:
Social Security Number:
Address:
Number of Shares Purchased:
Price Per Share:
Aggregate Purchase Price:
Date of Option Grant:
Type of Stock Option: Incentive:
Nonqualified:
1. Optionee hereby delivers to the Company the Aggregate Purchase
Price, to the extent permitted in the Option Grant, as follows [complete as
applicable]:
(a) cash (check) in the amount of $___ , receipt of which is
acknowledged by the Company;
(b) by cancellation of indebtedness in the amount of $ of the
Company to Optionee;
(c) by delivery of fully-paid, nonassessable and vested shares of
the Common Stock of the Company owned by Optionee and owned free and clear of
all liens, claims, encumbrances or security interests, valued at the current
fair market value of $ per share (determined in accordance with the Plan);
(d) by the waiver hereby of compensation due or accrued for
services rendered in the amount of $ ;
(e) by delivery of all of the proceeds of a loan from a third
party in the amount of $ , which loan is guaranteed by the Company;
(f) by delivery of a "same day sale" commitment from Optionee and
a broker dealer that is a member of the National Association of Securities
Dealers, Inc. (an "NASD Dealer") whereby Optionee irrevocably elects to exercise
<PAGE>
the Option and to sell a portion of the Shares so purchased to pay for the
exercise price of $ And whereby the NASD Dealer irrevocably commits upon receipt
of such Shares to forward the exercise price directly to the Company (this
payment method may be used only if a public market for the Company's stock
exists); and
(g) by delivery of a "margin" commitment from Optionee and an
NASD Dealer whereby Optionee irrevocably elects to exercise this Option and to
pledge Shares so purchased to the NASD Dealer in a margin account as security
for a loan from the NASD Dealer in the amount of the exercise price, and whereby
the NASD Dealer irrevocably commits upon receipt of such Shares to forward the
exercise price of $ directly to the Company (this payment method may be used
only if a public market for the Company's stock exists).
2. The Company and Optionee hereby agree as follows:
(a) Purchase of the Shares. On this date and subject to the
terms and conditions of this Agreement, Optionee hereby exercises the Stock
Option Grant between the Company and Optionee dated as of the Date of Option
Grant set forth above (the "Grant"), with respect to the Number of Shares
Purchased set forth above of the Company's Common Stock (the "Shares") at an
aggregate purchase price equal to the Aggregate Purchase Price set forth above
(the "Purchase Price") and the Price per Share set forth above (the "Purchase
Price Per Share"). The term "Shares" refers to the Shares purchased under this
Agreement and includes all securities received (a) in replacement of the Shares,
and (b) as a result of stock splits in respect of the Shares. Capitalized terms
used herein that are not defined herein have the definitions ascribed to them in
the Plan or the Grant.
(b) Representations of Purchaser. Optionee represents and
warrants to the Company that:
(i) Optionee has received, read and understood
the Plan and the Grant and agrees to abide by and be bound by their terms and
conditions.
(ii) Optionee is capable of evaluating the merits
and risks of this investment, has the ability to protect Optionee's own
interests in this transaction and is financially capable of bearing a total loss
of this investment.
(iii) Optionee is fully aware of (i) the highly
speculative nature of the investment in the Shares; (ii) the financial hazards
involved; and (iii) the lack of liquidity of the Shares and the restrictions on
transferability of the Shares (e.g., that Optionee may not be able to sell or
dispose of the Shares or use them as collateral for loans).
(iv) Optionee has no present intention of selling
or otherwise disposing of all or any portion of the Shares.
3. Compliance with Securities Laws. Optionee understands and
acknowledges that the Shares have not been registered under the 1933 Act and
<PAGE>
that, notwithstanding any other provision of the Grant to the contrary, the
exercise of any rights to purchase any Shares is expressly conditioned upon the
compliance with the 1933 Act and all applicable state securities laws. Optionee
agrees to cooperate with the Company to ensure compliance with such laws. The
Shares are being issued under the 1933 Act pursuant to [the Company will check
the applicable box]:
(a) the exemption provided by Rule 701;
(b) the exemption provided by Rule 504;
(c) Section 4(2) of the 1933 Act;
(d) Other: .
---------------------------------------------
4. Federal Restrictions on Transfer. Optionee understands that the
Shares must be held indefinitely unless they are registered under the 1933 Act
or unless an exemption from such registration is available and that the
certificate(s) representing the Shares will bear a legend to that effect.
Optionee understands that the Company is under no obligation to register the
Shares, and that an exemption may not be available or may not permit Optionee to
transfer the Shares in the amounts or at the times proposed by Optionee.
5. Rule 144. Optionee has been advised that Rule 144 promulgated under
the 1933 Act, which permits certain resales or unregistered securities, is not
presently available with respect to the Shares and, in any event, requires that
a minimum of one (1) year elapses between the date of acquisition of Shares from
the Company or an affiliate of the Company and any resale under Rule 144. Prior
to an initial public offering of the Company's Stock, "nonaffiliates" (i.e.,
persons other than officers, directors, and major shareholders of the Company)
may resell only under Rule 144(k), which requires that a minimum of two (2)
years elapse between the date of acquisition of the Shares from the Company or
an affiliate of the Company and any resale under Rule 144(k). Rule 144(k) is not
available to affiliates.
6. Rule 701. If the exemption relied upon for exercise of the Shares is
Rule 701, the Shares will become freely transferable, subject to limited
conditions regarding the method of sale, by nonaffiliates ninety (90) days after
the first sale of common stock of the Company to the general public pursuant to
a registration statement filed with and declared effective by the Securities and
Exchange Commission (the "SEC"), subject to any lengthier market standoff
agreement contained in this Agreement or entered into by Optionee. Affiliates
must comply with the provisions (other than the holding period requirements) of
Rule 144.
7. State Law Restrictions on Transfer. Optionee understands that
transfer of the Shares may be restricted by applicable state securities laws,
and that the certificate(s) representing the Shares may bear a legend or legends
to that effect.
8. Market Standoff Agreement. Optionee agrees in connection with any
registration of the Company's securities that, upon the request of the Company
<PAGE>
or the underwriters managing any public offering of the Company's securities,
Optionee will not sell or otherwise dispose of any of the Shares without prior
written consent of the Company or such underwriters, as the case may be, for a
period of time (not to exceed one hundred eighty (180) days) from the effective
date of such registration as the Company or the underwriters may specify for
employee shareholders generally.
9. Legends. Optionee understands and agrees that the
certificate(s) representing the Shares will bear a legend in substantially the
following forms, in addition to any other legends required by applicable law:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 (THE 'SECURITIES ACT'), AND MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE
SECURITIES ACT OR, IN THE OPINION OF COUNSEL, PREPARED AT ISSUER'S REQUEST AND
EXPENSE, IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES,
SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE
THEREWITH"
10. Stop-Transfer Notices. Optionee understands and agrees that,
in order or ensure compliance with the restrictions referred to herein, the
Company may issue appropriate "stop- transfer" instructions to its agent, if
any, and that, if the Company transfers its own securities, it may make
appropriate notations to the same effect in its own records.
11. Tax Consequences. OPTIONEE UNDERSTANDS THAT OPTIONEE MAY
SUFFER ADVERSE TAX CONSEQUENCES AS A RESULT OF OPTIONEE'S PURCHASE OR
DISPOSITION OF THE SHARES. OPTIONEE REPRESENTS THAT OPTIONEE HAS CONSULTED WITH
ANY TAX CONSULTANT(S) OPTIONEE DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE
OR DISPOSITION OF THE SHARES AND THAT OPTIONEE IS NOT RELYING ON THE COMPANY FOR
ANY TAX ADVICE.
12. Repurchase Options. The Company reserves to itself (a) the
right of first refusal to purchase all Shares that Optionee (or a subsequent
transferee) may propose to transfer to a third party and/or (b) for so long as
the Company's stock is not publicly traded, the right to repurchase within one
year of Optionee's termination of employment or service with the Company or its
Parent, Subsidiary or Affiliate of the Company, a portion of or all of the
Shares held by an Optionee at the higher of (i) Optionee's original purchase
price, or (ii) the Fair Market Value of the Shares.
<PAGE>
13. Entire Agreement. The Plan and the Grant are incorporated
herein by reference. This Agreement, the Plan and the Grant constitute the
entire agreement of the parties and supersede in their entirely all prior
undertakings and agreements of the Company and Optionee with respect to the
subject matter hereof, and are governed by California law except for that body
of law pertaining to conflict of laws.
OPTIONEE:
By:
Name:
EXHIBIT 10.14
CONVERTIBLE PROMISSORY NOTE
$500,000.00 March , 2000 Tustin, California
- --------------------------------------------------------------------------------
FOR VALUE RECEIVED, McGlen Internet Group, Inc., a Delaware corporation
("Borrower") hereby covenants and promises to pay to the order of ("Lender"),
Dollars ($ ) in lawful money of the United States of America (the "Loan"),
accruing interest at the rate of 10% per annum. The interest rate shall be
reduced by one percentage point if the Loan is fully repaid within 120 days from
the day of receipt of the Loan by Borrower (the "Closing"). Principal, interest,
and other costs hereunder shall be due and payable to Lender of this Convertible
Promissory Note (this "Note") on or before September 31, 2000 (the "Due Date").
Payments will be made in legal tender of the United States of America.
Borrower shall have the right to prepay without penalty all or any part of the
unpaid balance of this Note at any time, provided Borrower gives Lender 5 days
advanced written notice to convert this Note, where applicable, as described
below. Borrower shall not be entitled to re-borrow any prepaid amounts of the
principal, interest or other costs or charges. All payments made pursuant to
this Note will be first applied to accrued and unpaid interest, if any, then to
other proper charges under this Note and the balance, if any, to principal.
If Borrower does not have capital infusion, investment or any type of
financing within 6 months of the Closing, Lender may at Lender's option, within
18 months of the Closing, convert the then outstanding balance of this Note into
shares of Borrower's common stock at 90% of the low five-day daily volume
weighted average price (VWAP) of Borrower's common stock as reported by
Bloomberg Financial using the AQR function for the 22 consecutive trading days
prior to the trading day on which the notice of conversion is transmitted by
Lender. (the "Conversion Price"). The common stock issuable upon conversion of
this Note (the "Conversion Shares") shall be entitled to "piggyback"
registration rights entitling Lender to include the Conversion Shares in any
applicable registration statement filed by Borrower or its successors in
interest. Borrower shall bear and pay all expenses incurred in connection with
any registration, filing with respect to the registration of the Conversion
Shares except for taxes, underwriter discounts and commissions.
Borrower shall issue to Lender a warrant,( which shall be executed and
delivered within 30 days of the Closing), pursuant to which Lender may within 18
months from the Closing, purchase the number of shares of Borrower's common
stock equal to 33% of the Conversion Shares at 115% of the average closing price
of Borrower's common stock for the 10 consecutive trading days prior to the
Closing Date (the "Warrant"). If the Loan is not fully repaid by the Due Date,
Lender may within 18 months from the Closing, purchase an additional number of
shares of Borrower's common stock equal to 17% of the Conversion Shares at 115%
of the average closing price of Borrower's common stock for the 10 consecutive
<PAGE>
trading days prior to the Closing Date (the "Additional Warrant"). The
Additional Warrant shall be executed and delivered within 10 business days from
the Due Date.
Notwithstanding anything in this Note to the contrary, the entire
unpaid principal amount of this Note, together with all accrued but unpaid
interest hereunder, will become immediately all due and payable without further
notice at the option of Lender upon any of the following (the "Acceleration
Date"): (i) the occurrence of an event of default under this Note, which is not
cured within twenty (20) days after written notice to Borrower by Lender; (ii)
Borrower ceases to carry on its business on a regular basis or enters into an
agreement to sell substantially all of its assets or an agreement whereby it
merges into, consolidates with or is acquired by any other business entity
unless such surviving entity assumes the obligations under this Note; or (iii)
Borrower makes any assignment for the benefit of its creditors, makes any
election to wind up or dissolve or becomes unable to pay Borrower's debts as
they mature, becomes insolvent or the subject of any proceeding under any
bankruptcy, insolvency or debtor's relief law.
If any amount payable to Lender under this Note is not received by
Lender on the Due Date, then such amount (the "Delinquent Amount") will bear
interest from and after the Due Date until paid at an annual rate of interest
equal to the greater of (i) eleven percent (11%), (ii) the advance rate to
member banks on the Acceleration Date as established by the Federal Reserve Bank
of San Francisco, pursuant to Section 13 of the Federal Reserve Act, plus five
percentage points, or (iii) the maximum rate then permitted by law (the "Default
Rate"). If the maximum rate then permitted by law is lower than 11%, the maximum
legal rate shall be the Default Rate. In addition, Borrower will also pay to
Lender a late payment processing fee ("Late Fee") in an amount each month equal
to two percent (2%) of each Delinquent Amount to defray the expense incident to
the administration, processing and collection of each Delinquent Amount.
This Note will be interpreted in accordance with California law,
including all matters of construction, validity, performance and enforcement,
without giving effect to any principles of conflict of laws. Any dispute, action
or proceeding concerning this Note will be initiated, maintained, heard and
decided exclusively in Orange County, California. The prevailing party in any
action, litigation or proceeding including any appeal or the collection of any
judgment concerning this Note will be awarded, in addition to any damages,
injunctions or other relief, and without regard to whether or not such matter be
prosecuted to final judgment, such party's costs and expenses, including
reasonable attorneys' fees. This Note may not be changed, modified, amended or
terminated orally..
<PAGE>
Dated as of March __, 2000
"BORROWER"
McGLEN INTERNET GROUP, INC.,
a Delaware corporation
By: /s/George Lee
-------------
George Lee, Chief Executive Officer
Accepted by:
- ------------------------------------
Its:
- ------------------------------------
EXHIBIT 10.15
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT (this "Agreement") is entered into
as of January 17, 2000, between McGlen Internet Group, Inc., a Delaware
corporation (the "Company") and GRANT TREXLER, an individual ("Executive"), with
reference to the following.
RECITALS
A. The Company is in the business of selling computer components
and accessories via internet.
B. Executive is experienced in financial and operational matters
involving publicly held companies and has experience in acting as the Chief
Financial Officer for such companies.
C. The Company desires to employ Executive as the Company's Chief
Financial Officer and Executive desires to accept such employment subject to the
terms and conditions set forth in this Agreement.
AGREEMENT
NOW THEREFORE, in consideration of the foregoing premises, the
provisions set forth below, and other good and valuable consideration, the
parties agree as follows.
1. Employment. The Company hereby employs Executive as the
Company's Chief Financial Officer ("CFO") and such other offices as are
designated by the Company's Board of Directors in the future and Executive
hereby accepts such employment, for the term and subject to the provisions set
forth below.
2. Term. Unless sooner terminated as set forth in Section 6
below, this Agreement shall remain in force for a period of three year (the
"Term") commencing on January 17, 2000, and terminating on January 16, 2003. The
actual period of time that Executive remains in the employ of the Company
pursuant to this Agreement is referred to herein as the "Employment Period."
3. Duties. Executive shall be employed as the Chief Financial
Officer of the Company and shall hold such other offices or positions with the
Company as may be reasonably requested by the Company from time to time.
Executive shall devote his full time and efforts to the performance of
Executive's duties hereunder and work exclusively for the Company unless
otherwise requested by the Company. Executive shall use his best efforts to
manage the Company's financial business and affairs for the maximum benefit of
the Company. In addition to the normal duties associated with the position of
CFO of publicly held companies of similar size and nature, Executive shall have
the duties of CFO, in-house accountant and the following specific duties, which
he shall at all times faithfully, honestly, industriously and to the best of his
ability perform.
<PAGE>
(a) Traditional Duties.
------------------
(i) Direct assistance and oversight of all
aspects of the Company's accounting practices and requirements, including all
accounting related matters customary in a publicly held company trading on
Nasdaq, accounts payable, accounts receivable, inventory control, customer
orders, payroll, internal control matters, invoicing, purchasing and borrowing
compliance and reporting requirements. The duties shall include supervision of a
limited staff, and a hands-on approach to ensure that work in each of the areas
is performed efficiently and at a high standard of quality. Focus on identifying
and implementing internal control policies and procedures to ensure that
customer sales and vendor purchases are recorded timely, accurately and in
compliance with authorized contract terms.
(ii) Direct assistance and oversight of the
preparation of timely, accurate and useful financial reports that meet SEC
reporting and all other regulatory requirements, and the needs of management,
the Board of Directors of the Company, lenders and other users. An initial
priority will be to identify and implement and automated accounting system that
meets the accounting and financial reporting needs of the Company.
(iii) Preparation and continued update and
maintenance of a strategic business plan for the Company, which incorporates
budgets, financial forecasts, marketing plans and key operating and production
objectives into the business plan.
(iv) Make recommendations concerning operating,
production and financial performance targets.
