-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IlYbyxpGCwsxjQ9VW5bmqJDDOKFlvuK1ZMGrpQbjj0wWlwkPzsE1k4kPgN+X4lZ4 1lfvagA7OK/5K9MrHEl3yg== 0001019056-99-000558.txt : 19991018 0001019056-99-000558.hdr.sgml : 19991018 ACCESSION NUMBER: 0001019056-99-000558 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19991013 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EMARKETPLACE INC CENTRAL INDEX KEY: 0000900475 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-COMPUTER & PERIPHERAL EQUIPMENT & SOFTWARE [5045] IRS NUMBER: 330008870 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 000-22014 FILM NUMBER: 99727778 BUSINESS ADDRESS: STREET 1: 255 WEST JULIAN STREET STREET 2: SUITE 100 CITY: SAN JOSE STATE: CA ZIP: 95110 BUSINESS PHONE: 9097352102 MAIL ADDRESS: STREET 1: 255 WEST JULIAN STREET STREET 2: SUITE 100 CITY: SAN JOSE STATE: CA ZIP: 95110 FORMER COMPANY: FORMER CONFORMED NAME: COMPUTER MARKETPLACE INC DATE OF NAME CHANGE: 19930413 10KSB 1 FORM 10-KSB SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 REPORT ON FORM 10-KSB [X] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended June 30, 1999. [ ] Transition Report pursuant Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ________ to ________. Commission File No. 0-22014 eMARKETPLACE, INC. (formerly Computer Marketplace, Inc.) ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 33-0558415 ---------------------------------- --------------------------------- (State of or other jurisdiction of (IRS Employer Identification No.) incorporation of organization) 255 West Julian Street Suite 100 San Jose, CA 95110 --------------------- ---------- (Address of Principal (Zip Code) Executive Offices) Registrant's telephone number, including area code: (408) 295-6500 Securities registered pursuant to Section 12(b) of the Act: None. Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.0001 per share ---------------------------------------- (Title of Class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of the Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ ] Issuer's revenues for its most recent fiscal year were $2,208,855. The aggregate market value of the voting stock held by non-affiliates of the Registrant, computed by reference to the closing price of such stock as of September 30, 1999, was approximately $36,208,676. Number of shares outstanding of the Issuer's common stock, as of September 30, 1999, was 12,691,460. DOCUMENTS INCORPORATED BY REFERENCE: None. TABLE OF CONTENTS Page DESCRIPTION OF BUSINESS........................................................1 DESCRIPTION OF PROPERTY.......................................................22 LEGAL PROCEEDINGS.............................................................23 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...........................23 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.........23 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.........................................................25 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...................................31 CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE..........................................................31 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS, COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.............................31 EXECUTIVE COMPENSATION........................................................32 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................36 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................37 EXHIBITS AND REPORTS ON FORM 8-K..............................................39 i PART I ITEM 1. DESCRIPTION OF BUSINESS Quality Associates, Inc., a California corporation, was incorporated in July 1983, and changed its name to Computer Marketplace in June 1987. In March 1993, Computer Marketplace changed its name to Computer Marketplace, Inc. and its state of incorporation from California to Delaware. On August 27, 1999, the Company changed its trading symbol on the OTC Bulletin Board from "MKPL" to "EMKT" in contemplation of its name change to eMarketplace, Inc. which was effected on September 17, 1999. eMarketplace and its subsidiaries shall be referred to as the "Company" in this Annual Report. In April 1999, by acquiring E-Taxi, Inc. ("E-Taxi") and its wholly-owned subsidiary, TechStore, LLC ("TechStore"), the Company adopted a new corporate strategy focused on developing, acquiring and operating Internet businesses. The Company is presently pursuing a business plan to become an Internet holding company engaged primarily in development and operation of a network of Internet properties ("Portfolio Companies") that provide content, commerce and online services to demographically-targeted audiences. Until April 1999, the Company was primarily engaged in the purchase and sale of new and used computer equipment, and through its Medical Marketplace, Inc. subsidiary, the purchase and sale of used medical equipment. However, the Company in April 1999 adopted a plan in conjunction with its new corporate strategy with the acquisition of E-Taxi and TechStore to divest its ownership interest in Medical Marketplace because the used medical equipment business no longer conformed to the Company's business strategy. RECENT DEVELOPMENTS Set forth below is a summary of the Company's significant developments since April 1999: As of April 9, 1999, the Company and Gateway Advisors, Inc. ("Gateway Advisors"), a company majority owned and controlled by Robert M. Wallace (the Company's current Chairman of the Board), entered into a Financial Advisory Agreement, pursuant to which Gateway Advisors agreed to provide certain business development and financial advisory services for a period of two (2) years in exchange for the issuance by the Company of 1,500,000 Common Stock Purchase Warrants. Each warrant entitles the holder to purchase one (1) share of the Company's Common Stock at an exercise price of $2.50 per share until April 8, 2000. As of April 9, 1999, the Company and each of the holders of 1,500,000 Class D Common Stock Purchase Warrants entered into a Settlement Agreement, pursuant to which the Company issued 375,000 shares of the Company's Common Stock in exchange for (i) the cancellation of all Class D Common Stock Purchase Warrants, (ii) the surrender and transfer to the Company of an aggregate of 500,000 shares of Common Stock of Medical Marketplace, Inc. (a majority owned subsidiary of the Company), and (iii) a general release, releasing the Company from all liabilities. In addition, as of April 9, 1999, the Company and Victoria Holdings, Inc., the Company's former financial advisor, entered into a 1 Settlement Agreement, pursuant to which the Company issued 250,000 shares of the Company's Common Stock in exchange for (i) the cancellation of Options exercisable for 1,000,000 shares of the Company's Common Stock at an exercise price of $1.00 per share, and (ii) a general release, releasing the Company from all liabilities. As part of the foregoing Settlement Agreements, the Company agreed to include the shares issued in connection therewith in the next registration statement filed by the Company with the Securities and Exchange Commission (other than on a Form S-4 or Form S-8), subject to certain limitations and restrictions. As of April 9, 1999 (and clarified as of October 12, 1999), the Company entered into an Agreement with L. Wayne Kiley, the Company's President, Chief Executive Officer and at that time Chairman of the Board, pursuant to which Mr. Kiley waived (i) his rights to accrued and unpaid salary in the amount of $314,135 (ii) all of his rights under his employment agreement with the Company, including without limitation, all future compensation, and (iii) on behalf of Quality Associates, Inc. (a company owned and controlled by Mr. Kiley), its rights to accrued and unpaid rent with respect to the Company's executive offices, in the amount of $64,536. In exchange for the foregoing, the Company reduced the exercise price of (a) 661,667 options held by Mr. Kiley from $1.00 to $.60 per share and (b) 29,167 options held by Mr. Kiley from $1.68 to $.60 per share. In addition, the Company agreed to include the shares issuable upon the exercise of such options as well as certain other options issued to management and certain consultants under a Registration Statement on Form S-8 to be filed with the Commission in the near future. As of April 21, 1999, the Company and each of the stockholders of E-Taxi entered into a Stock Purchase Agreement, pursuant to which the Company acquired all of the issued and outstanding capital stock of E-Taxi (the "E-Taxi Acquisition") on April 23, 1999 (the "Closing Date") in a business combination accounted for a reverse acquisition for accounting purposes. See Notes 1 and 3 of the Notes to the Company's Consolidated Financial Statements. As consideration for 9,074,000 shares of the E-Taxi's common stock and 400,000 shares of the E-Taxi's Series A Preferred Stock, the Company issued an aggregate of 9,074,000 shares of the Company's common stock, par value $.0001 per share (the "Common Shares"), and 400,000 shares of the Company's Series A Preferred Stock, par value $.0001 per share (the "Preferred Shares"). As a result of the E-Taxi Acquisition, (i) E-Taxi became a wholly-owned subsidiary of the Company, (ii) the stockholders of E-Taxi became the beneficial owners of (a) the Common Shares, or 81.8% of the shares of Company's common stock outstanding, and (b) the Preferred Shares, or 100% of the shares of Company's preferred stock outstanding, and (iii) two of the four existing members of the Company's Board of Directors resigned and Robert M. Wallace was appointed as Chairman of the Board of Directors. L. Wayne Kiley and Thomas Evans remain as directors of the Company. Mr. Kiley will remain as the Company's Chief Executive Officer, President and Chief Accounting Officer until the Company hires suitable replacements which the Company expects to occur in the near future. The Company has also granted to each of the former holders of E-Taxi capital stock the right to have the Common Shares and the shares of Common Stock issuable upon conversion of the Preferred Shares included in the next registration statement filed by the Company with the Securities and Exchange Commission (other than on a Form S-4 or Form S-8), subject to certain limitations and restrictions. The number of shares constituting the Series A Preferred Stock is 400,000, $.0001 par value per share, all of which were issued to the former holders of Series A Preferred Stock of E-Taxi. As of the close of business on April 28, 1999, the shares of Common Stock had a closing price of greater than $3.75 per share for more than three (3) consecutive days, and based upon the terms of the Preferred Shares, as of May 3, 1999, the Preferred Shares were automatically converted into 1,600,000 shares of Common Stock. 2 E-Taxi was incorporated in April 1998 to develop a vertical Internet portal for the small office, home office ("SOHO") market. Immediately prior to the closing of the E-Taxi Acquisition, E-Taxi closed (i) a private offering of its shares of preferred stock and common stock raising an aggregate of approximately $1,400,000 therefrom and (ii) on the acquisition of all of the outstanding limited liability company interests of TechStore LLC, a California limited liability company ("TechStore"). As of March 31, 1999, Gateway Advisors, Inc., Bejan Aminifard, Mosen Aminifard and Derek Wall entered into a Contribution Agreement, pursuant to which each of the owners of TechStore contributed his ownership interest in TechStore, or rights to acquire ownership interests in TechStore to E-Taxi in exchange for shares of Common Stock and Preferred Stock of E-Taxi. Since its incorporation in March 1998, TechStore has been engaged in the business of selling computer hardware and software as well as consumer electronics products through its world wide web site, http://www.techstore.com. Through the acquisition of E-Taxi and TechStore, and additional planned acquisitions, joint ventures and other combined marketing efforts, the Company intends to provide products, services and information specifically tailored to the needs of the SOHO community. As of June 14, 1999, E-Taxi entered into (i) a Stock Purchase Agreement (the "Stock Purchase Agreement") with all of the shareholders of SSPS, Inc., a California corporation ("SSPS"), pursuant to which E-Taxi has agreed to purchase, and the shareholders of SSPS have agreed to sell, approximately 94.6% of the outstanding shares of capital stock of SSPS, and (ii) a Membership Interest Purchase Agreement with all of the members of Impact Team International, LLC, a California limited liability company and an affiliate of SSPS ("Impact"), pursuant to which E-Taxi has agreed to purchase, and the members of Impact have agreed to sell, all of the outstanding membership interests of Impact. SSPS, and its operating divisions TRISTEP, GIG2GIG.COM, and IT WORLDNET.COM, and Impact, provide short term and long term temporary workforce solutions primarily to rapidly growing technology firms. The closing of the transactions contemplated by the Stock Purchase Agreement and the Membership Interest Purchase Agreement (the "Closing") are subject to the satisfaction of certain conditions, including without limitation, the execution and delivery of employment agreements with certain members of the senior management team of SSPS, the release of a principal stockholder of SSPS of his guaranty of certain indebtedness of SSPS, the waiver of certain rights of first refusal to purchase the shares of SSPS capital stock owned by a principal stockholder, the termination and release of certain obligations of SSPS under existing employment agreements and other customary conditions to closing. At the Closing, the Company will issue approximately 2.9 million shares of it's Common Stock and pay cash and notes of approximately $1.5 million for SSPS. The Company has also agreed to provide the sellers of the SSPS shares and the Impact interests with demand and piggyback registration rights. It is presently anticipated that the Company's acquisition of SSPS and Impact will occur during October 1999. On July 16, 1999, the Company commenced a private offering (the "Offering") of up to 1,200,000 shares of its Common Stock (each a "Share" and collectively the "Shares"). The Offering is being conducted under the exemptions from the registration requirements of the Securities Act of 1933, as amended (the "Act"), provided by Section 4(2) of the Act and the provisions of Rule 506 of Regulation D. Sales of the Shares will be made only to "accredited investors," as such term is defined in Rule 501(a) under the Act. The Shares are being offered at a purchase price of $3.875 per share and on a "best efforts all or none" basis with respect to the first 400,000 Shares (the "Minimum Offering"), and on a "best efforts" basis thereafter with respect to the remaining 800,000 Shares (the "Maximum Offering"). The Offering was originally scheduled to terminate on August 30, 1999, but has been extended at the option of the Company. Subscriptions for less than 20,000 Shares (or $77,550) may be accepted at the discretion of the Company. Upon completion of the Minimum Offering and the Maximum Offering, the Company expects to receive gross proceeds of approximately $1,550,000 and $4,650,000, respectively, before deducting commissions (placement agent) and expenses of the Offering (consisting of 3 accounting and legal fees, "blue sky" fees and other related expenses). On October 8, 1999, the Company conducted an interim closing receiving gross proceeds of $2,883,872 from the sale of 744,225 shares of Common Stock. The proceeds of the Offering will be used to fund the acquisition of SSPS and Impact and the working capital needs of the Company.. In August 1999, TopTeam, Inc., a newly formed subsidiary of the Company ("TopTeam") entered into letters of intent with Full Moon Interactive Group, Inc. and Orrell Communications, Inc., and in September, 1999, TopTeam entered into letters of intent with Paradigm 3 Marketing, De Vries Data Systems, Inc., Image Network and Muccino Design Group, Inc. Under the letters of intent, it is contemplated that together the Company and Top Team will acquire all of the outstanding capital stock of these interactive architect companies (the "TopTeam Candidates") in exchange for the issuance of shares of common stock of both the Company and Top Team. The closing of each of the proposed transactions is subject to the completion of legal, business and accounting due diligence and the execution and delivery of definitive acquisition agreements. In connection with the acquisition of the TopTeam Candidates, the Company also anticipates capitalizing TopTeam with approximately $1.5 million in cash. HISTORICAL INFORMATION Since the Company has been unprofitable since the fiscal year ended June 1994, management implemented substantial measures to address its financial difficulties. The Board of Directors, after having considered numerous alternatives, concluded that the Company must significantly reduce its expenses in order to decrease the Company's net losses. Therefore, during the Company's fiscal year ended June 30, 1997, the Company embarked upon a cost cutting plan by reducing its workforce, closing unprofitable locations and discontinuing under performing product lines. Specifically, the Company (i) closed all of its branch offices and (ii) reduced the number of employees from a high of ninety six (96) in September 1995 to twenty four (24) full-time and five (5) part-time as of September 30, 1997. Despite implementing this business reorganization strategy, the Company failed to regain profitability during the fiscal year ended June 30, 1998. As a result, the Company determined to reduce further its existing computer equipment business and in April 1999 adopted a plan to divest Medical Marketplace, Inc., the Company's subsidiary engaged in the sale and lease of used medical equipment. During the past fiscal year, the Company has further reduced the size and scope of its computer equipment business. The Company believes that because of significant changes in the computer industry, the market is more competitive and opportunities to engage in certain business are no longer available. The increase in the importance and dominance of personal computers (with relatively low sales prices) and the reduced usage of mid-sized computer systems has severely reduced the Company's business in the RISC 6000 and AS400 mid-range systems. Further, the Company has seen major OEM manufacturers (such as, IBM, and Digital Equipment Corporation) enter into the reselling business. As a consequence, the Company actively pursued acquiring an alternative business and/or assets resulting in the E-Taxi Acquisition in April 1999. In March of 1994, Computer Marketplace(R) formed Medical Marketplace, Inc. ("Medical Marketplace") as a wholly owned subsidiary to engage in worldwide distribution of used medical equipment to health care providers. Medical Marketplace has bought and resold a wide variety of medical equipment including Magnetic Resonance Imaging ("MRI"), Computed Tomography Scanners ("CT") and Ultrasound equipment. In addition, Medical Marketplace provides customers with consulting services related to equipment acquisition, equipment layout and facility design. Medical Marketplace also had a small rental program which provides new equipment and contract service with mobile MRI and CT equipment. Medical Marketplace conducts its primary distribution operations from its main office in Apple Valley, California. Since the Company has adopted a new 4 strategic plan regarding its development, acquisition and operation of Internet businesses, the Company decided to accelerate its efforts to divest its ownership of Medical Marketplace. On October 12, 1999, the Company entered into a Stock Purchase Agreement with two employees (together, the "Buyers") of Medical Marketplace, pursuant to which the Company has agreed to sell, and the Buyers have agreed to purchase for cash and promissory notes in the amount of $65,000 all of the issued and outstanding capital stock of Medical Marketplace. The closing of the transaction will be effected as of June 30, 1999 for accounting purposes. THE eMARKETPLACE STRATEGY The Company is pursuing a business plan to become an Internet holding company engaged primarily in development and operation of a network of Internet properties ("Portfolio Companies") that provide content, commerce and online services to demographically-targeted audiences. The Company believes that highly targeted audience profiles of our Portfolio Companies may make them valuable for advertisers, retailers and service providers who are increasingly allocating marketing resources to target markets online. The Company's strategy is to develop and promote synergistic business relationships among the Portfolio Companies, and to provide numerous operational and management services. These services include active strategic direction, operating guidance, merger and acquisition assistance, board and management recruitment, and innovative financing. DEVELOP PREMIER NARROWCAST DESTINATION SITES Responding to market opportunities, our goal is to become a premier Internet "Studio" for timely development of Internet media properties. Through acquisitions and investments, the Company intends to develop a series of valuable, narrowcast destination sites in major segments of the economy. The Company's programming strategy is to establish destination sites to attract affinity audiences of demographically valuable users, and serve them with premier advertisers, sponsors and electronic commerce partners. Due to the high-value demographics of our audiences, believes that it will attract premier Internet advertisers at higher a cost per thousand impressions (CPM) than is paid to portals and other Internet destinations. Our sales strategy is to develop context-driven, long-term relationships with leading corporate sponsors. These sponsorships may go beyond banner advertising to focus on the advertiser's broader marketing objectives. Exclusive category opportunities will be offered to certain sponsors within the context of each site's audience. For example, a Small Office Home Office (SOHO) site will offer opportunities for exclusive relationships for insurance, benefits, financial services and other relationships. For electronic commerce, we hope to develop strategic arrangements with premier online retailers and service providers whose goods and services tie closely to specific areas of content within the sites of our Portfolio Companies. Each Portfolio Company site will have its own opportunities for electronic commerce tie-ins. Sponsorship fees and revenue sharing arrangements will be established in return for a measure of exclusivity in the sponsor's industry and market segments. PROVIDE STRATEGIC GUIDANCE AND SUPPORT, AND PROMOTE COLLABORATION Responding to market challenges, our operating strategy is to work with our Portfolio Companies to actively develop their business strategies, operations and management teams, and to establish a collaborative network that leverages their collective strengths and strategic relationships. We will provide strategic guidance to Portfolio Companies regarding market positioning, business model development and market trends. In addition, our Portfolio 5 Companies who provide Internet Architecture, Human Resources and other Administrative services will be engaged to accelerate the new Portfolio Company's development and relieve them of certain day-to-day management and operational issues. We intend to assist our Portfolio Companies by providing access to companies and individuals who serve them in the following areas: - Recruiting, Staffing and Human Resource Management Support - Web Strategy, Development and Site Hosting - Information Technology and Electronic Commerce - Finance and Administration - Business Development and Strategic Relationships The collaboration of our Portfolio Companies is the result of our role as the hub of our network. Through the network we identify prospective alliances, assist in strategic planning and monitor the ongoing relationships among our Portfolio Companies. We encourage and regulate the information flow among our Portfolio Companies. We also control the information flow by determining the composition of the network. If we believe that a Portfolio Company is not contributing to our network or has lost its strategic importance to the network, we may sell our interest in that Portfolio Company. PORTFOLIO COMPANY CRITERIA Portfolio acquisition and investment opportunities will be assessed with these factors: - AUDIENCE DEMOGRAPHIC. We will assess companies that we believe have the content, products, services and skills to attract a valuable narrowcast audience. - MANAGEMENT QUALITY. We will assess management's overall quality and industry expertise. - SIGNIFICANT OWNERSHIP. We will assess whether we will be able to obtain a significant position in the company and exert influence over the company. - NETWORK SYNERGY. We consider the degree to which a potential Portfolio Company may contribute to our network, and benefit from our network and operational resources. To ensure our ability to provide active guidance to the Portfolio Company, we will require representation on the company's Board of Directors as a condition to an acquisition or investment. For proper incentives, the Portfolio Company's management and key personnel will retain an equity stake in the company. During negotiations with potential Portfolio Companies we will emphasize the value of our collaborative network and the opportunity to efficiently take their company public through a rights offering to our shareholders. Our Portfolio Companies, strategic investors and Advisory Board members may assist in these discussions and in other stages of the acquisition process, including the initial evaluation of potential Portfolio Companies and due diligence. eMARKETPLACE PORTFOLIO COMPANIES E-TAXI, INC. - VERTICAL PORTAL FOR SMALL OFFICE, HOME OFFICE MARKET In April 1999, the Company acquired all of the outstanding capital stock of E-Taxi which is currently developing a SOHO web site, commonly referred to as a VERTICAL PORTAL for the Small Office, Home Office (SOHO) market. The Company believes a SOHO portal will offer valuable proprietary and aggregated, community content of such a nature that this targeted affinity audience will 6 regard the site as a valuable destination. E-Taxi has acquired the domain name emarketplace.com and has begun development of the web site. It anticipates launching the site sometime in the first quarter of 2000. ATTEMPT TO CAPITALIZE ON MARKET OPPORTUNITY. The Internet continues to experience an exponential rate of user growth, with estimates ranging from 300,000 to 1 million new users per month, and an estimated 20% of the North American population over the age of 15 has Internet access in some form. According to CommerceNet/Nielsen, this rapid growth has led to combined US/Canada market in June 1998 of over 78.6 million Internet subscribers, and corresponding increases in subscription revenues, and transaction revenues. IDC research anticipates that the amount of commerce conducted over the Internet is expected to grow from $2.6 billion in 1996 to more than $220 billion in 2001. AFFINITY GROUP. The SOHO market represents 89% of all U.S. companies. As a consequence, it is an attractive consumer group to a variety of industries, but difficult to reach due to its fragmentation. When defined as companies with fewer than 25 employees, the SOHO market accounts for 49.5% of all U.S. employment. This segment within the SOHO market collectively spent over $54 billion on office technology alone, in 1998. Fifty-two percent of SOHO businesses identified the use of the Internet to reduce costs and increase efficiency. Despite its attractive size and purchasing power, it is a difficult market to reach due to its fragmentation. However, as these SOHO businesses increasingly rely on the Internet to increase productivity and efficiency, the Internet should provide a vehicle with which to reach this market group. Aggregating this type of affinity group generates a number of revenue opportunities: (i) sponsorship; (ii) advertising; (iii) e-commerce; (iv) content creation and ownership; and (vi) distance education and training. TECHSTORE LLC TechStore LLC was acquired by E-Taxi in April 1999 immediately prior to the Company's acquisition of E-Taxi. Founded in 1997, TechStore offers for sale through its Web site, WWW.TECHSTORE.COM, more than 40,000 name brand computer hardware and software and consumer electronics products. The site has distinguished itself by offering consumers a user-friendly Web site, low prices, large selection, detailed product information, real-time availability, online secure ordering, online invoice history and online order tracking. Based upon the demographics of TechStore's customers, the Company believes that SOHO businesses make up a large group of those consumers using the Internet for procurement of office technology products. In fact, nearly 40% of e-commerce transactions on the Internet involved computer related products in 1998, and 27% of advertising revenue was generated by technology advertising. To attract prospective computer equipment purchasers to its site, TechStore spends ad dollars at major portals, such as CNET, in the hope of generating e-commerce revenue. The Company believes those ads are inefficient because a large portion of those portals' audiences are outside of their targeted consumer, SOHO businesses. The Company intends to better utilize those ad dollars by having TechStore directly target SOHO customers via the EMARKETPLACE.COM web site. Once identified by TechStore as a SOHO consumer, we intend to use the TechStore site to introduce them to other valuable content, products, and services within EMARKETPLACE.COM. This will not only add new revenue sources to TechStore, such as sponsorship and ad revenue, but will lower the cost of reaching the SOHO audience for our other proprietary and aggregated content. 7 ORDER FULFILLMENT TechStore is entirely dependent upon a third party for order fulfillment. Currently, TechStore utilizes fulfillment services offered by TechData Corporation, a leading full-line distributor of more than 75,000 technology products worldwide. TechData offers fulfillment services via 6 regional distribution centers. TechStore has no long-term contracts or arrangements with TechData that guarantee the availability, shipping, or quality of merchandise. TechStore relies upon TechData to ship merchandise directly to customers. Consequently, TechStore has limited control over the goods shipped, and at times these shipments have been subject to delays. If the quality of service provided by the distributor, TechData, falls below a satisfactory standard or if our level of returns exceeds our expectations, this could have a harmful effect on our business. The Company believes that it could establish a similar relationship with other distributors; however, there can be no assurance that such a distributor could provide the fulfillment, service and pricing currently offered by TechData to TechStore. RESEARCH AND DEVELOPMENT/TECHNOLOGY TechStore is attempting to provide complete eCommerce integration throughout the entire sales process. To accomplish this goal, TechStore is utilizing the latest generation of industry standard eBusiness software and computer hardware technologies. A Virtual Private Network (VPN) connection to the distributor, TechData, allows custom software agents to pull invoice and shipping data for accounting analysis and customer service applications. TechStore maintains another secure Internet based connection to Electronic Data Systems Corporation (EDS) for credit card processing services. Web and database servers are co-located at a locally based business grade Internet Service Provider (ISP), MasterLink, that offers high premises security and extensive redundant power and Internet backbone connectivity. TechStore depends upon the data and network communications systems at EDS, MasterLink, as well as TechData and all of their respective service providers, for uninterrupted operation of the Web site and other business communications. An interruption of data and network communications services could have a materially adverse effect on our business. OFFICE EXPRESS, INC. In August 1999, the Company's subsidiary Office Express, Inc., launched its web site, www.officeexpress.com. Offering over 20,000 brand name office products, the site enables online customers to purchase office products and supplies at highly competitive prices. Products are generally shipped for next day delivery for most domestic US destinations and the site features advanced online customer service features, including customer shopping lists, which allows users to manage lists of frequently purchased items. Office Express is entirely dependent upon a third party for order fulfillment. Currently OfficeExpress utilizes fulfillment services offered by United Stationers Supply Co., the nation's largest wholesale distributor of office, computer, and facilities management products. United Stationers offers fulfillment services via 40 regional distribution centers. Office Express has no long-term contracts or arrangements with United Stationers that guarantee the availability, shipping, or quality of merchandise. The Company believes that it could establish a similar relationship with other distributors; however, there can be no assurance that such a distributor could provide the fulfillment, service and pricing currently offered by United Stationers to Office Express. 8 PROPOSED BUSINESS OPPORTUNITIES TOP TEAM, INC. In August 1999, the Company formed a wholly-owned Delaware subsidiary, TopTeam, Inc., to undertake a strategic consolidation of businesses that provide strategic consulting and comprehensive Internet based solutions to corporate users of information technology. To businesses across a variety industries, the Internet represents both a significant opportunity for growth, as well as a significant threat from new competition. International Data Corp. (IDC) estimates Internet users will grow from nearly 100 million in 1998 to 320 million by 2002, with a corresponding growth in e-commerce transactions from $32 billion in 1998 to $426 billion in 2002. This is forcing companies to rapidly develop and deploy Internet strategies. Since most companies are outsourcing all or portion of this process, demand for Internet professional services is soaring, jumping from $2.4 billion in 1997 to $7 billion in 1998 and expected to exceed $40 billion in 2002, according to IDC. The complexity of the Internet goes beyond the scope of traditional computer systems integrators and information technology (I.T.) professionals. Total e-business solutions require business strategy, brand management, the marketing skills required to develop an audience and the creative and design skills to develop compelling content and engaging user interface, as well as the technology skills to enable a site for e-commerce transactions. A new class of professionals have emerged to meet these complex needs, which some Wall Street analysts refer to as "Interactive Architects." These firms combine traditional I.T. skills, with business consulting and advertising skills in one integrated company. They include such firms as USWEB/CKS, Viant, IXL, Razorfish and Scient. In August 1999, TopTeam entered into letters of intent with Full Moon Interactive Group, Inc. and Orrell Communications, Inc. and in September 1999 TopTeam entered into letters of intent with Paradigm 3 Marketing, De Vries Data Systems, Inc., Image Network and Muccino Design Group, Inc (collectively, "TopTeam Candidates"). It is the objective of e-Marketplace to build a world class "interactive architect" through the acquisition of companies involved in Internet consulting. The TopTeam Candidates service a blue chip customer list in California and represent approximately $25 million in annual revenue. Under the terms of the letters of intent, the Company will acquire all of the outstanding capital stock of the TopTeam Candidates in exchange for the issuance of shares of common stock of both the Company and TopTeam. At the time of closing of the acquisition of the TopTeam Candidates it is expected that the Company will also capitalize TopTeam with approximately $1.5 million in cash. The closing of each of the proposed transactions is subject to the completion of legal, business, and accounting due diligence and the execution and delivery of a definitive acquisition agreement. In light of the fact that these conditions have yet to be fully satisfied, there can be no assurance that acquisitions of the TopTeam Candidates will occur or that we will complete a sufficient number of acquisitions to gain the critical mass, experienced professionals, industry expertise, technical skills, and geographic coverage necessary to make TopTeam an economically viable investment. SSPS, INC. The terms of the definitive agreement executed by the Company and E-Taxi with the owners of SSPS requires the payment of (i) $450,000 in cash; (ii) 2,300,000 shares of Common Stock; (iii) a promissory note in the amount of $150,000; and (iv) a convertible promissory note in the amount of $900,000, convertible into 600,000 shares of Common Stock. Pursuant to the SSPS Agreement, a portion of the consideration will be subject to adjustment in the event that certain financial thresholds are not achieved. It is the intent of the Company to complete the SSPS Acquisition within a reasonable period from the Closing of 9 this Offering. The SSPS Acquisition is subject to certain closing conditions. In addition to the execution of Employment and Non-Competition Agreements by the owners of SSPS and the issuance of a legal opinion on behalf of the owners, the closing is subject to the absence of any events which has a material adverse effect on SSPS' financial condition or operations. In addition, all representations and warranties made by the parties in the Acquisition Agreement must be true at the time of closing. The operating divisions of SSPS consist of TriStep, Gig2Gig.com, ITWorldnet.com, and Impact Team International. TriStep is a leader in using Internet-based systems to provide outsourced management of corporate recruiting and staffing, contractor payment and benefits administration -- sometimes referred to as client-side management of the contingent workforce. Gig2Gig, ITWorldnet and Impact Team employ TriStep's systems, software and services to focus on market opportunities in the Information Technology (IT) industry. ITWorldnet and Impact Team help clients identify and engage IT contract professionals through multiple sources, including agencies, direct solicitation and Internet resume postings. Gig2Gig is a Web site to be launched later this year to deliver services to IT contractors, technical writers and other independents who work "gig to gig." The site will allow them to engage personalized employment services, including access to insurance and benefits, vacation pay, billing and collection, contracting and compliance, accounting and tax, and other business-related services. TriStep's proprietary software allows hiring managers to initiate and fill job orders interactively on the Internet and electronically access TriStep's service bureau for Employment Transaction Processing (ETP). The company provides each client with a secure intranet ordering site where they can identify, assess, engage, track and account for contract employees from any and all sources. TriStep is able to receive, process and manage the client's contractor and employee resumes directly from its servers. From resumes submitted by agencies, from candidates or directly from the Web, Tri-Step's software provides real-time extraction and grading of job-skills and automatically submits those that meet the client's specific requirements. Clients have access to real-time and historical analyses of the entire contingent workforce and Consolidated Billing Services to places all agency bills on one convenient invoice. All data is uploadable to ERP systems, like SAP and PeopleSoft, allowing employers to model both their permanent and contingent workforces. GOVERNMENT REGULATION Our business may face increased government regulation. TAXATION. The tax treatment of the Internet and electronic commerce is currently unsettled. A number of proposals have been made at the federal, state and local levels and by certain foreign governments that could impose taxes on the sale of goods and services and certain other Internet activities. Recently, the Internet Tax Freedom Act was signed into law, placing a three-year moratorium on new state and local taxes on Internet commerce which moratorium ends on December, 2002. Our business may be harmed by the passage of laws in the future imposing taxes or other burdensome regulations on Internet commerce. NEW INTERNET LAWS. Due to the increasing popularity and use of the Internet, it is possible that a number of laws and regulations may be adopted with respect to the Internet generally, covering issues such as user privacy, pricing, and characteristics and quality of products and services. Similarly, the growth and development of the market for Internet commerce may prompt calls for more stringent consumer protection laws that may impose additional burdens on those companies conducting business over the Internet. The adoption of any additional laws or regulations may decrease the growth of commerce over the Internet, increase our cost of doing business or otherwise have a harmful effect on our business. 10 INTERNET ACCESS FEES. Certain local telephone carriers have asserted that the increasing popularity and use of the Internet has burdened the existing telecommunications infrastructure, and that many areas with high Internet use have begun to experience interruptions in telephone service. These carriers have petitioned the Federal Communications Commission to impose access fees on Internet service providers and online service providers. If such access fees are imposed, the costs of communicating on the Internet could increase substantially, potentially slowing the increasing use of the Internet, which could in turn decrease the demand for our services or increase our cost of doing business and thus have a harmful effect on our business. QUALIFICATION TO DO BUSINESS We may have to qualify to do business in other jurisdictions. As our service is available over the Internet in multiple states and foreign countries, and as we sell to numerous consumers resident in such states and foreign countries, such jurisdictions may claim that we are required to qualify to do business as a foreign corporation in each such state and foreign country. We are qualified to do business in only three states, and our failure to qualify as a foreign corporation in a jurisdiction where we are required to do so could subject us to taxes and penalties. PATENTS, TRADEMARKS, LICENSES, AND FRANCHISES TechStore and Office Express do not hold any patents or registered trademarks. TechStore holds various web domain names relating to our brand, including the "TechStore.com" and "OfficeExpress.com" domain names. The regulation of domain names in the United States and in foreign countries is subject to change in the near future. Such changes in the United States are expected to include a transition from the current system of governmental regulation to a system, which is controlled by a non-profit corporation and the creation of additional top-level domains. We may not be able to acquire or maintain relevant domain names in all countries in which we conduct or intend to conduct business. Furthermore, the relationship between regulations governing domain names and the laws protecting trademarks and similar proprietary rights is unclear. Therefore, we may be unable to prevent third parties from acquiring domain names that are similar to, infringe upon or otherwise decrease the value of or dilute the TechStore brand. Our proprietary software is protected by copyright and applicable trade secret law. As part of our confidentiality procedures, we generally enter into agreements with our employees and consultants and limit access to and distribution of our software, documentation and other proprietary information. Notwithstanding these precautions, it might be possible for a third party to copy or otherwise obtain and use our software or other proprietary information without authorization or to develop similar software independently. Policing unauthorized use of our technology is difficult, particularly because the global nature of the Internet makes it difficult to control the ultimate destination or security of software or other data transmitted. The laws of other countries may afford us little or no effective protection of our intellectual property. We may in the future receive, notices from third parties claiming infringement by our software or other aspects of our business. While we are not currently subject to any such claim, any future claim, with or without merit, could result in significant litigation costs and diversion of our management and other resources and could require us to enter into royalty and licensing agreements, either or both of which could seriously harm our business. Such royalty and licensing agreements, if required, may not be available on terms acceptable to us or at all. In the future, we may also need to file lawsuits to enforce our intellectual property rights, to protect our trade secrets or to determine the validity and scope of the proprietary rights of others. Such litigation, whether it is successful or not, could result in substantial costs and diversion of resources and could seriously harm our business. 11 We rely on a variety of technologies that we license from third parties, including our database and Internet server software, which we use in our web site to perform key functions. We cannot assure you that these third party technology licenses will continue to be available to us on commercially reasonable terms. Our loss of or inability to maintain or obtain upgrades to any of these technology licenses could result in delays in completing our proprietary software enhancements and new development until equivalent technology could be identified, licensed or developed, and integrated. Any such delays could seriously harm our business. COMPETITION We face competition from other capital providers including publicly-traded Internet companies, venture capital companies and large corporations. Many of these competitors have greater financial resources and brand name recognition than we do. These competitors may limit our opportunity to acquire interests in new Portfolio Companies. If we cannot acquire interests in attractive companies, our strategy to build a collaborative network of Portfolio Companies may not succeed. Competition for Internet products and services is intense. Traditional media companies, such as television broadcasters, magazine publishers and radio stations, are continuously refining their content and strategies to increase their audiences and advertising and sponsorship revenues. Additionally, the number of Web sites competing for the attention and spending of users, advertisers and sponsors is increasing exponentially. Our sites will compete for users, advertisers and sponsors based on the value of their demographics. If our Portfolio Companies are unable to compete successfully, they may fail. Competition is likely to increase significantly as new companies enter the market and competitors expand their services. Competitors for our Portfolio companies are likely to enjoy substantial competitive advantages, including the following: - larger numbers of users and advertisers; - greater brand recognition; - more fully-developed electronic commerce opportunities; - larger technical, marketing and production staffs; and - greater financial, marketing, technical and other resources. CREDIT FACILITIES In connection with TechStore's distribution arrangement with TechData Corporation, TechStore currently has lines of credit in the amount of $300,000 with each of Deutche Financial Services and TechData Credit Services Corporation. The Credit Lines accrue interest at a rate of 1.1875% per month. EMPLOYEES As of August 31, 1999, the Company had 15 employees. The Company also retains the services of independent contractors for software development, accounting services, and product fulfillment. None of our employees is represented by a labor union, and we consider our employee relations to be good. We believe that our future success will depend in part on our continued ability to attract, hire and retain qualified personnel. 