<PAGE>
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
GALAXY ENTERPRISES, INC.
(Name of Small Business Issuer in its charter)
Nevada 88-0315212
(State of other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
890 North Industrial Park Drive, Orem, Utah 84057
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (801) 227-0004
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be registered each class is to be registered
None None
Securities to be registered under Section 12(g) of the Act:
Common Stock
(Title of class)
INFORMATION REQUIRED IN REGISTRATION
STATEMENT
PART I
Item 1. Description of Business.
(a) Business Development
(1) Form and year of organization
Galaxy Enterprises, Inc. ("Issuer", "Company" or "Galaxy") was
incorporated as a Nevada corporation on March 3, 1994 as Cipher Voice, Inc.
On December 4, 1996 the Issuer (then known as Cipher Voice, Inc.) acquired all
of the outstanding common stock of Galaxy Mall, Inc. ("GMI") in exchange for
3,600,000 shares of the Issuer's common stock. GMI, a Wyoming corporation
incorporated June 7, 1996, thus became a wholly-owned subsidiary of the
Issuer. On December 16, 1996 Cipher Voice, Inc. changed its name to Galaxy
Enterprises, Inc.
(2) Bankruptcy, receivership or similar proceedings.
Galaxy has not been the subject of any bankruptcy, receivership or
similar proceeding.
(3) Material reclassifications, mergers, consolidation, or
purchase or sale of a significant amount of assets not in the ordinary
course of business.
Effective October 1, 1997 the Issuer, through its wholly-owned
subsidiary GMI, acquired Profit Education Systems, ("PES"), a Wyoming
corporation organized April 26, 1993. The Issuer previously had used the
services of PES as a marketer of the Issuer's services and as a provider and
conductor of the Issuer's Internet education seminars. As part of the PES
acquisition, the Issuer acquired PES's marketing strategies and products,
employees and assets.
Also effective October 1, 1997 the Issuer, again through GMI, acquired
CO-OP Business Services, Inc., ("CO-OP"), a Utah corporation organized August
31, 1989. CO-OP previously had provided GMI with customer support,
electronic storefront programming, and merchant and client interface programs
for GMI's storefronts on the Galaxy Mall. As part of the transaction, the
Issuer agreed to assume approximately $85,000 of CO-OP payables and
liabilities, and assumed future payment of certain existing equipment and
other leases. CO-OP agreed to transfer to GMI its assets including computers,
office equipment and inventory.
(b) Business of Issuer
(1) Principal products or services and their markets
The Issuer was originally organized to engage in the research and
development, production and marketing of equipment related to computer
hardware security, known as a digital voice encryption-decryption electronic
device. The business was not successful, the Issuer having expended its
available capital without completing research and development necessary to
produce the computer hardware desired.
Since the acquisition of Galaxy Mall, Inc., the Issuer has been engaged
in the business of leasing to its customers electronic home pages, or
"storefronts", on its Galaxy Mall, an Internet shopping mall, and hosts those
storefront sites on its Internet server. The customer thus acquires a
presence on the Internet to advertise its products or services. Storefronts
designed by or for the customers are then programmed by the Issuer for display
on the Mall. The Galaxy Mall is located at http://www.galaxymall.com.
The Issuer contracts with consultants and independent contractors, or
creates and produces in-house, various products which it markets. Such
products include the following:
Commercial Web Sites/Web Hosting: The Company programs commercial
web sites with the most current and up to date types of Internet programming,
such as HTML, JavaScript, and Perl. Each site programmed for its
customer/merchants has available on-line ordering capabilities. All orders
processed on-line are supported by encrypted security, which provides
merchants and their customers confidence in the safety of ordering products
and services on-line. Galaxy either hosts the sites on its own infrastructure
(servers), or provides virtual hosting, which give the customer/merchant's
site the appearance of having its own web pages hosted by such
customer/merchant.
Auto-responders: Galaxy sets up e-mail addresses for its
merchants that send back to the individual requesting information an instant
reply, then forwards the original message to the owner of the auto-responder.
Similar to fax-on-demand, auto-responders are a powerful marketing tool for
merchants offering products or services. A merchant can write advertising
copy for its product and when someone inquires to the merchant's e-mail
address, the ad copy immediately is sent to the potential customer.
Tracking Software: The Company provides software for a merchant's
web site which tracks the volume of traffic to that web site. It also
provides the merchant with information concerning the derivation of its
potential customer and such person's referring universal resource locator.
This enables the merchant to track its marketing efforts to determine if its
potential customer found the merchant through the merchant's Internet
advertisements or its listings in search directories.
Internet Classified Advertisements: Galaxy sells 200 word
classified ads on its classified ad network. Each classified ad runs on the
network for 90 days. This network is comprised of thousands of listings.
Merchant Accounts: Galaxy sells merchant accounts combined with
software which allows the customer to have real time on-line processing for
credit cards and checks.
Banner Course/Banner License: The Banner Course consists of over
200 pages and 10 audio cassettes of instruction. Banners are the equivalent
of billboards. They are graphical images placed throughout the Internet
advertising specific web pages. Internet users simply click on the image and
they are taken immediately to the site the image is advertising. The purpose
of this course is to help merchants better understand how banner advertising
works on the Internet. It helps them benefit their own Internet business by
learning how to properly use banner advertising to promote their Internet
site. The banner license, which is sold in conjunction with the course,
allows the customer to put banners on multiple sites within the Galaxy Mall,
as well as benefit from ongoing discounts for future impression and banner
purchases.
Banner/Impressions: Galaxy designs and programs banners for its
customers. These banners are then advertised on Galaxy's network of over
20,000 Internet sites. The number of banner impressions is determined by the
number of times the banner advertisement is uploaded, or displayed, on one of
Galaxy's Internet sites. Galaxy's customer purchases a number of impressions
based upon its specific marketing and advertising needs.
Executive Mentor Program: Galaxy's mentoring program is a one-
year program in which a select number of Galaxy's customers become involved.
This program provides a personal coach to the customer who works with the
customer one-on-one to help the customer build its business on the Internet.
(2) Distribution methods of the products or services
The Issuer attracts its customers through Internet marketing workshops
presented periodically. The Issuer rents on a daily basis hotel conference
rooms from time to time in various cities throughout the United States and
Canada in which it hosts its preview sessions and Internet training workshops.
The Issuer uses an informational seminar representing a 90-minute preview of
the Galaxy Mall and the Internet. Preview attendees are then invited to
attend a one day workshop at which the Issuer provides an intensive training
course on Internet and e-mail use, news groups, auto-responders, classified
ads, and search engines used to market their products and services on the
Galaxy Mall. Interested attendees are then offered the opportunity to acquire
a "storefront" presence on the Galaxy Mall to market their products and
services. As a customer of the Issuer, the customer acquires a website hosted
by Galaxy Mall created and maintained by the Issuer for which it charges the
customer a fee.
The Issuer advertises its preview sessions and workshops in direct mail
solicitations targeted to certain potential customers meeting certain
demographic criteria established by the Issuer, which solicitations are mailed
to persons and small businesses located in cities scheduled to be visited by
the Issuer's workshop personnel. Mailing lists approximating the demographics
established by the Issuer are obtained from list brokers. Announcements of
upcoming preview sessions and workshops also appear in newspaper
advertisements in scheduled cities.
The Issuer uses a telemarketing company to advertise and/or market
Galaxy products and services, including advertising preview sessions and
workshops at selected locations.
(3) Status of any publicly announced new product or service
On May 27, 1998 Galaxy announced the introduction of a new product known
as BannerSource. BannerSource is a means by which merchants with storefronts
on the Internet can increase traffic to their sites by using banner
advertising on the World Wide Web. The Galaxy BannerSource network currently
markets in excess of one million banner impressions daily to businesses doing
commerce on the Internet. (www.bannersource.com).
(4) Competitive business conditions and the small business
issuer's competitive position in the industry and methods of
competition
Galaxy enjoys a strong competitive position in the industry, and is
considered to be among the fastest growing and one of the largest Internet
Malls on the Internet. Galaxy's principals were instrumental in creating in
1995 what is now known as the Internet marketing workshop industry.
Galaxy's significant increase in sales during the past year is a result of
proven methods of competition with strong focus on established marketing
strategies and techniques, together with sound educationally-based principles
applied in its` workshops.
Anticipated and expected technological advances associated with the
Internet itself, and new software products, are welcome advancements expected
to attract more interest in the Internet and broaden its potential as a viable
marketplace and industry. Galaxy anticipates it can continue building on its
three-year head start in its segments of the industry by relying on its solid
infrastructure, systems and procedures, and by adding additional products and
services in future.
(5) Sources and availability of raw materials and the names of
principal suppliers
Galaxy does not rely on any raw materials for its business operation.
(6) Dependence on one or a few major customers
The Issuer does not rely nor is it dependent on one or a few major
customers.
(7) Patents, trademarks, licenses, franchises, concessions,
royalty agreements or labor contracts, including duration
Galaxy claims no patents, trademarks, licenses, franchises, concessions
or royalty agreements. It has no labor contracts.
(8) Need for any government approval of principal products or
services
The Issuer does not require any government approval for its business
operation.
(9) Effect of existing or probable governmental regulations on
the business
The Issuer is unaware of any existing or probable governmental
regulations of its business as presently conducted. Currently sales on the
Internet are not taxed. Whether or when governmental agencies impose sales
taxes on Internet sales, it is expected they will be passed on to the consumer
as in traditional marketing and sales.
(10) Estimate of amount spent during each of the last two fiscal
years on research and development activities, and the cost
thereof borne directly by customers
During the last two fiscal years Galaxy has engaged in extensive
research and development activities, developing the various products and
services described above. Galaxy also has developed the following:
(a) An on-line order processing system allowing its customers to
have real time verification and processing of all their orders.
(b) A "shopping cart" system allowing unlimited products to be
added to an on-line order. It calculates the product price totals and adds
shipping, handing and other applicable charges.
(c) Specialized "bridges" allowing faster access to on-line
processing of credit cards by credit card processors.
(d) A "window shopping" feature allowing users to surf through
random storefronts with greater ease.
(e) Automated auto-responder software allowing a Galaxy customer
to log in to make changes to the customer's auto-responder, rather than
relying on Galaxy's programers to make such changes manually.
(f) A database driven merchant registration service allowing
Galaxy to monitor and keep secure its "Merchants Only" section of the Galaxy
Mall.
(g) Integrated directory database and billing database, providing
Galaxy with faster and easier billing of its customers.
(h) New banner exchange software and search engine software
allowing Galaxy to sell advertising space based upon the impressions each site
generates. The banner exchange is located at bannersource.com and the search
engine is located at matchsite.com.
The Issuer estimates that it spent approximately $50,000 during 1996 and
$150,000 during 1997 on such research and development activities. In
addition, the Issuer spent during such time in excess of $100,000 in marketing
research, development and market testing to introduce its products and
services to the Canadian market.
(11) Costs and effects of compliance with environmental laws
(federal, state and local)
Galaxy's business operations are not regulated by environmental laws and
regulations.
(12) Number of total employees and number of full time employees
Galaxy has 74 employees, 51 of whom work full time.
Item 2. Management's Discussion and Analysis or Plan of Operation.
Management's Discussion and Analysis of Financial Condition and Results
of Operation
(1) Full fiscal years.
Galaxy sales for the calendar year ending December 31, 1997 were
$2,495,096 as compared to $16,376 for the twelve months ending December 31,
1996. This increase was primarily due to the fact that the Company acquired
GMI on December 4, 1996. Prior to the purchase of GMI the Issuer had no
revenues in 1996.
Net Income for the Calendar year ending December 3l, 1997 was $87,328
as compared to $4,652 for the twelve-month period ending December 31, 1996.
The reason for the increase was also related to the purchase of GMI.
Cost of sales during 1997 was $1,056,579 which is equal to 42.3% of
revenues. Cost of sales is made up of the cost of tangible products sold plus
the cost to conduct Internet training workshops. During 1996 there were no
workshops held from December 4 (the date of acquisition of GMI) through the
end of the year,
Selling, General and Administrative Expenses plus depreciation were
equal to $1,312,706 in 1997 compared to $10,615 in 1996. These expenses as a
percentage of sales decreased in 1997 to 52.6% from 64.8% in 1996. The
improvement was due to increased revenues giving the Issuer the benefit of
economies of scale.
During 1997 amortization of Goodwill was $36,826. Total Goodwill at the
end of 1997 was $852,553 (net of the amortization above). The Goodwill arose
through the purchase by GMI of Profit Education Systems, Inc. ("PES") and CO-
OP Business Services, Inc. ("CO-OP"). Prior to the purchase PES had provided
marketing assistance to GMI and CO-OP had provided customer service to GMI.
The combination of the three companies will reduce costs and provide the
Company with greater control over its business activities.
An expense item in the income statement called "Merger Expenses" was a
one time, nonrecurring charge relative to an investment in Books Now, Inc. The
Company entered into an agreement to purchase Books Now, Inc. in a stock for
stock exchange and to provide working capital for the implementation of its
business plan. Pursuant to the purchase agreement, $108,000 was advanced by
the Issuer to Books Now, Inc.
By December, 1997 it became clear that it was not in the best interest
of the Company to continue this arrangement. A settlement was negotiated and
the companies signed a mutual release of claims against each other.
Accrued Income taxes for 1997 were $27,636 compared to $1,109 in 1996.
Electronic commerce transacted over the Internet is growing rapidly and
such growth is expected to continue in the foreseeable future. The Company
through its Internet shopping mall, Galaxy Mall, and its related activity of
training individuals and companies to engage in commerce over the Internet
will provide an opportunity for substantial growth.
Cash on hand at December 31, 1997 was $113,144 compared to $10,168 at
the end of 1996. Total current assets were $202,042 and $97,955 respectively.
The increase resulted from profitable operations during 1997 which generated a
positive cash flow.
Equipment increased during 1997 from zero to $121,702, net of
depreciation of $6,592. This was the result of the purchases of PES and CO-OP
and the need for additional computer and other equipment to conduct the
Company' s business. Additional capital equipment purchases will be necessary
as the company grows. The Company also leases equipment. Leasing allows the
Company the use of equipment without the need to disburse cash at the time of
acquisition. As of December 31, 1997 future aggregate minimum obligations
under leases for the year 1998 were $228,885. This includes both the corporate
offices and equipment leases.
Accounts payable at December 31, 1997 were $738,004 and total current
liabilities were $1,052,555 compared to total current liabilities at December
31, 1996 of $90,115. The increase is the result of the purchase of PES and CO-
OP and unprofitable operations during the first three quarters of 1997. Since
September, 1997 the Company has been profitable, and the ratio between current
assets and current liabilities has improved.
Total Stockholders' Equity increased to $207,160 during 1997 compared to
$119,718 at December 31, 1996, an increase of $87,442. All of this amount
except $115 was the result of profitable operations during 1997.
The Issuer's current ratio, current assets compared to current
liabilities, is a negative 5.2 to 1. This out-of-balance situation is being
corrected by profitable operations. (See discussion of the first six months of
1998, below). The Issuer has worked out extended payment plans with hotels and
other vendors and is meeting its commitments to them under such plans. On July
30, 1998 the Company was able to arrange a bank line of credit for $100,000
with Far West Bank of Provo, Utah. This line is intended to assist the Company
through seasonal slow periods. From July 15 through Labor Day and again from
Thanksgiving Day until January 15 of the following year, the Issuer's business
is slower than at other times during the year. This is the result of fewer
attendees at the Company's Internet training seminars during these traditional
vacation and holiday periods.
