-----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, Hgdeyl6a1gFm6rb3sLml0BtxDbB/7LQjXJKN6xtylMGQ3Zy6QtghvMXTuMnqYqPC DoHz9sRFt3Lluj/0NLvWoA== 0000897069-01-000212.txt : 20010308 0000897069-01-000212.hdr.sgml : 20010308 ACCESSION NUMBER: 0000897069-01-000212 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 20010307 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ZAPWORLD COM CENTRAL INDEX KEY: 0001024628 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS TRANSPORTATION EQUIPMENT [3790] IRS NUMBER: 943210624 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: SEC FILE NUMBER: 333-56632 FILM NUMBER: 1562578 BUSINESS ADDRESS: STREET 1: 117 MORRIS ST CITY: SEBASTOBOL STATE: CA ZIP: 95472 BUSINESS PHONE: 7078244150 MAIL ADDRESS: STREET 1: 117 MORRIS ST CITY: STBASTOPOL STATE: CA ZIP: 95472 FORMER COMPANY: FORMER CONFORMED NAME: ZAP POWER SYSTEMS INC DATE OF NAME CHANGE: 19970319 S-3 1 0001.txt REGISTRATION STATEMENT As filed with the Securities and Exchange Commission on March ___, 2001 Registration No. ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------------------- FORM S-3 REGISTRATION STATEMENT Under THE SECURITIES ACT OF 1933 ----------------------- ZAPWORLD.COM (Exact name of registrant as specified in its charter) California 94-3210624 (State of incorporation) (I.R.S. Employer Identification No.) 117 Morris Street Sebastopol, California 95472 (707) 824-4150 (Address and telephone number of registrant's principal executive offices) ------------------------------------------- Gary Starr Chief Executive Officer Zapworld.com 117 Morris Street Sebastopol, California 95472 (707) 824-4150 (Name, address and telephone number of agent for service) ------------------------------------------- Copy to: William D. Evers Foley & Lardner One Maritime Plaza, Sixth Floor San Francisco, California 94111-3404 ------------------------------ Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. ------------------------------ If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. |_| If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. |X| If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| If this Form is a post-effective amendment filed pursuant to Rule 462(c) of the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. |_| If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. |_|
------------------------------ CALCULATION OF REGISTRATION FEE =============================== ==================== ===================== ==================== ===================== Proposed Maximum Proposed Maximum Title of Each Class of Amount to be Offering Price Aggregate Offering Amount of Securities to be Registered Registered(1)(2) Per Unit (3) Price (3) Registration Fee - ------------------------------- -------------------- --------------------- -------------------- --------------------- Common stock, no par value 255,000 shares $1.78 $453,900 $113.48 =============================== ==================== ===================== ==================== ===================== (1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457 under the Securities Act of 1933 based upon the average of the high and low prices for Zapworld.com Common stock as reported on the NASDAQ Stock Market on March 5, 2001. (2) Consists of 210,000 options to purchase Zapworld.com Common stock pursuant to the Zapworld.com 1999 Incentive Stock Plan, and 45,000 shares of Zapworld.com Common stock.
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. ================================================================================ The information in this prospectus is not complete and may be changed. These shares may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. The prospectus is not an offer to sell these securities and is not a solicitation of offers to buy these securities in any state where the offer or sale is not permitted. ------------------- 255,000 Shares ZAPWORLD.COM Common Stock ------------------- The Selling Shareholder identified in this prospectus may use this prospectus to sell a maximum of 255,000 shares of common stock of Zapworld.com which he presently owns or may acquire upon the exercise of stock options. We will not receive the proceeds from the sale of any of these shares, although we may receive cash proceeds from the Selling Shareholder to the extent that he exercises options to purchase these shares. Our common stock is traded on the NASDAQ SmallCap Market under the symbol ZAPP. The Selling Shareholder may offer and sell the shares from time to time on the NASDAQ SmallCap Market or in private transactions at prevailing market prices or at privately negotiated prices. We are paying the expenses incurred in connection with the registration of these shares under the Securities Act of 1933. The Selling Shareholder is responsible for any brokerage commissions or expenses he may incur in the sale of the shares. The manner in which the Selling Shareholder may sell these shares and the price or prices at which the Selling Shareholder may sell them is further described in this prospectus under the section entitled "Plan of Distribution" on page 10. Our principal offices are located at 117 Morris Street, Sebastopol, California 95472. Our telephone number is (707) 824-4150 and our Internet address is http://www.zapworld.com. The information on our website does not constitute part of this prospectus. ------------------- Investing in our common stock involves substantial risks. See the "Risk Factors" Section beginning on page 3. ------------------- Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of the prospectus. Any representation to the contrary is a criminal offense. This prospectus is dated ______________, 2001. -1- TABLE OF CONTENTS Page THE COMPANY.................................................................2 FORWARD-LOOKING STATEMENTS..................................................2 RISK FACTORS................................................................3 We have a history of losses, and we might not achieve or maintain profitability................................................3 We may not be able to obtain additional capital to fund our operations when needed.............................................3 A substantial portion of our growth in the past three years has come through acquisitions and we may not be able to identify, complete and integrate future acquisitions, which could adversely affect our future growth...............................3 We face intense competition which could cause us to lose market share and reduce profit margins.................................3 Changes in the market for electric vehicles could cause our products to become obsolete or lose popularity.........................4 We cannot assure you that growth in the electric vehicle industry will continue. Our business may suffer if growth in the electric vehicle industry ceases................................4 We may be unable to keep up with changes in electric vehicle technology and, as a result, may suffer a decline in our competitive position...................................................5 We will need to increase our research and development spending, which could substantially increase our costs and adversely affect our cash flow...................................................5 The failure of certain key suppliers to provide us with components could have a severe and negative impact upon our business...........................................................5 Product liability or other claims could have a material adverse effect on our business.........................................5 Failure to manage our growth effectively could adversely affect our business....................................................6 The loss of certain key personnel could significantly harm our business......................................................6 Changes in the law may have a negative impact upon our business...........................................................6 International expansion may cause problems for us.........................6 We might not be able to retain our Internet address.......................7 Our success is heavily dependent on protecting our intellectual property rights...........................................7 We may be exposed to liability for infringing intellectual property rights of other companies.....................................8 USE OF PROCEEDS.............................................................9 -i- TABLE OF CONTENTS (Continued) Page SELLING SHAREHOLDER.........................................................9 PLAN OF DISTRIBUTION.......................................................10 LEGAL MATTERS..............................................................11 EXPERTS ...................................................................11 WHERE YOU CAN FIND MORE INFORMATION........................................11 INCORPORATION BY REFERENCE.................................................11 COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES......12 -ii- THE COMPANY Our company, ZAPWORLD.COM(R) was incorporated in California in 1994 under the name "ZAP Power Systems." We design, assemble, manufacture and distribute electric and non-electric scooters, electric bicycle power kits, electric bicycles, electric motorcycles and other personal electric transportation vehicles, including electric wheelchairs and electric aquatic propulsion devices. We develop proprietary technologies that are important elements of our own brand of personal electric vehicles. Each of these components is marketed under our own brand name. Along with our commitment to develop new electric vehicles, we are also focusing our development efforts on a new generation of microprocessor drive controllers. In this document, "Zapworld," "we," "us" and "our" refer to Zapworld.com. You should rely only on the information contained in this document or to which we have referred you. We have not authorized anyone to provide you with information that is different. FORWARD-LOOKING STATEMENTS This prospectus and the documents incorporated by reference contain statements that we believe are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including statements regarding our future financial position, business strategy, budgets, projected costs and plans and objectives of management for future operations, are forward-looking statements. When used in this prospectus, words such as "may," "will," "expect," "intend," "estimate," "anticipate," "believe," "should," "plan" or "continue" and similar expressions are generally intended to identify forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and other facts, some of which are beyond our control, that could cause actual results to differ materially from those expressed or implied by those forward-looking statements. These factors include those described in "Risk Factors" and elsewhere in this prospectus and the documents incorporated by reference. -2- RISK FACTORS An investment in our common stock involves a high degree of risk. You should carefully consider the following risk factors before you decide to buy our common stock. We have a history of losses, and we might not achieve or maintain profitability. We have not generated a profit from operations during any fiscal year since we began operation in 1994. To date, we have concentrated primarily on increasing our revenues and expanding our market share through acquisitions rather than on maximizing profits. As a result, although we experienced revenue growth from fiscal year 1998 to fiscal year 1999, we incurred net losses of $1,109,400 and $1,692,600 for the years ended December 31, 1998 and 1999, respectively. Our nine-month loss through September 30, 2000 was $1,014,000. There is no assurance that we will be able to operate profitably in the future. Failure to achieve profitable operations may require us to seek additional financing when none is available or on extremely unfavorable terms. We may not be able to obtain additional capital to fund our operations when needed. Since our inception, we have financed our operations primarily through private and public offerings of our equity securities. Our planned expenditures are based primarily on our internal estimates of our future sales and ability to raise additional financing. If revenues or additional financing do not meet our expectations in any given period of time, our failure to adjust spending quickly enough to compensate for revenue or financing shortfalls may reduce our ability to continue operations. A substantial portion of our growth in the past three years has come through acquisitions and we may not be able to identify, complete and integrate future acquisitions, which could adversely affect our future growth. Our growth strategy is based in part upon acquiring other businesses with strategic value to us. It is possible that we may not be able to identify suitable acquisition candidates, obtain financing for future acquisitions or complete future acquisitions. In addition, if any future acquisitions are completed, we may not be able to integrate the acquired businesses or operate them profitably. Additionally, the diversion of management attention, as well as any other difficulties which may be encountered in the continuing integration processes, could have an adverse impact on our financial condition, profitability and cash flows. We face intense competition which could cause us to lose market share and reduce profit margins. Some of our competitors in the electric vehicle market are large manufacturers, including Honda, Suzuki, Sanyo and Yamaha. These competitors have far greater financial resources, more established market positions, and significantly greater name recognition than we possess. They also have larger, more established sales, marketing, and distribution programs and resources than we have. These factors may make it difficult for us to compete with these businesses in the production and sale of our products. -3- Many smaller manufacturers sell electric bicycles to key segments of our market in the United States, Europe and Asia. We also compete against the makers of electric scooters as well as non-motorized scooters and bicycles. Although we believe we have a competitive advantage from our name recognition in the electric vehicle industry and ownership of fundamental technology, the market for the sale of these products is subject to rapid change and ease of entry by new competitors. Many of these competitors are selling their products at substantial discounts, which has in turn required us to reduce the prices of our products. Although we have been able to mitigate the impact of these price reductions by shifting manufacturing of some of our products overseas, the intense price competition we are encountering is causing us to reduce our prices, and, thereby, decrease our profit margins. In view of these factors, we cannot be certain that we will be able to meet changes in the marketplace and remain competitive. Changes in the market for electric vehicles could cause our products to become obsolete or lose popularity. The electric vehicle industry is in its infancy and has experienced substantial growth and change in the last few years. Demand for and interest in electric vehicles appears to be increasing. However, growth in the electric vehicle industry may depend on many factors, including: o continued development of product technology; o the environmental consciousness of customers; o the ability of electric vehicles to successfully compete with vehicles powered by internal combustion engines; o widespread electricity shortages and the resultant increase in electricity prices, especially in our primary market, California, which could derail our past and present efforts to promote electric vehicles as a practical solution to vehicles which require gasoline; o changes in the price of fuels for motor vehicles, such as gasoline; and o future regulation and legislation requiring increased use of nonpolluting vehicles or the rejection of such regulation. Because we believe that changes in the market for electric vehicles in general may affect the market for our products, these factors may adversely affect our ability to sell our products. We cannot assure you that growth in the electric vehicle industry will continue. Our business may suffer if growth in the electric vehicle industry ceases. In the last several years there has been a substantial increase in the number of electric vehicles and non-motorized vehicles which are competitive with our products. One of our principal challenges is to continue to develop and market products which keep pace with the rapid changes in the market. If we are unable to introduce new products and maintain our current market share, we will likely be unable to continue to increase revenue or begin to operate profitably. -4- We may be unable to keep up with changes in electric vehicle technology and, as a result, may suffer a decline in our competitive position. Our current products are designed for use with, and are dependent upon, existing electric vehicle technology. As technologies change, we plan to upgrade or adapt our products in order to continue to provide products with the latest technology. However, our products may become obsolete or our research and development efforts may not be sufficient to adapt to changes in or create necessary technology. Our potential inability to adapt and develop the necessary technology may harm our competitive position. We will need to increase our research and development spending, which could substantially increase our costs and adversely affect our cash flow. To keep pace with technological changes and developments in the market for electric vehicles, we have substantially increased spending on research and development. Our research and development costs in 1999 were $364,600, as compared to $202,600 in 1998, an 80% increase. Because we plan to develop new electric vehicle products and tooling that will broaden our product line in 2001, we expect to incur increased research and development costs in 2001. Our research and development costs for the period ended September 30, 2000 were $464,000. Should we be unable to raise sufficient funds in the future to meet our research and development costs, we could suffer a materially adverse effect on our business, results of operations and financial condition. The failure of certain key suppliers to provide us with components could have a severe and negative impact upon our business. We rely on a small group of suppliers to provide us with components for our products, some of whom are located outside of the United States. If these suppliers become unwilling or unable to provide components, there are a limited number of alternative suppliers who could provide them. Changes in business conditions, wars, governmental changes and other factors beyond our control or which we do not presently anticipate could affect our ability to receive components from our suppliers. A failure by our major suppliers to provide these components could severely restrict our ability to manufacture our products and prevent us from filling customer orders in a timely fashion. For example, our Zappy(R) and Kick(TM) products account for approximately 85% of our total sales. We acquire the major components of these products from only one or two suppliers. It could be difficult to find replacement components if our current suppliers fail to provide the parts needed for these products. This would affect our ability to timely fulfill customer orders, which, in turn, could greatly affect our market position. Product liability or other claims could have a material adverse effect on our business. As producers of electric vehicles sold to the general public, we face the risk of product liability claims and unfavorable publicity if the use of our products causes injury or has other adverse effects. Although we have product liability insurance for risks of up to $10,000,000, that insurance may be inadequate to cover all potential product claims. In addition, we may not be able to maintain this insurance indefinitely or be able to avoid product liability exposure. -5- Failure to manage our growth effectively could adversely affect our business. We plan to increase sales and expand our operations substantially during the next several years through internally generated growth and the acquisition of businesses and products. To manage our growth, we believe we must continue to implement and improve our operational, manufacturing, and research and development departments. We may not have adequately evaluated the costs and risks associated with this expansion, and our systems, procedures, and controls may not be adequate to support our operations. In addition, our management may not be able to achieve the rapid execution necessary to successfully offer our products and services and implement our business plan on a profitable basis. The success of our future operating activities will also depend upon our ability to expand our support system to meet the demands of our growing business. Any failure by our management to effectively anticipate, implement, and manage changes required to sustain our growth would have a material adverse effect on our business, financial condition, and results of operations. We cannot assure you that we will be able to successfully operate acquired businesses, become profitable in the future or effectively manage any other change. An inability to successfully operate recently acquired businesses and manage existing business would harm our operations. The loss of certain key personnel could significantly harm our business. Our performance is substantially dependent on the services of our executive officers and other key employees, as well as on our ability to recruit, retain and motivate other officers and key employees. Competition for qualified personnel is intense and there are a limited number of people with knowledge of and experience in the electric vehicle industry. The loss of the services of any of our officers or key employees, or our inability to hire and retain a sufficient number of qualified employees, will harm our business. Changes in the law may have a negative impact upon our business. While our products are subject to substantial regulation under federal, state and local laws, we believe that our products are materially in compliance with all laws governing their manufacture, sale and use. However, to the extent the laws change, or if we introduce new products in the future, some or all of our products may not comply with applicable federal, state or local laws. Further, certain federal, state and local laws and industrial standards currently regulate electrical and electronics equipment. Although standards for electric vehicles are not yet generally available or accepted as industry standards, our products may become subject to federal, state and local regulation in the future. Compliance with this regulation could be burdensome, time consuming, and expensive. International expansion may cause problems for us. We intend to expand our business globally. Assuming we conduct this expansion, we may encounter many of the risks associated with international business expansion. These risks include, but are not limited to language barriers, fluctuations in currency exchange rates, political and economic instability, regulatory compliance difficulties, problems enforcing agreements, and greater exposure of our intellectual property to markets where a high probability of unlawful -6- appropriation may occur. A failure to successfully mitigate any of these potential risks could damage our business. We might not be able to retain our Internet address. We currently have the Internet address http://www.zapworld.com. We may not be able to prevent third parties from acquiring Internet addresses that are similar to our address, which could adversely affect our business. Governmental agencies and their designees generally regulate the acquisition and maintenance of Internet addresses. However, the regulation of Internet addresses in the United States and in foreign countries is subject to change. As a result, we may not be able to acquire or maintain relevant Internet addresses in all countries where we conduct business. Our success is heavily dependent on protecting our intellectual property rights. We rely on a combination of patent, copyright, trademark and trade secret protections to protect our proprietary technology. Our success will, in part, depend on our ability to obtain trademarks and patents and to operate without infringing on the proprietary rights of others. We may not be able to do this successfully, however. We hold several patents registered with the United States Patent and Trademark Office. These registrations include both design patents and utility patents. In addition, we have recently submitted provisional patents which may or may not be afforded the limited protection associated with provisional patents. We have also registered numerous trademarks with the United States Patent and Trademark Office, and have several pending at this time. We cannot assure you that the trademarks and patents issued to us will not be challenged, invalidated or circumvented, or that the rights granted under those registrations will provide competitive advantages to us. For example, at the present time one of our patents, covering various aspects of our electric bicycle, is being reexamined by the United States Patent and Trademark Office to determine if one or more of its claims are invalid. If that proceeding results in an adverse ruling, the patent will be declared invalid. If this occurs, this could severely and adversely affect our ability to prevent competitors from copying and using key elements of our technology in developing and marketing their own products. Additionally, we have recently learned that several companies are attempting to sell an electric scooter in the United States which we believe infringes one or more of our patents and trademarks. We have also discovered that at least one company has unlawfully sampled our copyrighted advertising copy. In this regard, we have already begun to incur legal fees in our attempt to prosecute this matter, and, in addition, we may have to incur substantial legal fees and costs in litigating these matters in the future. We also rely on trade secrets and new technologies to maintain our competitive position. Although we have entered into confidentiality agreements with our employees and consultants, we cannot be certain that others will not gain access to these trade secrets. Others may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets. -7- We may be exposed to liability for infringing intellectual property rights of other companies. Although we have conducted searches and are not aware of any patents and trademarks which our products or their use might infringe, we cannot be certain that infringement has not or will not occur. We could incur substantial costs in defending any patent or trademark infringement suits or in asserting any patent or trademark rights, in a suit with another party. -8- USE OF PROCEEDS We will not receive any of the proceeds from the sales of shares of common stock by the Selling Shareholder; however we may receive proceeds from the exercise of any stock options by the Selling Shareholder. To the extent that we receive proceeds from the exercise of these options, we intend to use those funds for working capital. SELLING SHAREHOLDER The Selling Shareholder is Harry Kraatz, who is a member of our Board of Directors and is a financial advisor to Zapworld. The shares the Selling Shareholder may sell through this prospectus consist of 45,000 shares of our common stock which he presently owns and 210,000 shares of our common stock which he may purchase upon the exercise of stock options. We granted the Selling Shareholder these options under the Zapworld.com 1999 Incentive Stock Plan and all of these stock options are Incentive Stock Options as defined in Section 421 of the Internal Revenue Code. All of the options must be exercised in full within ten years of the date they were granted. The dates on which the Selling Shareholder received the options and the exercise prices for the options are as follows: o On October 1, 1998, we granted the Selling Shareholder an option to purchase 10,000 shares at a price of $4.00 per share. The Selling Shareholder has a present right to purchase all of these shares. o On February 22, 1999, we granted the Selling Shareholder an option to purchase 100,000 shares at a price of $5.37 per share. The Selling Shareholder has a present right to purchase all of these shares. o On August 1, 2000, we granted the Selling Shareholder an option to purchase 100,000 shares at a price of $5.25 per share. As of March 1, 2001, 35,556 of these shares have vested. The remaining shares subject to the option vest at a rate of one thirty-sixths (1/36) per month until such time as they all become vested. Further, these options are subject to an accelerated vesting provision whereby an additional 20,000 options shall immediately vest for each $5,000,000 we receive in financing from any sources found by the Selling Shareholder. The following table sets forth the percentage of our outstanding shares which the Selling Shareholder owns or has a right to acquire upon the exercise of stock options. The statement as to the number of outstanding shares is based on the number of shares of common stock outstanding as of March 1, 2001.