12 IN ADDITION TO OTHER INFORMATION IN THIS ANNUAL REPORT ON FORM 10-KSB, THE FOLLOWING IMPORTANT FACTORS SHOULD BE CAREFULLY CONSIDERED IN EVALUATING THE COMPANY AND ITS BUSINESS BECAUSE SUCH FACTORS CURRENTLY HAVE A SIGNIFICANT IMPACT ON THE COMPANY'S BUSINESS, PROSPECTS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RISKS PARTICULAR TO THE COMPANY WE HAVE INCURRED OPERATING LOSSES AND WE MAY NOT BE PROFITABLE IN THE NEAR FUTURE Since we began operations, we have incurred operating losses. Although management believes it could reduce the Company's operating losses in the future, no assurance can be given that management will be successful in achieving this objective. In addition, our plan to acquire additional Portfolio Companies may result in additional operating expenses. Failure to achieve profitability within the timeframe expected by investors may adversely affect the market price of our Common Stock. We have incurred net losses of $1,331,431, $3,347,435 and $2,207,131 for the years ended June 30, 1996, 1997 and 1998, respectively, and a net loss of $728,297 for the year ended June 30, 1999, although such net losses for such periods resulted from the Company's operations prior to the implementation of its new business plan. LIMITED OPERATING HISTORY Currently, the Company's business is principally operated through its TechStore, LLC and Office Express, Inc. subsidiaries. It is anticipated that the Company will close on the acquisition of SSPS, Inc. and its affiliated companies ("Tri-Step") during the second quarter of 2000. The Company and its Portfolio Companies are among the many companies that have entered into the relatively new Internet markets. Our Portfolio Companies are in the early stages of their development. Our business and prospects must be considered in light of the risk, expense and difficulties frequently encountered by companies in an early stage of development, particularly companies in new and rapidly evolving markets such as the Internet. If we are unable to effectively allocate our resources and help grow our Portfolio Companies, our stock price may be adversely affected and we may be unable to execute our strategy of developing a collaborative network of Portfolio Companies. Our business depends upon the performance of our Portfolio Companies, which is uncertain. Economic, governmental, industry and internal company factors outside our control may affect each of our Portfolio Companies. A significant portion of our assets will be comprised of ownership interests in our Portfolio Companies. If our Portfolio Companies do not succeed, the value of our assets will decline. WE MAY NEED ADDITIONAL FINANCING We believe that proceeds from the issuance of securities together with anticipated cash flow from operations could be adequate to fund our operations for the next fiscal year. There can be no assurance, however, that we will not require additional financing prior to or after such time. There can be no assurance that any additional financing will be available to the Company on acceptable terms, or at all. If adequate funds are not available, the Company may be required to delay, scale back or eliminate its plans for expansion. Our inability to obtain additional financing could have a material adverse effect on the Company's business, financial condition and results of operations. 13 BUSINESS MODEL IS UNPROVEN Our strategy is based on an unproven business model. Our business model depends on the willingness of companies to join our network of Internet businesses and the ability of the network to assist our Portfolio Companies. If we cannot convince companies of the value of our business model, our ability to attract new companies will be adversely affected and our strategy of building a collaborative network may not succeed. We may be unable to identify companies that complement our strategy, and even if we identify a company that complements our strategy, we may be unable to acquire an interest in the company for many reasons, including: - a failure to agree on the terms of the acquisition, such as the amount or price of our acquired interest; - incompatibility between us and management of the company; - competition from other acquirors; - a lack of capital to acquire an interest in the company; and the unwillingness of the company to partner with us. If we cannot acquire interests in attractive companies, our strategy to build a collaborative network of Portfolio Companies may not succeed. DEPENDENCE ON CONTINUED GROWTH OF THE INTERNET AND INTERNET INFRASTRUCTURE The Company's future success is highly dependent upon continued growth in the use of the Internet generally and, in particular, as a medium for advertising, marketing, services and commerce. Commercial use of the Internet is at an early stage of development, and market acceptance of the Internet as a medium for advertising, information services and commerce is subject to a high level of uncertainty. The relative effectiveness of the Internet as an advertising medium as compared to traditional advertising media, for example, has not been determined. Further, there can be no assurance that the required infrastructure to support future Internet user and traffic growth or complementary products or services necessary to make the Internet a viable commercial marketplace will be developed, or, if they are developed, that the Internet will become a viable commercial marketplace for products and services such as those offered by the Company. If commercial use of the Internet fails to continue to expand, the Company's business, results of operations and financial condition would be adversely affected. WE WILL RELY ON MERCHANDISE VENDORS FOR SUPPLY, SHIPPING AND QUALITY OF PRODUCTS. Supply. We rely on vendors to supply us with merchandise. We do not have any long-term contracts or arrangements with our vendors that guarantee the availability of merchandise. As a result, we may not be able to obtain sufficient quality and quantities of merchandise at competitive prices. Also, the quality of service provided by such parties may fall below the standard needed to enable us to conduct our business effectively. TechStore and Office Express cannot assure you that their current vendors will continue to supply merchandise or that we will be able to establish new vendor relationships that will ensure that merchandise will be available. Customer service--shipping and quality of products (returns). Currently, TechStore utilizes fulfillment services offered by TechData Corporation, and Office Express utilized fulfillment services offered by United Stationers Supply Co. The vendors ship merchandise directly to customers. Consequently, we will have limited control over the goods shipped by these vendors, and shipments of goods may be subject to delays. In addition, we may 14 accept returns from customers for which we will not receive reimbursements from manufacturers or vendors. If the quality of service provided by such vendors falls below a satisfactory standard or if our level of returns exceeds expectations, this could have a harmful effect on our business. WE RELY ON OTHER THIRD PARTIES IN CONDUCTING OUR OPERATIONS In conducting our operations, we depend on several other third parties, including the following: o Fulfillment. Third parties fulfill all of our sales. Any service interruptions experienced by these distribution centers as a result of labor problems or otherwise could disrupt or prevent fulfillment of customer orders; o Operating software. Our internally-developed software depends on operating systems, database and server software that have been developed, produced by and licensed from third parties; o Payment processing. We rely on one or two processors of credit card transactions. If computer systems failures or other problems were to prevent them from processing our credit card transactions, we would experience delays and business disruptions; and o Shipping. We use one or two primary delivery services to ship our products. Our business would suffer if labor problems or other causes prevented these or any other major carriers from delivering our products for significant time periods. OUR SUCCESS IS DEPENDENT ON KEY PERSONNEL We believe that our success will depend on continued employment by us and our Portfolio Companies of senior management and key technical personnel. If one or more members of our senior management or our Portfolio Companies' senior management would become unable or unwilling to continue in their present positions, our business and operations could be disrupted. In addition, we may be unable to find and hire additional qualified management and professional personnel to help lead us and our Portfolio Companies. The success of some of our Portfolio Companies also depends on their having highly trained technical and marketing personnel. Our Portfolio Companies will need to continue to hire additional personnel as their businesses grow. A shortage in the number of trained technical and marketing personnel could limit the ability of our Portfolio Companies to grow their business. POTENTIAL FOR OPERATING LOSSES Our expenses will increase as we build an infrastructure to implement our business model. For example, we expect to hire additional employees and expand our information technology systems. In addition, we plan to significantly increase our operating expenses to broaden our Portfolio Company support capabilities, explore acquisition opportunities and alliances with other companies, and facilitate business arrangements among our Portfolio Companies. Expenses may also increase due to the potential effect of goodwill amortization and other charges resulting from completed and future acquisitions. If any of these and other expenses are not accompanied by increased revenue, our operating losses will be greater than we anticipate. 15 Y2K COMPLIANCE Although management believes that the computer systems of the Company and its the Portfolio Companies are Year 2000 compliant, it is possible that our systems and those of our Portfolio Companies as well as third parties (over whom we have little or no control) may not be Year 2000 compliant. Should any of these computer systems fail to be Year 2000 compliant, our operations and the operations of our Portfolio Companies could be disrupted. Many software programs have been written using two digits rather than four digits to define the applicable year. This poses a problem at the end of the century because these programs may recognize a date using "00" as the year 1900, rather than the year 2000. This in turn could result in major system failures or miscalculations and is generally referred to as the Year 2000 issue. We may realize exposure and risk if our systems and the systems on which our Portfolio Companies are dependent to conduct their operations are not Year 2000 compliant. Our potential areas of exposure include products purchased from third parties, computers, software, telephone systems and other equipment used internally. If our present efforts and the efforts of our Portfolio Companies to address the Year 2000 compliance issues are not successful, or if distributors, suppliers and other third parties with which we and our Portfolio Companies conduct business do not successfully address such issues, our business and the businesses of our Portfolio Companies may not be operational for a period of time. If the Web-hosting facilities of our Portfolio Companies are not Year 2000 compliant, their production Web sites would be unavailable and they would not be able to deliver services to their users. RISKS PARTICULAR TO OUR PROPOSED ACQUISITIONS AND PROSPECTIVE PORTFOLIO COMPANIES UNCERTAINTY OF CONSUMMATION OF PROPOSED ACQUISITIONS Although the Company and its E-Taxi subsidiary have entered into a definitive agreement with the stockholders of SSPS, each party's obligation to consummate the acquisition is subject to the satisfaction of numerous conditions, including the absence of material adverse changes in business, financial condition and results of operations. In addition, TopTeam has entered into letters of intent with the TopTeam Candidates, none of which are binding. Therefore, no assurance can be provided that E-Taxi will consummate its proposed acquisition of SSPS nor that TopTeam and the Company will consummate the proposed acquisition of the TopTeam Candidates. RISKS INHERENT TO COMPANY'S ACQUISITION STRATEGY The Company has in the past, and intends in the future, to expand through the acquisition of businesses, technologies, products and services, such as the recent acquisitions of E-Taxi and the proposed acquisitions of the SSPS companies and the TopTeam Candidates. Acquisitions may result in the potentially dilutive issuance of equity securities, the incurrence of additional debt, the write-off of in-process research and development of software acquisition and development costs, and the amortization of goodwill and other intangible assets. For example, for the year ended June 30, 1999, the Company recorded in-process research and development expense of approximately $20,000, primarily in connection with the acquisition of TechStore. In September, 1998, a representative of the Securities and Exchange Commission (the SEC) advised the American Institute of Certified Public Accountants with respect to factors to be considered in the valuation of in-process research and development. Although the release of this new guidance presents the potential risk of adjustments to reported amounts, if the Company's valuation methodology were to be challenged by the SEC, the Company believes that its recorded in-process research and development expenses were determined in compliance with such guidance. Any such adjustment could result in an increase in the amount of goodwill recorded, which would result in higher amortization expenses and, therefore, adversely affect the Company's operating results. Further, acquisitions involve a number of special problems, including difficulty integrating technologies, operations and 16 personnel and diversion of management attention in connection with both negotiating the acquisitions and integrating the assets. There can be no assurance that the Company will be successful in addressing such problems. In addition, growth associated with numerous acquisitions places significant strain on the Company's managerial and operational resources. The Company's future operating results will depend to a significant degree on its ability to successfully manage growth and integrate acquisitions. Furthermore, many of Company's investments are in early-stage companies, with limited operating histories and limited or no revenues. Although management believes that it can manage these acquisitions profitably in the future, there can be no assurance that the Company will be successful in developing such companies. UNCERTAINTIES ASSOCIATED WITH SELLING ASSETS A significant element of the Company's business plan involves selling, in public or private offerings, portions of the companies it has acquired and developed. The Company's ability to engage in any such transactions, the timing of such transactions and the amount of proceeds from such transactions are dependent on market and other conditions largely beyond the Company's control. Accordingly, there can be no assurance that the Company will be able to engage in such transactions in the future or that when the Company is able to engage in such transactions they will be at favorable prices. If the Company were unable to liquidate portions of its portfolio companies at favorable prices, the Company's business, financial condition and results of operations would be adversely affected. MANAGEMENT OF GROWTH The Company's growth has placed, and is expected to continue to place, a significant strain on the Company's managerial, operational and financial resources. Further, as the number of the Company's users, advertisers and other business partners grows, the Company is required to manage multiple relationships with various customers, strategic partners and other third parties. These requirements will be exacerbated in the event of further growth of the Company or in the number of its strategic relationships or sponsorship arrangements. There can be no assurance that the Company's systems, procedures or controls will be adequate to support the Company's operations or that the Company management will be able to achieve the rapid execution necessary to successfully offer its services and implement its business plan. COMPETITION Competition for Internet products and services is intense. Our Portfolio Companies will compete for their share of a customer's purchasing budget for services, materials and supplies with other online providers and traditional distribution channels; dollars spent on consulting services with many established information systems and management consulting firms; and advertising budget with online services and traditional off-line media, such as print and trade associations. Furthermore, our Portfolio Companies' competitors may develop Internet products or services that are superior to, or have greater market acceptance than, the solutions offered by our Portfolio Companies. If our Portfolio Companies are unable to compete successfully against their competitors, our Portfolio Companies may fail. Many of our Portfolio Companies' competitors will have greater brand recognition and greater financial, marketing and other resources than our Portfolio Companies. This may place our Portfolio Companies at a disadvantage in responding to their competitors' pricing strategies, technological advances, advertising campaigns, strategic partnerships and other initiatives. 17 PROPRIETARY RIGHTS Proprietary rights may be important to the success and competitive position of our Portfolio Companies. Although our Portfolio Companies may seek to protect their proprietary rights, their actions may be inadequate to protect any trademarks and other proprietary rights. In addition, effective copyright and trademark protection may be unenforceable or limited in certain countries, and the global nature of the Internet may make it impossible for some of our Portfolio Companies to control the dissemination of their work and use of their services. Some of our Portfolio Companies may also license content from third parties and it is possible that they could become subject to infringement actions based upon the content licensed from those third parties. Our Portfolio Companies may obtain representations as to the origin and ownership of such licensed content; however, this may not adequately protect them. Any of these claims, with or without merit, could subject our Portfolio Companies to costly litigation and the diversion of their technical and management personnel. If our Portfolio Companies incur costly litigation and their personnel are not effectively deployed, the expenses incurred by our Portfolio Companies will increase and their profits, if any, will decrease. LEGAL LIABILITY Some of our Portfolio Companies may be subject to legal claims relating to the content on their Web sites, or the downloading and distribution of this content. Claims could involve matters such as defamation, invasion of privacy and copyright infringement. Providers of Internet products and services have been sued in the past, sometimes successfully, based on the content of material. In addition, some of the content provided by our Portfolio Companies on their Web sites may be drawn from data compiled by other parties, including governmental and commercial sources, and rely on our Portfolio Companies re-entering the data. This data may have errors. If any of our Portfolio Companies' Web site content is improperly used or if any of our Portfolio Companies supply incorrect information, it could result in unexpected liability. Any of our Portfolio Companies that incur this type of unexpected liability may not have insurance to cover the claim or its insurance may not provide sufficient coverage. If our Portfolio Companies incur substantial cost because of this type of unexpected liability, the expenses incurred by our Portfolio Companies will increase and their profits, if any, will decrease. SYSTEM FAILURE Some of our Portfolio Companies' businesses may depend on the efficient and uninterrupted operation of their computer and communications hardware systems. Any system interruptions that cause our Portfolio Companies' Web sites to be unavailable to Web browsers may reduce the attractiveness of our Portfolio Companies' Web sites to third party content providers. If third party content providers are unwilling to use our Portfolio Companies' Web sites, our business, financial condition and operating results could be adversely affected. Interruptions could result from natural disasters as well as power loss, telecommunications failure and similar events. Capacity limits on some of our Portfolio Companies' technology, transaction processing systems and network hardware and software may be difficult to project and they may not be able to expand and upgrade their systems to meet increased use. As traffic on our Portfolio Companies' Web sites increases, they must expand and upgrade their technology, transaction processing systems and network hardware and software. Our Portfolio Companies may be unable to accurately project the rate of increase in use of their Web sites. In addition, our Portfolio Companies may not be able to expand and upgrade their systems and network hardware and software capabilities to accommodate increased use of their Websites. If our Portfolio Companies are unable to appropriately upgrade their systems and network hardware and software, the operations and processes of our Portfolio Companies may be disrupted. 18 WEB SITE ADDRESSES Our Portfolio Companies may be unable to acquire or maintain easily identifiable Web site addresses or prevent third parties from acquiring Web site addresses similar to theirs. In these instances, our Portfolio Companies may not grow as we expect. The acquisition and maintenance of Web site addresses generally is regulated by governmental agencies and their designees. The regulation of Web site addresses in the United States and in foreign countries is subject to change. As a result, our Portfolio Companies may not be able to acquire or maintain relevant Web site addresses in all countries where they conduct business. Furthermore, the relationship between regulations governing such addresses and laws protecting trademarks is unclear. RISKS RELATED TO THE INTERNET INDUSTRY SECURITY CONCERNS Concern regarding the security of confidential information transmitted over the Internet may prevent potential customers from engaging in online transactions. If our Portfolio Companies that depend on such transactions do not add sufficient security features to their future product releases, our Portfolio Companies' products may not gain market acceptance or there may be additional legal exposure to them. Despite the measures some of our Portfolio Companies may take, the infrastructure of each of them is potentially vulnerable to physical or electronic break-ins, viruses or similar problems. If a person circumvents the security measures imposed by any one of our Portfolio Companies, he or she could misappropriate proprietary information or cause interruption in operations of the Portfolio Company. Security breaches that result in access to confidential information could damage the reputation of any one of our Portfolio Companies and expose the Portfolio Company affected to a risk of loss or liability. Some of our Portfolio Companies may be required to make significant investments and efforts to protect against or remedy security breaches. Additionally, as e-commerce becomes more widespread, our Portfolio Companies' customers will become more concerned about security. If our Portfolio Companies are unable to adequately address these concerns, they may be unable to sell their goods and services. RAPID TECHNOLOGY CHANGE The markets in which our Portfolio Companies will operate are characterized by rapid technological change, frequent new product and service introductions and evolving industry standards. Significant technological changes could render their existing Web site technology or other products and services obsolete. The e-commerce market's growth and intense competition exacerbate these conditions. If our Portfolio Companies are unable to successfully respond to these developments or do not respond in a cost-effective way, our business, financial condition and operating results will be adversely affected. To be successful, our Portfolio Companies must adapt to their rapidly changing markets by continually improving the responsiveness, services and features of their products and services and by developing new features to meet the needs of their customers. Our success will depend, in part, on our Portfolio Companies' ability to license leading technologies useful in their businesses, enhance their existing products and services and develop new offerings and technology that address the needs of their customers. Our Portfolio Companies will also need to respond to technological advances and emerging industry standards in a cost-effective and timely manner. 19 GOVERNMENT REGULATIONS AND LEGAL UNCERTAINTIES Because of the Internet's popularity and increasing use, new laws and regulations may be adopted. These laws and regulations may cover issues such as the collection of and use of data from Web site visitors and related privacy issues, pricing, content, copyrights, online gambling, distribution and the quality of goods and services. The enactment of any additional laws or regulations may impede the growth of the Internet and e-commerce, which could decrease the revenue of our Portfolio Companies and place additional financial burdens on our business and the businesses of our Portfolio Companies. Laws and regulations directly applicable to e-commerce or Internet communications are becoming more prevalent. For example, Congress recently enacted laws regarding online copyright infringement and the protection of information collected online from children. Although these laws may not have a direct adverse effect on our business or those of our Portfolio Companies, they add to the legal and regulatory burden faced by our Portfolio Companies. RISK RELATED TO THE MARKET VOLATILE MARKET PRICE FOR COMMON STOCK The market price for our common stock is likely to be highly volatile. The trading prices of many technology and Internet-related company stocks have reached historical highs within the last year and have reflected relative valuations substantially above historical levels. During the same period, the stocks of these companies have also been highly volatile and have recorded lows well below such historical highs. We cannot assure you that our common stock will trade at the same levels of other Internet stocks or that Internet stocks in general will sustain their current market prices. The following factors may add to our common stock price's volatility: - actual or anticipated variations in our quarterly operating results and those of our Portfolio Companies; - changes in our financial estimates and those of our Portfolio Companies by securities analysts; - conditions or trends in the Internet industry in general and Internet media properties in particular; - announcements by our Portfolio Companies and their competitors of technological innovations; - announcements by us or our Portfolio Companies or our competitors of significant acquisitions, strategic partnerships or joint ventures; - changes in the market valuations of our Portfolio Companies and other Internet companies; - our capital commitments; - additions or departures of our key personnel and key personnel of our Portfolio Companies; and - sales of our common stock. Many of these factors are beyond our control. These factors may decrease the market price of our common stock, regardless of our operating performance. THE SIGNIFICANT CONTROL OVER STOCKHOLDER VOTING MATTERS WHICH MAY BE EXERCISED BY OUR EXECUTIVE OFFICERS AND DIRECTORS WILL DEPRIVE YOU OF THE ABILITY TO INFLUENCE CORPORATE ACTIONS Our executive officers and directors and their affiliates beneficially own approximately 65.6% of the Company's Common Stock as of September 30, 1999. As a result, these stockholders, if they act together, will be able to control all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This concentration of 20 ownership may have the effect of delaying, preventing or deterring a change in control of the Company, could deprive our stockholders of an opportunity to receive a premium for their Common Stock as part of a sale of the Company and might affect the market price of our Common Stock. FUTURE SALES BY EXISTING SECURITY HOLDERS COULD DEPRESS THE MARKET PRICE OF OUR COMMON STOCK If our existing stockholders sell a large number of shares of our Common Stock, the market price of the Common Stock could decline significantly. Moreover, the perception in the public market that our existing stockholders might sell shares of Common Stock could depress the market price of the Common Stock. Approximately 14,500,000 shares are outstanding as of September 27, 1999 of which approximately 11,000,000 shares will be available for resale in the public market without registration, subject to compliance with Rule 144. Many of our existing stockholders have the right to include their shares of Common Stock in a registration statement with the Securities and Exchange Commission should the Company elect to file a registration statement with the Commission (other than on Forms S-4 or S-8). If we register their shares of Common Stock, they can freely sell those shares in the public market which may adversely effect the market for, and trading price of our Common Stock. FLUCTUATIONS IN QUARTERLY RESULTS MAY ADVERSELY AFFECT OUR STOCK PRICE We expect that our quarterly results could fluctuate significantly due to many factors, including: - the operating results of our Portfolio Companies; - changes in our methods of accounting for our Portfolio Company interests, which may result from changes in our ownership percentages of our Portfolio Companies; - sales of equity securities by our Portfolio Companies, which could cause us to recognize gains or losses under applicable accounting rules; - intense competition; - management of our growth and the growth of our Portfolio Companies; and - divestitures of interests in our Portfolio Companies. We believe that period-to-period comparisons of our operating results are not meaningful. Additionally, if our operating results in one or more quarters do not meet investors' expectations, the price of our common stock could decrease. PENNY STOCK REGULATIONS MAY IMPOSE CERTAIN RESTRICTIONS ON MARKETABILITY OF OUR SHARES. The Securities and Exchange Commission (the "Commission") has adopted regulations which generally define a "penny stock" to be any equity security that has a market price (as defined) of less than $5.00 per share, subject to certain exceptions. Since our Common Stock is not listed on The Nasdaq Stock Market, such securities are not exempt from the definition of "penny stock." Therefore, our Common Stock may be subject to rules that impose additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors (generally those with assets in excess of $1,000,000 or annual income exceeding $200,000, or $300,000 together with their spouse). For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase of "penny stock" and have received the purchaser's written consent to the transaction prior to the purchase. Also, for any transaction involving a "penny stock", unless exempt, the rules require the delivery, prior to the transaction, of a risk disclosure document mandated by the Commission relating to the penny 21 stock market. The broker-dealer must also disclose the commission payable to both the broker-dealer and the registered representative, current quotations for the securities and, if the broker-dealer is the sole market maker. The broker-dealer must disclose this fact and the broker-dealer's presumed control over the market. Finally, monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. Consequently, the "penny stock" rules may restrict the ability of broker-dealers to sell the Company's securities and may affect the ability of purchasers in this Offering to sell the Company's securities in the secondary market (assuming the Shares are registered or an exemption from the registration requirements is available) and the price at which such purchasers can sell any such securities. UNCERTAINTY ELIGIBILITY OF THE COMMON STOCK FOR LISTING ON THE NASDAQ SMALLCAP MARKET In the event the Company files an application with the National Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ") to list the Company's Common Stock for quotation on the NASDAQ SmallCap Market, no assurance can be given that such application will be approved. In addition, it should be noted that the Company's shares of Common Stock were delisted from The NASDAQ SmallCap Market in July 1998 because of the failure to satisfy the continued listing requirements. It should be noted that the initial listing requirements applicable to an application which may be submitted by the Company are more rigorous than the continued listing requirements. ABSENCE OF DIVIDENDS The Company has never declared or paid, nor does it intend or pay in the foreseeable future, cash dividends on its Common Stock, but intends instead to retain any future earnings to finance expansion and operations. ITEM 2. DESCRIPTION OF PROPERTY In July 1999, the Company relocated its executive offices from Corona, California to San Jose California. It closed its office in Corona and entered into a month-to-month lease arrangement for the Company's executive offices located at 255 West Julian Street, Suite 100, San Jose, CA with Crown Services, Inc. ("Crown"), pursuant to which the Company reimburses Crown $5,421.56 per month, the direct rental cost for approximately 3,200 square feet of office space. Robert M. Wallace, the Company's Chairman of the Board, is the Chairman and principal stockholder of Crown. Additionally, in April 1998, TechStore entered into a month to month lease agreement with Bejan Aminifard, the Chief Executive Officer of TechStore, pursuant to which TechStore leases 1,200 square feet for its executive offices located at 14 Commercial Boulevard, Novato, California for $1,400 per month. On April 23, 1987, L. Wayne Kiley and Nancy Kiley, the Company's President and Secretary, respectively, purchased a fifty percent (50%) undivided interest in the land and 5,000 square-foot building at 205 East Fifth Street, Corona, California, which had, until February 1994, served as the Company's headquarters, and subsequently was used as an interim sales office and temporary headquarters for Medical Marketplace until October, 1995. On June 30, 1987, the Kiley's deeded their fifty percent (50%) interest in the land and building to the Company in exchange for 952,623 shares of common stock of the Company. The other fifty percent (50%) interest in the land and building was owned by Jack Mooney, an unrelated third party, who, in June, 1997, sold such interest to the Company in exchange for the cancellation of certain indebtedness. In October 1998, the Company transferred the property as consideration for cancellation of outstanding indebtedness in the aggregate principal amount of $200,000. Shortly 22 thereafter, Mr. Mooney sold the property to the Kiley Children's Trust, a trust created for the benefit of the children of L. Wayne Kiley, the Company's Chief Executive Officer and former Chairman of the Board. On December 1, 1997, the Company entered into a lease with Quality Associates, Inc., a company owned and controlled by L. Wayne Kiley, the Company's Chairman of the Board, Chief Executive Officer and President. The lease was for the Company's executive offices located at 1171 Railroad Street, Corona, CA 91720, and for warehouse space located at 340 North Grant Street, Corona, CA, each for a three year term ending October 31, 2000. The office space and the warehouse space required the payment of $9,000 and $4,000 in monthly rent, respectively. Maintenance of the premises was at the Company's expense. The Company has failed to pay rent since September 1998. In April 1999, the Company's landlord, Quality Associates, Inc., a company owned by L. Wayne Kiley, the Company's Chief Executive Officer and former Chairman of the Board, agreed to cancel all rent due and payable by the Company $64,536 to Quality Associates, Inc. in exchange for the reduction of the exercise price of certain options granted to Mr. Kiley. See "Certain Relationships and Related Transactions." ITEM 3. LEGAL PROCEEDINGS The Company is not a party to any material legal proceedings nor are any material legal proceedings threatened against the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On August 12, 1999, the Company received written consents in lieu of a meeting of stockholders from holders of 6,873,734 shares of Common Stock representing approximately 51.6% of the total issued and outstanding shares of voting stock of the Company approving (i) the adoption of the Company's 1999 Stock Plan and (ii) an amendment to the Company's Certificate of Incorporation changing the Company's name to "eMarketplace, Inc.". PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's securities commenced trading on The Nasdaq SmallCap Market system upon the effectiveness of the Company's Initial Public Offering on June 22, 1993. As of that date, the Company's Common Stock, the Class A Warrants and the Class B Warrants began trading under the symbols "MKPL" and "MKPLW" and "MKPLZ", respectively. The Common Stock is presently quoted and traded on the OTC Bulletin Board as a result of the Company's failure to satisfy the continued listing requirements of The Nasdaq SmallCap Market in July, 1998. The Class A Warrants and Class B Warrants were delisted from The Nasdaq SmallCap Market as of the close of business on December 18, 1996 and expired in June 1998. The Company also had Class D Warrants which were registered for trading on the OTC Bulletin Board under the symbol "MKPLH" which expired on April 15, 1999. On August 27, 1999, the Company changed its trading symbol to "EMKT" to reflect the Company's name change to eMarketplace, Inc. As of September 30, 1999, there were approximately 135 holders of record of the Company's common stock and approximately 800 beneficial owners. The following table indicates the high and low bid prices for the Company's Common Stock for each of the quarters in the period from July 1, 1998, through June 30, 1999, based upon information supplied by the Nasdaq system and the OTC Bulletin Board. Prices represent quotations between dealers without adjustments for retail markups, markdowns or commissions, and may not represent actual transactions. 23 FOR THE PERIOD FROM JULY 1, 1997 TO JUNE 30, 1999 QUOTED BID PRICE
1999 FY 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter (ended 9/30/98) (ended 12/31/98) (ended 3/31/99) (ended 6/30/99) ---------------- ----------------- ---------------- --------------- Common Stock: High $1.50 $.875 $1.56 $6.375 Low $.875 $.688 $.875 $1.375 1998 FY 1st Quarter 2nd Quarter* 3rd Quarter* 4th Quarter* (ended 9/30/97) (ended 12/31/97) (ended 3/31/98) (ended 6/30/98) ---------------- ----------------- ---------------- --------------- Common Stock: High 1.06 1.53 1.00 1.56 Low 1.00 1.00 1.00 1.50
On September 30, 1999, the closing bid price of the Common Stock as reported on OTC Bulletin Board was $7.00. eMarketplace has no dividend policy, and does not intend to pay any dividends in the foreseeable future. 24 ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD LOOKING STATEMENTS The following Management's Discussion and Analysis contains forward-looking statements, which involve risks and uncertainties. The Company's actual results may differ materially from those anticipated in these forward-looking statements as a result of the acquisition of TechStore and E-taxi, and the proposed acquisition of SSPS, which is expected to close during the second quarter of fiscal 2000, and other factors, including, without limitation, those risk factors set forth under "Risk Factors" included in Part I, Item 1, - "Description of Business" of this Annual Report on Form 10-KSB. OVERVIEW eMarketplace, Inc. (the "Company") consists of eMarketplace, Inc. and its wholly owned subsidiaries. Until April 1999, the Company was primarily in engaged in the purchase and sale of new and used computer equipment, and through its Medical Marketplace, Inc. subsidiary, the purchase and sale of used medical equipment. However, the Company has been in the process of winding down its computer equipment business because it has failed to operate profitably since the fiscal year ended June 1994. In April 1999, the Board of Directors, in connection with their shift in business strategy, announced its intention to divest of Medical Marketplace, resulting in the classification of the business as a discontinued operation. Therefore, the results of Medical Marketplace have been excluded from the results of operations of the Company, and a liability was recorded as an estimate of the total loss to be incurred upon the sale. In April 1999, the Company adopted a new corporate strategy focused on developing, acquiring and operating Internet businesses by acquiring E-Taxi, Inc. ("E-Taxi"). The Company is presently pursuing a business plan to become an Internet holding company engaged primarily in the development and operation of a network of Internet properties ("Portfolio Companies") that provide content, commerce and online services to demographically-targeted audiences. On April 23, 1999, the Company acquired E-Taxi, which is accounted for as a "reverse acquisition." As consideration for the 9,074,000 shares of E-Taxi's common stock and 400,000 shares of the E-Taxi's Series A Preferred Stock, the Company issued an aggregate of 9,074,000 shares of common stock, par value $.0001 per share, and 400,000 shares of Series A Preferred Stock, par value $.0001 per share. For accounting purposes, E-Taxi is deemed to be the acquirer, and the Company is deemed to be acquired, under the purchase method of accounting. Therefore, the financial information presented herein represents the historical results of E-Taxi and the results of the Company from April 23, 1999 (date of acquisition) only. E-Taxi was incorporated in the State of Delaware on April 14, 1998 to develop a vertical Internet portal for the small office, home office ("SOHO") market. Immediately prior to the closing of the E-Taxi Acquisition, E-Taxi closed (i) a private offering of its shares of preferred stock and common stock raising an aggregate of approximately $1,400,000 and (ii) the acquisition of TechStore. LLC, a California limited liability company ("TechStore"), is an online retailer of computer hardware and software. The acquisition was accounted for as a purchase. The results of operations include the results of TechStore from the date of acquisition. 25 As of June 14, 1999, E-Taxi entered into (i) a Stock Purchase Agreement (the "Stock Purchase Agreement") with all of the shareholders of SSPS, Inc., a California corporation ("SSPS"), pursuant to which E-Taxi has agreed to purchase, and the shareholders of SSPS have agreed to sell, approximately 94.6% of the outstanding shares of capital stock of SSPS, and (ii) a Membership Interest Purchase Agreement with all of the members of Impact Team International, LLC, a California limited liability company and an affiliate of SSPS ("Impact"), pursuant to which E-Taxi has agreed to purchase, and the members of Impact have agreed to sell, all of the outstanding membership interests of Impact. SSPS, and its operating divisions TRISTEP, GIG2GIG.COM, and IT WORLDNET.COM, and Impact, provide short term and long term temporary workforce solutions primarily to rapidly growing technology firms. The closing of the transactions contemplated by the Stock Purchase Agreement and the Membership Interest Purchase Agreement (the "Closing") are subject to the satisfaction of certain conditions, including without limitation, the execution and delivery of employment agreements with certain members of the senior management team of SSPS, the release of a principal stockholder of SSPS of his guaranty of certain indebtedness of SSPS, the waiver of certain rights of first refusal to purchase the shares of SSPS capital stock owned by a principal stockholder, the termination and release of certain obligations of SSPS under existing employment agreements and other customary conditions to closing. At the Closing, the Company will issue approximately 2.9 million shares of it's Common Stock and pay cash and notes of approximately $1.5 million for SSPS. The Company has also agreed to provide the sellers of the SSPS shares and the Impact interests with demand and piggyback registration rights. It is presently anticipated that the Company's acquisition of SSPS and Impact will occur during the second quarter of 2000. In August 1999, the Company's newly formed subsidiary, Office Express, Inc., launched its web site, WWW.OFFICEEXPRESS.COM. Offering over 20,000 brand name office products, the site enables online customers to purchase office products and supplies at competitive prices. Products are generally shipped for next day delivery for most domestic US destinations and the site features advanced online customer service features, including customer shopping lists, which allows users to manage lists of frequently purchased items. RESULTS OF OPERATIONS Because the Company had no revenues and nominal expenses for the period from inception (April 14, 1998) to June 30, 1998 (total operating expenses were $8,071), any comparison of fiscal 1999 results to fiscal 1998 would not be meaningful and have been excluded from the following discussion. The E-Taxi Acquisition was accounted for as a reverse acquisition. The historical financial statements reflect the operations of E-Taxi for twelve months and the operations of Computer Marketplace from April 1999 to June 30, 1999. In addition, any forward looking information does not include the impact, if any, of the proposed acquisition of SSPS discussed above. The Company may experience significant fluctuations in operating results in future periods due to a variety of factors, including but not limited to, the following factors which are discussed at more length elsewhere in this Annual Report on Form 10-KSB: - The Company has incurred operating losses and there can be no assurance that these losses will be reduced in the future. - The Company has a limited operating history on which to base estimates of future performance. - The Company may need additional financing in order to carry out its business plans. 26 - The Company's business model is unproven and could fail. - The Company is dependent on continued growth of the Internet and Internet infrastructure. - The completion of proposed acquisitions cannot be assured. - The Company must manage its growth and the integration of acquired businesses, which diverts management's' attention from the day-to-day operations of existing businesses. - Competition for Internet products and services is intense. - Some of the Company's businesses may be dependent on the efficient and uninterrupted operation of their computer and communications hardware systems. - The market in which the Company operates is subject to rapid technological change, which could render the Company's products and services obsolete. FISCAL YEAR ENDED JUNE 30, 1999 NET LOSS The Company recorded a net loss of $728,297 for the year ended June 30, 1999 because the cost of revenues and expenses were not sufficient to cover revenues generated. Management believes that (i) the discontinuation of its computer resale operations; (ii) the divestiture of Medical Marketplace; (iii) the operations of TechStore for a complete 12 month period; and (iv) interest income resulting from interest on financing proceeds could result in improved profitability. There can be no assurance that the Company will be successful in reducing net losses. REVENUE Total revenue for the year ended June 30, 1999 was $2,208,855, which consists almost exclusively of revenue from the sale of computer hardware and software and consumer electronics by the Company's wholly owned subsidiary, TechStore, through its web site. Revenue is expected to increase in fiscal 2000 with the inclusion of the result of TechStore for full twelve months. COST OF REVENUE Total cost of revenue for the year ended June 30, 1999 was $2,061,725 or 93.3% of revenue. Cost of revenue includes the cost of product sold, credit card processing fees and freight costs. The Company utilizes vendor drop-shipments directly to customers, and therefore does not maintain inventory. The Company expects margins to remain low in the near future as it uses competitive pricing as a means to obtain increased market share. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Total selling, general and administrative expenses for the year ended June 30, 1999 were $453,616 or 20.5% of revenue. Selling, general and administrative expenses consist of salaries and other personnel related expenses, facilities related expenses, legal and other professional fees, advertising costs and travel expenses. The fiscal year ended June 30, 1999 also included $88,661 in non-cash expenses associated with stock issued to three directors for services rendered and stock options issued to an accounting consultant. The Company expects to incur approximately $88,000 in the first quarter of fiscal 2000 for the amortization of the deferred compensation associated with the options. Selling, general and administrative expenses over the next year will include the expenses of TechStore for a full year, advertising expenses to market the Company's expanded product offerings, 27 administrative expenses associated with conforming to public reporting requirements of the Company, and expenses associated with the Company's acquisition and expansion strategy discussed in the "Business" section of this annual report on Form 10-KSB. PRODUCT DEVELOPMENT EXPENSES Product development expenses were $19,173 for the year ended June 30, 1999. Product development expenses consist of personnel and related expenses associated with the development of the Company's web site. AMORTIZATION OF GOODWILL AND OTHER ACQUIRED INTANGIBLES During the fourth quarter of fiscal 1999, the Company incurred $404,174 in amortization expenses associated with the acquisition of TechStore and the reverse merger between the Company and E-Taxi. The intangible assets associated with these acquisitions, consisting in total of $9,972,630 in goodwill, $140,000 in acquired technology $160,000 in established workforce and $280,000 in trademarks, are being amortized over their estimated useful lives of four to five years. In the event that the Company continues to acquire other companies, amortization of acquisitions will continue to have an impact on the Company's results of operations in the future. Based on acquisitions completed as of June 30, 1999, and assuming no impairment of the value resulting in an acceleration of the amortization, future amortization will reduce net income from operations.. If the Company completes additional acquisitions in the future, this could result in additional amortization charges of the resulting goodwill from the acquisition. INTEREST INCOME AND EXPENSE Interest income, net of interest expense, was $1,536 for the year ended June 30, 1999. Interest expense related primarily to interest on loans to the Company and interest income resulted primarily from interest earned on the $1.4 million proceeds on the private placement completed by E-Taxi in April 1999. VARIABILITY OF PERIODIC RESULTS AND SEASONALITY Results from any one period cannot be used to predict the results for other fiscal periods. Revenues fluctuate from period to period, however, management does not see any seasonality or predictability to these fluctuations. LIQUIDITY AND CAPITAL RESOURCES At June 30, 1999, the Company had a cash balance of $1,255,966 and negative working capital of ($377,642). The primary source of cash and working capital to the Company during 1999 was approximately $1.4 million in proceeds from a private placement in April 1999. Of the total proceeds, $53,000 was used to repay loans assumed in acquisitions and $114,323 was used to fund operations. The acquisition of TechStore and the reverse acquisition between the Company and E-Taxi resulted in cash acquired of approximately $21,550. The Company believes that its projected cash flow from operations, cash balances as of June 30, 1999 of approximately $1,255,000, and the proceeds from the Company's subsequent capital raising activities will be sufficient to meet the working capital needs of the Company through June 30, 2000. 28 Operations for the period from inception (April 14,1998) to June 30, 1998 were funded primarily by increases in liabilities, with no investing or financing activities occurring during that period. The Company's principle commitments at June 30, 1999 consist of monthly operating rental payments, compensation of employees and accounts payable. In addition, the accrued loss on the disposal of Medical Marketplace (see Note 13 of Notes to Consolidated Financial Statements) includes notes payable and capital lease obligations which would, should the subsidiary not close as anticipated by the Company in the fourth quarter of fiscal 2000, remain obligations of the Company. Also, at the closing of the proposed acquisition of SSPS, which is anticipated to be in the second quarter of fiscal 2000, the Company has committed to pay cash and notes of approximately $1.5 million for SSPS. On July 16, 1999, the Company commenced a private offering (the "Offering") of up to 1,200,000 shares of its common stock (each a "Share" and collectively the "Shares"). The Offering is being conducted under an exemption from the registration requirements of the Securities Act of 1933, as amended (the "Act"), provided by Section 4(2) of the Act and the provisions of Rule 506 of Regulation D. Sales of the Shares will be made only to "accredited investors," as such term is defined in Rule 501(a) under the Act. The Shares are being offered at a purchase price of $3.875 per share and on a "best efforts all or none" basis with respect to the first 400,000 Shares (the "Minimum Offering"), and on a "best efforts" basis thereafter with respect to the remaining 800,000 Shares (the "Maximum Offering"). The Offering was originally scheduled to terminate on August 30, 1999, but has been extended at the option of the Company. Subscriptions for less than 20,000 Shares (or $77,550) may be accepted at the discretion of the Company. Upon completion of the Minimum Offering and the Maximum Offering, the Company expects to receive gross proceeds of approximately $1,550,000 and $4,650,000, respectively, before deducting commissions (placement agent) and expenses of the Offering (consisting of accounting and legal fees, "blue sky" fees and other related expenses). On October 8, 1999, the Company conducted an interim closing receiving gross proceeds of $2,883,872 from the sale of 744,225 shares of Common Stock.. The proceeds of the Offering will be used to fund the acquisition of SSPS and Impact and the working capital needs of the Company. The Company will rely upon its projected cash flow from operations and additional debt and equity financing for its long-term capital needs. YEAR 2000 COMPLIANCE Many currently installed computer systems are not capable of distinguishing 21st century dates from 20th century dates or have been programmed with default dates ending in 99, the common two-digit reference for 1999. As a result, as the Company transitions from the 20th century to the 21st century, computer systems and used by many companies and organizations in a wide variety of industries will produce erroneous results or fail unless they have been modified or upgraded to process date information correctly. Significant uncertainty exists concerning the scope and magnitude of problems associated with the year 2000 issue. STATE OF READINESS. Although the Company has not conducted a formal audit internally or by any third party, based on its current assessment, the Company believes its internal systems are year 2000 compliant. The Company has confirmed that the accounting systems used by it and its wholly owned subsidiaries are year 2000 compliant. However, such a review has not yet been completed on potential acquisition targets. The Company is beginning to communicate with its significant suppliers to determine their year 2000 readiness. The Company has not completed its year 2000 investigation and overall compliance initiative. 29 COSTS. To date, the Company has not incurred any material costs directly associated with its year 2000 compliance efforts, except for compensation expenses associated with its salaried employees who have devoted some of their time to the year 2000 assessment. The Company does not expect the total cost of year 2000 problems to be material to its business. During the months prior to the century change, the Company will continue to evaluate new software and information systems provided to it by third parties and any new infrastructure systems that the Company acquires to determine whether they are year 2000 compliant. Despite the Company's current assessment, the Company may not identify and correct all significant year 2000 problems on a timely basis. Year 2000 compliance efforts may involve significant time and expense and unremediated problems could substantially harm its business. The Company currently has no contingency plans to address the risks associated with unremediated year 2000 problems. RISKS. The Company is not currently aware of any year 2000 readiness problems relating to its internally-developed proprietary systems that would substantially harm its business. The Company may discover year 2000 readiness problems in these systems that will require substantial revision. In addition, third-party software, hardware or services incorporated into the Company's material systems may need to be revised or replaced, all of which could be time-consuming and expensive. The Company's failure to fix or replace its internally developed proprietary software or third-party software, hardware or services on a timely basis could result in lost revenues, increased operating costs, the loss of customers and other business interruptions, any of which could substantially harm the Company's business. In addition, governmental agencies, utility companies, Internet access companies, third-party service providers and others outside of the Company's control may not be year 2000 ready. The failure by these entities to be year 2000 ready could result in a systemic failure beyond the Company's control, such as a prolonged Internet, telecommunications or electrical failure, which could also prevent the Company from delivering goods to the Company's customers, decrease the use of the Internet or prevent users from accessing the Company's web sites. In particular, the Company has identified the following vendors and service providers as significant to its business: Wells Fargo Bank for credit card processing, Masterlink, Inc. for Internet services, Tech Data Corporation for inventory and Deutsche Financial Services for banking and financing services. The Company has not yet received any written assurance from these vendors and service providers as to their readiness for year 2000 issues. However, the Company does monitor the progress of these companies in their year 2000 preparations by reviewing their respective web sites, each of which contains detailed information about their year 2000 preparations. Because the Company has not received written assurances, the Company has assumed that these vendors and services may not be ready for the year 2000 before January 1, 2000, and that their processing capabilities could fail at that time. Based on this assumption, the Company believes such a failure would be the most reasonably likely worst case year 2000 scenarios. If the credit card service fails, the Company would seek to complete credit card transaction manually using temporary staff. If service were not restored promptly, the Company believes switching to another financial institution for automated credit card processing would require approximately 15 days. Similarly, finding alternative vendors for inventory, web site hosting and banking could take approximately 15 to 30 days. CONTINGENCY PLAN. As discussed above, the Company is engaged in an ongoing year 2000 assessment and has not yet developed any contingency plans. 30 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company has considered the provisions of Financial Reporting Release No. 48 "Disclosure of Accounting Policies for Derivative Financial Instruments and Derivative Commodity Instruments, and Disclosure of Quantitative and Qualitative Information about Market Risk Inherent in Derivative Financial Instruments, Other Financial Instruments and Derivative Commodity Instruments." The Company had no holdings of derivative financial or commodity instruments at June 30, 1999. However, the Company is exposed to financial market risks, including changes in interest rates. All of the Company's revenue, operating expenses and capital spending is transacted in U.S. dollars. The Company's investments portfolio comprises amounts invested in short term cash deposits and therefore the Company believes that the fair value of its investment portfolio or related income would not be significantly impacted by increases or decreases in interest rates due mainly to the short-term nature of the Company's investment portfolio. However, a sharp increase in interest rates could have a material adverse effect on the fair value of The Company's investment portfolio. Conversely, sharp declines in interest rates could seriously harm interest earnings of the Company's investment portfolio. At June 30, 1999 all of the Company's cash and cash equivalents mature in three months or less, and there were no short-term investments. ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See financial statements following Item 13 of this Annual Report on Form 10-KSB. ITEM 8. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS, COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT The following table sets forth certain information regarding the executive officers and directors of the Company: Name Age Position - ---- --- -------- Robert Wallace 51 Chairman of the Board L. Wayne Kiley 56 Director, Chief Executive Officer and Principal Accounting Officer Bejan Aminifard 25 Chief Executive Officer of TechStore Derek Wall 29 President of TechStore Brian Hintergardt 41 President of Medical Marketplace Thomas E. Evans, Jr. 59 Director ROBERT WALLACE has been Chairman of the Board since April 1999. Since April 1999 he served as Chairman, President and Secretary of E-Taxi, Inc. In addition, Mr. Wallace is the founder and has been the Chairman and President of Gateway Advisors, Inc., a financial advisory firm, since its inception in 1987. Previously, Mr. Wallace served as a director of, among other companies, International Family Entertainment, Inc. and Media Arts Group, Inc. Gateway Advisors, Inc. has been retained by the Company as its financial advisor. 31 L. WAYNE KILEY has been the President and Chief Executive Officer of the Company since March 1984, and a director since June 1993. Mr. Kiley was also President of Medical Marketplace from its inception through August 1998. From 1978 to 1983, he was self-employed independent real estate developer in Tuscon, Arizona. From 1970 to 1978, he was the owner of the Business Exchange in Santa Ana, California. BEJAN AMINIFARD is the founder and has been the Chief Executive Officer of TechStore since its inception in November 1997. Prior to this, Mr. Aminifard was employed by Eversys Corporation as an applications programmer, from June 1996 until June 1997. Prior to that, Mr. Aminfard was a student at the University of California - Berkeley, where he received his Bachelor of Arts degree in Cognitive Sciences in May 1996. DEREK WALL has served as President of TechStore since April 1998. From January 1997 until March 1998, Mr. Wall served as Senior Vice President of Sales for Dita Eyewear Inc., a high fashion optical company. Prior to that, he served as Chief Executive Officer of Purged Sled Company Inc., a manufacturer and distributor of snowboard equipment, from June 1993 until September 1995. BRIAN HINTERGARDT has been Executive Vice President of Medical Marketplace from March 1994 to August 1998 and since that time he has served as the President of Medical Marketplace. From 1987 until 1993, Mr. Hintergardt was the Chief Executive Officer, Administrator and Engineer of Coalinga Regional Medical Center. Mr. Hintergardt has an engineering degree from California State Polytechnical University. THOMAS E. EVANS, JR. has been a director since February 1994. Since July 1995, he has held various senior management positions with the Orange County Division, of Fidelity National Title Insurance, most recently he has served as President since 1995. Mr. Evans is a member of the American Land Title Association and serves as its current President. Mr. Evans served from 1984 to 1992 as a director of Fidelity National /financial, Inc. which is listed on the New York Stock Exchange. COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934 Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors and executive officers, and persons who own more than ten percent (10%) of a registered class of the Company's equity securities, to file with the Securities and Exchange Commission ("SEC") initial reports of ownership and reports of changes in ownership of common stock and other equity securities of the Company. Officers, directors and greater than ten percent (10%) stockholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file. To the Company's knowledge, based solely on its review of the copies of such reports furnished to the Company during the year ended June 30, 1999, all Section 16(a) filing requirements applicable to its officers, directors and greater than ten percent (10%) beneficial owners were satisfied, except that Bejan Aminifard filed a Form 3 late and Derek Wall failed to file a Form 3. ITEM 10. EXECUTIVE COMPENSATION The following table shows all the cash compensation paid by the Company to the Chief Executive Officer and two of the Company's officers who received in 32 excess of $100,000 in annual salary and bonus during the fiscal years ended June 30, 1999, 1998, and 1997:
Annual Compensation Compensation Awards (a) (b) (c) (d) (g) (i) Name and Principal Number of Position - Compensation Year Salary Bonus Options All Other - ----------------------- ---- ------ ----- ------- --------- L. Wayne Kiley, President Chief 1999 $-------(1) $---- 100,000 $----- Executive Officer and Director 1998 $269,228 $---- ----- $----- 1997 $306,977 $---- 661,667 4,476 Thomas Mason(2) Vice President 1999 $------- $---- ----- $----- 1998 $178,800 $---- ----- $----- 1997 $211,976 $---- 143,000 $----- Brian Hintergardt Chief Executive 1999 $120,000 $----- Officer -- Medical Marketplace 1998 $ 20,168 41,666 1997 $ 19,033 Mauri Lathouwers, Jr. 1999 $120,000 $---- ----- $3,900 1998 $------- $---- -----
- ---------- (1) Mr. Kiley did not receive a salary for the year ended June 30, 1999. However, the exercise price of certain options were reduced to $.60 per share. The Company recorded $ as additional compensation as a result of the exercise price adjustment. (2) Mr. Mason's employment with the Company terminated in May, 1998. During the year ended June 30, 1999, the Company issued a total of 300,000 options to L. Wayne Kiley, a director and the Company's Chief Executive Officer, and Joe Achten, then a director of the Company, in exchange for loans made to the Company. The exercise price of the 200,000 options issued to Mr. Achten is $.50 per share and the exercise price of the 100,000 options issued to Mr. Kiley is $.60 per share. The options are exercisable until December 31, 2002. See "Certain Relationships and Related Transactions." 1999 STOCK PLAN As of April 13, 1999 the Board of Directors of the Company and as of July 12, 1999 a majority of the shares of the Company's voting stock outstanding approved the adoption of the Company's 1999 Stock Plan (hereinafter called the "1999 Plan"). The 1999 Plan has been adopted for the purpose of attracting and retaining persons of ability as directors, employees or consultants or advisors of the Company and its subsidiaries, motivate and reward good performance, encourage such employees to continue to exert their best efforts on behalf of the Company and its subsidiaries and provide opportunities for stock ownership by such employees in order to increase their proprietary interest in the Company by providing incentive awards to key employees, whose responsibilities and decisions directly affect the performance of the Company and its subsidiaries. The maximum number of shares of Common Stock with respect to which awards may be granted pursuant to the 1999 Plan is initially 1,700,000 shares. Shares issuable under the 1999 Plan may be either treasury shares or authorized but unissued shares. The number of shares available for issuance will be subject 33 to adjustment to prevent dilution in the event of stock splits, stock dividends or other changes in the capitalization of the Company. Subject to compliance with Rule 16b-3 of the Securities Exchange Act of 1934, the Plan shall be administered by the Board of Directors of the Company (the "Board") or, in the event the Board shall appoint and/or authorize a committee, such as the Compensation Committee, of two or more members of the Board to administer the Plan, by such committee. The administrator of the Plan shall hereinafter be referred to as the "Plan Administrator". Except for the terms and conditions explicitly set forth herein, the Plan Administrator shall have the authority, in its discretion, to determine all matters relating to the options to be granted under the Plan, including, without limitation, selection of whether an option will be an incentive stock option or a nonqualified stock option, selection of the individuals to be granted options, the number of shares to be subject to each option, the exercise price per share, the timing of grants and all other terms and conditions of the options. Upon a Change in Control of the Company, any award carrying a right to exercise that was not previously exercisable shall become fully exercisable, the restrictions, deferral limitations and forfeiture conditions applicable to any other award granted shall lapse and any performance conditions imposed with respect to awards shall be deemed to be fully achieved. Awards under the 1999 Plan may not be transferred, pledged, mortgaged, hypothecated or otherwise encumbered other than by will or under the laws of descent and distribution, except that the Committee may permit transfers of awards for estate planning purposes if, and to the extent, such transfers do not cause a participant who is then subject to Section 16 of the Exchange Act to lose the benefit of the exemption under Rule 16b-3 for such transactions. The Board may amend, alter, suspend, discontinue or terminate the 1999 Plan at any time, except that any such action shall be subject to stockholder approval at the annual meeting next following such Board action if such stockholder approval is required by federal or state law or regulation or the rules of any exchange or automated quotation system on which the Common Stock may then be listed or quoted, or if the Board of Directors otherwise determines to submit such action for stockholder approval. In addition, no amendment, alteration, suspension, discontinuation or termination to the 1999 Plan may materially impair the rights of any participant with respect to any award without such participant's consent. Unless terminated earlier by action of the Board of Directors, the 1999 Plan shall terminate ten (10) years after adoption by the stockholders. TYPES OF AWARDS STOCK OPTIONS. Options granted under the 1999 Plan may be "incentive stock options" ("Incentive Options") within the meaning of Section 422 of the Code or stock options which are not incentive stock options ("Non-Incentive Options" and, collectively with Incentive Options, hereinafter referred to as "Options") will be granted, the number of shares subject to each Option granted, the prices at which Options may be exercised (which in the case of an Incentive Option shall not be less than the Fair Market Value of shares of Common Stock on the date of grant), whether an Option will be an Incentive Option or a Non-Incentive Option, the time or times and the extent to which Options may be exercised and all other terms and conditions of Options will be determined by the Committee. RESTRICTED AND DEFERRED STOCK. An award of restricted stock or deferred stock may be granted under the 1999 Plan. Restricted stock is subject to restrictions on transferability and other restrictions as may be imposed by the Committee at the time of grant. In the event that the holder of restricted stock ceases to be employed by the Company during the applicable restrictive period, 34 restricted stock that is at the time subject to restrictions shall be forfeited and reacquired by the Company. Except as otherwise provided by the Committee at the time of grant, a holder of restricted stock shall have all the rights of a stockholder including and receive other distribution, without limitation, the right to vote restricted stock and the right to recover dividends thereon. An award of deferred stock is an award that provides for the issuance of stock upon expiration of a deferral period established by the Committee. Except as otherwise determined by the Committee, upon termination of employment of the recipient of the award during the applicable deferral period, all stock that is at the time subject to deferral shall be forfeited. Until such time as the stock which is the subject of the award is unissued, the recipient of the award has no rights as a stockholder. PERFORMANCE UNITS. Performance Units may be granted by the Committee to individuals or groups of individuals participating under the 1999 Plan. Performance Units are tied to the successful completion of certain performance driven Company goals during a given period of time and will be assigned a dollar value by the Committee. Upon the satisfactory attainment of the goal identified by the Committee during the period prescribed for its completion, the participant or participants reaching such goal shall be entitled to a payment in settlement of each Performance Unit earned by such participant. Certain adjustments to the amount of the cash payment, if any, to be made incident to a grant of Performance Units may be made by the Committee in the event a participant ceases to be employed by the Company during the performance period or upon the occurrence of a significant event that causes the attainment of the prescribed goal more or less likely to occur during the performance period. Each Performance Unit may be paid in whole shares of Common Stock, including restricted stock and deferred stock, or cash, or in any combination of Common Stock and cash. EMPLOYMENT AGREEMENTS In October 1996, the Company amended its employment agreement with L. Wayne Kiley, the Company's Chairman of the Board, President and Chief Executive Officer. Pursuant to such amendment, (i) the employment agreement's expiration date of October 16, 1997 was extended to October 16, 1999, (ii) in exchange for termination of certain options, Mr. Kiley was granted the right to purchase a number of shares of Common Stock for a period of four (4) years, at a price equal to seventy five percent (75%) of the closing bid price of the Company's shares of Common Stock on the date of grant equal to 2.5%, 3% and 3.5% of the shares outstanding, should the Company report annual earnings before the payment of interest and taxes of $625,000, $875,000 and $1,000,000, respectively, (iii) Mr. Kiley will be paid a cash bonus equal to 5% of any profit realized by the Company from the sale of assets outside the ordinary course of business, and (iv) an insurance policy covering the life of Mr. Kiley whereby Mr. Kiley's estate will be paid $2,000,000 in exchange for the redemption of the shares of the Company's capital stock beneficially owned by Mr. Kiley. The Agreement contained other customary terms and conditions including termination for cause, non-competition on confidentiality provisions. On April 9, 1999 (and clarified as of October 12, 1999), the Company, Quality Associates, Inc. and Mr. Kiley entered into a settlement agreement (the "Settlement Agreement") whereby Mr. Kiley waived all rights to, certain debts and liabilities owed to Mr. Kiley and Quality Associates ("Liabilities") in the amount of $64,536, and accrued and unpaid salary in the amount of $314,135, in exchange for the repricing of 690,834 options outstanding, resulting in a compensation charge of $204,557, an amount equal to the difference between the fair market value of the repriced options and the Liabilities forgiven under the Settlement Agreement. Effective March 31, 1999, E-Taxi entered into an employment agreement for a five (5) year term with Bejan Aminifard covering his employment as Chief Executive Officer of TechStore. Pursuant to such employment agreement, Mr. Aminifard is to receive an annual salary of $75,000 per annum, which may be increased annually in the discretion of the Board of Directors. The employment agreement also provides for an automobile allowance of $500 per month, 35 disability insurance and for bonuses and other incentive compensation as the Board deems appropriate. In connection with such employment agreement, E-Taxi entered into a restricted stock agreement with Mr. Aminifard that provided grants of shares of common stock, so long as TechStore achieves for the twelve (12) months ended March 31, 2000, certain (i) revenue targets; and (ii) earnings before the payment of interest, taxes, and depreciation ("EBITD") targets, such targets commencing with revenue of not less than $18,500,000 and EBITD of not less than ($185,000). Effective March 31, 1999, E-Taxi entered into an employment agreement for a five (5) year term with Derek Wall covering his employment as President of TechStore. Pursuant to such employment agreement, Mr. Wall is to receive an annual salary of $75,000 per annum, which may be increased annually in the discretion of the Board of Directors. The employment agreement also provides for an automobile allowance of $500 per month, disability insurance and for bonuses and other incentive compensation as the Board deems appropriate. In connection with such employment agreement, E-Taxi entered into a restricted stock agreement with Mr. Wall that provided grants of shares of common stock, so long as TechStore achieves for the twelve (12) months ended March 31, 2000, certain (i) revenue targets; and (ii) earnings before the payment of interest, taxes, and depreciation ("EBITD") targets, such targets commencing with revenues of not less than $18,500,000 and EBITD of not less than ($185,000). CONSULTING AGREEMENT In April 1999, the Company entered into a consulting agreement with Thomas Browne, dated April 13, 1999, whereby Mr. Browne agreed to provide financial accounting services to the Company for a period of five (5) months. As consideration, the Company granted Mr. Browne an option to purchase 125,000 shares of common stock at an exercise price of $2.50 per share. Prior to his consultancy with the Company, Mr. Browne was employed by Infoseek in a variety of accounting positions, most recently as Corporate Controller. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information, as of September 30, 1999, with respect to the beneficial ownership of the outstanding Common Stock by (i) any holder of more than five percent (5%) of the outstanding shares of the Company's Common Stock; (ii) each of the Company's named executive officers and directors; and (iii) the directors and named executive officers of the Company as a group: NAME AND ADDRESS OF SHARES OF COMMON STOCK BENEFICIAL OWNER(1) BENEFICIALLY OWNED(2) PERCENT OF CLASS(3) ------------------- --------------------- ------------------- Robert M. Wallace(4) 6,426,800(5) 45.3% L. Wayne Kiley(6) 1,123,351(7) 8.3% Thomas Evans(8) 50,833(9) * Bejan Aminifard(10) 1,824,500 13.7% Derek Wall(11) 414,975 3.3% Brian Hintergardt(12) 41,666(13) All Officers and Directors 9,882,125(5)(7)(9)(13) 65.6% as a Group (4 persons) 36 - ---------- * Represents less than 1% of the total number of shares of the Company's Common Stock outstanding, 1. Unless noted otherwise, the address for such person is c/o eMarketplace, Inc., 255 West Julian Street, Suite 100, San Jose, CA 95110, 2. Unless noted otherwise, all shares indicated as beneficially owned are held of record by and the right to vote and transfer such shares lies with the person indicated. A person is deemed to be a beneficial owner of any securities of which that person has the right to acquire beneficial ownership within sixty (60) days. 3. Calculated based upon 12,691,460 shares of common stock outstanding. 4. Mr. Wallace is the Chairman of the Board of the Company and E-Taxi, Inc., a wholly-owned subsidiary of the Company ("E-Taxi"). 5. Includes (i) 24,000 shares of the Issuer's common stock owned by Gateway Advisors, Inc. ("Gateway Advisors"), a company majority owned and controlled by Mr. Wallace, (ii) 1,500,000 shares of Common Stock issuable to Gateway Advisors upon the exercise of a Common Stock Purchase Warrant held thereby, and (iii) 102,800 shares of Common Stock held by the Gateway Advisors Profit Sharing Plan. 6. Mr. Kiley is a director, Chief Executive Officer and Chief Accounting Officer of the Company 7. Includes (i) 249,184 shares of Common Stock owned jointly with Mr. Kiley's wife, (ii) 790,834 shares of Common Stock issuable upon the exercise of stock options at an exercise price $.60 per share, and (iii) 83,333 shares of Common Stock held by the Kiley Children's Trust, a trust maintained for the benefit of Mr. Kiley's children. 8. Mr. Evans is a director of the Company. 9. Includes 30,833 shares of Common Stock issuable upon the exercise of options at an exercise prices of $1.00 per share and $1.68 per share. 10. Mr. Aminifard is the Chief Executive Officer of TechStore LLC. 11. Mr. Wall is the President of TechStore. 12. Mr. Hintergardt is the Chief Executive Officer of Medical Marketplace. 13. Includes 41,666 shares issuable upon the exercise of stock options. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS As of April 9, 1999, the Company and Gateway Advisors, Inc. ("Gateway Advisors"), a company owned and controlled by Robert M. Wallace (the Company's current Chairman of the Board), entered into a Financial Advisory Agreement, pursuant to which Gateway Advisors agreed to provide certain business development and financial advisory services for a period of two (2) years in exchange for the issuance by the Company of 1,500,000 Common Stock Purchase Warrants. Each warrant entitles the holder to purchase one (1) share of the Company's Common Stock at an exercise price of $2.50 per share until April 8, 2000. As of April 9, 1999, the Company and Victoria Holdings, Inc., the Company's former financial advisor, entered into a Settlement Agreement, pursuant to which the Company issued 250,000 shares of the Company's Common Stock in exchange for (i) the cancellation of Options exercisable for 1,000,000 shares of the Company's Common Stock at an exercise price of $1.00 per share, and (ii) a general release, releasing the Company from all liabilities. As part of the foregoing Settlement Agreements, the Company agreed to include the shares issued in connection therewith in the next registration statement filed by the Company with the Securities and Exchange Commission (other than on a Form S-4 or Form S-8), subject to certain limitations and restrictions. As of April 9, 1999 (and clarified as of October 12, 1999), the Company entered into an Agreement with L. Wayne Kiley, the Company's President, Chief Executive Officer and at that time Chairman of the Board, pursuant to which Mr. Kiley waived (i) his rights to accrued and unpaid salary in the amount of $314,135 (ii) all of his rights under his employment agreement with the Company, including without limitation, all future compensation, and (iii) on behalf of Quality Associates, Inc. (a company owned and controlled by Mr. Kiley) its rights to accrued and unpaid rent with 37 respect to the Company's executive offices, in the amount of $64,536. In exchange for the foregoing, the Company reduced the exercise price of (a) 661,667 options held by Mr. Kiley from $1.00 to $.60 per share and (b) 29,167 options held by Mr. Kiley from $1.68 to $.60 per share. In addition, the Company agreed to include the shares issuable upon the exercise of such options as well as certain other options issued to management and certain consultants under a Registration Statement on Form S-8 to be filed with the Commission in the near future. As of April 21, 1999, the Company and each of the stockholders of E-Taxi, Inc., a Delaware corporation ("E-Taxi"), entered into a Stock Purchase Agreement, pursuant to which the Company acquired all of the issued and outstanding capital stock of E-Taxi on April 23, 1999. As consideration for 9,074,000 shares of the E-Taxi's common stock and 400,000 shares of the E-Taxi's Series A Preferred Stock, the Company issued an aggregate of 9,074,000 shares of the Company's common stock, par value $.0001 per share, and 400,000 shares of the Company's Series A Preferred Stock, par value $.0001 per share. Messrs. Wallace, Aminifard and Wall were significant stockholders of E-Taxi. See "Business" and "Principal Stockholders." On April 1, 1998, TechStore, a subsidiary of the Company, entered into a month-to-month lease agreement for office space owned by Bejan Aminifard, an officer and a 10% stockholder of the Company. The lease is for the operations of TechStore and Office Express located at 14 Commercial Boulevard, Suite 127 and 129, Novato, CA. The lease payments are approximately $1,500 per month and require the tenant to maintain the premises at its expense. On October 1, 1998, E-Taxi entered into a Consulting Agreement with Gateway Advisors, Inc., a financial advisory firm principally owned and controlled by Robert Wallace, Chairman of the Board. Pursuant to the Consulting Agreement, Gateway agreed to, among other things (i) conduct a search for acquisition candidates; (ii) conduct market research and analysis; (iii) evaluate, negotiate, and structure the acquisition of target companies. In exchange for its services, Gateway is paid a quarterly fee of $30,000, plus reimbursement for any expenses associated with its consultancy. By its terms, the Consulting Agreement expired on September 30, 1999. In each of January and April 1999, Joseph Achten, a former Director of the Company, loaned the Company $50,000 (for a total of $100,000) to fund the Company's the working capital needs of the Company. Under promissory notes executed by the Company (the "Notes"), $50,000 was to be repaid in each of July and September 1999 and all amounts under the Notes accrued interest at 10% per annum. The maturity dates of the notes have been extended to December 31, 1999. As additional consideration for the loans the Company issued to Mr. Achten options to purchase 200,000 shares of the Company's common stock exercise at any time prior to December 31, 2002 at an exercise price of $.50 per share. In November and December 1998 and January 1999, the Company borrowed a total of $67,000 from L. Wayne Kiley, the Company's Chief Executive Officer and former Chairman of the Board. In exchange for the loans, the Company (i) issued to Mr. Kiley promissory notes in the aggregate principal amount of $67,000 bearing interest at a rate of 10% per annum which are due three (3) days following written demand for payment, (ii) granted Mr. Kiley a security interest in the Company's assets, and (iii) issued to Mr. Kiley options to purchase 100,000 shares of the Company's common stock exercisable at any time prior to December 31, 2002 at an exercise price of $.60 per share. With respect to each of the foregoing transactions, the Company believes that the terms of such transactions were as fair to the Company as could be obtained from an unrelated third party. Future transactions with affiliates will be on terms no less favorable than could be obtained from unaffiliated parties and will be approved by a majority of the independent and/or disinterested members of the board of directors. 38 PART IV ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS The following is a list of exhibits filed as part of this Annual Report. Where so indicated by footnote, the exhibits have either been previously filed, and are hereby incorporated by reference: Exhibit No. - ----------- 3.01 Certificate of Incorporation of the Company. (1) 3.02 Articles of Incorporation of TechStore, LLC 3.03 Certificate of Incorporation of TopTeam, Inc. 3.04 By-Laws of the Company. (1) 3.05 By-Laws of TopTeam, Inc. 3.06 Certificate of Designation with respect to the Series A Preferred Stock. 3.07 Certificate of Amendment of Certificate of Incorporation. 4.01 Certificate for shares of Common Stock. (1) 10.01 Operating Agreement for TechStore, LLC. 10.2 Stock Purchase Agreement, dated as of April 21, 1999, among the Company and the stockholders of E-Taxi, Inc. (1) 10.3 Financial Advisory Agreement, dated as of April 9, 1999, between the Company and Gateway Advisors, Inc.(1) 10.4 Consulting Agreement, dated as of October 1, 1999, between E-Taxi, Inc. and Gateway Advisors, Inc. 10.5 Form of Settlement Agreement with the Class D Common Stock Warrantholders. (1) 10.6 Settlement Agreement, dated as of April 9, 1999, between the Company and Victoria Holdings, Inc. (1) 10.7 Letter Agreement, dated as of April 9, 1999, among the Company, L. Wayne Kiley and Quality Associates, Inc. 39 10.8 Contribution Agreement dated as of March 31, 1999 by and among Gateway Advisors, Inc., Bejan Aminifard, Mosen Aminifard and Derek Wall. 10.9 Consulting Agreement between the Company and Thomas Browne dated as of April 26, 1999. 10.10 Stock Purchase Agreement, dated as of June 14, 1999, among E-Taxi, Inc. and all of the shareholders of SSPS, Inc. (1) 10.11 Membership Interest Purchase Agreement dated as of June 14, 1999 among E-Taxi, Inc. and all of the interest holders of Impact Team International, LLC. (1) 10.12 Stock Purchase Agreement entered into on October 12, 1999 and dated as of June 30, 1999 among the Company, Brian Hintergardt and Maruice Lathouwers. 21.01 Subsidiaries of the Registrant - ---------- (1) Previously filed with the Securities and Exchange Commission. (B) REPORTS ON FORM 8-K (1) Current Report on Form 8-K filed on May 10, 1999, Items 1,2 and 5. (2) Current Report on Form 8-K filed on April 1, 1999, Item 5. 40 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGES ----- Report of Independent Auditors................................................. F-1 Consolidated Balance Sheet as of June 30, 1999................................. F-2 Consolidated Statements of Operations for the year ended June 30, 1999 and the period from April 14, 1998 (inception) to June 30, 1998.................... F-3 Consolidated Statements of Stockholders' Equity for the year ended June 30, 1999 and the period from April 14, 1998 (inception) to June 30, 1998.. F-4 Consolidated Statements of Cash Flows for the year ended June 30, 1999 and the period from April 14, 1998 (inception) to June 30, 1998.. F-5 Notes to Consolidated Financial Statements..................................... F-6
. . . . . . . . . REPORT OF INDEPENDENT AUDITORS To the Board of Directors and Stockholders of eMarketplace, Inc. We have audited the accompanying consolidated balance sheet of eMarketplace, Inc. (formerly Computer Marketplace, Inc.) and its subsidiaries as of June 30, 1999, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the two fiscal years in the period ended June 30, 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of eMarketplace, Inc. and its subsidiaries as of June 30, 1999, and the consolidated results of their operations and their cash flows for each of the two fiscal years in the period ended June 30, 1999, in conformity with generally accepted accounting principles. MOORE STEPHENS, P. C. Certified Public Accountants. Cranford, New Jersey September 16, 1999 [Except for Notes 17A, B and E as to which the dates are October 12, 12 and 11, 1999, respectively] F-1 EMARKETPLACE, INC. AND ITS SUBSIDIARIES CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1999.
ASSETS: CURRENT ASSETS: Cash and Cash Equivalents $ 1,255,966 Accounts Receivable (Less Allowance For Doubtful Accounts of $5,032) 57,318 Prepaids and Other Current Assets 35,060 ------------ TOTAL CURRENT ASSETS 1,348,344 ------------ PROPERTY AND EQUIPMENT (LESS ACCUMULATED DEPRECIATION OF $294,503) 43,955 ------------ OTHER ASSETS: Intangible Assets (Less Accumulated Amortization of $404,174) 11,335,749 Deposits 105,765 ------------ TOTAL OTHER ASSETS 11,441,514 TOTAL ASSETS $ 12,833,813 ============ LIABILITIES AND STOCKHOLDERS' EQUITY: CURRENT LIABILITIES: Notes Payable to Related Party $ 167,000 Notes Payable 12,167 Accounts Payable 776,856 Accrued Loss on Disposal of Acquired Subsidiary (13)(17A) 661,287 Other Accrued Liabilities 175,676 ------------ TOTAL CURRENT LIABILITIES 1,792,986 ------------ COMMITMENTS AND CONTINGENCIES -- STOCKHOLDER'S EQUITY: Preferred Stock - $.0001 Par Value, 1,000,000 Shares Authorized, No Shares Issued and Outstanding -- Common Stock - $.0001 Par Value, 50,000,000 Shares Authorized, 12,691,460 Shares Issued and Outstanding 1,269 Capital in Excess of Par Value 12,491,501 Common Stock Subscription Notes Receivable (70,020) Accumulated Deficit (735,428) Deferred Compensation (646,495) ------------ TOTAL STOCKHOLDERS' EQUITY 11,040,827 ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 12,833,813 ============
See Notes to Consolidated Financial Statements. F-2 EMARKETPLACE, INC. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
PERIOD FROM APRIL 14, 1998 YEAR ENDED (INCEPTION) TO JUNE 30, JUNE 30, 1999 1998 ------------ ------------ REVENUE $ 2,208,855 $ -- ------------ ------------ OPERATING COSTS AND EXPENSES: Cost of Revenue 2,061,725 -- Selling, General and Administrative 453,616 8,071 Product Development 19,173 -- Amortization of Goodwill and Other Acquired Intangibles 404,174 -- ------------ ------------ TOTAL OPERATING COSTS AND EXPENSES 2,938,688 8,071 ------------ ------------ LOSS FROM OPERATIONS (729,833) (8,071) INTEREST INCOME 5,795 940 INTEREST EXPENSE (4,259) -- ------------ ------------ NET LOSS $ (728,297) $ (7,131) ============ ============ NET LOSS PER SHARE: Basic and Diluted $ (0.06) $ -- ============ ============ Weighted Average Common Shares Outstanding 11,224,793 11,091,460 ============ ============
See Notes to Consolidated Financial Statements. F-3 EMARKETPLACE, INC. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK CAPITAL IN SUBSCRIPTION PREFERRED STOCK COMMON STOCK EXCESS OF NOTES SHARES AMOUNT SHARES AMOUNT PAR VALUE RECEIVABLE ------------ ------------ ------------ ------------ ------------ ------------ Issuance of Subscribed Common Stock in April 1998 -- $ -- 6,360,000 $ 636 $ 63,924 $ (64,560) Issuance of Common Stock in April 1998 for Consulting Services -- -- 100,000 10 90 -- Issuance of Common Stock in E-Taxi Combination [1] 400,000 40 9,074,000 907 (942) -- Interest Income Accrued -- -- -- -- -- (940) Net Loss -- -- -- -- -- -- Recapitalization Adjustment -- -- (6,460,000) (646) 646 -- ------------ ------------ ------------ ------------ ------------ ------------ BALANCE - JUNE 30, 1998 400,000 40 9,074,000 907 63,713 (65,500) Issuance of Common Stock in April 1999 for Consulting Services -- -- 60,000 6 29,994 -- Issuance of Common and Preferred Stock in April 1999 for Acquisition of TechStore 310,000 31 1,744,000 174 1,491,795 -- Sale of Common and Preferred Stock for Cash in April 1999 90,000 9 810,000 81 1,406,160 -- Recapitalization Adjustment (400,000) (40) (2,614,000) (261) 301 -- Acquired Deficiency of CMP [1] -- -- 2,017,460 202 (472,972) -- Goodwill Recorded on E-Taxi Combination [1] -- -- -- -- 9,972,630 -- Amortization of Deferred Compensation Associated with Stock Options Issued to a Consultant by Acquired Company -- -- -- -- -- -- Amortization of Deferred Compensation Associated with Financial Advisory Agreement -- -- -- -- -- -- Conversion of Preferred Stock to Common in May 1999 (400,000) (40) 1,600,000 160 (120) -- Interest Income Accrued -- -- -- -- -- (4,520) Net Loss -- -- -- -- -- -- ------------ ------------ ------------ ------------ ------------ ------------ BALANCE - JUNE 30, 1999 -- -- 12,691,460 $ 1,269 $ 12,491,501 $ (70,020) ============ ============ ============ ============ ============ ============ See Notes to Consolidated Financial Statements.
EMARKETPLACE, INC. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
TOTAL DEFERRED ACCUMULATED STOCKHOLDERS' COMPENSATION DEFICIT EQUITY ------------ ------------ ------------ Issuance of Subscribed Common Stock in April 1998 $ -- $ -- $ -- Issuance of Common Stock in April 1998 for Consulting Services -- -- 100 Issuance of Common Stock in E-Taxi Combination [1] -- -- -- Interest Income Accrued -- -- (940) Net Loss -- (7,131) (7,131) Recapitalization Adjustment -- -- -- ------------ ------------ ------------ BALANCE - JUNE 30, 1998 -- (7,131) (7,971) Issuance of Common Stock in April 1999 for Consulting Services -- -- 30,000 Issuance of Common and Preferred Stock in April 1999 for Acquisition of TechStore -- -- 1,492,000 Sale of Common and Preferred Stock for Cash in April 1999 -- -- 1,406,250 Recapitalization Adjustment -- -- -- Acquired Deficiency of CMP [1] (757,156) -- (1,229,926) Goodwill Recorded on E-Taxi Combination [1] -- -- 9,972,630 Amortization of Deferred Compensation Associated with Stock Options Issued to a Consultant by Acquired Company 58,661 -- 58,661 Amortization of Deferred Compensation Associated with Financial Advisory Agreement 52,000 -- 52,000 Conversion of Preferred Stock to Common in May 1999 -- -- -- Interest Income Accrued -- -- (4,520) Net Loss -- (728,297) (728,297) ------------ ------------ ------------ BALANCE - JUNE 30, 1999 $ (646,495) $ (735,428) $ 11,040,827 ============ ============ ============ See Notes to Consolidated Financial Statements.