(v) Maintain relationships with banks, lenders
and the SEC. The banking relationships center on the Company's bank accounts,
and the utilization of cash management practices that optimize the use of cash
resources. The lending relationships involve managing matters relating to the
line-of-credit facility, and monitoring the Company's compliance with loan
covenants and payment terms. The SEC relationship requires monitoring and
reporting on matters relating to the Company in compliance with SEC rules and
regulations.
(vi) Maintain familiarity with all of the
Company's accounting and financial compliance requirements, as they change from
time to time, including reporting requirements to all state and federal agencies
such as the IRS, the SEC and the Franchise Tax Board and the SEC and all lenders
to the Company.
(vii) Act as the visible spokesman for the Company
on financial and accounting issues. Effectively present the historical results,
current status and future financial outlook to the Company's shareholders, the
investment community, industry participants and other key customers and vendors.
<PAGE>
(vii) Oversee the Company's accountants for all
audits and tax matters. Direct the preparation of supporting information to
expedite the timing and minimize the cost of the audit and tax return
preparation.
(viii) Meet regularly with executive management and
the Board of Directors. Communicate clearly and effectively on all financial
matters concerning the Company.
(ix) Handle all payroll matters, including
completion of or supervision of services handling all federal, state and local
payroll reporting requirements.
(b) Additional Duties.
-----------------
The Company and Executive acknowledge that the Company
currently has a limited number of customers and limited number of suppliers and
the internal financial and accounting duties of Executive may not require
Executive's full time, every day. Executive shall therefore also act as an
assistant operations officer. As such, Executive will be expected to play a
large role in the day to day operation of the Company, and assist in the
following areas.
(i) Assist in the management, supervision,
training and review of the Company's personnel.
(ii) Assist the Company's President in the
preparation and periodic review and update of the Company procedures and
policies.
(iii) Assist the Company's President with
shareholder relations and investor matters and act as its liaison with
investment bankers.
(iv) Deal with suppliers and customers of the
Company, as needed.
(v) Assist the Company in the registration
process of its securities and interact with accountants and attorneys as
requested by the Company's President.
4. Compensation.
------------
(a) Monthly Salary. The Company shall pay Executive an
annual salary of $130,000 (the "Salary") during the Employment Period.
(b) Vacation and Sick Leave. Executive shall be entitled
to one week of sick eave and two weeks paid vacation per year in addition to
standard holidays recognized by the Company.
(c) Medical Insurance. The Company shall reimburse
Executive for reasonable nsurance premiums for Executive and his family.
Executive shall have an opportunity to participate in any medical insurance plan
the Company adopts.
<PAGE>
(d) Expenses. Executive shall be entitled to reimbursement
during the Employment Period for travel and other out-of-pocket expenses
incurred in the performance of his duties hereunder, upon submission and
approval of written statements and bills in accordance with the then regular
procedures of the Company. Executive shall also be entitled to reimbursement for
training fees incurred for continual education for certified public accountants,
however, if Executive is terminated pursuant to Section 6 of this Agreement or
voluntarily resigns from the Company, Executive shall not be entitled to such
reimbursement and shall return any reimbursed amount to the Company.
(e) Automobile. The Company shall provide Executive with an
automobile allowance of $600 per month.
5. Stock Options. The Company shall grant Executive the option to
purchase up to 120,000 shares of the Company's common stock (the "Options")
exercisable at the closing price of December 30, 1999. It is also mutually
agreed upon by the Company and the Executive that the closing price of December
30, 1999 is $3 5/8 . The option to purchase up to 50,000 shares of the Company's
common stock shall vest on the first anniversary of the date of the execution of
this Agreement and the option to purchase an additional 35,000 shares of the
Company's common stock shall vest on the second anniversary of the date of the
execution of this Agreement and the option to purchase an additional 35,000
shares of the Company's common stock shall vest on the third anniversary of the
date of the execution of this Agreement. The terms and conditions of the Options
grant will be set forth in an Option Agreement.
6. Performance-Based Bonus. As additional compensation, Executive may
be entitled to receive an annual bonus of up to 10% of the Salary (the "Bonus")
if mutually agreed upon goals are achieved and as is reasonably agreed to by the
Board of Directors for each fiscal year.
7. Termination. The Employment Period shall terminate under the
following conditions.
(a) Probation Period. The Employment Period is subject to a
three months probation period from commencement of the Term during which time
either the Company or the Executive may terminate Executive's employment at any
time with or without cause.
(b) Termination for Cause. Notwithstanding anything in this
Agreement to the contrary, the Company may terminate Executive's employment
hereunder at any time if Executive:
(i) Is convicted of, or pleads guilty or nolo
contendere to (i) any felony, or (ii) any misdemeanor involving moral turpitude;
(ii) Embezzles or misappropriates any of the
Company's funds or assets;
(iii) Is adjudicated to be incompetent or, in the
reasonable opinion of a licensed physician or psychiatrist retained by the
Company, is unable by reason of mental or physical illness or incapacity;
<PAGE>
(iv) Is in material breach of this Agreement;
(v) In the reasonable opinion of a licensed
physician or psychiatrist retained by the Company, is substantially unable by
reason of drug (including alcohol) abuse or addiction, to reasonably and
effectively carry out Executive's duties hereunder for any period of time in
excess of Executive's accrued vacation time and sick leave, if any;
(vi) Commits fraud or behaves in a dishonest
manner with respect to affairs of the business;
(vii) Is grossly negligent with respect to
discharge of Executive's duties hereunder;
(viii) Is insubordinate to his superior, including
the Board, Chief Executive Officer, President and other management officers or
interferes with the operations or business of the Company.
Executive agrees to timely submit to reasonable and necessary
medical, physical and psychiatric examination from time to time during the
Employment Period to enable the Company to determine if Executive is incompetent
or subject to any mental or physical illness or incapacity or to drug abuse or
addiction, as contemplated above by paragraphs 6(iii) and 6(v).
(c) By Permanent Disability. The Employment Period shall
terminate, without liability except as provided in this Section 6(c), upon the
"Permanent Disability" of Executive. "Permanent Disability" shall mean, with
respect to Executive, (i) the suffering of any mental or physical illness,
disability or incapacity to the extent that Executive shall be unable to perform
his duties or (ii) the absence of Executive from his employment by reason of any
mental or physical illness, disability or incapacity for a period of three
months during any six-month period; provided, however, in either case, that such
illness, disability or incapacity shall be determined to be of a permanent
nature by a licensed physician selected by the Board of Directors. The
termination date in the event of a clause (i) of the immediately preceding
sentence, shall be the date of determination by the physician, and in the case
of clause (ii) of the immediately preceding sentence, the last day of such
three-month period. In the case of Permanent Disability, the Company shall
promptly pay to Executive (or his representative) the sum of (A) the unpaid
Annual Salary to which he is entitled pursuant to Section 4(a) through the
termination date and (B) any unissued stock or options to be issued to Executive
pursuant to Section 5, and all benefits under Executive's Disability Insurance
Plan, if any.
(d) By The Company Without Cause. The Term may be
terminated by the ompany without "Cause" provided the Company pays to Executive
at the time of termination, the sum of three months salary.
8. Affirmative Covenants. Executive makes the following promises
and covenants to the Company.
<PAGE>
(a) Confidentiality; Trade Secrets. Executive acknowledges
that his position with the Company is one of the highest trust and confidence
both by reason of his position and by reason of his access to and contact with
the trade secrets and confidential and proprietary business information of the
Company. Executive agrees that during the Term and thereafter:
(i) Executive shall use his best efforts and
exercise utmost diligence to protect and safeguard the trade secrets and
confidential and proprietary information of the Company, including, its data,
record, compilations of information, processes, programs know-how, improvements,
discoveries, marketing plans, strategies, forecasts, unpublished financial
statements, budgets, projections, licenses, prices, costs, files, documents,
drawings, memoranda, notes or other documents, drawings, memoranda, notes or
other documents, whether maintained electronically or in any other manner,
relating to the business of the Company or its contractors; (all such
information is hereinafter called the "Proprietary Information") other than
information known to him before, learned from third parties not associated with
the Company or in the public domain;
(ii) Executive shall not disclose any of such
Proprietary Information, except as may be required in the ordinary course of
performing his duties as a consultant of the Company;
(iii) Executive shall not use, directly or
indirectly, for his own benefit or for the benefit or another, any of such
proprietary Information, other than for the benefit of the Company as may be
required in the ordinary course of performing his duties as a consultant of the
Company; and
(iv) Executive shall not use the trade secrets
and confidential and proprietary information of Executive's previous or present
employer to carry out his duties and responsibilities under this Agreement or
bring on to the Company's premises or any other property owned by the Company
any proprietary information of any other entity, in violation of any prior
employment, or noncompetition or confidentiality agreement.
The Proprietary Information shall be the
exclusive property of the Company. Executive agrees that he shall deliver to the
Company all files, records, documents, drawings, memoranda, and other material,
whether electronic, hard copy, or maintained in any other form relating to the
Proprietary Information or pertaining of his work with the Company, in the event
of the termination of his employment for any reason, and that he will not take
with him any of the foregoing, any reproduction of any of the foregoing, or any
Proprietary Information that is embodied in a tangible medium of expression.
(b) Non-Competition. Executive agrees that at all times during
the Term and for the period of one (1) year after the termination of this
Agreement, unless the Company should terminate this Agreement without cause:
(i) Executive shall not, without the prior
written consent of the Company, serve or act as an officer, president, executive
<PAGE>
director, administrator, manager, or in any other administrative or managerial
capacity, or otherwise serve or act as an employee, consultant or agent or as
the employer, principal, partner, shareholder, corporate officer of director of
such an employee, agent or consultant, on behalf of another company which sells
computer components via internet operating within any County in the State of
California or any State in the United States, or any other business that is in
competition with the business of the Company; or interfere with, disrupt or
attempt to disrupt the relationship, contractual or otherwise, between the
Company and any contractor or employee of the Company;
(ii) Executive shall not directly or indirectly:
(A) employ, intend to employ or otherwise solicit for employment any of the
Company's executive officers, department managers at the Company for any
business or venture that is competitive with the Company, including and without
limitation, any business or enterprises which Executive may be a consultant or
recruiter; or (B) contact, communicate with, inquire or otherwise solicit any
executive officers, director, shareholder, department managers at the Company of
the Company to invest in or to purchase, or to offer or subscribe to purchase,
any security or general or equity interest in any venture that is competitive
with or similar to the business of the Company. As used in this section the
terms "employ" and "employment" are used in the broadcast sense to encompass all
associations, including without limitation, that of employee, agent, independent
contractor, owner, officer, director, shareholder, partner, associate,
representative and consultant; and
(iii) If the scope of any restrictions contained
in paragraph (i) and (ii) of this Section is too broad to permit enforcement of
such restrictions of their full extent, then such restrictions shall be enforced
to the maximum extent permitted by law, and Executive hereby consents and agrees
that such scope may be judicially modified accordingly in any proceeding brought
to enforce such restrictions.
(c) Non-Solicitation of Employees. Executive covenants and
agrees that, it shall not, directly or indirectly, solicit or induce, or attempt
to solicit or induce, any employee or consultant of the Company to leave the
employ of the Company for any reason whatsoever or hire any employee or
consultant of the Company for a period of three years from the date of this
Agreement.
(d) Remedies for Breach of Affirmative Covenants of Executive.
---------------------------------------------------------
(i) Subject to the limitations provided by
applicable law, the covenants set forth in this Section 7 shall continue to be
binding upon Executive in accordance with their terms, notwithstanding the
termination of his employment with Company for any reason whatsoever. Such
covenants shall be deemed and construed as separate agreements independent of
any other provisions of this Agreement and any other agreement between the
Company and Executive. The existence of any claim or cause of action by
Executive against the Company, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by the Company of
any or all of such covenants in accordance with their terms; and
<PAGE>
(ii) The parties hereby agree that any breach or
threatened breach of Section 7 of this Agreement will cause substantial and
irreparable damage to the other in an amount and of a character difficult to
ascertain. Accordingly, for their mutual benefit and to prevent any such breach
or threatened breach, and in addition to any other relief to which a party may
otherwise be entitled, the non-breaching party shall be entitled to immediate
temporary, preliminary and permanent injunctive relief through appropriate legal
proceedings, without proof that actual damages have been incurred or may be
incurred by such a party with respect to such breach or threatened breach. The
parties expressly agree that the party seeking this relief shall not be required
to post any bond or other security as a condition to obtaining any injunctive
relief pursuant to this Section and each of the parties expressly waive any
rights to the contrary.
(d) Further Duties. Executive shall perform such other
duties and work for, consult to, or assist such other entities as may be
requested from time to time by the Company.
9. Representations and Warranties of Executive. Executive represents
and warrants to the Company that (i) Executive is under no contractual or other
restriction or obligation that is inconsistent with the execution of this
Agreement, the performance of Executive's duties hereunder or any of the rights
of the Company hereunder, (ii) Executive is under no physical or mental
disability that would impair the performance of Executive's duties under this
Agreement; and (iii) Executive has reviewed this Agreement with Executive's
legal counsel.
10. Notices. All notices, requests, demands or other communication
(collectively, "Notice") given to any party pursuant to this Agreement shall not
be effective unless given in writing and addressed to the parties at their
respective addresses as set forth below.
IF TO THE COMPANY: McGlen Internet Group, Inc.
3002 Dow Avenue, Suite 212
Tustin, California 92780
Telephone: (949) 851-8078
IF TO EXECUTIVE: Grant Trexler
1801 N. Celeste Lane
Fullerton, California 92833
Notice shall be deemed duly given when delivered personally or by telegram,
telex or courier, or, if mailed, 48 hours after deposit in the United States
mail, certified mail, postage pre-paid. The addresses of the parties for the
purpose of providing Notice pursuant to this paragraph may be changed from time
to time by Notice to the other party duly given in the foregoing manner.
11. Governing Law; Disputes. This Agreement will be interpreted in
accordance with California law, including all matters of construction, validity,
performance and enforcement, without giving effect to any principles of conflict
of laws. Any dispute or proceeding concerning this Agreement except an action
pursuant to Section 7 hereof will be resolved by binding arbitration to be held
in Orange County, California. Any party may demand arbitration through written
<PAGE>
notice sent by certified mail to the other (an "Arbitration Demand"). Within
fifteen (15) days after the date that the Arbitration Demand is first mailed,
each of the parties will confer to select a mutually acceptable arbitrator from
JAMS/Endispute ("JAMS"). If the arbitrator so selected is unavailable, the
parties will confer to select another arbitrator. If the parties cannot mutually
agree to the selection of an arbitrator, or if one party refuses to participate
in the selection process, JAMS will appoint an arbitrator. The arbitrator will
be governed by the provisions of this Agreement rather than the rules of JAMS.
If JAMS is unable or unwilling to select an arbitrator, the
Presiding Judge of the Orange County Superior Court will select an arbitrator
upon the request of either party, and such selection will be binding on the
parties. The arbitrator so selected will schedule the arbitration hearing within
sixty (60) days after he or she is first selected. The parties will be permitted
written discovery and one deposition each. The arbitrator will have authority to
enter a binding judgment even if the parties do not appear at the arbitration
and may also grant any remedy or relief that the arbitrator reasonably believes
to be just or appropriate, provided that such remedy or relief is within the
scope of this Agreement.
All fees and expenses of the arbitration will be paid equally
by the parties participating in the arbitration. At the conclusion of the
arbitration, the arbitrator will award the prevailing party reasonable costs and
attorneys' fees, including all arbitration costs. If the arbitration award is
made, the prevailing party may convert the award into a judgment and execute
upon that judgment.
12. Attorneys' Fees. If any arbitration, litigation, action, suit or
other proceedings is instituted to remedy, prevent or obtain relief from a
breach of this Agreement, in relation to a breach of this Agreement or
pertaining to a declaration of rights under this Agreement, the prevailing party
will recover all such party's attorneys' fees incurred in each and every such
action, suit or other proceeding, including any and all appeals or petitioner
therefrom. As used in this Agreement, attorneys' fees will be deemed to be the
full and actual costs of any legal services actually performed in connection
with the matters involved, including those related to any appeal or the
enforcement of any judgment, calculated on the basis of the usual fee charged by
attorneys performing such services, and will not be limited to "reasonable
attorneys' fees" as defined in any statute or rule of court.
13. Amendments/Waivers. This Agreement may be amended, supplemented,
modified or rescinded only through an express written instrument signed by all
the parties or their respective successors and assigns. Either party may
specifically and expressly waive in writing any portion of this Agreement or any
breach hereof, but no such waiver shall constitute a further or continuing
waiver of any preceding or succeeding breach of the same or any other provision.
The consent by one party to any action for which such consent was required shall
not be deemed to imply consent or waiver of the necessity of obtaining such
consent for the same or similar acts in the future.
<PAGE>
14. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument. All faxed signatures
shall be deemed originals.
15. Severability. Each provision of this Agreement is intended to be
severable and if any term or provision herein is determined invalid or
unenforceable for any reason, such illegality or invalidity shall not affect the
validity of the remainder of this Agreement and, wherever possible, intent shall
be given to the invalid or unenforceable provision.