Shares Beneficially Owned Shares Beneficially Owned Prior to Offering(1) After Offering(2) Name of Beneficial Owner Number Percent Number Percent Harry Kraatz 255,000 4.1% 0 0 -9- (1) The number of shares of common stock purchasable under the Selling Shareholder's options are assumed to be issued for the purpose of calculating the percentage of the outstanding shares the Selling Shareholder owns, regardless of whether those shares are presently vested. (2) Assumes that the Selling Shareholder sells all of the shares being offered through this prospectus.
PLAN OF DISTRIBUTION The Selling Shareholder may sell the shares of common stock subject to this prospectus from time to time for his own account. The fact that we are registering the sale of these shares does not necessarily mean that the Selling Shareholder will necessary offer or sell any or all of them. The Selling Shareholder will act independently of us in marketing decisions with respect to the timing, manner and size of each sale. The Selling Shareholder may offer and sell the shares from time to time in transactions on The NASDAQ SmallCap Market on terms to be determined at the time of such sales. The Selling Shareholder may also make private transfers directly or through a broker or brokers. Alternatively, the Selling Shareholder may from time to time offer shares of common stock to or through underwriters, dealers or agents, who may receive consideration in the form of discounts and commissions. Such compensation, which may be in excess of normal brokerage commissions, may be paid by the Selling Shareholder and/or purchasers of the shares of common stock for whom such underwriters, dealers or agents may act. The Selling Shareholder and any dealers or agents that participate in the distribution of the shares of common stock offered through this prospectus may be deemed to be "underwriters" within the meaning of Section 2(11) of the Securities Act, and any discounts, commissions or concessions received and any profit realized by them on the resale of shares as principals may be deemed underwriting compensation under the Securities Act. The common stock may be sold from time to time in one or more transactions at a fixed price, which may be changed, or at varying prices determined at the time of such sale or at negotiated prices. We may, from time to time, notify the Selling Shareholder that this prospectus is not current and that sales of the common stock may not occur until the prospectus is supplemented by amendment. To the extent required, the specific shares of common stock to be sold, the respective purchase prices and public offering prices, the names of any agent, dealer or underwriter and any applicable commissions or discounts with respect to a particular offer will be set forth in an accompanying prospectus supplement, or, if appropriate, a post-effective amendment to the registration statement of which this prospectus forms a part. The laws of certain states require that sale of the shares of common stock be conducted solely through brokers or dealers registered in those states. In addition, in certain states the shares of common stock may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption therefrom is available. We will pay substantially all of the expenses incurred in the registration of these shares under the Securities Act of 1933. However, the Selling Shareholder will be responsible for paying any discounts, commissions, transfer taxes and other selling expenses he incurs in the sale of these shares. -10- LEGAL MATTERS The validity of the shares of our common stock will be passed upon for the Selling Shareholder and us by Foley & Lardner, San Francisco, California. William D. Evers, who has been one of our directors since 1999, is special counsel to Foley & Lardner. In 1999 and 2000, Mr. Evers was granted options to purchase 75,000 shares of our common stock at exercise prices ranging from $3.02 to $6.50 per share. EXPERTS Grant Thornton, LLP, independent auditors, have audited our consolidated financial statements and schedules at December 31, 1999, and for each of the two years in the period ended December 31, 1999, as set forth in their report incorporated by reference in this prospectus and registration statement. We have incorporated by reference our financial statements in the prospectus and registration statement in reliance on Grant Thornton, LLP's report, given on their authority as experts in accounting and auditing. WHERE YOU CAN FIND MORE INFORMATION We file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy any reports, statements or other information on file at the SEC's Public Reference Room at 450 Fifth Street, N.W. Washington D.C. 20549. The SEC also maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC, including us. These filings are available to the public on the SEC's Internet site at http://www.sec.gov. INCORPORATION BY REFERENCE We have filed a registration statement on Form S-3 under the Securities Act of 1933 with respect to the shares being offered for sale in this prospectus. This prospectus, which forms a part of the registration statement, does not contain all of the information included in the registration statement. Some information is omitted and you should refer to the registration statement and its exhibits. We are allowed to incorporate by reference the information we file with the SEC, which means we can disclose important information to you by referring to those documents. The information we are incorporating by reference is an important part of this prospectus. The most recent information we file with the Commission automatically updates and supersedes any older information. We incorporate by reference the following documents we have filed or may file with the Commission pursuant to Sections 13, 14 and 15(d) of the Securities Exchange Act until we terminate the offering: o Our Annual Report on Form 10-KSB for the fiscal year ended December 31, 1999, as amended by our Form 10-KSB/A filed May 17, 2000; o Our Quarterly Reports on Form 10-QSB for the quarters ended March 31, 2000, June 30, 2000 (as amended by our Form 10-QSB/A filed August 21, 2000), and September 30, 2000; -11- o Our Proxy Statement for our 2000 Annual Meeting of Shareholders dated June 1, 2000; o Our Current Report on Form 8-K dated January 12, 2001; o The description of our common stock contained in our Registration Statement on Form SB-2 dated February 13, 2001, and any amendment or report updating that description; and o All documents filed by us pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 in the future until the offering of these shares is terminated. You may request a copy of any of these documents at no cost, by writing to us at the following address: Corporate Secretary, Zapworld.com, 117 Morris Street, Sebastopol, California 95472; or you may contact us by telephone at (707) 824-4150. COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES Our Articles of Incorporation and Bylaws provide that we shall indemnify our directors and officers, and may indemnify our other employees and agents, to the fullest extent permitted by California law. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the "Act"), may be afforded to our directors, officers and controlling persons pursuant to our Amended Bylaws and Amended Articles of Incorporation, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. -12- PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 14. Other Expenses of Issuance and Distribution The following table sets forth all expenses payable by the registrant in connection with the sale of the common stock being offered. All the amounts shown are estimates except for the registration fee. Registration fee.............................$ 113.48 Printing and engraving expenses..............$ 1,000.00 Legal fees and expenses......................$ 5,000.00 Accounting Fees and Expenses.................$ 1,500.00 Miscellaneous................................$ 500.00 Total........................................$ 8,113.48 Item 15. Indemnification of Directors and Officers Our Amended Bylaws provide that we may indemnify any director, officer, agent or employee against all expenses and liabilities, including counsel fees, reasonably incurred by or imposed upon such persons in connection with any proceeding to which any such persons may become involved by reason of such persons being or having been a director, officer, employee or agent of our company. Moreover, our Amended Bylaws provide that we shall have the right to purchase and maintain insurance on behalf of any such persons whether or not we would have the power to indemnify such person against the liability insured against. Our Amended Articles of Incorporation provide that we may indemnify our directors and officers to the fullest extent permissible under California law. In accordance with these Articles of Incorporation, the liability of our directors for monetary damages is eliminated to the fullest extent permissible under California law. Item 16. Exhibits Exhibit No. Exhibit (4.1) Articles of Incorporation of ZAP Power Systems, endorsed and filed on September 23, 1994, defining the rights of holders of capital stock. (4.2) Certificate of Amendment to Articles of Incorporation of ZAP Power Systems, endorsed and filed on November 8, 1996. (4.3) Certificate of Amendment of Articles of Incorporation of ZAP Power Systems, endorsed and filed on June 2, 1999. (4.4) Certificate of Amendment of Articles of Incorporation of Zapworld.com, endorsed and filed June 28, 2000. (4.5) Certificate of Determination of Rights and Preferences of the Series A-1 Convertible Preferred Stock and Series A-2 Convertible Preferred Stock, endorsed and filed June 28, 2000. -13- Exhibit No. Exhibit (4.6) Certificate of Amendment of Articles of Incorporation of Zapworld.com, endorsed and filed February 26, 2001. (4.7) Amended Bylaws of Zapworld.com, dated June 24, 2000, defining the rights of holders of capital stock. (4.8) Zapworld.com 1999 Incentive Stock Plan. (5.1) Opinion of Foley & Lardner. (23.1) Consent of Grant Thornton, LLP. (23.2) Consent of Foley & Lardner. Item 17. Undertakings a) The Registrant hereby undertakes that it will: 1) File, during any period in which it offers or sells securities, a post-effective amendment to this registration statement to include any additional or changed material information on the plan of distribution. 2) For determining liability under the Securities Act, treat each post-effective amendment as a new registration statement of the securities offered, and the offering of the securities at that time to be the bona fide offering. 3) File a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the Offering. -14- SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this registration statement to be signed on its behalf by the undersigned thereunto duly authorized, in the City of Sebastopol, State of California, on March 5, 2001. Zapworld.com By: /s/ Gary Starr Gary Starr Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated. Signature Title Date /s/ Gary Starr Chief Executive Officer, Chief March 5, 2001 - ---------------- Financial Officer, and Director Gary Starr /s/ Robert E. Swanson Chairman of the Board March 5, 2001 - ----------------------- and Director Robert E. Swanson /s/ William D. Evers Director March 5, 2001 - ---------------------- William D. Evers /s/ Harry Kraatz Director March 5, 2001 - ------------------ Harry Kraatz -15- EX-4.1 2 0002.txt ARTICLES OF INCORPORATION 1913349 ENDORSED FILED In the office of the Secretary of State of the State of California SEP 23 1994 TONY MILLER, Acting Secretary of State ARTICLES OF INCORPORATION OF ZAP POWER SYSTEMS ONE: The name of this corporation is ZAP POWER SYSTEMS. TWO: The purpose of this corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code. THREE: The name and address in this state of the corporation's initial agent for service of process is Gary Starr, 6933 Nolan Rd., Forestville, California 95436. FOUR: This corporation is authorized to issue only one class of shares of stock which shall be designated common stock. The total number of shares it is authorized to issue is 1,000,000 shares. FIVE: The names and addresses of the persons who are appointed to act as the initial directors of this corporation are: James McGreen 2235 Clement St., Alameda, California 94501 Gary Starr 6933 Nolan Rd., Forestville, California 95436 Nancy K. Cadigan 2235 Clement St., Alameda, California 94501 Susan Bryer Starr 6933 Nolan Rd., Forestville, California 95436 SIX: The liability of the directors of the corporation for monetary damages shall be eliminated to the fullest extent permissible under California law. SEVEN: The corporation is authorized to indemnify the directors and officers of the corporation to the fullest extent permissible under California law. IN WITNESS WHEREOF, the undersigned, being all the persons named above as the initial directors, have executed these Articles of Incorporation. Dated: September 21, 1994 /s/ JAMES McGREEN ------------------------------------- James McGreen /s/ GARY STARR ------------------------------------- Gary Starr /s/ NANCY K. CADIGAN ------------------------------------- Nancy K. Cadigan /s/ SUSAN BRYER STARR ------------------------------------- Susan Bryer Starr -2- The undersigned, being all the persons named above as the initial directors, declare that they are the persons who executed the foregoing Articles of Incorporation, which execution is their act and deed. Dated: September 21, 1994 /s/ JAMES McGREEN ------------------------------------- James McGreen /s/ GARY STARR ------------------------------------- Gary Starr /s/ NANCY K. CADIGAN ------------------------------------- Nancy K. Cadigan /s/ SUSAN BRYER STARR ------------------------------------- Susan Bryer Starr EX-4.2 3 0003.txt CERTIFICATE OF AMENDMENT A483656 ENDORSED--FILED In the office of the Secretary of State of the State of California NOV 08 1996 BILL JONES, Secretary of State CERTIFICATE OF AMENDMENT TO ARTICLES OF INCORPORATION OF ZAP POWER SYSTEMS JAMES McGREEN and GARY STARR certify that: 1. They are the Chief Executive and Chief Financial Officers of ZAP POWER SYSTEMS, a California corporation. 2. The Board of Directors of ZAP POWER SYSTEMS has approved the following amendment to Article FOUR of the Articles of Incorporation of the corporation: ARTICLE FOUR: This corporation is authorized to issue only one class of shares of stock which shall be designated common stock. The total number of shares it is authorized to issue is 10,000,000 (ten million) shares. 3. The amendment has been approved by the required vote of the shareholders in accordance with Section 902 of the California Corporations Code. The corporation has only one class of shares. Each outstanding share is entitled to one vote. The corporation has 712,790 shares outstanding and, hence, the total number of shares entitled to vote with respect to the amendment was 712,790. The number of shares voting in favor of the amendment exceeded the vote required, in that the affirmative vote of the majority, that is, more than 50 percent of the outstanding shares was required for approval of the amendment and the amendment was approved by the affirmative vote of 581,830 shares, or slightly more than 81% percent of the outstanding voting shares. Each of the undersigned declares under penalty of perjury that the matters set forth in the foregoing certificate are true and correct of their own knowledge and that this declaration was executed on: Date: 10/10/96 /s/ James McGreen ------------------------------- James McGreen, Director/Chief Executive Officer Date: 10/10/96 /s/ Gary Starr ------------------------------- Gary Starr, Director/Chief Financial Officer Date: 10/10/96 /s/ Nancy Cadigan ------------------------------- Nancy Cadigan, Director Date: /s/ Lee Sannella ------------------------------- Lee Sannella, Director Date: 10/10/96 /s/ Jessalyn Nash ------------------------------- Jessalyn Nash, Director -2- EX-4.3 4 0004.txt CERTIFICATE OF AMENDMENT A0526118 ENDORSED--FILED In the office of the Secretary of State of the State of California JUN 2 1999 Bill Jones, Secretary of State CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION OF ZAP POWER SYSTEMS James McGreen and Nancy K. Cadigan hereby certify that: 1. They are the President and Secretary, respectively, of ZAP Power Systems, a California corporation. 2. Article I of the Articles of Incorporation of this corporation is amended to read as follows: "The name of this corporation is "ZAPWORLD.COM" 3. The foregoing amendment of Articles of Incorporation has been duly approved by the Board of Directors as being advisable for adoption. 4. The foregoing amendment of Articles of Incorporation has been duly approved by the required vote of shareholders in accordance with Section 902, Corporations Code. The total number of outstanding shares of the corporation is 3,679,566. There are no outstanding shares of preferred stock. The number of shares voting in favor of the amendment exceeded the vote required. The percentage vote required was more than fifty percent (50%). We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct to our knowledge. DATED: May 26, 1999 /s/ James McGreen ------------------------------ James McGreen, President /s/ Nancy K. Cadigan ------------------------------ Nancy K. Cadigan, Secretary EX-4.4 5 0005.txt CERTIFICATE OF AMENDMENT A0548534 ENDORSED--FILED in the office of the Secretary of State of the State of California JUN 28 2000 Bill Jones, Secretary of State CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION OF ZAPWORLD.COM A California corporation The undersigned certify that: 1. They are the President and Secretary of ZAPWORLD.COM, a California corporation (the "Corporation"). 2. The Articles of Incorporation of the Corporation dated September 21, 1994 and filed with the California Secretary of State on September 23, 1994 under File No. 1913349, as amended by Certificate of Amendment of Articles of Incorporation dated October 10, 1996 and filed with the California Secretary of State on November 8, 1996 under File No. A483656, and as amended by Certificate of Amendment of Articles of Incorporation dated May 26, 1999 and filed with the California Secretary of State on June 2, 1999 under File No A0526118, are hereby amended as follows: 3. Article FOUR is deleted and the text stated below is inserted in its place: Four (a) The corporation is authorized to issue two classes of stock, designated `Common Stock' and `Preferred Stock,' respectively. The number of shares of Common Stock the corporation is authorized to issue is ten million (10,000,000). The number of shares of Preferred Stock the corporation is authorized to issue is ten million (10,000,000). (b) The Preferred Stock may be divided into such number of series as the board of directors may determine. The board of directors is authorized to determine and alter the rights, preferences, privileges, and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock, and to fix the number of shares and the designation of any series of Preferred Stock. The board of directors may, within the limits stated in any resolution or resolutions of the board of directors originally fixing the number of shares constituting any series, increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any series subsequent to the issue of shares of that series." 4. The foregoing amendment of Articles of Incorporation has been duly approved by the Board of Directors. 5. The foregoing amendment of Articles of Incorporation has been duly approved by the required vote of shareholders in accordance with Section 902, California Corporations Code. The total number of outstanding shares of Common Stock of the Corporation is 5,226,594. There are no outstanding shares of Preferred Stock. The number of outstanding shares of Common Stock voting in favor of the amendment exceeded the vote required. The percentage vote required was more than fifty percent (50%). The undersigned further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge. Date: June 26, 2000 /s/ John Dabels ------------------------------- John Dabels, President /s/ Oonagh Duggan ------------------------------- Oonagh Duggan, Secretary -2- EX-4.5 6 0006.txt CERTIFICATE OF DETERMINATION ANNEX I TO SECURITIES PURCHASE AGREEMENT CERTIFICATE OF DETERMINATION OF RIGHTS AND PREFERENCES OF THE SERIES A-1 CONVERTIBLE PREFERRED STOCK AND SERIES A-2 CONVERTIBLE PREFERRED STOCK OF ZAPWORLD.COM The undersigned, GARY STARR and OONAGH DUGGAN, hereby certify that: 1. They are the duly elected and acting President and Secretary, respectively of Zapworld.com, a California corporation (the "Company"). 2. The Company is authorized to issue ten million (10,000,000) shares of Preferred Stock. 3. Under authority given by the Company's Articles of Incorporation, the Board of Directors has duly adopted the following recitals and resolutions. 