See Notes to Consolidated Financial Statements. F-4 EMARKETPLACE, INC. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
PERIOD FROM APRIL 14, 1998 YEAR ENDED (INCEPTION) TO JUNE 30, JUNE 30, 1999 1998 ----------- ----------- OPERATING ACTIVITIES: Net Loss $ (728,297) $ (7,131) Adjustments to Reconcile Net Loss to Net Cash Provided (Used) by Operating Activities: Consulting Services Paid for by Issuance of Common Stock 30,000 100 Amortization of Deferred Compensation Associated with Issuance of Stock Options and Warrants 110,661 -- Depreciation 5,815 -- Amortization 404,174 -- Interest Accrued on Stockholder Notes (4,520) (940) Changes in Assets and Liabilities: Accounts Receivable (31,480) -- Other Assets (33,781) -- Accounts Payable 175,432 649 Accrued Liabilities (42,327) 7,322 ----------- ----------- NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (114,323) -- ----------- ----------- INVESTING ACTIVITIES: Purchase of Fixed Assets (4,511) -- Cash Received from Acquisitions - Net of Cash Paid 21,550 -- ----------- ----------- NET CASH PROVIDED BY INVESTING ACTIVITIES 17,039 -- ----------- ----------- FINANCING ACTIVITIES: Repayment of Loans Assumed in Acquisitions (53,000) -- Proceeds from Issuance of Common and Convertible Preferred Stock 1,406,250 -- ----------- ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES 1,353,250 -- ----------- ----------- INCREASE IN CASH AND CASH EQUIVALENTS 1,255,966 -- CASH AND CASH EQUIVALENTS - BEGINNING OF PERIODS -- -- ----------- ----------- CASH AND CASH EQUIVALENTS - END OF PERIODS $ 1,255,966 $ -- =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for the periods: Interest $ 4,259 $ -- Income Taxes $ -- $ -- SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Issuance of Common and Convertible Preferred Stock for Acquisition of TechStore $ 1,492,000 $ -- Issuance of Common and Convertible Preferred Stock for Reverse Acquisition of E-taxi $ 9,499,860 $ -- Deferred Compensation Assumed in Reverse Acquisition of E-taxi $ (757,157) $ --
See Notes to Consolidated Financial Statements. F-5 EMARKETPLACE, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ================================================================================ (1) ORGANIZATION AND BUSINESS eMarketplace, Inc. (formerly Computer Marketplace, Inc.) (the "Company") is a California corporation, that was incorporated on July 19, 1983, as Quality Associates, Inc. and changed its name to Computer Marketplace in June 1987. In March 1993, Computer Marketplace changed its name to Computer Marketplace(R), Inc. ("Computer Marketplace") and its state of incorporation from California to Delaware. In September of 1999, the name of the Company was again changed to eMarketplace, Inc. Until April 1999, the Company was primarily engaged in the wholesale distribution of new and used computer equipment to dealers, computer maintenance companies, leasing companies, equipment brokers, and end users, despite the fact that the Company was in the process of winding down its business because it failed to operate profitably since the fiscal year ended June 1994. Computer Marketplace's wholly owned subsidiary, Medical Marketplace, which engages in the distribution of used medical equipment to health care providers, was reflected as disposed of at the time of the merger between Computer Marketplace and E-Taxi, Inc. ("E-Taxi"). An estimated loss on disposal was recorded. [See Notes 3 and 17] On April 23, 1999, the Company acquired E-Taxi, Inc. ("E-Taxi") in a business combination accounted for as a "reverse acquisition." As consideration for 9,074,000 shares of E-Taxi's common stock and 400,000 shares of E-Taxi's Series A preferred stock, the Company issued an aggregate of 9,074,000 shares of common stock, par value $.0001 per share, and 400,000 shares of Series A Preferred Stock, par value $.0001 per share. For accounting purposes, E-Taxi is deemed to be the acquirer, and the Company is deemed to be acquired, under the purchase method of accounting. Therefore, the financial information presented herein represents the historical results of E-Taxi and the results of the Company from April 23, 1999 (date of acquisition) only, and the Statement of Stockholders' Equity reflects the acquisition of the outstanding shares of Computer Marketplace, Inc.'s outstanding common shares as of April 23, 1999 of 2,017,460. E-Taxi was incorporated in the state of Delaware on April 14, 1998 to develop a vertical Internet portal for the small office, home office ("SOHO") market. The acquisition of E-Taxi by the Company signified the adoption by the Company of a new corporate strategy to develop, operate and acquire Internet businesses that provide content, commerce and online services to demographically-targeted audiences. In April 1999, immediately prior to the Company's acquisition of E-Taxi, E-Taxi acquired TechStore, L.L.C. ("TechStore"), an online retailer of computer hardware and software, in a business combination accounted for as a purchase. The results of operations include the results of TechStore from the date of acquisition (See Note 3). (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES SALE OF STOCK BY A SUBSIDIARY - Changes in the Company's proportionate share of subsidiary equity are accounted for as equity transactions. BASIS OF CONSOLIDATION - The accompanying consolidated financial statements include the accounts of eMarketplace and various subsidiaries in which the Company holds a majority ownership interest. The subsidiaries are: Computer Marketplace, Inc., E-Taxi, Inc. and TechStore, LLC. All material intercompany balances and transactions have been eliminated. REVENUE RECOGNITION - The Company records product sales revenue when goods have been shipped. CASH AND CASH EQUIVALENTS - The Company considers all highly liquid instruments with a maturity of three months or less when purchased to be cash equivalents. There are no cash equivalents at June 30, 1999. F-6 EMARKETPLACE, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #2 ================================================================================ (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INVENTORY - The Company's policy is to state inventory at the lower of cost or net realizable value. The company did not have any inventory at June 30, 1999. PROPERTY AND EQUIPMENT AND DEPRECIATION - Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets, which range from three to seven years. INTANGIBLES AND AMORTIZATION - Intangible assets are stated at cost. Amortization is computed using the straight-line method over the estimated useful lives of the related assets, which is generally four to five years. IMPAIRMENT - Long-lived assets of the Company are reviewed at least annually as to whether their carrying value has become impaired pursuant to Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 121 requires long-lived assets, if impaired, to be remeasured at fair value, whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Management also reevaluates the periods of amortization of long-lived assets to determine whether events and circumstances warrant revised estimates of useful lives. NET LOSS PER SHARE OF COMMON STOCK - Net loss per share of common stock is computed reflecting the shares issued in the reverse acquisition as outstanding for all periods presented and on the basis of the weighted average shares of common stock outstanding. Potential common shares arising from the effect of dilutive stock options and warrants using the treasury stock method are included if dilutive. For fiscal years 1999 and 1998, the per share results were computed without consideration for contingently issuable shares underlying stock options and warrants as the effect on the per share results would be anti-dilutive. See Notes 8 and 10 for further details on contingently issuable shares. COMPREHENSIVE INCOME - The Company does not have any transactions included in comprehensive income. SEGMENTS - Effective July 1, 1998, the Company adopted the provisions of SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." The Company identifies its operating segments based on business activities, management responsibility and geographical location. During the years ended June 30, 1999 and 1998, the Company operated in a single business segment, primarily in the United States. Through June 30, 1999, foreign operations have not been significant in either revenue or investment in long-lived assets. USE OF ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. ADVERTISING COSTS - Advertising costs are expensed when incurred. Advertising costs amounted to $45,917 and $-0- for the years ended June 30, 1999 and 1998, respectively. RESEARCH AND DEVELOPMENT - Research and development costs are charged to expense as incurred. Research and development costs amounted to $19,173 and $-0- for the years ended June 30, 1999 and 1998, respectively. F-7 EMARKETPLACE, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #3 ================================================================================ (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) STOCK OPTIONS ISSUED TO EMPLOYEES - The Company adopted SFAS No. 123 on July 1, 1996 for financial note disclosure purposes and will continue to apply the intrinsic value method of Accounting Principles Board ("APB") Opinion No. 25 for financial reporting purposes. (3) ACQUISITIONS On April 23, 1999, Computer Marketplace, Inc., (or "CMP") acquired E-Taxi, Inc. ("E-Taxi") in a business combination accounted for as a "reverse acquisition." As consideration for 9,074,000 shares of E-Taxi's common stock and 400,000 shares of E-Taxi's Series A preferred stock, CMP issued an aggregate of 9,074,000 shares of common stock, par value $.0001 per share, and 400,000 shares of Series A Preferred Stock, par value $.0001 per share. For accounting purposes, E-Taxi is deemed to be the acquirer, and CMP is deemed to be acquired, under the purchase method of accounting. Therefore, the financial information presented herein represents the historical results of E-Taxi and the results of CMP from April 23, 1999 (date of acquisition) only. The total purchase price, including stock valued at approximately $9.5 million and acquisition related expenses of approximately $95,700 was allocated to net liabilities of CMP of $(472,972), and $9,972,630 of goodwill, which is being amortized using the straight-line method over its estimated useful life of five years. In April 1999, E-Taxi acquired TechStore, an online retailer of computer hardware and software, in a business combination accounted for using the purchase method of accounting. The results of operations include the results of TechStore from the date of acquisition. The purchase price, which consisted of stock valued at $1,492,000, cash of $66,667 and acquisition related expenses of approximately $38,300, was allocated $(170,300) to net tangible liabilities acquired, $140,000 to developed technology, $160,000 to established workforce, $280,000 to trademarks, and $1,187,300 to goodwill. The value and estimated lives of the identified intangible assets was determined by a third-party valuation. The intangible assets are being amortized over their estimated useful lives of four years. The following unaudited pro forma financial information reflects the results of operations for the year ended June 30, 1999 as if the acquisitions had occurred on July 1, 1998, and after giving effect to purchase accounting adjustments. These unaudited pro forma results have been prepared for comparative purposes only and do not purport to be indicative of what operating results would have been had the acquisitions actually taken place on July 1, 1998 and may not be indicative of future operating results. (Data for the year ended June 30, 1998 are not meaningful). YEAR ENDED JUNE 30, 1 9 9 9 [UNAUDITED] ----------- Revenues $ 9,756,060 Income (Loss) from Operations (4,390,304) Net Income (Loss) (4,842,488) Net Loss per Share: Basic and Diluted (.43) F-8 EMARKETPLACE, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #4 ================================================================================ (4) INTANGIBLE ASSETS Intangible assets consists of the following as of June 30, 1999: Goodwill $ 11,159,923 Acquired Technology 140,000 Established Workforce 160,000 Trademarks 280,000 ---------------- Total 11,739,923 Less: Accumulated Amortization (404,174) TOTAL $ 11,335,749 ----- ================ Amortization expense for the years ended June 30, 1999 and 1998 was $404,173 and $-0-, respectively. (5) PROPERTY AND EQUIPMENT Property and equipment consists of the following as of June 30, 1999: Computer Hardware and Software $ 253,616 Office Equipment 12,360 Furniture and Fixtures 67,632 Automobiles and Trucks 4,850 ---------------- Total 338,458 Less: Accumulated Depreciation (294,503) TOTAL $ 43,955 ----- ================ Depreciation expense for the years ended June 30, 1999 and 1998 was $5,815 and $-0-, respectively. (6) COMMITMENTS The Company leases office space under month-to-month leases. See Note 15 for related party lease. Total rent expense under all operating leases for the years ended June 30, 1999 and 1998 was $4,450 and $-0-, respectively. (7) NOTES PAYABLE - RELATED PARTY $100,000 is payable to a director of the Company, and consists of two secured promissory notes, each for $50,000 bearing interest at 10% and payable within three days of demand dated on January 26, 1999 and April 15, 1999, respectively. These notes are fully collateralized by all real and personal property. In conjunction with these notes, the Company granted the director fully vested options to purchase a total of 200,000 shares of common stock at $0.50 per share. Prior to it's reverse merger with E-Taxi, CMP recorded the difference between the market value of the options on the date of grant and the exercise price, totaling $125,000, in compensation expense associated with these options (See Note 17E). $67,000 is payable to an officer of the Company and consists of the following: Secured Promissory Note $ 50,000 10% interest Promissory Note 10,000 12% interest Promissory Note 7,000 12% interest ---------------- TOTAL $ 67,000 ================ F-9 EMARKETPLACE, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #5 ================================================================================ (7) NOTES PAYABLE - RELATED PARTY (CONTINUED) These notes are payable within three days of demand. The secured promissory note is fully collateralized by all real and personal property. In conjunction with these notes, the Company granted the director fully vested options to purchase a total of 100,000 shares of common stock at $.60 per share. Prior to it's reverse merger with E-Taxi, CMP recorded the difference between the market value of the options on the date of grant and the exercise price, totaling $33,000, in compensation expense associated with these options. The prime rate at June 30, 1999, was 8.25%. (8) EMPLOYMENT CONTRACTS The Company has employment contracts with two officers of one of its wholly owned subsidiaries. These contracts are for a term of five years. Under the terms of the contracts, the two officers are each eligible for cash performance bonuses based on the subsidiary's revenue and earnings before interest, taxes and deprecation ("EBITD"), up to a maximum of 100% of their base salary. The base salary of $75,000 is subject to reviewed and adjustment annually. In addition, each officer is entitled to a $500 per month automobile allowance. In connection with these employment agreements, the Company also granted each of the two officers a Restricted Stock Award for 500,000 shares each which vest 100% on March 31, 2000 subject to continued employment and attainment of certain revenue and EBITD targets. Because the likelihood of attainment of the targets is considered by management to be remote, these shares have not been issued as of June 30, 1999 and no expense has been recorded associated with these shares. (9) INCOME TAXES The Tax Reform Act of 1986 imposes substantial restrictions on the utilization of net operating loss and tax credits in the event of a change in ownership as defined in the Internal Revenue Code. Accordingly, the Company's ability to utilize net operating loss and credit carryforwards may be limited as a result of such an "ownership change." Management has not determined whether such an ownership change has occurred. Generally accepted accounting principles require the establishment of a deferred tax asset for all deductible temporary differences and operating loss carryforwards. At June 30, 1999, management cannot estimate the deferred tax asset attributable to operating loss carryforwards. However, because the Company does not as yet have a history of continuing profitability, any deferred tax asset established for the operating loss carryforward would correspondingly require a valuation of allowance of the same amount. Accordingly, no deferred tax asset is reflected in these consolidated financial statements. No provision for Federal income taxes has been made during the fiscal years ended June 30, 1999 and 1998, because of the Company's net loss position. (10) STOCKHOLDERS' EQUITY PRIVATE PLACEMENT - In April 1999, E-Taxi, Inc. completed a private placement of 810,000 shares of common stock at $0.625 per share and 90,000 shares of Series A convertible preferred stock at $10.00 per share, realizing proceeds of $1,406,250. CONVERSION OF PREFERRED STOCK - As of the close of business on April 28, 1999, the Company's common stock had a closing price of greater than $3.75 per share for more than three consecutive days, and based upon the terms of the Series A convertible preferred stock, all outstanding shares of preferred stock converted into common stock at a one to four ratio, resulting in the cancellation of 400,000 shares of preferred stock and the issuance of 1,600,000 shares of common stock. F-10 EMARKETPLACE, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #6 ================================================================================ (10) STOCKHOLDERS' EQUITY (CONTINUED) STOCK COMPENSATION PLANS - All of the stock option activity presented below was recorded by Computer Marketplace prior to its reverse merger with E-Taxi. Because these financial statements represent the historical results of E-Taxi and combine the results of Computer Marketplace only from its date of acquisition of April 23,1999, no charges are included in the income statement for options issued to consultants other than the amortization of deferred compensation after April 23, 1999. In January 1996, 157,083 non-qualified stock options were granted to employees of Computer Marketplace and its subsidiaries, and to non-employee directors, to purchase shares of Computer Marketplace's common stock at an exercise price equal to $1.6875, which was equal to 100% of the market value of the Company's common stock on the date of grant. The stock options required future employment or services to Computer Marketplace and vested one third each on January 3, 1997, January 3, 1998, and January 3, 1999, respectively. The stock options must be exercised by January 3, 2006. As of June 30, 1999, 13,666 of these options are outstanding and exercisable. In December 1996, the Company issued to certain employees, officers and directors options to purchase an aggregate of 1,000,000 shares of Computer Marketplace's Common Stock during a four year period commencing on January 1, 1997 at an exercise price of $1.00 per share (the "Management Options"). In exchange for the issuance of certain of the Management Options, certain option holders surrendered for cancellation an aggregate of 242,250 options previously issued in June 1996 for 722,500 of the Management Options. As of June 30, 1999, 153,333 of these options are outstanding and exercisable. In September 1998, 185,000 options were issued to employees and consultants at $1.00 per share, which was higher than the market value of the shares on the date of grant. Compensation expense associated with the options issued to consultants computed using the Black-Scholes model of $36,632 was recorded. In November 1998, options to purchase a total of 100,000 shares were granted to an officer of Computer Marketplace, with an exercise prices less than market value on the date of grant, in conjunction with loans to Computer Marketplace of $50,000. Compensation charges equal to the difference between the market value and the exercise price of $33,000 were recorded by the predecessor company prior to its merger with E-Taxi. In January and April 1999, options to purchase a total of 200,000 shares were granted to a director of Computer Marketplace, with an exercise prices less than market value on the date of grant, in conjunction with loans to Computer Marketplace of $100,000. Compensation charges equal to the difference between the market value and the exercise price of $125,000 were recorded by the predecessor company prior to its merger with E-Taxi. In March 1999, 60,000 shares of common stock were granted to consultants as payment for services rendered to E-Taxi, resulting in a charge to compensation expense of $30,000. In April 1999, 690,834 options outstanding for the chief executive officer of the Company were repriced in conjunction with the cancellation of liabilities, resulting in a compensation charge of $204,557, which was equal to the difference between the fair value of the repriced options and the liabilities forgiven. In April 1999, 40,000 shares of common stock were granted to Directors as payment for services rendered to the Company, resulting in a charge to compensation expense of $150,000. In April of 1999, pursuant to a settlement agreements, the Company cancelled options issued to non-employees in addition to obligations for 1,000,000 shares of the Company's common stock in exchange for the issuance of 250,000 shares of common stock. The options had a unamortized deferred compensation balance of $274,372, and accordingly, expensed the $274,372 as the fair value of the shares issued. F-11 EMARKETPLACE, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #7 ================================================================================ (10) STOCKHOLDERS' EQUITY (CONTINUED) In April 1999, the Company granted to a consultant options to purchase 125,000 shares of the Company's common stock. The options vest monthly in increments of 25,000, commencing May 1, 1999. As a result, deferred compensation of $146,653 was recorded and cumulative compensation expense of approximately $58,000 has been recognized. As of April 9, 1999, the Company and each of the holders of 1,500,000 Class D Common Stock Purchase Warrants entered into a Settlement Agreement, pursuant to which the Company issued 375,000 shares of the Company's common stock in exchange for (i) the cancellation of all Class D Common Stock Purchase Warrants, (ii) the surrender and transfer to the Company of an aggregate of 500,000 shares of common stock of Medical Marketplace, Inc., and (iii) a general release, releasing the Company from all liabilities. In June 1999, a majority of the shareholders approved the adoption of the Company's 1999 Stock Plan (the "1999 Plan"). A total of 1,700,000 shares of common stock have been reserved for issuance under this plan. The 1999 plan permits the granting of incentive or non-incentive options to employees, directors, consultants or advisors of the Company and its subsidiaries. Incentive options may be granted to employees only and may not have an exercise price less than 100% of fair market value (110% for 10% Stockholders) on the date of grant, and terminate no later than ten years from date of grant (five years for 10% Stockholders). Awards of restricted stock or deferred stock may also be granted under the 1999 Plan. The following is a summary of transactions under the stock option plans:
WEIGHTED NUMBER OF WEIGHTED AVERAGE AVERAGE COMMON SHARES EXERCISE PRICE FAIR VALUE ------------- -------------- ---------- Options Outstanding at June 30, 1997 2,054,917 $ 1.02 $ 0.14 Granted 98,000 1.00 0.14 Cancelled (137,917) 1.97 0.15 ----------- Options Outstanding at June 30, 1998 2,015,000 1.02 0.14 Granted 1,300,834 0.82 0.93 Cancelled (1,848,001) 1.01 0.14 ----------- OPTIONS OUTSTANDING AT JUNE 30, 1999 1,467,833 0.86 0.84 =========== OPTIONS EXERCISABLE AT JUNE 30, 1999 1,392,833 0.77 0.83 ===========
The following is a summary of the status of fixed options outstanding at June 30, 1999:
OUTSTANDING OPTIONS EXERCISABLE OPTIONS - ---------------------------------------------------- -------------------------------------------- WEIGHTED WEIGHTED REMAINING AVERAGE AVERAGE EXERCISE CONTRACTUAL EXERCISE EXERCISE EXERCISE PRICE NUMBER LIFE PRICE NUMBER PRICE PRICE ----- ------ ---- ----- ------ ----- ----- $ 0.50 200,000 3.7 years $ 0.50 200,000 $ 0.50 $ 0.50 $ 0.60 790,834 2.7 years $ 0.60 790,834 $ 0.60 $ 0.60 $ 1.00 338,333 2.6 years $ 1.00 338,333 $ 1.00 $ 1.00 $ 1.69 13,666 6.8 years $ 1.69 13,666 $ 1.68 $ 1.69 $ 2.50 125,000 0.4 years $ 2.50 50,000 $ 2.50 $ 2.50 ------------ ----------- 1,467,833 2.6 years $ 0.86 1,392,833 $ 0.77 ============ =========== ========
F-12 EMARKETPLACE, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #8 ================================================================================ (10) STOCKHOLDERS' EQUITY (CONTINUED) WARRANTS - In April 1999, the Company and Gateway Advisors, Inc. ("Gateway Advisors"), a company owned and controlled by the Company's current Chairman of the Board, entered into a Financial Advisory Agreement, pursuant to which Gateway Advisors agreed to provide certain business development and financial advisory services for a period of two years in exchange for the issuance by the Company of 1,500,000 Common Stock Purchase Warrants. Each warrant, which was fully vested on the date of grant, entitles the holder to purchase one share of the Company's Common Stock at an exercise price of $2.50 per share until April 8, 2000. Deferred compensation associated with the options issued to consultants computed using the Black-Scholes model of $636,504 was recorded by the predecessor company prior to its merger with E-Taxi. Compensation expense for the two months ended June 30, 1999 was $52,000 (See Note 15). VALUATION OF STOCK OPTIONS AND WARRANTS - The Company applies Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees and related interpretations, for stock options issued to employees in accounting for its stock option plans. Had compensation cost been determined on the basis of fair value pursuant to SFAS No. 123, for the employee options, net income and earnings per share would have been as follows:
PERIOD FROM APRIL 14, 1998 YEAR ENDED (INCEPTION) TO JUNE 30, JUNE 30, 1999 1998 --------------- --------------- Net Loss as Reported $ (728,297) $ (7,131) =============== =============== Pro Forma Net Loss $ (1,129,657) $ (7,131) =============== =============== Basic and Diluted Net Loss per Share as Reported $ (0.06) $ -- =============== =============== Pro Forma Basic and Diluted Net Loss per Share $ (0.10) $ -- =============== ===============
The fair value used in the pro forma data was estimated by using an option pricing model which took into account as of the grant date, the exercise price and the expected life of the option, the current price of the underlying stock and its expected volatility, expected dividends on the stock and the risk-free interest rate for the expected term of the option. The following is the average of the data used for the following items. WEIGHTED WEIGHTED AVERAGE AVERAGE YEAR ENDED RISK-FREE EXPECTED EXPECTED EXPECTED JUNE 30, INTEREST RATE LIFE VOLATILITY DIVIDENDS -------- ------------- ---- ---------- --------- 1998 5.80% 2 90.74% None 1999 4.76% 2 106.80% None SHARES RESERVED FOR FUTURE ISSUANCE - In addition to the options discussed above, the Company has reserved 1,000,000 shares of common stock for issuance under certain employment agreements. See Note 8 above. F-13 EMARKETPLACE, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #9 ================================================================================ (11) CONCENTRATIONS CREDIT RISK - The Company currently maintains cash accounts with financial institutions which exceed the maximum amounts insured by the Federal Depository Insurance Corporation. At June 30, 1999 these uninsured amounts totaled approximately $1,129,000. Generally, the Company does not require collateral or other security to support financial instruments, however the Company routinely assesses the financial strength of its customers and, as a consequence, believes that its trade receivable credit risk exposure is limited. At June 30, 1999, no single customer accounted for 10% or more of trade receivables, and no single customer accounted for more than 10% of total revenues for the year ended June 30, 1999. OTHER - One of the Company's subsidiaries purchases all of its finished goods from one supplier. The Company is entirely dependent on this supplier for order fulfillment and for shipping merchandise directly to customers. Management believes that there is no business vulnerability regarding this concentration of purchases as the goods are available from other sources. However, there can be no assurance that such a distributor could provide the fulfillment, service and pricing currently offered by its current supplier. The Company's future success is highly dependent upon continued growth in the use of the Internet generally and, in particular, as a medium for advertising, marketing, services and commerce. If commercial use of the Internet fails to continue to expand, the Company's business, results of operations and financial condition would be adversely affected. In addition, it is possible that a number of laws and regulations may be adopted with respect to the Internet generally and the adoption of any such additional laws or regulations may decrease the growth of commerce over the Internet, increase the Company's cost of doing business or otherwise have a harmful effect on the Company's business. (12) NEW AUTHORITATIVE PRONOUNCEMENTS The Financial Accounting Standards Board ["FASB"] has issued Statement of Financial Accounting Standards ["SFAS"] No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. SFAS No. 133 requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and how it its designated, for example, gain or losses related to changes in the fair value of a derivative not designated as a hedging instrument is recognized in earnings in the period of the change, while certain types of hedges may be initially reported as a component of other comprehensive income [outside earnings] until the consummation of the underlying transaction. SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. Initial application of SFAS No. 133 should be as of the beginning of a fiscal quarter; on that date, hedging relationships must be designated anew and documented pursuant to the provisions of SFAS No. 133. Earlier application of all of the provisions of SFAS No. 133 is encouraged, but it is permitted only as of the beginning of any fiscal quarter. SFAS No. 133 is not to be applied retroactively to financial statements of prior periods. F-14 EMARKETPLACE, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #10 ================================================================================ (12) NEW AUTHORITATIVE PRONOUNCEMENTS [CONTINUED] The Company does not currently have any derivative instruments and is not currently engaged in any hedging activities. In October 1998, the FASB issued SFAS No. 134, "Accounting for Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprises." SFAS No. 134 is not expected to have a material impact on the Company. In February 1999, the FASB issued SFAS No. 135, which is a recission of SFAS No. 75 "Deferral of the Effective Date of Certain Accounting Requirements for Pension Plans of State and Local Government Units." SFAS No. 135 is not expected to have a material impact on the Company. The FASB has had on its agenda a project to address certain practice issues regarding Accounting Principles Board ["APB"] Opinion No. 25, "Accounting for Stock Issued to Employees." The FASB plans on issuing various interpretations of APB Opinion No. 25 to address these practice issues. The proposed effective date of these interpretations would be the issuance date of the final Interpretation, which is expected to be in September 1999. If adopted, the Interpretation would be applied prospectively but would be applied to plan modification and grants that occur after December 15, 1998. The FASB's tentative interpretations are as follows: * APB Opinion No. 25 has been applied in practice to include in its definition of employees, outside members of the board or directors and independent contractors. The FASB's interpretation of APB Opinion No. 25 will limit the definition of an employee to individuals who meet the common law definition of an employee [which also is the basis for the distinction between employees and nonemployees in the current U.S. tax code]. Outside members of the board of directors and independent contractors would be excluded from the scope of APB Opinion No. 25 unless they qualify as employees under common law. Accordingly, the cost of issuing stock options to board members and independent contractors not meeting the common law definition of an employee will have to be determined in accordance with FASB Statement No. 123, "Accounting for Stock-Based Compensation," and usually recorded as an expense in the period of the grant [the service period could be prospective, however, depending on the terms of the options]. * Options [or other equity instruments] of a parent company issued to employees of a subsidiary should be considered options, etc. issued by the employer corporation in the consolidated financial statements, and, accordingly, APB Opinion No. 25 should continue to be applied in such situations. This interpretation would apply to subsidiary companies only; it would not apply to equity method investees or joint ventures. * If the terms of an option [originally accounted for as a fixed option] are modified during the option term to directly change the exercise price, the modified option should be accounted for as a variable option. Variable grant accounting should be applied to the modified option from the date of the modification until the date of exercise. Consequently, the final measurement of compensation expense would occur at the date of exercise. The cancellation of an option and the issuance of a new option with a lower exercise price shortly thereafter [for example, within six months] to the same individual should be considered in substance a modified [variable] option. * Additional interpretations will address how to measure compensation expense when a new measurement date is required. F-15 EMARKETPLACE, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #11 ================================================================================ (13) ACCRUED LOSS ON DISPOSAL OF SUBSIDIARY In April of 1999, the Company decided to adopt a plan to sell a subsidiary, Medical Marketplace and its wholly-owned subsidiary, New Millineum Leasing, which was finalized in September of 1999. The combined assets and liabilities of Medical Marketplace and New Millineum Leasing as of April 1999 are presented below including the accrued loss on their disposal. This plan of disposition occurred prior to combination with E-Taxi.
Assets and Liabilities: Cash $ 101,377 Accounts Receivable - Net 28,403 Residual Value of Equipment 375,000 Deposits 20,000 Property and Equipment, Net 723,418 Notes Payable (213,406) Accounts Payable (102,855) Accrued Liabilities (190,244) Capital Lease Obligations (334,962) ------------- Net Assets of Entity to be Disposed of: 406,731 Estimated Additional Losses to be Incurred through Disposal Date 314,556 Estimated Net Proceeds upon Sale (60,000) ------------- TOTAL ACCRUED LOSS ON DISPOSAL OF SUBSIDIARY $ 661,287 =============
The revenues of Medical Marketplace and New Millineum Leasing for the year ended June 30, 1998 were approximately $4,414,000. (14) PENDING ACQUISITION As of June 14, 1999, the Company's legal subsidiary, E-Taxi entered into (i) a Stock Purchase Agreement (the "Stock Purchase Agreement") with all of the shareholders of SSPS, Inc., a California corporation ("SSPS"), pursuant to which E-Taxi has agreed to purchase, and the shareholders of SSPS have agreed to sell, approximately 94.6% of the outstanding shares of capital stock of SSPS, and (ii) a Membership Interest Purchase Agreement with all of the members of Impact Team International, LLC, a California limited liability company and an affiliate of SSPS ("Impact"), pursuant to which E-Taxi has agreed to purchase, and the members of Impact have agreed to sell, all of the outstanding membership interests of Impact. SSPS, and its operating divisions TRISTEP, GIG2GIG.COM, and IT WORLDNET.COM, and Impact, provide short term and long term temporary workforce solutions primarily to rapidly growing technology firms. The closing of the transactions contemplated by the Stock Purchase Agreement and the Membership Interest Purchase Agreement (the "Closing") are subject to the satisfaction of certain conditions, including without limitation, the execution and delivery of employment agreements with certain members of the senior management team of SSPS, the release of a principal stockholder of SSPS of his guaranty of certain indebtedness of SSPS, the waiver of certain rights of first refusal to purchase the shares of SSPS capital stock owned by a principal stockholder, the termination and release of certain obligations of SSPS under existing employment agreements and other customary conditions to closing. At the Closing, the Company will issue approximately 2.9 million shares of its Common Stock and pay cash and notes of approximately $1.5 million for SSPS. The Company has also agreed to provide the sellers of the SSPS shares and the Impact interests with demand and piggyback registration rights. It is presently anticipated that the Company's acquisition of SSPS and Impact will close second quarter of fiscal 2000 (See Note 17B). F-16 EMARKETPLACE, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #12 ================================================================================ (15) RELATED PARTY TRANSACTIONS In April 1998, TechStore, a subsidiary of the Company, entered into a month to month lease agreement for office space with an entity owned by an officer and a 10% stockholder of the Company. The lease payments are approximately $1,500 per month. In September 1998, E-Taxi retained Gateway Advisors, Inc., a company owned and controlled by the Company's Chairman of the Board, as financial advisor for a three year term, pursuant to which Gateway receives quarterly fee payments of $30,000 plus reimbursement of expenses (See Note 10). In October 1998, the Company repaid a $200,000 promissory note to a lender by transferring its ownership interest in certain property. Shortly thereafter, the lender sold the property to the trust fund (the Kiley Children's Trust) of the children of the then President and Chairman of the Board. In January and April of 1999, a director of the Company loaned proceeds totaling $100,000 to the Company with repayment terms of July and September of 1999 and an annual interest rate of 10%. These notes are fully collateralized by all real and personal property (See Note 17E). (16) FAIR VALUE OF FINANCIAL INSTRUMENTS Generally accepted accounting principles require disclosing the fair value of financial instruments to the extent practicable for financial instruments which are recognized or unrecognized in the balance sheet. The fair value of the financial instruments disclosed herein is not necessarily representative of the amount that could be realized or settled, nor does the fair value amount consider the tax consequences of realization or settlement. For certain financial instruments, including cash and cash equivalents, trade receivables, trade payables, and short-term debt, it was estimated that the carrying amount approximated fair value for the majority of these items because of their short maturities. (17) SUBSEQUENT EVENTS (A) SALE OF SUBSIDIARY - MEDICAL MARKETPLACE - On October 12, 1999, the Company entered into a definitive agreement to sell 100% of its interest in Medical Marketplace to a third party effective June 30, 1999 for $65,000 in cash and notes (See Note 13). In connection with the sale of the capital stock of Medical Marketplace, the Company received $40,000 in cash and a promissory note in the aggregate principal amount of $25,000. The note is secured by the assets and stock of Medical Marketplace and bears interest at a rate of 8% per annum. Interest and principal shall be paid quarterly commencing on January 1, 2000 in eleven (11) payments of two thousand eighty five dollars ($2,085) (with the twelfth and final payment being in the amount of $2,065) plus interest on the outstanding balance. In addition, in the event that (i) the Company receives not less than $225,000 in proceeds from a specified account receivable (the "Specified Receivable") or (ii) all liabilities of Medical Marketplace have terminated to the satisfaction of Seller, the obligations to the Company under the Note shall be deemed satisfied in full. Further, the outstanding principal amount of the Note shall be reduced (i) proportionately based upon the proceeds received by the Company with respect to the Specified Receivable divided by $225,000 and (ii) to the extent that Medical Marketplace incurs any tax liabilities from the non-payment of taxes by Medical Marketplace prior to June 30, 1999, subject to certain limitations. F-17 EMARKETPLACE, INC. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, SHEET #13 ================================================================================ (17) SUBSEQUENT EVENTS (CONTINUED) (B) PRIVATE PLACEMENT - On July 16, 1999, the Company commenced a private offering (the "Offering") of up to 1,200,000 shares of its Common Stock (each a "Share" and collectively the "Shares"). The Offering is being conducted under the exemptions from the registration requirements of the Securities Act of 1933, as amended (the "Act"), provided by Section 4(2) of the Act and the provisions of Rule 506 of Regulation D. Sales of the Shares will be made only to "accredited investors," as such term is defined in Rule 501(a) under the Act. The Shares are being offered at a purchase price of $3.875 per share and on a "best efforts all or none" basis with respect to the first 400,000 Shares (the "Minimum Offering"), and on a "best efforts" basis thereafter with respect to the remaining 800,000 Shares (the "Maximum Offering"). The Offering was originally scheduled to terminate on August 30, 1999, but has been extended at the option of the Company. Subscriptions for less than 20,000 Shares (or $77,550) may be accepted at the discretion of the Company. Upon completion of the Minimum Offering and the Maximum Offering, the Company expects to receive gross proceeds of approximately $1,550,000 and $4,650,000, respectively, before deducting commissions (placement agent) and expenses of the Offering (consisting of accounting and legal fees, "blue sky" fees and other related expenses). The Company has received proceeds from the Offering of approximately $2,884,000 as of October 12, 1999 which will be used to fund the acquisition of SSPS and Impact and the working capital needs of the Company. (C) NEW SUBSIDIARIES AND OTHER AGREEMENTS - On August 12, 1999, Top Team, Inc., a newly formed subsidiary of the Company ("Top Team") entered into letters of intent with Full Moon Interactive Group, Inc. and Orrell Communications, Inc., and on September 7, 1999, Top Team entered into letters of intent with Paradigm 3 Marketing, De Vries Data Systems, Inc., Image Network and Muccino Design Group, Inc. Under the letters of intent, it is contemplated that together the Company and Top Team will acquire all of the outstanding capital stock of these interactive architect companies in exchange for the payment of cash and the issuance of shares of common stock of both the Company and Top Team. The closing of each of the proposed transactions is subject to the completion of legal, business and accounting due diligence and the execution and delivery of definitive acquisition agreements. In August 1999, Office Express, Inc. a newly formed subsidiary of the Company, began its operations to sell office products and supplies through its Web site. (D) RELATED PARTY TRANSACTIONS - In July 1999, the Company terminated a real property lease agreement with Quality Associates, Inc., a company owned and controlled by the Company's Chief Executive Officer. As of July 15, 1999, the Company has agreed to reimburse a company owned by the Company's Chairman of the Board for the use of office space. The reimbursement is $5,422 per month. The Company has not agreed to any term for this arrangement. (E) EXTENSION ON RELATED PARTY NOTES PAYABLE - On October 11, 1999, the Company received an extension on notes payable aggregating $100,000 which were due in July and September of 1999 until December 31, 1999 (See Note 7). . . . . . . . . . . F-18 SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly executed on this day of October 13, 1999. EMARKETPLACE, INC. By: /s/ L. WAYNE KILEY -------------------------------------------- L. Wayne Kiley President, Chief Executive Officer, (Chief Accounting Officer) and Director In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated. Signature Title Date - --------- ----- ---- L. WAYNE KILEY President, October 13, 1999 - ------------------------- Chief Executive l. Wayne Kiley Officer (Chief Accounting Officer) and Director ROBERT M. WALLACE Chairman of the Board October 13, 1999 - ------------------------- Robert M. Wallace THOMAS E. EVANS, JR. Director October 13, 1999 - ------------------------- Thomas E. Evans, Jr. EX-3.02 2 EXHIBIT 3.02 EXHIBIT 3.02 ARTICLES OF INCORPORATION OF TECHSTORE, LLC STATE OF CALIFORNIA BILL JONES SECRETARY OF STATE LIMITED LIABILITY COMPANY ARTICLES OF ORGANIZATION IMPORTANT - Read the instructions before completing the form. This document is presented for filing pursuant to Section 17050 of the California Corporations Code. - -------------------------------------------------------------------------------- 1. Limited liability company name: (end the name with "LLC" or "Limited Liability Company". No periods between the letters in "LLC", "Limited" and "Company" may be abbreviated to Llc" and "Co." TechStore LLC - -------------------------------------------------------------------------------- 2. Latest date (monthly/day/year) on which the limited liability company is to dissolve: 12/31/2038 - -------------------------------------------------------------------------------- 3. The purpose of the limited liability company is to engage in any lawful act or activity for which a limited liability company may be organized under the Beverly-Killea Limited Liability Company Act. - -------------------------------------------------------------------------------- 4. Enter the name of initial agent for service of process and check the appropriate provision below: Bejan Aminifard [X] an individual residing in California. Proceed to Item 5. [ ] a corporation which has filed pursuant to Section 1505 of the California Corporations Code. Skip Item 5 and proceed to Item 6. 5. If the initial agent for service of process is an individual, enter a business or residential street address in California: Street Address: 1525 Indian Valley Rd. City: Novato State: California Zip Code: 94947 6. The limited liability company will be managed by (check one) [ ] one manager [ ] more than one manager [X] limited liability company members 7. If other matters are to be included in the Articles of Organization attach one or more separate pages. Number of pages attached, if any: - -------------------------------------------------------------------------------- 8. It is hereby declared that I am the FOR SECRETARY OF STATE USE person who executed this instrument, which execution is my act and deed. Signature of organizer /s/ RICHARD OSTER - --------------------------------------------------- Type or print name of organizer Date March 13, 1999 -------------- - -------------------------------------------------------------------------------- EX-3.03 3 EXHIBIT 3.03 EXHIBIT 3.03 CERTIFICATE OF INCORPORATION OF TOPTEAM, INC. CERTIFICATE OF INCORPORATION OF TOPTEAM, INC. ARTICLE I The name of this corporation is TopTeam, Inc. (hereinafter called the "corporation"). ARTICLE II The address of the registered office of this corporation in the State of Delaware is 15 East North Street, in the City of Dover, County of Kent. The name of its registered agent at such address is PARACORP Incorporated. ARTICLE III The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. ARTICLE IV A. CLASSES OF STOCK. This corporation is authorized to issue two classes of stock to be designated, respectively, "Common Stock" and "Preferred Stock." The total number of shares that this corporation is authorized to issue is thirty-one million (31,000,000) shares. Thirty million (30,000,000) shares shall be Common Stock and one million (1,000,000) shares shall be Preferred Stock, each with a par value of $.001 per share. The Board of Directors is authorized, subject to limitations prescribed by law, to provide for the issuance of the shares of Preferred Stock in series, and by filing a certificate pursuant to the applicable law of the State of Delaware, to establish from time to time the number of shares to be included in such series, and to fix the designation, voting, powers, preferences and rights of the shares of each such series and any qualifications, limitations or restrictions thereof. The number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the outstanding shares of Common Stock, without a vote of the holders of the Preferred Stock, or of any series thereof, unless a vote of any such holders is required pursuant to the certificate or certificates establishing any series of Preferred Stock. ARTICLE V Except as otherwise provided in this Certificate of Incorporation, in furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, repeal, alter, amend and rescind any or all of the Bylaws of this corporation. ARTICLE VI The number of directors of this corporation shall be fixed from time to time by a bylaw or amendment thereof duly adopted by the Board of Directors or by the stockholders. ARTICLE VII Elections of directors need not be by written ballot unless the Bylaws of this corporation shall so provide. ARTICLE VIII Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws may provide. The books of this corporation may be kept (Subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of this corporation. ARTICLE IX A director of this corporation shall, to the fullest extent permitted by the General Corporation Law as it now exists or as it may hereafter be amended, not be personally liable to this corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to this corporation or its stockholders, (ii) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the General Corporation Law, or (iv) for any transaction from which the director derived any improper personal benefit. If the General Corporation Law is amended, after the filing of the Certificate of Incorporation, to authorize corporation action further eliminating or limiting the personal liability of directors, then the liability of a director of this corporation shall be eliminated or limited to the fullest extent permitted by the General Corporation Law, as so amended. Any amendment, repeal or modification of this Article IX, or the adoption of any provision of this Certificate of Incorporation inconsistent with this Article IX, by the stockholders of this corporation shall not apply to or adversely affect any right or protection of a director of this corporation existing at the time of such amendment, repeal, modification or adoption. ARTICLE X This corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. ARTICLE XI To the fullest extent permitted by applicable law, this corporation is authorized to provide indemnification of (and advancement of expenses to) agents of this corporation (and any other persons to which General Corporation Law permits this corporation to provide indemnification) through bylaw provisions, agreements with such agents or other persons, vote of stockholders or disinterested directors or otherwise, in excess of the indemnification and advancement otherwise permitted by Section 145 of the General Corporation Law, subject only to limits created by applicable General Corporation Law (statutory or non-statutory), with respect to actions for breach of duty to this corporation, its stockholders, and others. 