16. Entire Agreement. This Agreement contains the entire and complete
understanding between the parties concerning its subject matter and all
representations, agreements, arrangements and understandings between or among
the parties, whether oral or written, have been fully merged herein and are
superseded hereby.
17. Remedies. All rights, remedies, undertakings, obligations, options,
covenants, conditions and agreements contained in this Agreement shall be
cumulative and no one of them shall be exclusive of any other.
18. Assignment. Neither this Agreement, nor any interest herein, shall
be assignable (voluntarily, involuntarily, by judicial process or otherwise)
Executive to any person or entity without the prior written consent of the
Company. Any attempt to assign this Agreement without such consent shall be void
and, at the option of the Company, shall be an incurable breach of this
Agreement resulting in the termination of this Agreement.
19. Successors. Subject to the foregoing paragraph, this Agreement
shall be binding upon and inure to the benefit of the parties and their
respective heirs, legatees, legal representatives, successors and permitted
assigns.
20. Interpretation. The language in all parts of this Agreement shall
be in all cases construed simply according to its fair meaning and not strictly
for or against any party. Whenever the context requires, all words used in the
singular will be construed to have been used in the plural, and vice versa, and
each gender will include any other gender. The captions of the paragraphs of
this Agreement are for convenience only and shall not affect the construction or
interpretation of any of the provisions herein.
21. Benefit of Agreement. This Agreement is for the sole and exclusive
benefit of the signators hereto and nothing in this Agreement shall be construed
to give any person or entity other than the parties hereto any legal or
equitable right, claim or remedy.
22. Limitation on Actions. Any claim, dispute, controversy or action
for breach relative to this Agreement must be brought and legal process or
arbitration, as the case may be, initiated within one year after the cause of
action for such claim first accrued or the breach first occurred, whichever is
sooner.
<PAGE>
23. Miscellaneous. The recitals and all exhibits, attachments or
other documents referenced in this Agreement are fully incorporated into this
Agreement by reference. Unless expressly set forth otherwise herein, all
references herein to a "day," "month," or "year" shall be deemed to be a
reference to a calendar day, month or year, as the case may be. All
cross-references herein shall refer to provisions within this Agreement, and
shall not be deemed to be references to the overall transaction or to any other
agreement or document.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth above.
"EXECUTIVE"
GRANT TREXLER, an individual
"THE COMPANY"
McGlen Internet Group, Inc., a Delaware
corporation
By: /s/Mike Chen
-------------
Mike Chen, President
EXHIBIT10.16
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT (this "Agreement") is entered into as
of [Closing Date of the Merger], between Adrenalin Interactive, Inc., a Delaware
corporation (the "Company") and GEORGE LEE, an individual ("Executive"), with
reference to the following.
RECITALS
A. The Company is hereby defined as the combined corporation
after the merger between Adrenalin Interactive, Inc., a Delaware corporation
("Adrenalin"), and McGlen Micro Inc., a California corporation. ("McGlen"),
whereby McGlen will be a wholly owned subsidiary of the Company and McGlen's
shareholders will own 87.5% of the Company (the "Merger").
B. The Company is in the business of selling computer components
and accessories via internet.
C. Executive is experienced in the development of start-up and
emerging growth companies in the computer industry.
D. The Company desires to employ Executive as the Chief Executive
Officer and Executive desires to accept such employment subject to the terms and
conditions set forth in this Agreement.
AGREEMENT
NOW THEREFORE, in consideration of the foregoing premises, the
provisions set forth below, and other good and valuable consideration, the
parties agree as follows.
1. Employment. The Company hereby employs Executive as the
Company's Chief Executive Officer and Executive hereby accepts such employment,
for the term and subject to the provisions set forth below.
2. Term. Unless sooner terminated as set forth below, this
Agreement shall remain in force for a period of five (5) years (the "Term")
commencing on the date hereof. The actual period of time that Executive remains
in the employ of the Company pursuant to this Agreement is referred to herein as
the "Employment Period."
3. Duties. During the Employment Period, Executive shall be
employed as the Chief Executive Officer of the Company and shall hold such other
offices or positions with the Company as may be reasonably requested by the
Company from time to time. Executive shall also serve as a member of the
Company's Board of Directors if so requested or elected. Executive shall use his
<PAGE>
reasonable efforts to manage the Company's business and affairs for the maximum
benefit of the Company. Nothing in this Agreement shall be construed to prohibit
Executive from acting as an officer or director of any other corporation. In
addition to the normal duties associated with the position of Chief Executive
Officer of companies of similar size, Executive shall have the following
specific duties, which he shall at all times faithfully, industriously and to
the best of his ability perform.
(b) To hire and fire employees.
(c) To develop business strategy, marketing plans for the
Company.
(d) To employ such professionals, employees and
consultants as are necessary for the development and
operation of the Company.
(e) To take all actions necessary to successfully operate
the Company.
(f) Monitor and supervise the all aspects of the Company.
(g) To maintain public relations with the investors.
(h) To represent the Company in handling all matters with
the SEC and Nasdaq.
4. Compensation.
(a) Base Monthly Salary. The Company shall pay Executive
a base annual salary of $80,000 (the "Base Salary") during the Employment
Period.
(b) Vacation. Executive shall be entitled to four weeks
paid vacation per year in addition to all holidays recognized by the Company.
Executive shall be entitled to accrue vacation or cause the Company to
repurchase unused vacation days at the Salary level then applicable.
(c) Medical Insurance. The Company shall provide
Executive and Executive's spouse and children with medical insurance. At the
Company's election, the Company may reimburse Executive for the cost of such
insurance obtained by Executive.
(d) Expenses. Executive shall be entitled to
reimbursement during the Employment Period for travel and other out-of-pocket
expenses incurred in the performance of his duties hereunder, upon submission
and approval of written statements and bills in accordance with the then regular
procedures of the Company. Executive shall also receive a credit card from the
Company to be utilized for expenses incurred by Executive.
(e) Automobile. The Company shall provide Executive with
an automobile of Executive's choice while Executive serves as President of the
<PAGE>
Company. All reasonable costs associated with the use of automobile including
insurance, maintenance, fuel, car phone and registration shall be paid by the
Company.
5. Performance-Based Bonus. As additional compensation, Executive
shall be entitled to receive an annual bonus (the "Bonus") as is determined by
the Board of Directors for each fiscal year based on the Executive's
performance.
6. Stock Option Plan. The Company shall adopt a Stock Option Plan
for the benefit of its employees including Executive. As may be determined by
the Board of Directors within its discretion, Executive may receive option to
purchase shares of the Company's common stock.
7. Termination. The Employment Period shall be immediately and
automatically terminated upon Executive's death. The Employment Period shall
also terminate under the following conditions.
(a) Termination for Cause. Notwithstanding anything in
this Agreement to the contrary, the Company may terminate Executive's employment
hereunder at any time if Executive:
(i) Is convicted of, or pleads guilty or nolo
contendere to (i) any felony, or (ii) any misdemeanor involving moral turpitude;
(ii) Commits fraud or dishonesty with respect to
the business or affairs of the Company and embezzles or misappropriates any of
the Company's funds or assets;
(iii) Is in material breach of this Agreement,
including, without limitation, his insubordination to the Company;
(iv) In the reasonable opinion of a licensed
physician or psychiatrist retained by the Company, is substantially unable by
reason of drug (including alcohol) abuse or addiction, to reasonably and
effectively carry out Executive's duties hereunder for any period of time in
excess of Executive's accrued vacation time and sick leave, if any;
(v) Directly causes the material default of the
Company in performing its obligations under contracts with other persons or
business entities intentionally and without authorization; or
(vi) Is grossly negligent with respect other
discharge of Executive's duties hereunder.
Executive agrees to timely submit to reasonable and necessary
medical, physical and psychiatric examination from time to time during the
Employment Period to enable the Company to determine if Executive is incompetent
or subject to any mental or physical illness or incapacity or to drug abuse or
addiction, as contemplated above by paragraphs 8(iii) and 8(iv).
<PAGE>
(b) By Permanent Disability. The Term of Employment shall
terminate, without liability except as provided in this Section 8b, upon the
"Permanent Disability" of Executive. "Permanent Disability" shall mean, with
respect to Executive, (i) the suffering of any mental or physical illness,
disability or incapacity to the extent that Executive shall be unable to perform
his duties or (ii) the absence of Executive from his employment by reason of any
mental or physical illness, disability or incapacity for a period of three
months during any six-month period; provided, however, in either case, that such
illness, disability or incapacity shall be determined to be of a permanent
nature by a licensed physician selected by the Board of Directors. The
termination date in the event of a clause (i) of the immediately preceding
sentence, shall be the date of determination by the physician, and in the case
of clause (ii) of the immediately preceding sentence, the last day of such
three-month period. In the case of Permanent Disability, the Company shall
promptly pay to Executive (or his representative) the sum of (A) the unpaid Base
Salary to which he is entitled pursuant to Section 4(a) through the termination
date and (B) the lump sum amount of any unpaid portion of the bonuses to be paid
pursuant to Section 5, and all benefits under Executive's Disability Insurance
Plan.
(c) By The Company Without Cause. The Term may be terminated
by the Company without "Cause" provided the Company pays to Executive at the
time of termination the full amount of all salary due to Executive through the
end of the Term. The Company shall also pay Executive the equivalent of any
bonus he would have earned if he had remained employed by the Company, payable
at the time such bonus would be earned, plus all unused employment benefits.
8. Affirmative Covenants. Executive promises and covenants to the
Company as follows.
(a) Confidentiality; Trade Secrets. Executive acknowledges
that his position with the Company is one of the highest trust and confidence
both by reason of his position and by reason of his access to and contact with
the trade secrets and confidential and proprietary business information of the
Company. Executive agrees that during the Term and thereafter:
(i) Executive shall use his best efforts and
exercise utmost diligence to protect and safeguard the trade secrets and
confidential and proprietary information of the Company, including, its data,
record, compilations of information, processes, programs know-how, improvements,
discoveries, marketing plans, strategies, forecasts, unpublished financial
statements, budgets, projections, licenses, prices, costs, files, documents,
drawings, memoranda, notes or other documents, whether maintained electronically
or in any other manner, relating to the business of the Company or its
contractors; (all such information is hereinafter called the "Proprietary
Information") other than information known to him before, learned from third
parties not associated with the Company or in the public domain;
(ii) Executive shall not disclose any of such
Proprietary Information, except as may be required in the ordinary course of
performing his duties to the Company or any affiliated companies;
<PAGE>
(iii) Executive shall not use the trade secrets
and confidential and proprietary information of Executive's previous or present
employer to carry out his duties and responsibilities under this Agreement or
bring on to the Company's premises or any other property owned by the Company
any proprietary information of any other entity, in violation of any prior or
present employment, or noncompetition or confidentiality agreement.
b) Remedies for Breach of Affirmative Covenants of Executive.
(i) Subject to the limitations provided by
applicable law, the covenants set forth in this Section 9 shall continue to be
binding upon Executive in accordance with their terms, notwithstanding the
termination of his employment with Company for any reason whatsoever. Such
covenants shall be deemed and construed as separate agreements independent of
any other provisions of this Agreement and any other agreement between the
Company and Executive. The existence of any claim or cause of action by
Executive against the Company, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by the Company of
any or all of such covenants in accordance with their terms; and
(ii) The parties hereby agree that any breach or
threatened breach of Section 9 of this Agreement will cause substantial and
irreparable damage to the other in an amount and of a character difficult to
ascertain. Accordingly, for their mutual benefit and to prevent any such breach
or threatened breach, and in addition to any other relief to which a party may
otherwise be entitled, the non-breaching party shall be entitled to immediate
temporary, preliminary and permanent injunctive relief through appropriate legal
proceedings, without proof that actual damages have been incurred or may be
incurred by such a party with respect to such breach or threatened breach. The
parties expressly agree that the party seeking this relief shall not be required
to post any bond or other security as a condition to obtaining any injunctive
relief pursuant to this Section and each of the parties expressly waive any
rights to the contrary.
(c) Litigation.
Executive agrees that during the Term and thereafter as
reasonably requested by the Company, Executive shall do all things, including
the giving of evidence in suits and other proceedings, which the Company shall
deem reasonably necessary or proper to obtain, maintain, defend or assert rights
accruing to the Company during the Term and in connection with which Executive
has knowledge, information and expertise.
(d) Future Cooperation.
The parties hereto agree to cooperate with each other without
additional compensation from and after the date hereof, to supply any
information and to execute documents reasonably required for the purpose of
giving effect to this Agreement, or in connection with the consummation of any
actions contemplated hereby.
9. Representations and Warranties of Executive. Executive represents
and warrants to the Company that: (i) Executive is under no contractual or other
restriction or obligation that is inconsistent with the execution of this
Agreement, the performance of Executive's duties hereunder or any of the rights
of the Company hereunder; and (ii) Executive is under no physical or mental
disability that would impair the performance of Executive's duties under this
Agreement.
<PAGE>
10. Key Person Insurance. The Company may at any time and from time to
time obtain such life and health insurance policies ensuring the life or health
of Executive in such amounts and with such insurers (collectively, "Executive
Insurance") as the Company, in its sole discretion, deems appropriate. The
Company shall have the right to all benefits payable pursuant to any Executive
Insurance obtained by the Company, including without limitation, the sole right
to designate the beneficiary of all such Insurance. Executive agrees to
cooperate with the Company if the Company elects to obtain any Executive
Insurance from time to time, including without limitation, timely submitting to
medical/physical examinations and assisting the Company with the preparation of
insurance applications.
11. Indemnification. The Company shall indemnify, defend and hold
Executive harmless for, from and against any and all liability of any kind or
nature resulting from or related to Executive's employment with the Company,
and/or any prior business deals entered into by Executive.
12. Notices. All notices, requests, demands or other communication
(collectively, "Notice") given to any party pursuant to this Agreement shall not
be effective unless given in writing and addressed to the parties at their
respective addresses as set forth below.
If to the Company: Adrenalin Interactive, Inc.
3002 Dow Avenue
Tustin, California 92780
Telephone: (949) 851-8078
If to Executive: GEORGE LEE
18600 Jamboree Road
Suite 310
Irvine, California 92612
Telephone: (949) 833-0961
Notice shall be deemed duly given when delivered personally or by telegram,
telex or courier, or, if mailed, 48 hours after deposit in the United States
mail, certified mail, postage pre-paid. The addresses of the parties for the
purpose of providing Notice pursuant to this paragraph may be changed from time
to time by Notice to the other party duly given in the foregoing manner.
13. Governing Law; Disputes. This Agreement will be interpreted in
accordance with California law, including all matters of construction, validity,
performance and enforcement, without giving effect to any principles of conflict
of laws. Any dispute or proceeding concerning this Agreement will be resolved by
binding arbitration to be held in Orange County, California. Any party may
demand arbitration through written notice sent by certified mail to the other
(an "Arbitration Demand"). Within fifteen (15) days after the date that the
Arbitration Demand is first mailed, each of the parties will confer to select a
mutually acceptable arbitrator from the Judicial Arbitration and Mediation
<PAGE>
Service ("JAMS"). If the arbitrator so selected is unavailable, the parties will
confer to select another arbitrator. If the parties cannot mutually agree to the
selection of an arbitrator, or if one party refuses to participate in the
selection process, JAMS will appoint an arbitrator. The arbitrator will be
governed by the provisions of this Agreement rather than the rules of JAMS.
If JAMS is unable or unwilling to select an arbitrator, the
Presiding Judge of the Orange County Superior Court will select an arbitrator
upon the request of either party, and such selection will be binding on the
parties. The arbitrator so selected will schedule the arbitration hearing within
sixty (60) days after he or she is first selected. The parties will be permitted
written discovery and one deposition each. The arbitrator will have authority to
enter a binding judgment even if the parties do not appear at the arbitration
and may also grant any remedy or relief that the arbitrator reasonably believes
to be just or appropriate, provided that such remedy or relief is within the
scope of this Agreement.
All fees and expenses of the arbitration will be paid equally
by the parties participating in the arbitration. At the conclusion of the
arbitration, the arbitrator will award the prevailing party reasonable costs and
Attorneys' Fees, including all arbitration costs. If the arbitration award is
made, the prevailing party may convert the award into a judgment and execute
upon that judgment.
14. Attorneys' Fees. If any arbitration, litigation, action, suit or
other proceedings is instituted to remedy, prevent or obtain relief from a
breach of this Agreement, in relation to a breach of this Agreement or
pertaining to a declaration of rights under this Agreement, the prevailing party
will recover all such party's attorneys' fees incurred in each and every such
action, suit or other proceeding, including any and all appeals or petitioner
therefrom. As used in this Agreement, Attorneys' Fees will be deemed to be the
full and actual costs of any legal services actually performed in connection
with the matters involved, including those related to any appeal or the
enforcement of any judgment, calculated on the basis of the usual fee charged by
attorneys performing such services, and will not be limited to "reasonable
attorneys' fees" as defined in any statute or rule of court.