4. The authorized number of shares of Series A-1 Convertible Preferred Stock (the "Initial Preferred Stock") is 3,000, none of which is presently outstanding, and the authorized number of shares of Series A-2 Convertible Preferred Stock (the "Series A-2 Convertible Preferred Stock") is 2,000, none of which is presently outstanding: WHEREAS, the Articles of Incorporation of the Company, as amended, authorized the Company to issue up to ten million (10,000,000) shares of Preferred Stock in one or more series, and authorize the Board of Directors of the Company to fix the number of shares constituting any such series, to determine the designation thereof, and to determine the rights, preferences, privileges and restrictions granted to or imposed on such series; and WHEREAS, the Company has not issued any shares of Preferred Stock and the Board of Directors desires to designate a series of Preferred Stock, to fix the number of shares constituting the series, and to determine the rights, preferences, privileges and restrictions relating to this series; RESOLVED, that the Board of Directors hereby designates three thousand (3,000) shares of Preferred Stock as Series A-1 Convertible Preferred Stock, $1,000 Par Value and two thousand hundred (2,000) shares of Preferred Stock as Series A-2 Convertible Preferred Stock, $1,000 Par Value (collectively the "Preferred Stock"), with the rights, preferences, privileges and restrictions set forth below. I. CERTAIN DEFINITIONS For purposes of this Certificate of Determination, the following terms shall have the following meanings: A. "Additional Closing Date" means the date of the closing of the purchase and sale of the Additional Preferred Stock, as provided herein. B. "Buy-In Adjustment Amount" means the amount equal to the excess, if any, of (i) the Converting Holder's total purchase price (including brokerage commissions, if any) for the Covering Shares (as defined in Article III Paragraph B(7)) over (ii) the net proceeds (after brokerage commissions, if any) received by the Converting Holder (as defined in Article III Paragraph B(7)) from the sale of the Sold Shares. By way of illustration and not in limitation of the foregoing, if the Converting Holder purchases shares of Common Stock having a total purchase price (including brokerage commissions) of $11,000 to cover a Buy-In (as defined in Article III Paragraph B(7)) with respect to shares of Common Stock it sold for net proceeds of $10,000, the Buy-In Adjustment Amount which the Company will be required to pay to the Converting Holder will be $1,000. C. "Closing Bid Price" means the closing bid price of the Common Stock (in U.S. Dollars) on the Principal Trading Market as reported by Bloomberg LP or if that service is not then reporting the relevant information regarding the Common Stock, a comparable reporting service of national reputation selected by the Holders of the Preferred Stock and reasonably acceptable to the Company. If the Closing Bid Price cannot be calculated for such security on the relevant date on the foregoing basis, the Closing Bid Price of such security on such date shall be the fair market value as reasonably determined by an investment banking firm selected by Holders of a majority of the then outstanding shares of Preferred Stock and reasonably acceptable to the Company, with the costs of such appraisal to be borne by the Company. The manner of determining the Closing Bid Price of the Common Stock set forth in the foregoing definition shall apply with respect to any other security in respect of which a determination as to closing bid price must be made hereunder. D. "Closing Date" means the Initial Closing Date or the Additional Closing Date, as the case may be. E. "Common Stock" means the Company's common stock, no par value per share. F. "Conversion Price" means, with respect to any relevant date, in the event the Closing Date of the Initial Preferred Stock is on or before Friday, June 23, 2000, the Conversion Price for the Initial Preferred Stock shall be $4.50 per share. The Conversion Price for (1) the Initial Preferred Stock, if the Closing Date of the Initial Preferred Stock is after Wednesday, June 21, 2000, and (2) the Series A-2 Preferred Stock, shall be the lesser of (i) the Fixed Conversion Price or (ii) the Variable Conversion Price, which is in effect as of such date. G. "Effective Date" shall mean the date the relevant Registration Statement for the shares of Common Stock issuable on conversion of the Preferred Stock is declared effective by the Securities and Exchange Commission. H. "Fixed Conversion Price" means 110% of the Closing Bid Price of the Common Stock on the trading day immediately preceding the Closing Date of the Initial Preferred Stock, which amount shall be subject to the adjustment as provided herein. I. "Holder" means a person or entity holding shares of the Preferred Stock. J. "Initial Closing Date" means the date of the closing of the purchase and sale of the Initial Preferred Stock, as provided herein. K. "Junior Securities" means (i) any class or series of capital stock of the Company authorized prior to the filing of this Certificate of Determination that, by its terms, ranks junior to the Preferred Stock as to distribution of assets upon liquidation, dissolution or winding up of the Company, whether voluntary or involuntary and (ii) all classes or series of capital stock of the Company authorized after the filing of this Certificate of Determination, unless consented to as provided herein in each instance, each of which shall rank junior to the Preferred Stock as to distribution of assets upon liquidation, dissolution or winding up of the Company, whether voluntary or involuntary. L. "Liquidation Preference" means, with respect to a share of Preferred Stock, an amount equal to the Stated Value thereof, plus the accrued and unpaid dividends thereon through the date of final distribution. M. "Market Price," means, (i) as of any date between the day after the relevant Closing Date and the second annual anniversary of such Closing Date, the average of the Closing Bid Price (in U.S. Dollars) during the twenty-two (22) consecutive trading days ending on the trading day immediately preceding the relevant date (subject to equitable adjustment for any stock splits, stock dividends, reclassifications or similar events during such 22 trading day period), (ii) as of any date thereafter and through and including the day prior to the Maturity Date, the average of the Closing Bid Price (in U.S. Dollars) during the forty-five (45) consecutive trading days ending on the trading day immediately preceding the relevant date (subject to equitable adjustment for any stock splits, stock dividends, reclassifications or similar events during such 45 trading day period). N. "Maturity Date" means the date which is thirty-six (36) months after the Closing Date of the Initial Preferred Stock. O. "Pari Passu Securities" means any class or series of capital stock of the Company hereafter created specifically ranking, by its terms, on parity with the Preferred Stock as to distribution of assets upon liquidation, dissolution or winding up of the Company, whether voluntary or involuntary. P. "Principal Trading Market" means The Nasdaq/SmallCap Market, or if the Common Stock is no longer listed on that market, the principal securities exchange or trading market on which the Common Stock is listed or traded. Q. "Securities" means the Preferred Stock, the Warrants and the Common Stcok issuable upon conversion of the Preferred Stock or the exercise of the Warrants. R. "Senior Securities" means each class or series of capital stock of the Company authorized prior to the original filing of this Certificate of Determination that, by its terms, is senior to the Preferred Stock as to distribution of assets upon liquidation, dissolution or winding up of the Company, whether voluntary or involuntary. S. "Stated Value" for the Preferred Stock shall be $1,000.00 per share. T. "Variable Conversion Price" means, with respect to a Conversion Date which occurs (i) after the relevant Closing Date and on or before the first year anniversary of such Closing Date, the amount equal to eighty-five percent (85%) of the average of the three (3) lowest Closing Bid Prices over the twenty-two (22) trading days prior to the Conversion Date, (ii) thereafter and on or before the second year anniversary of the relevant Closing Date, the amount equal to eighty percent (80%) of the average of the three (3) lowest Closing Bid Prices over the twenty-two (22) trading days prior to the Conversion Date, and (iii) thereafter and on or before the day prior to the Maturity Date, the amount equal to seventy percent (70%) of the average of the lowest Closing Bid Prices over the forty-five (45) days prior to the Conversion Date. II. DIVIDENDS A. Generally. The Holders of the Preferred Stock shall be entitled to receive a dividend which shall accumulate at a rate of 6% per annum. Except as described below, the dividend shall be payable upon June 30 of each year (the "Dividend Payment Date"). The dividend shall accrue on a daily basis and shall be payable in cash or in Common Stock at the Company's option. Such dividends shall be payable in preference to dividends on any Common Stock or stock of any class ranking, as to dividend rights, junior to the Preferred Stock, and shall be junior as to payment of dividends to the Senior Securities. Dividends shall be fully cumulative and shall accrue (whether or not declared and whether or not there shall be funds legally available for the payment of dividends) daily (based on a 365-day year), without interest, and shall be payable on the Dividend Payment Date unless such payment would be in violation of the California Corporations Code. B. Dividend on Conversion Date. Upon conversion of shares of the Preferred Stock, the Holder of those shares shall receive a payment equal to the prorated amount of the unpaid dividend which accrued through the Conversion Date. C. Dividends Paid In Common Stock. If paid in Common Stock, the number of shares of Common Stock to be received shall be determined by dividing the dollar amount of the dividend by the Conversion Price on the Dividend Payment Date. If the dividend is to be paid in Common Stock, said Common Stock shall be delivered to the Holder, or per Holder's instructions, (i) if being issued in connection with a conversion, at the same time as the Conversion Certificates pursuant to Paragraph B(1) of Article III of this Certificate of Determination, and (ii) with respect to all other instances, within four (4) business days after the Dividend Payment Date (such fourth business date, a "Delivery Date"). The certificates representing the dividends so paid are referred to as "Conversion Certificates." D. Dividends Paid In Cash. If the dividend is to be paid in cash, the Company shall make such payment on the Dividend Payment Date. If the dividend is not paid on the Dividend Payment Date, the dividend must be paid in Common Stock in accordance with the provisions of this Certificate of Determination, unless the Holder consents otherwise in each specific instance. III. CONVERSION A. Conversion at the Option of the Holder. Subject to the limitations on conversions contained in Paragraph C of this Article III, each Holder of shares of Preferred Stock may, at any time and from time to time convert (an "Optional Conversion") each of its shares of Preferred Stock into a number of fully paid and non-assessable shares of Common Stock determined in accordance with the following formula: Stated Value of Shares to Be Converted Conversion Price B. Mechanics of Conversion. Conversion shall be effectuated by faxing a Notice of Conversion in the form attached hereto as Exhibit A ("Notice of Conversion") to the Company as provided in this Paragraph. The Notice of Conversion shall be executed by the Holder of one or more shares of Preferred Stock and shall evidence such Holder's intention to convert all or a portion of such shares. The date of conversion (the "Conversion Date") shall be deemed to be the date on which the Holder faxes or otherwise delivers a conversion notice to the Company so that it is received by the Company on or before such specified date, provided that, the Holder shall deliver to the Company the certificate or certificates representing the shares being converted (the "Converted Shares") no later than five (5) business days thereafter. 1. Delivery of Common Stock Upon Conversion. Certificates representing the Common Stock issuable on conversion of the Preferred Stock (the "Conversion Certificates") will be delivered to the Converting Holder at the address specified in the Notice of Conversion (which may be the Converting Holder's address for notices or a different address), via express courier, by electronic transfer or otherwise, within three (3) business days (such third business day, a "Delivery Date") after the later of (i) the date on which the Notice of Conversion is delivered to the Company as contemplated in this Paragraph or the Maturity Date, or (ii) the date on which the Converted Shares are delivered to the Company. 2. Taxes. The Company shall pay any and all taxes which may be imposed upon the Company with respect to the issuance and delivery of the shares of Common Stock upon the conversion of the Preferred Stock other than transfer taxes due upon conversion, if such Holder has transferred to another party the Preferred Stock or the right to receive Common Stock upon the Holder's conversion thereof or any or income taxes due on the part of the Holder. The Company shall have the right to withhold any taxes as required by the United States federal or state tax laws. 3. No Fractional Shares. If any conversion of Preferred Stock would result in the issuance of a fractional share of Common Stock, such fractional share shall be disregarded and the number of shares of Common Stock issuable upon conversion of the Preferred Stock shall be rounded up or down to the nearest whole share, it being understood that .5 of one share shall be rounded up to the next highest share. 4. Conversion Disputes. In the case of any dispute with respect to a conversion, the Company shall promptly issue such number of shares of Common Stock as are not disputed in accordance with Paragraph A of Article III above. If such dispute involves the calculation of the Conversion Price, the Company shall first discuss such discrepancy with the Converting Holder. If the Company and the Converting Holder are unable to agree upon the Conversion Price calculation, the Company shall promptly submit the disputed calculations to independent auditors, which shall be one of the major accounting firms or another firm reasonably acceptable to Holders of a majority of the Preferred Stock. The auditors, at the expense of the party in error, shall audit the calculations and notify the Company and the Holder of the results as soon as practicable following the date it receives the disputed calculations. The auditor's calculation shall be deemed conclusive, absent manifest error. The Company shall then issue the appropriate number of shares of Common Stock in accordance with Paragraph A of Article III above. 5. Delay in Delivering Conversion Certificates. The Company understands that a delay in the delivery of the Conversion Certificates beyond the Delivery Date could result in economic loss to a Holder. As compensation to a Holder for such loss, the Company agrees if there is a delay in the delivery of the Conversion Certificates (as adjusted in accordance with this provision) so that such Conversion Certificates are not received within five (5) business days after the Delivery Date, to pay late payments to such Holder for late delivery of Conversion Certificates in accordance with the following schedule (where "No. Business Days Late" is defined as the number of business days beyond five (5) business days after the Delivery Date): Late Payment For Each $10,000 of Liquidation Preference or Dividend Amount No. Business Days Late Being Converted ---------------------------- ------------------------------------------ 1 $100 2 $200 3 $300 4 $400 5 $500 6 $600 7 $700 8 $800 9 $900 10 $1,000 >10 $1,000 +$200 for each Business Day Late beyond 10 days The Company shall pay any payments incurred under this Paragraph in immediately available funds upon demand. For purposes of this Paragraph B(5) of Article III, in connection with a Automatic Conversion (as those terms are defined below), the term "Delivery Date" shall refer to the earlier of (i) the Delivery Date determined in relation to a Notice of Conversion actually submitted by the Holder to the Company or (ii) the four business date after written notice from the Holder that the delivery of shares to the Holder in connection with a Automatic Conversion has not been accomplished. Nothing herein shall limit the Holder's right to pursue actual damages for the Company's failure to issue and deliver the Conversion Certificates to the Holder within a reasonable time. Furthermore, in addition to any other remedies which may be available to a Holder, in the event that the Company fails for any reason to effect delivery of such Conversion Certificates within four (4) business days after the Delivery Date, the Converting Holder will be entitled to revoke the relevant Notice of Conversion by delivering a notice to such effect to the Company whereupon the Company and the Converting Holder shall each be restored to their respective positions immediately prior to delivery of such Notice of Conversion. 6. Buy-In. If, by the relevant Delivery Date, the Company fails for any reason to deliver the Conversion Certificates and after such Delivery Date, the Holder of the Preferred Stock being converted (a "Converting Holder") purchases, in an arm's-length open market transaction or otherwise, shares of Common Stock (the "Covering Shares") in order to make delivery in satisfaction of a sale of Common Stock by the Converting Holder (the "Sold Shares"), which delivery such Converting Holder anticipated to make using the shares to be issued upon such conversion (a "Buy-In"), the Converting Holder shall have the right, to require the Company to pay to the Converting Holder, in addition to and not in lieu of the amounts due under Paragraph B(5) of Article III hereof, the Buy-In Adjustment Amount. The Company shall pay the Buy-In Adjustment Amount to the Converting Holder in immediately available funds immediately upon demand by the Converting Holder. 7. DWAC Certificate Delivery. In lieu of delivering physical certificates representing the Common Stock issuable upon conversion, provided the Company's transfer agent is participating in the Depository Trust Company ("DTC") Fast Automated Securities Transfer program, upon request of a Converting Holder and his/her compliance with the provisions contained in this paragraph, so long as the certificates therefor do not bear a legend and the Converting Holder thereof is not obligated to return such certificate for the placement of a legend thereon, the Company shall use its best efforts to cause its transfer agent to electronically transmit the Common Stock issuable upon conversion to the Converting Holder by crediting the account of Converting Holder's prime broker with DTC through its Deposit Withdrawal Agent Commission system. 8. Conversion Default. If, at any time: a. the Company challenges, disputes or denies the right of a Holder of Preferred Stock to effect a conversion of the Preferred Stock Preferred Stock into Common Stock or otherwise dishonors or rejects any Notice of Conversion delivered in accordance with the terms of this Certificate of Determination, or b. any third party who is not and has never been an affiliate of such Holder commences any lawsuit or proceeding or otherwise asserts any claim before any court or public or governmental authority, which lawsuit, proceeding or claim seeks to challenge, deny, enjoin, limit, modify, delay or dispute the right of such Holder to effect the conversion of the Preferred Stock into Common Stock, and the Company refuses to honor any such Notice of Conversion, then such Holder shall have the right, by written notice to the Company, to require the Company to redeem each share of Preferred Stock for cash at a redemption price (the "Mandatory Purchase Amount") equal to the Cap Redemption Amount (as defined in Article V Paragraph B) of the unconverted Preferred Stock held by such Holder, provided, however, that the Company shall have a period of sixty (60) days within which to (i) have the lawsuit or proceeding dismissed and honor the Conversion Notice, or (ii) raise the capital required to redeem the Mandatory Purchase Price, as the case may be. Under any of the circumstances set forth above, the Company shall be responsible fore the payment of all costs and expenses of such holder, including, but not necessarily limited to, reasonable legal fees and expenses, as and when incurred in connection with such holder's disputing any such action or pursuing such Holder's rights hereunder (in addition to any other rights such Holder may have hereunder or otherwise). The Mandatory Purchase Amount will be payable to such Holder in cash within five (5) business days from the date such Holder give the Company written notice that it is exercising its rights under this paragraph. 9. Conversion in Bankruptcy. The Holder of any Preferred Stock Preferred Stock shall be entitled to exercise its conversion privilege with respect to the Preferred Stock notwithstanding the commencement of any case under 11 U.S.C.ss.101 et seq. (the "Bankruptcy Code"). In the event the Company is a debtor under the Bankruptcy Code, the Company hereby waives, to the fullest extent permitted, any rights to relief it may have under 11 U.S.C.ss.362 in respect of such Holder's conversion privilege. The Company hereby waives, to the fullest extent permitted, any rights to relief it may have under 11 U.S.C.ss.362 in respect of the conversion of the Preferred Stock. The Company agrees, without cost or expense to such Holder, to take or to consent to any and all action necessary to effectuate relief under 11 U.S.C.ss.362. C. Automatic Conversion Upon Maturity. Any shares of Preferred Stock not previously converted or redeemed as of the Maturity Date, shall be automatically converted (an "Automatic Conversion"), without further action of any kind (including, but not necessarily limited to, the giving of a Notice of Conversion) by the Holder, as of the Maturity Date at the Conversion Price applicable on the Maturity Date. D. Intentionally Omitted. E. Limitations on Conversions. The conversion of shares of Preferred Stock shall be subject to the following limitations (each of which limitations shall be applied independently): 1. Cap Regulations. If the Company is limited in the number of shares of Common Stock it may issue by virtue of (i) the number of authorized shares or (ii) the applicable rules and regulations of its Principal Trading Market, including, but not necessarily limited to, Nasdaq Rule 4310(c)(25)(H)(i) or Rule 4460(i)(1), as may be applicable (collectively, the "Cap Regulations") the Company will take all steps reasonably necessary to be in a position to issue shares of Common Stock on conversion of the Preferred Stock without violating the Cap Regulations. If at any time after the expiration of ??? days from the date a Holder has exercised a right pursuant to which the last share of Common Stock issuable under the Cap Regulations is to be issued, the then issuable number of shares of Common Stock upon conversion of all of the then outstanding Preferred Stock pursuant to the Cap Regulations (the "Cap Amount") is less than the number of shares of Common Stock which would then be otherwise issuable upon conversion of all of the then outstanding shares of Series A Preferred Stock without regard to such Cap Regulations (a "Trading Market Trigger Event"), the Company shall immediately notify the Holders of Preferred Stock of such occurrence and shall take immediate action (including, if necessary, seeking the approval of its shareholders to authorize the listing or issuance of the full number of shares of Common Stock which would be issuable upon the conversion of the then outstanding shares of Preferred Stock but for the Cap Amount) to eliminate any prohibitions under applicable law or the rules or regulations of any stock exchange, inter-dealer quotation system or other self-regulatory organization with jurisdiction over the Company or any of its securities on the Company's ability to list or issue shares of Common Stock in excess of the Cap Amount ("Trading Market Prohibitions"). In this event, the Holder of a share of Preferred Stock which can not be converted as result of the Cap Regulations after all such Preferred Stock which can be converted under the Cap Amount have been converted (each such share, an "Unconverted Share") shall have the option, exercisable in such Holder's sole and absolute discretion, to elect either of the following remedies: a. If permitted by the Cap Regulations, require the Company to issue shares of Common Stock in accordance with such holder's Notice of Conversion at a conversion purchase price equal to the average of the closing price per share of Common Stock for the three (3) consecutive trading days immediately preceding the date of Notice of Conversion; or b. Require the Company to redeem each Unconverted Share for cash, at an amount per share equal to the Redemption Amount (as defined in Article V Paragraph B), pursuant to the provisions of Article V hereof, such Redemption Amount shall be paid in cash by the Company to the Holder within five (5) business days after the date the Holder notifies the Company in writing of the Holder's election to pursue this remedy. A Holder of more than one Unconverted Share may elect one of the above remedies with respect to some of such Unconverted Shares and the other remedy with respect to other Unconverted Shares. Anything herein to the contrary notwithstanding, the remedy contained in clauses (a) and (b) of this Paragraph E(1) of this Article III shall not be available to the Holder of such shares until after the expiration of 60 days from the date a Holder has exercised a right pursuant to which the last share of Common Stock issuable under the Cap Regulations is to be issued. The Cap Limitation Redemption Amount payable under the provisions of this Paragraph E(1) of this Article III shall be payable within ten (10) days after the Redemption Date. If prior to such date, the Cap Regulations no longer apply to limit the Company's issuance of shares of Common Stock in connection with the Preferred Stock, the remedies contained clauses (a) and (b) of this Paragraph E(1) of this Article III shall not be exercisable by a Holder. 