2 Any amendment, repeal or modification of the foregoing provisions of this Article XI shall not adversely affect any right or protection of a director, officer, agent, or other person existing at the time of, or increase the liability of any director of this corporation with respect to any acts or omissions of such director, officer or agent occurring prior to, such amendment, repeal or modification. * * * ARTICLE XII INCORPORATOR The incorporator is Michael L. Violanti whose mailing address is c/o Leland, Parachini, Steinberg, Matzger & Melnick, LLP, 333 Market Street, 27th Floor, San Francisco, California 94105. I, THE UNDERSIGNED, for the purposes of forming a corporation under the laws of the State of Delaware, do make, file and record this Certificate, and to certify that the facts herein stated are true, and I have accordingly hereunto set my hand this 14th day of July, 1999. --------------------------- Incorporator 3 EX-3.05 4 EXHIBIT 3.05 EXHIBIT 3.05 BY-LAWS OF TOPTEAM, INC. TOPTEAM, INC. BY-LAWS STOCKHOLDERS SECTION 1. ANNUAL MEETING OF STOCKHOLDERS. The annual meeting of stockholders of the Corporation for the purpose of electing directors and of transacting such other business as may properly come before the meeting shall be held at such place and time as shall be designated by the Board of Directors. SECTION 2. SPECIAL MEETINGS OF STOCKHOLDERS. Subject to the rights of the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation, special meetings of the stockholders for any purpose may be called only by a majority of the entire Board of Directors. SECTION 3. NOTICE OF MEETING. The Secretary shall cause written notice of the time, place and purposes of each meeting to be mailed, or delivered personally, not less than 10 nor more than 60 days before the date of the meeting, to each stockholder of record entitled to vote at the meeting. Attendance of a person at a meeting of stockholders, in person or by proxy, constitutes a waiver of notice of the meeting, except when the stockholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transactions of any business because the meeting is not lawfully called or convened. SECTION 4. QUORUM. At any meeting of stockholders the holders of a majority of the shares of the capital stock of the Corporation issued and outstanding and entitled to vote, present in person or represented by proxy, shall constitute a quorum of the stockholders for all purposes unless a greater or lesser quorum shall be provided by law or by the Certificate of Incorporation and in such case the representation of the number so required shall constitute a quorum. The stockholders present in person or by proxy at a meeting at which a quorum is present may continue to do business until adjournment, notwithstanding withdrawal of enough stockholders to leave less than a quorum. Whether or not a quorum is present, the meeting may be adjourned from time to time by the Chairman of the meeting or upon a vote of the shares present. At any such adjourned meeting, at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting if held at the time specified in the notices thereof. SECTION 5. ORGANIZATION. The Chairman of the Board of Directors, the Vice Chairman of the Board of Directors, the President, or such Executive Vice President, Senior Vice President or Vice President as the Chairman of the Board of Directors may designate, shall act as Chairman of meetings of the stockholders. The Board of Directors or the stockholders may appoint any stockholder to act as Chairman of any meeting in the absence of the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors, the President, the Executive Vice Presidents, the Senior Vice Presidents and the Vice Presidents. The Secretary of the Corporation shall act as Secretary at all meetings of the stockholders; but in the absence of the Secretary, the Chairman of the meeting may appoint any person to act as Secretary of the meeting. SECTION 6. VOTING. At any meeting of the stockholders, every stockholder entitled to vote may vote in person or by proxy authorized by an instrument in writing or by a transmission permitted by law filed in accordance with the procedure established for the meeting. Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission created pursuant to this paragraph may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission. All voting, including on the election of directors but excepting where otherwise required by law, may be by a voice vote; provided, however, that upon demand therefore by a stockholder entitled to vote or by his or her proxy, a stock vote shall be taken. Every stock vote shall be taken by ballots, each of which shall state the name of the stockholder or proxy voting and such other information as may be required under the procedure established for the meeting. The Corporation may, and to the extent required by law, shall, in advance of any meeting of stockholders, appoint one or more inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the person presiding at the meeting may, and to the extent required by law, shall, appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his ability. Every vote taken by ballots shall be counted by an inspector or inspectors appointed by the chairman of the meeting. All elections shall be determined by a plurality of the votes cast, and except as otherwise required by law, all other matters shall be determined by a majority of the votes cast affirmatively or negatively. SECTION 7. INSPECTORS OF ELECTIONS. The Board of Directors or Chairman of the meeting and stockholders may appoint one or more inspectors to count and tabulate the votes and to perform such other acts or duties as may be requested by the Chairman or required by law. On request of the Chairman of the meeting or as otherwise required by law, the inspectors shall make and execute a written report to the Chairman of the meeting of any facts found by them and matters determined by them. The report is prima facie evidence of the facts stated and of the vote certified by the inspectors. SECTION 8. STOCK LIST. A complete list of stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order for each class of stock and showing the address of each such stockholder and the number of shares registered in his or her name, shall be open to the examination of any such stockholder, for any purpose germane to the meeting, during ordinary business hours for a period of at least ten (10) days prior to the meeting, either at the Corporation's 2 principal place of business or at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or if not so specified, at the place where the meeting is to be held. The stock list shall also be kept at the place of the meeting during the whole time thereof and shall be open to the examination of any such stockholder who is present. This list shall presumptively determine the identity of the stockholders entitled to vote at the meeting and the number of shares held by each of them. SECTION 9. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Any action required to be taken at any annual or special meeting of stockholders of the Corporation, or any action which may be taken at any annual or special meeting of the stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the Corporation by delivery to its registered office in Delaware, its principal place of business, or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the Corporation's registered office shall be made by hand or by certified or registered mail, return receipt requested. Every written consent shall bear the date of signature of each stockholder who signs the consent and no written consent shall be effective to take the corporate action referred to therein unless, within sixty (60) days of the date the earliest dated consent is delivered to the Corporation, a written consent or consents signed by a sufficient number of holders to take action are delivered to the Corporation in the manner prescribed in the first paragraph of this Section. DIRECTORS SECTION 1. NUMBER. The business and affairs of the Corporation shall be managed under the direction of the Board of Directors which, subject to any right of the holders of any series of Preferred Stock then outstanding to elect additional directors under specified circumstances, shall consist of not less than 1 nor more than 5 persons. The exact number of directors within the minimum and maximum limitations specified in the preceding sentence shall be fixed from time to time by the Board of Directors pursuant to a resolution adopted by a majority of the total authorized number of Directors. SECTION 2. TERMS. The directors, other than those who may be elected by the holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation, shall be divided into three classes, as nearly equal in number as reasonably possible, with the term of office of the first class to expire at the 2000 Annual Meeting of Stockholders, the term of office of the second class to expire at the 2001 Annual Meeting of Stockholders and the term of office of the third class to expire at the 2002 Annual Meeting of Stockholders. At each Annual Meeting of Stockholders following such initial classification and election, directors elected to succeed those directors whose terms expire shall be elected for a term of office to expire at the third succeeding Annual Meeting of Stockholders after their election. 3 SECTION 3. NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Subject to the rights of the holders of any series of Preferred Stock then outstanding, newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification, removal from office or other cause shall be filled by a majority vote of the directors remaining in office, although less than a quorum, and directors so chosen shall hold office for a term expiring at the Annual Meeting of Stockholders at which the term of the class to which they have been elected expires. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. SECTION 4. REMOVAL. Subject to the rights of the holders of any series of Preferred Stock then outstanding, any director, or the entire Board of Directors, may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of at least 80% of the voting power of all of the shares of the Corporation entitled to vote generally in the election of directors, voting together as a single class. SECTION 5. NOMINATIONS OF DIRECTOR CANDIDATES. NOMINATIONS OF CANDIDATES FOR ELECTION AS DIRECTORS OF THE CORPORATION AT ANY MEETING OF STOCKHOLDERS CALLED FOR ELECTION OF DIRECTORS (AN "ELECTION MEETING") MAY BE MADE BY THE BOARD OF DIRECTORS OR BY ANY STOCKHOLDER ENTITLED TO VOTE AT SUCH ELECTION MEETING WHO COMPLIES WITH THE REQUIREMENTS OF THIS SECTION 4. NOMINATIONS MADE BY THE BOARD OF DIRECTORS SHALL BE MADE AT A MEETING OF THE BOARD OF DIRECTORS, OR BY WRITTEN CONSENT OF DIRECTORS IN LIEU OF A MEETING, NOT LESS THAN 30 DAYS PRIOR TO THE DATE OF THE ELECTION MEETING. AT THE REQUEST OF THE SECRETARY OF THE CORPORATION EACH PROPOSED NOMINEE SHALL PROVIDE THE CORPORATION WITH SUCH INFORMATION CONCERNING THEMSELVES AS IS REQUIRED, UNDER THE RULES OF THE SECURITIES AND EXCHANGE COMMISSION, TO BE INCLUDED IN THE CORPORATION'S PROXY STATEMENT SOLICITING PROXIES FOR THEIR ELECTION AS A DIRECTOR. NOT LESS THAN 90 DAYS PRIOR TO THE DATE OF THE ELECTION MEETING IN THE CASE OF AN ANNUAL MEETING AND NOT MORE THAN 7 DAYS FOLLOWING THE DATE OF NOTICE OF THE MEETING IN THE CASE OF A SPECIAL MEETING, ANY STOCKHOLDER WHO INTENDS TO MAKE A NOMINATION AT THE ELECTION MEETING SHALL DELIVER A NOTICE TO THE SECRETARY OF THE CORPORATION SETTING FORTH (I) THE NAME, AGE, BUSINESS ADDRESS AND RESIDENCE ADDRESS OF EACH NOMINEE PROPOSED IN SUCH NOTICE, (II) THE PRINCIPAL OCCUPATION OR EMPLOYMENT OF EACH SUCH NOMINEE, (III) THE NUMBER OF SHARES OF CAPITAL STOCK OF THE CORPORATION WHICH ARE BENEFICIALLY OWNED BY EACH SUCH NOMINEE, (IV) A STATEMENT THAT THE NOMINEE IS WILLING TO BE NOMINATED AND (V) SUCH OTHER INFORMATION CONCERNING EACH SUCH NOMINEE AS WOULD BE REQUIRED, UNDER THE RULES OF THE SECURITIES AND EXCHANGE COMMISSION, IN A PROXY STATEMENT SOLICITING PROXIES FOR THE ELECTION OF SUCH NOMINEES. IN THE EVENT THAT A PERSON IS VALIDLY DESIGNATED AS A NOMINEE IN ACCORDANCE WITH PARAGRAPH (B) OR PARAGRAPH (C) HEREOF AND SHALL THEREAFTER BECOME UNABLE OR UNWILLING TO STAND FOR ELECTION TO THE BOARD OF DIRECTORS, THE BOARD OF DIRECTORS OR THE STOCKHOLDER WHO PROPOSED SUCH NOMINEE, AS THE CASE MAY BE, MAY DESIGNATE A SUBSTITUTE NOMINEE. IF THE CHAIRMAN OF THE ELECTION MEETING DETERMINES THAT A NOMINATION WAS NOT MADE IN ACCORDANCE WITH THE PROCEDURES AS SET FORTH IN THESE BY-LAWS, SUCH NOMINATIONS SHALL BE VOID. SECTION 6. REGULAR MEETINGS. Regular meetings of the Board of Directors shall be held at such place or places, on such date or dates, and at such time or times as shall have been established by the Board of Directors and publicized among all directors. A notice of each regular meeting shall not be required. 4 SECTION 7. SPECIAL MEETINGS. Special meetings of the Board of Directors shall be held whenever called by direction of the Chairman of the Board of Directors or three of the directors. SECTION 8. NOTICE OF MEETINGS. The Secretary shall give notice of the time and place of holding each meeting (except for the meeting immediately following the annual meeting of stockholders) by mailing such notice at least three (3) days before the meeting, or by telegraphing the same at least two (2) days before the Meeting to each Director. SECTION 9. PRESENCE AT MEETING. A member of the Board of Directors or of a Committee thereof, may participate in a meeting by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation in this manner constitutes presence in person at the meeting. SECTION 10. QUORUM. A majority of the members of the Board of Directors then in office, or of a committee thereof, shall constitute a quorum for the transaction of business, except that the Chairman of the Board and two additional members shall constitute a quorum of the Executive Committee of the Board of Directors, and the vote of a majority of the members present at a meeting of which a quorum is present shall be the act of the Board of Directors or of the Committee thereof, except for the amendment of the By-laws which shall require a vote of not less than a majority of the members of the Board of Directors then in office. SECTION 11. ACTION WITHOUT A MEETING. Action required or permitted to be taken at a meeting of the Board of Directors, or a committee thereof, may be taken without a meeting, if all members of the Board of Directors or of the committee consent thereto in writing. The written consents shall be filed with the minutes of the proceedings of the Board of Directors or Committee. The consent shall have the same effect as a vote of the Board of Directors or Committee thereof for all purposes. SECTION 12. ORGANIZATION. At all meetings of the Board of Directors the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors, the President, an Executive Vice President, a Senior Vice President or a Vice President, or in their absence a member of the Board to be selected by the members present, shall preside as Chairman of the meeting. The Secretary or an Assistant Secretary of the Corporation shall act as secretary of all meetings of the Board, except that in their absence the Chairman of the meeting may designate any other person to act as secretary. At meetings of the Board of Directors business shall be transacted in such order as from time to time the Board may determine. 5 SECTION 13. COMMITTEES OF THE BOARD. The Board of Directors may designate one or more Committees, including an Executive Committee, each consisting of one or more Directors of the Corporation as members and one or more Directors as alternate members, with such power and authority as prescribed by the By-laws or as provided in a resolution of the Board of Directors. Each Committee, and each member thereof, shall serve at the pleasure of the Board of Directors. SECTION 14. COMPENSATION. The Directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as Director. No such payment shall preclude any Director from serving the Corporation in any other capacity and receiving compensation therefor. Members of Committees of the Board of Directors may be allowed like compensation for attending Committee meetings. OFFICERS SECTION 1. OFFICERS. The officers of the Corporation shall be a Chairman of the Board of Directors, one or more Vice Chairmen of the Board of Directors, a President, one or more Executive Vice Presidents, one or more Senior Vice Presidents, one or more Vice Presidents, a Secretary, a Treasurer and a Controller, all of whom shall be subject to the control of the Board of Directors. The Board of Directors, immediately after each annual meeting of stockholders, shall select a Chairman of the Board of Directors, one or more Vice Chairmen of the Board of Directors, a President and one or more Executive Vice Presidents, Senior Vice Presidents and Vice Presidents, and a Secretary, a Treasurer and a Controller. Any two or more of the above offices may be held by the same persons except as prohibited by law, but no officer shall execute, acknowledge or verify an instrument in more than one capacity if the instrument is required by law or by the Certificate of Incorporation or By-laws to be executed, acknowledged or verified by two or more officers. The Board of Directors may select at any time such additional officers or assistant officers as they may deem desirable and who shall have such authority and shall perform such duties as from time to time may be prescribed by the Board of Directors. All officers shall be subject to removal with or without cause at any time by the affirmative vote of a majority of the members of the Board of Directors then in office. SECTION 2. TERM OF OFFICE. The term of each officer shall be until the succeeding Board of Directors meeting immediately following the next annual meeting of stockholders and until his successor is elected and qualified unless sooner terminated as provided or permitted by the By-laws or by law. SECTION 3. POWERS AND DUTIES OF THE CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the Board of Directors shall be the chief executive officer of the Corporation and, subject to the direction of the Board of Directors, shall have the general management and control of the affairs and business of the Corporation; shall preside at all meetings of shareholders and directors; shall perform all other duties and shall have all other powers commonly incident to the office or delegated by the Board of Directors, or which 6 are or may at any time be authorized or required by law; and shall, in the absence or incapacity of the President, perform all the duties and functions and exercise all the powers of the President. SECTION 4. VICE CHAIRMAN OF THE BOARD OF DIRECTORS. The Vice Chairman of the Board of Directors shall have such powers and perform such duties as may be assigned by the Board of Directors or be delegated by the Chairman of the Board of Directors. SECTION 5. PRESIDENT. The President shall be the chief operating officer of the Corporation and, subject to the direction of the Board of Directors and the Chairman of the Board of Directors, shall have general charge, control and supervision over the administration and operations of the Corporation; shall perform all the duties and functions and exercise all the powers of the Chairman of the Board of Directors in the absence or disability of the Chairman of the Board of Directors; and shall have all other powers and perform all other duties commonly incident to the office or delegated by the Board of Directors or by the Chairman of the Board of Directors, or which are or may at any time be authorized or required by law. SECTION 6. VICE PRESIDENT. Each Executive Vice President, each Senior Vice President and each of the other Vice Presidents shall have such powers and perform such duties as may be assigned by the Board of Directors or be delegated by the Chairman of the Board of Directors and the President. In case of death, disability or absence of the Chairman of the Board of Directors and the President, the powers, duties and functions of the President shall be temporarily performed and exercised by the Vice Chairman of the Board of Directors or such one of the Executive Vice Presidents, Senior Vice Presidents or the Vice Presidents as shall be designated by the Board of Directors, or if not designated by the Board of Directors, by the Chairman of the Board of Directors or the President. SECTION 7. POWERS AND DUTIES OF THE SECRETARY. The Secretary shall keep the minutes of all meetings of the stockholders and of the Board of Directors, and also (unless otherwise directed) the minutes of all meetings of committees. The Secretary shall procure and keep in the files copies of the minutes of all meetings of stockholders and Boards of Directors of all corporations which the Corporation controls by ownership of stock or otherwise. The Secretary shall attend to the giving and serving of all notices and shall be custodian of the seal of the Corporation. The Secretary may sign with the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors, the President or a Vice President, in the name of the Corporation, all bonds, contracts and instruments of conveyance authorized by the Board of Directors, and when so ordered by the Board of Directors shall affix the seal of the Corporation thereto. The Secretary shall have charge of all such books and papers as the Board of Directors may direct; all of which shall at all reasonable times be open to the examination of any director upon application at the office of the Corporation during business hours. The Secretary shall publish promptly to stockholders any action in respect to dividends or the allotment of rights for subscription to securities. The Secretary shall, in general, perform all the duties incident to the office of the Secretary, and shall be subject in all matters to the control of the Board of Directors. 7 SECTION 8. ASSISTANT SECRETARY. The Board of Directors may appoint an Assistant Secretary or more than one Assistant Secretary. Each Assistant Secretary shall have such powers and shall perform such duties as may be delegated by the Board of Directors. SECTION 9. POWERS AND DUTIES OF THE TREASURER. The Treasurer shall have custody of all funds of the Corporation. The Treasurer is authorized and empowered to receive and collect all moneys due to the Corporation and to receipt therefor. All moneys received by the Treasurer shall be deposited to the credit of the Corporation with such depositories as may be designated by the Board of Directors; the Treasurer may endorse for deposit therein, or for collection, all checks, drafts, vouchers, notes or other obligations drawn to the order of the Corporation or payable to it. The Treasurer is authorized to pay, by check or otherwise, vouchers, payrolls, drafts and other accounts payable when approved for payment by the Controller or such person or persons as may be designated by the Controller with the approval of the Chairman of the Board of Directors or the President; also to make disbursements which have been otherwise ordered or provided for by the Board of Directors, and for dividends or stock when due and payable. The Treasurer is also authorized to draw checks against any funds to the credit of the Corporation with any of its depositories; but all checks drawn by the Treasurer except as otherwise provided for by resolution of the Board of Directors, shall be countersigned by the Controller or such person or persons as may be designated by the Controller with the approval of the Board of Directors, the Chairman of the Board of Directors, or the President from time to time to countersign the same. The Treasurer shall sign, with the Chairman of the Board of Directors or the President or such other person or persons as may be designated for the purpose by the Board of Directors, all bills of exchange and promissory notes of the Corporation. The Treasurer shall enter regularly in the books of the Corporation, to be kept by the Treasurer for that purpose, a full and accurate account of all moneys received and paid by the Treasurer on account of the Corporation; and shall render reports thereof to the Controller at such times and in such form as the latter may prescribe. The Treasurer shall have charge of the capital stock transfer records, ledgers and unissued and cancelled certificates and shall prepare and certify for use at the annual meeting of stockholders a list, alphabetically arranged, of the stockholders entitled to vote at such meeting. Whenever required by the Board of Directors the Treasurer shall render a statement of the cash and security accounts, and shall at all reasonable times exhibit the books and accounts to any director of the Corporation upon application at the office of the Corporation during business hours. The Treasurer shall perform all acts incident to the position of the Treasurer, and be subject in all matters to the control of the Board of Directors. The Treasurer shall give a bond for the faithful discharge of his or her duties in such sum as the Board of Directors may require. SECTION 10. ASSISTANT TREASURER. The Board of Directors may appoint an Assistant Treasurer or more than one Assistant Treasurer. Each Assistant Treasurer shall have such powers and perform such duties as may be delegated by the Board of Directors. SECTION 11. POWERS AND DUTIES OF THE CONTROLLER. The Board of Directors shall appoint a Controller who shall prescribe the system of accounts. The Controller shall have immediate charge of all books and records of account kept in Santa Clara, except as otherwise provided for by resolution of the directors, and the Controller shall have the supervision and direction for all other accounts of the Corporation and of any corporation which this Corporation controls by ownership of stock or otherwise. The Controller shall require reports from the Treasurer and from all other officers and agents 8 of the Corporation who receive or disburse funds for its account, at such time and in such form as the Controller may deem advisable, showing all receipts and disbursement for the Corporation's account, the Controller shall be responsible for the auditing and vouching of all disbursements, and shall have the custody of all vouchers, drafts, invoices and other evidences of such disbursements. The Controller shall maintain, or cause to be maintained, necessary records of the Corporation's personal property so that proper accounting may be had therefor, and may require such periodical reports from the custodians thereof as the Controller may deem necessary. The Controller shall approve for payment all vouchers, payrolls, drafts and other accounts payable when authorized and approved by the Chairman of the Board of Directors or the President or by such person or persons as may be designated by the Chairman of the Board of Directors or the President in writing, the Controller shall countersign all warrants for the depositing of securities in the safe deposit boxes of the Corporation or their withdrawal therefrom, the Controller shall countersign all checks drawn by the Treasurer against any funds to the credit of the Corporation with any of its depositaries except as otherwise provided for by resolution of the Board of Directors; and the Controller may, with the approval of the Board of Directors or of the Chairman of the Board of Directors or the President, delegate such duties by designation in writing, to one or more of his/her assistants. The Controller shall compile and maintain such accounting and statistical records and data as may be required, and shall prepare and submit to the executive officers and to the Board of Directors such periodical and special financial statements as may be called for by them. The Controller shall be subject in all matters to the control of the Board of Directors. SECTION 12. ASSISTANT CONTROLLER. The Board of Directors may appoint an Assistant Controller, or more than one, each of whom shall have such powers and shall perform such duties of the Controller as shall be assigned by the Board of Directors. SECTION 13. POWERS AND DUTIES OF THE GENERAL AUDITOR. The Board of Directors may appoint a General Auditor who shall be under the direction of the Chief Financial Officer of the Corporation and who shall have such powers and perform such duties as may be delegated by the Board of Directors. Included among the General Auditor's responsibilities may be the review of accounting, financial and other operations to assure effective controls and follow-through of policies and procedures, the safeguarding and proper use of assets, the appropriateness of financial statements, underlying records and reports, and the compliance with accounting standards and requirements. The General Auditor shall have the right to report directly to the Audit Committee of the Board of Directors on any matters of significance coming to the General Auditor's attention in the conduct of the office. CAPITAL STOCK SECTION 1. CERTIFICATES OF STOCK. The certificates for shares of the capital stock of the Corporation shall be in such form as shall be approved by the Board of Directors. The certificates shall be signed by the Chairman of the Board of Directors or the Vice Chairman of the Board of Directors, the President, Executive Vice President, Senior Vice President or Vice President and also by the Treasurer or the Secretary, and may be sealed with the seal of the Corporation, or a facsimile thereof. The signatures of the aforesaid officers may be facsimiles if the certificate is countersigned by a transfer agent or registered by a registrar other than the Corporation or its employee. The validity of any stock 9 certificate of the Corporation signed and executed by or in the name of duly qualified officers of the Corporation shall not be affected by the subsequent death, resignation, or the ceasing for any other reason of any such officer to hold such office, whether before or after the date borne by or the actual delivery of such certificates. The name of the person owning the shares represented thereby, with the number of such shares and the date of issue, shall be entered on the Corporation's capital stock records. All certificates surrendered to the Corporation shall be cancelled, and no new certificates shall be issued until the former certificate for the same number of shares shall have been surrendered and cancelled except in case of a lost or destroyed certificate. The Corporation may treat the holder of record of any share or shares of stock as the holder in fact thereof, and shall not be bound to recognize any equitable or other claim to or interest in any such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, save as expressly provided by law. SECTION 2. LOST CERTIFICATE. The Corporation may issue a new certificate for shares in place of a certificate theretofore issued by it, alleged to have been lost or destroyed, and the Board of Directors may require the owner of the lost or destroyed certificate, or his legal representative, to give the Corporation a bond in forms satisfactory to the Corporation sufficient to indemnify the Corporation, its transfer agents and registrars against any claim that may be made against them on account of the alleged lost or destroyed certificate or the issuance of such a new certificate. SECTION 3. TRANSFER OF SHARES. Shares of the capital stock of the Corporation shall be transferable by the owner thereof in person or by a duly authorized attorney, upon surrender of the certificates therefor properly endorsed. The Board of Directors, at its option, may appoint a transfer agent and registrar, or one or more transfer agents or one or more registrars, or either, for the stock of the Corporation. SECTION 4. REGULATIONS. The Board of Directors shall have power and authority to make all such rules and regulations as they may deem expedient concerning the issuance, transfer and registration of certificates for shares of the capital stock of the Corporation. SECTION 5. CORPORATE SEAL. The Seal of the Corporation shall be in substantially the following form: [Seal] The seal of the Corporation shall be in the charge of the Secretary and whenever used shall be attested by an officer of the Corporation. If and when so directed by the Board of Directors, a duplicate of the seal may be kept and used by an officer of the Corporation. 10 MISCELLANEOUS SECTION 1. DIVIDENDS. Dividends upon the capital stock of the Corporation may be declared by the Board of Directors at any regular or special meeting and may be paid from any source permitted by law. SECTION 2. FISCAL YEAR. The fiscal year of the Corporation shall begin on the first day of January and terminate on the thirty-first day of December. SECTION 3. VOTING OF SHARES HELD BY CORPORATION. Shares in another corporation owned by the Corporation may be voted by the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors, the President, any Executive Vice President, any Senior Vice President, any Vice President, Treasurer or Secretary, or by proxy appointed by such officer unless some other person, by resolution of the Board of Directors, shall be appointed to vote such shares. The Corporation shall not directly or indirectly vote any shares issued by it. SECTION 4. CUSTODY, SALE AND TRANSFER OF SECURITIES. Custody of the Corporation's securities shall be with such person or persons, individual or corporate, as from time to time may be designated by resolution of the Board of Directors. Securities directed to be kept in safe deposit boxes shall be deposited and withdrawn therefrom only on orders issued by the Chairman of the Board of Directors, the Vice Chairman of the Board of Directors, the President, an Executive Vice President, a Senior Vice President, a Vice President, the Secretary or an Assistant Secretary, the Treasurer or an Assistant Treasurer, and counter-signed by the Controller or an Assistant Controller. The Chairman of the Board of Directors, the Vice Chairman of the Board of Directors, the President, any Executive Vice President, any Senior Vice President or any Vice President shall each have power to endorse and/or to deliver for sale, assignment or transfer certificates of stock or bonds or other securities or receipts therefor registered in the name of or belonging to the Corporation, whether issued by the Corporation or by any corporation, government, state or municipality; and the Board of Directors from time to time may confer like power upon any other officer, agent or person by resolution fully adopted at any regular or special meeting of the Board of Directors. Every such endorsement must be countersigned by the Controller or an Assistant Controller. SECTION 5. TAKING RECORDS OF STOCKHOLDERS. For the purpose of determining stockholders entitled to notice of and to vote at a meeting of stockholders or an adjournment thereof, or to express consent or to dissent from a proposal without a meeting, or for the purpose of determining stockholders entitled to receive payment of a dividend or allotment of a right, or for the purpose of any action, the Board of Directors shall fix, in advance, the record date for any such determination of stock-holders. The date shall not be more than 60 nor less than 10 days before the date of the meeting, nor more then 60 days before any other action. 11 NOTICES SECTION 1. NOTICES. Except as otherwise specifically provided herein or required by law, all notices required to be given to any stockholder, director, officer, employee or agent shall be in writing and may in every instance be effectively given by hand delivery to the recipient thereof, by depositing such notice in the mails, postage paid, or by sending such notice by facsimile transmission. Any such notice shall be addressed to such stockholder, director, officer, employee or agent at his or her last known address as the same appears on the books of the Corporation. The time when such notice is received, if hand delivered, or dispatched, if delivered through the mails or by facsimile transmission, shall be the time of the giving of the notice. SECTION 2. WAIVERS. A written waiver of any notice, signed by a stockholder, director, officer, employee or agent, whether before or after the time of the event for which notice is to be given, shall be deemed equivalent to the notice required to be given to such stockholder, director, officer, employee or agent. Neither the business nor the purpose of any meeting need be specified in such a waiver. INDEMNIFICATION OF DIRECTORS AND OFFICERS SECTION 1. RIGHT TO INDEMNIFICATION. Each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative, or investigative (hereinafter a "proceeding"), by reason of the fact that he or she is or was a director or an officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to an employee benefit plan (hereinafter an "Indemnitee"), whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment), against all expense, liability and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties or amounts paid in settlement) reasonably incurred or suffered by such indemnitee in connection therewith; provided, however, that, except as provided in Section 3 of this ARTICLE VII with respect to proceedings to enforce rights to indemnification, the Corporation shall indemnify any such indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. SECTION 2. RIGHT TO ADVANCEMENT OF EXPENSES. The right to indemnification conferred in Section 1 of the ARTICLE VII shall include the right to be paid by the Corporation the expenses (including attorney's fees) incurred in defending any such proceeding in advance of its final disposition (hereinafter an "advancement of expenses"); provided, however, that, if the Delaware General Corporation Law requires, an advancement of 12 expenses incurred by an indemnitee in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such indemnitee, including, without limitation, service to an employee benefit plan) shall be made only upon delivery to the Corporation of an undertaking (hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (herein after a "final adjudication") that such indemnitee is not entitled to be indemnified for such expenses under this Section 2 or otherwise. The rights to indemnification and to the advancement of expenses conferred in Sections 1 and 2 of this ARTICLE VII shall be contract rights and such rights shall continue as to an indemnitee who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the indemnitee's heirs, executors and administrators. SECTION 3. RIGHT OF INDEMNITEE TO BRING SUIT. If a claim under Section 1 or 2 of this ARTICLE VII is not paid in full by the Corporation within sixty (60) days after a written claim has been received by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be twenty (20) days, the indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall be entitled to be paid also the expense of prosecuting or defending such suit. In (i) any suit brought by the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by the indemnitee to enforce a right to an advancement of expenses) it shall be a defense that, and (ii) in any suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that, the indemnitee has not met any applicable standard for indemnification set forth in the Delaware General Corporation Law. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stock-holders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the indemnitee has not met such applicable standard of conduct, shall create a presumption that the indemnitee has not met the applicable standard of conduct, or, in the case of such a suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this ARTICLE VII or otherwise shall be on the Corporation. SECTION 4. NON-EXCLUSIVITY OF RIGHTS. The rights to indemnification and to the advancement of expenses conferred in this ARTICLE VII shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, the Corporation's Certificate of Incorporation, By-laws, agreement, vote of stockholders or disinterested directors or otherwise. SECTION 5. INSURANCE. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss, whether or not the Corporation would 13 have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law. SECTION 6. INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE CORPORATION. The Corporation may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification and to the advancement of expenses to any employee or agent of the Corporation to the fullest extent of the provisions of this Article with respect to the indemnification and advancement of expenses of directors and officers of the Corporation. SECTION 7. AUTOMATIC CONFORMITY TO LAW. The intention of this By-law is to provide indemnification with the broadest and most inclusive coverage permitted by law (a) at the time of the act or omission to be indemnified against or (b) so permitted at the time of carrying out such indemnification, whichever of (a) or (b) may be broader or more inclusive and permitted by law to be applicable. If the indemnification permitted by law at this present time, or at any future time, shall be broader or more inclusive than the provisions of this By-law, then indemnification shall nevertheless extend to the broadest and most inclusive permitted by law at any time and this By-law shall be deemed to have been amended accordingly. If any provision or portion of this Article shall be found, in any action, suit or proceeding, to be invalid or ineffective, the validity and effect of the remaining parts shall not be affected. AMENDMENTS The stockholders or the Board of Directors of the Corporation may amend or repeal the By-laws or adopt new By-laws. Except as otherwise required by law, the Certificate of Incorporation or these By-laws, the vote of a majority of the shares present or represented by proxy and entitled to vote at the meeting shall be required to amend or repeal the By-laws or to adopt new By-laws. Except as otherwise required by law, the Certificate of Incorporation or these By-laws, such action by the Board of Directors requires an affirmative vote of not less than a majority of the members of the Board of Directors then in office. 14 EX-3.06 5 EXHIBIT 3.06 EXHIBIT 3.06 CERTIFICATE OF DESIGNATION WITH RESPECT TO THE SERIES A PREFERRED STOCK CERTIFICATE OF DESIGNATION OF SERIES A PREFERRED STOCK OF COMPUTER MARKETPLACE, INC. Acting pursuant to Sections 151(a) and (g) of the Delaware General Corporation Law, the undersigned hereby certifies that the Board of Directors of Computer Marketplace, Inc. (the "Corporation") duly approved the following Certificate of Designation of Series A Preferred Stock of the Corporation, and that the Certificate of Incorporation of the Corporation expressly authorizes the Board to so designate and issue one or more series of preferred stock. The designations, powers, preferences and relative, participating, optional or other special rights, and the qualifications, limitations and restrictions thereof in respect of the Preferred Stock are as follows: 1. NUMBER OF SHARES; PAR VALUE. The Corporation shall be authorized to issue 400,000 shares of Series A Preferred Stock, par value $.0001 per share (the "Preferred Stock"). 2. DIVIDEND PROVISIONS. The holders of shares of Preferred Stock shall not be entitled to receive any dividends, except when and as lawfully declared by the Company's Board of Directors. 3. LIQUIDATION PREFERENCE. (a) In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, subject to the rights of series of preferred stock that may from time to time come into existence, the holders of Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Corporation to the holders of Common Stock by reason of their ownership thereof, an amount per share equal to the sum of Ten Dollars ($10.00) for each outstanding share of Preferred Stock (the "Original Issue Price"). If upon the occurrence of such event, the assets and funds thus distributed among the holders of the Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then, subject to the rights of series of preferred stock that may from time to time come into existence, the entire assets and funds of the Corporation legally available for distribution shall be distributed ratably among the holders of the Preferred Stock in proportion to the amount of such stock owned by each such holder. (b) Upon completion of the distribution required by subsection (a) of this Section 3 and any other distribution that may be required with respect to a series of preferred stock that may from time to time come into existence, all of the remaining assets of the Corporation available for distribution to stockholders shall be distributed among the holders of Common Stock pro rata based on the number of shares of Common Stock held by each (assuming full conversion of all such Preferred Stock). (i) For purposes of this Section 3, a liquidation, dissolution or winding up of the Corporation shall be deemed to be occasioned by, or to include (unless the holders of at least a majority of the Preferred Stock then outstanding shall determine otherwise), (A) the acquisition of the Corporation by another entity by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation) that results in the transfer of fifty percent (50%) or more of the outstanding voting power of the Corporation (other than the transactions contemplated by that certain Stock Purchase Agreement dated as of April 21, 1999 among the Corporation and the stockholders of E-Taxi, Inc.); or (B) a sale of all or substantially all of the assets of the Corporation. (ii) In any of such events, if the consideration received by the Corporation is other than cash, its value will be deemed its fair market value. Any securities shall be valued as follows: (A) Securities not subject to investment letter or other similar restrictions on free marketability are covered by (B) below: (1) If traded on a securities exchange or through the Nasdaq market, the value shall be deemed to be the average of the closing prices of the securities on such exchange or system over the thirty (30) day period ending three (3) days prior to the closing; (2) If actively traded over-the-counter, the value shall be deemed to be the average of the closing bid or sale prices (whichever is applicable) over the thirty (30) day period ending three (3) days prior to the closing; and (3) If there is no active public market, the value shall be the fair market value thereof, as mutually determined by the Corporation and the holders of at least a majority of the voting power of all then outstanding shares of Preferred Stock. (B) The method of valuation of securities subject to investment letter or other restrictions on free marketability (other than restrictions arising solely by virtue of a stockholder's status as an affiliate or former affiliate) shall be to make an appropriate discount from the market value determined as above in (A) (1), (2) or (3) to reflect the approximate fair market value thereof, as mutually determined by the Corporation and the holders of at least a majority of the voting power of all then outstanding shares of such Preferred Stock. (iii) In the event the requirements of this subsection 3(b) are not complied with, the Corporation shall forthwith either: (A) cause such closing to be postponed until such time as the requirements of this Section 3 have been complied with; or (B) cancel such transaction, in which event the right., preferences and privileges of the holders of the Preferred Stock shall revert to and be the same as such rights, preferences and privileges existing immediately prior to the date of the first notice referred to in Subsection 3(b) (iv) hereof. (iv) The Corporation shall give each holder of record of Preferred Stock written notice of such impending transaction not later than twenty (20) days prior to the stockholders' meeting called to approve such transaction, or twenty (20) days prior to the closing of such transaction, whichever is earlier, and shall also notify such holders in writing of the final approval of such transaction. The first of such notices shall describe the material terms and conditions of the impending transaction and the provisions of this Section 3, and the Corporation shall thereafter give such holders prompt notice of any material changes. The transaction shall in no event take place sooner than twenty (20) days after the Corporation has given the first notice provided for herein or sooner than ten (10) days after the Corporation has given notice of any material changes provided for herein; provided, however, that such periods may be shortened upon the written consent of the holders of Preferred Stock that are entitled to such notice rights or similar notice rights and that represent at least a majority of the voting power of all then outstanding shares of such Preferred Stock. 