Current cash flow from operations will allow the Issuer to meet its
obligations, but will not be sufficient to sustain the desired rate of growth.
Thus it will be necessary for the Issuer to obtain long-term financing from
commercial banks or seek equity funding, or both, to meets its intended growth
goals. The Company will continue its efforts to improve its financial
condition in order to qualify for long-term bank loans
(2) Interim Periods.
Company sales for the six-month period ending June 30, 1998 were
$6,168,018 as compared to $179,650 for the six months ending June 30, 1997.
This change was primarily due to increasing interest in the Company's
Internet products, accelerated marketing activity, and the fact that the
Company acquired the assets and business interests of PES and CO-OP on October
1, 1997. The acquisition was accounted for as a purchase and therefor the
revenues from these two companies are included in the 1998 six month period,
but not reported in the 1997 six month period.
Net Income for the six month period ending June 30, 1998 was $381,382 as
compared to $10,720 for the six month period ending June 30, 1997. The reason
for the increase was also related to the purchase of PES and CO-OP.
Cost of Goods sold during the first six months of 1998 was $2,720,205,
which is equal to 44.1% of revenues. During the first six months of 1997 the
Cost of Sales was $82,350, representing 45.8% of revenues. Cost of goods sold
is made up of the cost of tangible products sold plus the cost to conduct the
Issuer's Internet training workshops.
Selling and General and Administrative expenses plus depreciation were
equal to $2,824,222 in 1998 compared to $83,293 in 1997. These expenses as a
percentage of sales decreased in 1998 to 45.8% from 46.4% in 1997.
During 1998 amortization of Goodwill was $34,915. Total Goodwill at
June 30, 1998 was $828,826 (net of amortization). The Goodwill is the result
of the purchase of PES and CO-OP. Prior to the purchase PES had provided
marketing assistance to GMI, and CO-OP had provided customer service to GMI.
The combination of these three companies will reduce costs and provide the
Company with greater control over it business activities.
Accrued Income taxes for 1998.were $268,802 compared to $3,287 in 1997.
Electronic commerce transacted over the Internet is growing, and such
growth is expected to continue indefinitely. The Company, through its Internet
shopping mall, Galaxy Mall, its related activity of training individuals and
companies to engage in commerce over the Internet, and its other business
activities, should have a substantial opportunity for solid growth.
Cash on hand at June 30, 1998 was $116,106 compared to $38,523 at June
30, 1997. Total current assets were $517,417 and $144,038, respectively. The
increase resulted from profitable operations during 1998 which generated a
positive cash flow.
Accounts payable at June 30, 1998 were $608,554, and total current
liabilities were $958,905 compared to total current liabilities at June 30,
1997 of $125,138. The increase is the result of the PES and CO-OP
acquisitions and unprofitable operations during the first three quarters of
1997. Since September, 1997 the Company has been profitable, and the ratio
between current assets and current liabilities has improved.
Total Stockholders' Equity increased to $588,542 during 1998 compared to
$130,438 at June 30, 1997, an increase of $458,104. This was the result of
profitable operations during the current year.
The Company' s current ratio, current assets compared to current
liabilities, is a negative 1.9 to 1 as of June 30, 1998, which is an
improvement from a negative 5.2 to 1 at December 31, 1997. This out-of-
balance situation is being corrected by profitable operations. The Company has
arranged extended payment plans with hotels and other vendors and is current
thereon.
(3) Year 2000 Compliance.
The Issuer has undertaken steps to identify areas of concern and
potential remedies, prioritize needs, estimate costs and begin work to repair
or replace data processing software and hardware affected by the Year 2000
related problems. Since most of its equipment was purchased in 1995 or later,
it is prepared to deal with dates starting in the year 2000. The costs
associated with addressing year 2000 is not expected to be material. The
costs of repairing systems or hardware will be expensed as incurred, while the
cost of replacing systems will be capitalized and depreciated over a three- to
five-year period.
Item 3. Description of Property.
(a) Principal property
The Issuer's principal office is located at 890 North Industrial Park
Drive, Orem, Utah 84057. The property is an unfurnished two-story office
building having approximately 8,000 square feet, and includes landscaping and
a paved parking area adequate for employee and customer vehicle parking. The
property is leased from an unaffiliated third party for a period of three
years for an annual rental of $72,000, payable monthly in the amount of
$6,000. The Issuer maintains tenant fire and casualty insurance on its
property located in such building in an amount deemed adequate by the Issuer.
Galaxy rents on a daily basis hotel conference rooms and facilities from
time to time in various cities throughout the United States and Canada at
which it hosts its preview session and Internet training workshops.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
(a) Security ownership of certain beneficial owners
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(1) (2) (3) (4)
Title of Class Name and Address of Amount and Nature of Percent of Class
Beneficial Owner Beneficial Owner (1)
Common Stock Sue Ann Cochran 640,000 shares owned 12.1
102 South Aspen Drive of record and beneficially
Mapleton, Utah 84057
Common Stock C. Parker Garlitz 273,126 shares owned 5.1
558 North 300 East of record and beneficially
Mapleton, Utah 84664
(b) Security ownership of management
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(1) (2) (3) (4)
Title of Class Name and Address of Amount and Nature of Percent of Class
Beneficial Owner Beneficial Owner (1)
Common stock John J. Poelman 980,213 shares owned 18.6
4009 N. Quail Run Drive of record(2)
Provo, Utah 84604
Common stock Brandon B. Lewis 11,000 shares owned
2952 W. 1060 North of record .20
Provo, Utah 84601
Frank C. Heyman -0- -0-
8468 Jardim Way
Sandy, Utah 84093
Darral G. Clarke -0-(3) -0-
4102 N. Quail Run Drive
Provo, Utah 84604
Billie Ray Anderson -0-(3) -0-
300 Plaza Alicante #800
Garden Grove, California 92804
All officers and directors as 991,213 18.8
a group(4)
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(1) Includes both voting and dispositive control.
(2) Two of Mr. Poelman's adult children reside with Mr. Poelman.
Collectively, such children own 202,300 shares of Galaxy stock, as to
which Mr. Poelman disclaims any beneficial interest.
(3) Messrs. Clarke and Anderson each have a right to exercise 10,000 stock
options at any time prior to August 10, 2008 at an exercise price of
$1.375 per share.
(4) Five persons.
Item 5. Directors, Executive Officers, Promoters and Control Persons.
(a) Directors and Executive Officers
John J. Poelman, age 55. Mr. Poelman is the President, Chief Executive
Officer and a Director of Galaxy. He has served as a Director of the Issuer
since December, 1996. His present term as a Director will expire at Galaxy's
annual meeting of shareholders to be held in 1999. His past business
experience includes seventeen years with AM International, Inc. where he
served as director of manpower development and training, Chief Operating
Officer for Newcastle Financial Corporation, a regional company specializing
in estate and financial planning for the very wealthy.
Brandon B. Lewis, age 27. Mr. Lewis the Executive Vice President, Chief
Operating Officer and a Director of the Issuer, having served as a Director
since September, 1997. His term as a Director will expire at Galaxy's annual
meeting of shareholders to be held in 1999. He is a graduate of Brigham
Young University with a B.S. degree in English. His past business experience
includes employment from May 1992 to August, 1994 as Collection Manager for
Co-Op Communications, Inc., a company specializing in "dial-one long
distance". From August, 1994 to September, 1997 he was employed as Vice
President of Marketing and Director of Sales for Profit Education Systems,
Inc. From October, 1997 to the present he has been employed by the Issuer in
the above described positions. His term as a Director will expire at the
annual meeting of shareholders to be held in 1999.
Frank C. Heyman, age 61. Mr. Heyman is a Vice President, the Secretary,
Treasurer and Chief Financial Officer and a Director of Galaxy. He is a
graduate of the University of Utah with a B.S. degree in accounting. Prior to
1992 Mr. Heyman served for twelve years as Chief Financial Officer for Scan-
Tron Corporation, a manufacturer of optical mark reading equipment used in
test scoring by the educational community, followed by employment for five
years as Vice President and Chief Financial Officer of GC Industries, Inc., a
manufacturer of calibration systems for toxic gas monitors. From June, 1992
to May, 1996 he served as Financial Vice President and Chief Financial Officer
and a Director of NYB Corporation, a manufacturer of women's sports clothing.
From June, 1996 to April, 1997 he was employed as Controller of Provider
Solutions, Inc., a business consulting firm. Since July, 1997 he has been
employed by Galaxy. Mr. Heyman became a member of Issuer's Board of
Directors on July 15, 1997. His term as a Director will expire at the annual
meeting of shareholders to be held in 1999.
Darral G. Clarke, age 58. Mr. Clarke, a Director of the company,
obtained his A.B. from the University of Utah, M.S. from Ohio State University
and a Ph.D. from Purdue University. During the periods 1972 to 1976 and from
1981 to 1986, Mr. Clarke was a faculty professor at Harvard University's
School of Business, and has served as a visiting professor at the University
of Chicago. From 1986 to the present, he has been the G. Dennis O'Brien
Professor of Management at Brigham Young University, and served as the
Director of its MBA program during 1990-1992. His term as a Director will
expire at the annual meeting of shareholders to be held in 1999.
R. Ray Anderson, age 60. Mr. Anderson is a Director of the Company. He
obtained his B.S. degree from Brigham Young University and his J.D. from
George Washington University School of Law. From 1988 to 1992 he was the
president of Fenton Enterprises, a confections manufacturer. From March, 1992
to the present, he has served as general counsel to Western Dental Services,
Inc., a dental health maintenance organization. His term as a Director will
expire at the annual meeting of shareholders to be held in 1999.
Item 6. Executive Compensation.
The following table sets forth the aggregate compensation paid by the
Company for services rendered during the periods indicated:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Awards Payouts
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Secur-
ities All
Other Rest- Under- LTIP Other
Name and Annual rictedlying Pay- Comp-
Principal Salary Bonus Compen-Stock Optionsouts ensat'n
Postition Year ($) ($) sation$ Award /SAR# ($) ($)
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<S> <C> <C> <C> <C> <C> <C> <C> <C>
John Jay
Poelman, 1998 six mos 37,500 0 0 0 200,000 0 0
Chairman,1997 0 0 0 0 0 0 0
President1997 six mos 0 0 0 0 0 0 0
CEO 1996 0 0 0 0 0 0 0
(PES) 77,913 0 0 0 0 0 0
(CO-OP) 8,750 0 0 0 0 0 0
(GMI) 0 0 0 0 0 0 0
</TABLE>
Compensation of Directors
On March 23, 1998 the Company issued pursuant to a qualified employee
stock option plan stock options to certain Directors. Mr. Poelman was issued
200,000 stock options, and Mr. Lewis and Mr. Heyman each were issued 150,000
stock options. (See under the caption "Recent Sales of Unregistered
Securities", Part II, Item 4 of this Registration Statement).
On August 10, 1998 the Issuer granted to Messrs. Clarke and Anderson
10,000 stock options each. (See under the caption "Recent Sales of
Unregistered Securities", Part II, Item 4 of this Registration Statement).
Item 7. Certain Relationships and Related Transactions.
(a) Transactions during the last two years involving:
(1) Any Director or Executive Officer of Galaxy:
On December 4, 1996 the Issuer issued 3,600,000 shares of its common
stock for all the issued and outstanding shares of Galaxy Mall, Inc., a
Wyoming corporation. Galaxy Mall, Inc. ("GMI") thus became a wholly-owned
subsidiary of the Issuer. As a result of that transaction, the following
officers and/or directors of the Issuer acquired shares of the Issuer in the
following amounts:
Name of Director Number of
or Executive Officer Shares Issued
Brandon B. Lewis 8,000
John J. Poelman 980,213
C. Parker Garlitz* 273,126
______________________
* C. Parker Garlitz served as President of the Company from December, 1996 to
November, 1997 and as a Director from December, 1996 to June 17, 1998.
On August 1, 1996 GMI entered into an exclusive marketing agreement with
Profit Education Systems, Inc. ("PES"), a Wyoming corporation, whereby PES
agreed to provide marketing services for GMI in return for 90% of the gross
receipts from all GMI Internet training events. Such marketing services
included the creation of sales and marketing materials and the conducting of
Internet workshops for GMI.
Effective October 1, 1997 GMI purchased all the assets and business
interests of PES and agreed to assume all its liabilities. At October 1, 1997
PES was indebted to GMI in the amount of approximately $452,000, which amount
was forgiven as part of the transaction. GMI assumed approximately $500,000
of outstanding payables of PES, and acquired assets consisting of
approximately $250,000 which included pre-paid marketing costs, computers and
miscellaneous office equipment, merchant account deposits, and other
miscellaneous inventory. GMI also acquired PES employees and obtained all
PES created marketing programs and materials. The exclusive PES marketing
agreement was cancelled, and all GMI marketing and workshop functions were
assumed by GMI. John J. Poelman, President, Chief Executive Officer and a
Director of the Issuer, was the sole stockholder of PES.
In addition to its direct sales efforts, the Issuer utilizes the
services of American Marketing Systems, Inc. ("AMS"), a Nevada corporation.
AMS provides telemarketing services to its various clients, including Galaxy.
It sells coaching (mentoring) services to Galaxy Mall merchants, and coaching
services and Galaxy products to prospects who have not previously purchased
Galaxy products. During the year ended December 31, 1997 Galaxy paid AMS
$220,237, and during the six months ended June 30, 1998 Galaxy paid AMS
$1,100,679 in sales commissions. John J. Poelman, President, Chief Executive
Officer and a Director of the Issuer is a 30% shareholder of AMS.
Galaxy utilizes the services of Electronic Commerce International, Inc.
("ECI"), a Utah corporation, which provides merchant accounts and leasing
services to small businesses. ECI processes the financing of Galaxy
merchants' storefront leases and also wholesales software to Galaxy used for
on-line processing of credit card transactions. For the six months ended June
30, 1998 Galaxy paid ECI $115,622 for credit card processing software and
$66,211 in lease processing fees. John J. Poelman, President, Chief
Executive Officer and a Director of the Issuer is the sole stockholder of ECI.
(2) Transactions with others:
Effective October 1, 1997 GMI acquired all the assets and assumed all
the liabilities of CO-OP Business Services, Inc., a Utah corporation "(CO-
OP"). Commencing August 1, 1996 CO-OP became the exclusive customer service
and computer programming provider to GMI customers and clients, and storefront
merchants on The Galaxy Mall. At October 1, 1997 CO-OP had liabilities of
approximately $85,000 which GMI assumed in exchange for CO-OP assets
consisting of computers, office equipment and miscellaneous inventory having a
value of approximately $65,000. The prior agreement of August 1, 1996 was
terminated and GMI assumed all customer service and programming functions for
merchants and clients of GMI and/or The Galaxy Mall. Vicki B. Poelman was the
sole stockholder of CO-OP. She is the wife of John Jay Poelman, Company
President, CEO and Director.
Also effective October 1, 1997 Galaxy entered into a nonexclusive three
year consulting and marketing agreement with Gary Cochran ("Cochran"), the
husband of Sue Ann Cochran who owns approximately 12.1% of the Issuer's
outstanding stock. Such consulting and marketing agreement requires Mr.
Cochran to provide services to improve existing marketing programs of Galaxy,
assist in developing brochures, advertisements and other marketing materials,
training potential sales personnel and evaluating future business products,
opportunities or strategies. Compensation payable to Mr. Cochran is $60,000
per year commencing January 1, 1998, and increasing 10% per year commencing
the second year and subsequent years. The agreement is automatically
renewable unless terminated prior thereto by consent of the parties. The
Issuer further agrees to pay Cochran royalties in various amounts on its sales
of Cochran created training and Internet educational materials.