2. No Ten Percent Holders. Notwithstanding any other provision hereof, in no event (except (i) with respect to an Automatic Conversion, if any, of the shares of Preferred Stock as described in Article III Paragraph C hereof, (ii) as specifically provided in this Certificate of Determination as an exception to this provision, (iii) while there is outstanding a tender offer for any or all of the shares of the Company's Common Stock, or (iv) on at least seventy-five (75) days' advance written notice from the Holder to the Company of the Holder's election to cancel this Section E(2) of Article III) shall the Holder be entitled to convert any share of the Holder's Preferred Stock, or shall the Company have the obligation to convert such share (and the Company shall not have the right to pay dividends on shares of Preferred Stock in shares of Common Stock), to the extent that, after such conversion or issuance of stock in payment of dividends, the sum of (a) the number of shares of Common Stock beneficially owned by the Holder and its affiliates, and (b) the number of shares of Common Stock issuable upon the conversion of the shares of Preferred Stock with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Holder and its affiliates of more than 9.99% of the outstanding shares of Common Stock (after taking into account the shares to be issued to the Holder upon such conversion). For purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the "1934 Act"). If the Holder transfers or assigns any shares of the Preferred Stock to a party who or which would not be considered such an affiliate, such assignment shall be made subject to the transferee's or assignee's specific agreement to be bound by the provisions of this Paragraph D(2) of Article III as if such transferee or assignee were the original Holder hereof. Nothing herein shall preclude the Holder from disposing of a sufficient number of other shares of Common Stock beneficially owned by the Holder so as to thereafter permit the continued conversion of the shares of Preferred Stock. IV. RESERVATION OF SHARES OF COMMON STOCK A. Reserved Amount. Upon the initial issuance of the shares of Preferred Stock, the Company shall reserve out of the authorized but unissued shares of Common Stock for issuance upon conversion of the Preferred Stock such number of shares equal to 200% of the number of shares which would be issuable if all of the authorized shares of Preferred Stock were converted in their entirety on the Closing Date of the Initial Preferred Stock based on the Conversion Price in effect on that date and thereafter the number of authorized but unissued shares of Common Stock so reserved (the "Reserved Amount") shall not be decreased, but may be increased pursuant to Paragraph B of this Article IV, and shall at all times be sufficient to provide for the conversion of the Preferred Stock outstanding at the then current Conversion Price thereof. The Reserved Amount shall be allocated to the holders of Preferred Stock as provided in Article IX Paragraph D. B. Increases to Reserved Amount. If the Reserved Amount for any ten (10) consecutive trading days (the last of such ten (10) trading days being the "Authorization Trigger Date") shall be less than 150% of the number of shares of Common Stock issuable upon conversion of the then outstanding shares of Preferred Stock, the Company shall immediately notify the holders of Preferred Stock of such occurrence and shall take immediate action (including, if necessary, seeking shareholder approval to authorize the issuance of additional shares of Common Stock) to increase the Reserved Amount to 200% of the number of shares of Common Stock then issuable upon conversion of the outstanding Preferred Stock. In the event the Company fails to so increase the Reserved Amount within 90 days after an Authorization Trigger Date (such event being the "Reserved Amount Trigger Event"), each Holder of Preferred Stock shall thereafter have the option, exercisable in whole or in part at any time and from time to time by delivery of a Redemption Notice (as defined in Article V Paragraph C) to the Company, to require the Company to purchase for cash, at an amount per share equal to the Redemption Amount (as defined in Article V Paragraph B), a portion of the holder's Preferred Stock such that, after giving effect to such purchase, the holder's allocated portion of the Reserved Amount equals or exceeds 200% of the total number of shares of Common Stock issuable to such Holder upon conversion of its Preferred Stock. If the Company fails to redeem any of such shares within five (5) business days after its receipt of such Redemption Notice, then such Holder shall be entitled to the remedies provided in Article V Paragraph A(2). C. Limitations on Redemption Right. Notwithstanding the provisions of Paragraph B of this Article IV, the holders of Preferred Stock shall have no right to require the Company to effect a redemption of their outstanding shares of Preferred Stock as provided in Paragraph B of this Article IV so long as (i) the Company has not, at any time, decreased the Reserved Amount below that number of shares of Common Stock computed as set forth in Paragraphs A and B of this Article IV; (ii) the Company shall have taken immediate action following the applicable Authorization Trigger Date (including, if necessary, seeking stockholder approval to authorize the issuance of additional shares of Common Stock) to increase the Reserved Amount to 200% of the number of shares of Common Stock then issuable upon conversion of the outstanding Preferred Stock; and (iii) the Company continues to use its commercially reasonable good faith best efforts (including the resolicitation of stockholder approval to authorize the issuance of additional shares of Common Stock) to increase the Reserved Amount to 200% of the number of shares of Common Stock then issuable upon conversion of the outstanding Preferred Stock. The Company will be deemed to be using "its commercially reasonable good faith best efforts" to increase the Reserved Amount so long as it solicits stockholder approval to authorize the issuance of additional shares of Common Stock not less than two (2) times during each twelve month period following the applicable Authorization Trigger Date during which any shares of Preferred Stock remain outstanding; provided that no such limitation on the redemption rights set out in Paragraph B of this Article IV, shall be effective if the Company fails to obtain stockholder approval after two (2) attempts. V. REDEMPTION A. Redemption by Holder. In the event that any of the following occur (individually, a "Redemption Event"): 1. Cap Regulations. The Company's inability to issue sufficient shares of Common Stock upon conversion of Unconverted Shares in accordance with Paragraph E(1) of Article III hereof. 2. Conversion Default. The Company's inability or refusal to delivery Conversion Certificates under Paragraph B(1) of Article III hereof. then, upon the occurrence of any such Redemption Event, each Holder of shares of Preferred Stock shall thereafter have the option, exercisable in whole or in part at any time and from time to time by delivery of a notice requesting the redemption all or part of such holders shares of Preferred Stock (a "Redemption Notice") to the Company while such Redemption Event continues, to require the Company to purchase for cash any or all of the then outstanding shares of Preferred Stock held by such Holder for an amount per share equal to the Redemption Amount (as defined in Paragraph B below) in effect at the time of the redemption hereunder. Upon the Company's receipt of any Redemption Notice hereunder, the Company shall immediately (and in any event within five (5) business days following such receipt) deliver a written notice (a "Redemption Announcement") to all holders of Preferred Stock stating the date upon which the Company received such Redemption Notice and the amount of Preferred Stock covered thereby. B. Definition of Redemption Amount. The "Redemption Amount" with respect to a share of Preferred Stock being redeemed (a "Redeemed Share") means an amount payable in cash, equal to: V x M ----------------- CP where: "V" means the outstanding stated value plus accrued dividends through the date of payment of the Redemption Amount for the Redeemed Share (the "Redemption Payment Date"); "CP" means the Conversion Price in effect on the Redemption Date (as defined below) "Redemption Date" means the date contemplated by a specific provision of this Certificate of Determination or, if no such date is specified, the date of redemption specified in the notice from the Holder electing redemption of a Redeemed Share; and "M" means the average of the Closing Bid Prices for the twenty-two (22) consecutive trading days prior to the Redemption Payment Date. C. Redemption Defaults. If the Company fails to pay any Holder the Redemption Amount with respect to any share of Preferred Stock within 60 days after the latter of (i) its receipt of Redemption Notice, and (ii) the date of its Redemption Announcement, then the Holder of Preferred Stock delivering such Redemption Notice shall be entitled to interest on the Redemption Amount at a per annum rate equal to the lower of 15% and the highest interest rate permitted by applicable law from the date on which the Company receives the Redemption Notice until the date of payment of the Redemption Amount hereunder. In the event the Company is not able to redeem all of the shares of Preferred Stock subject to Redemption Notices delivered prior to the date upon which such redemption is to be effected, the Company shall redeem shares of Preferred Stock from each Holder pro rata, based on the total number of shares of Preferred Stock outstanding at the time of redemption included by such Holder in all Redemption Notices delivered prior to the date upon which such redemption is to be effected relative to the total number of shares of Preferred Stock outstanding at the time of redemption included in all of the Redemption Notices delivered prior to the date upon which such redemption is to be effected. VI. LIQUIDATION PREFERENCE A. Liquidation Event. If the Company shall commence a voluntary case under the U.S. Federal bankruptcy laws or any other applicable bankruptcy, insolvency or similar law, or consent to the entry of an order for relief in an involuntary case under any law or to the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other similar official) of the Company or of any substantial part of its property, or make an assignment for the benefit of its creditors, or admit in writing its inability to pay its debts generally as they become due, or if a decree or order for relief in respect of the Company shall be entered by a court having jurisdiction in the premises in an involuntary case under the U.S. Federal bankruptcy laws or any other applicable bankruptcy, insolvency or similar law resulting in the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other similar official) of the Company or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and any such decree or order shall be unstayed and in effect for a period of 60 consecutive days and, on account of any such event, the Company shall liquidate, dissolve or wind up, or if the Company shall otherwise liquidate, dissolve or wind up, including, but not limited to, the sale or transfer of all or substantially all of the Company's assets in one transaction or in a series of related transactions (a "Liquidation Event"), no distribution shall be made to the holders of any shares of capital stock of the Company (other than Senior Securities and Pari Passu Securities) upon liquidation, dissolution or winding up unless prior thereto the holders of shares of Preferred Stock shall have received the Liquidation Preference with respect to each share. If, upon the occurrence of a Liquidation Event, the assets and funds available for distribution among the holders of the Preferred Stock and holders of Pari Passu Securities shall be insufficient to permit the payment to such holders of the preferential amounts payable thereon, then the entire assets and funds of the Company legally available for distribution to the Preferred Stock and the Pari Passu Securities shall be distributed ratably among such shares in proportion to the ratio that the Liquidation Preference payable on each such share bears to the aggregate Liquidation Preference payable on all such shares. B. Exclusions. The purchase or redemption by the Company of stock of any class, in any manner permitted by law, shall not, for the purposes hereof, be regarded as a liquidation, dissolution or winding up of the Company. Neither the consolidation or merger of the Company with or into any other entity nor the sale or transfer by the Company of less than substantially all of its assets shall, for the purposes hereof, be deemed to be a liquidation, dissolution or winding up of the Company. VII. ADJUSTMENTS TO THE CONVERSION PRICE A. Sale. The Conversion Price shall be subject to adjustment from time to time as follows: If, for as long as any shares of Preferred Stock remain outstanding, the Company enters into a merger (other than where the Company is the surviving entity) or consolidation with another corporation or other entity or a sale or transfer of all or substantially all of the assets of the Company to another person (collectively, a "Sale"), the Company will require, in the agreements reflecting such transaction, that the surviving entity expressly assume the obligations of the Company hereunder. Notwithstanding the foregoing, if the Company enters into a Sale and the holders of the Common Stock are entitled to receive stock, securities or property in respect of or in exchange for Common Stock, then as a condition of such Sale, the Company and any such successor, purchaser or transferee will agree that the Preferred Stock may thereafter be converted on the terms and subject to the conditions set forth above into the kind and amount of stock, securities or property receivable upon such merger, consolidation, sale or transfer by a Holder of the number of shares of Common Stock into which then outstanding shares of Preferred Stock might have been converted immediately before such merger, consolidation, sale or transfer, subject to adjustments which shall be as nearly equivalent as may be practicable. In the event of any such proposed Sale, the Holder hereof shall have the right to convert by delivering a Notice of Conversion to the Company within 15 days of receipt of notice of such Sale from the Company. B. Spin Off. The Company agrees that for as long as shares of Preferred Stock remain outstanding, the Company will not, without the consent of the Holders of a majority of the Designate Preferred Stock, spin off or otherwise divest itself of a part of its business or operations or dispose all or of a part of its assets in a transaction (the "Spin Off") in which the Company does not receive just compensation for such business, operations or assets, but causes securities of another entity (the "Spin Off Securities") to be issued to security holders of the Company. If, for any reason, prior to the Conversion Date or the date of payment of the Redemption Amount hereunder, the Company consummates a Spin Off, then the Company shall cause (i) to be reserved Spin Off Securities equal to the number thereof which would have been issued to the Holder had all of the holder's shares of Preferred Stock outstanding on the record date (the "Record Date") for determining the amount and number of Spin Off Securities to be issued to security holders of the Company (the "Outstanding Preferred Stock") been converted as of the close of business on the trading day immediately before the Record Date (the "Reserved Spin Off Shares"), and (ii) to be issued to the Holder on the conversion of all or any of the Outstanding Preferred Stock, such amount of the Reserved Spin Off Shares equal to (x) the Reserved Spin Off Shares multiplied by (y) a fraction, of which (a) the numerator is the principal amount of the Outstanding Preferred Stock then being converted, and (b) the denominator is the principal amount of the Outstanding Preferred Stock. C. Stock Splits, etc. If, at any time while any shares of Preferred Stock remain outstanding, the Company effectuates a stock split or reverse stock split of its Common Stock or issues a dividend on its Common Stock consisting of shares of Common Stock, the Conversion Price shall be equitably adjusted to reflect such action. By way of illustration, and not in limitation, of the foregoing (i) if the Company effectuates a 2:1 split of its Common Stock, thereafter, with respect to any conversion for which the Company issues the shares after the record date of such split, the Initial Conversion Price shall be deemed to be one-half of what it had been calculated to be immediately prior to such split; (ii) if the Company effectuates a 1:10 reverse split of its Common Stock, thereafter, with respect to any conversion for which the Company issues the shares after the record date of such reverse split, the Initial Conversion Price shall be deemed to be ten times what it had been calculated to be immediately prior to such split; and (iii) if the Company declares a stock dividend of one share of Common Stock for every 10 shares outstanding, thereafter, with respect to any conversion for which the Company issues the shares after the record date of such dividend, the Initial Conversion Price shall be deemed to be the amount of such Initial Conversion Price calculated immediately prior to such record date multiplied by a fraction, of which the numerator is the number of shares (10 in the example) for which a dividend share will be issued and the denominator is such number of shares plus the dividend share(s) issuable or issued thereon (11 in the example). D. Notice of Adjustments. Upon the occurrence of each adjustment or readjustment of the Initial Conversion Price pursuant to this Article VII, the Company, at its expense, shall promptly compute such adjustment or readjustment 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 Company shall, upon the written request at any time of any Holder of Preferred Stock, furnish to such Holder a like certificate setting forth (i) such adjustment or readjustment, (ii) the Initial Conversion Price at the time in effect and (iii) the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon conversion of a share of Preferred Stock. VIII. VOTING RIGHTS A. Generally. The holders of the Preferred Stock have no right to vote in any matter whatsoever except as otherwise required by the California Corporations Code. B. Class Voting. To the extent that under the California Corporations Code the vote of the holders of the Preferred Stock, voting separately as a class or series, as applicable, is required to authorize a given action of the Company, the affirmative vote or consent of the holders of at least a majority of the then outstanding shares of the Preferred Stock represented at a duly held meeting at which a quorum is present or by written consent of the holders of at least a majority of the then outstanding shares of Preferred Stock (except as otherwise may be required under the California Corporations Code, a "Required Interest") shall constitute the approval of such action by the class. To the extent that under the California Corporations Code Holders of the Preferred Stock are entitled to vote on a matter with holders of Common Stock, voting together as one class, each share of Preferred Stock shall be entitled to a number of votes equal to the number of shares of Common Stock into which it is then convertible (subject to the limitations contained in Article III Paragraph E) using the record date for the taking of such vote of shareholders as the date as of which the Conversion Price is calculated. IX. MISCELLANEOUS A. Rank. The Preferred Stock shall rank (i) prior to the Company's Common Stock; (ii) prior to any Junior Securities; (iii) junior to any Senior Securities; and (iv) pari passu with any Pari Passu Securities; provided, however, that no additional Senior or Pari Passu Securities shall be created without the written consent of a Required Interest. B. Cancellation or Redemption of Preferred Stock. If any shares of Preferred Stock are converted pursuant to Article III, or redeemed pursuant to Article V. the shares so converted or redeemed shall be canceled, shall return to the status of authorized, but unissued preferred stock of no series, and shall not be issuable by the Company as Preferred Stock. C. Lost or Stolen Certificates. Upon receipt by the Company of (i) evidence of the loss, theft, destruction or mutilation of any Preferred Stock certificate(s) and (ii) (y) in the case of loss, theft or destruction, of indemnity (without any bond or other security) reasonably satisfactory to the Company, or (z) in the case of mutilation, upon surrender and cancellation of the Preferred Stock certificate(s), the Company shall execute and deliver new Preferred Stock certificate(s) of like tenor and date. However, the Company shall not be obligated to reissue such lost or stolen Preferred Stock certificate(s) if the Holder contemporaneously requests the Company to convert such Preferred Stock. D. Allocation of Cap Amount and Reserved Amount. The initial Cap Amount and Reserved Amount shall be allocated pro rata among the holders of Preferred Stock based on the number of shares of Preferred Stock issued to each Holder. Each increase to the Cap Amount and the Reserved Amount shall be allocated pro rata among the holders of Preferred Stock based on the number of shares of Preferred Stock held by each Holder at the time of the increase in the Cap Amount or Reserved Amount. In the event a Holder shall sell or otherwise transfer any of such holder's shares of Preferred Stock, each transferee shall be allocated a pro rata portion of such transferor's Cap Amount and Reserved Amount. Any portion of the Cap Amount or Reserved Amount which remains allocated to any person or entity which does not hold any Preferred Stock shall be allocated to the remaining holders of shares of Preferred Stock, pro rata based on the number of shares of Preferred Stock then held by such holders. E. Payment of Cash; Defaults. Whenever the Company is required to make any cash payment to a Holder under this Certificate of Determination (upon redemption or otherwise), such cash payment shall be made to the Holder on the date specified herein or, if not so specified, within 5 business days after delivery by such Holder of a notice specifying that the Holder elects to receive such payment in cash and the method (e.g., by check, wire transfer) in which such payment should be made. If such payment is not delivered within the relevant time period, such Holder shall thereafter be entitled to interest on the unpaid amount at a per annum rate equal to the lower of 15% and the highest interest rate permitted by applicable law until such amount is paid in full to the Holder. F. Status as Stockholder. Upon submission of a Notice of Conversion by a Holder of Preferred Stock, (i) the shares covered thereby (other than the shares, if any, which cannot be issued because their listing or issuance would exceed such holder's allocated portion of the Reserved Amount or Cap Amount) shall be deemed converted into shares of Common Stock and (ii) the holder's rights as a Holder of such converted shares of Preferred Stock shall cease and terminate, excepting only the right to receive certificates for such shares of Common Stock and to any remedies provided herein or otherwise available at law or in equity to such Holder because of a failure by the Company to comply with the terms of this Certificate of Determination. The undersigned declare under penalty of perjury under the laws of the State of California that the matters set out in the foregoing Certificate are true of his or her knowledge. Executed at San Francisco, California on June ____, 2000. - ------------------------------- -------------------------------- Gary Starr Oonagh Duggan President Secretary EX-4.6 7 0007.txt CERTIFICATE OF AMENDMENT CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION OF ZAPWORLD.COM The undersigned certify that: 1. They are the president and the secretary, respectively, of Zapworld.com, a California corporation. 2. Article IV of the Articles of Incorporation of this corporation is amended to read as follows: "(a) The corporation is authorized to issue two classes of stock designated 'Common Stock' and 'Preferred Stock,' respectively. The number of shares of Common Stock the corporation is authorized to issue is twenty million (20,000,000). The number of shares of Preferred Stock the corporation is authorized to issue is ten million (10,000,000). "(b) The Preferred Stock may be divided into such number of series as the board of directors may determine. The board of directors is authorized to determine and alter the rights, preferences, privileges, and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock, and to fix the number of shares and the designation of any series of Preferred Stock. The board of directors may, within the limits stated in any resolution or resolutions of the board of directors originally fixing the number of shares constituting any series, increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any series subsequent to the issue of shares of that series." 3. The foregoing amendment of Articles of Incorporation has been duly approved by the board of directors. 