2 4. CONVERSION. The holders of Preferred Stock shall have conversion rights as follows (the "Conversion Rights"): (a) RIGHT TO CONVERT. Each share or Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share at the office of the Corporation or any transfer agent for such stock, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing the Original Issue Price by the Conversion Price applicable to such share, determined as hereafter provided, in effect on the date the certificate is surrendered for conversion. The initial Conversion Price per share for shares of Preferred Stock shall be Two and 50/100 Dollars ($2.50); provided, however, that the Conversion Price for the Preferred Stock shall be subject to adjustment as set forth in subsection 4(d). (b) AUTOMATIC CONVERSION. Each share of Preferred Stock shall automatically be converted into shares of Common Stock at the Conversion Price three (3) business days following the date on which the Common Stock has a Fair Market Value (as hereinafter defined) of three dollars and seventy-five cents ($3.75). "Fair Market Value" shall mean the average closing price for the Common Stock for three (3) consecutive days as reported by the OTC Bulletin Board, the NASDAQ Stock Market or any stock exchange. (c) MECHANICS OF CONVERSION. Before any holder of Preferred Stock shall be entitled to convert the same into shares of Common Stock, he or she shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for the Preferred Stock, and shall give written notice to the Corporation at its principal corporate office, of the election to convert the same and shall state therein the name or names in which the certificate or certificates for shares of Common Stock are to be issued. The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Preferred Stock, or to the nominee or nominees of such holder, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled am aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock as of such date. (d) CONVERSION PRICE ADJUSTMENT FOR CERTAIN SPLITS AND COMBINATIONS. The Conversion Price of the Preferred Stock shall be subject to adjustment from time to time as follows: (i) In the event the Corporation should at any time or from time to time after the issuance date fix a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock or the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock, additional shares of Common Stock (hereinafter referred to as "Common Stock Equivalents") without payment of any consideration by such holder for the additional shares of Common Stock, then, as of such record date (or the date of such dividend distribution, split or subdivision if no record date is fixed), the Conversion Price of the Preferred Stock shall be appropriately decreased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be increased in proportion to such increase of the aggregate of shares of Common Stock outstanding. (ii) If the number of shares of Common Stock outstanding at any time after the issuance date is decreased by a combination of the outstanding shares of Common Stock, then, following the record date of such combination, the Conversion Price for the Preferred Stock shall be appropriately increased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be decreased in proportion to such decrease in outstanding shares. 3 (e) OTHER DISTRIBUTIONS. In the event the Corporation shall declare a distribution payable in securities of other entities, evidences of indebtedness issued by the Corporation or other entities, assets (excluding cash dividends) or options or rights not referred to in subsection 3 (d), then, in each such case for the purpose of this subsection 4(e), the holders of the Preferred Stock shall be entitled to a proportionate share of any such distribution as though they were the holders of the number of shares of common stock of the Corporation into which their shares of Preferred Stock are convertible as of the record date fixed for the determination of the holders of Common Stock of the Corporation entitled to receive such distribution. (f) RECAPITALIZATIONS. If at any time or from time to time there shall be a recapitalization of the Common Stock (other than a subdivision, combination or merger or sale of assets transaction provided for elsewhere in this Section 4 or Section 3) provision shall be made so that the holders of the Preferred Stock shall thereafter be entitled to receive upon conversion of the Preferred Stock the number of shares of stock or other securities or property of the corporation or otherwise, to which a holder of Common Stock deliverable upon conversion would have been entitled on such recapitalization. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 4 with respect to the rights of the holders of the Preferred Stock after the recapitalization to the end that the provisions of this Section 4 (including adjustment of the conversion price then in effect and the number of shares purchasable upon conversion of the Preferred Stock) shall be applicable after that event as nearly equivalent as may be practicable (g) NO IMPAIRMENT. The Corporation will not, by amendment of its certificate of Incorporation or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 3 and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the holders of the Preferred Stock against impairment. (h) NO FRACTIONAL SHARES AND CERTIFICATE AS TO ADJUSTMENTS. (i) No fractional shares shall be issued upon the conversion of any share or shares of the Preferred Stock, and the number of shares of Common Stock to be issued shall be rounded to the nearest whole share. Whether or not fractional shares are issuable upon such conversion shall be determined on the basis of the total number of shares of Preferred Stock the holder is at the time converting into Common Stock and the number of shares of Common Stock issuable Upon such aggregate conversion. (ii) Upon the occurrence of each adjustment or readjustment of the Conversion Price of Preferred Stock pursuant to this Section 4, the Corporation, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time or any holder of Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (A) such adjustment and readjustment, (B) the Conversion Price for such series of Preferred Stock at the time in effect, and (C) the number of shares of Common Stock and the amount, if any, of other property that at the time would be received upon the conversion of a share of Preferred Stock. (i) NOTICES OF RECORD DATE. In the event of any taking by the Corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution, any right to 4 subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, the Corporation shall mail to each holder of Preferred Stock, at least ten (10) days prior to the date specified therein, a notice specifying the date an which any such record is to be taken far the purpose of such dividend, distribution or right, and the amount and character of ouch dividend, distribution or right. (j) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Preferred Stock, in addition to such other remedies as shall be available to the holder of such Preferred Stock, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall he sufficient for such purposes. (k) NOTICES. Any notice required by the provisions of this Section 4 to be given to the holders of shares of Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at his or her address appearing on the books of the Corporation. 5. VOTING RIGHTS. Except as otherwise required by law, holders of the Preferred Stock shall have no voting rights. 6. REDEMPTION. The Corporation shall redeem, from any source of funds legally available therefor, the Preferred Stock on such date as is three years from the date of issuance of the Preferred Stock (the "Series A Redemption Date"). The Corporation shall effect such redemption on the Original Redemption Date by paying in cash in exchange for the shares of Preferred Stock to be redeemed as sum equal to Original Issue Price (as adjusted for any stock dividends, combinations or splits with respect to such shares). 7. PROTECTIVE PROVISIONS. Subject to the rights of a series of preferred stock that may from time to time come into existence, so long as any shares of Preferred Stock are outstanding, the Corporation shall not without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of the then outstanding shares of Preferred Stock: (a) alter or change the rights, preferences or privileges or the shares of Preferred Stock so as to affect adversely the shares; (b) increase or decrease (other than by redemption or conversion) the total number of authorized shares of Preferred Stock; 8. STATUS OF REDEEMED OR CONVERTED STOCK. In the event any shares of Preferred Stock shall be converted pursuant to Section 4 hereof, the shares so redeemed or converted may, in the discretion of the Company's Board of Directors, be canceled or issued by the Corporation. 5 IN WITNESS WHEREOF, the undersigned has executed this Certificate of Designation this 23rd day of April, 1999. COMPUTER MARKETPLACE, INC. By: /s/ L. WAYNE KILEY ------------------------------- Name: L. Wayne Kiley Title: President 6 EX-3.07 6 EXHIBIT 3.07 EXHIBIT 3.07 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF COMPUTER MARKETPLACE, INC. It is hereby certified that: 1. The name of the corporation is Computer Marketplace, Inc. (hereinafter called the "Corporation"). 2. The Certificate of Incorporation of the Corporation which was filed by the Secretary of State of Delaware on February 16, 1993, is hereby amended by striking out Article FIRST in its entirety and by submitting in lieu of said Article the following new Article FIRST as follows: FIRST: The name of the corporation is eMarketplace, Inc. (hereinafter called the "Corporation"). 3. The amendment of the Certificate of Incorporation herein certified has been duly adopted and written consent has been given in accordance with the provisions of Section 228 and 242 of the General Corporation Law of the State of Delaware. 4. The effective date of the amendment herein certified shall be September 17, 1999. Signed and attested to on September 17, 1999. COMPUTER MARKETPLACE, INC. By /s/ L. WAYNE KILEY --------------------------- L. Wayne Kiley Chief Executive Officer EX-10.01 7 EXHIBIT 10.01 EXHIBIT 10.01 ================================================================================ OPERATING AGREEMENT dated October 1, 1998 among BEJAN AMINIFARD Managing Member and MOHSEN AMINIFARD DEREK WALL Members ================================================================================ OPERATING AGREEMENT OF TECHSTORE LLC AGREEMENT, made October 1, 1998, among BEJAN AMINIFARD, having an address at 14 COMMERCIAL BLVD., SUITE 127, NOVATO, CA 94949 ("Managing Member"), and MOHSEN AMINIFARD, having an address at 14 COMMERCIAL BLVD., SUITE 127, NOVATO, CA 94949, and DEREK WALL, having an address at 14 COMMERCIAL BLVD., SUITE 127, NOVATO, CA 94949 (collectively hereinafter referred to as "Members"). W I T N E S S E T H : WHEREAS, the parties hereto desire to form a limited liability company pursuant to the laws of the State of California for the purposes hereinafter set forth, and to establish their respective rights and obligations in Connection with the limited liability Company; NOW, THEREFORE, in consideration of the mutual covenants set forth herein and other valuable consideration, the receipt and sufficiency hereby are acknowledged, the Managing Member and Members agree as follows: 1. FORMATION The parties hereby confirm that they have formed a limited liability company (the "Limited Liability Company") pursuant to the provisions of the California Beverly-Killea Limited Liability Company Act, for the purposes and the period and upon the terms and conditions hereinafter set forth. The parties have caused to be filed the Articles Of Organization of the Limited Liability Company, and shall execute, acknowledge, swear to and file any other documents required under applicable law. 2. NAME The name of the Limited Liability Company shall be TECHSTORE LLC, and all business of the Limited Liability Company shall be conducted under said name, or such other name as the Members from time to time may determine. 3. PURPOSES The purposes of the Limited Liability Company are to engage in any lawful activity; and to incur indebtedness, secured and unsecured; to enter into and perform contracts and agreements of any kind necessary to, in connection with or incidental to the business of the Limited Liability Company; and to carry on any other activities necessary to, in connection with or incidental to the foregoing, as the Managing Member in his discretion may deem desirable. 4. PLACE OF BUSINESS The principal place of business and specified office of the Limited Liability Company at which the records required to be maintained by the Limited Liability Company under the California Beverly-Killea Limited Liability Company Act are to be kept shall be at 14 COMMERCIAL BLVD., SUITE 127, NOVATO, CA 94949, or at such other or additional places of business within or outside of the State of California as the Managing Member from time to time may designate. The Managing Member shall notify the other Members of any change of the principal place of business and specified office. The Limited Liability Company hereby designates BEJAN AMINIFARD, whose post office address is 1525 INDIAN VALLEY ROAD, NOVATO, CA 94947, as the Registered Agent of the Limited Liability Company for service or process. The registered office and Registered Agent may be changed from time to time by the Managing Member by filing the prescribed forms with the appropriate governmental authorities. 5. TERM The term of the Limited Liability Company shall commence on the filing the Articles Of Organization of the Limited Liability Company, and shall continue until the occurrence of an event hereinafter set forth which causes the termination of the Limited Liability Company. 6. CAPITAL CONTRIBUTIONS Except as specifically provided in this Agreement or required by law, no Member shall have the right to withdraw or reduce his contributions to the capital of the Limited Liability Company until the termination of the Limited Liability Company. No Member shall have the right to demand and receive any distribution from the Limited Liability Company in any form other than cash, regardless of the nature of such Member's capital contribution. No Member shall be paid interest on capital contributions to the Limited Liability Company. The liability of any Member for the losses, debts, liabilities and obligations of the Limited Liability Company shall be limited to paying: the capital contribution of such Member when due under this Agreement; such Member's share of any undistributed assets of the Limited Liability Company; and (only if and to the extent at any time required by applicable law) any amounts previously distributed to such Member by the Limited Liability Company. 2 7. LOAN AND ADVANCES BY MEMBERS If any Member shall loan or advance any fluids to the Limited Liability Company in excess of the capital contribution of such Member prescribed herein, such loan or advance shall not be deemed a capital contribution to the Limited Liability Company and shall not in any respect increase such Member's interest in the Limited Liability Company. 8. ALLOCATIONS AND DISTRIBUTIONS As used in this Agreement, the terms "net profits" and "net losses" shall mean the profits or losses of the Limited Liability Company from the conduct of the Limited Liability Company's business, after all expenses incurred in connection therewith have been paid or provided for. The net profits or net losses of the Limited Liability Company shall be determined by the Limited Liability Company's accountants in accordance with generally accepted accounting principles applied in deterring the income, gains, expenses, deductions or losses, as the case may be, reported by the Limited Liability Company for Federal income tax purposes. The term "cash receipts" shall mean all cash receipts of the Limited Liability Company from whatever source derived, including without limitation capital contributions made by the Members; the proceeds of any sale, exchange, or other disposition of all or any part of the assets of the Limited Liability Company; the proceeds of any loan to the Limited Liability Company; the proceeds of any insurance policy payable to the Limited Liability Company; and the proceeds from the liquidation of the assets of the Limited Liability Company following a termination of the Limited Liability Company. The "capital account" for each Member shall mean the account established, determined and maintained for such Member in accordance with Section 7O4(b) of the Internal Revenue Code and Treasury Regulation Section l.704-l(b)(2)(iv). The capital account for each Member shall be INCREASED BY (1) the amount of money contributed by such Member to the Limited Liability Company, (2) the fair market value of property contributed by such Member to the Limited Liability Company (net of liabilities secured by such contributed property that the Limited Liability Company is considered to assume or take subject to under Section 752 of the Internal Revenue Code), and (3) allocations to such Member of Limited Liability Company income and gain (or items thereof), including income and gain exempt from tax and income and gain described in Trea. Reg. Section 1.704-1(b)(2)(iv)(g), but excluding income and gain described in subsection (b)(4)(i) of said Regulation, and shall be DECREASED BY (4) the amount of money distributed to such Member by the Limited Liability Company, (5) the fair market value of property distributed to such Member by the Limited Liability Company (net of liabilities secured by such distributed property that such Member is considered to assume or take subject to under Section 752 of the Code)~ (6) allocations to such Member of expenditures of the Limited Liability Company described in Section 705(a)(2)(B) of the Code, and (7) allocations of Limited 3 Liability Company loss and deduction (Or items thereof) including loss and deduction described in Trea. Reg. Section 1.704-(b,)(2)(iv)(g), but excluding items described in (6) above and loss or deduction described in subsections (b)(4)(i) or (b)(4)(iii) of said Regulation Net profits and net losses of the Limited Liability Company from other than capital transactions) as of the end of any fiscal year or other period) shall be credited or charged to the capital accounts of the Members prior to ally charge or credit to said capital accounts for net profits and net losses of the Limited Liability Company from capital transactions as of the end of such fiscal year or other period. The capital account for each Member shall be otherwise adjusted in accordance with the additional rules of Trea. Reg. Section l.7O4-l(b)(2)(iv). The term "Members' Percentage Interests" shall mean the percentages set forth opposite the name of each Member below: MANAGING MEMBER PERCENTAGE INTEREST BEJAN AMINIFARD -- 70 percent OTHER MEMBERS PERCENTAGE INTEREST MOHSEN ARMINIFARD - 15 percent DEREK WALL -- 15 percent During each fiscal year, the net profits and net losses of the Limited Liability Company (other than from capital transactions), and each item of income, gain, loss) deduction or credit entering into the computation thereof, shall be credited or charged, as the case may be, to the capital accounts of each Member in proportion to the Members' Percentage Interests, The net profits of the Limited Liability Company from capital transactions shall be allocated in the following order of priority: (a) to offset any negative balance in the capital accounts of the Members in proportion to the amounts of the negative balance in their respective capital accounts, until all negative balances in the capital accounts have been eliminated; then (b) to the Members in proportion to the Members' Percentage Interests, The net losses of the Limited Liability Company from capital transactions shall be allocated in the following order of priority: (a) to the extent that the balances in the capital accounts of any Members are in excess of their original contributions, to such Members in proportion to such excess balances in the capital accounts until all such excess balances have been reduced to zero; then (b) to the Members in proportion to the Members' Percentage Interests. The cash receipts of the Limited Liability Company shall be applied in the following order of priority: (a) to the payment by the Limited Liability Company of amounts due on debts and liabilities of the Limited Liability Company other than to any Member, and operating expenses of the Limited Liability Company; (b) to the payment of interest and amortization due on any loan made to the Limited Liability Company by any Member; (c) to the establishment of cash reserves determined by the Managing Member to be necessary or appropriate, including without limitation reserves for the operation of the Limited Liability Company's business, taxes and contingencies; and (d) to the 4 repayment of ally loans made to the Limited Liability Company by any Member. Thereafter, the cash receipts of the Limited Liability Company shall be distributed among the Members as hereafter provided. The cash receipts of the Limited Liability Company shall be distributed to the Members from time to time at such times as the Managing Member shall determine. It is contemplated that distributions will be made if the Managing Member deems such distributions to be prudent and feasible. Except as otherwise provided in this Agreement or required by law, distributions of cash receipts of the Limited Liability Company, other than from capital transactions, shall be allocated among the Members in proportion to the Members' Percentage Interests. Except as otherwise provided in this Agreement or required by law, distributions of cash receipts from capital transactions shall be allocated in the following order of priority' (a) to the Members in proportion to their respective capital accounts until each Member has received cash distributions equal to any positive balance in his capital accounts; then (b) to the Members in proportion to the Members' Percentage Interests. SPECIAL ALLOCATIONS -- Notwithstanding the preceding provisions of this Article 8 the following special allocations shall be made in the following order: (1) MINIMUM GAIN CHARGEBACK -. Except as otherwise provided in Trea. Reg. Section 1.704.2(f), if there is a net decrease in partnership minimum gain (within the meaning of Trea. Reg. Sections 1.704~2(b)(2) and 1.704-2(d)) during any fiscal year, each Member shall be allocated items of the Limited Liability Company 5 income and gain for such fiscal year (and, if necessary, subsequent fiscal years) in an amount equal to such Member's share of the net decrease in partnership minimum gain, determined in accordance with Trea. Reg. Section 1.704-2(g). Allocations made pursuant to the preceding sentence shall be made in proportion to the respective amounts required to be allocated to each Member pursuant thereto. The items to be so allocated shall be determined in accordance with Trea. Reg. Sections 1.704-2(f)(6) and l.7O4-2(j)(2). This provision is intended to comply with the minimum gain chargeback requirement in Trea. Reg. Section 1.704-2(1) and shall be interpreted consistently therewith. (2) PARTNER MINIMUM GAIN CHARGEBACK -- Except as otherwise provided in Treg. Reg. Section 1.704-2(i)(4), if there is a net decrease in partner nonrecourse debt minimum gain attributable to a partner nonrecourse debt during any fiscal year, each Member who has a share of the partner nonrecourse debt minimum gain attributable to such partner nonrecourse debt, determined in accordance with Treg. Reg. Section l.704.2(i)(5), shall be allocated items of the Limited Liability Company's income and gain for such fiscal year (and, if necessary, subsequent fiscal years) in all amount equal to such Member's share of the net decrease in partner nonrecourse debt minimum gain attributable to such partner nonrecourse debt, determined in accordance with Treg. Reg. Section 1.704-2(i)(4). Allocations made pursuant to the preceding sentence shall be made in proportion to the respective amounts required to be 5 allocated to each Member pursuant thereto. The items to be so allocated shall be determined in accordance with Trea. Reg. Sections 1.704-2(i)(4) and 1.704-2U)(2). As used herein, "partner nonrecourse debt" has the meaning set forth in Treg. Reg. Section 1.704-2(b)(4). As used herein, "partner nonrecourse debt minimum gain" shall mean an amount, with respect to each partner nonrecourse debt, equal to the partnership minimum gain (within the meaning of Trea. Reg. Sections 1.704-2(b)(2) and 1.704-2(d)) that would result if such partner nonrecourse debt were treated as a nonrecourse liability (within the meaning of Trea. Reg. Section 1.704-2(i)(3)) determined in accordance with Trea. Reg. Section 1.704-2(i)(3). This provision is intended to comply with the minimum gain chargeback requirement in Trea. Reg. Section 1.704-2(i)(4) and shall be interpreted consistently therewith. (3) QUALIFIED INCOME OFFSET -- In the event any Member unexpectedly receives any adjustments, allocations or distributions described in Trea. Reg. Sections 1.704-1(b(2)(ii)(4), (5) or (6), items of the Limited Liability Company's income and gain shall be allocated to such Member's amount and manner sufficient to eliminate, to the extent required by the Regulations, any adjusted capital account deficit in such Member's capital account, as quietly as possible, provided that an allocation pursuant to this provision shall be made only if and to the extent that such Member would have an adjusted capital account deficit in such Member's capital account after all other allocations provided for in this Article 8 have been tentatively made as if this provision were not in this Agreement. As used herein, "adjusted capital account deficit" shall mean the deficit balance, if any, in a Member's capital account at the end of the relevant fiscal year after the following adjustments: (i) credit to such capital account the minimum gain chargeback which the Member is obligated to restore pursuant to the penultimate sentences of Trea. Reg. Sections l.704-2(g)(l) and 1.704-2(i)(5); and (ii) debit to such capital account the items described in Trea. Reg. Sections 1.704-(b)(2)(ii)(d)(4), (5) and (6). This provision is intended to constitute a qualified income offset within the meaning of Trea. Reg. Section 1.704-1(b)(2)(ii)(d) and shall be interpreted consistently therewith. (4) GROSS INCOME ALLOCATION -- In the event any Member has a deficit capital account at the end of any fiscal year which is in excess of the sum of the amounts such Member is deemed to be obligated to restore pursuant to the penultimate sentences of Trea. Reg. Sections 1.704-2(g)(1) and 1.704.2(i)(5), each such Member shall be allocated items of the Limited Liability Company's income and gain in the amount of such excess as quickly as possible, provided that an allocation pursuant to this provision shall be made only if and to the extent that such Member would have a deficit in such Member's capital account in excess of such sum after all other allocations provided for in this Article 8 have been tentatively made as if this provision and the provisions of clause (3) above were not in this Agreement. (5) NONRECOURSE DEDUCTIONS -- Nonrecourse deductions (within the 6 meaning of Trea. Reg. Section l.704-2(b)(1)) for any fiscal year shall be allocated among the Members in proportion to the Members' Percentage Interests. (6) PARTNER NONRECOURSE DEDUCTIONS -- Any partner nonrecourse deductions (within the meaning of Trea. Reg Sections 1.704-2(b)(1) and 1.704-2(b)(2)) for any fiscal year shall be allocated to the Member who bears the economic risk of loss with respect to the partner nonrecourse debt (within the meaning of Trea. Reg. Section l.704-2(b)(4)) to which such partner nonrecourse deductions are attributable in accordance with Trea. Reg. Section 1.702(i)(1). (7) OTHER MANDATORY ALLOCATIONS -- In the event Section 704(c) of the Internal Revenue Code or the Regulations thereunder require allocations in a manner different than that set forth above in this Article 8, the provisions of Section 704(c) and the regulations thereunder shall control such allocations among the Members. It is the intention of the Members that the allocations hereunder shall be deemed to have "substantial economic effect" within the meaning of Section 704 of the Internal Revenue Code and Trea. Reg. Section 1.704-1. Should the provisions of this Agreement be inconsistent with or in conflict with Section 704 of the Code or the Regulations thereunder, then Section 704 of the Code and the Regulations shall be deemed to override the contrary provisions hereof. If Section 704 or the Regulations at any time require that limited liability company operating agreements contain provisions which are not expressly set forth herein, such provisions shall be incorporated into this Agreement by reference and shall be deemed a part of this Agreement to the same extent as though they had been expressly set forth herein, and the Managing Member shal1 be authorized by an instrument in writing to amend the terms of this Agreement to add such provisions, and any such amendment shall be retroactive to whatever extent required to create allocations with a substantial economic effect. 9. BOOKS, RECORDS AND TAX RETURNS At all times during the continuance of the Limited Liability Company, the Managing Member shall keep or cause to be kept complete and accurate records and books of account in which shall be entered each transaction of the Limited Liability Company in accordance with generally accepted accounting principles. The fiscal year of the Limited Liability Company for both accounting and income tax purposes shall be the calendar year. The Limited Liability Company shall report its operations, net income and net losses in accordance with the methods of accounting selected by the Managing Member. The Managing Member may employ on behalf of the Limited Liability Company and at the expenses of the Limited Liability Company such firm of certified public accountants as the Managing Member in his sole discretion deems appropriate to serve as the Limited Liability Company's accountants. 7 The books of account shall be audited at the expense of the Limited Liability Company by certified public accountants promptly after the close of each fiscal year. The Managing Member shall furnish to each Member, within seventy-five days after the end of each fiscal year, an annual report of the Limited Liability Company (certified by the certified public accountants of the Limited Liability Company) which shall include a balance as of the end of such fiscal year; a profit and loss statement of the Limited Liability Company for such fiscal year; a statement of the balance in the capital account of such Member; and the amount of such Member's share of the Limited Liability Company's income, gain, losses, deductions and other relevant items for Federal income tax purposes. The Managing Member shall prepare or cause to be prepared all Federal, State and local income tax and information returns for the Limited Liability Company, and shall cause such tax and information returns to be filed timely with the appropriate governmental authorities. Within seventy-five days after the end of each fiscal year, the Managing Member shall forward to each person who was a Member during the preceding fiscal year a true copy of the Limited Liability Company's information return filed with the Internal Revenue Service for the preceding fiscal year. The Managing Member shall not be liable to any Member if any taxing authority disallows or adjusts any deductions or credits in the Limited Liability Company's income tax or information returns. All elections required or permitted to be made by the Limited Liability Company under the Internal Revenue Code, and the designation of a tax matters partner pursuant to Section 6231 (a)(7) of the Internal Revenue Code for all purposes permitted or required by the Code, shall be made by the Managing Member. The tax matters partner shall take such action as may be necessary to cause each other Member to become a notice member within the meaning of Section 6223 of the Code. The tax matters partner may not take any action contemplated by Sections 6222 through 6232 of the Code without the consent of the Managing Member. All such record, books of account, tax and information returns, and reports and statements, together with executed copies of this Agreement, shall at all times be maintained at the principal place of business of the Limited Liability Company, and shall be open to the inspection and exemption of the Members or their duly authorized representatives during regular business hours. Each Member, or a duly authorized representative of such Member, may make copies of the Limited Liability Company's books of account and records at the expense of such Member. Any Member, at the expense of such Member, may conduct an audit of the Limited Liability Company's books of account and records. The Managing Member shall furnish to each Member, promptly upon request a current list of the names and addresses of all of the Managing Member and other Members of the Limited Liability Company, and any other persons or entities having any financial interest in the Limited Liability Company. 8 The cost of preparing all of the aforesaid records, books, returns and other items shall be borne by the Limited Liability Company. Upon request of the Managing Member, the Members shall pay to the Limited Liability Company, in proportion to the Members' Percentage Interests, the cost of preparing same, not to exceed in the aggregate $2,000 for each fiscal year. 10. BANK ACCOUNTS All funds of the Limited Liability Company shall be deposited in the Limited Liability Company's name in such bank account or accounts as shall be designated by the Managing Member. Withdrawals from any such bank accounts shall be made only in the regular course of business of the Limited Liability Company and shall be made upon such signature or signatures as the Managing Member from time to time may designate. 11. MANAGEMENT OF THE LIMITED LIABILITY COMPANY The Members hereby designate BEJAN ARMINIFARD, having an address at 14 COMMERCIAL, BLVD., SUITE 127, NOVATO, CA 94949 to serve as Managing Member for the Limited Liability Company. The business and affairs of the Limited Liability Company all be conducted and managed by the Managing Member of the Limited Liability Company in accordance with this Agreement and the laws of California. At any time there is more than one Managing Member, any difference arising as to any matter within the authority of Managing Members shall be decided by a majority in number of the Managing Members. If at any time the Managing Members do not own, in the aggregate, at least 20 percent of the Members' Percentage Interests, all of the Members shall be Managing Members until such time as the Members duly elect Managing Members who do own at least 20 percent of the Members' Percentage Interests. The Managing Member shall have responsibility for the day-to-day management of the business and affairs of the Limited Liability Company and shall devote such time and attention as the Managing Member deems necessary to the conduct and management of the business and affairs of the Limited Liability Company. The Managing Member hereby is given sole power and authority to execute instruments on behalf of the Limited Liability Company and to otherwise bind the Limited Liability Company, Unless authorized by the Managing Member, no other person shall have the power or authority to execute instruments on behalf of the Limited Liability Company and to otherwise bind the Limited Liability Company. No person, firm or corporation dealing with the Limited Liability Company shall be required to investigate the authority of the Managing 9 Member or to secure the approval of or consummation by the Members of any act of the Managing Member in connection with the business or affairs of the Limited Liability Company. No Member, other than the Managing Member or his designees, shall have the authority, or shall take any action as a Member, to bind the Limited Liability Company. Except as provided elsewhere in this Agreement, or by nonwaivable provisions of applicable law, the Managing Member shall possess and enjoy all rights and powers necessary or appropriate for the conduct and management of the business and affairs of the Limited Liability Company and hereby is authorized to make all decisions relating to the business and affairs of the Limited Liability Company. The Managing Member may make decisions relating to. the purchase, sale, exchange, lease, transfer, encumbrance or other acquisition or disposition of any property) for cash, other property, or on terms; the borrowing of money and the obtaining of loans. secured and unsecured, for the Limited Liability Company and in connection therewith the issuance of notes, debentures and other debt securities and the securing of the same by assigning for security purposes, pledging or hypothecating all or part of assets of the Limited Liability Company; the expenditure of the capital and receipts of the Limited Liability Company in furtherance of the business of the Limited Liability Company; the purchase of equipment, supplies and services as the Managing Member deems appropriate; the lending or advancing of money to third parties in connection with the business of the Limited Liability Company; the investment of funds of the Limited Liability Company in interest-bearing bank deposits) governmental obligations, institutional and insured short-term debt securities and short-term commercial paper, pending disbursement of the Limited Liability Company's funds or to provide a source from which to meet contingencies; the purchase of hazard, liability and other insurance which the Managing Member may deem necessary or proper; the employment of attorneys, accountants, brokers, consultants and other persons, firms and corporations to render services to the Limited Liability Company as the Managing Member may deem necessary or proper; the enforcement, compromise and settlement of any rights or claims in favor of or against the Limited Liability Company or any nominee of the Limited Liability Company; and the taking of all other actions and the execution and delivery of any and all other instruments and agreements as the Managing Member may deem appropriate to carry out the intents and purposes of this Agreement. The Managing Member may employ on behalf of the Limited Liability Company, on such terms and for such compensation as the Managing Member may determine, any persons, firms or corporations, including accountants and attorneys, as the Managing Member, in his sole judgment shall deem desirable for the business and affairs of the Limited Liability Company. Any such person, firm or corporation may also be employed by the Managing Member in connection with any other business of the Managing Member. The fact that any Member, or a member of his family or any affiliate of a Member, is directly or indirectly interested in or connected with any person, firm or corporation employed by the Limited Liability Company or from whom the Limited Liability Company may buy merchandise or services, shall not prohibit the Managing Member from employing or dealing with such person, firm or corporation on behalf of the Limited Liability Company upon reasonable terms and conditions. 10 The Managing Member shall be reimbursed by the Limited Liability Company for all direct out-of-pocket expenses incurred by the Managing Member on behalf of the Limited Liability Company in connection with the performance of his duties hereunder, including without 'imitation amounts payable by the Managing Member for office, accounting, bookkeeping and other services, materials, facilities and professional and legal services rendered or furnished to the Limited Liability Company. Except as expressly provided in this Agreement, no fees, salary or other compensation shall be paid to the Managing Member for the rendition of services to the Limited Liability Company. A Managing Member's duty of care in the discharge of the Managing Member's duties to the Limited Liability Company and the Members limited to refraining from engaging in grossly negligent conduct2 intentional misconduct, or a violation of law. In discharging the duties of a Managing Member, the Managing Member shall be fully protected in relying in good faith upon the records of the Limited Liability Company and upon such information, opinions, reports or statements by other Managing Members, Members, agents or other persons as to matters the Managing Member reasonably believes are within such person's professional or expert competence, including without limitation information, opinions, reports or statements as to the value or amount of the assets, liabilities, profits or losses of the Limited Liability Company or any other facts pertinent to the existence and amount of assets from which distributions to Members might properly be paid. To the extent of the Limited Liability Company's assets, and to the extent permitted by law, the Limited Liability Company shall indemnity and hold each Managing Member harmless from and against all liability, claim, loss, damage or expense, including reasonable attorneys' fees, incurred by the Managing Member by reason of any act or omission of the Managing Member made in good faith on behalf of the Limited Liability Company. Except as expressly provided elsewhere in this Agreement, any decisions which are to be made by the Members, rather than the Managing Member, shall be made by the affirmative vote or consent of Members holding a majority of the Members' Percentage Interests. 12. ASSIGNMENT OF INTERESTS Except as otherwise provided in this Agreement, no Member or other person holding any interest in the Limited Liability Company may assign, pledge, hypothecate, transfer or otherwise dispose of all or any part of his interest in the Limited Liability Company, including without limitation the capital, profits or distributions of the Limited Liability Company without the prior Written consent of the other Members in each instance. A Member may assign all or any part of such Member's interest in the allocations and distributions of the Limited Liability Company to any of the following (collectively the "permitted assignees") any person, corporation, partnership or other entity as to which the Limited Liability Company has given 11 consent to the assignment of such interest in the allocations and distributions of the Limited Liability Company by the unanimous vote or consent of the Members. An assignment to a permitted assignee shall only entitle the permitted assignee to the allocations and distributions to which the assigned interest is entitled, unless such permitted assignee applies for admission to the Limited Liability Company and is admitted to the Limited Liability Company as a Member in accordance with this Agreement. An assignment, pledge, hypothecation, transfer or other disposition of all or any part of the interest of a Member in the Limited Liability Company or other person holding any interest in the Limited Liability Company in violation of the provisions hereof shall be null and void for all purposes. No assignment, transfer or other disposition of all or any part of the interest of any Member permuted under this Agreement shall be binding upon the Limited Liability Company unless and until a duly executed and acknowledged counterpart of such assignment or instrument of transfer, in form and substance satisfactory to the Managing Member, has been delivered to the Limited Liability Company. No assignment or other disposition of any interest of any Member may be made if such assignment or disposition, alone or when combined with other transactions, would result in the termination of the Limited Liability Company within the meaning of Section 708 of the Internal Revenue Code or under any other relevant section of the Code or any successor statute. No assignment or other disposition of any interest of any Member may be made without an opinion of counsel satisfactory to the Managing Member that such assignment or disposition is subject to an effective registration number, or exempt from the registration requirements of, the applicable State and Federal securities laws. No interest in the Limited Liability Company may be assigned or given to any person below the age of 21 years or to a person who has been adjudged to be insane or incompetent. Anything herein contained to the contrary, the Managing Member and the Limited Liability Company shall be entitled to treat the record holder of the interest of a Member as the absolute owner thereof; and shall incur no liability by reason of distributions made in good faith to such record holder, unless and until there has been delivered to the Managing Member the assignment or other instrument of transfer and such other evidence as may be reasonably required by tile Managing Member to establish to the satisfaction of the Managing Member that an interest has been assigned or transferred in accordance with this Agreement. 13. ADMISSION OF NEW MEMBERS The Managing Member may admit new Members (or transferees of any interests of existing Members) into the Limited Liability Company by the unanimous Vote or consent of the Managing Members. 12 As a condition to the admission of a new Member, such Member shall execute and acknowledge such instruments, in form and substance satisfactory to the Managing Member, as the Managing Member may deem necessary or desirable to effectuate such admission and to confirm the agreement of such Member to be bound by all of the terms, covenants and conditions of this Agreement, as the same may have been amended. Such new Member shall pay all reasonable expenses in connection with such admission, including without limitation reasonable attorneys' fees and the cost of the preparation, filing or publication of any amendment to this Agreement or the Articles Of Organization) which the Managing Member may deem necessary or desirable in connection with such admission. No new Member shall be entitled to any retroactive allocation of income, losses, or expense deductions of the Limited Liability Company. The Managing Member may make pro rata allocations of income, losses or expense deductions to a new Member for that portion of the tax year in which the Member was admitted in accordance with Section 706(d) or the Internal Revenue Code and regulations thereunder. In no event shall a new Member be entitled to the Limited Liability Company if such admission would be in violation of applicable Federal or State securities laws or would adversely affect the treatment of the Limited Liability Company as a partnership for income tax purposes. 14. WITHDRAWAL EVENTS REGARDING MEMBERS AND ELECTION TO CONTINUE THE LIMITED LIABILITY COMPANY In the event of the death, retirement, withdrawal, expulsion, or dissolution of a Managing Member, or an event of bankruptcy or insolvency, as hereinafter defined, with respect to a Managing Member, or the occurrence of any other event which terminates the continued membership of a Managing Member in the Limited Liability Company pursuant to the laws of California (each of the foregoing being hereinafter referred to as a "Withdrawal Event"), the Limited Liability Company shall terminate sixty days after notice to the Members of such Withdrawal Event unless the business of the Limited Liability Company is continued as hereinafter provided. Notwithstanding a Withdrawal Event with respect to a Managing Member, the Limited Liability Company shall not terminate, irrespective of applicable laws if within aforesaid sixty day period the remaining Members, by the unanimous vote or Consent of the Members (other than the Managing Member who caused the Withdrawal Event), shall elect to continue the business of the Limited Liability Company. If, after Withdrawal Event, there is only one remaining Member, such Member may designate a second Member and give the second Member such share of the interest of the remaining Member as the remaining Member may designate, and thereafter the two Members may elect to continue the business of the Limited Liability Company as aforesaid. 13 In the event of a Withdrawal Event with respect to any Managing Member, any successor in interest to such Managing Member (including without limitation any executor, administrator, heir, committee, guardian, or other representative or successor) shall not become entitled to any rights or interest of such Managing Member in the Limited Liability Company, other than the allocations and distributions to which such Managing Member is entitled, unless such successor in interest is admitted as a Member in accordance with this Agreement. An "event of bankruptcy or insolvency" with respect to a Member shall occur if such Member applies for or Consents to the appointment of a receiver, trustee or liquidator of all or a substantial part of his assets; or makes a general assignment for the benefit of creditors; or is adjudicated a bankrupt or an insolvent; or files a voluntary petition in bankruptcy or a petition or an answer seeking an arrangement with creditors or to take advantage of any bankruptcy, insolvency, readjustment of debt or similar law or statute, or an answer admitting the material allegations of a petition filed against him in any bankruptcy, insolvency, readjustment of debt or similar proceedings; or takes any action for the purpose of effecting any of the foregoing; or an order, judgement or decree shall be entered, with or without the application, approval or consent of such Member, by any court of competent jurisdiction, approving a petition for or appointing a receiver or trustee of all or a substantial part of the assets of such Member, and such order, judgment or decree shall continue unstayed and in effect for thirty days. 15. DISSOLUTION AND LIQUIDATION The Limited Liability Company shall terminate upon the occurrence of any of the following: the expiration of the period fixed for the duration of the Limited Liability Company pursuant to Article 5, as the same may be extended by the Members; the election by the Members to dissolve the Limited Liability Company made by the unanimous vote or consent of the Members; the occurrence of a Withdrawal Event with respect to a Member and the failure of the remaining Members to elect to continue the business of the Limited Liability Company as provided for in Article 14 above; or any other event which pursuant to this Agreement shall cause a termination of the Limited Liability Company. The liquidation of the Limited Liability Company shall be conducted and supervised by the Managing Member or if there be none then by a person designated for such purposes by the affirmative vote or Consent 0(pound) Members holding a majority of the Members' Percentage Interests (the "Liquidating Agent"). The Liquidating Agent hereby is authorized and empowered to execute any and all documents and to take any and all actions necessary or desirable to effectuate the dissolution and liquidation of the Limited Liability Company m accordance with this Agreement. Promptly after the termination of the Limited Liability Company, the Liquidating Agent shall cause to be prepared and furnished to the Members a statement setting forth the assets and liabilities of the Limited Liability Company as of the date of termination. The Liquidating Agent, to the extent practicable, shall liquidate the assets of the Limited Liability Company as promptly as possible, but in an orderly and businesslike manner so as not to involve undue sacrifice. 