Effective May 1, 1998 Galaxy entered into a royalty and consulting
agreement with Cochran in which Galaxy agrees to pay Cochran a royalty on
Galaxy's sales of training manuals, audio tape presentations and related
educational items on marketing techniques for the Internet user created by
Cochran. Such items are designed to explain Internet banner advertising and
are used by Galaxy to promote sales of its banner impressions, BannerWeb
License, and BannerWeb Network. The term of the agreement is for three years,
and is renewable yearly thereafter provided Galaxy continues to use or
distribute such Cochran created materials. The agreement can be cancelled at
any time upon consent of both parties.
During the years ended December 31, 1996 and 1997, PES paid a total of
$196,815 to Sue Ann Cochran, who owns in excess of 5% of the Issuer's
outstanding securities. (See under caption "Security Ownership of Certain
Beneficial Owners and Management", Part I, Item 4 of this Registration
Statement.
Item 8. Description of Securities.
The Issuer is authorized to issue 25,000,000 shares of common stock of
$.007 par value per share, of which 5,271,652 shares currently are
outstanding. Each share is entitled to one vote on all matters on which
shareholders are entitled to vote. Cumulative voting is not allowed. Holders
of common stock share ratably in all dividends declared by the Issuer's board
of directors out of funds legally available therefore, and share ratably in
company assets available for distribution upon liquidation, dissolution or
winding up of the company. Fully-paid shares are not liable to further calls
or assessments, and holders of common stock are not liable for any liabilities
of the company. The common stock has no preemptive or other subscription
rights, conversion rights or redemption or sinking fund provisions.
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Other Shareholder Matters.
(a) Market information.
The Issuer's common stock is traded over-the-counter on the OTC Bulletin
Board, stock symbol GLXY.
The price range of high and low bid for the Issuer's common stock for
the periods shown is set forth below:
Period High Low
July 1 - September 30, 1998 $ .75 $2.125
April 1 - June 30, 1998 .5625 2.375
January 1 - March 31, 1998 2.50 .6875
October 1 - December 31, 1997 3.00 1.375
July 1 - September 30, 1997 3.875 1.50
April 1 - June 30, 1997 5.25 3.00
January 6 - March 31, 1997 6.00 2.50
January 1 - January 5, 1997 Stock not traded - no quote available
October 1 - December 31, 1996 " " " " " "
July 1 - September 30, 1996 " " " " " "
May 7 - June 30, 1996 " " " " " "
April 1 - May 6, 1996 .01 .01
January 1 - March 31, 1996 .016 .01
The source of the above market information has been obtained from Stock
Cite, found on the Internet at http://www.stockcite.com. Such quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission
and may not represent actual transactions.
(b) Stockholders.
As of October 30, 1998 there were approximately 170 shareholders of
record of Galaxy common stock.
(c) Dividends.
The Issuer has never declared a cash dividend.
Article VIII, Section 2(e) of the Issuer's articles of incorporation
authorizes the Board of Directors to determine whether any, and if so, what
part, of the Issuer's earned surplus shall be paid in dividends to
shareholders.
Nevada Revised Statutes _78.288 limits the Issuer's ability to pay
dividends on its common stock if any such dividend would render the company
insolvent.
Item 2. Legal Proceedings.
On May 14, 1998 the Issuer initiated legal action against a competitor,
certain of its officers and employees, and others, in the Third Judicial
District Court of Salt Lake County, State of Utah in a proceeding entitled
Galaxy Enterprises, Inc. vs. Cyberworks Institute, Inc., The Commercium, Inc.,
Scott Alexander, Marek Shon, Curtis Matsko, Adam Maher, and John Does I
through XX, case number 980904883. In this action, the Issuer asserts claims
of breach of contract, misappropriation of trade secrets, common law unfair
competition, interference with contract and economic advantage, breach of duty
of good faith and fair dealing, breach of fiduciary duty and common law duty
of loyalty, and conspiracy. The case is still in the discovery stage and no
trial date has yet been scheduled.
On June 18, 1998 the Commonwealth of Kentucky filed an action against
Galaxy Mall, Inc., a wholly-owned subsidiary of the Issuer, in a proceeding
filed in the Fayette County Circuit Court entitled Commonwealth of Kentucky,
ex rel. A.B. Chandler III, Attorney General, vs. Galaxy Mall, Inc., civil
action number 98CI2257. The action alleges Galaxy Mall, Inc. offered for sale
in Kentucky business opportunities without first registering with the Attorney
General or posting a surety bond as required by Kentucky law. The suit seeks
to enjoin Galaxy Mall, Inc. from further sales unless first registered, $2,000
civil penalty, and cancellation of any contracts made in Kentucky and return
of funds to Kentucky purchasers. Galaxy Mall, Inc. has denied all
allegations, and its attorneys anticipate immediate dismissal of the action.
Item 3. Changes in and Disagreements with Accountants.
The Issuer changed accountants for the year ended December 31, 1996.
There have been no changes in or disagreements with accountants
requiring disclosure.
Item 4. Recent Sales of Unregistered Securities.
During the period November 11, 1996 to December 2, 1996 the Issuer
publicly offered 2,000,000 common shares at $.025 per share pursuant to Rule
504 under Regulation D, for a total public offering price of $50,000. Such
offering was self-underwritten. A total of 1,130,000 shares were sold. Net
proceeds were $1,757 following various expenses of the offering including
legal, accounting and sales expenses.
In December, 1996 the Company issued 16,300 common shares to 28
employees as a year-end stock bonus, All share certificates issued pursuant
to this stock bonus bore an appropriate restrictive legend. The Issuer relied
on an exemption from registration as provided by Section 4(2) of the
Securities Act of 1933, as amended.
On December 4, 1996 the Company issued a total of 3,600,000 common
shares to 37 persons in exchange for their respective stockholdings in Galaxy
Mall, Inc., thereby acquiring Galaxy Mall, Inc. as a wholly-owned subsidiary.
All share certificates issued in this transaction bore an appropriate
restrictive legend. The Issuer relied on an exemption from registration as
provided by Section 4(2) of the Securities Act of 1933, as amended.
On March 23, 1998 the Company issued to 35 persons pursuant to a
qualified employee stock option plan a total of 626,000 stock options, 20% of
which are exercisable on or after March 23, 1999, and 20% on the option grant
anniversary each year thereafter, at an exercise price of $.75 per share. The
Company relied on an exemption from registration as provided by Rule 701 under
the Securities Act.
On August 10, 1998 the Company issued to two members of its board of
directors stock options for 10,000 common shares each at an exercise price of
$1.375 per share. The option expires August 10, 2008 as to any options not
exercised prior thereto. The Company relied on an exemption from registration
as provided by Section 4(2) of the Securities Act of 1933, as amended.
Item 5. Indemnification of Directors and Officers.
The Nevada Revised Statutes concerning corporations, and the Issuer's
articles of incorporation and bylaws, provide for indemnification of its
officers, directors and others in most instances for any liability suffered by
them or arising out of their activities as officers, directors, employees or
agents of the Company if they were not engaged in intentional misconduct,
fraud or knowing violation of the law.
Specifically, NRS 78.7502 (1) and (2) grant discretionary authority on
corporations to indemnify such persons under certain conditions, and (3)
mandates indemnification of any such person who has successfully defended on
the merits any action, suit or proceeding, or any claim, issue or matter
therein, against expenses, including attorneys' fees, actually and reasonably
incurred in such defense. NRS 78.751 provides that any discretionary
indemnification, unless ordered by a court, may be made only as authorized in
the specific case upon a determination that indemnification of the officer,
director, officer, employee or agent is proper in the circumstances, which
determination must be made: (a) by the stockholders; (b) by the board of
directors by majority vote of a quorum consisting of directors who were not
parties to the action, suit or proceeding; (c) if a majority of non-party
directors directs, by independent legal counsel in a written opinion; or (d)
if a quorum of non-party directors cannot be obtained, by independent legal
counsel in a written opinion. Officer and director expenses incurred in
defending a civil or criminal action, suit or proceeding must be paid by the
corporation as incurred and in advance of final disposition of the action,
suit or proceeding, upon receipt of an undertaking by or on behalf of the
officer or director to repay the amount if it is ultimately determined by a
court that he is not entitled to be indemnified by the corporation. The
Company's articles of incorporation and bylaws are essentially the same as the
statutory provisions except that indemnification is not allowed for judgments,
fines, excise taxes or penalties imposed under the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or other excise taxes or
penalties.
PART F/S
Index to Financial Statements
Report of Certified Public Accountants
Financial Statements
(i) Audited Financial Statements
Consolidated Financial Statements for the
Years Ended December 31, 1996 and
December 31, 1997, and for the six month
periods ended June 30, 1997 (unaudited) and
June 30, 1998 (unaudited).
Independent Auditors' Report
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders'
Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial
Statements
PART III
Item 1. Index to Exhibits
The following exhibits are filed as a part of this Registration
Statement:
Exhibit
Number Description*
3.1 Articles of Incorporation of Issuer filed March 3, 1994
3.2 Amendment to Articles of Incorporation of Issuer dated October 30,
1996
3.3 Amendment to Articles of Incorporation of Issuer dated December
16, 1996
3.4 By-laws
10.1 Agreement dated December 4, 1996 with shareholders of Galaxy Mall,
Inc.
10.2 Agreement with Profit Education Systems, Inc. dated October 1, 1997
10.3 Agreement with CO-OP Business Services, Inc. dated October 1, 1997.
10.4 Galaxy 1997 Employee Stock Option Plan
10.5 Galaxy Incentive Stock Option Agreement
10.6 Galaxy stock option for 10,000 shares granted to B. Ray Anderson,
dated August 10, 1998
10.7 Galaxy stock option for 10,000 shares granted to Darral G. Clarke
dated August 10, 1998
10.8 Consulting Agreement with Gary Cochran dated October 1, 1997
10.9 Royalty & Consulting Agreement with Gary Cochran dated May 1, 1998
21 Subsidiaries of the Issuer
27 Financial Data Schedule
* Summaries of exhibits contained within this Registration Statement are
modified in their entirety by reference to the actual exhibits.
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf
by the undersigned, thereunto duly authorized.
GALAXY ENTERPRISES, INC.
November 11, 1998
Date
By/s/John J. Poelman
John J. Poelman
President, Chief Executive Officer and Director
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Galaxy Enterprises, Inc.
Orem, Utah
We have audited the accompanying consolidated balance sheets of Galaxy
Enterprises, Inc. and Subsidiary as of December 31, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years then ended for Galaxy Enterprises, Inc. and the year ended
December 31, 1997 and the period from inception (June 7, 1996) through
December 31, 1996 for the Subsidiary. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Galaxy
Enterprises, Inc. and Subsidiary as of December 31, 1997 and 1996, and the
results of its consolidated operations and its cash flows for the years then
ended for Galaxy Enterprises, Inc. and the year ended December 31, 1997 and
the period from inception (June 7, 1996) through December 31, 1996 for the
Subsidiary, in conformity with generally accepted accounting principles.
/s/Wisan Smith Racker & Prescott, LLP
Salt Lake City, Utah
April 29, 1998
<PAGE>
<TABLE>
GALAXY ENTERPRISES, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<CAPTION>
June 30, December 31,
1998 1997
(Unaudited)(Unaudited) 1997 1996
ASSETS
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash $ 116,106 $ 38,523 $ 113,144 $ 10,168
Accounts receivable 393,980 - 41,109 -
Accounts receivable -
related entity - 105,515 - 87,787
Prepaid expenses 5,859 - - -
Employee advances - - 1,000 -
Credit card reserves 1,472 - 46,789 -
TOTAL CURRENT ASSETS 517,417 144,038 202,042 97,955
EQUIPMENT 131,975 - 121,702 -
OTHER ASSETS
Deposits 13,015 10,847 16,016 -
Deferred charges 78,314 100,691 89,502 111,878
Goodwill 828,826 - 852,553 -
920,155 111,538 958,071 111,878
TOTAL ASSETS $1,569,547 $ 255,576 $1,281,815 $ 209,833
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable $ 608,554 $ 121,851 $ 738,004 $ -
Accounts payable -
related entity - - - 1,219
Accrued expenses 350,351 - 280,043 -
Income taxes
currently payable - 3,287 27,636 1,109
Unearned income - - 6,872 87,787
TOTAL CURRENT
LIABILITIES 958,905 125,138 1,052,555 90,115
DEFERRED INCOME TAXES 7,100 - 7,100 -
NOTE PAYABLE 15,000 - 15,000 -
STOCKHOLDERS' EQUITY
Common stock, par value
$.007 Authorized 25,000,000
shares 5,271,652 and
5,255,352 shares issued
and outstanding,
respectively 36,901 36,787 36,901 36,787
Additional paid-in capital 78,279 78,279 78,279 78,279
Retained earnings 473,362 15,372 91,980 4,652
TOTAL STOCKHOLDERS'
EQUITY 588,542 130,438 207,160 119,718
TOTAL LIABILITIES
AND EQUITY $1,569,547 $255,576 $1,281,815 $ 209,833
</TABLE>
<TABLE>
GALAXY ENTERPRISES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Six Months Ended June 30, Year Ended December 31,
1998 1997
(Unaudited) (Unaudited) 1997 1996
<S> <C> <C> <C> <C>
REVENUE
Sales $ 6,168,018 $ 179,650 $2,495,096 $ 16,376
Cost of sales 2,720,205 82,350 1,056,579 -
GROSS PROFIT 3,447,813 97,300 1,438,517 16,376
OPERATING EXPENSES
Selling 2,241,851 58,613 856,073 -
General and
administrative 520,304 13,493 305,215 10,615
Depreciation 27,152 - 6,592 -
Amortization 34,915 11,187 36,826 -
Merger expenses - - 108,000 -
TOTAL OPERATING
EXPENSES 2,824,222 83,293 1,312,706 10,615
OPERATING INCOME 623,591 14,007 125,811 5,761
OTHER (INCOME)
EXPENSES
Interest income - - (31) -
Interest expense 780 - 433 -
TOTAL OTHER EXPENSES 780 - 402 -
Income before income
taxes 622,811 14,007 125,409 5,761
Income taxes 241,429 3,287 38,081 1,109
NET INCOME $ 381,382 $ 10,720 $ 87,328 $ 4,652
NET INCOME PER SHARE $ 0.070 $ 0.002 $ .02 $ -
Weighted average number
of shares outstanding 5,271,652 5,271,652 5,271,652 1,342,931
</TABLE>
<TABLE>
GALAXY ENTERPRISES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<CAPTION>
Additional
Common Stock Paid in Retained
Shares Amount Capital Earnings
<S> <C> <C> <C> <C>
Balance, June 7, 1996 - $ - $ - $ -
Common stock issued for
cash at approximately
$.007 per share 3,600,000 25,200 - -
Common stock issued for
stock of the Subsidiary
at approximately $.052
per share 1,713,209 11,992 77,874 -
Cancellation of
treasury shares,
reacquired at no cost (57,857) (405) 405 -
Net income for the
period ended
December 31, 1996 - - - 4,652
Balance, December 31,
1996 5,255,352 36,787 78,279 4,652
Common stock issued for
bonuses at $.007 per
share 16,300 114 - -
Net income for the year
ended December 31, 1997 - - - 87,328
Balance, December 31,
1997 5,271,652 $ 36,901 $ 78,279 $91,980
</TABLE>
<TABLE>
GALAXY ENTERPRISES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Six Months Ended June 30, Year Ended December 31,
1998 1997
(Unaudited) (Unaudited) 1997 1996
<S> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net income $ 381,382 $ 10,720 $ 87,328 $ 4,652
Adjustments to
reconcile net income
to net cash flows
from (used by)
operating activities:
Depreciation 27,152 - 6,592 -
Amortization 34,915 11,187 36,826 -
Changes in operating
assets and
liabilities:
Increase in credit
card reserves 45,317 - (46,789) -
Increase in accounts
receivable (352,871) - (41,109) -
Increase in employee
advances 1,000 - (1,000) -
Increase in prepaid
expenses (5,859) - - -
(Increase) decrease
in accounts receivable
- related entity - 87,787 87,787 (87,787)
Increase in notes
receivable - (105,515) - -
Increase in deposits 3,001 (10,847) (16,015) -
Increase in deferred
charges - - - (111,878)
Increase in goodwill - - (867,004) -
Increase in accounts
payable (129,450) 121,851 738,004 -
Increase (decrease)
in accounts payable
- related entity - (1,219) (1,219) 1,219
Increase in accrued
expenses 70,308 - 280,043 -
Increase in income
taxes payable (27,636) 2,178 26,527 1,109
Increase (decrease)
in unearned income (6,872) (87,787) (80,915) 87,787
Increase in deferred
taxes - - 7,100 -
Net cash flows from
(used by) operating
activities 40,387 28,355 216,156 (104,898)
CASH FLOWS FROM
INVESTING ACTIVITIES
Purchase of equipment (37,425) - (128,294) -
Net cash used by
investing activities (37,425) - (128,294) -
CASH FLOWS FROM
FINANCING ACTIVITIES
Cash from notes payable - - 15,000 -
Common stock issued for
cash - - - 25,200
Common stock issued in
reorganization - - - 89,866
Common stock issued for
bonuses - - 114 -
Net cash flows from
financing activities - - 15,114 115,066
NET INCREASE IN CASH
AND CASH EQUIVALENTS 2,962 28,355 102,976 10,168
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 113,144 10,168 10,168 -
CASH AND CASH EQUIVALENTS
AT END OF YEAR $ 116,106 $ 38,523 $113,144 $ 10,168
</TABLE>
GALAXY ENTERPRISES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Organization and Operating History
The Company was incorporated in the State of Nevada on March 3, 1994
under the name of Cipher Voice, Inc. The Company was originally organized to
engage in the research and development for the production of equipment related
to computer hardware security. Initial capitalization consisted of $10,000 in
cash from incorporators for 821,429 shares of common stock (all shares are
post reverse split 1:7). In 1994 the Company received $100,059 as the net
proceeds from a public stock offering; 404,571 shares of common stock were
issued. During 1994 and 1995, 1,293,858 shares of common stock were
reacquired, at no cost, and cancelled. Also, during 1994, 1995, and 1996,
651,067 shares of common stock were issued for service rendered. During 1996,
the Company completed a public offering with net proceeds of $1,757; 1,130,000
shares of common stock were issued. The Company expended all of the capital
raised in the 1994 initial public offering without completing the research and
development necessary to produce the computer hardware desired. The Company
was then considered to be a development stage company. On October 30, 1996
the Company changed its authorized capital to 25,000,000 shares of $.007 par
value shares, by amending its articles of incorporation, following the
authorization of a 1 for 7 reverse stock split.