15. Amendments/Waivers. This Agreement may be amended, supplemented,
modified or rescinded only through an express written instrument signed by all
the parties or their respective successors and assigns. Either party may
specifically and expressly waive in writing any portion of this Agreement or any
breach hereof, but no such waiver shall constitute a further or continuing
waiver of any preceding or succeeding breach of the same or any other provision.
The consent by one party to any action for which such consent was required shall
not be deemed to imply consent or waiver of the necessity of obtaining such
consent for the same or similar acts in the future.
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
<PAGE>
17. Severability. Each provision of this Agreement is intended to
be severable and if any term or provision herein is determined invalid or
unenforceable for any reason, such illegality or invalidity shall not affect the
validity of the remainder of this Agreement and, wherever possible, intent shall
be given to the invalid or unenforceable provision.
18. Entire Agreement. This Agreement contains the entire and
complete understanding between the parties concerning its subject matter and all
representations, agreements, arrangements and understandings between or among
the parties, whether oral or written, have been fully merged herein and are
superseded hereby.
19. Remedies. All rights, remedies, undertakings, obligations,
options, covenants, conditions and agreements contained in this Agreement shall
be cumulative and no one of them shall be exclusive of any other.
20. Assignment. Neither this Agreement, nor any interest herein,
shall be assignable (voluntarily, involuntarily, by judicial process or
otherwise) Executive to any person or entity without the prior written consent
of the Company. Any attempt to assign this Agreement without such consent shall
be void and, at the option of the Company, shall be an incurable breach of this
Agreement resulting in the termination of this Agreement.
21. Successors. Subject to the foregoing paragraph, this Agreement
shall be binding upon and inure to the benefit of the parties and their
respective heirs, legatees, legal representatives, successors and permitted
assigns.
22. Interpretation. The language in all parts of this Agreement
shall be in all cases construed simply according to its fair meaning and not
strictly for or against any party. Whenever the context requires, all words used
in the singular will be construed to have been used in the plural, and vice
versa, and each gender will include any other gender. The captions of the
paragraphs of this Agreement are for convenience only and shall not affect the
construction or interpretation of any of the provisions herein.
23. Benefit of Agreement. This Agreement is for the sole and
exclusive benefit of the signators hereto and nothing in this Agreement shall be
construed to give any person or entity other than the parties hereto any legal
or equitable right, claim or remedy.
24. Limitation on Actions. Any claim, dispute, controversy or
action for breach relative to this Agreement must be brought and legal process
or arbitration, as the case may be, initiated within one year after the cause of
action for such claim first accrued or the breach first occurred, whichever is
sooner.
25. Miscellaneous. The recitals and all exhibits, attachments or
other documents referenced in this Agreement are fully incorporated into this
Agreement by reference. Unless expressly set forth otherwise herein, all
<PAGE>
references herein to a "day," "month," or "year" shall be deemed to be a
reference to a calendar day, month or year, as the case may be. All
cross-references herein shall refer to provisions within this Agreement, and
shall not be deemed to be references to the overall transaction or to any other
agreement or document.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth above.
"EXECUTIVE"
GEORGE LEE, an individual
"THE COMPANY"
ADRENALIN INTERACTIVE, INC.,
a Delaware corporation
By:/s/ George Lee
-----------------
George Lee,
Chief Executive Officer
By:/s/ Mike Chen
----------------
Mike Chen, President
EXHIBIT 10.17
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT (this "Agreement") is entered into
as of [Closing Date of the Merger], between Adrenalin Interactive, Inc., a
Delaware corporation (the "Company") and MIKE CHEN, an individual ("Executive"),
with reference to the following.
RECITALS
A. The Company is hereby defined as the combined corporation
after the merger between Adrenalin Interactive, Inc., a Delaware corporation
("Adrenalin"), and McGlen Micro Inc., a California corporation. ("McGlen"),
whereby McGlen will be a wholly owned subsidiary of the Company and McGlen's
shareholders will own 87.5% of the Company (the "Merger").
B. The Company is in the business of selling computer components
and accessories via internet.
C. Executive is experienced in the development of start-up and
emerging growth companies in the computer industry.
E. The Company desires to employ Executive as the President and
Vice President of Technology and Executive desires to accept such employment
subject to the terms and conditions set forth in this Agreement.
.
AGREEMENT
NOW THEREFORE, in consideration of the foregoing premises, the
provisions set forth below, and other good and valuable consideration, the
parties agree as follows.
1. Employment. The Company hereby employs Executive as the
Company's President, and Executive hereby accepts such employment, for the term
and subject to the provisions set forth below.
2. Term. Unless sooner terminated as set forth below, this
Agreement shall remain in force for a period of five (5) years (the "Term")
commencing on the date hereof. The actual period of time that Executive remains
in the employ of the Company pursuant to this Agreement is referred to herein as
the "Employment Period."
3. Duties. During the Employment Period, Executive shall be
employed as the President and Vice President of Technology of the Company and
shall hold such other offices or positions with the Company as may be reasonably
requested by the Company from time to time. Executive shall also serve as a
member of the Company's Board of Directors if so requested or elected. Executive
<PAGE>
shall use his reasonable efforts to manage the Company's business and affairs
for the maximum benefit of the Company. Nothing in this Agreement shall be
construed to prohibit Executive from acting as an officer or director of any
other corporation. In addition to the normal duties associated with the position
of President and Vice President of Techonology of companies of similar size,
Executive shall have the following specific duties, which he shall at all times
faithfully, industriously and to the best of his ability perform.
(a) To hire and fire employees.
(b) To develop software, operate and manage the technical
aspects of the Company.
(c) To employ such professionals, employees and
consultants as are necessary for the technical development and operation of the
Company.
(d) To take all actions necessary to successfully operate
the Company.
(e) Monitor and supervise the technical support of the
Company.
4. Compensation.
(a) Base Monthly Salary. The Company shall pay Executive a
base annual salary of $80,000 (the "Base Salary") during the Employment Period.
(b) Vacation. Executive shall be entitled to four weeks paid
vacation per year in addition to all holidays recognized by the Company.
Executive shall be entitled to accrue vacation or cause the Company to
repurchase unused vacation days at the Salary level then applicable.
(c) Medical Insurance. The Company shall provide Executive
and Executive's spouse and children with medical insurance. At the Company's
election, the Company may reimburse Executive for the cost of such insurance
obtained by Executive.
(d) Expenses. Executive shall be entitled to reimbursement
during the Employment Period for travel and other out-of-pocket expenses
incurred in the performance of his duties hereunder, upon submission and
approval of written statements and bills in accordance with the then regular
procedures of the Company. Executive shall also receive a credit card from the
Company to be utilized for expenses incurred by Executive.
(e) Automobile. The Company shall provide Executive with an
automobile of Executive's choice while Executive serves as President of the
Company. All reasonable costs associated with the use of automobile including
insurance, maintenance, fuel, car phone and registration shall be paid by the
Company.
<PAGE>
5. Performance-Based Bonus. As additional compensation, Executive
shall be entitled to receive an annual bonus (the "Bonus") as is determined by
the Board of Directors for each fiscal year based on the Executive's
performance.
6. Stock Option Plan. The Company shall adopt a Stock Option Plan
for the benefit of its employees including Executive. As may be determined by
the Board of Directors within its discretion, Executive may receive option to
purchase shares of the Company's common stock.
7. Termination. The Employment Period shall be immediately and
automatically terminated upon Executive's death. The Employment Period shall
also terminate under the following conditions.
(a) Termination for Cause. Notwithstanding anything in
this Agreement to the contrary, the Company may terminate Executive's employment
hereunder at any time if Executive:
(i) Is convicted of, or pleads guilty or nolo
contendere to (i) any felony, or (ii) any misdemeanor involving moral turpitude;
(ii) Commits fraud or dishonesty with respect to
the business or affairs of the Company and embezzles or misappropriates any of
the Company's funds or assets;
(iii) Is in material breach of this Agreement,
including, without limitation, his insubordination to the Company;
(iv) In the reasonable opinion of a licensed
physician or psychiatrist retained by the Company, is substantially unable by
reason of drug (including alcohol) abuse or addiction, to reasonably and
effectively carry out Executive's duties hereunder for any period of time in
excess of Executive's accrued vacation time and sick leave, if any;
(v) Directly causes the material default of the
Company in performing its obligations under contracts with other persons or
business entities intentionally and without authorization; or
(vi) Is grossly negligent with respect other
discharge of Executive's duties hereunder.
Executive agrees to timely submit to reasonable and necessary
medical, physical and psychiatric examination from time to time during the
Employment Period to enable the Company to determine if Executive is incompetent
or subject to any mental or physical illness or incapacity or to drug abuse or
addiction, as contemplated above by paragraphs 8(iii) and 8(iv).
(b) By Permanent Disability. The Term of Employment shall
terminate, without liability except as provided in this Section 8b, upon the
"Permanent Disability" of Executive. "Permanent Disability" shall mean, with
respect to Executive, (i) the suffering of any mental or physical illness,
disability or incapacity to the extent that Executive shall be unable to perform
<PAGE>
his duties or (ii) the absence of Executive from his employment by reason of any
mental or physical illness, disability or incapacity for a period of three
months during any six-month period; provided, however, in either case, that such
illness, disability or incapacity shall be determined to be of a permanent
nature by a licensed physician selected by the Board of Directors. The
termination date in the event of a clause (i) of the immediately preceding
sentence, shall be the date of determination by the physician, and in the case
of clause (ii) of the immediately preceding sentence, the last day of such
three-month period. In the case of Permanent Disability, the Company shall
promptly pay to Executive (or his representative) the sum of (A) the unpaid Base
Salary to which he is entitled pursuant to Section 4(a) through the termination
date and (B) the lump sum amount of any unpaid portion of the bonuses to be paid
pursuant to Section 5, and all benefits under Executive's Disability Insurance
Plan.
(c) By The Company Without Cause. The Term may be terminated
by the Company without "Cause" provided the Company pays to Executive at the
time of termination the full amount of all salary due to Executive through the
end of the Term. The Company shall also pay Executive the equivalent of any
bonus he would have earned if he had remained employed by the Company, payable
at the time such bonus would be earned, plus all unused employment benefits.
8. Affirmative Covenants. Executive promises and covenants to the
Company as follows.
(a) Confidentiality; Trade Secrets. Executive acknowledges
that his position with the Company is one of the highest trust and confidence
both by reason of his position and by reason of his access to and contact with
the trade secrets and confidential and proprietary business information of the
Company. Executive agrees that during the Term and thereafter:
(i) Executive shall use his best efforts and
exercise utmost diligence to protect and safeguard the trade secrets and
confidential and proprietary information of the Company, including, its data,
record, compilations of information, processes, programs know-how, improvements,
discoveries, marketing plans, strategies, forecasts, unpublished financial
statements, budgets, projections, licenses, prices, costs, files, documents,
drawings, memoranda, notes or other documents, whether maintained electronically
or in any other manner, relating to the business of the Company or its
contractors; (all such information is hereinafter called the "Proprietary
Information") other than information known to him before, learned from third
parties not associated with the Company or in the public domain;
(ii) Executive shall not disclose any of such
Proprietary Information, except as may be required in the ordinary course of
performing his duties to the Company or any affiliated companies;
(iii) Executive shall not use the trade secrets
and confidential and proprietary information of Executive's previous or present
employer to carry out his duties and responsibilities under this Agreement or
<PAGE>
bring on to the Company's premises or any other property owned by the Company
any proprietary information of any other entity, in violation of any prior or
present employment, or noncompetition or confidentiality agreement.
(b) Remedies for Breach of Affirmative Covenants of Executive.
(i) Subject to the limitations provided by
applicable law, the covenants set forth in this Section 9 shall continue to be
binding upon Executive in accordance with their terms, notwithstanding the
termination of his employment with Company for any reason whatsoever. Such
covenants shall be deemed and construed as separate agreements independent of
any other provisions of this Agreement and any other agreement between the
Company and Executive. The existence of any claim or cause of action by
Executive against the Company, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by the Company of
any or all of such covenants in accordance with their terms; and
(ii) The parties hereby agree that any breach or
threatened breach of Section 9 of this Agreement will cause substantial and
irreparable damage to the other in an amount and of a character difficult to
ascertain. Accordingly, for their mutual benefit and to prevent any such breach
or threatened breach, and in addition to any other relief to which a party may
otherwise be entitled, the non-breaching party shall be entitled to immediate
temporary, preliminary and permanent injunctive relief through appropriate legal
proceedings, without proof that actual damages have been incurred or may be
incurred by such a party with respect to such breach or threatened breach. The
parties expressly agree that the party seeking this relief shall not be required
to post any bond or other security as a condition to obtaining any injunctive
relief pursuant to this Section and each of the parties expressly waive any
rights to the contrary.
(c) Litigation. Executive agrees that during the Term and
thereafter as reasonably requested by the Company, Executive shall do all
things, including the giving of evidence in suits and other proceedings, which
the Company shall deem reasonably necessary or proper to obtain, maintain,
defend or assert rights accruing to the Company during the Term and in
connection with which Executive has knowledge, information and expertise.
(d) Future Cooperation. The parties hereto agree to cooperate with
each other without additional compensation from and after the date hereof, to
supply any information and to execute documents reasonably required for the
purpose of giving effect to this Agreement, or in connection with the
consummation of any actions contemplated hereby.
9. Representations and Warranties of Executive. Executive
represents and warrants to the Company that: (i) Executive is under no
contractual or other restriction or obligation that is inconsistent with the
execution of this Agreement, the performance of Executive's duties hereunder or
any of the rights of the Company hereunder; and (ii) Executive is under no
physical or mental disability that would impair the performance of Executive's
duties under this Agreement.
10. Key Person Insurance. The Company may at any time and from
time to time obtain such life and health insurance policies ensuring the life or
health of Executive in such amounts and with such insurers (collectively,
<PAGE>
"Executive Insurance") as the Company, in its sole discretion, deems
appropriate. The Company shall have the right to all benefits payable pursuant
to any Executive Insurance obtained by the Company, including without
limitation, the sole right to designate the beneficiary of all such Insurance.
Executive agrees to cooperate with the Company if the Company elects to obtain
any Executive Insurance from time to time, including without limitation, timely
submitting to medical/physical examinations and assisting the Company with the
preparation of insurance applications.
11. Indemnification. The Company shall indemnify, defend and hold
Executive harmless for, from and against any and all liability of any kind or
nature resulting from or related to Executive's employment with the Company,
and/or any prior business deals entered into by Executive.
12. Notices. All notices, requests, demands or other communication
(collectively, "Notice") given to any party pursuant to this Agreement shall not
be effective unless given in writing and addressed to the parties at their
respective addresses as set forth below.
If to the Company: Adrenalin Interactive, Inc.
3002 Dow Avenue
Tustin, California 92780
Telephone: (949) 851-8078
If to Executive: Mike Chen
1831 Lakecrest Circle
Santa Ana, California 92705
Telephone: (714) 538-2882
Notice shall be deemed duly given when delivered personally or by telegram,
telex or courier, or, if mailed, 48 hours after deposit in the United States
mail, certified mail, postage pre-paid. The addresses of the parties for the
purpose of providing Notice pursuant to this paragraph may be changed from time
to time by Notice to the other party duly given in the foregoing manner.
13. Governing Law; Disputes. This Agreement will be interpreted in
accordance with California law, including all matters of construction, validity,
performance and enforcement, without giving effect to any principles of conflict
of laws. Any dispute or proceeding concerning this Agreement will be resolved by
binding arbitration to be held in Orange County, California. Any party may
demand arbitration through written notice sent by certified mail to the other
(an "Arbitration Demand"). Within fifteen (15) days after the date that the
Arbitration Demand is first mailed, each of the parties will confer to select a
mutually acceptable arbitrator from the Judicial Arbitration and Mediation
Service ("JAMS"). If the arbitrator so selected is unavailable, the parties will
confer to select another arbitrator. If the parties cannot mutually agree to the
selection of an arbitrator, or if one party refuses to participate in the
selection process, JAMS will appoint an arbitrator. The arbitrator will be
governed by the provisions of this Agreement rather than the rules of JAMS.
<PAGE>
If JAMS is unable or unwilling to select an arbitrator, the
Presiding Judge of the Orange County Superior Court will select an arbitrator
upon the request of either party, and such selection will be binding on the
parties. The arbitrator so selected will schedule the arbitration hearing within
sixty (60) days after he or she is first selected. The parties will be permitted
written discovery and one deposition each. The arbitrator will have authority to
enter a binding judgment even if the parties do not appear at the arbitration
and may also grant any remedy or relief that the arbitrator reasonably believes
to be just or appropriate, provided that such remedy or relief is within the
scope of this Agreement.
All fees and expenses of the arbitration will be paid equally
by the parties participating in the arbitration. At the conclusion of the
arbitration, the arbitrator will award the prevailing party reasonable costs and
Attorneys' Fees, including all arbitration costs. If the arbitration award is
made, the prevailing party may convert the award into a judgment and execute
upon that judgment.