14 The proceeds of sale and all other assets of the Limited Liability Company shall be applied and distributed in the following order of priority.' (a) to the payment of the expenses of liquidation and the debts and liabilities of the Limited Liability Company, other than debts and liabilities to Members; (b) to the payment of debts and liabilities to Members; (c) to the setting up of any reserves which the Liquidating Agent may deem necessary or desirable for any contingent or unforeseen liabilities or obligations of the Limited Liability Company, which reserves shall be paid over to an attorney-at-law admitted to practice in the State of California as escrowee, to be held for a period of two years for the purpose of payment of the aforesaid liabilities and obligations, at the expiration of two year period the balance of such reserves shall be distributed as hereinafter provided; (d) to the Member in proportion to their respective capital accounts until each Member has received cash distribution equal to any positive balance in his capital account, in accordance with the rules and requirements of Trea. Reg. Section 1.704-1(b)(2)(ii)(b); and (e) to the Members in proportion to the Members' Percentage Interests. The liquidation shall be complete within the period required by Trea. Reg. Section 1.704-1 (b)(2)(ii)(b). If the Liquidating Agent shall determine that it is not practicable to liquidate all of the assets of the Limited Liability Company, the Liquidating Agent may retain assets having a fair market value equal to the amount by which the net proceeds of liquidated assets are insufficient to satisfy the debts and liabilities referred to above. If, in the absolute judgement of the Liquidating Agent, it is not feasible to distribute to each Member his proportionate share of each asset, the Liquidating Agent may allocate and distribute specific assets to one or more Member in such manner as the Liquidating Agent shall determine to be fair and equitable, taking into consideration the basis for tax purposes of each asset. Upon compliance with the distribution plan, the Members shall cease to be such, and the Managing Member shall execute, acknowledge and cause to be filed such certificates and other instruments as may be necessary or appropriate to evidence the dissolution and termination of the Limited Liability Company. 16. REPRESENTATIONS OF MEMBERS Each of the Members represents, warrants and agrees that the Member is acquiring the interest in the Limited Liability Company for the Member's own account as an investment and not with a view to the sale or distribution thereof; the Member, if an individual, is over the age of 21, or if the Member is an organization, such organization is duly organized, validly existing and in good standing under the laws of its State of organization and that it has full power and authority to execute and perform its obligations under this Agreement; and the Member shall not dispose of such interest or any part thereof in any manner which would constitute a violation of the Securities Act of 1933, the Rules and Regulations of the Securities and Exchange Commission, or any applicable laws, rules or regulations of any State or other governmental authorities, as the same may be amended. 15 17. NOTICES All notices, demands, requests or other communications which any of the parties to this Agreement may desire or be required to give hereunder shall be in writing and shall be deemed to have been properly given if sent registered or certified mail, return receipt requested, addressed as follows: (a) if to the Limited Liability Company, to the Limited Liability Company c/o the Managing Member at his address first above written or to such other address or addresses as may be designated by the Limited Liability Company or the Managing Member by notice to the Members pursuant to this Article 17; (b) if to the Managing Member, to the Managing Member at his address first above written or to such other address or addresses as may be designated by the Managing Member by notice to the Limited Liability Company and the Members pursuant to this Article 17; and (e) if to any Member, to the address of said Member first above written, or to such other address as may be designated by said Member by notice to the Limited Liability Company and the other Members pursuant to this Article 17. Each Member shall keep the Limited Liability Company and the other Members informed of such Member's current address. 18. POWER OF ATTORNEY Each Member agrees to execute, acknowledge, swear to, deliver, file, record and publish such further certificates, instruments and documents, and do all such other acts and things as may be required by law, or as may, in the opinion of the Managing Member, be necessary or desirable to carry out the intents and purposes of this Agreement. Each Member, whether a signatory hereto or a subsequently admitted Member, hereby irrevocably constitutes and appoints the Managing Member (including any successor Managing Member) the true and lawful attorney-in-fact of such Member, and empower and authorize such attorney-in-fact, in the name, place and stead of each Member, to execute, acknowledge, swear to and file the Articles Of Organization and any amendments thereto, and any other certificates, instruments and documents which may be required to be executed or filed under laws of any State or of the United States, or which the Managing Member shall deem advisable to execute or file, including without limitation all instruments which may be required to effectuate the formation, continuation, termination, distribution or liquidation of the Limited Liability Company. It is expressly acknowledged by each Member that the foregoing power of attorney is coupled with an interest and shall survive any assignment by such Member of such Member interest in the Limited Liability Company; provided, however, that if such Member shall assign all of his interest in the Limited Liability Company and the assignee shall become a substituted Member in accordance with this Agreement, then such power of attorney shall survive such assignment only for the purpose of enabling the Managing Member to execute, acknowledge, swear to and file all instruments necessary or appropriate to effectuate such substitution. 16 A power of attorney shall be one of the instruments which the Managing Member may require a new Member to execute and acknowledge; however, the power of attorney in this Agreement shall be binding upon any new Member even in the absence of such separate power of attorney. Upon the election of any new Managing Member, each Member at the request of the Managing Member shall execute and acknowledge a new power of attorney as provided above expressly in favor of such new Managing Member; however, the power of attorney provided above shall inure to the benefit of each new Managing Member even in the absence of such new confirmatory power of attorney. 19. AMENDMENTS This Agreement may not be altered, amended, changed, supplemented, waived or modified in any respect or particular unless the same shall be in writing and agreed to by the unanimous vote or consent of the Members. No amendment may be made to Articles 6, 8, 12 and 15 hereof, insofar as said Articles apply to the financial interests of the Members, except by the vote or consent of all of the Members. No amendment of any provision of this Agreement relating to the voting requirements of the Members on any specific subject shall be made without the affirmative vote or consent of at least the number or percentage of Members required to Vote on such subject. 20. MISCELLANEOUS This Agreement and the rights and liabilities of the parties hereunder shall be governed by and determined in accordance with the laws of the State of California Every provision of this Agreement is intended to be severable. If any provision of this Agreement shall be invalid or unenforceable, such invalidity or unenforceability shall not affect the other provisions of this Agreement, which shall remain in full force and effect. The captions in this Agreement are for convenience only and are not to be considered in construing this Agreement. All pronouns shall be deemed to be the masculine, feminine, neuter, singular or plural as the identity of the person or persons may require. References to a person or persons shall include partnerships, corporations, limited liability companies, unincorporated associations, trusts, estates and other types of entities. The Managing Member and the Members collectively are referred to herein as the Members. Any one of the Members is referred to herein as a Member. References to the Internal Revenue Code shall mean the Internal Revenue Code of 1986, as amended, and any successor or superseding Federal revenue statute. This Agreement, and any amendments hereto may be executed in counterparts all of which taken together shall constitute one agreement. This Agreement sets forth the entire agreement of the parties hereto with respect to the subject matter hereof. It is the intention of the 17 Members that this Agreement shall be the sole source of agreement of the parties, and, except to the extent a provision of this Agreement provides for the incorporation of Federal income tax rules or is expressly prohibited or ineffective under the California Beverly-Killea Limited Liability Company Act, this Agreement shall govern even when inconsistent with, or different from, the provisions of any applicable law or rule. To the extent any provision of this Agreement is prohibited or otherwise ineffective under the California Beverly-Killea Limited Liability Company Act, such provision shall be considered to be ineffective to the smallest degree possible in order to make this Agreement effective under the California Beverly-Killea Limited Liability Company Act. If the California Beverly-Killea Limited Liability Company Act is subsequently amended or interpreted in such a way to make any prevision of this Agreement that was formerly invalid valid, such provision shall be considered to be valid from the effective date of such interpretation or amendment. Subject to the limitations on transferability contained herein, this Agreement shall be binding upon and inure to the benefit of the parties hereto and to their respective heirs, executors, administrators, successors and assigns. No provision of this Agreement is intended to be for the benefit of or enforceable by any third party. 18 IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first above written. IN THE PRESENCE OF: /s/ BEJAN AMINIFARD ----------------------------- BEJAN AMINIFARD - ----------------------------- - ----------------------------- IN THE PRESENCE OF: /s/ MOSHEN AMINIFARD ----------------------------- MOSHEN AMINIFARD - ----------------------------- - ----------------------------- /s/ DEREK WALL ----------------------------- DEREK WALL - ----------------------------- - ----------------------------- 19 EX-10.04 8 EXHIBIT 10.04 EXHIBIT 10.04 CONSULTING AGREEMENT, DATED AS OF APRIL 9, 1999, BETWEEN E-TAXI AND GATEWAY ADVISORS, INC. GATEWAY 675 NORTH 1ST STREET SUITE 1050 SAN JOSE, CA 95112 - -------------------------------------------------------------------------------- A d v i s o r s 408-280-0800 fax 408-287-7761 Mr. Robert M. Wallace President Gateway Advisors, Inc. 255 West Julian Street San Jose, CA 95112 Re: CONSULTING AND MANAGEMENT SERVICES Dear Mr. Wallace: This letter will confirm that effective October 1, 1998, E-Taxi, Inc. (the "Company") has engaged Gateway Advisors, Inc. (the "Advisor") to provide consulting and management services related to (1) the identification and evaluation of strategic acquisition candidates (the "Targets"), (2) the negotiation and structure of investments in or acquisitions of the Targets by the Company or any of its subsidiaries, and (3) the operations of the Company. This engagement between the Company and the Advisor is pursuant to the following terms and conditions. 1. TERM. The Advisor shall assist the Company for a period commencing as of October 1, 1998 and ending on September 31, 1999, unless extended by mutual consent of the parties (the "Term"). 2. SCOPE OF SERVICES. The scope of services performed by the Advisor will include assisting the Company with respect to the following: a. Conduct a search for synergistic acquisition candidates. b. Conduct Market Research including the small office/home office market, on-line sales of technology equipment, and other Internet businesses. c. Assist the Company in evaluating the Targets' prospects. d. Negotiate and Structure the acquisitions or investment in the Targets. e. Assess the best financing alternatives within the capital markets for funding transactions with Targets. f. Facilitate discussions with investment bankers regarding business strategy and access to public markets. g. Provide on-going management services for the Company and any of its subsidiaries. h. Provide advice on the negotiation and structure of investments in, or acquisition of the Company or any of its subsidiaries. 3. CONFIDENTIALITY. The Company will provide information to the Advisor regarding its business which will be deemed by the Advisor to be accurate at the time furnished, to the best knowledge of the Company. The Advisor agrees to maintain all non-public information the Company that is furnished by the Company in a manner appropriate to the services being performed by the Advisor, unless disclosure is required by law or requested by any government or regulatory agency. 4. COMPENSATION. a. CONSULTING FEE. The Company agrees to pay the Advisor a consulting fee in the amount of $30,000 per quarter, beginning October 1, 1998. b. EXPENSES. The Company agrees to reimburse the Advisor, promptly upon invoicing, for out-of-pocket expenses incurred in connection with the services rendered pursuant to this Engagement Letter, provided, however, that out-of-pocket expenses in excess of $10,000, in the aggregate, are subject to the Company's prior written approval. 5. INDEMNIFICATION. The Company agrees to indemnify the Advisor and its employees from and against all losses, claims, damages and liabilities to which the Advisor may become subject under any applicable federal or state law, or otherwise, related to or arising out of the engagement of the Advisor pursuant to, and the performance by the Advisor of the services contemplated by, this Engagement Letter. The Company will not be liable to the extent that any loss, claim, damage, liability or expense has resulted from the Advisor's bad faith, gross negligence or misrepresentation. If any action or proceeding shall be brought or asserted against the Advisor in respect of which indemnity may be sought from the Company, the Advisor shall promptly notify the Company in writing, and the Company may, in its discretion, assume the defense therefore, including the employment of counsel reasonably satisfactory to the Advisor and the payment of related expenses. 6. ENTIRE AGREEMENT. This Engagement Letter reflects the entire understanding of the parties with respect to this agreement. This agreement has been made solely for the benefit of the Company and the Advisor and no other person shall acquire or have any rights under or by virtue of this Engagement Letter. 7. GOVERNING LAW. This Engagement Letter shall be governed by the laws of the State of California. 8. COUNTERPARTS. This Engagement Letter may be executed in any number of counterparts, each of which shall be deemed to be an original including those sent by facsimile. If the foregoing correctly sets forth the agreement, please indicate by signing below in the signature block. Sincerely, E-Taxi Inc., a Delaware Corporation by: /s/ BRIAN P. BURNS, JR. ------------------------------------- Brian P. Burns, Assistant Secretary Accepted by: GATEWAY ADVISORS, INC. /s/ ROBERT M. WALLACE - -------------------------------- By: Robert M. Wallace, President EX-10.07 9 EXHIBIT 10.07 EXHIBIT 10.07 LETTER AGREEMENT, DATED AS OF APRIL 9, 1999, AMONG THE COMPANY, L. WAYNE KILEY AND QUALITY ASSOCIATES, INC. L. WAYNE KILEY April 9, 1999 Computer Marketplace, Inc. 1171 Railroad Street Corona, CA 91720 Attention: The Board of Directors Gentlemen: I am writing to you to confirm our agreement with respect to the cancellation of certain indebtedness of Computer Marketplace, Inc. to me and Quality Associates, Inc., a company controlled by me. It is my understanding that in exchange for the items listed below (under A,B,C, and D), I will forgive the following obligations of the Company: 1. Waive all rights to accrued and unpaid compensation and all payments (in cash , securities or otherwise) that may be due to me under that certain Employment Agreement dated October 1992 and as amended in October 1996 between me and the Company (collectively, the "Employment Agreement Obligations") which amount is currently $314, 135; and 2. Waive all rights to accrued and unpaid rent and all payments (in cash, securities or otherwise) that are or may become due to Quality Associates, Inc. under that certain Commercial Lease dated December 1, 1997 between Quality Associates and the Company (collectively, the "Lease Agreement Obligations") which amount is currently $64,536; and 3. Except for the Company's obligations under this letter agreement, waive all rights to receive any payments by the Company under rights I may possess contractually or under federal, state, or local law ("Other Obligations"). In exchange for my waiver of the Employment Agreement Obligations, the Lease Obligations, and the Other Obligations, the Company agrees as follows: A. That the following options (the "LWK Options") to purchase shares of the Company's Common Stock have been validly issued, are in full force and effect and the Company agrees upon valid exercise to issue the appropriate number of shares: (i) options to purchase 661,667 shares of the Company's common stock at an exercise price of $.60 per share at any time prior to December 31, 2001; and (ii) options to purchase 29,167 shares of the Company's common stock at an exercise price of $.60 per share at any time prior to January 2, 2000. (iii) options to purchase 100,000 shares of the Company's common stock at an exercise price of $.60 per share at any time prior to December 31, 2002. B. That the following options (the "Other Options") to purchase shares of the Company's Common Stock have been validly issued, are in full force and effect and the Company agrees upon valid exercise to issue the appropriate number of shares: NAME OF OPTIONHOLDER NUMBER OF OPTIONS EXERCISE PRICE($) EXP. DATE - -------------------- ----------------- ----------------- --------- Sharon Allen 20,000 1.00 12/31/01 Bruce Bowen 7,500 1.00 12/31/01 Brian Hintergardt 33,333 1.00 12/31/01 Leon Kiley 10,000 1.00 12/31/01 Pat Martin 9,500 1.00 12/31/01 Patty O'Leary 53,000 1.00 12/31/01 Stephanie West 10,000 1.00 12/31/01 Joe Achten 30,000 1.00 12/31/01 Tom Evans 30,000 1.00 12/31/01 Berlack Israels 40,000 1.00 12/31/01 Bernstein & Wasserman 60,000 1.00 12/31/01 John Mooney 35,000 1.00 12/31/01 Nancy Kiley 833 1.68 01/02/00 Joe Achten 833 1.68 01/02/00 Brian Hintergardt 8,333 1.68 01/02/00 Tom Evans 833 1.68 01/02/00 Berlack Israels 1,667 1.68 01/02/00 Joe Achten 200,000 0.50 12/31/02 C. That the Company will honor the registration rights described in Exhibit A attached hereto with respect to the shares issuable under the LWK Options and the Other Options. It is agreed and understood that the foregoing option holders may rely upon this commitment to register such shares of common stock as if such individuals were a party to this letter agreement. D. That the Company will transfer ownership, title and possession to me of the office equipment and furniture listed on Exhibit B. 2 If you are in agreement with the foregoing, please indicate your acceptance of the terms of this letter agreement by signing in the space provided below: Very truly yours, /s/ L. WAYNE KILEY ------------------------------- L. Wayne Kiley Agreed to and Accepted as of the date first written above: /s/ THOMAS EVANS - ------------------------- Thomas Evans abstaining - ------------------------- Nancy Kiley /s/ J.R. ACHTEN - ------------------------- J.R. Achten 3 EX-10.08 10 EXHIBIT 10.08 EXHIBIT 10.8 CONTRIBUTION AGREEMENT DATED AS OF MARCH 31, 1999 BY AND AMONG GATEWAY ADVISORS, INC., BEJAN AMINIFARD, MOSEN AMINIFARD AND DEREK WALL CONTRIBUTION AGREEMENT THIS CONTRIBUTION AGREEMENT (this "Agreement") is entered into as of March 31, 1999, by and among, Gateway Advisors ("Gateway"), Bejan Aminifard ("Bejan"), Mosen Aminifard ("Mosen"), and Derek Wall ("Derek") (collectively, the "Contributors") and E-Taxi, Inc., a Delaware corporation (the "Company"). For purposes of this Agreement, Gateway shall include its affiliates. The Company and the Contributors are referred to collectively herein as the "Parties." RECITALS A. Gateway, Bejan, Mosen, and Derek own 24%, 52%, 12% and 12%, respectively, of TechStore LLC, a California limited liability company ("TechStore"), representing all of the ownership interest in TechStore, as of the date hereof. B. Each of the Contributors desires to contribute to the Company his or her equity interest in TechStore (collectively, the "Contributed Interests"), in exchange for (i) shares of common stock of the Company (the "Common Exchange Shares"); and (ii) shares of preferred stock of the Company (the "Series A Preferred Stock") (together, the "Exchange Shares"). C. The exchange of shares of common stock (the "Exchange") and the subsequent acquisitions of other e-commerce companies will be effected in preparation for the merger of the Company with and into a publicly traded company (the "Roll-Up"). AGREEMENT The Parties hereby agree as follows: ARTICLE I - CONTRIBUTION AND EXCHANGE 1.1 Exchange. On the date hereof (the "Exchange Date"), the Contributors shall contribute to the Company all of their respective interests in TechStore and the Company shall (i) issue 480,000, 1,040,000, 240,000 and 240,000 shares of common stock of the Company to Gateway, Bejan, Mosen and Derek, respectively; and (ii) issue 96,000, 208,000, 48,000 and 48,000 shares of the Series A Preferred Stock to Gateway, Bejan, Mosen and Derek, respectively. The foregoing amounts of Series A Preferred Stock convert into 384,000, 832,000, 192,000, and 192,000 shares of common stock of E-Taxi, respectively. The Series A Preferred Stock shall have the rights, preferences, privileges and restrictions set forth in the Company's Certificate or Incorporation, a copy of which is attached hereto as Exhibit A. (the "Certificate"). The Company's issuance of the Common Exchange Shares, and the issuance of the Series A Preferred Stock to each of the Contributors, shall be the sole consideration for the Contributed Interests by the Company. 1.2 Stock Certificates. On the Exchange Date, the Seller shall deliver to Buyer documents evidencing ownership in Purchased Interest (as hereinafter defined).The Company will deliver to each Contributor on the Exchange Date a duly issued and authenticated certificate evidencing the Common Exchange Shares and the Series A Preferred Stock issuable to such Contributor pursuant to Section 1.1. ARTICLE 2 - CONTRIBUTORS' REPRESENTATIONS, WARRANTIES AND AGREEMENTS Each of the Contributor's represents, warrants and agrees, severally for himself or herself, as follows: 2.1 Ownership of Contributed Interests Delivered in Exchange. All ownership interests in TechStore shall be delivered by the Contributor in exchange for the Exchange Shares are owned by the Contributor, of record and beneficially, free and clear of any pledge, lien, security interest, charge, claim, option or encumbrance of any kind, and upon the delivery of documents evidencing such Contributed Interests, all of the Contributor's right, title and interest in and to such Contributed Interests shall have been contributed, transferred and assigned to the Company free and clear of any pledge, lien, security interest, charge, claim, option or encumbrance of any kind. 2.2 Legend. The certificate representing the Exchange Shares to be issued to the Contributor hereunder shall bear the following legend: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS AND MAY BE OFFERED, SOLD OR TRANSFERRED ONLY IF SO REGISTERED OR IF EXEMPTIONS FROM SUCH REGISTRATION REQUIREMENTS ARE AVAILABLE. NO TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR (B) IF THE COMPANY HAS BEEN FURNISHED WITH AN OPINION OF COUNSEL FOR THE HOLDER (WHICH COUNSEL SHALL BE ACCEPTABLE TO THE COMPANY), SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY, TO THE EFFECT THAT SUCH TRANSFER IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT AND THE RULES AND REGULATIONS IN EFFECT THEREUNDER. 2.3 Securities Unregistered. The Contributor acknowledges that he or she has been advised that (a) the Exchange Shares have not been registered under the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder (the "Act"), (b) the Exchange Shares must be held indefinitely, and the Contributor must continue to bear the economic risk of the investment in the Exchange Shares unless they are subsequently registered under the Act or an exemption from such registration is available, (c) there currently is no public market for the Exchange Shares, (d) when and if Exchange Shares can be transferred pursuant to this Agreement, Rule 144 promulgated under the Act is not presently available with respect to the sale of any securities of the Company, and the Company has made no covenant to make such Rule available, (e) when and if Exchange Shares may be disposed of pursuant to this Agreement without registration in reliance on Rule 144, such disposition can be made only in limited amounts in accordance with the terms and conditions of such Rule, (f) if the Rule 144 exemption is not available, public sale without registration will require compliance with Regulation A or some other exemption under the Act, (g) a restrictive legend in the form heretofore set forth shall be placed on the certificates or instruments representing the Exchange Shares, and (h) a notation shall be made in the appropriate records of the Company indicating that the Exchange Shares are subject to restrictions on transfer and, if the Company should at some time in the future engage the services of a stock transfer agent, appropriate stop transfer restrictions will be issued to such transfer agent with respect to the Exchange Shares. 2 2.4 Sales. If any of the Exchange Shares are to be disposed of in accordance with Rule 144 under the Act or otherwise, the Contributor shall promptly notify the Company of such intended disposition and shall deliver to the Company at or prior to the time of such disposition such documentation as the Company may reasonably request in connection with such sale and, in the case of a disposition pursuant to Rule 144, shall deliver to the Company an executed copy of any notice on Form 144 required to be filed with the Securities and Exchange Commission. 2.5 Investment Representations. Contributor is acquiring the Exchange Shares for investment for his or her own account and not with a view to, or for resale in connection with, the distribution or other disposition thereof. The Contributor further represents and warrants that (a) Contributor has been given the opportunity to obtain any information or documents relating to (and to ask questions and receive answers about such documents) the Company and the business and prospects of the Company which Contributor deems necessary to evaluate the merits and risks related to his investment in the Exchange Shares and to verify the information received; (b) Contributor's financial condition is such that Contributor can afford to bear the economic risk of holding the unregistered Exchange Shares for an indefinite period of time and has adequate means for providing for his current needs and personal contingencies; (c) Contributor can afford to suffer a complete loss of the investment in the Exchange Shares; (d) all information which Contributor has provided to the Company concerning Contributor and his financial position is correct and complete as of the date of this Agreement; (e) Contributor understands and has taken cognizance of all risk factors related to the acquisition of the Exchange Shares; (f) Contributor's knowledge and experience in financial and business matters are such that Contributor is capable of evaluating the merits and risks of Contributor's acquisition of the Exchange Shares as contemplated by this Agreement. ARTICLE 3 - ADDITIONAL REPRESENTATIONS OF CONTRIBUTORS Each of Bejan, Mosen, and Derek represents, warrants and agrees, severally for himself or herself, as follows, subject to the Representations Schedule attached hereto as an Exhibit and incorporated by reference: 3.1. President of TechStore. Derek Wall is the duly elected President of TechStore. 3.2. Business. TechStore is in the business of selling computer related equipment and software over the internet (the "Business"). 3.3. Organization and Good Standing. TechStore is a limited liability company duly organized, validly existing and in good standing under the laws of the State of California and has the corporate power and authority to own, lease and operate its properties and to transact its business as it is now being conducted, holds all material franchises, licenses and permits necessary and required therefor, and is duly qualified or licensed to do business and is in good standing in each jurisdiction where the nature of the business conducted by it or the ownership, lease or operation of its properties requires a license or qualification. 3.4. Consents and Approvals. Except as set forth in Schedule 3.4, execution and delivery of this Agreement and the transactions contemplated hereby will not: (a) violate any provision of the Articles of Organization or Bylaws of TechStore; (b) violate any statute, rule, regulation, order or decree of any public body or authority (including governmental self-regulatory agencies) by which TechStore, any of its properties or assets, or the Seller may be bound; (c) require any filing with or permit, consent or approval of any public body or authority (including non-governmental self-regulatory agencies); or (d)result in a violation or breach of, or constitute (with or without due 3 notice or lapse of time or both) a default (or give rise to any right of termination, cancellation or acceleration) under, any of the terms, conditions or provisions of any note, bond, mortgage, pledge, indenture, license, franchise, permit, agreement or other instrument or obligation to which TechStore or the Seller, or any of the properties or assets of TechStore or any shareholder, may be bound. 3.5. Capitalization. Immediately following the consummation of the Purchase Agreements, by and between each of Bejan and TechStore and Gateway, dated as of the date hereof (the "Purchase Agreements") and prior to the consummation of the Roll-Up Transactions, all the issued and outstanding Members' interest, on a percentage basis, will be as follows: Gateway=24%, Bejan=52%, Mosen=12%, and Derek=12%. Since December 1, 1998, and except for interests issued to Gateway, no ownership interest in TechStore has been issued or have been transferred to or from TechStore. All issued and outstanding ownership interests in TechStore have been validly issued and are fully paid and non-assessable, have not been issued in violation of and are not currently subject to, any preemptive rights. Except as disclosed in Schedule 3.5, there are not, as of the date hereof, any outstanding or authorized convertible securities, subscriptions, options, warrants, calls, rights, commitments, or any other agreements of any character to which TechStore is a party that, directly or indirectly (i) obligate TechStore to issue any ownership interests or any securities convertible into, or exercisable or exchangeable for, or evidencing the right to subscribe for any shares of capital stock, (ii)call for or relate to the sale, pledge, transfer or other disposition by TechStore of its ownership interests, or (iii)relate to the voting or control of the ownership interests. 3.6 Financial Statements. (a)TechStore has previously provided to the Company audited financial statements of TechStore since its inception, including Balance Sheets as of December 31, 1998, and the related Statements of Operations and Statements of Cash Flow for the year then ended (collectively, "TechStore Financial Statements"). (b)TechStore Financial Statements have been prepared in accordance with generally accepted accounting principles applied on a consistent basis (except as may be indicated therein or in the accompanying notes or schedules thereto) and fairly present the financial position of TechStore as of the dates thereof and the results of operations and changes in financial position of TechStore for then ended, subject to any other adjustments described therein. 3.7. Status of Liabilities. Since December 1, 1998, and except as set forth on Schedule 3.7, TechStore has paid all normal and recurring installments (i) of bank and other long term debt, (ii) under leases and contractual obligations and (iii) any and all other amounts due and payable to any persons or entities. TechStore does not have any liabilities (whether absolute, accrued, contingent, unliquidated or otherwise) except (a) liabilities, obligations or contingencies which are accrues or reserved against in the balance sheet of TechStore as of December 31, 1998 ("TechStore Balance Sheet"), (b) normally recurring liabilities incurred after the date of the TechStore Balance Sheet in the ordinary course of business and consistent with past practice, and (c) liabilities incurred after the date of the TechStore Balance Sheet not incurred in the ordinary course of business which do not exceed $25,000. 3.8. Assets. Except as set forth in Schedule 3.8, TechStore, has good, valid and marketable title to all of the assets, properties (tangible and intangible) and rights used in or related to the business as presently conducted (the "Assets"), free and clear of all mortgages, liens, pledges, security interests, charges, claims, restrictions, and encumbrances of any nature whatsoever ("Encumbrances"), except for liens for current taxes not yet due and payable. 4 3.9. Taxes and Tax Returns. Except as set forth in Schedule 3.9, TechStore has filed or caused to be filed on a timely basis all federal, state, local, foreign and other tax returns, reports and declarations (collectively, "Tax Returns") required to be filed by TechStore in connection with the Business. All Tax Returns filed by or on behalf of TechStore in connection with the Business are materially complete in all respects. To the knowledge of each of the Contributors, TechStore has paid all income, estimated, excise, franchise, gross receipts, capital stock, profits, stamp, occupation, sales, use, transfer, value added, property (whether real, personal or mixed), employment, unemployment, disability, withholding, social security, workers' compensation and other taxes, and interest, penalties, fines, costs and assessments (collectively, "Taxes"), due and payable with respect to the periods covered by such Tax Returns (whether or not reflected thereon). To the knowledge of each of the Contributors, there are no tax liens on any of the properties or assets, real, personal or mixed, tangible or intangible, of TechStore. Since January 1, 1999, TechStore has not incurred any Tax liability in connection with the Business other than in the ordinary course of business. No deficiency in Taxes for any period has been asserted in writing by any taxing authority which remains unpaid at the date hereof, no written inquiries or notices have been received by TechStore from any taxing authority with respect to possible claims for Taxes, each Contributor has no reason to believe or has knowledge that such an inquiry or notice is pending or threatened, and, to the knowledge of each Contributor, there is no basis for additional claims or assessments for Taxes. TechStore has not agreed to the extension of the statute of limitations with respect to any Tax Return or tax period. 3.10. Material Changes. Since January 1, 1999 and except as set forth in Schedule 3.10, there has not been (i) any material adverse change in the Assets, the operations, prospects, or condition (financial or otherwise) of the Business or of TechStore, (ii) any damage, destruction or loss, whether or not covered by insurance, affecting the Assets, the operations, prospects or condition (financial or otherwise) of the Business, (iii) any material increase in the rate of compensation payable or to become payable by either of TechStore to any of its employees engaged in the conduct of the Business or any material increase in the rate of the amounts paid, payable or to become payable under any bonus, insurance, pension or other benefit plan, or any arrangement made for or with any such employees, (iv) any material actual or threatened trouble or disruption of TechStore's relations with its agents, customers, or suppliers, with respect to the Business, (v) any resignations or threatened resignations of employees of the Business with salaries exceeding $50,000; or (vi) any material liability incurred with respect to the Business, other than liabilities incurred in the ordinary course of business consistent with past practice, or any lien or encumbrance discharged or satisfied with respect to the Business or the Assets, or any failure to pay or discharge when due any liability of which the failure to pay or discharge has caused or will cause any material damage or risk of material loss to the Business or any of the Assets. There has been no amendment, waiver or termination of any material agreement, contract, commitment, lease, plan, permit, authorization or arrangement ("Contract or License") which has been delivered to the Company in connection with its due diligence review, or any other Contract or License, which materially relates to TechStore or the Business, or any waiver of any rights of substantial value with respect to the Business or the Assets, whether or not in the ordinary course of business. 3.11. Legal Proceedings; Compliance with Law. (a)Except as set forth in Schedule 3.11(a), to the knowledge of each of the Contributors, there is no lawsuit, action, arbitration, administrative or other proceeding, criminal prosecution or governmental investigation or inquiry ("Litigation") that is pending or, to the knowledge of each of the Contributors, threatened against or related to or otherwise affecting TechStore, the Business, the Assets or any property leased or rented to TechStore. There has been no material Default (defined below) under any Regulations (defined below) applicable to TechStore with respect to 5 the Business or the Assets, including Regulations relating to pollution or protection of the environment. As used in this Agreement, "Default" means (a) a breach, default or violation, or (b) the occurrence of an event that with the passage of time or the giving of notice, or both, would constitute a breach, default or violation. As used in this Agreement, "Regulation" means any statute, law, ordinance, regulation, order or rule of any federal, state, local, foreign or other governmental agency or body or of any other type of regulatory body, including, without limitation, those covering environmental, energy, safety, health, transportation, bribery, record keeping, zoning, anti-discrimination, antitrust, wage and hour, and price and wage control matters. (b) Except as set forth in Schedule 3.11(b) and without limiting the generality of subsection (a), there has not been at any time since TechStore's inception, or otherwise, to the knowledge of each of the Contributors (i) any Environmental Condition (defined below) at or relating to the premises at which the Business has been conducted, or at or relating to any property owned, leased or operated by TechStore (or any predecessor thereof) with respect to the Business at any time, or at or relating to any property at which wastes generated by TechStore or the Business have been deposited or disposed of, nor have TechStore received written notice of any such Environmental Condition, or (ii) any written notice received by TechStore that TechStore violated any Regulation or Environmental Law governing the shipment or storage of hazardous materials. "Environmental Condition" means any condition or circumstance, whether created by TechStore or any third party, that (i) requires abatement or correction under an Environmental Law (defined below), (ii) is reasonably likely to give rise to any civil or criminal liability under an Environmental Law, or (iii) is reasonably likely to create a public or private nuisance, including, but not limited to, the presence of asbestos, PCBs, hazardous substances, radioactive waste or radon. "Environmental Law" includes all Statutes and Regulations relating to pollution or protection of the environment as well as any principles of common law under which a party may be held liable for the release or discharge of any materials into the environment including, but not limited to, nuisance and trespass. (c) Except as set forth in Schedule 3.11(c), TechStore has obtained all governmental permits, licenses, registrations, certificates of occupancy, approval and other authorizations (the "Governmental Permits") that are required for the complete operation of the Business as presently operated and that if not obtained could have a material adverse effect on the Business. To the knowledge of each of the Contributors all of the material Governmental Permits are presently in full force, and, to the knowledge of each of the Contributors, no revocation, modification, cancellation or withdrawal thereof has been threatened. TechStore has filed such timely and complete renewal applications as may be required with respect to their Governmental Permits that if not obtained would have a material adverse effect on the Business. TechStore are in full compliance with their Governmental Permits. 3.12. Intellectual Property. (a) Except as set forth in Schedule 3.12(a), TechStore owns or has the legal right to use without limitation and payment of royalties, the patents, patent applications, inventions, copyrights, trademarks, trade names, licenses, software (whether existing and under development) and other legally protectable rights used in the Business (the "Intellectual Properties"). All the Intellectual Properties are valid and in good standing, freely assignable, and are subject to no material liens, charges, contractual rights or, to the knowledge of each of the Contributors, claims or other interests of any other person and are adequate and sufficient to permit TechStore to conduct the 6 Business. No rights under any patents, inventions, copyrights, trademarks, trade names, licenses or other legally protectable rights owned solely or partially by others, including directors, officers or employees of TechStore, are required by TechStore in connection with the conduct of the Business, and the consummation of the transactions contemplated by this Agreement will not materially alter or impair any such rights. (b) Except as set forth in Schedule 3.12(b), each of the Contributors has no knowledge of, and has received no notice to the effect that any product TechStore manufactures or sells or distributes or any services TechStore provides, or the marketing or use by TechStore of any such product or service, may infringe any patent, trademark, trade name, copyright or legally protectable right of another. All trade secrets, if any, owned or used by TechStore are, to the knowledge of each Contributor, owned free of any adverse claims, rights or encumbrances as to its exclusive rights thereto, and TechStore has used reasonable efforts to protect its rights to continued secrecy thereof. 3.13. Distributors, Customers or Suppliers. Neither of the Contributors is aware that any customer, distributor or supplier intends to cease doing business with TechStore or to alter materially the amount of business done with TechStore due to consummation of the transactions contemplated by this Agreement or any other reason. 3.14. Real Property. (a) TechStore operates the Business on parcels of real property located at 14 Commercial Blvd., Novato, California 94949 (collectively, the "Leased Parcels"). (b) TechStore has not received written notice of any governmental assessments made against the Leased Parcels which are unpaid (except any ad valorem taxes for the current tax year which are due or payable and not delinquent). (c) TechStore has not received any written notice of any violation of any laws, rules, regulations or ordinances (including, without limitation, zoning and environmental laws, regulations or ordinances) relating to the Leased Parcels or requesting or requiring the performance of any repairs, alterations or other work in order so to comply. (d) TechStore has not received written notice of any assessment for public improvements or otherwise which is due and remains unpaid with respect to any portion of the Leased Parcels and TechStore has not received any written notice of any currently proposed or pending assessment for public improvements or otherwise with respect to the Leased Parcels. (e) The plumbing, heating, electrical, ventilation and air conditioning systems, elevator systems and all other mechanical systems and equipment at the buildings and other improvements constituting of the Leased Parcels are in good working order, subject to normal wear and tear and the age and condition of the Leased Parcels. (f) To the knowledge of each Contributor, the Leased Parcels (or uses to which they are put) materially conform in all respects with all applicable zoning regulations or ordinances. 3.15. Licenses. TechStore has the right to use all computer software, including all property rights constituting part of the computer software, used in connection with and material to the operation of the Business (the "Computer Software"). 3.16. Accounts Receivable; Inventories and Equipment. Except as set forth in Schedule 3.16, the accounts receivable of the Business are in their entirety valid accounts receivable, arising in the ordinary course of business. The inventories and equipment of the Business are in all material respects merchantable and fully usable in the ordinary course of business. 7 3.17. Compensation. Each of the Contributors warrants that the transactions contemplated by this Agreement will not result in any liability for severance or separation pay to any employee or independent contractor of the Business. 3.18. Employee Benefit Plans. Except as set forth in Schedule 3.18, TechStore does not maintain or sponsor, nor are they required to make contributions to, any pension, profit-sharing, savings, bonus, incentive or deferred compensation, severance pay, medical, life insurance, welfare or other employee benefit plan. All pension, profit-sharing, savings, bonus, incentive or deferred compensation, severance pay, medical, life insurance, welfare or other employee benefit plans within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (hereinafter referred to as "ERISA"), in which the employees participate (such plans and related trust, insurance and annuity contracts, funding media and related agreements and arrangements being hereinafter referred to as the "Benefit Plans") materially comply with all requirements of the Department of Labor and the Internal Revenue Service, and with all other applicable laws, and TechStore has not taken or failed to take any action with respect to the Benefit Plans which might create any liability on the part of the Contributors or the Company. Each "fiduciary" (within the meaning of Section 3(21)(A) of ERISA) as to each Benefit Plan has materially complied with all requirements of ERISA and all other applicable laws in respect of each such Benefit Plan. In addition: (i) TechStore does not maintain, sponsor or contribute to, and has never maintained, sponsored or contributed to, any "defined benefit plan" (within the meaning of Section 3 (35) of ERISA); (ii) TechStore does not maintain, sponsor, contribute to, and has never maintained, sponsored or contributed to, any "Multiemployer Plan" (within the meaning of Section 3(37) or 4001(a)(3) of ERISA; (iii) Except as set forth on Schedule 3.18(iii), TechStore does not maintain, sponsor or contribute to, and has never maintained, sponsored or contributed to, any "defined contribution plan" (within the meaning of Section 3(34),of ERISA); (iv) other than claims in the ordinary course for benefits with respect to the Benefit Plans, to the knowledge of each Contributor there are no actions, suits or claims (including claims for income Taxes, interest, penalties, fines or excise Taxes with respect thereto) pending with respect to any Benefit Plan, or any circumstances which might give rise to any such action, suit or claim (including claims for income Taxes, interest, penalties, fines or excise Taxes with respect thereto); (v) all materially required reports, returns and similar documents with respect to the Benefit Plans required to be filed with any governmental agency have been so filed on or before their due date; or (vi) TechStore has no obligation to provide health or other welfare benefits to former, retired or terminated employees, except as specifically required under Section 4980B of the Code or Section 601 of ERISA. TechStore has materially complied with the notice and continuation requirements of Section 4980B of the Code or Section 601 of ERISA and the regulations thereunder. 8 3.19. Labor Relations and Employment Matters. (a) Labor Relations. Except as set forth in Schedule 3.19(a), none of TechStore's employees is represented by any labor union. There have been no material violations of any federal, state or local statutes, laws, ordinances, rules, regulations, orders or directives with respect to the employment of individuals by, or the employment practices or work conditions of TechStore in connection with the Business or the terms and conditions of employment or wages and hours. Except as set forth in Schedule 3.19(a), TechStore, in connection with the Business, is not engaged in any unfair labor practice or other unlawful employment practice and there has not been, nor to the knowledge of each of the Contributors is there threatened or contemplated any charges of unfair labor practices or other employee-related complaints or investigations pending or threatened against TechStore before the National Labor Relations Board, the Equal Employment Opportunity Commission, the Occupational Safety and Health Review Commission, the Internal Revenue Service, the Pension Benefit Guaranty Corporation, the Immigration and Naturalization Service, the Department of Labor, the state or local equal employment opportunity authority, state department of labor (or labor commission or wage and hour occupational safety and health authority, state authority), state workers' compensation authority, state unemployment insurance/ compensation authority or any other federal, state, local or other governmental authority. Except as set forth in Schedule 3.19(a), there is no strike, picketing, slowdown, work stoppage, grievance or organizational attempt pending against TechStore nor, to the knowledge of each of the Contributors, threatened against or involving the Business. No issue with respect to union representation is pending against TechStore nor to the knowledge of each of the Contributors, threatened with respect to the employees of the Business. Except as set forth in Schedule 3.19(a), no union or collective bargaining unit or other labor organization has ever been certified or recognized by the Business as the representative of any of the employees of the Business. (b) No Litigation. Except as set forth in Schedule 3.19(b), to the best of each Contributor's knowledge, no wrongful discharge, breach of contract (written, oral or implied), discrimination, defamation or other employment-related litigation of any kind is pending or threatened against TechStore, nor does any basis therefor exist. (c) Compliance with IRCA and COBRA. Each of the Contributors warrants that TechStore has complied with all requirements and regulations under the Immigration Reform and Control Act of 1986 ("IRCA"), concerning the review, collection and retention of evidence of the legal right of each of TechStore's covered employees to live and work in the United States (including, but not limited to, Immigration and Naturalization Service "I-9" forms), and under Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"), concerning providing eligible employees and dependents notice of their rights to continue group health insurance coverage, if any, at rates permitted by COBRA in the event of certain qualifying events. 