On December 4, 1996, the Company acquired all of the outstanding
common stock of Galaxy Mall, Inc., (the Subsidiary) for 3,600,000 shares of
the Company's common stock. For accounting purposes, the acquisition of the
Subsidiary has been treated as an acquisition of the Company by the Subsidiary
and as a recapitalization of the Subsidiary. The acquired company, the
Subsidiary, is treated as the surviving entity for accounting purposes. The
Subsidiary was formed on June 7, 1996 in the state of Wyoming. The Subsidiary
is engaged in the field of Internet marketing, training and providing
storefronts in an Internet shopping mall through seminars conducted throughout
the United States.
The Company changed its name to Galaxy Enterprises, Inc. by amending
its articles of incorporation on December 16, 1996. Due to the operations
conducted and revenues generated, the Company is no longer considered a
development stage company.
The Company purchased all of the assets of both Profit Education
Systems, Inc. (PES) and CO-OP Business Services (CO-OP) on September 30, 1997.
The Company agreed to assume the liabilities of PES and CO-OP in exchange for
their assets. The liabilities assumed by the Company in excess of the assets
acquired in these transactions produced goodwill for the Company in the amount
of $867,004.
Accounting Method
The Company's financial statements are prepared using the accrual
method of accounting and the Company has selected a December 31 year end.
Net Income per Share
The computation of net income per share of common stock is based on
the weighted average number of shares outstanding at the date of the financial
statements.
Income Taxes
Income taxes are provided for the tax effects of transactions reported
in the financial statements and consist of taxes currently due, plus deferred
income taxes resulting from temporary differences between tax and accounting
bases of assets.
Reverse Stock Split
In 1996 the Company's common stock was reverse split on a 1 share for
7 shares basis. All references to shares issued and outstanding have been
restated to reflect the reverse stock split on a retroactive basis.
Amortization
Deferred charges are amortized using the straight-line method over
five years for organization and startup costs. Goodwill is amortized using
the straight-line method over fifteen years.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Advertising and Promotion
All costs associated with advertising and promoting the Company's
goods and services, amounting to $524,055 and $0 in 1997 and 1996,
respectively, are expensed in the year incurred.
Principles of Consolidation
The consolidated financial statements include those of Galaxy
Enterprises, Inc. and its wholly-owned subsidiary, Galaxy Mall. All
significant intercompany accounts and transactions have been eliminated.
NOTE 2 - EQUIPMENT
Equipment as of December 31, 1997 and 1996 is detailed in the
following summary:
<TABLE>
Accumulated Net Book
1997 Costs Depreciation Value
<S> <C> <C> <C>
Office furniture and computers $128,294 $ 6,592 $ 121,702
Accumulated Net Book
1996 Costs Depreciation Value
Office furniture and computers $ - $ - $ -
</TABLE>
NOTE 3 - COMMITMENTS AND CONTINGENCIES
Leases
The Company leases certain of its equipment and corporate offices
under long-term lease agreements expiring at various dates through 2002.
Future aggregate minimum obligations under operating leases as of December 31,
1997, exclusive of taxes and insurance, are as follows:
Operating
Leases
Year ending December 31,
1998 $ 228,885
1999 228,993
2000 220,927
2001 169,927
2002 36,776
Total $ 885,508
Rental expense under the operating lease agreements totaled
approximately $83,000 for the year ended December 31, 1997.
NOTE 4 - DEFERRED CHARGES
Deferred charges consist of the following:
1997 1996
Organization costs $ 7,955 $ 7,955
Startup costs 103,923 103,923
111,878 111,878
Accumulated amortization (22,376) -
$ 89,502 $ 111,878
NOTE 5 - GOODWILL
Goodwill is comprised of the following amounts, resulting from the
purchase of assets from the corresponding entities:
1997 1996
Profit Education System (PES) $ 793,394 $ -
CO-OP Business Services (CO-OP) 73,610 -
867,004 -
Accumulated amortization (14,451) -
$ 852,553 $ -
NOTE 6 - INCOME TAXES PAYABLE
The Company accounts for income taxes using an asset and liability
approach to financial accounting and reporting for income taxes. The
difference between the financial statement and tax bases of assets and
liabilities is determined annually. Deferred income tax assets and
liabilities are computed for those differences that have future tax
consequences using the currently enacted tax laws and rates that apply to the
periods in which they are expected to affect taxable income. Valuation
allowances are established, if necessary, to reduce the deferred tax asset to
the amount that will more likely than not be realized. Income tax expense is
the current tax payable or refundable for the period plus or minus the net
change in the deferred tax assets and liabilities.
Income taxes payable as of December 31, 1997 and 1996 include income
taxes currently payable and deferred income tax liabilities as detailed in the
summary below:
1997 1996
Deferred income tax liability $ 7,100 $ -
Deferred income tax asset - -
Net deferred income tax liability 7,100 -
Noncurrent deferred income tax
liability 7,100 -
Current deferred income tax liability - -
Current income tax liability 27,636 1,109
$ 27,636 $ 1,109
The deferred income tax liability results primarily from the use of
accelerated methods of depreciation of property and equipment for income tax
purposes.
The components of income tax expense related to continuing operations
are as follows:
1997 1996
Current $ 30,981 $ 1,109
Deferred 7,100 -
$ 38,081 $ 1,109
The Company's income tax expense differed from the statutory federal
rate due to primarily state income taxes, surtax exemptions and taxes paid in
conjunction with the purchases of PES and CO-OP.
NOTE 7 - NOTE PAYABLE
The Company has a note payable to an individual at December 31, 1997.
Interest is charged at 8.5%. The Company does not expect to make any
principal payments on this note in 1998. The note payable balance at December
31, 1997 is $15,000.
NOTE 8 - STOCKHOLDERS' EQUITY
The Company was initially capitalized with 25,000,000 shares of common
stock authorized at $.001 per share. On October 30, 1996, the sole director
of the Company approved a resolution for a reverse split of its common stock
on a 1 share for 7 shares basis, and amended the Company's articles of
incorporation returning the authorized capital to 25,000,000 shares at a par
value of $.007 per share.
NOTE 9 - RELATED ENTITY TRANSACTIONS
The Subsidiary had entered into an exclusive marketing agreement with
Profit Education Systems, Inc. (PES), in which PES may act as the worldwide
marketing agent for "storefronts" and advertising using the Subsidiary's
principal product ("Galaxy Mall"). PES was wholly-owned by John J. Poelman,
President, Chief Executive Officer and a Director of the Company.
Through December 31, 1996, PES had agreed to pay all marketing,
programming and set-up costs for the use of the Galaxy Mall without charging
the Subsidiary for such costs. In return, the Subsidiary had agreed to pay
PES, 90% of all amounts received from training and storefront leases that are
marketed by PES prior to, or at introductory workshops conducted by PES. In
addition, the Subsidiary was required to pay to PES 35% of all amounts
received from commercial advertising sold on the Galaxy Mall and for various
other services developed by the Subsidiary in connection with the Galaxy
Mall. An additional 35% of proceeds from storefront lease renewals and
activations that were not prepaid were required to be paid as follows; 15% to
PES and 20% to CO-OP Business Services (CO-OP), a company owned by Vicki B.
Poelman, the wife of John J. Poelman, President, Chief Executive Officer and a
Director of the Company. CO-OP had been paying the cost of programming and
set up for Galaxy Mall activation. At December 31, 1996, PES owed the
Subsidiary $87,787 for amounts PES received in the form of pre-paid storefront
leases, which has been included in accounts receivable-related entity.
Accordingly, the Subsidiary has also recorded pre-paid storefront leases as
unearned revenue until such services are performed. Such receivable was
subsequently collected in full.
At December 31, 1996, the Company had expended substantially all of
its capital resources in the research and development of computer security
equipment. The Company had entered into a license agreement with Breakthrough
Electronics, Inc. (BEI), a Nevada public corporation, whereby BEI had granted
the Company an exclusive license to the use of BEI's Conus Code 2100 Encryptor
in exchange for forty percent (40%) of the net profits to be received by the
Company from the sale of the voice encryption-decryption electric device. In
addition, BEI provided the Company with the methodology and technology in
conjunction with the basic design of the anticipated final Company product.
BEI has provided substantial amounts of these services, and has been paid the
cumulative amount of $81,000 as of December 31, 1996. As of December 31,
1997, the Company offers no such product, and is no longer associated with
BEI.
As discussed in Note 1, on October 1, 1997, the Subsidiary purchased
the assets and business interest of Profit Education Systems, Inc. (PES).
Until such date, PES had been working under contract with the Subsidiary,
providing marketing services for its Internet workshops. The purchase price
of PES was equal to the obligations of PES which were assumed by the
Subsidiary.
Also discussed in Note 1, on October 1, 1997, the Subsidiary purchased
the assets and business interests of CO-OP Business Services, Inc. (CO-OP).
Until such date, CO-OP had been working under contract to the Subsidiary
providing customer services to its merchants on the Galaxy Mall, an Internet
shopping mall. The purchase price was equal to the obligations of CO-OP
assumed by the Subsidiary.
In addition to its direct sales efforts, the Company utilizes the
services of American Marketing Systems, Inc. ( AMS ), a Nevada corporation.
AMS provides telemarketing services to its various clients, including the
Company. It sells coaching (mentoring) services to Galaxy Mall merchants, and
coaching services and Company products to prospects who have not previously
purchased Company products. During the year ended December 31, 1997 the
Company paid AMS $220,237 in sales commissions. John J. Poelman, President,
Chief Executive Officer and a Director of the Company is a 30% shareholder of
AMS.
The Company utilizes the services of Electronic Commerce
International, Inc. ( ECI ), a Utah corporation, which provides merchant
accounts and leasing services to small businesses. ECI processes the
financing of Company merchants storefront leases and also wholesales software
to the Company used for on-line processing of credit card transactions. John
J. Poelman, President, Chief Executive Officer and a Director of the Company
is the sole stockholder of ECI.
NOTE 10 - MERGER EXPENSES
On June 23, 1997, the Company entered into an agreement with Books
Now, Inc. (Books) to purchase Books in a stock for stock exchange and to
provide working capital for the implementation of Books business plan. The
Company advanced $30,000 upon signing of the agreement and made additional
advances from time to time so that the total advanced during the year was
$108,000. No stock was exchanged between the companies.
By December, 1997 it became clear that it was not in the best interest
of the Company to continue this arrangement since Books needed significantly
more cash than the Company had advanced to implement its business plan. A
settlement was negotiated and the companies signed a mutual release of claims
against each other. This caused the advances made by the Company to be
worthless and they were written off accordingly. It did, however, protect the
Company from any liability in the future for breach of contract or any other
claim that may have been filed by Books.
ARTICLES OF INCORPORATION
OF
CIPHER VOICE, INC.
KNOW ALL MEN BY THESE PRESENTS:
That we, the undersigned, have this day voluntarily associated ourselves
together for the purpose of forming a Corporation under and pursuant to the
laws of the State of Nevada, and we do hereby certify that:
ARTICLE I: - NAME: The exact name of this Corporation is:
Cipher Voice, Inc.
ARTICLE II - RESIDENT AGENT:
The Resident Agent of the Corporation is Max C. Tanner, Esq., The Law Offices
of Max C. Tanner, 2950 East Flamingo Road, Suite G, Las Vegas, Nevada 89121.
ARTICLE III - DURATION: The Corporation shall have perpetual existence.
ARTICLE IV - PURPOSES: The purpose, object and nature of the business for
which this Corporation is organized are:
(a) To engage in any lawful activity;
(b) To carry on such business as may be necessary, convenient, or
desirable to accomplish the above purposes, and to do all other things
incidental thereto which are not forbidden by law or by these Articles of
Incorporation.
ARTICLE V - POWERS: The powers of the Corporation shall be those powers
granted by 78.060 and 78.070 of the Nevada Revised Statutes under which this
corporation is formed. in addition, the Corporation shall have the following
specific powers:
(a) To elect or appoint officers and agents of the Corporation and to fix
their compensation;
(b) To act an as agent for any individual, association, partnership,
corporation or other legal entity;
(c) To receive, acquire, hold, exercise rights arising out of the
ownership or possession thereof, sell, or otherwise dispose of, shares or
other interests in, or obligations of, individuals, associations,
partnerships, corporations, or governments;
(d) To receive, acquire, hold, pledge, transfer, or otherwise dispose of
shares of the corporation, but such shares may only be purchased, directly or
indirectly, out of earned surplus;
(e) To make gifts or contributions for the public welfare or for
charitable, scientific or educational purposes, and in time of war, to make
donations in aid of war activities.