14. Attorneys' Fees. If any arbitration, litigation, action, suit or
other proceedings is instituted to remedy, prevent or obtain relief from a
breach of this Agreement, in relation to a breach of this Agreement or
pertaining to a declaration of rights under this Agreement, the prevailing party
will recover all such party's attorneys' fees incurred in each and every such
action, suit or other proceeding, including any and all appeals or petitioner
therefrom. As used in this Agreement, Attorneys' Fees will be deemed to be the
full and actual costs of any legal services actually performed in connection
with the matters involved, including those related to any appeal or the
enforcement of any judgment, calculated on the basis of the usual fee charged by
attorneys performing such services, and will not be limited to "reasonable
attorneys' fees" as defined in any statute or rule of court.
15. Amendments/Waivers. This Agreement may be amended, supplemented,
modified or rescinded only through an express written instrument signed by all
the parties or their respective successors and assigns. Either party may
specifically and expressly waive in writing any portion of this Agreement or any
breach hereof, but no such waiver shall constitute a further or continuing
waiver of any preceding or succeeding breach of the same or any other provision.
The consent by one party to any action for which such consent was required shall
not be deemed to imply consent or waiver of the necessity of obtaining such
consent for the same or similar acts in the future.
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
17. Severability. Each provision of this Agreement is intended to be
severable and if any term or provision herein is determined invalid or
unenforceable for any reason, such illegality or invalidity shall not affect the
validity of the remainder of this Agreement and, wherever possible, intent shall
be given to the invalid or unenforceable provision.
<PAGE>
18. Entire Agreement. This Agreement contains the entire and
complete understanding between the parties concerning its subject matter and all
representations, agreements, arrangements and understandings between or among
the parties, whether oral or written, have been fully merged herein and are
superseded hereby.
19. Remedies. All rights, remedies, undertakings, obligations,
options, covenants, conditions and agreements contained in this Agreement shall
be cumulative and no one of them shall be exclusive of any other.
20. Assignment. Neither this Agreement, nor any interest herein,
shall be assignable (voluntarily, involuntarily, by judicial process or
otherwise) Executive to any person or entity without the prior written consent
of the Company. Any attempt to assign this Agreement without such consent shall
be void and, at the option of the Company, shall be an incurable breach of this
Agreement resulting in the termination of this Agreement.
21. Successors. Subject to the foregoing paragraph, this Agreement
shall be binding upon and inure to the benefit of the parties and their
respective heirs, legatees, legal representatives, successors and permitted
assigns.
22. Interpretation. The language in all parts of this Agreement
shall be in all cases construed simply according to its fair meaning and not
strictly for or against any party. Whenever the context requires, all words used
in the singular will be construed to have been used in the plural, and vice
versa, and each gender will include any other gender. The captions of the
paragraphs of this Agreement are for convenience only and shall not affect the
construction or interpretation of any of the provisions herein.
23. Benefit of Agreement. This Agreement is for the sole and
exclusive benefit of the signators hereto and nothing in this Agreement shall be
construed to give any person or entity other than the parties hereto any legal
or equitable right, claim or remedy.
24. Limitation on Actions. Any claim, dispute, controversy or
action for breach relative to this Agreement must be brought and legal process
or arbitration, as the case may be, initiated within one year after the cause of
action for such claim first accrued or the breach first occurred, whichever is
sooner.
25. Miscellaneous. The recitals and all exhibits, attachments or
other documents referenced in this Agreement are fully incorporated into this
Agreement by reference. Unless expressly set forth otherwise herein, all
references herein to a "day," "month," or "year" shall be deemed to be a
reference to a calendar day, month or year, as the case may be. All
cross-references herein shall refer to provisions within this Agreement, and
shall not be deemed to be references to the overall transaction or to any other
agreement or document.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth above.
"EXECUTIVE"
MIKE CHEN, an individual
"THE COMPANY"
ADRENALIN INTERACTIVE, INC.,
a Delaware corporation
By:/s/George Lee
----------------
George Lee,
Chief Executive Officer
EXHIBIT 10.18
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT (this "Agreement") is entered into
as of December 2, 1999, between Adrenalin Interactive, Inc., a Delaware
corporation (the "Company") and ALEX CHEN, an individual ("Executive"), with
reference to the following.
RECITALS
A. The Company is hereby defined as the combined corporation
after the merger between Adrenalin Interactive, Inc., a Delaware corporation
("Adrenalin"), and McGlen Micro Inc., a California corporation. ("McGlen"),
whereby McGlen will be a wholly owned subsidiary of the Company and McGlen's
shareholders will own 87.5% of the Company (the "Merger").
B. The Company is in the business of selling computer components
and accessories via internet.
C. Executive is experienced in the development of start-up and
emerging growth companies in the computer industry.
E. The Company desires to employ Executive as the Vice President
of Business Development and Executive desires to accept such employment subject
to the terms and conditions set forth in this Agreement.
.
AGREEMENT
NOW THEREFORE, in consideration of the foregoing premises, the
provisions set forth below, and other good and valuable consideration, the
parties agree as follows.
1. Employment. The Company hereby employs Executive as the
Company's Vice President of Business Development, and Executive hereby accepts
such employment, for the term and subject to the provisions set forth below.
2. Term. Unless sooner terminated as set forth below, this
Agreement shall remain in force for a period of three (3) years (the "Term")
commencing on the date hereof. The actual period of time that Executive remains
in the employ of the Company pursuant to this Agreement is referred to herein as
the "Employment Period."
3. Duties. During the Employment Period, Executive shall be
employed as the Vice President of Business Development of the Company and shall
hold such other offices or positions with the Company as may be reasonably
<PAGE>
requested by the Company from time to time. Executive shall also serve as a
member of the Company's Board of Directors if so requested or elected. Executive
shall use his reasonable efforts to manage the Company's business and affairs
for the maximum benefit of the Company. Nothing in this Agreement shall be
construed to prohibit Executive from acting as an officer or director of any
other corporation. In addition to the normal duties associated with the position
of Vice President of Business Development of companies of similar size,
Executive shall have the following specific duties, which he shall at all times
faithfully, industriously and to the best of his ability perform.
(i) Direct assistance and oversight of all
aspects of the Company's business development, marketing and sales practices and
requirements, including inventory control, customer orders, customer service,
internal control, invoicing, purchasing and borrowing compliance and reporting
requirements. The duties shall include market analysis, formulating new business
ideas, supervising sales and marketing staff, taking a hands-on approach to
ensure that work in each of the aforementioned areas is performed efficiently
and at a high standard and focusing on identifying and implementing internal
sales and marketing control policies and procedures to ensure that customer
sales and vendor purchases are recorded timely, accurately and in compliance
with authorized contract terms.
(ii) Assist in the preparation and continued
update and maintenance of a strategic business plan for the Company, which
incorporates sales and marketing strategies, budgets, financial forecasts,
marketing plans into the business plan.
(iii) Make professional recommendations concerning
future business, operating, sales, marketing, and financial performance targets.
(iv) Maintain primary relationships with vendors,
and customers.
(v) Maintain familiarity with all of the
Company's sales, marketing, and financial compliance requirements, as may be
revised from time to time.
(vi) Oversee the Company's sales, marketing, and
purchasing staff. Direct the preparation of supporting information to expedite
the timing and minimize the cost of the purchasing.
(vii) Meet regularly with the executive management
and the Board of Directors. Communicate clearly and effectively on all sales and
marketing matters concerning the Company.
(b) Additional Duties.
The Company and Executive acknowledge that the
Company currently has a limited number of customers and limited number of
<PAGE>
suppliers. The duties of Executive to internally organize the sales and
marketing staff may not require Executive's full time, every day. Executive
shall therefore also assist the Company as operations officer. As such,
Executive will be expected to play a large role in the day to day operation of
the Company, and assist in the following areas.
(i)
Assist in the management, supervision,
training and review of the Company's marketing and sales personnel.
(ii) Assist the Company's President or CEO in the
preparation and periodic review and update of the Company procedures and
policies.
(iii) Assist the Company's President or CEO with
shareholder relations matters.
4. Compensation.
a. Base Monthly Salary. The Company shall pay Executive
a base annual salary of $80,000 (the "Base Salary") during the Employment
Period.
b. Vacation. Executive shall be entitled to four weeks
paid vacation per year in addition to all holidays recognized by the Company.
Executive shall be entitled to accrue vacation or cause the Company to
repurchase unused vacation days at the Salary level then applicable.
c. Medical Insurance. The Company shall provide
Executive and Executive's spouse and children with medical insurance. At the
Company's election, the Company may reimburse Executive for the cost of such
insurance obtained by Executive.
d. Expenses. Executive shall be entitled to
reimbursement during the Employment Period for travel and other out-of-pocket
expenses incurred in the performance of his duties hereunder, upon submission
and approval of written statements and bills in accordance with the then regular
procedures of the Company. Executive shall also receive a credit card from the
Company to be utilized for expenses incurred by Executive.
5. Performance-Based Bonus. As additional compensation, Executive
shall be entitled to receive an annual bonus (the "Bonus") as is determined by
the Board of Directors for each fiscal year based on the Executive's
performance.
6. Stock Option Plan. The Company shall adopt a Stock Option Plan
for the benefit of its employees including Executive. As may be determined by
the Board of Directors within its discretion, Executive may receive option to
purchase shares of the Company's common stock.
<PAGE>
7. Termination. The Employment Period shall be immediately and
automatically terminated upon Executive's death. The Employment Period shall
also terminate under the following conditions.
a. Termination for Cause. Notwithstanding anything in
this Agreement to the contrary, the Company may terminate Executive's employment
hereunder at any time if Executive:
(i) Is convicted of, or pleads guilty or nolo
contendere to (i) any felony, or (ii) any misdemeanor involving moral turpitude;
(ii) Commits fraud or dishonesty with respect to
the business or affairs of the Company and embezzles or misappropriates any of
the Company's funds or assets;
(iii) Is in material breach of this Agreement,
including, without limitation, his insubordination to the Company;
(iv) In the reasonable opinion of a licensed
physician or psychiatrist retained by the Company, is substantially unable by
reason of drug (including alcohol) abuse or addiction, to reasonably and
effectively carry out Executive's duties hereunder for any period of time in
excess of Executive's accrued vacation time and sick leave, if any;
(v) Directly causes the material default of the
Company in performing its obligations under contracts with other persons or
business entities intentionally and without authorization; or
(vi) Is grossly negligent with respect other
discharge of Executive's duties hereunder.
Executive agrees to timely submit to reasonable and necessary
medical, physical and psychiatric examination from time to time during the
Employment Period to enable the Company to determine if Executive is incompetent
or subject to any mental or physical illness or incapacity or to drug abuse or
addiction, as contemplated above by paragraphs 7a(iii) and 7a(iv).
b. By Permanent Disability. The Term of Employment shall
terminate, without liability except as provided in this Section 8b, upon the
"Permanent Disability" of Executive. "Permanent Disability" shall mean, with
respect to Executive, (i) the suffering of any mental or physical illness,
disability or incapacity to the extent that Executive shall be unable to perform
his duties or (ii) the absence of Executive from his employment by reason of any
mental or physical illness, disability or incapacity for a period of three
months during any six-month period; provided, however, in either case, that such
illness, disability or incapacity shall be determined to be of a permanent
nature by a licensed physician selected by the Board of Directors. The
termination date in the event of a clause (i) of the immediately preceding
sentence, shall be the date of determination by the physician, and in the case
of clause (ii) of the immediately preceding sentence, the last day of such
three-month period. In the case of Permanent Disability, the Company shall
promptly pay to Executive (or his representative) the sum of (A) the unpaid Base
<PAGE>
Salary to which he is entitled pursuant to Section 4(a) through the termination
date and (B) the lump sum amount of any unpaid portion of the bonuses to be paid
pursuant to Section 5, and all benefits under Executive's Disability Insurance
Plan.
c. By The Company Without Cause. The Term may be terminated by
the Company without "Cause" provided the Company pays to Executive at the time
of termination the full amount of all salary due to Executive through the end of
the Term. The Company shall also pay Executive the equivalent of any bonus he
would have earned if he had remained employed by the Company, payable at the
time such bonus would be earned, plus all unused employment benefits.
8. Affirmative Covenants. Executive promises and covenants to the
Company as follows.
(a) Confidentiality; Trade Secrets. Executive acknowledges
that his position with the Company is one of the highest trust and confidence
both by reason of his position and by reason of his access to and contact with
the trade secrets and confidential and proprietary business information of the
Company. Executive agrees that during the Term and thereafter:
(i) Executive shall use his best efforts and
exercise utmost diligence to protect and safeguard the trade secrets and
confidential and proprietary information of the Company, including, its data,
record, compilations of information, processes, programs know-how, improvements,
discoveries, marketing plans, strategies, forecasts, unpublished financial
statements, budgets, projections, licenses, prices, costs, files, documents,
drawings, memoranda, notes or other documents, whether maintained electronically
or in any other manner, relating to the business of the Company or its
contractors; (all such information is hereinafter called the "Proprietary
Information") other than information known to him before, learned from third
parties not associated with the Company or in the public domain;
(ii) Executive shall not disclose any of such
Proprietary Information, except as may be required in the ordinary course of
performing his duties to the Company or any affiliated companies;
(iii) Executive shall not use the trade secrets
and confidential and proprietary information of Executive's previous or present
employer to carry out his duties and responsibilities under this Agreement or
bring on to the Company's premises or any other property owned by the Company
any proprietary information of any other entity, in violation of any prior or
present employment, or noncompetition or confidentiality agreement.
(b)
Remedies for Breach of Affirmative Covenants of
Executive. (i) Subject to the limitations provided by applicable law, the
covenants set forth in this Section 9 shall continue to be binding upon
Executive in accordance with their terms, notwithstanding the termination of his
76
<PAGE>
employment with Company for any reason whatsoever. Such covenants shall be
deemed and construed as separate agreements independent of any other provisions
of this Agreement and any other agreement between the Company and Executive. The
existence of any claim or cause of action by Executive against the Company,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by the Company of any or all of such covenants in
accordance with their terms; and
(ii) The parties hereby agree that any breach or
threatened breach of Section 9 of this Agreement will cause substantial and
irreparable damage to the other in an amount and of a character difficult to
ascertain. Accordingly, for their mutual benefit and to prevent any such breach
or threatened breach, and in addition to any other relief to which a party may
otherwise be entitled, the non-breaching party shall be entitled to immediate
temporary, preliminary and permanent injunctive relief through appropriate legal
proceedings, without proof that actual damages have been incurred or may be
incurred by such a party with respect to such breach or threatened breach. The
parties expressly agree that the party seeking this relief shall not be required
to post any bond or other security as a condition to obtaining any injunctive
relief pursuant to this Section and each of the parties expressly waive any
rights to the contrary.
(c) Litigation. Executive agrees that during the Term and
thereafter as reasonably requested by the Company, Executive shall do all
things, including the giving of evidence in suits and other proceedings, which
the Company shall deem reasonably necessary or proper to obtain, maintain,
defend or assert rights accruing to the Company during the Term and in
connection with which Executive has knowledge, information and expertise.
(d) Future Cooperation. The parties hereto agree to cooperate
with each other without additional compensation from and after the date hereof,
to supply any information and to execute documents reasonably required for the
purpose of giving effect to this Agreement, or in connection with the
consummation of any actions contemplated hereby.
9. Representations and Warranties of Executive. Executive represents
and warrants to the Company that: (i) Executive is under no contractual or other
restriction or obligation that is inconsistent with the execution of this
Agreement, the performance of Executive's duties hereunder or any of the rights
of the Company hereunder; and (ii) Executive is under no physical or mental
disability that would impair the performance of Executive's duties under this
Agreement.
10. Indemnification. The Company shall indemnify, defend and hold
Executive harmless for, from and against any and all liability of any kind or
nature resulting from or related to Executive's employment with the Company,
and/or any prior business deals entered into by Executive.
11. Notices. All notices, requests, demands or other communication
(collectively, "Notice") given to any party pursuant to this Agreement shall not
be effective unless given in writing and addressed to the parties at their
respective addresses as set forth below.
<PAGE>
If to the Company: Adrenalin Interactive, Inc.
3002 Dow Avenue
Tustin, California 92780
Telephone: (949) 851-8078
If to Executive: Alex Chen
14 Canne
Irvine, California 92614
Telephone: (949) 833-2330
Notice shall be deemed duly given when delivered personally or by telegram,
telex or courier, or, if mailed, 48 hours after deposit in the United States
mail, certified mail, postage pre-paid. The addresses of the parties for the
purpose of providing Notice pursuant to this paragraph may be changed from time
to time by Notice to the other party duly given in the foregoing manner.
12. Governing Law; Disputes. This Agreement will be interpreted in
accordance with California law, including all matters of construction, validity,
performance and enforcement, without giving effect to any principles of conflict
of laws. Any dispute or proceeding concerning this Agreement will be resolved by
binding arbitration to be held in Orange County, California. Any party may
demand arbitration through written notice sent by certified mail to the other
(an "Arbitration Demand"). Within fifteen (15) days after the date that the
Arbitration Demand is first mailed, each of the parties will confer to select a
mutually acceptable arbitrator from the Judicial Arbitration and Mediation
Service ("JAMS"). If the arbitrator so selected is unavailable, the parties will
confer to select another arbitrator. If the parties cannot mutually agree to the
selection of an arbitrator, or if one party refuses to participate in the
selection process, JAMS will appoint an arbitrator. The arbitrator will be
governed by the provisions of this Agreement rather than the rules of JAMS.