4. The foregoing amendment of Articles of Incorporation has been duly approved by the required vote of shareholders in accordance with Section 902 of the California Corporations Code. The total number of outstanding shares of Common Stock of the corporation is 5,226,594. There are no outstanding shares of Preferred Stock. The number of shares of Common Stock voting in favor of the amendment exceeded the vote required. The percentage vote required was more than 50% of the outstanding shares. We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge. Date: June 26, 2000 --------------------------------- Gary Starr, President --------------------------------- Joni Arellanes, Secretary -2- EX-4.7 8 0008.txt AMENDED BYLAWS BYLAWS OF ZAPWORLD.COM TABLE OF CONTENTS ARTICLE I DEFINITIONS.....................................................1 1.1 Articles of Incorporation.......................................1 1.2 Board...........................................................1 1.3 Code............................................................1 1.4 Corporation.....................................................1 1.5 Plurals, Gender.................................................1 ARTICLE II CORPORATE OFFICES...............................................1 2.1 Principal Office................................................1 2.2 Other Offices...................................................1 ARTICLE III MEETINGS OF SHAREHOLDERS........................................1 3.1 Place of Meetings...............................................1 3.2 Annual Meeting..................................................1 3.3 Special Meetings................................................2 3.4 Notice of Shareholders' Meetings................................2 3.5 Manner of Giving Notice, Affidavit of Notice....................2 3.6 Quorum..........................................................3 3.7 Adjourned Meeting, Notice.......................................3 3.8 Voting..........................................................3 3.9 Validation of Meetings, Waiver of Notice: Consent...............4 3.10 Shareholder Action by Written Consent Without a Meeting.........4 3.11 Record Date for Shareholder Notice, Voting and Consents.........5 3.12 Proxies.........................................................5 3.13 Inspectors of Election..........................................5 3.14 Conduct of Meeting..............................................6 ARTICLE IV DIRECTORS.......................................................6 4.1 Powers..........................................................6 4.2 Number of Directors.............................................6 4.3 Election and Term of Office of Directors........................6 4.4 Removal.........................................................7 4.5 Resignation and Vacancies.......................................7 4.6 Place of Meetings, Meetings by Telephone........................7 4.7 Regular Meetings................................................8 4.8 Special Meetings, Notice........................................8 4.9 Quorum..........................................................8 4.10 Waiver of Notice................................................8 4.11 Adjournment.....................................................8 4.12 Board Action by Written Consent Without a Meeting...............8 4.13 Fees and Compensation of Directors..............................8 ARTICLE V COMMITTEES......................................................9 5.1 Committees of Directors.........................................9 i 5.2 Meetings and Action of Committees...............................9 ARTICLE VI OFFICERS.......................................................10 6.1 Officers.......................................................10 6.2 Appointment of Officers........................................10 6.3 Subordinate Officers...........................................10 6.4 Removal and Resignation of Officers............................10 6.5 Vacancies in Offices...........................................10 6.6 Chairman of the Board..........................................10 6.7 President......................................................10 6.8 Vice Presidents................................................11 6.9 Secretary......................................................11 6.10 Chief Financial Officer........................................11 ARTICLE VII INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS..................................11 7.1 General........................................................11 7.2 Payment of Expenses in Advance.................................12 7.3 Indemnification of Heirs, Etc..................................12 7.4 Insurance......................................................12 7.5 Conflicts......................................................12 7.6 Indemnity Not Exclusive -- Agreements..........................13 ARTICLE VIII RECORDS AND REPORTS............................................13 8.1 Maintenance and Inspection of Share Register...................13 8.2 Maintenance and Inspection of Bylaws...........................13 8.3 Maintenance and Inspection of Other Corporate Records..........14 8.4 Inspection by Directors........................................14 8.5 Annual Report to Shareholders; Waiver..........................14 8.6 Financial Statements...........................................14 8.7 Representation of Shares of Other Corporations.................15 ARTICLE IX GENERAL MATTERS................................................15 9.1 Record Date for Purposes Other than Notice and Voting..........15 9.2 Checks, Drafts, Evidences of Indebtedness......................15 9.3 Corporate Contracts and Instruments, How Executed..............15 9.4 Certificates for Shares........................................16 9.5 Lost Certificates..............................................16 ARTICLE X AMENDMENTS.....................................................16 10.1 Amendment by Shareholders.....................................16 10.2 Amendment by Directors........................................16 10.3 Record of Amendments..........................................16 ii BYLAWS OF ZAPWORLD.COM ARTICLE I DEFINITIONS 1.1 Articles of Incorporation. "Articles of Incorporation" shall refer to the Articles of Incorporation of the corporation, including all amendments thereto and Certificates of Determination with respect to any shares of the corporation. 1.2 Board. "Board of Directors" and "Board" shall mean the Board of Directors of the corporation. 1.3 Code. "Code" shall mean the California Corporations Code, including all amendments thereto. 1.4 Corporation. "Corporation" shall refer to ZAPWORLD.COM. 1.5 Plurals, Gender. Unless the context requires otherwise, the singular number includes the plural. All personal pronouns and references to gender shall also include persons of the opposite sex. ARTICLE II CORPORATE OFFICES 2.1 Principal Office. The principal executive office of the corporation shall be located at such address as the Board of Directors may from time to time determine. 2.2 Other Offices. The Board of Directors may at any time establish branch or subordinate offices at any place or places. ARTICLE III MEETINGS OF SHAREHOLDERS 3.1 Place of Meetings. Meetings of shareholders shall be held at any place designated by the Board of Directors. In the absence of any such designation, shareholders' meetings shall be held at the principal executive office of the corporation or at any place consented to in writing by all persons entitled to vote at such meeting, given before or after the meeting and filed with the Secretary of the corporation. 3.2 Annual Meeting. An annual meeting of shareholders shall be held each year on a date and at a time designated by the Board of Directors. Directors shall be elected and any other proper business may be transacted at the annual meeting of shareholders. 1 3.3 Special Meetings. Special meetings of the shareholders may be called at any time, subject to the provisions of Sections 3.4 and 3.5 of these Bylaws, by the Board of Directors, the Chairman of the Board, the President or the holders of shares entitled to cast not less than ten percent (10%) of the votes at that meeting. If a special meeting is called by anyone other than the Board of Directors or the President or the Chairman of the Board, then the request shall be in writing, specifying the date and time of such meeting and the nature of the business proposed to be transacted, and shall be delivered personally or sent by registered or certified mail to the Chairman of the Board, the President, any Vice President or the Secretary of the corporation. The date of the meeting shall not be less than thirty-five (35) nor more than sixty (60) days after the officer has received the request from the person or persons calling the meeting. If the officer who received the request does not cause a notice of the meeting to be given to the shareholders within twenty (20) days after his or her receipt of that request, then the person or persons requesting the meeting may give the notice of the meeting to the shareholders. 3.4 Notice of Shareholders' Meetings. Notice of a shareholders' meeting shall be sent to each shareholder entitled to vote at that meeting. Notice shall be given in accordance with Section 3.5 of these Bylaws not less than ten (10) (or, if sent by third-class mail pursuant to Section 3.5 of these Bylaws, not less than thirty (30)) nor more than sixty (60) days before the date of the meeting. The notice shall state the place, date, and hour of the meeting. In the case of a special meeting, the notice shall state the general nature of the business to be transacted and no business other than that specified in the notice may be acted upon. In the case of the annual meeting, the notice shall set forth those matters which the Board of Directors, at the time of the mailing of the notice, intends to present for action by the shareholders, but, subject to the provisions of the next paragraph of this Section 3.4, any proper matter may be presented at the meeting for shareholder action. The notice of any meeting at which Directors are to be elected shall include the names of nominees intended at the time of the notice to be presented by the Board for election. If action is proposed to be taken at any annual meeting for approval of (i) a contract or transaction in which a director has a direct or indirect financial interest, pursuant to Section 310 of the Code, (ii) an amendment of the Articles of Incorporation, pursuant to Section 902 of the Code, (iii) a reorganization of the corporation, pursuant to Section 1201 of the Code, (iv) a voluntary dissolution of the corporation, pursuant to Section 1900 of the Code, or (v) a distribution in dissolution other than in accordance with the rights of any outstanding preferred shares, pursuant to Section 2007 of the Code, then the notice shall also state the general nature of that proposal. 3.5 Manner of Giving Notice, Affidavit of Notice. Notice of a shareholders' meeting shall be given either personally or by first-class mail. If the corporation has outstanding shares held of record by five hundred (500) or more persons on the record date for the shareholders' meeting, notice may be sent by third-class mail. The notice shall be sent to the shareholder at the address of the shareholder appearing on the books of the corporation or given by the shareholder to the corporation for the purpose of notice. If no such address appears or is given, notice may be given to the shareholder at the corporation's principal executive office or by publication at least once in a newspaper of general circulation in the county in which the principal executive office is located. The notice shall be deemed to have been given at the time when delivered personally or deposited in the mail. An affidavit of mailing of any notice or report in accordance with the provisions of this Section 3.5, executed by the Secretary, Assistant Secretary or any transfer agent, shall be prima facie evidence of the giving of the notice or report. 2 3.6 Quorum. Unless otherwise provided in the Articles of Incorporation, a majority of the shares entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of the shareholders. The shareholders present at a duly called and held meeting at which a quorum is present may continue to transact business until adjournment notwithstanding the withdrawal of enough shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. In the absence of a quorum, any meeting of shareholders may be adjourned from time to time by the vote of a majority of the shares represented at that meeting, either in person or by proxy, but no other business may be transacted, except as provided in the last sentence of the preceding paragraph. 3.7 Adjourned Meeting, Notice. Any shareholders' meeting, annual or special, whether or not a quorum is present, may be adjourned from time to time by the vote of the majority of the shares represented at that meeting, either in person or by proxy. When any meeting of shareholders, either annual or special, is adjourned to another time or place, notice need not be given of the adjourned meeting if its time and place are announced at the meeting at which the adjournment is taken. However, if the adjournment is for more than forty-five (45) days from the date set for the original meeting or if a new record date for the adjourned meeting is fixed, a notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the adjourned meeting in accordance with the provisions of Sections 3.4 and 3.5 of these Bylaws. At any adjourned meeting the corporation may transact any business which might have been transacted at the original meeting. 3.8 Voting. The shareholders entitled to vote at any meeting of shareholders shall be determined in accordance with the provisions of Section 3.11 of these Bylaws, subject to the provisions of Sections 702 through 704 of the Code (relating to voting shares held by a fiduciary, in the name of a corporation, or in joint ownership). Elections for directors and voting on any other matter at a shareholders' meeting need not be by ballot unless a shareholder demands election by ballot at the meeting and before the voting begins. Except as provided in the last paragraph of this Section 3.8, or as may be otherwise provided in the Articles of Incorporation, each outstanding share, regardless of class, shall be entitled to one vote on each matter submitted to a vote of the shareholders. Any holder of shares entitled to vote on any matter may vote part of the shares in favor of the proposal and refrain from voting the remaining shares or may vote them against the proposal other than elections to office, but, if the shareholder fails to specify the number of shares such shareholder is voting affirmatively, it will be conclusively presumed that the shareholder's approving vote is with respect to all shares which the shareholder is entitled to vote. The affirmative vote of the majority of the shares represented and voting at a duly held meeting at which a quorum is present (which shares voting affirmatively also constitute at least a majority of the required quorum) shall be the act of the shareholders, unless the vote of a greater number or voting by classes is required by the Code or by the Articles of Incorporation. At a shareholders' meeting at which directors are to be elected, a shareholder shall be entitled to cumulate votes either (i) by giving one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which that shareholder's shares are normally entitled or (ii) by distributing the shareholder's votes on the same principle among as many candidates as the shareholder thinks fit. A shareholder may cumulate votes for a candidate if the candidate or candidates' names have been placed 3 in nomination prior to the voting and the shareholder has given notice prior to the voting of his intention to cumulate his votes. If any one shareholder has given such a notice, then every shareholder entitled to vote may cumulate votes for candidates in nomination. The candidates receiving the highest number of affirmative votes up to the number of directors to be elected shall be elected. Votes against any candidate and votes withheld shall have no legal effect. 3.9 Validation of Meetings, Waiver of Notice: Consent. The transactions of any meeting of shareholders, either annual or special, however called and noticed, and wherever held, are as valid as though they had been taken at a meeting duly held after regular call and notice, if a quorum is present either in person or by proxy, and if, either before or after the meeting, each of the persons entitled to vote, not present in person or by proxy, signs a written waiver of notice or a consent to the holding of the meeting or an approval of the minutes thereof. Neither the business to be transacted at nor the purpose of any annual or special meeting of shareholders need be specified in any written waiver of notice or consent to the holding of the meeting or approval of the minutes thereof, except that if action is taken or proposed to be taken for approval of any of those matters specified in the second paragraph of Section 3.4 of these Bylaws, the waiver of notice or consent or approval shall state the general nature of the proposal. All such waivers, consents, and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance of a person at a meeting shall constitute a waiver of notice of and presence at that meeting, except when the person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters required by the Code to be included in the notice of the meeting but not so included, if that objection is expressly made at the meeting. 3.10 Shareholder Action by Written Consent Without a Meeting. Any action which may be taken at any annual or special meeting of shareholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding shares 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. Directors may not be elected by written consent except by unanimous written consent of all shares entitled to vote for the election of directors. However, a director may be elected at any time to fill any vacancy on the Board of Directors by the written consent of the holders of a majority of the outstanding shares entitled to vote for the election of directors, provided that the vacancy was not created by removal of a director and that the vacancy has not been filled by the directors. All shareholder consents shall be maintained in the corporate records. Any shareholder giving a written consent, or the shareholder's proxy holders, or a transferee of the shares, or a personal representative of the shareholder, or their respective proxy holders, may revoke the consent by a writing received by the Secretary of the corporation before written consents of the number of shares required to authorize the proposed action have been filed with the Secretary. If the consents of all shareholders entitled to vote have not been solicited in writing, the Secretary shall give prompt notice of any corporate action approved by the shareholders to those shareholders entitled to vote who have not consented in writing. In the case of approval of (i) a contract or transaction in which a director has a direct or indirect financial interest, pursuant to Section 310 of the Code, (ii) indemnification of a corporate "agent," pursuant to Section 317 of the Code, (iii) a reorganization of the corporation, pursuant to Section 1201 of the Code, and (iv) a distribution in dissolution other than in accordance with the rights of outstanding 4 preferred shares, pursuant to Section 2007 of the Code, the notice shall be given at least ten (10) days before the consummation of any action authorized by that approval, unless the consents of all shareholders entitled to vote have been solicited in writing. 3.11 Record Date for Shareholder Notice, Voting and Consents. The Board of Directors may fix in advance a record date of shareholders entitled to vote at a meeting or to consent to an action without a meeting. The record date shall not be more than sixty (60) days nor less than ten (10) days prior to the date of such meeting nor more than sixty (60) days before any other action. Shareholders at the close of business on the record date are entitled to notice and to vote, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date, except as otherwise provided in the Articles of Incorporation or the Code. A determination of shareholders of record entitled to notice of or to vote at a meeting of shareholders shall apply to any adjournment of the meeting unless the Board of Directors fixes a new record date for the adjourned meeting, but the Board of Directors shall fix a new record date if the meeting is adjourned for more than forty-five (45) days from the date set for the original meeting. If the Board of Directors does not so fix a record date: (a) The record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held. (b) The record date for determining shareholders entitled to give consent to corporate action in writing without a meeting, (i) when no prior action by the Board has been taken, shall be the day on which the first written consent is given, or (ii) when prior action by the Board has been taken, shall be at the close of business on the day on which the Board adopts the resolution relating thereto, or the sixtieth (60th) day prior to the date of such other action, whichever is later. The record date for any other purpose shall be as provided in Section 9.1 of these Bylaws. 3.12 Proxies. Every person entitled to vote for directors, or on any other matter, shall have the right to do so either in person or by one or more agents authorized by a written proxy signed by the person and filed with the Secretary of the corporation. A proxy shall be deemed signed if the shareholder's name or other authorization is placed on the proxy (whether by manual signature, typewriting, telegraphic or electronic transmission or otherwise) by the shareholder or the shareholder's attorney-in-fact. A validly executed proxy which does not state that it is irrevocable shall continue in full force and effect unless (i) the person who executed the proxy revokes it prior to the time of voting by delivering a writing to the corporation stating that the proxy is revoked or by executing a subsequent proxy and presenting it to the meeting or by attendance at such meeting and voting in person, or (ii) written notice of the death or incapacity of the maker of that proxy is received by the corporation before the vote pursuant to that proxy is counted; provided, however, that no proxy shall be valid after the expiration of eleven (11) months from the date thereof, unless otherwise provided in the proxy. The dates contained on the forms of proxy presumptively determine the order of execution, regardless of the postmark dates on the envelopes in which they are mailed. 3.13 Inspectors of Election. In advance of any meeting of shareholders, the Board of Directors may appoint inspectors of election to act at the meeting and any adjournment thereof. If inspectors of election are not so appointed or designated or if any persons so appointed fail to appear or refuse to act, then the Chairman 5 of the meeting may, and on the request of any shareholder or a shareholder's proxy shall, appoint inspectors of election (or persons to replace those who so fail to appear) at the meeting. The number of inspectors shall be either one (1) or three (3). If appointed at a meeting on the request of one (1) or more shareholders or proxies, the majority of shares represented in person or by proxy shall determine whether one (1) or three (3) inspectors are to be appointed. The inspectors of election shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, and the authenticity, validity, and effect of proxies, receive votes, ballots or consents, hear and determine all challenges and questions in any way arising in connection with the right to vote, count and tabulate all votes or consents, determine when the polls shall close, determine the result and do any other acts that may be proper to conduct the election or vote with fairness to all shareholders. 3.14 Conduct of Meeting. The Chairman of the Board or, in the absence of the Chairman of the Board, the President shall preside over meetings of the shareholders. The person presiding over the meeting shall conduct the meeting in a business-like and fair manner in accordance with such rules and procedures as that person deems appropriate. The presiding officer's rulings on procedural matters shall be conclusive and binding on all shareholders, unless at the time of ruling a request for a vote is made to the shareholders holding shares entitled to vote and which are represented in person or by proxy at the meeting, in which case the decision of a majority of such shares shall be conclusive and binding on all shareholders with respect to that procedural matter. ARTICLE IV DIRECTORS 4.1 Powers. Subject to the provisions of the Code and any limitations in the Articles of Incorporation and these Bylaws relating to actions requiring shareholder approval, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board of Directors. 4.2 Number of Directors. The number of directors shall be no less than five (5) nor greater than nine (9), with the exact number of directors within this range being determined by the Board of Directors or the shareholders. The exact number of directors shall be seven (7) until this number is changed, within the limits specified in the previous sentence, by the Board of Directors or the shareholders. The maximum and minimum number of directors set forth in the first sentence of this Section 4.2 may only be changed by an amendment to the Articles of Incorporation or by an amendment to this Bylaw duly adopted by the vote or written consent of holders of a majority of the outstanding shares entitled to vote. An amendment reducing the fixed number or the minimum number of directors to a number less than five (5) cannot be adopted if the votes cast against its adoption at a meeting, or the shares not consenting in the case of an action by written consent, are equal to more than sixteen and two-thirds percent (16-2/3%) of the outstanding shares entitled to vote thereon. No reduction of the authorized number of directors shall have the effect of removing any director before that director's term of office expires. 