ARTICLE VI - CAPITAL STOCK:
Section 1. Authorized Shares. The total number of shares which this
corporation is authorized to issue is 25,000,000 shares of Common Stock at
$.001 par value per share.
Section 2. Voting Rights of Shareholders. Each holder of the Common Stock
shall be entitled to one vote for each share of stock standing in his name on
the books of the Corporation.
Section 3. Consideration for Shares. The Common Stock shall be issued for such
consideration, as shall be fixed from time to time by the Board of Directors.
In the absence of fraud, the judgment of the Directors as to the value of any
property for shares shall be conclusive. when shares are issued upon payment
of the consideration fixed by the Board of Directors, such shares shall be
taken to be fully paid stock and shall be non-assessable. The Articles shall
not be amended in this particular.
Section 4. Pre-emptive Rights. Except as may otherwise be provided by the
Board of Directors, no holder of any shares of the stock of the Corporation,
shall have any preemptive right to purchase, subscribe for, or otherwise
acquire any shares of stock of the Corporation of any class now or hereafter
authorized, or any securities exchangeable for or convertible into such
shares, or any warrants or other instruments evidencing rights or options to
subscribe for, purchase, or otherwise acquire such shares.
Section 5. Stock Rights and options. The Corporation shall have the power to
create and issue rights, warrants,, or options entitling the holders thereof
to purchase from the corporation any shares of its capital stock of any class
or classes, upon such terms and conditions and at such times and prices as the
Board of Directors may provide, which terms and conditions shall be
incorporated in an instrument or instruments evidencing such rights. In the
absence of fraud, the judgment of the Directors as to the adequacy of
consideration for the issuance of such rights or options and the sufficiency
thereof shall be conclusive.
ARTICLE VII - ASSESSMENT OF STOCK: The capital stock of this corporation,
after the amount of the subscription price has been fully paid in, shall not
be assessable for any purpose, and no stock issued as fully paid up shall ever
be assessable or assessed. The holders of such stock &hall not be individually
responsible for the debts, contracts, or liabilities of the Corporation and
shall not be liable for assessments to restore impairments in the capital of
the Corporation.
ARTICLE VIII - DIRECTORS: For the management of the business, and for the
conduct of the affairs of the Corporation, and for the future definition,
limitation, and regulation of the powers of the Corporation and its directors
and shareholders, it is further provided:
Section 1. Size of Board. The members of the governing board of the
Corporation shall be styled directors. The number of directors of the
Corporation, their qualifications, terms of office, manner of election, time
and place of meeting, and powers and duties shall be such as are prescribed by
statute and in the by-laws of the Corporation. The name and post office
address of the directors constituting the first board of directors, which
shall be Three (3) in number are:
NAME ADDRESS
H. Barry Rose 8585 O'Hare Road
Las Vegas, Nevada 89131
Carl J. Erickson 7960 Briaridge Road
Dallas, Texas 75248
Richard Degear 4240 East Sequoia Trail
Phoenix, Arizona 85044
Section 2. Powers of Board. In furtherance and not in limitation of the
powers conferred by the laws of the State of Nevada, the Board of Directors is
expressly authorized and empowered:
(a) To make, alter, amend, and repeal the By-Laws subject to the power of the
shareholders to alter or repeal the By-Laws made by the Board of Directors.
(b) Subject to the applicable provisions of the By-Laws then in effect, to
determine, from time to time, whether and to what extent, and at what times
and places, and under what conditions and regulations, the accounts and books
of the Corporation, or any of them, shall be open to shareholder inspection.
No shareholder shall have any right to inspect any of the accounts, books or
documents of the Corporation, except as permitted by law, unless and until
authorized to do so by resolution of the Board of Directors or of the
Shareholders of the Corporation;
(c) To issue stock of the Corporation for money, property, services rendered,
labor performed, cash advanced, acquisitions for other corporations or for any
other assets of value in accordance with the action of the board of directors
without vote or consent of the shareholders and the judgment of the board of
directors as to value received and in return therefore shall be conclusive and
said stock, when issued, shall be fully-paid and non-assessable.
(d) To authorize and issue, without shareholder consent, obligations of the
Corporation, secured and unsecured, under such terms and conditions as the
Board, in its sole discretion, may determine, and to pledge or mortgage, as
security therefore, any real or personal property of the Corporation,
including after-acquired property;
(e) To determine whether any and, if so, what part, of the earned surplus of
the Corporation. shall be paid in dividends to the shareholders, and to direct
and determine other use and disposition of any such earned
surplus;
(f) To fix, from time to time, the amount of the profits of the - Corporation
to be reserved as working capital or f or any other lawful purpose;
(g) To establish bonus, profit-sharing, stock option, or other types of
incentive compensation plans for the employees, including officers and
directors, of the Corporation, and to fix the amount of prof its to be shared
or distributed, and to determine the persons to participate in any such plans
and the amount of their respective participations.
(h) To designate, by resolution or resolutions passed by a majority of the
whole Board, one or more committees, each consisting of two or more directors,
which, to the extent permitted by law and authorized by the resolution or the
By-Laws, shall have and may exercise the powers of the Board;
(i) To provide for the reasonable compensation. of its own members by By-Law,
and to fix the terms and conditions upon which such compensation will be paid;
(j) In addition to the powers and authority herein before, or by statute,
expressly conferred upon it, the Board of Directors may exercise all such
powers and do all such acts and things as may be exercised or done by the
corporation, subject, nevertheless, to the provisions of the laws of the State
of Nevada, of these Articles of Incorporation, and of the By-Laws of the
Corporation.
Section 3. Interested Directors. No contract or transaction between this
Corporation and any of its directors, or between this Corporation and any
other corporation, firm, association, or other legal entity shall be
invalidated by reason of the fact that the director of the Corporation has a
direct or indirect interest, pecuniary or otherwise, in such corporation,
firm, association, or legal entity, or because the interested director
was present at the meeting of the Board of Directors which acted upon or in
reference to such contract or transaction,, or because he participated in such
action, provided that: (1) the interest of each such director shall have been
disclosed to or known by the Board and a disinterested majority of the Board
shall have nonetheless ratified and approved such contract or transaction
(such interested director or directors may be counted in determining whether a
quorum is present f or the meeting at which such ratification or approval is
given; or (2) the conditions of N.R.S. 78.140 are met.
ARTICLE IX - LIMITATION OF LIABILITY OF OFFICERS OR DIRECTORS: The personal
liability of a director or officer of the corporation to the corporation or
the Shareholders for damages for breach of fiduciary duty as a director or
officer shall be limited to acts or omissions which involve intentional
misconduct, fraud or a knowing violation of law.
ARTICLE X - INDEMNIFICATION: Each director and each officer of the corporation
may be indemnified by the corporation as follows:
(a) The corporation way indemnify any person who was or is a party, or is
threatened to be made a party, to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation), by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement, actually
and reasonably incurred by him in connection with the action, suit or
proceeding, if he acted in good faith and in a manner which he reasonably
believed to be or not opposed to the best interests of the corporation and
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. The termination of any action, suite or
proceeding, by judgment, order, settlement, conviction or upon a plea of nolo
contendere or its equivalent, does not of itself create a presumption that the
person did not act in good faith and in a manner which he reasonably believed
to be in or not opposed to the best interests of the corporation, and that,
with respect to any criminal action or proceeding, he had reasonable cause to
believe that his conduct was unlawful.
(b) The corporation may indemnify any person who was or is a party, or is
threatened to be made a party, to any threatened, pending or completed action
or suit by or in the right of the corporation, to procure a judgment in its
favor by reason of the fact that he is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
including amounts paid in settlement and attorneys, fees actually and
reasonably incurred by him in connection with the defense or settlement of the
action or suit, if he acted in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the corporation.
Indemnification may not be made for any claim, issue or matter as to which
such a person has been adjudged by a court of competent jurisdiction, after
exhaustion of all appeals there from, to be liable to the corporation or for
amounts paid in settlement to the corporation, unless and only to the extent
that the court in which the action or suit was brought or other court of
competent jurisdiction determines upon application that in view of all the
circumstances of the case the person in fairly and reasonably entitled to
indemnity for such expenses as the court deems proper.
(c) To the extent that a director, officer, employee or agent of a corporation
has been successful on the merits or otherwise in defense of any action, suit
or proceeding referred to in subsections (a) and (b) of this Article, or in
defense of any claim, issue or matter therein, he must be indemnified by the
corporation against expenses, including attorney's fees, actually and
reasonably incurred by him in connection with the defense.
(d) Any indemnification under subsections (a) and (b) unless ordered by a
court or advanced pursuant to subsection (e), must be made by the corporation
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances. The determination must be made:
(i) By the stockholders;
(ii) By the board of directors by majority vote of a quorum consisting of
directors who were not parties to the act, suit or proceeding;
(iii) If a majority vote of a quorum consisting of directors who were not
parties to the act, suit or proceeding so orders, by independent
legal counsel in a written opinion; or
(iv) If a quorum consisting of directors who were not parties to the act,
suit or proceeding cannot be obtained, by independent legal counsel
in a written opinion.
(e) Expenses of officers and directors incurred in defending a civil or
criminal action, suit or proceeding must be paid by the corporation as they
are incurred and in advance of the final disposition of the action, suit or
proceeding, upon receipt of an undertaking by or on behalf of the director or
officer to repay the amount if it is ultimately determined by a court of
competent jurisdiction that he is not entitled to be indemnified by the
corporation. The provisions of this subsection do not affect any rights to
advancement of expenses to which corporate personnel other than directors or
officers may be entitled under any contract or otherwise by law.
(f) The indemnification and advancement of expenses authorized in or ordered
by a court pursuant to this section:
(i) Does not exclude any other rights to which a person seeking
indemnification or advancement of expenses may be entitled under the
certificate or articles of incorporation or any bylaw, agreement,
vote of stockholders or disinterested directors or otherwise, for
either an action in his official capacity or an action in another
capacity while holding his office, except that indemnification,
unless ordered by a court pursuant to subsection (b) or for the
advancement of expenses made pursuant to subsection (e) may not be
made to or on behalf of any director or officer if a final
adjudication establishes that his acts or omissions involved
intentional misconduct, fraud or a knowing violation of the law and
was material to the cause of action.
(ii) Continues for a person who has ceased to be a director, officer,
employee or agent and inures to the benefit of the heirs, executors
and administrators of such a person.
ARTICLE XX - PLACE OF MEETING; CORPORATE BOOKS: Subject to the laws of the
State of Nevada, the shareholders and the Directors shall have power to hold
their meetings, and the Directors shall have power to have an office or
offices and to maintain the books of the Corporation outside the State of
Nevada, at such place or places as may from time to time be designated in the
By-Laws or by appropriate resolution.
ARTICLE XII - AMENDMENT OF ARTICLES: The provisions of these Articles of
Incorporation may be amended, altered or repealed from time to time to the
extent and in the manner prescribed by the laws of the State of Nevada, and
additional provisions authorized by such laws as are then in force may be
added. All rights herein conferred on the directors, officers and shareholders
are granted subject to this reservation.
ARTICLE XIII - INCORPORATOR: The name and address of the sole incorporator
signing these Articles of Incorporation is as follows:
NAME POST OFFICE ADDRESS
1. Max C. Tanner 2950 East Flamingo Road, Suite G
Las Vegas, Nevada 89121
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
FOR
CIPHER VOICE, INC.
Pursuant to NRS 78.385 and 78.390. the undersigned President and
Secretary of Cipher Voice, Inc. do hereby certify:
That the following amendments to the articles of incorporation were
unanimously approved by the Sole Director of said corporation, by written
consent in lieu of a special meeting of the Sole Director, dated October 30,
1996 and by a majority of the outstanding shares entitled to vote, there being
9,182,000 shares authorized to vote and 5,100,000 shares having voted in favor
of the amended articles.
1. Change of Authorized Capital.
After giving effect to a one for seven (1 for 7) reverse stock split, the
authorized capital shall be reduced from 25,000,000 shares, $.001 par value
per share to 3,571,428 shares, $.007 par value per share, after which the
authorized common stock shall be increased by this amendment from 3,571,428
shares $.007 par value per share to 25,000,000 shares. $.007 par value per
share.
Accordingly,
Article VI is hereby amended to read as follows:
Section 1. Authorized Shares. The total number of shares which this
Corporation is authorized to issue is 25,000,000 shares of Common Stock.
(a) After giving effect to a one for seven (1 for 7) reverse
stock split and thereafter increasing the authorized Common
Stock, the total number of shares of Common Stock which this
Corporation is authorized to issue is 25,000,000 shares at
$.007 par value per share.
/s/Roger Lund
Roger Lund, President/Secretary
STATE OF UTAH
ss.
COUNTY OF SALT LAKE)
On this 30th day of October, 1996, personally appeared before me, a Notary
Public. Roger Lund, President and Secretary of the above-mentioned
Corporation, who acknowledged that he executed the Certificate of Amendment of
the Articles of Incorporation of Cipher Voice, Inc.
/s/Larry Pickering
Notary Public
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION.
(After issuance of Stock) Filed by:
CIPHER VOICE, INC.
Name of Corporation
We the undersigned PARKER GARLITZ, PRESIDENT
and
BRANDON LEWIS, SECRETARY of CIPHER VOICE, INC.
do hereby certify:
That the Board of Directors of said corporation at a meeting duty
convened. held an the 16TH day of DECEMBER 1996, adopted a resolution to
amend the original articles as follows:
Article 1 is hereby amended to read as follows:
NAME: - THE EXACT NAME OF THIS CORPORATION IS:
GALAXY ENTERPRISES, INC.
The number of shares of the corporation outstanding and entitled to vote
on an amendment to the Articles of Incorporation is 5,255,352, that the
said change(s) and amendment have been consented to and approved by a
majority vote at the stockholders holding at least a majority of each
class of stock outstanding and entitled to vote thereon.
/s/ Parker Garlitz
President
/s/Brandon Lewis
Secretary
State of Utah
County of Utah
On 20 December 1996, personally appeared before me, a Notary Public,
Parker Garlitz and Brandon Lewis, who acknowledged that they executed the
above instrument.
/s/Marilyn Jensen
NOTARY PUBLIC
BY-LAWS OF
CIPHER VOICE, INC.
ARTICLE I
SHAREHOLDERS
Section 1.01 Annual Meeting. The annual meeting of the shareholders shall
be held at such date and time as shall be designated by the board of directors
and stated in the notice of the meeting or in a duly-executed waiver of notice
thereof. If the corporation shall fail to provide notice of the annual meeting
of the shareholders as set forth above, the annual meeting of the shareholders
of the corporation shall be held during the month of November or December of
each year as determined by the Board of Directors, for the purpose of electing
directors of the corporation to serve during the ensuing year and for the
transaction of such other business as may properly come before the meeting. If
the election of the directors is not held on the day designated herein for any
annual meeting of the shareholders, or at any adjournment thereof, the
president shall cause the election to be held at a special meeting of the
shareholders as soon thereafter as is convenient.
Section 1.02 Special Meetings. Special meetings of the shareholders may
be called by the president or the Board of Directors and shall be called by
the president at the written request of the holders of not less than 51% of
the issued and outstanding shares of capital stock of the corporation.