If JAMS is unable or unwilling to select an arbitrator, the
Presiding Judge of the Orange County Superior Court will select an arbitrator
upon the request of either party, and such selection will be binding on the
parties. The arbitrator so selected will schedule the arbitration hearing within
sixty (60) days after he or she is first selected. The parties will be permitted
written discovery and one deposition each. The arbitrator will have authority to
enter a binding judgment even if the parties do not appear at the arbitration
and may also grant any remedy or relief that the arbitrator reasonably believes
to be just or appropriate, provided that such remedy or relief is within the
scope of this Agreement.
All fees and expenses of the arbitration will be paid equally
by the parties participating in the arbitration. At the conclusion of the
arbitration, the arbitrator will award the prevailing party reasonable costs and
Attorneys' Fees, including all arbitration costs. If the arbitration award is
made, the prevailing party may convert the award into a judgment and execute
upon that judgment.
<PAGE>
13. Attorneys' Fees. If any arbitration, litigation, action, suit
or other proceedings is instituted to remedy, prevent or obtain relief from a
breach of this Agreement, in relation to a breach of this Agreement or
pertaining to a declaration of rights under this Agreement, the prevailing party
will recover all such party's attorneys' fees incurred in each and every such
action, suit or other proceeding, including any and all appeals or petitioner
therefrom. As used in this Agreement, Attorneys' Fees will be deemed to be the
full and actual costs of any legal services actually performed in connection
with the matters involved, including those related to any appeal or the
enforcement of any judgment, calculated on the basis of the usual fee charged by
attorneys performing such services, and will not be limited to "reasonable
attorneys' fees" as defined in any statute or rule of court.
14. Amendments/Waivers. This Agreement may be amended,
supplemented, modified or rescinded only through an express written instrument
signed by all the parties or their respective successors and assigns. Either
party may specifically and expressly waive in writing any portion of this
Agreement or any breach hereof, but no such waiver shall constitute a further or
continuing waiver of any preceding or succeeding breach of the same or any other
provision. The consent by one party to any action for which such consent was
required shall not be deemed to imply consent or waiver of the necessity of
obtaining such consent for the same or similar acts in the future.
15. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
16. Severability. Each provision of this Agreement is intended to
be severable and if any term or provision herein is determined invalid or
unenforceable for any reason, such illegality or invalidity shall not affect the
validity of the remainder of this Agreement and, wherever possible, intent shall
be given to the invalid or unenforceable provision.
17. Entire Agreement. This Agreement contains the entire and
complete understanding between the parties concerning its subject matter and all
representations, agreements, arrangements and understandings between or among
the parties, whether oral or written, have been fully merged herein and are
superseded hereby.
18. Remedies. All rights, remedies, undertakings, obligations,
options, covenants, conditions and agreements contained in this Agreement shall
be cumulative and no one of them shall be exclusive of any other.
19. Assignment. Neither this Agreement, nor any interest herein,
shall be assignable (voluntarily, involuntarily, by judicial process or
otherwise) Executive to any person or entity without the prior written consent
of the Company. Any attempt to assign this Agreement without such consent shall
be void and, at the option of the Company, shall be an incurable breach of this
Agreement resulting in the termination of this Agreement.
<PAGE>
20. Successors. Subject to the foregoing paragraph, this Agreement
shall be binding upon and inure to the benefit of the parties and their
respective heirs, legatees, legal representatives, successors and permitted
assigns.
21. Interpretation. The language in all parts of this Agreement
shall be in all cases construed simply according to its fair meaning and not
strictly for or against any party. Whenever the context requires, all words used
in the singular will be construed to have been used in the plural, and vice
versa, and each gender will include any other gender. The captions of the
paragraphs of this Agreement are for convenience only and shall not affect the
construction or interpretation of any of the provisions herein.
22. Benefit of Agreement. This Agreement is for the sole and
exclusive benefit of the signators hereto and nothing in this Agreement shall be
construed to give any person or entity other than the parties hereto any legal
or equitable right, claim or remedy.
23. Limitation on Actions. Any claim, dispute, controversy or
action for breach relative to this Agreement must be brought and legal process
or arbitration, as the case may be, initiated within one year after the cause of
action for such claim first accrued or the breach first occurred, whichever is
sooner.
24. Miscellaneous. The recitals and all exhibits, attachments or
other documents referenced in this Agreement are fully incorporated into this
Agreement by reference. Unless expressly set forth otherwise herein, all
references herein to a "day," "month," or "year" shall be deemed to be a
reference to a calendar day, month or year, as the case may be. All
cross-references herein shall refer to provisions within this Agreement, and
shall not be deemed to be references to the overall transaction or to any other
agreement or document.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth above.
"EXECUTIVE"
ALEX CHEN, an individual
"THE COMPANY"
ADRENALIN INTERACTIVE, INC.,
a Delaware corporation
By:/s/George Lee
----------------
George Lee,
Chief Executive Officer
EXHIBIT 10.19
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT (this "Agreement") is entered into
as of October 1, 1999, between McGlen Micro Inc., a California corporation (the
"Company") and DAVID CHENG CHOU, an individual ("Executive"), with reference to
the following.
RECITALS
A. The Company is in the business of selling computer components
and accessories via internet.
B. Executive is experienced in the development, administration
and maintenance and computer programming of software and information systems of
start-up and emerging growth companies in the computer industry.
C. The Company desires to employ Executive as the Chief
Information Officer and Executive desires to accept such employment subject to
the terms and conditions set forth in this Agreement.
AGREEMENT
NOW THEREFORE, in consideration of the foregoing premises, the
provisions set forth below, and other good and valuable consideration, the
parties agree as follows.
1. Employment. The Company hereby employs Executive as the Company's
Chief Information Officer ("CIO"), and Executive hereby accepts such employment,
for the term and subject to the provisions set forth below. Pursuant to the
Agreement and Plan of Merger dated April 28, 1999, Adrenalin Interactive, Inc.,
a publicly held Delaware company ("ADRN") shall acquire the Company in a stock
swap merger transaction (the "Merger"). The Company and its Principal
Shareholders agree to cause ADRN to assume this Agreement upon completion of the
Merger, and all stock options granted or vested shall continue in accordance
with Section 6 of this Agreement.
2. Term. Unless sooner terminated as set forth below, this Agreement
shall remain in force for a period of two (2) years (the "Term") commencing on
the date hereof. The actual period of time that Executive remains in the employ
of the Company pursuant to this Agreement is referred to herein as the
"Employment Period."
3. Duties.During the Employment Period, Executive shall be employed as
the CIO of he Company and shall hold such other offices or positions with the
Company as may be reasonably requested by the Company from time to time.
<PAGE>
Executive shall use his best efforts to manage the Company's technological and
informational systems for the maximum benefit of the Company. In addition to the
normal duties associated with the position of CIO of companies of similar size,
Executive shall have the following specific duties, which he shall at all times
faithfully, industriously and to the best of his ability perform.
a. To develop and program software, operate, maintain,
service and manage the technical and information aspects of the Company.
b. To employ such professionals, employees and
consultants as are necessary for the technical development of the Company.
c. To take all actions necessary to successfully provide
technical and informational support to the Company.
d. Monitor, manage and supervise the technical and
informational support of the Company.
e. To follow the instructions and orders given by
Executive's superior, including, without limitation, the Board of Directors,
President, Executive Vice-President, Chief Executive Officer and Chief Operating
Officer.
4. Compensation.
a. Base Monthly Salary. The Company shall pay Executive
a base annual salary of $105,000 (the "Base Salary") during the Employment
Period.
b. Vacation. Executive shall be entitled to three weeks
paid vacation per year in addition to all holidays as set forth in the Company's
policy.
c. Medical Insurance. The Company shall provide
Executive and Executive's spouse and children with medical insurance. At the
Company's election, the Company may reimburse Executive for the cost of such
insurance obtained by Executive.
d. Expenses. Executive shall be entitled to reasonable
reimbursement during the Employment Period for travel and other out-of-pocket
expenses incurred in the performance of his duties hereunder, upon submission
and approval of written statements and bills in accordance with the Company's
policy as may be set forth from time to time.
5. Performance-Based Bonus. As additional compensation, Executive shall
be entitled to receive an annual bonus (the "Bonus") as may be determined by the
Board of Directors from time to time for each fiscal year based on the
Executive's performance.
<PAGE>
6. Stock Option Plan. The Company shall grant Executive the
option to purchase up to 260,000 shares of the Company's common stock (the
"Options") exercisable at $1.00 . The Options shall vest as follows: 60,000
shares of the Company's common stock shall vest upon the execution of this
Agreement; 25,000 shares shall vest quarterly thereafter until either the end of
the Employment Period or termination of this Agreement, whichever is earlier.
7. Termination. The Employment Period shall be immediately and
automatically terminated upon Executive's death. The Employment Period shall
also terminate under the following conditions.
a. Termination for Cause. Notwithstanding anything in
this Agreement to the contrary, the Company may terminate Executive's employment
hereunder at any time if Executive:
(i) Is convicted of, or pleads guilty or nolo
contendere to (i) any felony, or (ii) any misdemeanor involving moral turpitude;
(ii) Commits fraud or dishonesty with respect to
the business or affairs of the Company and embezzles or misappropriates any of
the Company's funds or assets;
(iii) Is in material breach of this Agreement,
including, without limitation, his insubordination to the Company;
(iv) In the reasonable opinion of a licensed
physician or psychiatrist retained by the Company, is substantially unable by
reason of drug (including alcohol) abuse or addiction, to reasonably and
effectively carry out Executive's duties hereunder for any period of time in
excess of Executive's accrued vacation time and sick leave, if any;
(v) Directly causes the material default of the
Company in performing its obligations under contracts with other persons or
business entities intentionally and without authorization; or
(vi) Is grossly negligent with respect other
discharge of Executive's duties hereunder.
Executive agrees to timely submit to reasonable and necessary
medical, physical and psychiatric examination from time to time during the
Employment Period to enable the Company to determine if Executive is incompetent
or subject to any mental or physical illness or incapacity or to drug abuse or
addiction, as contemplated above by paragraphs 7(iv).
b. By Permanent Disability. The Term of Employment shall
terminate, without liability except as provided in this Section 7b, upon the
"Permanent Disability" of Executive. "Permanent Disability" shall mean, with
respect to Executive, (i) the suffering of any mental or physical illness,
disability or incapacity to the extent that Executive shall be unable to perform
his duties or (ii) the absence of Executive from his employment by reason of any
<PAGE>
mental or physical illness, disability or incapacity for a period of three
months during any six-month period; provided, however, in either case, that such
illness, disability or incapacity shall be determined to be of a permanent
nature by a licensed physician selected by the Board of Directors. The
termination date in the event of a clause (i) of the immediately preceding
sentence, shall be the date of determination by the physician, and in the case
of clause (ii) of the immediately preceding sentence, the last day of such
three-month period. In the case of Permanent Disability, the Company shall
promptly pay to Executive (or his representative) the sum of (A) the unpaid Base
Salary to which he is entitled pursuant to Section 4(a) through the termination
date and (B) the lump sum amount of any unpaid portion of the bonuses to be paid
pursuant to Section 5, and all benefits under Executive's Disability Insurance
Plan.
c. By The Company Without Cause. The Term may be
terminated by the Company without "Cause" provided that the Company pays to
Executive at the time of termination the sum of three (3) months salary as
severance payment.
8. Affirmative Covenants. Executive promises and covenants to the
Company as follows.
(a) Confidentiality; Trade Secrets. Executive acknowledges
that his position with the Company is one of the highest trust and confidence
both by reason of his position and by reason of his access to and contact with
the trade secrets and confidential and proprietary business information of the
Company. Executive agrees that during the Term and thereafter:
(i) Executive shall use his best efforts and
exercise utmost diligence to protect and safeguard the trade secrets and
confidential and proprietary information of the Company, including, its data,
encryptions, source codes, record, compilations of information, processes,
programs know-how, improvements, discoveries, marketing plans, strategies,
forecasts, unpublished financial statements, budgets, projections, licenses,
prices, costs, files, documents, drawings, memoranda, notes or other documents,
whether maintained electronically or in any other manner, relating to the
business of the Company or its contractors; (all such information is hereinafter
called the "Proprietary Information") other than information known to him
before, learned from third parties not associated with the Company or in the
public domain;
(ii) Executive shall not disclose any of such
Proprietary Information, except as may be required in the ordinary course of
performing his duties to the Company or any affiliated companies;
(iii) Executive shall not use the trade secrets
and confidential and proprietary information of Executive's previous or present
employer to carry out his duties and responsibilities under this Agreement or
bring on to the Company's premises or any other property owned by the Company
any proprietary information of any other entity, in violation of any prior or
present employment, or noncompetition or confidentiality agreement.
<PAGE>
(b) Non-Solicitation of Employees. Executive covenants and
agrees that, it shall not, directly or indirectly, solicit or induce, or attempt
to solicit or induce, any employee or consultant of the Company to leave the
employ of the Company for any reason whatsoever or hire any employee or
consultant of the Company for a period of five years from the date of this
Agreement.
(c) Non-Competition. Executive agrees that at all times
during the Term and for the period of six months (6) months after the
termination of this Agreement:
(i) Executive shall not serve in any capacity,
directly or indirectly, with or for, any company or entity in direct competition
with the Company business models or whose primary business focus is selling
computers or computer-related products via the Internet;
(ii) Executive shall not interfere with, disrupt
or attempt to disrupt the relationship, contractual or otherwise, between the
Company and any contractor or employee of the Company;
(iii) Executive shall not directly or indirectly:
(A) employ, intend to employ or otherwise solicit for employment any of the
Company's executive officers, department managers at the Company for any
business or venture that is in direct competition with the Company, including
and without limitation, any business or enterprises which Executive may be a
consultant or recruiter; or (B) contact, communicate with, inquire or otherwise
solicit any executive officers, director, shareholder, department managers at
the Company of the Company to invest in or to purchase, or to offer or subscribe
to purchase, any security or general or equity interest in any venture that is
competitive with or similar to the business of the Company. As used in this
section the terms "employ" and "employment" are used in the broadcast sense to
encompass all associations, including without limitation, that of employee,
agent, independent contractor, owner, officer, director, shareholder, partner,
associate, representative and consultant; and
(iv) If the scope of any restrictions contained
in paragraph (i) and (ii) of this Section is too broad to permit enforcement of
such restrictions of their full extent, then such restrictions shall be enforced
to the maximum extent permitted by law, and Executive hereby consents and agrees
that such scope may be judicially modified accordingly in any proceeding brought
to enforce such restrictions.
(d) Remedies for Breach of Affirmative Covenants of Executive.
(i) Subject to the limitations provided by
applicable law, the covenants set forth in this Section 9 shall continue to be
binding upon Executive in accordance with their terms, notwithstanding the
termination of his employment with Company for any reason whatsoever. Such
covenants shall be deemed and construed as separate agreements independent of
any other provisions of this Agreement and any other agreement between the
<PAGE>
Company and Executive. The existence of any claim or cause of action by
Executive against the Company, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by the Company of
any or all of such covenants in accordance with their terms; and
(ii) The parties hereby agree that any breach or
threatened breach of Section 9 of this Agreement will cause substantial and
irreparable damage to the other in an amount and of a character difficult to
ascertain. Accordingly, for their mutual benefit and to prevent any such breach
or threatened breach, and in addition to any other relief to which a party may
otherwise be entitled, the non-breaching party shall be entitled to immediate
temporary, preliminary and permanent injunctive relief through appropriate legal
proceedings, without proof that actual damages have been incurred or may be
incurred by such a party with respect to such breach or threatened breach. The
parties expressly agree that the party seeking this relief shall not be required
to post any bond or other security as a condition to obtaining any injunctive
relief pursuant to this Section and each of the parties expressly waive any
rights to the contrary.
(e) Litigation. Executive agrees that during the Term and
thereafter as reasonably requested by the Company, Executive shall do all
things, including the giving of evidence in suits and other proceedings, which
the Company shall deem reasonably necessary or proper to obtain, maintain,
defend or assert rights accruing to the Company during the Term and in
connection with which Executive has knowledge, information and expertise.
(f) Future Cooperation. The parties hereto agree to cooperate
with each other without additional compensation from and after the date hereof,
to supply any information and to execute documents reasonably required for the
purpose of giving effect to this Agreement, or in connection with the
consummation of any actions contemplated hereby.
9. Representations and Warranties of Executive. Executive represents
and warrants to the Company that: (i) Executive is under no contractual or other
restriction or obligation that is inconsistent with the execution of this
Agreement, the performance of Executive's duties hereunder or any of the rights
of the Company hereunder; and (ii) Executive is under no physical or mental
disability that would impair the performance of Executive's duties under this
Agreement.