4.3 Election and Term of Office of Directors. At each annual meeting of shareholders, directors shall be elected to hold office until the next annual meeting. Each director, including a director elected to fill a vacancy, shall hold office until the expiration of the term for which elected and until a successor has been elected 6 and qualified, except in the case of the death, resignation, or removal of such a director. 4.4 Removal. The entire Board of Directors or any individual director may be removed from office without cause by the affirmative vote of a majority of the outstanding shares entitled to vote on such removal; provided, however, that unless the entire Board is removed, no individual director may be removed when the votes cast against that director's removal, or not consenting in writing to his removal, would be sufficient to elect that director if voted cumulatively at an election at which the same total number of votes cast were cast (or, if such action is taken by written consent, all shares entitled to vote were voted) and the entire number of directors authorized at the time of that director's most recent election were then being elected. 4.5 Resignation and Vacancies. Any director may resign effective upon giving written notice to the Chairman of the Board, the President, the Secretary or the Board of Directors, unless the notice specifies a later time for the effectiveness of such resignation. If the resignation of a director is effective at a future time, the Board of Directors may elect a successor to take office when the resignation becomes effective. Vacancies on the Board of Directors may be filled by a majority of the remaining directors, or if the number of directors then in office is less than a quorum, by (i) unanimous written consent of the directors then in office, (ii) the affirmative vote of a majority of the directors then in office at a meeting held pursuant to notice or waivers of notice, or (iii) a sole remaining director; however, a vacancy created by the removal of a director by the vote or written consent of the shareholders or by court order may be filled only by the affirmative vote of a majority of the shares represented and voting at a duly held meeting of shareholders at which a quorum is present (which shares voting affirmatively also constitute at least a majority of the required quorum), or by the unanimous written consent of all shares entitled to vote thereon. Each director so elected shall hold office until the next annual meeting of the shareholders and until a successor has been elected and qualified, or until his or her death, resignation or removal. A vacancy or vacancies in the Board of Directors shall be deemed to exist (i) in the event of the death, resignation or removal of any director, (ii) if the Board of Directors by resolution removes a director who has been declared of unsound mind by an order of court or convicted of a felony, (iii) if the authorized number of directors is increased, or (iv) if the shareholders fail, at any meeting of shareholders at which any director or directors are elected, to elect the full authorized number of directors to be elected at that meeting. The shareholders may elect a director or directors at any time to fill any vacancy or vacancies not filled by the directors, but any such election by written consent, other than to fill a vacancy created by removal, shall require the consent of the holders of a majority of the outstanding shares entitled to vote thereon. A director may not be elected by written consent to fill a vacancy created by removal except by unanimous consent of all shares entitled to vote for the election of directors. 4.6 Place of Meetings, Meetings by Telephone. Regular meetings of the Board of Directors may be held at any place within or outside the State of California that has been designated from time to time by resolution of the Board. In the absence of such a designation, regular meetings shall be held at the principal executive office of the corporation. Special meetings of the Board may be held at any place within or outside the State of California that has been designated in the notice of the meeting or, if not stated in the notice or if there is no notice, at the principal executive office of the corporation. Members of the Board may participate in a meeting through the use of conference telephone or similar communications equipment, so long as all directors participating in such meeting can hear one another. Participation in a meeting pursuant to this paragraph constitutes presence in person at that meeting. 7 4.7 Regular Meetings. Regular meetings of the Board of Directors may be held without notice if the time and place of the meetings are fixed by the Board of Directors. 4.8 Special Meetings, Notice. Subject to the provisions of the following paragraph, special meetings of the Board of Directors for any purpose or purposes may be called at any time by the Chairman of the Board, the President, any Vice President, the Secretary or any two (2) directors. Notice of the time and place of special meetings shall be delivered personally, by telephone (including by means of a voice messaging system designed to record and communicate messages), telegraph, facsimile, electronic mail or by first-class mail, postage prepaid. All notices (unless delivered in person) shall be addressed to each director at that director's address and/or facsimile number or electronic mail address as shown on the records of the corporation. If the notice is mailed, it shall be deposited in the United States mail at least four (4) days before the time of the holding of the meeting. If the notice is delivered by any other permissible means, it shall be delivered at least forty-eight (48) hours before the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director whom the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose of the meeting. 4.9 Quorum. A majority of the authorized number of directors shall constitute a quorum for the transaction of business, except to adjourn as provided in Section 4.11 of these Bylaws. Every act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present is the act of the Board of Directors, subject to the provisions of Section 310 of the Code (as to approval of contracts or transactions in which a director has a direct or indirect material financial interest), Section 311 of the Code (as to appointment of committees) and Section 317(e) of the Code (as to indemnification of directors). A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for such meeting. 4.10 Waiver of Notice. Notice of a meeting need not be given to any director who signs a waiver of notice or a consent to holding the meeting or an approval of the minutes thereof, whether before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to such director. All such waivers, consents, and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. A waiver of notice need not specify the purpose of any regular or special meeting of the Board of Directors. 4.11 Adjournment. A majority of the directors present, whether or not a quorum is present, may adjourn any meeting to another time and place. If the meeting is adjourned for more than twenty-four (24) hours, notice of an adjournment to another time and place shall be given prior to the time of the adjourned meeting to the directors who were not present at the time of the adjournment. 4.12 Board Action by Written Consent Without a Meeting. Any action required or permitted to be taken by the Board of Directors may be taken without a meeting, if all members of the Board individually or collectively consent in writing to that action. The written consent or consents shall be filed with the minutes of the proceedings of the Board. Actions by written consent shall have the same force and effect as a unanimous vote of the Board of Directors. 4.13 Fees and Compensation of Directors. Directors and members of committees may receive such compensation, if any, for their services and reimbursement of expenses as may be fixed or determined by resolution of the Board of Directors. This Section 4.13 shall not be construed to preclude any director from 8 serving the corporation in any other capacity as an officer, agent, employee or otherwise and receiving compensation for those services. ARTICLE V COMMITTEES 5.1 Committees of Directors. The Board of Directors may, by resolution adopted by a majority of the authorized number of directors, designate one or more committees, each consisting of two (2) or more directors, to serve at the pleasure of the Board. The Board may designate one or more directors as alternate members of any committee, who may replace any absent member at any meeting of the committee. The appointment of members or alternate members of a committee requires the vote of a majority of the authorized number of directors. Any committee shall have authority to act in the manner and to the extent provided in the resolution of the Board and may have all the authority of the Board, except with respect to: (a) The approval of any action which, under the Code, also requires shareholders' approval or approval of the outstanding shares. (b) The filling of vacancies on the Board of Directors or in any committee. (c) The fixing of compensation of the directors for serving on the Board or on any committee. (d) The amendment or repeal of these Bylaws or the adoption of new Bylaws. (e) The amendment or repeal of any resolution of the Board of Directors which by its express terms is not so amendable or repealable. (f) A distribution to the shareholders of the corporation, except at a rate, in a periodic amount or within a price range set forth in the Articles of Incorporation or determined by the Board of Directors. (g) The appointment of any other committees of the Board of Directors or the members thereof. 5.2 Meetings and Action of Committees. Meetings and actions of committees shall be governed by, and held and taken in accordance with the provisions of Section 4.6 (place of meetings), Section 4.7 (regular meetings), Section 4.8 (special meetings and notice), Section 4.9 (quorum), Section 4.10 (waiver of notice), Section 4.11 (adjournment), and Section 4.12 (action without meeting), with such changes in the context of those Bylaws as are necessary to substitute the committee and its members for the Board of Directors and its members; provided, however, that the time of regular meetings of committees may be determined either by resolution of the Board of Directors or by resolution of the committee, that special meetings of committees may also be called by resolution of the Board of Directors, and that notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The Board of Directors may adopt rules for the government of any committee not inconsistent with the provisions of these Bylaws. 9 ARTICLE VI OFFICERS 6.1 Officers. The officers of the corporation shall be a President, a Secretary, and a Chief Financial Officer. The corporation may also have, at the discretion of the Board of Directors, a Chief Executive Officer, a Chairman of the Board, a Vice Chairman of the Board, one or more Vice Presidents, one or more Assistant Secretaries and such other officers as may be appointed in accordance with the provisions of Section 6.3 of these Bylaws. Any number of offices may be held by the same person. 6.2 Appointment of Officers. The officers of the corporation, except those officers that may be appointed in accordance with the provisions of Section 6.3 or Section 6.5 of these Bylaws, shall be chosen by the Board and serve at the pleasure of the Board, subject to the rights, if any, of an officer under any contract of employment. 6.3 Subordinate Officers. The Board of Directors may appoint, or may empower the Chairman of the Board or the President to appoint, other officers as the business of the corporation may require, each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these Bylaws or as the Board of Directors may from time to time determine. 6.4 Removal and Resignation of Officers. Subject to the rights, if any, of an officer under any contract of employment, all officers serve at the pleasure of the Board of Directors and any officer may be removed, either with or without cause, by the Board of Directors at any regular or special meeting of the Board or, except in case of an officer appointed by the Board of Directors, by any officer upon whom such power of removal may be conferred by the Board of Directors. Any officer may resign at any time by giving written notice to the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party. 6.5 Vacancies in Offices. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in these Bylaws for regular appointments to that office. 6.6 Chairman of the Board. The Chairman of the Board, if one is appointed, shall preside at meetings of the Board of Directors and shareholders and exercise and perform other powers and duties as may from time to time be assigned to the Chairman of the Board by the Board of Directors or as may be prescribed by these Bylaws. If there is no President, then the Chairman of the Board shall also be the chief executive officer of the corporation and shall have the powers and duties prescribed in Section 6.7 of these Bylaws. 6.7 President and Chief Executive Officer. Subject to those supervisory powers, if any, as may be given by the Board of Directors to the Chairman of the Board, the President and the Chief Executive Officer of the corporation may be the same officer or different officers as the Board dictates. The President and/ or the Chief Executive Officer (or the person holding title to both positions) shall, as respectively assigned by the Board, subject to the control of the Board of Directors, have general supervision, direction, and control of the business and the officers of the corporation. In the absence of the Chairman of the Board, the President shall preside at meetings of the Board of Directors and shareholders. The President shall have the general powers and duties 10 of management usually vested in the office of President of a corporation, and shall have such other powers and duties as may be prescribed by the Board of Directors or these Bylaws. 6.8 Vice Presidents. In the absence of the President, the Vice Presidents, if any, in order of their rank as fixed by the Board of Directors or, if not ranked, a Vice President designated by the Board of Directors, shall perform all the duties of the President and when so acting shall have all the powers of, and be subject to all the restrictions upon, the President. The Vice Presidents shall have other powers and perform other duties as from time to time may be prescribed for them respectively by the Board of Directors, these Bylaws, the President or the Chairman of the Board. 6.9 Secretary. The Secretary shall keep or cause to be kept, at the principal executive office of the corporation or other place as the Board of Directors may direct, a book of minutes of all meetings and actions of Directors, committees of directors and shareholders. The minutes shall show the time and place of each meeting, whether regular or special (and, if special, how authorized and the notice given), the names of those present at directors' meetings or committee meetings, the number of shares present or represented at shareholders' meetings, and the proceedings thereof. The Secretary shall keep, or cause to be kept, at the principal executive office of the corporation or at the office of the corporation's transfer agent or registrar, as determined by resolution of the Board of Directors, a share register, or a duplicate share register, showing the names of all shareholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares, and the number and date of cancellation of every certificate surrendered for cancellation. The Secretary shall give, or cause to be given, notice of all meetings of the shareholders and of the Board of Directors required to be given by law or by these Bylaws. The Secretary shall keep the seal of the corporation, if one is adopted, in safe custody and shall have other powers and perform other duties as may be prescribed by the Board of Directors or by these Bylaws. 6.10 Chief Financial Officer. The Chief Financial Officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings, and shares. The books of account shall at all reasonable times be open to inspection by any director. The Chief Financial Officer shall deposit all money and other valuables in the name and to the credit of the corporation with depositaries as may be designated by the Board of Directors. The Chief Financial Officer shall disburse the funds of the corporation as may be ordered by the Board of Directors, shall render to the President and directors, whenever they request it, an account of all of his or her transactions as Chief Financial Officer and of the financial condition of the corporation, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or these Bylaws. ARTICLE VII INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS 7.1 General. The corporation shall have the power to indemnify each of its directors, employees, officers, and agents (for the purposes of Article VII, hereinafter defined as "agents") against expenses (as defined 11 in Section 317(a) of the Code), judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding (as defined in Section 317(a) of the Code), arising by reason of the fact that such person is or was an agent of the corporation. The corporation shall indemnify its agents in all circumstances in which it is required to do so under Section 317(d) of the Code. In cases in which indemnification is permissible under Section 317 of the Code but is not mandatory, an agent shall be indemnified only if the agent has met the applicable standard of conduct set forth in Section 317 of the Code as determined by any of the following: (a) A majority vote of a quorum consisting of directors who are not parties to the proceeding in connection with which indemnification is being sought; (b) If such a quorum of directors is not obtainable, independent legal counsel in a written opinion; (c) The shareholders in accordance with Section 153 of the Code, with the shares owned by the person to be indemnified not being entitled to vote thereon; or (d) The court in which the proceeding is or was pending. For the purposes of this Article VII, "agent" of the corporation includes any person (i) who is or was a director, employee, officer, or agent of the corporation, (ii) who is or was serving at the request of the corporation as a director, employee, officer, or agent of another corporation, partnership, joint venture, trust or other enterprise, or (iii) who was a director, employee, officer, or agent of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. 7.2 Payment of Expenses in Advance. Expenses and attorneys' fees incurred in defending any civil or criminal action or proceeding for which indemnification is required pursuant to Section 7.1, or if otherwise authorized by the Board of Directors, shall be paid by the corporation in advance of the final disposition of such action or proceeding upon receipt of an undertaking by or on behalf of the indemnified party to repay such amount if it shall ultimately be determined that the indemnified party is not entitled to be indemnified as authorized in this Article VII. 7.3 Indemnification of Heirs, Etc.. The rights to indemnity hereunder shall continue as to a person who has ceased to be an agent and shall inure to the benefit of the heirs, executors, and administrators of that person. 7.4 Insurance. The corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was an agent of the corporation against any liability asserted against or incurred by that person in his capacity or arising out of that person's status as an agent of the corporation, whether or not the corporation would have the power to indemnify that person against liability under the provisions of this Article VII. 7.5 Conflicts. No indemnification or advance shall be made under this Article VII, except where the indemnification or advance is mandated by law or the order, judgment or decree of any court of competent jurisdiction, in any circumstance where it appears: (a) That it would be inconsistent with a provision of the Articles of Incorporation, these Bylaws, a resolution of the shareholders or an agreement in effect at the time of the accrual of the alleged cause of the action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification; or (b) That it would be inconsistent with any condition expressly imposed by a court in approving a settlement. 7.6 Indemnity Not Exclusive -- Agreements. The indemnification provided by this Article VII shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any Bylaw, agreement, vote of shareholders or directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office. The Board of Directors is authorized to enter into a contract with any agent of the corporation, or any person who is or was serving at the request of the corporation as an agent of another corporation, partnership, joint venture, trust or other enterprise, including employee benefit plans, or any person who was an agent of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation, providing for indemnification rights equivalent to or, if the Board of Directors so determines and to the extent permitted by applicable law, in excess of those provided for in this Article VII or in Section 317 of the Code. ARTICLE VIII RECORDS AND REPORTS 8.1 Maintenance and Inspection of Share Register. The corporation shall keep either at its principal executive office or at the office of its transfer agent or registrar (if either is appointed), as determined by resolution of the Board of Directors, a record of its shareholders listing the names and addresses of all shareholders and the number and class of shares held by each shareholder. A shareholder or shareholders of the corporation holding at least five percent (5%) in the aggregate of the outstanding voting shares of the corporation, or a shareholder or shareholders holding at least one percent (1%) of such voting shares who have filed a Schedule 14B with the United States Securities and Exchange Commission relating to the election of directors, shall have an absolute right to do either or both of the following (i) inspect and copy the record of shareholders' names, addresses, and shareholdings during usual business hours upon five (5) days' prior written demand upon the corporation, or (ii) obtain from the transfer agent for the corporation, upon written demand and upon the tender of such transfer agent's usual charges for such list (the amount of which charges shall be stated to the shareholder by the transfer agent upon request), a list of the shareholders' names and addresses who are entitled to vote for the election of directors, and their shareholdings, as of the most recent record date for which it has been compiled or as of a date specified by the shareholder subsequent to the date of demand. The list shall be made available on or before the later of five (5) business days after the demand is received or the date specified therein as the date as of which the list is to be compiled. The record of shareholders shall also be open to inspection and copying by any shareholder or holder of a voting trust certificate at any time during usual business hours upon written demand on the corporation, for a purpose reasonably related to the holder's interests as a shareholder or holder of a voting trust certificate. Any inspection and copying under this Section 8.1 may be made in person or by an agent or attorney of the shareholder or holder of a voting trust certificate making the demand. 13 8.2 Maintenance and Inspection of Bylaws. The corporation shall keep at its principal executive office the original or a copy of these Bylaws as amended to date, which shall be open to inspection by the shareholders at all reasonable times during office hours. 8.3 Maintenance and Inspection of Other Corporate Records. The accounting books and records and the minutes of proceedings of the shareholders and the Board of Directors, and committees of the Board of Directors shall be kept at a place or places as are designated by the Board of Directors or, in absence of such designation, at the principal executive office of the corporation. The minutes shall be kept in written form, and the accounting books and records shall be kept either in written form or in any other form capable of being converted into written form. The minutes and accounting books and records shall be open to inspection upon the written demand on the corporation of any shareholder or holder of a voting trust certificate at any reasonable time during usual business hours, for a purpose reasonably related to that holder's interests as a shareholder or as the holder of a voting trust certificate. Inspection by a shareholder or holder of a voting trust certificate may be made in person or by an agent or attorney and the right of inspection includes the right to copy and make extracts. Rights of inspection shall extend to the records of each subsidiary corporation of the corporation. 8.4 Inspection by Directors. Every director shall have the absolute right at any reasonable time to inspect and copy all books, records, and documents of every kind and to inspect the physical properties of the corporation and each of its subsidiary corporations, domestic or foreign. Inspection by a director may be made in person or by an agent or attorney and the right of inspection includes the right to copy and make extracts. 