All business lawfully to be transacted by the shareholders may be
transacted at any special meeting at any adjournment thereof. However, no
business shall be acted upon at a special meeting, except that referred to in
the notice calling the meeting, unless all of the outstanding capital stock of
the corporation is represented either in person or by proxy. Where all of the
capital stock is represented, any lawful business may be transacted and the
meeting shall be valid for all purposes.
Section 1.03 Place of Meetings. Any meeting of the shareholders of the
corporation may be held at its principal office in the State of Nevada or such
other place in or out of the United States as the Board of Directors may
designate. A waiver of notice signed by the shareholders entitled to vote may
designate any place for the holding of such meeting.
Section 1.04 Notice of Meetings.
(a) The secretary shall sign and deliver to all shareholders
of record written or printed notice of any meeting at least ten
(10) days, but not more than sixty (60) days, before the date of
such meeting; which notice shall state the place, date and time of
the meeting, the general nature of the business to be transacted,
and, in the case of any meeting at which directors are to be
elected, the names of nominees, if any, to be presented for
election.
(b) In the case of any meeting, any proper business may be
presented for action, except that the following items shall be
valid only if the general nature of the proposal is stated in the
notice or written waiver of notice:
(1) Action with respect to any contract or transaction
between the corporation and one or more of its directors or
another, firm, association, or corporation in which one or
more of its directors has a material financial interest;
(2) Adoption of amendments to the Articles of Incorporation; or
(3) Action with respect to the merger, consolidation,
reorganization, partial or complete liquidation, or
dissolution of the corporation.
(c) The notice shall be personally delivered or mailed by
first class mail to each shareholder of record at the last known
address thereof, as the same appears on the books of the
corporation, and the giving of such notice shall be deemed
delivered the date the same is deposited in the United States mail,
postage prepaid. If the address of any shareholder does not appear
upon the books of the corporation, it will be sufficient to address
any notice to such shareholder at the principal office of the
corporation.
(d) The written certificate of the person calling any meeting,
duly sworn, setting forth the substance of the notice, the time and
place the notice was mailed or personally delivered to the several
shareholders, and the addresses to which the notice was mailed
shall be prima facie evidence of the manner and fact of giving such
notice.
Section 1.05 Waiver of Notice. If all of the shareholders of
the corporation shall waive notice of a meeting, no notice shall be
required, and, whenever all of the shareholders shall meet in
person or by proxy, such meeting shall be valid for all purposes
without call or notice, and at such meeting any corporate action
may be taken.
Section 1.06 Determination of Shareholders of Record.
(a) The Board of Directors may at any time fix a future date
as a record date for the determination of the shareholders entitled
to notice of any meeting or to vote or entitled to receive payment
of any dividend or other distribution or allotment of any rights or
entitled to exercise any rights in respect of any other lawful
action. The record date so fixed shall not be more than sixty (60)
days prior to the date of such meeting nor more than sixty (60)
days prior to any other action. When a record date is so fixed,
only shareholders of record on that date are entitled to notice of
and to vote at the meeting or to receive the dividend, distribution
or allotment of rights, or to exercise their rights, as the case
may be, notwithstanding any transfer of any shares on the books of
the corporation after the record date.
(b) If no record date is fixed by the Board of Directors, then
(1) 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 day next preceding the day on which the meeting
is held; (2) the record date for determining shareholders
entitled to, give consent to corporate action in writing without a
meeting, when no prior action by the Board of Directors is
necessary, shall be the day on which written consent is given;
and (3) the record date for determining shareholders for any
other purpose shall be at the close of business on the day on
which the Board of Directors adopts the resolution relating
thereto, or the sixtieth (60th) day prior to the date of such
other action, whichever is later.
Section 1.07 Quorum: Adjourned Meetings.
(a) At any meeting of the shareholders, a majority of the
issued and outstanding shares of the corporation represented in
person or by proxy, shall constitute a quorum.
(b) If less than a majority of the issued and outstanding
shares are represented, a majority of shares so represented may
adjourn from time to time at the meeting, until holders of the
amount of stock required to constitute a quorum shall be in
attendance. At any such adjourned meeting at which a quorum shall be. present,
any business may be transacted which might have been transacted as originally
called. When a shareholders meeting is adjourned to another time or place,
notice need not be given of the adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is
taken, unless the adjournment is for more than ten (10) days in
which event notice thereof shall be given.
Section 1.08 voting.
(a) Each shareholder of record, such shareholder's duly
authorized proxy or attorney-in-fact shall be entitled to one (1) vote for
each share of stock standing registered in such shareholder's name
on the books of the corporation on the record date.
(b) Except as otherwise provided herein, all votes with
respect to shares standing in the name of an individual on the record
date (included pledged shares) shall be cast only by that
individual or such individual's duly authorized proxy or attorney-
in-fact. With respect to shares held by a representative of the
estate of a deceased shareholder, guardian, conservator, custodian
or trustee, votes may be cast by such holder upon proof of
capacity, even though the shares do not stand in the name of such
holder. In the case of shares under the control of a receiver, the
receiver may cast votes carried by such shares even though the
shares do not stand in the name of the receiver provided that the
order of the court of competent jurisdiction which appoints the
receiver contains the authority to cast votes carried by such shares.
If shares stand in the name of a minor, votes may be cast only by
the duly-appointed guardian of the estate of such minor if such
guardian has provided the corporation with written notice and proof
of such appointment.
(c) With respect to shares standing in the name of a
corporation on the record date, votes may be cast by such officer
or agents as the by-laws of such corporation prescribe or, in the
absence of an applicable by-law provision, by such person as may be
appointed by resolution of the Board of Directors of such
corporation. In the event no person is so appointed, such votes of
the corporation may be cast by any person (including the officer
making the authorization) authorized to do so by the Chairman of
the Board of Directors, President or any Vice President of such
corporation.
(d) Notwithstanding anything to the contrary herein contained, no
votes may be cast by shares owned by this corporation or its
subsidiaries, if any. If shares are held by this corporation or its
subsidiaries, if any, in a fiduciary capacity, no votes shall be cast with
respect thereto on any matter except to the extent that the beneficial owner
thereof possesses and exercises either a right to vote or to give the
corporation holding the same binding instructions on how to vote.
(e) With respect to shares standing in the name of two or
more persons, whether fiduciaries, members of a partnership, joint
tenants, tenants in common, husband and wife as community property,
tenants by the entirety, voting trustees, persons entitled to vote
under a shareholder voting agreement or otherwise and shares held
by two or more persons (including proxy holders) having the same
fiduciary relationship respect in the same shares, votes may be
cast in the following manner:
(1) If only one such person votes, the votes of such
person binds all.
(2) If more than one person casts votes, the act of the
majority so voting binds all.
(3) If more than one person casts votes, but the vote is
evenly split on a particular matter, the votes shall be
deemed cast proportionately as split.
(f) Any holder of shares entitled to vote on any matter may
cast a portion of the votes in favor of such matter and refrain
from casting the remaining votes or cast the same against the
proposal, except in the case of elections of directors. If such
holder entitled to vote fails to specify the number of affirmative
votes, it will be conclusively presumed that the holder is casting
affirmative votes with respect to all shares held.
(g) If a quorum is present, the affirmative vote of holders
of a majority of the shares represented at the meeting and entitled
to vote on any matter shall be the act of the shareholders, unless
a vote of greater number or voting by classes is required by the
laws of the State of Nevada, the Articles of Incorporation and these By-
Laws.
Section 1.09 Proxies. At any meeting of shareholders, any
holder of shares entitled to vote may authorize another person or
persons to vote by proxy with respect to the shares held by an
instrument in writing and subscribed to by the holder of such
shares entitled to vote. No proxy shall be valid after the
expiration of six (6) months from the date of execution thereof,
unless coupled with an interest or unless otherwise specified in
the proxy. In no event shall the term of a proxy exceed seven (7)
years from the date of its execution. Every proxy shall continue
in full force and effect until its expiration or revocation.
Revocation way be effected by filing an instrument revoking the
same or a duly-executed proxy bearing a later date with the
secretary of the corporation.
Section 1.10 Order of Business. At the annual shareholders meeting,
the regular order of business shall be as follows:
(1) Determination of shareholders present and existence of quorum;
(2) Reading and approval of the minutes of the previous meeting or meetings;
(3) Reports of the Board of Directors, the president, treasurer and secretary
of the corporation, in the order named;
(4) Reports of committee;
(5) Election of directors;
(6) Unfinished business;
(7) New business;
(8) Adjournment.
Section 1.11 Absentees Consent to Meetings. Transactions of
any meeting of the shareholders are as valid, as though had 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 (and those who, although present,
either object at the beginning of the meeting to the transaction of any
business because the meeting has not been lawfully called or
convened or expressly object at the meeting to the consideration of
matters not included in the notice which are legally required to be
included therein), signs a written waiver of notice and/or consent
to the holding of the meeting or an approval of the minutes
thereof. All such waivers, consents, and approvals shall be filed
with the corporate records and made a part of the minutes of the
meeting. Attendance of a person at a meeting shall constitute a
waiver of notice of such 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 not included in the notice if such
objection is expressly made at the beginning. Neither the business to
be transacted at nor the purpose of any regular or special
meeting of shareholders need be specified in any written waiver
of notice, except as otherwise provided in Section 1.04(b) of
these By-Laws.
Section 1.12 Action Without Meeting. Any action which may be
taken by the vote of the shareholders at a meeting may be taken
without a meeting if consented to by the holders of a majority of
the shares entitled to vote or such greater proportion as may be
required by the laws of the State of Nevada, the Articles of
Incorporation, or these By-Laws. Whenever action is taken by written
consent, a meeting of shareholders needs not be called or noticed.
ARTICLE IX
DIRECTORS
Section 2.01 Number. Tenure and Qualification. Except as
otherwise provided herein, the Board of Directors of the
corporation shall consist of at least one (1) but no more than nine
(9) persons, who shall be elected at the annual meeting of the
shareholders of the corporation and who shall hold office for one
(1) year or until their successors are elected and qualify.
section 2.02 Resignation. Any director may resign effective
upon giving written notice to the chairman of the Board of
Directors, the president, or the secretary of the corporation,
unless the notice specifies a later time for effectiveness of such
resignation. If the Board of Directors accepts the resignation of
a director tendered to take effect at a future date, the Board or
the shareholders may elect a successor to take office when the
resignation becomes effective.
Section 2.03 Reduction in Number. No reduction of the number
of directors shall have the effect of removing any director prior
to the expiration of his term of office.
Section 2.04 Removal.
(a) The Board of Directors or the shareholders of the
corporation, by a majority vote, may declare vacant the office of
a director who has been declared incompetent by an order of a court
of competent jurisdiction or convicted of a felony.
Section 2.05 Vacancies.
(a) A vacancy in the Board of Directors because of death,
resignation, removal, change in number of directors, or otherwise
may be filled by the shareholders at any regular or special meeting
or any adjourned meeting thereof or the remaining director(s) by
the affirmative vote of a majority thereof. A Board of Directors
consisting of less than the maximum number authorized in Section
2.01 of ARTICLE II constitutes vacancies on the Board of Directors
for purposes of this paragraph and may be filled as set forth above
including by the election of a majority of the remaining directors.
Each successor so elected shall hold office until the next annual
meeting of shareholders or until a successor shall have been duly-
elected and qualified.
(b) If, after the filling of any vacancy by the directors,
the directors then in office who have been elected by the
shareholders shall constitute less than a majority of the directors
then in office, any holder or holders of an aggregate of five
percent (5%) or more of the total number of shares entitled to vote
may call a special meeting of shareholders to be held to elect the
entire Board of Directors. The term of office of any director shall
terminate upon such election of a successor.
Section 2.06 Regular Meetings. Immediately following the
adjournment of, and at the same place as, the annual meeting of the
shareholders, the Board of Directors, including directors newly
elected, shall hold its annual meeting without notice, other than
this provision, to elect officers of the corporation and to
transact such further business as may be necessary or appropriate.
The Board of Directors may provide by resolution the place, date
and hour for holding additional regular meetings.
Section 2.07 Special Meetings. Special meetings of the Board
of Directors may be called by the chairman and shall be called by
the chairman upon the request of any two (2) directors or the
president of the corporation.
Section 2.08 Place of Meetings. Any meeting of the directors
of the corporation may be held at its principal office in the State
of Nevada, or at such other place in or out of the United States as
the Board of Directors may designate. A waiver or notice signed by
the directors may designate any place for the holding of such
meeting.
Section 2.09 Notice of Meetings. Except as otherwise provided
in Section 2.06, the chairman shall deliver to all directors
written or printed notice of any special meeting, at least three
(3) days before the date of such meeting, by delivery of such
notice personally or mailing such notice first class mail, or by
telegram. If mailed, the notice shall be deemed delivered two (2)
business days following the date the same is deposited in the
United States mail, postage prepaid. Any director may waive notice
of any meeting, and the attendance of a director at a meeting shall
constitute a waiver of notice of such meeting, unless such
attendance is for the express purpose of objecting to the
transaction of business threat because the meeting is not properly
called or convened.
Section 2.10 Quorum: Adjourned Meetings.
(a) A majority of the Board of Directors in off ice shall
constitute a quorum.
(b) At any meeting of the Board of Directors where a quorum
is not present, a majority of those present may adjourn, from time
to time, until a quorum is present, and no notice - of such
adjournment shall be required. At any adjourned meeting where a
quorum is present, any business may be transacted which could have
been transacted at the meeting originally called.
Section 2.11 Action Without Meeting. Any action required or
permitted to be taken at any meeting of the Board of Directors or
any committee thereof may be taken without a meeting if a written
consent thereto is signed by all of the members of the Board of
Directors or of such committee. Such written consent or consents shall
be filed with the minutes of the proceedings of the Board of
Directors or committee. Such action by written consent shall have
the same force and effect as the unanimous vote of the Board of
Directors or committee.
Section 2.12 Telephonic Meetings. Meetings of the Board of
Directors may be held through the use of a conference telephone or
similar communications equipment so long as all members
participating in such meeting can hear one another at the time of
such meeting. Participation in such a meeting constitutes presence
in person at such meeting.
Section 2.13 Board Decisions. The affirmative vote of a
majority of the directors present at a meeting at which a quorum is
present shall be the act of the Board of Directors.
Section 2.14 Powers and Duties.
(a) Except as otherwise provided in the Articles of Incorporation
or the laws of the State of Nevada, the Board of Directors is
invested with the complete and unrestrained authority to manage the
affairs of the corporation, and is authorized to exercise for such
purpose as the general agent of the corporation, its entire
corporate authority in such manner as it sees fit. The Board of
Directors may delegate any of its authority to manage, control or
conduct the current business of the corporation to any standing or
special committee or to any officer or agent and to appoint any
persons to be agents of the corporation with such powers, including
the power to sub-delegate, and upon such terms as may be deemed
fit.
(b) The Board of Directors shall present to the shareholders
at annual meetings of the shareholders, and when called for by a
majority vote of the shareholders at a special meeting of the
shareholders, a full and clear statement of the condition of the
corporation, and shall, at request, furnish each of the
shareholders with a true copy thereof.
(c) The Board of Directors, in its discretion, may submit any
contract or act for approval or ratification at any annual meeting of
the shareholders or any special meeting properly called for the
purpose of considering any such contract or act, provided a quorum
is present. The contract or act shall be valid and binding upon the
corporation and upon all the shareholders thereof, if approved and
ratified by the affirmative vote of a majority of the shareholders
at such meeting.