10. Key Person Insurance. The Company may at any time and from time to
time obtain such life and health insurance policies ensuring the life or health
of Executive in such amounts and with such insurers (collectively, "Executive
Insurance") as the Company, in its sole discretion, deems appropriate. The
Company shall have the right to all benefits payable pursuant to any Executive
Insurance obtained by the Company, including without limitation, the sole right
to designate the beneficiary of all such Insurance. Executive agrees to
cooperate with the Company if the Company elects to obtain any Executive
Insurance from time to time, including without limitation, timely submitting to
medical/physical examinations and assisting the Company with the preparation of
insurance applications.
<PAGE>
11. Indemnification. The Company shall indemnify, defend and hold
Executive harmless for, from and against any and all liability of any kind or
nature resulting from or related to Executive's employment with the Company,
and/or any prior business deals entered into by Executive.
12. Notices. All notices, requests, demands or other communication
(collectively, "Notice") given to any party pursuant to this Agreement shall not
be effective unless given in writing and addressed to the parties at their
respective addresses as set forth below.
If to the Company: McGlen Micro Inc. / Adrenalin Interactive, Inc.
3002 Dow Avenue
Tustin, California 92780
Telephone: (949) 851-8078
If to Executive: David Cheng Chou
108 N. Marengo Avenue, Apt. # E
Alhambra, California 91801
Telephone: (626) 458-1125
Notice shall be deemed duly given when delivered personally or by telegram,
telex or courier, or, if mailed, 48 hours after deposit in the United States
mail, certified mail, postage pre-paid. The addresses of the parties for the
purpose of providing Notice pursuant to this paragraph may be changed from time
to time by Notice to the other party duly given in the foregoing manner.
13. Governing Law; Disputes. This Agreement will be interpreted in
accordance with California law, including all matters of construction, validity,
performance and enforcement, without giving effect to any principles of conflict
of laws. Any dispute or proceeding concerning this Agreement will be resolved by
binding arbitration to be held in Orange County, California. Any party may
demand arbitration through written notice sent by certified mail to the other
(an "Arbitration Demand"). Within fifteen (15) days after the date that the
Arbitration Demand is first mailed, each of the parties will confer to select a
mutually acceptable arbitrator from the Judicial Arbitration and Mediation
Service ("JAMS"). If the arbitrator so selected is unavailable, the parties will
confer to select another arbitrator. If the parties cannot mutually agree to the
selection of an arbitrator, or if one party refuses to participate in the
selection process, JAMS will appoint an arbitrator. The arbitrator will be
governed by the provisions of this Agreement rather than the rules of JAMS.
If JAMS is unable or unwilling to select an arbitrator, the
Presiding Judge of the Orange County Superior Court will select an arbitrator
upon the request of either party, and such selection will be binding on the
parties. The arbitrator so selected will schedule the arbitration hearing within
sixty (60) days after he or she is first selected. The parties will be permitted
written discovery and one deposition each. The arbitrator will have authority to
enter a binding judgment even if the parties do not appear at the arbitration
<PAGE>
and may also grant any remedy or relief that the arbitrator reasonably believes
to be just or appropriate, provided that such remedy or relief is within the
scope of this Agreement.
All fees and expenses of the arbitration will be paid equally
by the parties participating in the arbitration. At the conclusion of the
arbitration, the arbitrator will award the prevailing party reasonable costs and
Attorneys' Fees, including all arbitration costs. If the arbitration award is
made, the prevailing party may convert the award into a judgment and execute
upon that judgment.
14. Attorneys' Fees. If any arbitration, litigation, action, suit or
other proceedings is instituted to remedy, prevent or obtain relief from a
breach of this Agreement, in relation to a breach of this Agreement or
pertaining to a declaration of rights under this Agreement, the prevailing party
will recover all such party's attorneys' fees incurred in each and every such
action, suit or other proceeding, including any and all appeals or petitioner
therefrom. As used in this Agreement, Attorneys' Fees will be deemed to be the
full and actual costs of any legal services actually performed in connection
with the matters involved, including those related to any appeal or the
enforcement of any judgment, calculated on the basis of the usual fee charged by
attorneys performing such services, and will not be limited to "reasonable
attorneys' fees" as defined in any statute or rule of court.
15. Amendments/Waivers. This Agreement may be amended, supplemented,
modified or rescinded only through an express written instrument signed by all
the parties or their respective successors and assigns. Either party may
specifically and expressly waive in writing any portion of this Agreement or any
breach hereof, but no such waiver shall constitute a further or continuing
waiver of any preceding or succeeding breach of the same or any other provision.
The consent by one party to any action for which such consent was required shall
not be deemed to imply consent or waiver of the necessity of obtaining such
consent for the same or similar acts in the future.
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
17. Severability. Each provision of this Agreement is intended to be
severable and if any term or provision herein is determined invalid or
unenforceable for any reason, such illegality or invalidity shall not affect the
validity of the remainder of this Agreement and, wherever possible, intent shall
be given to the invalid or unenforceable provision.
18. Entire Agreement. This Agreement contains the entire and complete
understanding between the parties concerning its subject matter and all
representations, agreements, arrangements and understandings between or among
the parties, whether oral or written, have been fully merged herein and are
superseded hereby.
19. Remedies. All rights, remedies, undertakings, obligations,
options, covenants, conditions and agreements contained in this Agreement shall
be cumulative and no one of them shall be exclusive of any other.
<PAGE>
20. Assignment. Neither this Agreement, nor any interest herein, shall
be assignable (voluntarily, involuntarily, by judicial process or otherwise)
Executive to any person or entity without the prior written consent of the
Company. Any attempt to assign this Agreement without such consent shall be void
and, at the option of the Company, shall be an incurable breach of this
Agreement resulting in the termination of this Agreement.
21. Successors. Subject to the foregoing paragraph, this Agreement
shall be binding upon and inure to the benefit of the parties and their
respective heirs, legatees, legal representatives, successors and permitted
assigns.
22. Interpretation. The language in all parts of this Agreement shall
be in all cases construed simply according to its fair meaning and not strictly
for or against any party. Whenever the context requires, all words used in the
singular will be construed to have been used in the plural, and vice versa, and
each gender will include any other gender. The captions of the paragraphs of
this Agreement are for convenience only and shall not affect the construction or
interpretation of any of the provisions herein.
23. Benefit of Agreement. This Agreement is for the sole and exclusive
benefit of the signators hereto and nothing in this Agreement shall be construed
to give any person or entity other than the parties hereto any legal or
equitable right, claim or remedy.
24. Limitation on Actions. Any claim, dispute, controversy or action
for breach relative to this Agreement must be brought and legal process or
arbitration, as the case may be, initiated within one year after the cause of
action for such claim first accrued or the breach first occurred, whichever is
sooner.
25. Miscellaneous. The recitals and all exhibits, attachments or other
documents referenced in this Agreement are fully incorporated into this
Agreement by reference. Unless expressly set forth otherwise herein, all
references herein to a "day," "month," or "year" shall be deemed to be a
reference to a calendar day, month or year, as the case may be. All
cross-references herein shall refer to provisions within this Agreement, and
shall not be deemed to be references to the overall transaction or to any other
agreement or document.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date set
forth above.
<PAGE>
"EXECUTIVE"
DAVID CHENG CHOU, an individual
"THE COMPANY"
MCGLEN MICRO INC.,
a California corporation
By: /s/George Lee
-------------------
George Lee,
Chief Executive Officer
EXHIBIT 10.20
-------------
EXECUTIVE EMPLOYMENT AGREEMENT
------------------------------
THIS EXECUTIVE EMPLOYMENT AGREEMENT (this "Agreement") is entered into
as of September 1, 1999, between McGlen Micro Inc., a California corporation
(the "Company") and and ROBERT STANLEY BROWN, an individual ("Executive"), with
reference to the following.
RECITALS
--------
A. The Company is in the business of selling computer components and
accessories via Internet.
B. Executive is experienced in the marketing, sales and strategic
planning and development of start-up and emerging growth companies in the
e-commerce and computer industry.
C. The Company desires to employ Executive as the Chief Marketing
Officer and Executive desires to accept such employment subject to the terms and
conditions set forth in this Agreement.
AGREEMENT
---------
NOW THEREFORE, in consideration of the foregoing premises, the
provisions set forth below, and other good and valuable consideration, the
parties agree as follows.
1. Employment. The Company hereby employs Executive as the Company's
Chief Marketing Officer ("CMO"), and Executive hereby accepts such employment,
for the term and subject to the provisions set forth below. Pursuant to the
Agreement and Plan of Merger dated April 28, 1999, Adrenalin Interactive, Inc.,
a publicly held Delaware company ("ADRN") shall acquire the Company in a stock
swap merger transaction (the "Merger"). The Company and its Principal
Shareholders agree to cause ADRN to assume this Agreement upon completion of the
Merger, and all stock options granted or vested shall continue in accordance
with Section 6 of this Agreement.
2. Term. Unless sooner terminated as set forth below, this Agreement
shall remain in force until December 31, 2002. The actual period of time that
Executive remains in the employ of the Company pursuant to this Agreement is
referred to herein as the "Employment Period."
3. Duties. Executive shall be employed as the Chief Marketing Officer
of the Company and shall hold such other offices or positions with the Company
as may requested by the Company from time to time. Executive shall devote his
full time and efforts to the performance of Executive's duties hereunder and
work exclusively for the Company unless otherwise requested by the Company.
Executive shall use his best efforts to manage the Company's marketing and sales
<PAGE>
business and affairs for the maximum benefit of the Company. In addition to the
normal duties associated with the position of CMO of companies of similar size,
Executive shall have the duties of preparing and planning marketing strategy,
increasing sales volume and the following specific duties, which he shall at all
times faithfully, honestly, industriously and to the best of his ability
perform.
(a) Traditional Duties.
------------------
(i) Direct assistance and oversight of all aspects of
the Company's marketing and sales practices and requirements, including
inventory control, customer orders, customer service, internal control,
invoicing, purchasing and borrowing compliance and reporting requirements. The
duties shall include supervising sales and marketing staff, taking a hands-on
approach to ensure that work in each of the aforementioned areas is performed
efficiently and at a high standard and focusing on identifying and implementing
internal sales and marketing control policies and procedures to ensure that
customer sales and vendor purchases are recorded timely, accurately and in
compliance with authorized contract terms.
(ii) Assist in the preparation and continued update
and maintenance of a strategic business plan for the Company, which incorporates
sales and marketing strategies, budgets, financial forecasts, marketing plans
into the business plan.
(iii) Make professional recommendations concerning
operating, sales, marketing, and financial performance targets.
(iv) Maintain primary relationships with vendors, and
customers.
(v) Maintain familiarity with all of the Company's
sales, marketing, and financial compliance requirements, as may be revised from
time to time.
(vi) Act as the spokesman for the Company on sales,
marketing, and advertising issues. Effectively present the historical results,
current status and future financial outlook to the Company's shareholders, the
investment community, industry participants and other key customers and vendors.
(v) Oversee the Company's sales, marketing, and
purchasing staff. Direct the preparation of supporting information to expedite
the timing and minimize the cost of the purchasing.
(vi) Meet regularly with the executive management and
the Board of Directors. Communicate clearly and effectively on all sales and
marketing matters concerning the Company.
<PAGE>
(b) Additional Duties.
-----------------
The Company and Executive acknowledge that the
Company currently has a limited number of customers and limited number of
suppliers. The duties of Executive to internally organize the sales and
marketing staff may not require Executive's full time, every day. Executive
shall therefore also assist the Company as operations officer. As such,
Executive will be expected to play a large role in the day to day operation of
the Company, and assist in the following areas.
(i) Assist in the management, supervision, training
and review of the Company's marketing and sales personnel.
(ii) Assist the Company's President or CEO in the
preparation and periodic review and update of the Company procedures and
policies.
(iii) Assist the Company's President or CEO with
shareholder relations matters.
(iv) Deal with suppliers and customers of the
Company, as needed.
(v) Assist the Company in the capital raising and
securities registration process and interact with accountants and attorneys as
may be requested by the Company from time to time.
(vi) Follow the instructions and orders given by
Executive's superiors, including, without limitation, the Board of Directors,
President, Executive Vice-President, Chief Executive Officer and Chief Operating
Officer.
4. Compensation.
-------------
(a) Base Salary. The Company shall pay Executive a annual base
salary of $155,000 (the "Base Salary") during the Employment Period.
(b) Vacation. Executive shall be entitled to three weeks paid
vacation per year in addition to all holidays as set forth in the Company's
policy. Executive shall not be entitled to accrue vacation or cause the Company
to repurchase unused vacation days.
(c) Medical Insurance. The Company shall provide Executive and
Executive's spouse and children with medical insurance consistent with the
insurance benefits provided to other executives of the Company. At the Company's
election, the Company may reimburse Executive for the cost of such insurance
obtained by Executive.
(d) Expenses. Executive shall be entitled to reasonable
reimbursement during the Employment Period for travel and other out-of-pocket
expenses incurred in the performance of his duties hereunder, upon submission
and approval of written statements and bills in accordance with the Company's
policy as may be set forth from time to time.
<PAGE>
5. Performance-Based Bonus. As additional compensation, Executive may
receive an annual bonus (the "Bonus") as may be determined by the Board of
Directors from time to time for each fiscal year based on the Executive's
performance.
6. Stock Option Plan. In accordance with the Company's 1999 Stock
Option Plan (the "Plan") and the specific authorization of the Board of
Directors, the Company hereby grants Executive, subject to all of the terms of
the Plan and this Agreement, an option to purchase up to 1,010,000 shares of the
Company's common stock (the "Option"). In the case of any conflict between the
Plan and this Agreement, this Agreement shall control. The Option shall vest in
increments as follows:
a. The option to purchase 100,000 shares of the
Company's common stock shall vest on the effective closing date of the Merger,
if any, exercisable at $1.00 per share.
b. The option to purchase 50,000 shares of the
Company's common stock shall vest on the 180th day after the effective closing
date of the Merger, if any, at an exercise price of $1.00 per share.
c. The option to purchase 50,000 shares of the
Company's common stock shall vest on the first anniversary date of the effective
closing date of the Merger, if any, at an exercise price of $1.00 per share.
d. The option to purchase 270,000 shares ("A
Options") of the Company's common stock shall vest on December 31, 2000, whereby
100,000 shares of the A Options shall be exercisable at $1.00 per share. The
remaining 170,000 shares of the A Options shall be exercisable at the Fair Value
(as defined below) on or before December 31, 2000.
e. The option to purchase 270,000 shares ("B
Options") of the Company's common stock shall vest on December 31, 2001, whereby
100,000 shares of the B Options shall be exercisable at $1.00. The remaining
170,000 shares of the B Options shall be exercisable at the Fair Value (as
defined below) on or before December 31, 2001.
f. The option to purchase 270,000 shares ("C
Options") of the Company's common stock shall vest on December 31, 2002, whereby
100,000 shares of the C Options shall be exercisable at $1.00. The remaining
170,000 shares of the C Options shall be exercisable at the Fair Value (as
defined below) on or before December 31, 2002.
(a) Fair Value. For purposes of this Agreement, the fair value
of a share of Common Stock of the Company is as follows: If market quotations
are readily available, a share shall be valued at the average of the closing bid
prices of the Common Stock reported on the Composite Tape for securities listed
on the Nasdaq Exchange in The Wall Street Journal for the previous 120 trading
days that the Common Stock is fully listed on the Nasdaq Exchange from the date
on which Executive exercises the vested options; provided, however, that if
<PAGE>
before the end of such 120-day period (i) any person shall have acquired, or
publicly disclosed an intention or proposal to acquire (whether by tender offer,
exchange offer, or otherwise), beneficial ownership of securities of the Company
that would result in such person being thirty-three percent or more beneficial
owner, (ii) any person shall have proposed, or publicly announced an intention
to propose, a merger, consolidation or similar transaction involving the Company
or any of its subsidiaries (other than mergers, reorganizations, consolidations,
or dissolutions involving existing subsidiaries of the Company, (iii) the
Company shall have publicly disclosed, or publicly announced an intention to
propose, the disposition, by sale, lease, exchange or otherwise, of
substantially all assets of the Company, the 120-day period shall be deemed to
have ended prior to the date of the public announcement of any such acquisition,
disclosure, proposal or the making of such determination. The 120-Day Period
shall mean the period of 120 days, or shorter period used to determine the
120-day average price.
7. Termination. The Employment Period shall be immediately and
automatically terminated upon Executive's death. The Employment Period shall
also terminate under the following conditions.