3.20. Increases in Compensation or Benefits. Subsequent to December 1, 1998 and except as set forth in Schedule 3.20, there have been no increases in the compensation of any TechStore's employees' current salary payable or to become payable to any of the employees of TechStore in connection with the Business and there have been no payments or provisions for any awards, bonuses, stock options, loans, profit sharing, pension, retirement or welfare plans or similar or other disbursements or arrangements for or on behalf of such employees (or related parties thereof), in each case, other than (i) pursuant to currently existing plans or arrangements, or (ii) as was required from time to time by governmental legislation affecting wages. All bonuses heretofore granted to employees of the Business have been paid in full to such employees. 3.21. Insurance. TechStore, in connection with the Business, maintains insurance policies covering all the material Assets and properties of the Business and the various occurrences that may arise in connection with the operation of the Business. Such policies are in full force and effect and no premiums are more than thirty (30) days past due. TechStore, in connection 9 with the Business, has complied with all the material provisions of such policies. To the knowledge of each Contributor, such insurance is of comparable amounts and coverage as that which companies engaged in similar businesses maintain in accordance with reasonable business practices. Each of the Contributors has no knowledge of any written notices of any pending or threatened termination or premium increases with respect to any of such policies. Neither TechStore, in connection with the Business, nor the Business has had any casualty loss or occurrence which may give rise to any claim of any kind not covered by insurance and each of the Contributors has no knowledge of any occurrence which may give rise to any claim of any kind not covered by insurance, subject to a reasonable deductible. To the knowledge of each Contributor, all claims against TechStore, in connection with the Business, or the Business covered by insurance have been reported to the insurance carrier on a timely basis. To the knowledge of each Contributor, none of the insurance policies of TechStore, in connection with the Business, or the Business will terminate or be adversely affected by the consummation of the transactions contemplated by this Agreement. 3.22. Conduct of Business. TechStore is not restricted from conducting the Business in any location by agreement or court decree. 3.23. Accounts Payable, Indebtedness, Etc. The accounts and notes payable and accrued expenses reflected on the most recent balance sheet of TechStore and the accounts and notes payable and accrued expenses incurred by TechStore in connection with the Business after the date of such balance sheet are in all respects valid claims that arose in the ordinary course of business. Since December 31, 1998, the accounts and notes payable, accrued expenses and debts of the Contributor in connection with the Business have been paid in a manner consistent with past practice. 3.24. Licensure, Etc. To the knowledge of each Contributor, each individual employed or contracted with by TechStore in connection with the Business, who is required to be licensed by any governmental entity to perform his or her job services is duly licensed to provide such services and is otherwise in material compliance with all federal, state and local laws, rules and regulations relating to such professional licensure and otherwise meets the qualifications to provide such services. 3.25. Books and Records. The books and records of TechStore are complete and correct in all material respects and have been maintained in accordance with good business practices. 3.26. Accuracy of Information. No representation or warranty by the Contributors in this Agreement and no information contained herein or otherwise delivered to the Company contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements contained herein or therein not misleading. 3.27. Transactions with Certain Persons. Except as set forth in Schedule 3.27, none of the directors or officers of TechStore, nor any of the Contributors or members of their respective families, is a party to any transaction with TechStore, including, without limitation, any contract, agreement or other arrangement (i)providing for the furnishing of services by, (ii)providing for the rental of real estate or personal property from, or (iii) otherwise requiring payments (other than for services as an officer, director or employee) to any such person or to any corporation, partnership, trust or other entity in which any such person has, directly or indirectly, an interest as an officer, director, trustee, stockholder or partner. There is no property, tangible or intangible, real or personal, valued in excess of $10,000 which is (a) owned by any Contributor or member of his family, any 10 current or former officer, director or stockholder of the Company, or persons not dealing with any of them at arms length, and (b) which is presently used by TechStore in connection with its business. 3.28. No Brokers. Neither of the Contributors has entered into any agreement, arrangement or understanding with any person or firm which will result in an obligation of any of the parties to this Agreement to pay any finder's fee, brokerage commission or similar payment in connection with the transactions contemplated hereby. ARTICLE 4 - THE COMPANY'S REPRESENTATIONS AND WARRANTIES As a condition to the performance by the Contributors of their obligations under this Agreement, the Company hereby represents and warrants to the Contributors as follows as of the execution date of this Agreement: 4.1. Execution and Delivery. This Agreement has been duly executed and delivered by the Company and is valid and binding obligation enforceable against the Company in accordance with its terms. 4.2. Consents and Approvals. Except for filings required by applicable securities laws, no consent, approval or authorization of, or declaration, filing or registration with, any United States federal or state governmental or regulatory authority is required to be made or obtained by the Company in connection with the execution, delivery and performance of this Agreement and the consummation of the acquisition of the Contributed Interests. 4.3. No Brokers. The Company has not employed, and is not subject to the valid claim of, any broker, finder, consultant or other intermediary in connection with the transactions contemplated by this Agreement who might be entitled to a fee or commission in connection with such transactions. 4.4. No Conflict or Violation. Neither the execution and delivery of this Agreement nor the consummation of the sale of the Contributed Interests will result in a violation by the Company of any statute, rule, regulation, ordinance, code, order, judgment, writ, injunction, decree or award. 4.5. Acquisition for Investment. The Contributed Interests being purchased by the Company hereunder are being purchased by the Company in good faith for investment for its own account and not with a view to a distribution or resale of any of such Contributed Interests in violation of any applicable securities laws, subject nevertheless to any requirement at law that the disposition of the Company's property shall at all times be within the Company's control. 4.6. Accredited Investor. The Company acknowledges that it is an "accredited investor" as defined in Rule 501 under the Securities Act of 1933, as amended (the "Securities Act"). 4.7. Legend. The certificates representing the Contributed Interests to be delivered to the Company hereunder shall bear the following legend: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS AND MAY BE OFFERED, SOLD OR TRANSFERRED ONLY IF SO REGISTERED OR IF EXEMPTIONS FROM SUCH REGISTRATION REQUIREMENTS ARE AVAILABLE. 11 NO TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR (B) IF THE COMPANY HAS BEEN FURNISHED WITH AN OPINION OF COUNSEL FOR THE HOLDER (WHICH COUNSEL SHALL BE ACCEPTABLE TO THE COMPANY), SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY, TO THE EFFECT THAT SUCH TRANSFER IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT AND THE RULES AND REGULATIONS IN EFFECT THEREUNDER." 4.8. Securities Unregistered. The Company acknowledges that it has been advised that (a) the Contributed Interests to be delivered to the Company hereunder will not have been registered under the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder (the "Act"), (b) such Contributed Interests must be held indefinitely, and the Company must continue to bear the economic risk of the investment in such Contributed Interests unless they are subsequently registered under the Act or an exemption from such registration is available, (c) there may not be a public market for such Contributed Interests, (d) Rule 144 promulgated under the Act is not presently available with respect to the sale of any securities of the Company, and the Company has made no covenant to make such Rule available, (e) when and if the Contributed Interests may be disposed of without registration in reliance on Rule 144, such disposition can be made only in limited amounts in accordance with the terms and conditions of such Rule, (f) if the Rule 144 exemption is not available, public sale without registration will require compliance with Regulation A or some other exemption under the Act and (g) a restrictive legend in the form heretofore set forth shall be placed on the certificates representing the Contributed Interests. 4.9. Issuance of Exchange Shares. The Exchange Shares have been duly authorized by all necessary corporate action on the part of the Company and are validly issued, fully paid, and non-assessable, and each of the Contributors will acquire valid title to such shares, free and clear of any encumbrances. 4.10. Stock. All issued and outstanding shares of Company Common Stock and the Series A Preferred Stock have been validly issued and are fully paid and non-assessable, have not been issued in violation of and are not currently subject to, any preemptive rights. 4.11. Books and Records. The books and records of the Company are complete and correct in all material respects and have been maintained in accordance with good business practices. 4.12. Accuracy of Information. No representation or warranty by the Company in this Agreement and no information contained herein or otherwise delivered to the Contributors contains any untrue statement of a material fact or omits to state any material fact necessary in order to make the statements contained herein or therein not misleading. ARTICLE 5 - ROLL-UP COVENANT OF THE CONTRIBUTORS Each Contributor hereby covenants to the Company to use the Contributor's good faith, reasonable efforts to effect the Roll-Up as soon as practicable. ARTICLE 6 - CONDITIONS 6.1 Conditions to Obligations of the Contributors and the Company. The respective obligations of each party to consummate the Exchange shall be subject to the fulfillment, at or prior to the Closing, of the following conditions: 12 (a) No Injunction. Neither the Company nor TechStore shall be subject any order, decree or injunction of a court of competent jurisdiction within the United States which i) prevents or materially delays the consummation of the Exchange, or (ii) would impose any material limitation on the ability of the Company effectively to exercise full rights of ownership of TechStore or the assets or business of TechStore. (b) No governmental Proceeding or Litigation. No investigation and no suit, action or proceeding before any court or any governmental or regulatory authority shall be pending or threatened by any state or federal governmental or regulatory authority against the Company, TechStore, or any of their affiliates, associates, officers or directors seeking to restrain, prevent or change in any material respect the transaction contemplated hereby or seeking damages in connection with such transactions. (c) Consents. TechStore shall have obtained all permits, authorizations, consents and approvals referred to in Section 3.4 hereof in form and substance satisfactory to such parties, and they shall have received evidence satisfactory to them of the receipt of such permits, authorizations, consents and approvals. (d) Transaction. A definitive agreement to merge with and into Computer Marketplace, Inc. or TriStep shall be executed. 6.2 Conditions to Obligations of the Company. The obligations of the Company to consummate the Exchange shall be subject to the fulfillment, at or prior to the Closing, of the following additional conditions: (a) Representations and Warranties True. The representations and warranties of the Contributors contained herein shall be true and correct in all material respects on the date of this Agreement, and (except as to representations that specify a particular time) on the Closing Date as though such representations and warranties were made on that date. (b) Performance. The Contributors shall have performed and complied in all material respects with all agreements, obligations and conditions required by this Agreement to be performed or complied with by them on or prior to the Closing. (c) Absence of Material Adverse Change. Since December 31, 1998, there has been no material adverse change, nor the occurrence of any event reasonably likely to cause a material adverse change, in the business, operations, properties, assets, liabilities, condition (financial or otherwise), or future prospects of the TechStore, whether or not occurring in the ordinary course of business, except for any change directly resulting from action of TechStore that was disclosed to the Company and to which the Company consented. 6.3 Conditions to Obligations of the Contributors. The obligations of the Contributors to consummate the Exchange shall be subject to the fulfillment at or prior to the Closing of the following additional conditions: 13 (a) Representations and Warranties True. The representations and warranties of the Company contained herein shall be true and correct in all material respects on the date of this Agreement and on the Closing Date (except as to representations that specify a particular time) as though such representations and warranties were made on that date. (b) Performance. The Company shall have performed and complied in all material respects with all agreements obligations and conditions required by this Agreement to be performed or complied with by them on or prior to the Closing. ARTICLE 7 - CLOSING Subject to the provisions of Articles 6, the closing of the Exchange (the "Closing") shall take place at the offices of Gateway Advisors, Inc., 675 North 1st Street, 10th Floor, San Jose, California, at 11:00 a.m., on March 31, 1999, or at such other time and place as the Contributors and the Company mutually agree upon orally or in writing (which time and place are designated as the "Closing") The date on which the Closing actually occurs is herein referred to as the "Closing Date." ARTICLE 8 - MISCELLANEOUS 8.1 Binding Effect. The provisions of this Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective heirs, legal representatives, successors and assigns. 8.2 Amendment. This Agreement may be amended only by a written instrument signed by the Parties hereto which specifically states that it is amending this Agreement. 8.3 Applicable Law. The laws of the State of California shall govern the interpretation, validity and performance of the terms of this Agreement, regardless of the law that might be applied under principles of conflicts of law. 8.4 Notices. All notices and other communications provided for herein shall be in writing and shall be deemed to have been duly given if delivered personally or sent by registered or certified mail, return receipt requested, postage prepaid, to the Party to whom it is directed at the address set forth below each party's signature, or such other address as the Company shall have specified by notice in writing to the Contributors or an Contributor shall have specified by notice in writing to the Company. 8.5 Recapitalizations, etc. The provisions of this Agreement shall apply, to the full extent set forth herein with respect to the Exchange Shares, to any and all shares of capital stock of the Company or any capital stock, partnership units or any other security evidencing ownership interests in any successor or assign of the Company (whether by merger, consolidation, sale of assets or otherwise) which may be issued in respect of, in exchange for, or in substitution of the Common Stock by reason of any stock dividend, split, reverse split, combination, recapitalization, liquidation, reclassification, merger, consolidation or otherwise. 8.6 Remedies. The Parties acknowledge that it would be impossible to fix money damages and that violations of this Agreement will cause irreparable injury for which adequate remedy at law is not available and, therefore, this Agreement must be enforced by specific performance or injunctive relief. The Parties agree that any Party may, in its sole discretion, apply to any court of competent jurisdiction for specific performance or injunctive or such other 14 relief as such court may deem just and proper in order to enforce this Agreement or prevent any violation hereof and, to the extent permitted by applicable law, each Party waives any objection or defense to the imposition of such relief. Nothing herein shall be construed to prohibit any party from bringing any action for damages in addition to an action for specific performance or an injunction for a breach of this Agreement. 8.7 Domain Names. The Parties hereto agree and acknowledge that the following domain names are the personal property of Bejan Aminifard: Sharam.com, mosen.com, mohsen.com, houtsma.com, mswallet.com, techdeveloper.com, techcompare.com, techjournal.com, paid2much.com, paidtoomuch.com, paidtomuch.com, msnstore.com, intelliprice.com, inteliprice.com, builditbest.com, and vwallet.com. IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date hereof. CONTRIBUTORS: E-Taxi, Inc.: By: /s/ ROBERT M. WALLACE - ------------------------------- --------------------------------- Gateway Advisors Inc. Robert M. Wallace President - ------------------------------- Bejan Aminifard - ------------------------------- Mosen Aminifard - ------------------------------- Derek Wall 15 EX-10.9 11 EXHIBIT 10.09 EXHIBIT 10.9 CONSULTING AGREEMENT BETWEEN THE COMPANY AND THOMAS BROWNE DATED AS OF APRIL 26, 1999 COMPUTER MARKETPLACE, INC. CONSULTING AGREEMENT THIS CONTRACT is made by and between Computer Marketplace, Inc., a Delaware corporation (the "Company"), and Thomas Browne (the "Consultant"), as of April 13, 1999. RECITALS A. In connection with the conduct of the Company's business, the Company desires to acquire the services of the Consultant in order to serve as a financial advisor, providing financial accounting expertise and evaluations of possible acquisitions; and B. The Consultant is willing to make a commitment to serve as a consultant to the Company upon the terms and conditions contained herein. AGREEMENT NOW, THEREFORE, in consideration of the mutual promises below, the Company hereby engages the Consultant and the Consultant hereby accepts engagement with the Company in accordance with the terms and conditions set forth in this Agreement. 1. Consulting Services. The Company hereby retains the Consultant and the consultant hereby accepts such retention by Company, for the period and upon the terms and conditions set forth in this Agreement. For the term of this Agreement, the Consultant shall serve, to the best of the Consultant's ability, as a financial advisor to the Company. 2. Duties. (a) The Consultant shall serve the Company generally as a financial advisor, providing financial accounting services, evaluations of possible acquisitions, and such other matters relating to the Company as may be requested by the Company from time to time. The Consultant will assist in the structuring, negotiating, and financings of acquisitions. (b) Throughout the Term (as defined herein), the Consultant shall devote his best efforts to the performance of his duties hereunder in a manner which will faithfully and diligently further the business interests of the Company. It is anticipated that over the Term the Consultant will devote such time to the performance of his duties hereunder as is reasonably requested by the Company from time to time. The Company hereby acknowledges that his duties under this Agreement will be subordinated to the performance of his current employment obligations with Infoseek. 3. Term. This Agreement, and the Consultant's engagement hereunder, shall terminate September 30, 1999, or upon delivery of thirty (30) day written notice by one party to the other (the "Term"). At the earlier of the end of the Term or the discontinuation of Consultant's employment with Infoseek, the parties agree to negotiate in good faith towards establishing a permanent employment arrangement that will include, among other terms, a stock option grant to purchase 250,000 shares of common stock of the Company and a base salary of $150,000. On termination of this Agreement, the Company's obligation to pay any compensation, except for services or expenses already accrued or incurred, shall terminate. 4. Compensation. (a) Grant of Options. As compensation for services to be rendered by the Consultant during the Term, the Company hereby grants options (the "Options") to purchase 125,000 shares of the Company's common stock, par value $.0001 per share (the `Common Stock") under the Company's 1999 Stock Option Plan, for an exercise price of $2.50 (based upon the closing price of $2.8125 for the Common Stock on the date hereof). The Options will vest monthly (on the last day of each calendar month) in increments of 25,000, commencing May 1,1999. The Company agrees to register these shares under a S-8 Registration Statement. (b) Travel Expenses. The Company shall reimburse the Consultant for all substantial out-of-pocket expenses ( transportation, hotel, meals) reasonably incurred by the Consultant in connection with any trip made by the Consultant at the specific request and with the prior approval of the Company. (c) Other Expenses. The Company shall reimburse the Consultant for all other reasonable expenses actually incurred that are incidental to the services performed hereunder and that have been approved by the Company. 5. Independent Contractor. The Company shall neither exercise nor have any right to control the Consultant as to the means by which the Consultant's work is to be accomplished. The Consultant's relationship with the Company shall be that of an independent contractor and nothing in this Agreement shall be construed to create an employer-employee relationship between the parties. The Consultant shall hold harmless the Company, its officers, agents and employees, from and against any and all liability, loss or expenses of every kind on account of injuries (including death) to the Consultant, the Consultant's employees or agents, if any, or any other party, or loss of or damage to the Company's, the Consultant's or any other party's property, arising out of the Consultant's performance of services hereunder, unless caused by the negligence of the Company or its employees. 6. Indemnification by Company. Company shall indemnify Consultant, its affiliates, employees and agents, (the "Indemnitees"), for the cost of defense and damages awarded, if any, arising out of any claim or lawsuit resulting from the negligence of Company, provided such claim was not in any way caused by the negligence or misconduct of Indemnitee. 7. Proprietary Information. The Consultant understands that during the Consultant's arrangement with the Company the Consultant may produce, obtain, make known or learn about certain information which has commercial value in the business in which the Company is engaged and which is treated by the Company as confidential. This information may have been created, discovered or developed by the Company or otherwise received by the Company from third parties subject to a duty to maintain the confidentiality of such information. All such information is hereinafter called "Proprietary Information." (a) Proprietary Information Defined. By way of illustration, but not limitation, Proprietary Information includes trade secrets, ideas, processes, formulas, materials, substances, source codes, data, programs, other original works of authorship, know-how, improvements, discoveries, developments, designs, inventions, techniques, marketing plans, strategies, forecasts, new products, unpublished financial statements, budgets, projections, licenses, prices, costs and customer and supplier lists. 2 (b) Ownership of Proprietary Information. The Consultant understands that all Proprietary Information shall be the sole property of the Company and its assigns (or, in some cases, its clients, suppliers or customers), and the Company and its assigns (or, in some cases, its clients, suppliers or customers) shall be the sole owner of all patents, copyrights and other rights in connection therewith. The Consultant hereby assigns to the Company any rights the Consultant may have or acquire in such Proprietary Information. At all times, both during the Consultant's employment by the Company and after its termination, the Consultant will keep in strictest confidence and trust all Proprietary Information, and the Consultant will not use, reproduce or disclose any Proprietary Information without the written consent of the Company, except as may be necessary in the ordinary course of performing duties as a Consultant to the Company. (c) Maintenance of Records. The Consultant agrees to keep and maintain adequate and current records of all Proprietary Information developed by the Consultant (in the form of notes, sketches, drawings and as may be specified by the Company), which records shall be available to and remain the sole property of the Company at all times. 8. Conflicting Obligations (a) Trade Secrets of Others. The Consultant represents that the Consultant has not brought and will not bring with the Consultant to the Company, or use in the performance of the Consultant's responsibilities at the Company, any devices, materials or documents of a former employer or other party that are proprietary or are not generally available to the public, unless the Consultant has obtained express written authorization from the former employer or other party for their possession and use. (b) Conflicting Confidentiality Contracts. The Consultant agrees that during the Consultant's arrangement with the Company, the Consultant will not breach any obligation of confidentiality that the Consultant has to present or former employers and others. The Consultant represents that the Consultant's performance under the terms of this Agreement as a consultant to the Company does not and will not breach any Agreement to keep in confidence proprietary information acquired by the Consultant in confidence or in trust prior to the Consultant's arrangement with the Company. The Consultant has not entered into, and Consultant agrees the Consultant will not enter into, any Agreement, either written or oral, in conflict herewith. 9. Termination of Consulting. In the event of the termination of the Consultant's arrangement with the Company for any or no reason, the Consultant will deliver to the Company all documents, notes, drawings, specifications, programs, data, devices and other materials of any nature pertaining to the Consultant's work with the Company and the Consultant will neither take with the Consultant nor recreate any of the foregoing, any reproduction of any of the foregoing or any Proprietary Information that is embodied in a tangible medium of expression. Termination of the Consultant's Agreement shall not affect the Consultant's obligation with respect to the Company's Proprietary Information under this Agreement. 10. Assignment (a) By the Consultant. The Consultant shall not be entitled to assign (voluntarily or involuntarily) any of the Consultant's rights under this Agreement (except the right to payment of money), nor to delegate any of the Consultant's duties or obligations under this Agreement, without the prior written consent of the Company. 3 (b) By the Company. The rights of the Company hereunder may be assigned by the Company to any other corporation or other business entity which succeeds to all or substantially all of the business of the Company through merger, consolidation, corporate reorganization, acquisition of all or substantially all of the assets of the Company or otherwise, or to any parent or majority-owned subsidiary of the Company; provided, however, that the obligations of the Company under this Agreement shall be binding upon any such transferee. 11. Equitable Remedies. The Consultant acknowledges and agrees that: (i) the remedy of damages at law for any breach by the Consultant of the provisions of Sections 7 or 8 would be inadequate and ineffective to protect the legitimate interest of the Company; (ii) it would be extremely difficult to ascertain the amount of monetary damages sustained by the Company and the amount of compensation to the Company that would afford an adequate remedy in the event of any breach by the Consultant of such provisions; and (iii) the Company would be irrevocably harmed by any breach of such provisions. Accordingly, the Consultant agrees that the Company shall be entitled to obtain injunctive or other equitable relief in the event of any breach or threatened breach of any of the provisions contained in Sections 7 or 8. 12. Entire Agreement. This Agreement and the Exhibit attached hereto constitute the final, complete and exclusive Agreement of the parties and supersede any prior agreements between the parties. The Consultant has not relied on any previous oral or implied representations, inducements or understandings of any kind or nature. 13. Waiver. No provision of this Agreement may be changed, modified, released, discharged, abandoned or otherwise amended or waived, in whole or in part, except by an instrument in writing signed by the party charged with such an action. 14. Survival. The rights of either party for breach of this Agreement shall survive any termination hereof. 15. Severability. To the extent that any of the Agreements set forth herein, or any work, phrase, clause or sentence thereof, shall be found to be illegal or unenforceable or unnecessary, it shall be deleted in such a manner so as to make the Agreement, as modified, legal and enforceable under applicable laws. 16. Miscellaneous (a) Notices. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery, telex or facsimile transfer or three (3) days after deposit in the United States Post Office, by registered or certified mail, with postage and fees prepaid, addressed to the other party at the address shown on the last page hereof, or at such other address as a party may designate by written notice to each of the other parties hereto. (b) Governing Law. This Agreement shall be governed for all purposes by the law of the State of California as it applies to contract between California residents, made and to be performed entirely within the State of California. (c) Arbitration. Any inability to agree on a matter to be agreed upon by the parties hereto, or any dispute, controversy or claim arising out of, or related to this Agreement, or the breach thereof, shall be settled by arbitration in California in accordance with the then-existing rules of the American Arbitration Association ("AAA"). Any award or decision by the 4 arbitrators shall be final and binding upon the parties, and judgment thereon may be entered in any court having jurisdiction thereof. The arbitrators shall apply the law as set forth in Sub-Section 16(b) of this Agreement. (d) Counterparts. This Agreement may be signed in two counterparts, each of which shall be deemed an original and both of which shall together constitute one Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. COMPUTER MARKETPLACE, INC., THOMAS BROWNE a Delaware Corporation /s/ ROBERT M. WALLACE /s/ THOMAS BROWNE - --------------------------------- ---------------------------------- Robert M. Wallace Thomas Browne Chairman of the Board ----------------------------------- Consultant's Social Security or Federal Employer Identification No. 5 EX-10.12 12 EXHIBIT 10.12 EXHIBIT 10.12 STOCK PURCHASE AGREEMENT ENTERED INTO ON OCTOBER 12, 1999 AND DATED AS OF JUNE 30, 1999 AMONG THE COMPANY, BRIAN HINTERGARDT AND MAURICE LATHOUWERS STOCK PURCHASE AGREEMENT This STOCK PURCHASE AGREEMENT (the "Agreement") dated as of June 30, 1999, by and among Computer Marketplace, Inc., a Delaware corporation (the "Seller"), Brian Hintergardt, an individual residing at 20215 Eyota Court, Apple Valley, CA 92308 ("Hintergardt"), and Maurice Lathouwers, and individual residing at 6271 Monita Street, Long Beach, CA 90803 ("Lathouwers" with Hintergardt, the "Purchasers", and individually each a "Purchaser"). R E C I T A L S: WHEREAS, the Seller is the owner of two million five hundred thousand (2,500,000) shares (the "Shares") of Common Stock, par value $.0001 per share ("Common Stock"), of Medical Marketplace, Inc., a Delaware corporation (the "Company"), constituting all of the issued and outstanding capital stock of the Company; and WHEREAS, New Millennium Leasing, Inc. is a wholly owned subsidiary of Medical Marketplace, Inc.; and WHEREAS, the Seller desires to sell to the Purchasers, and the Purchasers desire to acquire from Seller the Shares, on the terms and conditions set forth in this Agreement. NOW, THEREFORE, in consideration of the premises and of the terms and conditions herein contained, the parties mutually agree as follows and for other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged: 1. PURCHASE OF SECURITIES; TERMS OF PAYMENT. 1.1 Sale and Purchase. Subject to the terms and conditions set forth in this Agreement, the Seller agrees to sell and deliver to the Purchasers, and the Purchasers agrees to purchase from the Seller on the closing date (the "Closing Date") all of the Shares. 1.2 Purchase Price. On the Closing Date, the Purchasers shall deliver to Seller an aggregate purchase price of sixty-five thousand dollars ($65,000) payable (i) by wire transfer (or delivery of a certified check) by Purchasers to Seller of forty thousand dollars ($40,000), and (ii) delivery of an executed Secured Promissory Note by Purchasers in the principal amount of twenty five thousand dollars ($25,000), a form of which is attached hereto as Exhibit A (the "Note"). 2. CLOSING. 2.1 Closing and Closing Date. The closing (the "Closing") shall take place as of the date hereof (the "Closing Date"). The Purchasers and the Seller agree that, at or before the Closing, they shall perform all such acts and execute and deliver all such documents as may be required to consummate the purchase of the Shares, including, but not limited to, the delivery of 50% of the Shares accompanied by a stock power which evidences the transfer of the Shares from Seller to each of the Purchasers. 2.2 Conditions to Closing. The Closing shall be subject to satisfaction of the condition that on the Closing Date the representations, warranties and covenants of (i) the Seller contained in Section 3 hereof, and (ii) the Purchasers contained in Section 4 hereof, shall then be true in all respects. 2.3 Books and Records. At or prior to the Closing, Seller will deliver to the Purchasers a copy of (i) all audited financial statements of Seller, including financial statements of the Company, and (ii) all state and federal tax returns filed by the Company with the appropriate taxing authorities, since the inception of the Company. In addition, upon filing of Seller's Annual Report on Form 10-KSB for the year ended June 30, 1999, Seller shall deliver a copy thereof to the Purchasers including the financial statements of the Company included therein. Each of the parties agrees to assist the Purchasers (and the Company) as reasonably necessary by delivering copies of books and records within its control. 3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SELLER. The Seller represents, warrants and covenant to Purchasers as follows: 3.1 Authorization. The Seller has the full legal right, power and all authority and approval required to enter into, execute and deliver this Agreement and to perform fully his obligations hereunder. The execution and delivery of this Agreement and the performance of Seller's obligations hereunder does not and will not conflict with any agreement, judgment or order to which Seller is a party. 3.2 Binding Obligation. Assuming the due execution and delivery of this Agreement by the Purchasers, this Agreement constitutes the valid and binding obligation of the Seller, enforceable against the Seller in accordance with its terms, subject, as to enforcement, (i) to bankruptcy, insolvency, reorganization, arrangement, moratorium and other laws of general applicability relating to or affecting creditors' rights and (ii) to general principles of equity, whether such enforceability is considered in a proceeding in equity or at law. 3.3 The Shares. The Seller warrants and represents that the Seller holds the Shares free and clear of all liens, pledges, hypothecations, options, contracts and other encumbrances ("Encumbrances"), and upon transfer from the Seller to the Purchaser the Shares will remain free and clear of all Encumbrances. Assuming execution and delivery by all holders of options to purchase shares of the Company's capital stock of that certain option surrender agreement, a form of which is attached hereto as Exhibit B, there are no options, warrants or other securities convertible into or exercisable for any shares of Company capital stock. All of the Shares have been fully paid and validly issued in compliance will applicable laws. 3.4 Sale of Stock by Purchaser. At or prior to the Closing, the Seller agrees to use its best efforts to assist Hintergardt in selling shares of Seller's common stock beneficially owned by him. 3.5 Government Filings. So long as information provided by Purchasers regarding the Company is accurate, correct and complete, the Seller believes that all required state and federal governmental filings, including all tax returns, have been timely and accurately filed with the appropriate taxing authorities. 3.6 Obligations of the Company. To Seller's knowledge, Seller has not incurred any undisclosed liability or other obligation on behalf of the Company. 3.7 True as of Closing Date. The Seller warrants and represents that the warranties and representations contained in this Section 3 are true and correct in all respects as of the Closing Date. 4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASERS. Each of the Purchasers represent, warrant and covenant to Seller with respect to himself as follows: 2 4.1 Authorization. Each of the Purchasers has the full legal right, power and all authority and approval required to enter into, execute and deliver this Agreement and to perform fully his obligations hereunder. The execution and delivery of this Agreement and the performance of Seller's obligations hereunder does not and will not conflict with any agreement, judgment or order to which a Purchaser is a party. 4.2 Binding Obligation. Assuming the due execution and delivery of this Agreement by the Seller, this Agreement constitutes the valid and binding obligation of each of the Purchasers, enforceable against each Purchaser in accordance with its terms, subject, as to enforcement, (i) to bankruptcy, insolvency, reorganization, arrangement, moratorium and other laws of general applicability relating to or affecting creditors' rights and (ii) to general principles of equity, whether such enforceability is considered in a proceeding in equity or at law. 4.3 Investment Representations. The transfer of the Shares in this transaction is intended to be a private transaction exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"), and is made in reliance upon the representations set forth below: (a) Each of the Purchasers is acquiring the Shares for his own account for investment only and not with a view to, or for sale in connection with, a distribution of the Shares in violation of the Securities Act and any applicable state securities or blue-sky laws; (b) Each of the Purchasers acknowledge to the Seller that: (i) each Purchaser understands that the Shares have not been registered under the Securities Act or under the laws of any state on the basis that the transfer thereof contemplated by this Agreement is exempt from such registration and the certificate representing the Shares shall contain a restrictive legend reflecting the fact that the Shares have not been registered; (ii) the Seller's reliance on the availability of such exemption is, in part, based upon the accuracy and truthfulness of each Purchaser's representations contained herein; (iii) the Shares cannot be resold without registration or an exemption under the Securities Act and such state securities laws, and that certificates representing the Shares will bear a restrictive legend to such effect; and (iv) each Purchaser has evaluated the merits and risks of acquiring the Shares and has such knowledge and experience in financial and business matters and is capable of evaluating the merits and risks of such acquisition, is aware of and has considered the financial risks and financial hazards of acquiring the Shares, and is able to bear the economic risk of acquiring the Shares, including the possibility of a complete loss with respect thereto. 4.4 Operation of the Company. Except as set forth on Schedule 4.4 to this Agreement, there are no liabilities, losses, claims or events or circumstances, contingent or otherwise, which may because of the Company's failure to perform, or the passage of time, or both, result in a liability, loss or claim against the Seller (a "Company Liability"). Until (i) the Note has been paid in full or the obligations thereunder have been deemed satisfied and (ii) there are no potential Company Liabilities, each of the Purchasers shall use its best efforts to operate the business of Medical Marketplace in compliance with all applicable laws, rules and regulations and consistent with good business practices. Further, until (i) the Note has been paid in full or the obligations thereunder have been deemed satisfied and (ii) all Company Liabilities have terminated to the reasonable satisfaction of Seller, the Purchasers shall not permit the Company (or its affiliates) to pay more than a total of $23,600 (plus 3 customary health benefits and life insurance payments made heretofore by the Company) during any calendar month as salary, wages, bonuses or other compensation to all employees, consultants, officers, directors, partners, and co-venturers, without the Seller's prior written consent, except that the Company may pay reasonable and customary fees to third parties who have introduced transactions to the Company and such introduced transactions were consummated prior to any payment thereto. Each of the Purchaser's acknowledge and understand that a material breach of this covenant shall permit the Seller, under the terms of the Note, to accelerate the Note, and seize the Pledged Collateral (as defined in the Note). 4.5 Books and Records; Audits. Each of the Purchasers shall cause the Company to prepare and maintain complete and accurate books of account and records. Until (i) the Note has been paid in full or deemed satisfied, or (ii) all Company Liabilities have terminated to the reasonable satisfaction of Seller. Seller and its duly authorized representatives have the right upon two (2) days prior notice, during regular business hours, to audit said books of account and records and examine all other documents and material in the possession or under the control of the Company. Seller shall use its best efforts to conduct such audit in manner as not to interfere with the Company's normal business activities. 4.6 Assignment of Receivable. Each of the Purchasers shall cause the Company to execute and deliver at the Closing an assignment of all rights of the Company to receive the first $225,000 paid by Tommy Fox, d/b/a Arkansas Imaging with respect to that certain Stipulation for Entry of Judgment, Case No. 315251 in the Superior Court of California, County of Riverside, or any other payment made by Mr. Fox (the "Arkansas Imaging Judgment"), a form of which is attached hereto as Exhibit C. 4.7 True as of Closing Date. Each of the Purchasers warrant and represent that the warranties, representations and covenants contained in this Section 4 are true and correct in all respects as of the Closing Date. 5. MISCELLANEOUS. 5.1 Disclosure. The Purchasers acknowledge as the senior managers of the Company's business that they are familiar with the Company and are relying solely on their own knowledge of the Company's business when they considered entering into this Agreement and whether to consummate the transactions contemplated hereby. 5.2 Indemnification. Each of the parties hereto agree to indemnify the other party for any losses, claims or liabilities incurred by such party as a result of , or arising of out of, a breach of its representations and warranties contained in this Agreement. 5.3 Survival of Terms. All representations, warranties and covenants contained in this Agreement or in any certificates or other instruments delivered by or on behalf of the parties hereto shall be continuous and survive the execution of this Agreement and the Closing. 5.4 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware (without regard to conflict of laws). 5.5 Assignment. This Agreement shall be binding upon the parties hereto and may not be assigned without the prior written consent of the other parties hereto. 4 5.6 No Waiver. Any waiver by either party to this Agreement of any provision of this Agreement shall not be construed as a waiver of any other provision of this Agreement, nor shall such waiver be construed as a waiver of such provision respecting any future event or circumstance. 5.7 Notices. Notices hereunder shall be given only by personal delivery, registered or certified mail, return receipt requested, overnight courier service, or telex, telegram, facsimile or other form of electronic mail and shall be deemed transmitted when personally delivered or deposited in the mail or delivered to a courier service or a carrier for electronic transmittal or electronically transmitted by facsimile (as the case may be), postage or charges prepaid, and properly addressed to the particular party to whom the notice is to be sent. Unless and until changed by notice given as provided herein, notices shall be sent (i) to the Seller, at its corporate headquarters, and (ii) to each of the Purchasers, at his address set forth on the first page of this Agreement. 5.8 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 5.9 Variations in Pronouns. All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine or neuter, singular or plural, as the identity of the antecedent person or persons or entity or entities may require. 5.10 Headings. The headings used in this Agreement are for convenience only and shall not by themselves determine the interpretation, construction or meaning of this Agreement. 5.11 Binding Effect; Release of Inter-Company Indebtedness. This Agreement and the Note, constitute and contain the entire agreement of the parties with respect to the subject matter hereof and supersede any and all prior negotiations, correspondence, understandings and agreements between the parties with respect hereto. This Agreement may be amended or modified only by a written instrument signed by the parties hereto. The Seller and each of the Purchasers, on behalf of themselves and the Company, hereby release and discharge all indebtedness and other obligation existing as of the date hereof from Seller to the Company, and from the Company to the Seller, except for the indebtedness and obligations contemplated by this Purchase Agreement and the Note. 5.12 Additional Assurances. Each of the parties agrees to furnish to the other party, promptly upon request therefor, such additional documents or instruments, if any, in connection with the sale of the Shares to the Purchasers. 5 IN WITNESS WHEREOF, the Purchaser and the Seller have caused this Agreement to be executed as of the day and year first above written. COMPUTER MARKETPLACE, INC. By: /s/ L. Wayne Kiley ------------------------------------- Name: L. Wayne Kiley Title: Chief Executive Officer /s/ Brian Hintergardt ------------------------------------- Brian Hintergardt /s/ Maurice Lathouwers ------------------------------------- Maurice Lathouwers 6 EX-20.01 13 EXHIBIT 20.01 EXHIBIT 21.01 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 21.01 SUBSIDIARIES OF EMARKETPLACE, INC. Medical Marketplace, Inc. a Delaware corporation. New Millenium Leasing, Inc., a Delaware corporation and indirect subsidiary. E-Taxi, Inc., a Delaware corporation. TechStore LLC, a California limited liability company TechStore, Inc., a Delaware corporation and indirect subsidiary. Office Express, Inc., a Delaware corporation. Tristep Acquisition, Inc., a Delaware corporation. TopTeam, Inc., a Delaware corporation. EX-27 14 FDS FORM 10-KSB
5 0000900475 eMarketplace, Inc. 1 USD 12-MOS JUN-30-1999 JUL-01-1998 JUN-30-1999 1 1,255,966 0 62,350 5,032 0 1,348,344 338,458 294,503 12,833,813 1,792,986 0 0 0 1,269 11,039,558 12,833,813 2,208,855 2,208,855 2,061,725 2,938,688 0 0 4,259 (728,297) 0 (728,297) 0 0 0 (728,297) (0.06) (0.06)
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