(d) In furtherance and not in limitation of the powers
conferred by the laws of the State of Nevada, the Board of
Directors is expressly authorized and empowered to issue stock
of the Corporation for money, property, services rendered,
labor performed, cash advanced, acquisitions for other
corporations or for any other assets of value in accordance
with the action of the Board of Directors without vote or
consent of the shareholders and the judgment of the Board of
Directors as to the value received and in return therefore
shall be conclusive and said stock, when issued, shall be
fully-paid and non-assessable.
Section 2.15 Compensation. The directors shall be allowed and
paid all necessary expenses incurred in attending any meetings of
the Board, but shall not receive any compensation for their
services as directors until such time as the corporation is able to
declare and pay dividends on its capital stock.
Section 2.16 Board Officers.
(a) At its annual meeting, the Board of Directors shall elect,
from among its members, a chairman to preside at the meetings of
the Board of Directors. The Board of Directors may also elect such
other board officers and for such term as it may, from time to
time, determine advisable.
(b) Any vacancy in any board of f ice because of death,
resignation, removal or otherwise may be filled by the Board of
Directors for the unexpired portion of the term of such office.
Section 2.17 Order of Business. The order of business at any
meeting of the Board of Directors shall be as follows:
(1) Determination of members present and existence of quorum;
(2) Reading and approval of the minutes of any previous meeting or meetings;
(3) Reports of officers and committeemen;
(4) Election of officers;
(5) Unfinished business;
(6) New business;
(7) Adjournment.
ARTICLE III
OFFICERS
Section 3.01 Election. The Board of Directors, at its first
meeting following the annual meeting of shareholders"'shall elect
a president, a secretary and a treasurer to hold office for one (1)
year next coming and until their successors are elected and
qualify. Any person may hold two or more offices. The Board of
Directors may, from time to time, by resolution, appoint one or
more vice presidents, assistant secretaries, assistant treasurers
and transfer agents of the corporation as it may deem advisable;
prescribe their duties; and fix their compensation.
Section 3.02 Removal; Resignation. Any officer or agent
elected or appointed by the Board of Directors may be removed by it
whenever, in its judgment, the best interest of the corporation
would be served thereby. Any officer may resign at any time upon
written notice to the corporation without prejudice to the rights,
if any, of the corporation under any contract to which the
resigning officer is a party.
Section 3.03 Vacancies. Any vacancy in any office because of
death, resignation, removal, or otherwise may be filled by the
Board of Directors for the unexpired portion of the term of such
office.
Section 3.04 President. The president shall be the general
manager and executive officer of the corporation, subject to the
supervision and control of the Board of Directors, and shall direct
the corporate affairs,, with full power to execute all resolutions
and orders of the Board of Directors not especially entrusted to
some other officer of the corporation. The president shall preside
at all meetings of the shareholders and shall sign the certificates
of stock issued by the corporation, and shall perform such other
duties as shall be prescribed by the Board of Directors.
Unless otherwise ordered by the Board of Directors, the
president shall have full power and authority on behalf of the
corporation to attend and to act and to vote at any meetings of the
shareholders of any corporation in which the corporation may hold
stock and, at any such meetings, shall possess and may exercise any
and all rights and powers incident to the ownership of such stock.
The Board of Directors, by resolution from time - to time, - may
confer like powers-on any person or persons in place of the
president to represent the corporation for these purposes.
Section 3.05 Vice President. The Board of Directors may elect
one or more vice presidents who shall be vested with all the powers
and perform all the duties of the president whenever the president
is absent or unable to act, including the signing of the certificates of
stock issued by the corporation, and the vice president shall
perform such other duties as shall be prescribed by the Board of
Directors.
Section 3.06 Secretary. The secretary shall keep the minutes
of all meetings of the shareholders and the Board of Directors in
books provided for that purpose. The secretary shall attend to the
giving and service of all notices of the. corporation, may sign
with the president in the name of the corporation all contracts
authorized by the Board of Directors or appropriate committee,
shall have the custody of the corporate seal, shall affix the
corporate seal to all certificates of stock duly issued by the
corporation, shall have charge of stock certificate books, transfer
books and stock ledgers, and such other books and papers as the
Board of Directors or appropriate committee way direct, and shall,
in general perform all duties incident to the office of the
secretary. All corporate books kept by the secretary shall be open
for examination by any director at any reasonable time.
Section 3.07 Assistant Secretary. The Board of Directors may
appoint an assistant secretary who shall have such powers and
perform such duties as may be prescribed for him by the secretary
of the corporation or by the Board of Directors.
Section 3.08 Treasurer. The treasurer shall be the chief
financial officer of the corporation, subject to the supervision
and control of the Board of Directors, and shall have custody of
all the funds and securities of the corporation. When necessary or
proper, the treasurer shall endorse on behalf of the corporation
for collection checks, notes and other obligations, and shall
deposit all monies to the credit of the corporation in such bank
or banks' or other depository as the Board of Directors may
designate, and shall sign all receipts and vouchers for payments
made by the corporation. Unless otherwise specified by the Board of
Directors, the treasurer shall sign with the president all bills of
exchange and promissory notes of the corporation, shall also have
the care and custody of the stocks, bonds, certificates, vouchers,
evidence of debts, securities and such other property belonging to
the corporation as the Board of Directors shall designate, and
shall sign all papers required by law, by these By-laws or by the
Board of Directors to be signed by the treasurer. The treasurer
shall enter regularly in the books of the corporation, to be kept
for that purpose, full and accurate accounts of all monies received
and paid on account of the corporation and whenever required by the
Board of Directors, the treasurer shall render a statement of any
or all accounts. The treasurer shall at all reasonable times
exhibit the books of account to any directors of the corporation
and shall perform all acts incident to the position of treasurer
subject to the control of the Board of Directors. The treasurer
shall, if required by the Board of Directors, give a bond to the
corporation in such sum and with such security as shall be approved
by the Board of Directors for the faithful performance of all the
duties of the treasurer and for restoration to the corporation in
the event of the treasurer's death, resignation, retirement, or re-
moval from office, of all books, records, papers, vouchers, money
and other property belonging to the corporation. The expense of
such bond shall be borne by the corporation.
Section 3.09 Assistant Treasurer. The Board of Directors may
appoint an assistant treasurer who shall have such powers and
perform such duties as may be prescribed by the treasurer of the
corporation or by the Board of Directors, and the Board of
Directors may require the assistant treasurer to give a bond to the
corporation in such sum and with such security as it may
approve, for the faithful performance of the duties of assistant
treasurer, and for the restoration to the corporation, in the event
of the assistant treasurer"s death, resignation, retirement or
removal from office, of all books, records, papers, vouchers, money
and other property belonging to the corporation. The expense of
such bond shall be borne by the corporation.
ARTICLE IV
CAPITAL STOCK
Section 4. 01 Issuance. Shares of capital stock of the
corporation shall be issued in such manner and at such times and
upon such conditions as shall be prescribed by the Board of
Directors.
Section 4.02 Certificates. ownership in the corporation shall
be evidenced by certificates for shares of stock in such form as
shall be prescribed by the Board of Directors, shall be under the
seal of the corporation and shall be signed by the president or the
vice president and also by the secretary or an assistant secretary.
Each certificate shall contain the name of the record holder, the
number, designation, if any, class or series of shares represented,
a statement of summary of any applicable rights, preferences,
privileges, or restrictions thereon, and a statement that the
shares are assessable, if applicable. All certificates shall be
consecutively numbered. The name and address of the shareholder,
the number of shares, and the date of issue shall be entered on the
stock transfer books of the corporation.
Section 4.03 Surrender: Lost or Destroyed Certificates. All
certificates surrendered to the corporation, except those
representing shares of treasury stock, shall be canceled and no new
certificates shall be issued until the former certificate for a
like number of shares shall have been canceled, except that in case
of a lost, stolen, destroyed or mutilated certificate, a new one
may be issued therefor. However, any shareholder applying for the
issuance of a stock certificate in lieu of one alleged to have been
lost, stolen, destroyed or mutilated shall, prior to the issuance
of a replacement, provide the corporation with his, her or its
affidavit of the facts surrounding the loss, theft, destruction or
mutilation and an indemnity bond in an amount and upon such terms
as the treasurer, or the Board of Directors, shall require. In no
case shall the bond be in amount less than twice the current market
value of the stock and it shall indemnify the corporation against
any loss, damage, cost or inconvenience arising as a consequence of
the issuance of a replacement certificate.
Section 4.04 Replacement Certificate. When the Articles of
Incorporation are amended in any way affecting the statements
contained in the certificates for outstanding shares of capital
stock of the corporation or it becomes desirable for any reason,
including, without limitation, the merger or consolidation of the
corporation with another corporation or the reorganization of the
corporation, to cancel any outstanding certificate for shares and
issue a new certificate therefor conforming to the rights of the
holder, the Board of Directors may order any holders of outstanding
certificates for shares to surrender and exchange the same for new
certificates within a reasonable time to be fixed by the Board of
Directors. The order may provide' that a holder of any
certificate(&) ordered to be surrendered shall not be entitled to
vote, receive dividends or exercise any other rights of
shareholders until the holder has complied with the order provided
that such order operates to suspend such rights only after notice
and until Compliance.
Section 4.05 Transfer of Shares. No transfer of stock shall
be valid as against the corporation except on surrender and
cancellation by the certificate therefor, accompanied by an
assignment or transfer by the registered owner made either in
person or under assignment. Whenever any transfer shall be
expressly made for collateral security and not absolutely, the
collateral nature of the transfer shall be reflected in the entry
of transfer on the books of the corporation.
Section 4.06 Transfer Agent. The Board of Directors may
appoint one or more transfer agents and registrars of transfer and
may require all certificates for shares of stock to bear the
signature of such transfer agent and such registrar of transfer.
Section 4.07 Stock Transfer Books. The stock transfer books
shall be closed for a period of ten (10) days prior to all meetings
of the shareholders and shall be closed for the payment of
dividends as provided in Article V hereof and during such periods
as, from time to time, may be fixed by the Board of Directors, and,
during such periods, no stock shall be transferable.
section 4.08 Miscellaneous. The Board of Directors shall
have the power and authority to make such rules and regulations
not inconsistent herewith as it may deem expedient concerning the
issue, transfer and registration of certificates for shares of
the capital stock of the corporation.
ARTICLE V
DIVIDENDS
Section 5.01 Dividends may be declared, subject to the
provisions of the laws of the State of Nevada and the Articles of
Incorporation, by the Board of Directors at any regular or special
meeting and may be paid in cash, property, shares of corporate
stock, or any other medium. The Board of Directors may fix in
advance a record date, as provided in Section 1.06 of these By-
laws, prior to the dividend payment for the purpose of determining
shareholders entitled to receive payment of any dividend. The Board
of Directors may close the stock transfer books for such purpose
for a period of not more than ten (10) days prior to the payment
date of such dividend.
ARTICLE VI
OFFICES; RECORDS; REPORTS; SEAL AND FINANCIAL MATTERS
Section 6.01 Principal office. The principal office of the
corporation in the State of Nevada shall be the Law Offices of Max
C. Tanner, 2950 East Flamingo Road, Suite G, Las Vegas, Nevada
89121, and the corporation may have an office in any other state or
territory as the Board of Directors may designate.
Section 6.02 Records. The stock transfer books and a certified
copy of the By-laws, Articles of Incorporation, any amendments
thereto, and the minutes of the proceedings of'. the shareholders,
the Board of Directors, and committees of the Board of Directors
shall be kept at the principal office of the corporation for the
inspection of all who have the right to see the same and for the
transfer of stock. All other books of the corporation shall be kept
at such places as may be prescribed by the Board of Directors.
Section 6.03 Financial Report on Request. Any shareholder or
shareholders holding at least five percent (5%) of the outstanding
shares of any class of stock may make a written request for an
income statement of the corporation for the three (3) month, six
(6) month, or nine (9) 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 such
period. In addition, if no annual report for the last fiscal year
has been sent to shareholders, such shareholder or shareholders may
make a request for 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. The statement 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 off ice of the corporation for twelve (12) months, and
such copies shall be exhibited at all reasonable times to any
shareholder demanding an -examination of them or a copy shall be
mailed to each shareholder. Upon request by any shareholder, there
shall be mailed to the shareholder a 'copy of the last annual,
semiannual or quarterly income statement which it has prepared and
a balance sheet as of the end of the period. The financial
statements referred to in this Section 6.03 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 such financial statements were prepared
without audit from the books and records of the corporation.
Section 6.04 Right of Inspection.
(a) The accounting books and records and minutes of
proceedings of the shareholders and the Board of Directors and
committees of the Board of Directors shall be open to inspection upon
the written demand of any shareholder or holder of a voting trust
certificate at any reasonable time during usual business hours for
a purpose reasonably related to such holder's interest as a
shareholder or as the holder of such voting trust certificate. This
right of inspection shall extend to the records of the
subsidiaries, if any, of the corporation. such inspection way be
made in person or by agent or attorney, and the right of inspection
includes the right to copy and make extracts.
(b) 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/or its subsidiary corporations. Such inspection
may be made in person or by agent or attorney, and the right of
inspection includes the right to copy and make extracts.
Section 6.05 Corporate Seal. The Board of Directors may, by
resolution, authorize a seal, and the seal may be used by causing
it, or a facsimile, to be impressed or affixed or reproduced or
otherwise. Except when otherwise specifically provided herein, any
officer of the corporation shall have the authority to affix the
seal to any document requiring it.
Section 6.06 Fiscal Year. The fiscal year-end of the
corporation shall be the calendar year or such other term as may be
fixed by resolution of the Board of Directors.
Section 6.07 Reserves. The Board of Directors may create, by
resolution, out of the earned surplus of the corporation such
reserves as the directors may, from time to time, in their
discretion, think proper to provide for contingencies, or to
equalize dividends or to repair or maintain any property of the
corporation, or for such other porpoises the Board of Directors
may deem beneficial to the corporation, and the directors may
modify or abolish any such reserves in the manner in which they
were created.
ARTICLE VII
INDEMNIFICATION
section 7.01 Indemnification. The corporation shall, unless
prohibited by Nevada Law, indemnify any person (an "Indemnitee")
who is or was involved in any manner (including, without
limitation, as a party or a witness) or is threatened to be so
involved in any threatened, pending or completed action suit or
proceeding, whether civil, criminal, administrative, arbitrative or
investigative, including without limitation, any action, suit or
proceeding brought by or in the right of the corporation to procure
a judgment in its favor (collectively, a "Proceeding") by reason of
the fact that he is or was a director, officer, employee or agent
of the. corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit
plan or other entity or enterprise, against all Expenses and
Liabilities actually and reasonably incurred by him in connection
with such Proceeding. The right to indemnification conferred in
this Article shall be presumed to have been relied upon by the
directors, officers, employees and agents of the corporation and
shall be enforceable as a contract right and inure to the benefit
of heirs, executors and administrators of such individuals.
Section 7.02 Indemnification Contracts. The Board of
Directors is authorized on behalf of the corporation, to enter
into, deliver and perform agreements or other arrangements to
provide any Indemnitee with specific rights of indemnification in
addition to the rights provided hereunder to the fullest extent
permitted by Nevada Law. Such agreements or arrangements way
provide (i) that the Expenses of officers and directors incurred in
defending a civil or criminal action, suit or proceeding, must be
paid by the corporation as they are incurred and in advance of the
final disposition of any such action, suit or proceeding provided
that, if required by Nevada Law at the time of such advance, the
officer or director provides an undertaking to repay such amounts
if it is ultimately determined by a court of competent jurisdiction
that such individual is not entitled to be indemnified against
such expenses, (iii) that the Indemnitee shall be presumed to be
entitled to indemnification under this Article or such agreement or
arrangement and the corporation shall have the burden of proof to
overcome that presumption, (iii) for procedures to be followed by
the corporation and the Indemnitee in making any determination of
entitlement to indemnification or for appeals therefrom and (iv)
for insurance or such other Financial Arrangements described in
Paragraph 7.02 of this Article, all as may be deemed appropriate by
the Board of Directors at the time of execution of such agreement
or arrangement.