(a) Termination for Cause. Notwithstanding anything in this
Agreement to the contrary, the Company may terminate Executive's employment
hereunder at any time if Executive:
(i) Is convicted of, or pleads guilty or nolo
contendere to (i) any felony, or (ii) any misdemeanor involving moral turpitude;
(ii) Commits fraud or dishonesty with respect to the
business or affairs of the Company and embezzles or misappropriates any of the
Company's funds or assets;
(iii) Is in material breach of this Agreement,
including, without limitation, his insubordination to the Company, the Board of
Directors or senior executive officers or interferes with the operations of the
business of the Company or its affiliates;
(iv) Fails or refuses to perform Executive's
reasonable and customary duties and the duties set forth hereunder for a period
of 48 hours after written notice describing the duty or duties which Executive
has failed or refused to perform is given to Executive by the Company;
(v) In the reasonable opinion of a licensed physician
or psychiatrist retained by the Company, is substantially unable by reason of
drug (including alcohol) abuse or addiction, to reasonably and effectively carry
out Executive's duties hereunder for any period of time in excess of Executive's
accrued vacation time and sick leave during such calendar year, if any;
(vi) Is in violation of any provisions of this
Agreement; provided, however, that if such violation can be cured in a manner
that will restore the Company to the position it would have enjoyed in the
<PAGE>
absence of the violation, Executive shall have a period of 3 days after written
notice describing the violation is given to Executive by the Company to
completely cure such violation and, if completely cured, this Agreement shall
not be subject to termination for such violation;
(vii) Directly causes the material default of the
Company in performing its obligations under contracts with other persons or
business entities intentionally and without authorization, provided the Company
shall give Executive 30 days written notice prior to termination; or
(viii) Is grossly negligent with respect other
discharge of Executive's duties hereunder.
Executive agrees to timely submit to reasonable and necessary
medical, physical and psychiatric examination from time to time during the
Employment Period to enable the Company to determine if Executive is incompetent
or subject to any mental or physical illness or incapacity or to drug abuse or
addiction, as contemplated above by paragraphs 7(iv).
(b) By Permanent Disability. The Term of Employment shall
terminate, without liability except as provided in this Section 7b, upon the
"Permanent Disability" of Executive. "Permanent Disability" shall mean, with
respect to Executive, (i) the suffering of any mental or physical illness,
disability or incapacity to the extent that Executive shall be unable to perform
his duties or (ii) the absence of Executive from his employment by reason of any
mental or physical illness, disability or incapacity for a period of three
months during any six-month period; provided, however, in either case, that such
illness, disability or incapacity shall be determined to be of a permanent
nature by a licensed physician selected by the Board of Directors. The
termination date in the event of a clause (i) of the immediately preceding
sentence, shall be the date of determination by the physician, and in the case
of clause (ii) of the immediately preceding sentence, the last day of such
three-month period. In the case of Permanent Disability, the Company shall
promptly pay to Executive (or his representative) the sum of (A) the unpaid Base
Salary to which he is entitled pursuant to Section 4(a) through the termination
date and (B) the lump sum amount of any unpaid portion of the Bonuses, if any,
to be paid pursuant to Section 5, and all benefits under Executive's Disability
Insurance Plan.
(c) By The Company Without Cause. The Term may be terminated
by the Company without "Cause" and for any reason whatsoever, without advance
notice, provided that the Company pays to Executive at the time of termination
an amount equal to the sum of nine (9) months Base Salary as severance payment.
(d) By Executive. The Term may be terminated by the Executive
if Executive is forced to perform majority of his duties outside of the southern
California geographic location. Upon such termination, Executive shall not be
entitled to any severance pay or any Company stock options not yet vested as of
the termination date..
<PAGE>
8. Affirmative Covenants. Executive promises and covenants to the
Company as follows.
(a) Confidentiality; Trade Secrets. Executive acknowledges
that his position with the Company is one of the highest trust and confidence
both by reason of his position and by reason of his access to and contact with
the trade secrets and confidential and proprietary business information of the
Company. Executive agrees that during the Employment Period and thereafter:
(i) Executive shall use his best efforts and exercise
utmost diligence to protect and safeguard the trade secrets and confidential and
proprietary information of the Company, including, its data, encryptions, source
codes, record, compilations of information, processes, programs know-how,
improvements, discoveries, marketing plans, strategies, forecasts, unpublished
financial statements, budgets, projections, licenses, prices, costs, files,
documents, drawings, memoranda, notes, customer lists, supplier lists, marketing
strategies, pricing lists, policies or other documents, whether maintained
electronically or in any other manner, relating to the business of the Company
or its contractors; (all such information is hereinafter called the "Proprietary
Information") other than information known to him before, learned from third
parties not associated with the Company or in the public domain;
(ii) Executive shall not disclose any of such
Proprietary Information, except as may be required in the ordinary course of
performing his duties to the Company or any affiliated companies;
(iii) Executive shall not use the trade secrets and
confidential and proprietary information of Executive's previous or present
employers to carry out his duties and responsibilities under this Agreement or
bring on to the Company's premises or any other property owned by the Company
any proprietary information of any other entity, in violation of any prior or
present employment, or noncompetition or confidentiality agreement.
(b) Non-Solicitation of Employees. Executive covenants and
agrees that, it shall not, directly or indirectly, solicit or induce, or attempt
to solicit or induce, any employee or consultant of the Company to leave the
employ of the Company for any reason whatsoever or hire any employee or
consultant of the Company for a period of five years from the date of this
Agreement.
(c) Non-Competition. Executive agrees that at all times during
the Term and for the period of nine months (9) months after the termination of
this Agreement:
(i) Executive shall not serve in any capacity,
directly or indirectly, with or for, any company or entity in direct competition
with the Company business models or whose primary business focus is selling
computers or computer-related products via the Internet;
<PAGE>
(ii) Executive shall not interfere with, disrupt or
attempt to disrupt the relationship, contractual or otherwise, between the
Company and any contractor or employee of the Company;
(iii) Executive shall not directly or indirectly: (A)
employ, intend to employ or otherwise solicit for employment any of the
Company's executive officers, department managers at the Company for any
business or venture that is in direct competition with the Company, including
and without limitation, any business or enterprises which Executive may be a
consultant or recruiter; or (B) contact, communicate with, inquire or otherwise
solicit any executive officers, director, shareholder, department managers at
the Company of the Company to invest in or to purchase, or to offer or subscribe
to purchase, any security or general or equity interest in any venture that is
competitive with or similar to the business of the Company. As used in this
section the terms "employ" and "employment" are used in the broadcast sense to
encompass all associations, including without limitation, that of employee,
agent, independent contractor, owner, officer, director, shareholder, partner,
associate, representative and consultant; and
(iv) If the scope of any restrictions contained in
paragraph (i) and (ii) of this Section is too broad to permit enforcement of
such restrictions of their full extent, then such restrictions shall be enforced
to the maximum extent permitted by law, and Executive hereby consents and agrees
that such scope may be judicially modified accordingly in any proceeding brought
to enforce such restrictions.
(d) Remedies for Breach of Affirmative Covenants of Executive.
(i) Subject to the limitations provided by applicable
law, the covenants set forth in this Section 9 shall continue to be binding upon
Executive in accordance with their terms, notwithstanding the termination of his
employment with Company for any reason whatsoever. Such covenants shall be
deemed and construed as separate agreements independent of any other provisions
of this Agreement and any other agreement between the Company and Executive. The
existence of any claim or cause of action by Executive against the Company,
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement by the Company of any or all of such covenants in
accordance with their terms; and
(ii) The parties hereby agree that any breach or
threatened breach of Section 9 of this Agreement will cause substantial and
irreparable damage to the other in an amount and of a character difficult to
ascertain. Accordingly, for their mutual benefit and to prevent any such breach
or threatened breach, and in addition to any other relief to which a party may
otherwise be entitled, the non-breaching party shall be entitled to immediate
temporary, preliminary and permanent injunctive relief through appropriate legal
proceedings, without proof that actual damages have been incurred or may be
incurred by such a party with respect to such breach or threatened breach. The
parties expressly agree that the party seeking this relief shall not be required
to post any bond or other security as a condition to obtaining any injunctive
relief pursuant to this Section and each of the parties expressly waive any
rights to the contrary.
<PAGE>
(e) Litigation. Executive agrees that during the Term and
thereafter as reasonably requested by the Company, Executive shall do all
things, including the giving of evidence in suits and other proceedings, which
the Company shall deem reasonably necessary or proper to obtain, maintain,
defend or assert rights accruing to the Company during the Term and in
connection with which Executive has knowledge, information and expertise.
(f) Future Cooperation. The parties hereto agree to cooperate
with each other without additional compensation from and after the date hereof,
to supply any information and to execute documents reasonably required for the
purpose of giving effect to this Agreement, or in connection with the
consummation of any actions contemplated hereby.
9. Representations and Warranties of Executive. Executive represents
and warrants to the Company that: (i) Executive is under no contractual or other
restriction or obligation that is inconsistent with the execution of this
Agreement, the performance of Executive's duties hereunder or any of the rights
of the Company hereunder; and (ii) Executive is under no physical or mental
disability that would impair the performance of Executive's duties under this
Agreement; and (iii) Executive has reviewed this Agreement with Executive's
legal counsel; and (iv) Executive has the education, ability, skillset,
experience and all other qualifications necessary to fulfill his duties under
this Agreement and as represented to the Company by Executive; and (v) all
information on Executive's resume as provided to the Company is true and correct
as of the date hereof; and (vi) Executive has discontinued, terminated and no
longer operates, owns or controls any other business or entity.
10. Notices. All notices, requests, demands or other communication
(collectively, "Notice") given to any party pursuant to this Agreement shall not
be effective unless given in writing and addressed to the parties at their
respective addresses as set forth below.
If to the Company: McGlen Micro Inc. / Adrenalin Interactive, Inc.
3002 Dow Avenue
Tustin, California 92780
Telephone: (949) 851-8078
If to Executive: Robert S. Brown
4752 Chamber Avenue
La Verne, California 91750
Telephone: (909) 593-8169
Notice shall be deemed duly given when delivered personally or by telegram,
telex or courier, or, if mailed, 48 hours after deposit in the United States
mail, certified mail, postage pre-paid. The addresses of the parties for the
purpose of providing Notice pursuant to this paragraph may be changed from time
to time by Notice to the other party duly given in the foregoing manner.
<PAGE>
11. Governing Law; Disputes. This Agreement will be interpreted in
accordance with California law, including all matters of construction, validity,
performance and enforcement, without giving effect to any principles of conflict
of laws. Any dispute or proceeding concerning this Agreement will be resolved by
binding arbitration to be held in Orange County, California. Any party may
demand arbitration through written notice sent by certified mail to the other
(an "Arbitration Demand"). Within fifteen (15) days after the date that the
Arbitration Demand is first mailed, each of the parties will confer to select a
mutually acceptable arbitrator from the Judicial Arbitration and Mediation
Service ("JAMS"). If the arbitrator so selected is unavailable, the parties will
confer to select another arbitrator. If the parties cannot mutually agree to the
selection of an arbitrator, or if one party refuses to participate in the
selection process, JAMS will appoint an arbitrator. The arbitrator will be
governed by the provisions of this Agreement rather than the rules of JAMS.
If JAMS is unable or unwilling to select an arbitrator, the Presiding
Judge of the Orange County Superior Court will select an arbitrator upon the
request of either party, and such selection will be binding on the parties. The
arbitrator so selected will schedule the arbitration hearing within sixty (60)
days after he or she is first selected. The parties will be permitted written
discovery and one deposition each. The arbitrator will have authority to enter a
binding judgment even if the parties do not appear at the arbitration and may
also grant any remedy or relief that the arbitrator reasonably believes to be
just or appropriate, provided that such remedy or relief is within the scope of
this Agreement.
All fees and expenses of the arbitration will be paid equally by the
parties participating in the arbitration. At the conclusion of the arbitration,
the arbitrator will award the prevailing party reasonable costs and Attorneys'
Fees, including all arbitration costs. If the arbitration award is made, the
prevailing party may convert the award into a judgment and execute upon that
judgment.
12. Attorneys' Fees. If any arbitration, litigation, action, suit or
other proceedings is instituted to remedy, prevent or obtain relief from a
breach of this Agreement, in relation to a breach of this Agreement or
pertaining to a declaration of rights under this Agreement, the prevailing party
will recover all such party's attorneys' fees incurred in each and every such
action, suit or other proceeding, including any and all appeals or petitioner
therefrom. As used in this Agreement, Attorneys' Fees will be deemed to be the
full and actual costs of any legal services actually performed in connection
with the matters involved, including those related to any appeal or the
enforcement of any judgment, calculated on the basis of the usual fee charged by
attorneys performing such services, and will not be limited to "reasonable
attorneys' fees" as defined in any statute or rule of court.
13. Amendments/Waivers. This Agreement may be amended, supplemented,
modified or rescinded only through an express written instrument signed by all
the parties or their respective successors and assigns. Either party may
specifically and expressly waive in writing any portion of this Agreement or any
breach hereof, but no such waiver shall constitute a further or continuing
waiver of any preceding or succeeding breach of the same or any other provision.
<PAGE>
The consent by one party to any action for which such consent was required shall
not be deemed to imply consent or waiver of the necessity of obtaining such
consent for the same or similar acts in the future.
14. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
15. Severability. Each provision of this Agreement is intended to be
severable and if any term or provision herein is determined invalid or
unenforceable for any reason, such illegality or invalidity shall not affect the
validity of the remainder of this Agreement and, wherever possible, intent shall
be given to the invalid or unenforceable provision.
16. Entire Agreement. This Agreement contains the entire and complete
understanding between the parties concerning its subject matter and all
representations, agreements, arrangements and understandings between or among
the parties, whether oral or written, have been fully merged herein and are
superseded hereby.
17. Remedies. All rights, remedies, undertakings, obligations,
options, covenants, conditions and agreements contained in this Agreement shall
be cumulative and no one of them shall be exclusive of any other.
18. Assignment. Neither this Agreement, nor any interest herein, shall
be assignable by Executive (voluntarily, involuntarily, by judicial process or
otherwise) to any person or entity without the prior written consent of the
Company. Any attempt to assign this Agreement without such consent shall be void
and, at the option of the Company, shall be an incurable breach of this
Agreement resulting in the termination of this Agreement.
19. Successors. Subject to the foregoing paragraph, this Agreement
shall be binding upon and inure to the benefit of the parties and their
respective heirs, legatees, legal representatives, successors and permitted
assigns.
20. Interpretation. The language in all parts of this Agreement shall
be in all cases construed simply according to its fair meaning and not strictly
for or against any party. Whenever the context requires, all words used in the
singular will be construed to have been used in the plural, and vice versa, and
each gender will include any other gender. The captions of the paragraphs of
this Agreement are for convenience only and shall not affect the construction or
interpretation of any of the provisions herein.
21. Benefit of Agreement. This Agreement is for the sole and exclusive
benefit of the signators hereto and nothing in this Agreement shall be construed
to give any person or entity other than the parties hereto any legal or
equitable right, claim or remedy.
<PAGE>
22. Limitation on Actions. Any claim, dispute, controversy or action
for breach relative to this Agreement must be brought and legal process or
arbitration, as the case may be, initiated within one year after the cause of
action for such claim first accrued or the breach first occurred, whichever is
sooner.
23. Miscellaneous. The recitals and all exhibits, attachments or other
documents referenced in this Agreement are fully incorporated into this
Agreement by reference. Unless expressly set forth otherwise herein, all
references herein to a "day," "month," or "year" shall be deemed to be a
reference to a calendar day, month or year, as the case may be. All
cross-references herein shall refer to provisions within this Agreement, and
shall not be deemed to be references to the overall transaction or to any other
agreement or document.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth above.
"EXECUTIVE"
By: Robert Stanley Brown
------------------------
ROBERT STANLEY BROWN, an individual
"THE COMPANY"
MCGLEN MICRO INC.,
a California corporation
By:/s/George Lee
----------------
George Lee,
Chief Executive Officer
<TABLE>
<CAPTION>
Exhibit 21
Subsidiaries of Mcglen Internet Group, Inc.
-------------------------------------------
Jurisdiction of
Name of Subsidiary Organization Percentage Ownership
- ------------------ ------------ --------------------
<S> <C> <C>
Mcglen Micro, Inc. California 100%
AMT Components, Inc. California 100%
Western Technologies, Inc. California 100%
Adrenalin Entertainment, Inc. California 100%
(name holding subsidiary only)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 961,666
<SECURITIES> 0
<RECEIVABLES> 628356
<ALLOWANCES> 70000
<INVENTORY> 436017
<CURRENT-ASSETS> 2394889
<PP&E> 640737
<DEPRECIATION> 121161
<TOTAL-ASSETS> 3304363
<CURRENT-LIABILITIES> 3952499
<BONDS> 0
0
0
<COMMON> 952017
<OTHER-SE> (1816325)
<TOTAL-LIABILITY-AND-EQUITY> 3304363
<SALES> 27493774
<TOTAL-REVENUES> 27493774
<CGS> 25424325
<TOTAL-COSTS> 25424325
<OTHER-EXPENSES> 5548993
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31463
<INCOME-PRETAX> (3511007)
<INCOME-TAX> 1000
<INCOME-CONTINUING> (3512007)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3512007)
<EPS-BASIC> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