8.5 Annual Report to Shareholders; Waiver. The Board of Directors shall cause an annual report to be sent to the shareholders not later than one hundred twenty (120) days after the close of the fiscal year adopted by the corporation. The annual report shall be sent to the shareholders at least fifteen (15) (or, if sent by third-class mail, thirty-five (35)) days prior to the annual meeting of shareholders to be held during the next fiscal year and in the manner specified in Section 3.5 of these Bylaws for giving notice to shareholders of the corporation. The annual report shall contain a balance sheet as of the end of the fiscal year and an income statement and statement of cash flows for the fiscal year, accompanied by any report thereon of independent accountants or, if there is no such report, the certificate of an authorized officer of the corporation that the statements were prepared without audit from the books and records of the corporation. The foregoing requirement of an annual report shall be waived so long as the shares of the corporation are held by fewer than one hundred (100) holders of record. 8.6 Financial Statements. If no annual report for the fiscal year has been sent to shareholders, then the corporation shall, upon the written request of any shareholder made more than one hundred twenty (120) days after the close of such fiscal year, deliver or mail to the person making the request, within thirty (30) days thereafter, a copy of a balance sheet as of the end of such fiscal year and an income statement and statement of changes in financial position for such fiscal year. A shareholder or shareholders holding at least five percent (5%) of the outstanding shares of any class of the corporation may make a written request to the corporation for an income statement of the corporation for the three-month, six-month or nine-month period of the current fiscal year ended more than thirty (30) days prior to the date of the request and a balance sheet of the corporation as of the end of that period. The statements shall be delivered or mailed to the person making the request within thirty (30) days thereafter. A copy of the statements shall be kept on file in the principal office of the corporation for twelve (12) months and it shall be exhibited at all reasonable times to any shareholder demanding an examination of the statements or 14 a copy shall be mailed to the shareholder. If the corporation has not sent to the shareholders its annual report for the last fiscal year, the statements referred to in the first paragraph of this Section 8.6 shall likewise be delivered or mailed to the shareholder or shareholders within thirty (30) days after the request. The quarterly income statements and balance sheets referred to in this section shall be accompanied by the report thereon, if any, of any independent accountants engaged by the corporation or the certificate of an authorized officer of the corporation that the financial statements were prepared without audit from the books and records of the corporation. 8.7 Representation of Shares of Other Corporations. The Chairman of the Board, the President, any Vice President, the Chief Financial Officer, the Secretary or Assistant Secretary of this corporation, or any other person authorized by the Board of Directors or the President or a Vice President, is authorized to vote, represent, and exercise on behalf of this corporation all rights incident to any and all shares of any other corporation standing in the name of this corporation. The authority herein granted may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by a person having that authority. ARTICLE IX GENERAL MATTERS 9.1 Record Date for Purposes Other than Notice and Voting. For purposes of determining the shareholders entitled to receive payment of any dividend or other distribution or allotment of any rights or entitled to exercise any rights in respect of any other lawful action (other than with respect to notice or voting at a shareholders meeting or action by shareholders by written consent without a meeting), the Board of Directors may fix, in advance, a record date, which shall not be more than sixty (60) days prior to any such action. Only shareholders of record at the close of business on the record date are entitled to receive the dividend, distribution or allotment of rights, or to exercise the rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date, except as otherwise provided in the Articles of Incorporation or the Code. If the Board of Directors does not so fix a record date, then the record date for determining shareholders for any such purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto or the sixtieth (60th) day prior to the date of that action, whichever is later. 9.2 Checks, Drafts, Evidences of Indebtedness. From time to time, the Board of Directors shall determine by resolution which person or persons may sign or endorse all checks, drafts, other orders for payment of money, notes or other evidences of indebtedness that are issued in the name of or payable to the corporation, and only the persons so authorized shall sign or endorse those instruments. 9.3 Corporate Contracts and Instruments, How Executed. The Board of Directors, except as otherwise provided in these Bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation. This authority may be general or confined to specific instances. Unless so authorized or ratified by the Board of Directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. 15 9.4 Certificates for Shares. A certificate or certificates for shares of the corporation shall be issued to each shareholder when any of such shares are fully paid. The Board of Directors may authorize the issuance of certificates for shares partly paid provided that these certificates shall state the total amount of the consideration to be paid for them and the amount actually paid. All certificates shall be signed in the name of the corporation by the Chairman of the Board or the Vice Chairman of the Board or the President or a Vice President or the Chief Executive Officer and by the Chief Financial Officer or an Assistant Treasurer or the Secretary or an Assistant Secretary, certifying the number of shares and the class or series of shares owned by the shareholder. Any or all of the signatures on the certificate may be by facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed on a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if that person were an officer, transfer agent or registrar at the date of issue. 9.5 Lost Certificates. Except as provided in this Section 9.5, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the corporation or its transfer agent or registrar and canceled at the same time. The Board of Directors may, in case any share certificate or certificate for any other security is lost, stolen or destroyed (as evidenced by a written affidavit or affirmation of such fact), authorize the issuance of replacement certificates on such terms and conditions as the Board may require. The Board may require indemnification of the corporation secured by a bond or other adequate security sufficient to protect the corporation against any claim that may be made against it, including any expense or liability, on account of the alleged loss, theft or destruction of the certificate or the issuance of the replacement certificate. ARTICLE X AMENDMENTS 10.1 Amendment by Shareholders. New Bylaws may be adopted or these Bylaws may be amended or repealed by the vote or written consent of holders of a majority of the outstanding shares entitled to vote; provided, however, that if the Articles of Incorporation of the corporation set forth the number of authorized Directors of the corporation, then the authorized number of Directors may be changed only by an amendment of the Articles of Incorporation. 10.2 Amendment by Directors. Subject to the limitations set forth in Sections 204(a)(5) and 212 of the California Corporations Code, these Bylaws may be adopted, amended or repealed by the Board of Directors, except that no amendment to the Bylaws which changes the authorized number of directors (other than to fix the authorized number of directors within the minimum and maximum number specified in these Bylaws) shall be effective without the approval of that amendment by a majority of the outstanding shares entitled to vote. 10.3 Record of Amendments. Whenever an amendment or new Bylaw is adopted, it shall be copied in the book of minutes with the original Bylaws. If any Bylaw is repealed, the fact of repeal, with the date of the meeting at which the repeal was enacted or written consent was filed, shall be stated in said book. 16 SECRETARY'S CERTIFICATE OF ADOPTION OF BYLAWS OF ZAPWORLD.COM I, the undersigned, do hereby certify that: 1. I am the duly elected and acting Secretary of ZAPWORLD.COM, a California corporation. 2. The foregoing document, consisting of 17 pages, contains the Bylaws of that corporation as duly adopted by the Board of Directors and shareholders of that corporation on June 24th, 2000. IN WITNESS WHEREOF, I have hereunto subscribed my name this 24th day of June, 2000. /s/ Signature --------------------------------- By: BYLAWS OF ZAPWORLD.COM EX-4.8 9 0009.txt 1999 INCENTIVE STOCK PLAN ZAPWORLD.COM. 1999 INCENTIVE STOCK PLAN 1. PURPOSES. a. The purpose of this Plan is to provide a means by which selected Employees and Directors of and Consultants to ZAPWORLD.COM. (the "Company"), and its Affiliates, may be given an opportunity to benefit from increases in value of the stock of the Company through the granting of (i) Incentive Stock Options, (ii) Nonstatutory Stock Options, (iii) stock bonuses, (iv) rights to purchase restricted stock, and (v) stock appreciation rights, all as defined below. b. The Company intends that the Stock Awards issued under this Plan shall, in the discretion of the Board or any Committee to which responsibility for administration of this Plan has been delegated pursuant to subsection 3.c, be either (i) Options granted pursuant to Section 6 hereof, including Incentive Stock Options and Nonstatutory Stock Options, or (ii) stock bonuses or rights to purchase restricted stock granted pursuant to Section 7 hereof, or (iii) Stock Appreciation Rights granted pursuant to Section 8 hereof. 2. DEFINITIONS. a. "Affiliate" means any parent corporation or subsidiary corporation, whether now or hereafter existing, as those terms are defined in Sections 424(e) and (f) respectively, of the Code. b. "Board" means the Board of Directors of the Company. c. "Code" means the Internal Revenue Code of 1986, as amended. d. "Committee" means a committee of directors of the Company appointed by the Board in accordance with subsection 3.c of this Plan. e. "Company" means ZAPWORLD.COM., a California corporation. f. "Concurrent Stock Appreciation Right" or "Concurrent Right" means a right granted pursuant to subsection 8.b.ii of this Plan. g. "Consultant" means any person, including an advisor, engaged by the Company or an Affiliate to render consulting services and who is compensated for such services, provided that the term "Consultant" shall not include Directors who are paid only a director's fee by the Company or who are not compensated by the Company for their services as Directors. h. "Continuous Status as an Employee, Director or Consultant" means that the service of an individual to the Company, whether as an Employee, Director or Consultant, is not interrupted or terminated. The Board or the chief executive officer of the Company may determine, in that party's sole discretion, in its sole discretion, may determine whether Continuous Status as an Employee, Director or Consultant shall be considered interrupted in the case of: (i) any leave of absence approved by the Board or the chief executive officer, including sick leave, military leave, or any other personal leave; or (ii) transfers between the Company, Affiliates or their successors. i. "Covered Employee" means the chief executive officer and the four (4) other highest compensated officers of the Company for whom total compensation is required to be reported to shareholders under the Exchange Act, as determined for purposes of Section 162(m) of the Code. j. "Director" means a member of the Board. k. "Employee" means any person, including Officers and Directors, employed by the Company or any Affiliate of the Company. Neither service as a Director nor payment of a director's fee by the Company shall be itself sufficient to constitute "employment" by the Company. l. "Exchange Act" means the Securities Exchange Act of 1934, as amended. m. "Fair Market Value" means, as of any date, the value of the common stock of the Company determined as follows: i. If the common stock is listed on any national securities exchange or traded on the NASDAQ National Market or the NASDAQ Small Cap Market, the Fair Market Value of a share of common stock shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or market (or the exchange or market with the greatest volume of trading in the Company's common stock) on the last market trading day prior to the day of determination, as reported in The Wall Street Journal or such other source as the Board deems reliable. ii. In the absence of such markets for the common stock, the Fair Market Value shall be determined in good faith by the Board. n. "Incentive Stock Option" means an Option intended to qualify as an incentive stock option within the meaning of Section 421 of the Code and the regulations promulgated thereunder. o. "Independent Stock Appreciation Right" or "Independent Right" means a right granted pursuant to subsection 8.b.iii of this Plan. p. "Non-Employee Director" means a Director who: (i) is not a current Employee or Officer of the Company or its parent or subsidiary; (ii) does not receive compensation (directly or indirectly) from the Company or its parent or subsidiary for services rendered as a consultant or in any capacity other than as a Director; (iii) does not possess an interest in any 2 other transaction which the Company would be required to disclosure in filings with the Securities and Exchange Commission; (iv) is not engaged in a business relationship with the Company which the Company would be required to so disclose under Regulation S-K; or (v) is otherwise considered a "non-employee director" for purposes of Rule 16b-3. q. "Nonstatutory Stock Option" means an Option not intended to qualify as an Incentive Stock Option. r. "Officer" means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. s. "Option" means a stock option granted pursuant to this Plan. t. "Option Agreement" means a written agreement between the Company and an Optionee evidencing the terms and conditions of an individual Option grant. Each Option Agreement shall be subject to the terms and conditions of this Plan. u. "Optionee" means an Employee, Director or Consultant who holds an outstanding Option. v. "Outside Director" means a Director who: (i) is not a current employee of the Company or an "affiliated corporation" (within the meaning of Treasury regulations promulgated under Section 162(m) of the Code); (ii) is not a former employee of the Company or an "affiliated corporation" receiving compensation for prior services (other than benefits under a tax qualified pension plan); (iii) was not an officer of the Company or an "affiliated corporation" at any time, and is not currently receiving direct or indirect remuneration from the Company or an "affiliated corporation" for services in any capacity other than as a Director, or (iv) is otherwise considered an "outside director" for purposes of Section 162(m) of the Code. w. "Plan" means this ZAPWORLD.COM. 1999 Stock Incentive Plan. x. "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any successor to Rule 16b-3, as in effect when discretion is being exercised with respect to this Plan. y. "Securities Act" means the Securities Act of 1933, as amended. z. "Stock" means, unless the context otherwise requires, the Common Stock of the Company. aa. "Stock Appreciation Right" means any of the various types of rights which may be granted under Section 8 of this Plan. bb. "Stock Award" means any right granted under this Plan, including any Option, any stock bonus, any right to purchase restricted stock, and any Stock Appreciation Right. 3 cc. "Stock Award Agreement" means a written agreement between the Company and a holder of a Stock Award evidencing the terms and conditions of an individual Stock Award grant. Each Stock Award Agreement shall be subject to the terms and conditions of this Plan. dd. "Tandem Stock Appreciation Right" or "Tandem Right" means a right granted pursuant to subsection 8.b.i of this Plan. 3. ADMINISTRATION. a. General Administration. This Plan shall be administered by the Board unless and until the Board delegates administration to a Committee, as provided in subsection 3.c. b. Powers of Board. The Board shall have the power, subject to, and within the limitations of, the express provisions of this Plan: i. To determine from time to time which of the persons eligible under this Plan shall be granted Stock Awards; when and how each Stock Award shall be granted; whether a Stock Award will be an Incentive Stock Option, a Nonstatutory Stock Option, a stock bonus, a right to purchase restricted stock, a Stock Appreciation Right, or a combination of the foregoing; the provisions of each Stock Award granted (which need not be identical), including the time or times when a person shall be permitted to receive stock pursuant to a Stock Award; whether a person shall be permitted to receive stock upon exercise of an Independent Stock Appreciation Right; and the number of shares with respect to which a Stock Award shall be granted to each such person. ii. To construe and interpret this Plan and Stock Awards granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in this Plan or in any Stock Award Agreement, in a manner and to the extent it shall deem necessary or expedient to make this Plan fully effective. iii. To amend this Plan or a Stock Award as provided in Section 12. iv. Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient which are not inconsistent with the terms of this Plan to promote the best interests of the Company. c. The Committee. The Board may delegate administration of this Plan to a committee of the Board composed of not fewer than two (2) members (the "Committee"). No less than a majority of the members of the Committee shall be Non-Employee Directors and/or Outside Directors. If administration is delegated to a Committee, the Committee shall have, in connection with the administration of this Plan, the powers theretofore possessed by the Board, including the power to delegate to a subcommittee of two (2) or more Outside Directors any of the administrative powers the Committee is authorized to exercise (and references in this Plan to the Board shall thereafter be to the Committee or such a 4 subcommittee), subject, however, to such resolutions, not inconsistent with the provisions of this Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of this Plan. Notwithstanding anything in this Section 3 to the contrary, the Board or the Committee may delegate to a committee of one or more members of the Board the authority to grant Stock Awards to eligible persons who (1) are not then subject to Section 16 of the Exchange Act and/or (2) are either: (i) not then Covered Employees and are not expected to be Covered Employees at the time of recognition of income resulting from such Stock Award; or (ii) not persons with respect to whom the Company wishes to comply with Section 162(m) of the Code. 4. SHARES SUBJECT TO PLAN. a. Number of Shares. Subject to the provisions of Section 11 relating to adjustments upon changes in stock, the Company may issue a maximum of 2,000,000 shares of its Common Stock under this Plan. b. Source of Stock. The stock subject to this Plan may be unissued shares or reacquired shares bought on the market or otherwise. 5. ELIGIBILITY. a. General. Incentive Stock Options and Stock Appreciation Rights appurtenant thereto may be granted only to Employees. Stock Awards other than Incentive Stock Options and Stock Appreciation rights appurtenant thereto may be granted only to Employees, Directors or Consultants. b. Major Shareholders. An Incentive Stock Option or Nonstatutory Stock Option granted to a person who owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any of its Affiliates must have an exercise price of at least one hundred ten percent (110%) of the Fair Market Value of such stock at the date of grant. In addition, an Incentive Stock Option granted to a person described in the previous sentence may only be exercised for a period of five years after the date of grant. 5 6. OPTION PROVISIONS. Each Option shall be in the form of an agreement executed by the Optionee. The Option agreement shall contain such terms and conditions as the Board shall deem appropriate, provided that no terms may be contrary to the provisions of this Plan. The provisions of separate Options need not be identical, but each Option shall include (through incorporation of provisions hereof by reference in the Option or otherwise) the substance of each of the following provisions: a. Term. No Option shall be exercisable after the expiration of ten (10) years from the date it was granted. b. Price. The exercise price of each Incentive Stock Option shall be not less than one hundred percent (100%) of the Fair Market Value of the stock subject to the Option on the date the Option is granted. The exercise price of each Nonstatutory Stock Option shall be no less than eighty-five percent (85%) of the Fair Market Value of the stock subject to the Option on the date of grant. Notwithstanding the foregoing, an Option (whether an Incentive Stock Option or a Nonstatutory Stock Option) may be granted with an exercise price lower than that set forth in the preceding sentence if such Option is granted pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Section 424(a) of the Code. c. Consideration. The purchase price of stock acquired pursuant to an Option shall be paid, to the extent permitted by applicable statutes and regulations, in cash at the time the Option is exercised. In addition, the Board of Directors may allow for the Option to be exercised by means of any of the following methods: (i) by delivery and surrender to the Company of other common stock of the Company owned by the Optionee; (ii) by delivery of a promissory note with a term of no more than four years and with an interest rate on the unpaid balance accumulating at a rate of no less than the Applicable Federal Rate announced by the Department of the Treasury as of the date the note is issued; (iii) by surrender by the Optionee of the right to purchase that number of shares under the Option with a fair market value equal to the exercise price; (iv) such other methods of exercising the Option which are allowed under applicable state and federal law. d. Transferability. An Incentive Stock Option shall not be transferable except by Will or by the laws of descent and distribution, and shall be exercisable during the lifetime of the person to whom the Incentive Stock Option is granted only by such person. A Nonstatutory Stock Option shall only be transferable by the Optionee upon such terms and conditions as are set forth in the Option Agreement for such Nonstatutory Stock Option, as the Board or the Committee shall determine in its discretion. Notwithstanding the foregoing, the person to whom the Option is granted may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionee, shall thereafter be entitled to exercise the Option. e. Vesting. The total number of shares of stock subject to an Option may, but need not, be allotted in periodic installments (which may, but need not, be equal). The Option 6 Agreement may provide that from time to time during each of such installment periods, the Option may become exercisable ("vest") with respect to some or all of the shares allotted to that period, and may be exercised with respect to some or all of the shares allotted to such period and/or any prior period as to which the Option became vested but was not fully exercised. The Option may be subject to such other terms and conditions on the time or times when it may be exercised (which may be based on performance or other criteria) as the Board may deem appropriate, provided that in no event will stock options vest at a rate of less than 20% of the shares subject to the Option per annum. f. Termination of Employment or Relationship as a Director or Consultant. In the event an Optionee's Continuous Status as an Employee, Director or Consultant terminates (other than upon the Optionee's death or disability), the Optionee may exercise his or her Option (to the extent that the Optionee was entitled to exercise it at the date of termination) but only within such period of time ending on the earlier of: (i) the date three (3) months after the termination of the Optionee's Continuous Status as an Employee, Director or Consultant (or such longer or shorter period specified in the Option Agreement or by the Board of Directors), or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, at the date of termination, the Optionee is not entitled to exercise his or her entire Option, the shares covered by the unexercisable portion of the Option shall revert to and again become available for issuance under this Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified in the Option Agreement, the Option shall terminate, and the shares covered by such Option shall revert to and again become available for issuance under this Plan. g. Disability of Optionee. In the event an Optionee's Continuous Status as an Employee, Director or Consultant terminates as a result of the Optionee's disability, the Optionee may exercise his or her Option (to the extent that the Optionee was entitled to exercise it at the date of termination), but only within such period of time ending on the earlier of: (i) the date twelve (12) months following such termination (or such longer or shorter period specified in the Option Agreement; or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, at the date of termination, the Optionee is not entitled to exercise his or her entire Option, the shares covered by the unexercisable portion of the Option shall revert to and again become available for issuance under this Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the shares covered by such Option shall revert to and again become available for issuance under this Plan. h. Death of Optionee . In the event of the death of an Optionee during, or within a period specified in the Option after the termination of, the Optionee's Continuous Status as an Employee, Director or Consultant, the Option may be exercised (to the extent the Optionee was entitled to exercise the Option at the date of death) by the Optionee's estate, by a person who acquired the right to exercise the Option by bequest or inheritance or by a person designated to exercise the option upon the Optionee's death pursuant to subsection 6.d, but only within the period ending on the earlier of (i) the date twelve (12) months following the date of death; or (ii) the expiration of the term of such Option as set forth in the Option Agreement. If, at the time of death, the Optionee was not entitled to exercise his or her 7 entire Option, the shares covered by the unexercisable portion of the Option shall revert to and again become available for issuance under this Plan. If, after death, the Option is not exercised within the time specified herein, the Option shall terminate, and the shares covered by such Option shall revert to and again become available for issuance under this Plan. i. Early Exercise. The Option may, but need not, include a provision whereby the Optionee may elect at any time while an Employee, Director or Consultant to exercise the Option as to any part or all of the shares subject to the Option prior to the full vesting of the Option. Any unvested shares so purchased may be subject to a repurchase right in favor of the Company or to any other restriction the Board determines to be appropriate. j. Re-Load Options. Without in any way limiting the authority of the Board or Committee to make or not to make grants of Options hereunder, the Board or Committee shall have the authority (but not an obligation) to include as part of any Option Agreement a provision entitling the Optionee to a further Option (a "Re-Load Option") in the event the Optionee exercises the Option evidenced by the Option agreement, in whole or in part, by surrendering other shares of Common Stock in accordance with this Plan and the terms and conditions of the Option Agreement. Any such Re-Load Option (i) shall be for a number of shares equal to the number of shares surrendered as part or all of the exercise price of such Option; (ii) shall have an expiration date which is the same as the expiration date of the Option the exercise of which gave rise to such Re-Load Option; and (iii) shall have an exercise price which is equal to one hundred percent (100%) of the Fair Market Value of the Common Stock subject to the Re-Load Option on the date of exercise of the original Option. Notwithstanding the foregoing, a Re-Load Option which is granted to a 10% stockholder (as described in subsection 5.b ), shall have an exercise price which is equal to one hundred ten percent (110%) of the Fair Market Value of the stock subject to the Re-Load Option on the date of exercise of the original Option and shall have a term which is no longer than five (5) years. Any such Re-Load Option may be an Incentive Stock Option or a Nonstatutory Stock Option, as the Board or Committee may designate at the time of the grant of the original Option; provided, however, that the designation of any Re-Load Option as an Incentive Stock Option shall be subject to the one hundred thousand dollar ($100,000) annual limitation on exercisability of Incentive Stock Options described in subsection 10.d of this Plan and in Section 422(d) of the Code. There shall be no Re-Load Options on a Re-Load Option. Any such Re-Load Option shall be subject to the availability of sufficient shares under this Plan and the limits on the grants of Options as provided elsewhere under this Plan and shall be subject to such other terms and conditions as the Board or Committee may determine which are not inconsistent with the express provisions of this Plan regarding the terms of Options. 8 7. TERMS OF STOCK GRANTS Each stock bonus or restricted stock purchase agreement shall be in such form and shall contain such terms and conditions as the Board or the Committee shall deem appropriate. The terms and conditions of stock bonus or restricted stock purchase agreements may change from time to time, and the terms and conditions of separate agreements need not be identical, but each stock bonus or restricted stock purchase agreement shall include (through incorporation of provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions as appropriate: a. Purchase Price. The purchase price under each restricted stock purchase agreement shall be such amount as the Board or Committee shall determine and designate in such agreement. In any event, the Board or the Committee may determine that eligible participants in this Plan may be awarded stock pursuant to a stock bonus agreement in consideration for past services actually rendered to the Company or for its benefit. b. Transferability. No rights under a stock bonus or restricted stock purchase agreement shall be transferable except by Will or the laws of descent and distribution, or otherwise only upon such terms and conditions as are set forth in the applicable Stock Award Agreement, as the Board or the Committee shall determine in its discretion, so long as stock awarded under such agreement remains subject to the terms of that agreement. c. Consideration. The purchase price of stock acquired pursuant to a stock purchase agreement shall be paid either: (i) in cash at the time of purchase; (ii) at the discretion of the Board or the Committee, according to a deferred payment arrangement, or; ( iii) in any other form of legal consideration that may be acceptable to the Board or the Committee in its discretion. Notwithstanding the foregoing, the Board or the Committee may award stock pursuant to a stock bonus agreement in consideration for past services actually rendered to the Company or for its benefit. d. Vesting. Shares of stock sold or awarded under this Plan may, but need not, be subject to a repurchase option in favor of the Company in accordance with a vesting schedule to be determined by the Board or the Committee. e. Termination of Employment or Relationship as a Director or Consultant. In the event a Participant's Continuous Status as an Employee, Director or Consultant terminates, the Company may repurchase or otherwise reacquire, any or all of the shares of stock held by that person which have not vested as of the date of termination under the terms of the stock bonus or restricted stock purchase agreement between the Company and such person. 9 8. STOCK APPRECIATION RIGHTS. a. General. The Board or Committee shall have full power and authority, exercisable in its sole discretion, to grant Stock Appreciation Rights under this Plan to Employees or Directors of or Consultants to the Company or its Affiliates. To exercise any outstanding Stock Appreciation Right, the holder must provide written notice of exercise to the Company in compliance with the terms of the Stock Award Agreement evidencing such right. No limitation shall exist on the aggregate amount of cash payments the Company may make under this Plan in connection with the exercise of a Stock Appreciation Right. b. Types of Stock Appreciation Rights. Three types of Stock Appreciation Rights shall be authorized for issuance under this Plan: i. Tandem Stock Appreciation Rights. Tandem Stock Appreciation Rights will be granted appurtenant to an Option, and shall, except as specifically set forth in this Section 8, be subject to the same terms and conditions applicable to the particular Option grant to which it pertains. Tandem Stock Appreciation Rights will require the holder to elect between the exercise of the underlying Option for shares of stock and the surrender, in whole or in part, of such Option for an appreciation distribution. The appreciation distribution payable on the exercised Tandem Right shall be in cash (or, if so provided, in an equivalent number of shares of stock based on the Fair Market Value (on the date of the Option surrender) in an amount up to the excess of (A) the Fair Market Value (on the date of the Option surrender) of the amount of shares of stock covered by that portion of the surrendered Option in which the Optionee is vested over (B) the aggregate exercise price payable for such vested shares. ii. Concurrent Stock Appreciation Rights. Concurrent Rights will be granted appurtenant to an Option and may apply to all or any portion of the shares of stock subject to the underlying Option and shall, except as specifically set forth in this Section 8, be subject to the same terms and conditions applicable to the particular Option grant to which the Concurrent Right pertains. A Concurrent Right shall be exercised automatically at the same time the underlying Option is exercised with respect to the particular shares of stock to which the Concurrent Right pertains. The appreciation distribution payable on an exercised Concurrent Right shall be in cash (or, if so provided, in an equivalent number of shares of stock based on the Fair Market Value on the date of exercise of the Concurrent Right) in an amount equal to such portion as shall be determined by the Board or the Committee at the time of the grant of the excess of (A) the aggregate Fair Market Value (on the date of the exercise of the Concurrent Right) of the vested shares of stock purchased under the underlying Option which have Concurrent Rights appurtenant to them over (B) the aggregate exercise price paid for such shares. iii. Independent Stock Appreciation Rights. Independent Rights will be granted independently of any Option and shall, except as specifically set forth in this Section 8, be subject to the same terms and conditions applicable to Nonstatutory Stock Options. Independent Rights will be denominated in share equivalents. The appreciation distribution payable on the exercised Independent Right shall be not greater than an amount equal to the excess of (A) the aggregate Fair Market Value (on the date of the exercise of the Independent 10 Right) of a number of shares of Company stock equal to the number of share equivalents in which the holder is vested under such Independent Right, and with respect to which the holder is exercising the Independent Right on such date, over (B) the aggregate Fair Market Value (on the date of the grant of the Independent Right) of such number of shares of Company stock. The appreciation distribution payable on the exercised Independent Right shall be in cash or, if so provided, in an equivalent number of shares of stock based on the Fair Market Value on the date of the exercise of the Independent Right. 9. CANCELLATION AND RE-GRANT OF OPTIONS. a. Change in Terms. The Board or the Committee shall have the authority to effect, at any time and from time to time with the consent of the Optionee or holder of the Stock Appreciation Rights, to (i) reprice any outstanding Options and/or Stock Appreciation Rights under this Plan and/or (ii) cancel any outstanding Options and/or Stock Appreciation Rights and grant in substitution therefor new Options and/or Stock Appreciation Rights covering the same or different numbers of shares of stock, but having an exercise price per share not less than one hundred percent (100%) of the Fair Market Value in the case of an Incentive Stock Option or, in the case of a 10% stockholder (as described in subsection 5.b) receiving a new grant of an Incentive Stock Option, not less than one hundred ten percent (110%) of the Fair Market Value) per share of stock on the new grant date. Notwithstanding the foregoing, the Board or the Committee may grant an Option and/or Stock Appreciation Right with an exercise price lower than that set forth above if such Option and/or Stock Appreciation Right is granted as part of a transaction to which Section 424(a) of the Code applies. b. Effect of Cancellation. Shares subject to an Option or Stock Appreciation Right canceled under this Section 9 shall continue to be counted against the maximum award of Options or Stock Appreciation Rights permitted to be granted pursuant to this Plan. The repricing of an Option or Stock Appreciation Right under this Section 9, resulting in a reduction of the exercise price, shall be deemed to be a cancellation of the original Option or Stock Appreciation Right and the grant of a substitute Option and/or Stock Appreciation Right. In the event of such repricing, both the original and the substituted Options shall be counted against the maximum awards of Options and Stock Appreciation Rights permitted to be granted pursuant to this Plan, if any. The provisions of this subsection 9.b) shall be applicable only to the extent required by Section 162(m) of the Code. 10. MISCELLANEOUS. a. Acceleration. The Board shall have the power to accelerate the time at which a Stock Award may first be exercised or the time during which a Stock Award or any part thereof will vest, notwithstanding the provisions in the Stock Award stating the time at which it may first be exercised or the time during which it will vest. b. No Rights as Shareholder. Neither an Employee, Director or Consultant, nor any person to whom a Stock Award is transferred shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares subject to such Stock Award unless 12 and until such person has satisfied all requirements for exercise of the Stock Award pursuant to its terms. c. No Agreement for Employment. Nothing in this Plan, or any instrument executed or Stock Award granted pursuant hereto, shall confer upon any Employee, Director or Consultant or other holder of Stock Awards any right to continue in the employ of the Company or any Affiliate (or to continue acting as a Director of or Consultant) or shall affect the right of the Company or any Affiliate to terminate the employment of any Employee with or without cause, the right of the Company's Board and or the Company's shareholders to remove any Director pursuant to the terms of the Company's ByLaws and the laws of the State of California, or the right to terminate the relationship of any Consultant pursuant to the terms of such Consultant's agreement with the Company or Affiliate. d. Limitations on Incentive Stock Options. To the extent that the aggregate Fair Market Value (determined at the time of grant) of stock with respect to which Incentive Stock Options are exercisable for the first time by any Optionee during any calendar year under all plans of the Company and its Affiliates exceeds one hundred thousand dollars ($100,000), the Options or portions thereof which exceed such limit (according to the order in which they were granted) shall be treated as Nonstatutory Stock Options. e. Investment Representations. The Company may require any person to whom a Stock Award is granted, or any person to whom a Stock Award is transferred, as a condition of exercising or acquiring stock under any Stock Award, (i) to give written assurances satisfactory to the Company as to such person's knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters, and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the Stock Award; and (ii) to give written assurances satisfactory to the Company stating that such person is acquiring the stock subject to the Stock Award for such person's own account and not with any present intention of selling or otherwise distributing the stock. The foregoing requirements, and any assurances given pursuant to such requirements, shall be inoperative if: (i) the issuance of the shares upon the exercise or acquisition of stock under the Stock Award has been registered under a then currently effective registration statement under the Securities Act; or (ii) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. The Company may, upon advice of counsel to the Company, place legends on stock certificates issued under this Plan as such counsel deems necessary or appropriate in order to comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the stock. f. Tax Payments. To the extent provided by the terms of a Stock Award Agreement, the person to whom a Stock Award is granted may satisfy any federal, state or local tax withholding obligation relating to the exercise or acquisition of stock under a Stock Award by any of the following means or by a combination of such means: (i) tendering a cash payment; (ii) authorizing the Company to withhold shares from the shares of the common stock otherwise issuable to the participant as a result of the exercise or acquisition of stock under the 12 Stock Award; or (iii) delivering to the Company owned and unencumbered shares of the common stock of the Company. 11. ADJUSTMENTS UPON CHANGES IN STOCK. a. General. If any change is made in the stock subject to this Plan, or subject to any Stock Award (through merger, consolidation, reorganization, recapitalization, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by the Company), this Plan will be appropriately adjusted in the type(s) and maximum number of securities subject to this Plan, and the outstanding Stock Awards will be appropriately adjusted in the type(s) and number of securities and price per share of stock subject to such outstanding Stock Awards. Such adjustments shall be made by the Board or the Committee, the determination of which shall be final, binding and conclusive. (The conversion of any convertible securities of the Company shall not be treated as a "transaction not involving the receipt of consideration by the Company.") b. Reorganization. If the Company enters into an Acquisition Transaction (as defined below) and the surviving or acquiring business entity agrees to assume the obligations of the Company with respect to Stock Awards, the recipients of Stock Awards under this Plan will be entitled to receive substitute Stock Awards from the acquiring or surviving business entity which provide similar rights to those which they possessed in the Company. If the surviving or acquiring business entity does not agree to assume or continue such Stock Awards, or to substitute similar options for such Stock Awards outstanding under this Plan, then, with respect to Stock Awards held by persons then performing services as Employees, Directors or Consultants, the time during which such Stock Awards may be exercised shall be accelerated and the Stock Awards terminated if not exercised after such acceleration and at or prior to such event. For the purposes of this subsection 11.b, an "Acquisition Transaction" shall be defined as: (i) a sale of all or substantially all of the Company's assets other than in the ordinary course of business, followed by a liquidation of the Company's assets to its shareholders; (ii) a merger of the Company into or consolidation of the Company with another business entity in which the Corporation is not the surviving entity (other than a merger or consolidation for the purposes of reincorporating the Company in another jurisdiction or if the existing shareholders of the Company prior to the merger or consolidation own over 50% of the voting securities of the surviving business entity after the transaction); or (iii) a reverse merger in which the Company is the surviving entity but the shares of the Company's Common Stock are converted by virtue of the merger into other property. 12. AMENDMENT OF THE PLAN AND STOCK AWARDS. a. Authority to Amend. The Board at any time, and from time to time, may amend this Plan. However, except as provided in Section 11 relating to adjustments upon changes in stock, no amendment shall be effective unless approved by the shareholders of the Company within twelve (12) months before or after the adoption of the amendment, where the amendment will: 13 i. Increase the number of shares reserved for Stock Awards under this Plan; ii. Modify the requirements as to eligibility for participation in this Plan (to the extent such modification requires stockholder approval in order for this Plan to satisfy the requirements of Section 422 of the Code); or iii. Modify this Plan in any other way if such modification requires stockholder approval in order for this Plan to satisfy the requirements of Section 422 of the Code or to comply with the requirements of Rule 16b-3. b. Shareholder Approval. The Board may in its sole discretion submit any other amendment to this Plan for stockholder approval, including, but not limited to, amendments to this Plan intended to satisfy the requirements of Section 162(m) of the Code and the regulations promulgated thereunder regarding the exclusion of performance-based compensation from the limit on corporate deductibility of compensation paid to certain executive officers. c. Maximum Benefits. It is expressly contemplated that the Board may amend this Plan in any respect the Board deems necessary or advisable to provide eligible Employees, Directors or Consultants with the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated thereunder relating to Incentive Stock Options and/or to bring this Plan and/or Incentive Stock Options granted under it into compliance therewith. d. No Impairment of Rights. The Board at any time, and from time to time, may amend the terms of any one or more Stock Award; provided, however, that the rights and obligations under any Stock Award shall not be impaired by any such amendment unless: (i) the Company requests the consent of the person to whom the Stock Award was granted and (ii) such person consents in writing to the amendment. 13. TERMINATION OR SUSPENSION OF PLAN. a. Date of Termination/Suspension. The Board may suspend or terminate this Plan any time. Unless sooner terminated, this Plan shall terminate on the tenth anniversary date after which this Plan was adopted by the Board. No Stock Awards may be granted under this Plan while this Plan is suspended or after it is terminated. b. Existing Rights Not Impaired. Rights and obligations under any Stock Award granted while this Plan is in effect shall not be impaired by suspension or termination of this Plan, except with the consent of the person to whom the Stock Award was granted. 14. EFFECTIVE DATE OF PLAN. This Plan shall become effective upon the date adopted by the Board, provided that this Plan shall terminate and be of no further effect if the shareholders do not approve this Plan within 12 months of the date it is adopted. No Stock Awards granted under this Plan shall be exercised unless and until this Plan has been approved by the shareholders, and all Stock Awards granted under this Plan shall immediately terminate and be rescinded if such approval is not obtained within that time. 14 EX-5.1 10 0010.txt OPINION OF FOLEY & LARDNER BRUSSELS FOLEY & LARDNER ORLANDO CHICAGO SACRAMENTO DENVER ATTORNEYS AT LAW SAN DIEGO DETROIT SAN FRANCISCO JACKSONVILLE ONE MARITIME PLAZA, SIXTH FLOOR TALLAHASSEE LOS ANGELES SAN FRANCISCO, CALIFORNIA 94111-3404 TAMPA MADISON TELEPHONE: (415) 434-4484 WASHINGTON, D.C. MILWAUKEE FACSIMILE: (415) 434-4507 WEST PALM BEACH CLIENT/MATTER NUMBER 059284/0100 March 5, 2001 ZAPWORLD.COM 117 Morris Street Sebastopol, California 95472 Re: Zapworld.com Gentlemen: We have acted as counsel to Zapworld.com (the "Company"), in connection with the registration of shares of Zapworld.com Common Stock (the "Shares") as described in the Company's Registration Statement on Form S-3 filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended. We have reviewed such documents and have made such inquiries as we have deemed necessary and appropriate to render the opinion set forth herein. We have assumed that all documents that have been submitted to us as originals are true and correct and those documents submitted to us, as copies conform to the originals of those documents. The Shares are duly authorized, validly issued, fully paid and non-assessable. We are not providing an opinion as to any other statements contained in the Form S-3 Registration Statement, nor as to matters that occur after the date thereof. We consent to the filing of this opinion as an exhibit to the Form S-3 Registration Statement. Sincerely, FOLEY & LARDNER EX-23.1 11 0011.txt CONSENT OF GRANT THORNTON INDEPENDENT AUDITORS' CONSENT We have issued our reports dated March 1, 2000, accompanying the financial statements and schedules of ZAPWORLD.COM incorporated by reference in the Registration Statement and Prospectus. We consent to the use of the aforementioned reports incorporated by reference in the Registration Statement and Prospectus, and to the use of our name as it appears under the caption "Experts." GRANT THORNTON LLP San Francisco, California February 28, 2001 EX-23.2 12 0012.txt CONSENT OF FOLEY & LARDNER BRUSSELS FOLEY & LARDNER ORLANDO CHICAGO SACRAMENTO DENVER ATTORNEYS AT LAW SAN DIEGO DETROIT SAN FRANCISCO JACKSONVILLE ONE MARITIME PLAZA, SIXTH FLOOR TALLAHASSEE LOS ANGELES SAN FRANCISCO, CALIFORNIA 94111-3404 TAMPA MADISON TELEPHONE: (415) 434-4484 WASHINGTON, D.C. MILWAUKEE FACSIMILE: (415) 434-4507 WEST PALM BEACH WRITER'S DIRECT LINE 415-438-6453 EMAIL ADDRESS CLIENT/MATTER NUMBER wevers@foleylaw.com 059284/0100 March 5, 2001 Mr. Gary Starr, Chief Executive Officer ZAPWORLD.COM 117 Morris Street Sebastopol, California 95472 Re: Zapworld.com Dear Mr. Starr: This law firm consents to the incorporation of its name and its opinion letter regarding the legality of the securities being cleared for registration pursuant to a Form S-3 Registration Statement as filed with the Securities and Exchange Commission on March 7, 2001. Sincerely, FOLEY & LARDNER By: /s/ William D. Evers, Partner William D. Evers, Partner -----END PRIVACY-ENHANCED MESSAGE-----