Section 7.03 Insurance and Financial Arrangements. The
corporation may, unless prohibited by Nevada Law, purchase and
maintain insurance or make other financial arrangements ("Financial
Arrangements") on behalf of any Indemnitee for any liability
asserted against him and liability and expenses incurred by him in
his capacity as a director, officer, employee or agent, or arising
out of his status as such, whether or not the corporation has the
authority to indemnify him against such liability and expenses.
Such other Financial Arrangements may include (i) the creation of
a trust fund,, (ii) the establishment of a program of self-
insurance, (iii) the securing of the corporation's obligation of
indemnification by granting a security interest or other lien on
any assets of the corporation, or (iv) the establishment of a
letter of credit, guaranty or surety.
Section 7.04 Definitions. For purposes of this Article:
Expenses. The word "Expenses" shall be broadly construed and,
without limitation, means (i) all direct and indirect costs
incurred, paid or accrued, (ii) all attorneys' fees, retainers,
court costs, transcripts, fees of experts, witness fees, travel
expenses, food and lodging expenses while traveling, duplicating
costs, printing and binding costs, telephone charges, postage,
delivery service, freight or other transportation fees and
expenses, (iii) all other disbursements and out-of-pocket expenses, (iv)
amounts paid in settlement, to the extent permitted by Nevada Law, and (v)
reasonable compensation for time spent by the Indemnitee for which
he is otherwise not compensated by the corporation or any third
party, actually and reasonably incurred in connection with either
the appearance at or investigation, defense, settlement or appeal
of a Proceeding or establishing or enforcing a right to
indemnification under any agreement or arrangement, this Article,
the Nevada Law or otherwise; provided, however, that "Expenses"
shall not include any judgments or fines or excise taxes or
penalties imposed under the Employee Retirement Income Security
Art of 1974 as amended ("ERISA") or other excise taxes or penalties.
Liabilities. "Liabilities" means liabilities of any type
whatsoever, including, but not limited to, judgments or fines,
ERISA or other excise taxes and penalties, and amounts paid in
settlement.
Nevada Law. "Nevada Law" means Chapter 78 of the Nevada Revised
Statutes as amended and in effect from time to time or any
successor or other statutes of Nevada having similar import
and effect.
This Article. "This Article" means Paragraphs 7.01 through 7.04
of these bylaws or any portion of them.
Power of Stockholders. Paragraphs 7.01 through 7.04,, including
this Paragraph, of these Bylaws may be amended by the stockholders
only by vote of the holders of sixty-six and two-thirds percent (66
2/3%) of the entire number of shares of each class, voting
separately, of the outstanding capital stock of the corporation
(even though the right of any class to vote is otherwise restricted
or denied); provided, however, no amendment or repeal of
this Article shall adversely affect any right of any Indemnitee
existing at the time such amendment or repeal becomes effective.
Power of Directors. Paragraphs 7.01 through 7.04 and this
Paragraph of these Bylaws may be amended or repealed by the Board
of Directors only by vote of eighty percent (80%) of the total
number of Directors and the holders of sixty-six and two-thirds
percent (66 2/3) of the entire number of shares of each class,
voting separately, of the outstanding capital stock of the
corporation (even though the right of any class to vote is
otherwise restricted or denied); provided, however, no amendment or
repeal of this Article shall adversely affect any right of any
Indemnitee existing at the time such amendment or repeal becomes
effective.
ARTICLE VIII
BY-LAWS
Section 8.01 Amendment. Amendments and changes of these By-Laws may be made
at any regular or special meeting of the Board of Directors by a vote of not
less than all of the entire Board, or may be made by a vote of, or a consent
in writing signed by the holders of a majority of the issued and outstanding
capital stock.
Section 8.02 Additional By-Laws. Additional by-laws not inconsistent herewith
may be adopted by the Board of Directors at any meeting of the Board of
Directors at which a quorum is present by an affirmative vote of a majority of
the directors present or by the unanimous consent of the Board of Directors in
accordance with Section 2.11 of these By-laws.
CERTIFICATION
I, the undersigned, being the duly elected secretary of the Corporation, do
hereby certify that the foregoing By-Laws were adopted by the Board of
Directors on the 3rd Day of March, 1994.
/s/Richard Degear
Richard Degear, Secretary
STOCK-FOR-STOCK AGREEMENT
REORGANIZAIION AGREEMENT between Cipher Voice, Inc., a Nevada
corporation (hereinafter referred to as "Cipher'), and shareholders of Galaxy
Mall Inc., a Wyoming corporation (hereinafter referred to as "Galaxy").
For the Acquisition by Cipher of all the outstanding stock of Galaxy, in
exhange for stock of Cipher.
AGREEMENT, dated as of this 4th day of December, 1996, between Cipher
and all of the Shareholders of Galaxy (hereinafter collectively referred to as
the "Galaxy Shareholders").
WHEREAS, the Galaxy Shareholders own 440 shares of common stock, $0.01,
par value per share, of Galaxy, and which constitutes all of the outstanding
common stock of Galaxy, for a total of issued and outstanding shares of common
stock of Galaxy.
WHEREAS, the Galaxy Shareholders own and have the right to sell,
transfer and exchange all of the shares of Galaxy for the purchase of the
capital stock of Cipher. Cipher hereby offers 3,600,000 post reverse (one for
seven reverse) shares of its restricted common stock to the Galaxy
Shareholders for all of the outstanding common stock Galaxy. The Galaxy
Shareholders wish to make said exchange.
WHEREAS, the parties hereto intend that the securities exchange
described herein between Cipher and the Shareholders of Galaxy will be tax
free in accordance with provisions of Section 3 68(a)(1)(B) of the Internal
Revenue Code.
NOW THEREFORE, in consideration ofthe premises and of the mutual
covenants hereinafter set forth, the parties hereto have agreed and by these
presents do hereby agree as follows.
1. Exchange of Securities. Subject to the terms and conditions
hereinafter set forth, at the time of the closing referred to in Section 6
hereof (the "Closing Date), Cipher will issue and deliver, or cause to be
issued and delivered to the Galaxy Shareholders, in exchange for all of the
issued and outstanding shares of Galaxy, 3,600,000 share of its common stock.
The shares of Cipher will be allocated as set forth in Schedule I attached
hereto. The shares of Galaxy Shareholders will be exchanged for shares in
Cipher on a 1 for 8181.1818 basis.
2. Representation and Warranties by Galaxy Shareholders. Galaxy and
Galaxy Shareholders each represent and warrant to Cipher, all of which
representations and warranties shall be true at the time closing, and shall
survive the closing for a period of six (6) months from the date of closing.
(a) Galaxy is a corporation duly organized and validly existing and
in good standing under the laws of the State of Wyoming and has the
corporate powers to own its property and carry on its business as and
where it is now being conducted. Copies of the Incorporation and the By-
Laws of Galaxy, which have heretofore been, furnished by Galaxy
Shareholders to Cipher, are true and correct copies of said Certificate
of Incorporation and By-Laws including all amendments to the date hereof
(b) The authorized capital stock of Galaxy consists of 1,000 shares of
common stock $.01 par value ("Common Stock of Galaxy"), of which 440 shares
have been validly issued and are now outstanding.
(c) Galaxy Shareholders have full power to exchange the shares to
purchase the capital stock of Cipher on behalf of themselves upon the
terms provided for in this Agreement, and said shares have been duly and
validly issued and are free and clear of any lien or other encumbrance.
(d) From the date hereof and until the date of closing no dividends
or distributions of capital surplus, or profits shall be paid or declared
by Galaxy in redemption of their outstanding shares or otherwise and except
as described herein, no additional shares shall be issued by said corporation
(e) Since the date hereof and until the date of Closing, Galaxy will
not engage in any transaction other than transactions in the normal course
of the operations of their business, except as specifically authorized by
Cipher in writing.
(f) Galaxy is not involved in any pending or threatened Litigation
which would materially affect its financial condition disclosed to Cipher
in writing.
(g) Galaxy has and will have on the Closing Date, good and marketable
title to all of its property and assets shown on Schedule II attached
hereto, free and clear of any and all liens or encumbrances or
restrictions, except as shown on Schedule II, attached hereto and except
for taxes and assessments due and payable after the Closing Date and
easements or minor restrictions with respect to its property which do not
materially affect present use of such property.
(h) (1) The inventories of Galaxy as reflected in Schedule II
furnished by Galaxy Shareholders to Cipher prior to the execution hereof are
valued at book value.
(2) The inventory of Galaxy listed on the schedule referred
to in (h)(1) above is hereinafter collectively referred to as the
"Inventory." The Inventory is in good and usable condition.
(i) As of the date hereof, there are no accounts receivable of Galaxy of
a material nature, except for those accounts receivable set forth in
Schedule II attached hereto.
(j) Galaxy does not now have, nor will it have on the Closing Date, any
long-term contracts ("long-term") being defined as more than one year) except
those set forth in Schedule II attached hereto.
(k) Galaxy does not now have, nor will it have on the closing Date
any pension plan, profit-sharing plan, or stock purchase plan for any of
its employees except those set forth in Schedule III attached hereto and
certain options to proposed executive officers.
(l) Galaxy does not now have, nor will it have on the Closing Date,
known liabilities or contingent liabilities other than those attached
hereto as Schedule III except in the ordinary course of business or in
connection with its proposed private offering.
(m) If Galaxy incurs any material liability or obligation, direct or
contingent, or if there has been any material adverse change in the financial
position or results or operation of Galaxy, prior to the Closing date,
then Galaxy shall promptly notify Cipher of any such event.
3. Representations and Warranties by Cipher. Cipher represents and warrants
to the Galaxy Shareholders all of which representations and warranties shall
be true at the time of closing and thereafter, and shall survive the closing
for a period of six (6) months from the date of closing, as follows:
(a) Cipher is a corporation duly organized and validly existing and
in good standing under the laws of the State of Nevada and has the
corporate power to own its properties and carry on its business as now
being conducted and has authorized Capital Stock consisting of25,000,000
shares of common stock, $.001 par value per share, of which there are
2,441,714 shares presently outstanding.
(b) Cipher has the corporate power to execute and perform the Agreement
and to deliver the stock required to be delivered to Galaxy Shareholders
hereunder.
(c) The execution and delivery of this Agreement and the issuance
of the stock required to be delivered hereunder have been duly authorized
by all necessary corporate actions, and neither the execution nor delivery
of this Agreement, nor the issuance of the stock nor the performance,
observance or compliance with the terms and provisions of this Agreement
will violate any provision of law, any order of any court or other
governmental agency, the Certificate of Incorporation or By-Laws of Cipher
or any indenture, agreement or other instrument to which Cipher is a
party, or by which Cipher is bound, or by which any of its property is
bound.
(d) The shares of Common Stock of Cipher deliverable pursuant hereto
will on delivery in accordance with the terms hereof be duly authorized,
validly issued, and fully paid, and non-assessable.
(e) Cipher is not involved in any pending or threatened lifigation
which would materially affect its financial condition other than that
disclosed in Schedule IV attached hereto.
(f) Cipher has and will have on the Closing Date, good and marketable
title to all of its property and assets, free and clear of any and all
liens or encumbrances or restrictions, except as disclosed in writing to
Galaxy, and except for taxes and assessments due and payable after the
Closing Date and easements or minor restrictions with respect to its
property which do not materially affect present use of such property.
(g) Cipher does not now have, nor will it have on the Closing Date,
any long-term contracts, accounts receivable, any pension plan, profit-sharing
plan, or stock purchase plan for any of its employees, known liabilities or
contingent liabilities other than those disclosed in writing in Schedule
V attached hereto.
(h) If Cipher incurs any material liability or obligation, direct or
contingent, or if there has been any material adverse change in the financial
position or results or operation of Cipher, then Cipher shall promptly
notify Galaxy of any such event.
4. Conditions to the Obligations of Cipher. The obligations of Cipher
hereunder shall be subject to the conditions that:
(a) Cipher shall not have discovered any material error mis-statement
in any of the representations and warranties by Galaxy Shareholders herein,
and all the terms and conditions of the Agreement to be performed and
complied with shall have been performed and complied with.
(b) There shall have been no substantial adverse changes in the
conditions, financial, business otherwise of Galaxy from the date of this
Agreement, and until the date of closing except for changes resulting from
those operations in the usual and ordinary course of business, and between
such dates the business and assets of Galaxy shall not have been materially
adversely affected as the result of any fire, explosion, earthquake, flood,
accident, strike, lockout, combination of workmen, taking over of any such
assets by any governmental authorities, riot, activities of armed forces,
or acts of God or of the public enemies.
(c) Cipher shall upon request and at the time of closing receive an
opinion of counsel to the effect that: (1) Galaxy is duly organized and
validly existing under the laws of the State ofWyoming and has the power and
authority to own its properties and to carry on its respective business
wherever the same shall be located and operated as of the Closing
Date, and (2) this Agreement has been duly executed and delivered by Galaxy
Shareholders and constitutes a legal, valid and binding obligation of the
Galaxy Shareholders enforceable in accordance with its terms.
(d) Galaxy does not now have, nor will it have on the date of
closing, any liabilities or contingent liabilities, except as
specifically set forth on Schedule II attached hereto.
(e) Counsel for Cipher, Max C. Tanncr, Esquire, shall provide an
opinion to be delivered at the Closing Date to the effect that: (1) Cipher
is a Nevada corporation, validly existing and in good standing with
respect to its corporate character, (2) that Cipher is not under
investigation by the SEC, the NASD or any state securities commission; (3)
that there are no known securities violations (4) all shares issued by Cipher
have been validly issued in accordance with Nevada or Federal law, are
fully paid and non-assessable; and (5) there are on outstanding options,
rigths, warrants, conversion privileges or other agreements which would
require issuance of additional shares.
5. Condifions to the Obligations of Galaxy Shareholders. The obligations of
the Galaxy Shareholders hereunder are subject to the conditions that:
(a) Galaxy Shareholders shall not have discovered any material error
or misstatement in any of the representations and warranties made by Cipher
herein and all the terms and conditions of the Agreement to be performed
and complied with by Cipher shall have been performed and complied with.
(b) The Galaxy Shareholders shall upon request, at the time of
closing, receive an opinion of counsel to the effect that: (1) Cipher is
a corporation duly organized and validly existing under the laws of the
State of Nevada, and has the power to own and operate its properties
wherever the same shall be located as of the Closing Date; (2) the execution,
Delivery and performance of the Agreement by Cipher has been duly
authorized by all necessary corporate action and constitutes a legal,
valid and binding obligation of Cipher enforceable in accordance, with its
terms; (3) the securities to be delivered to Galaxy Stockholders pursuant
to the term of the Agreement has been validly issued, is fully paid and
non-assessable; and, (4) the exchange of the securities herein
contemplated does not require the registration of the Cipher securities
pursuant to any Federal law dealing with issuance, sale transfer, and/or
exchange of corporate securities.
6. Closing Date. The closing shall take place on or before November 30,
1996, or as soon thereafter as is practicable, at the Law Offices of Max C.
Tanner, 2950 East Flamingo Road, Suite G, Las Vegas, Nevada 89121, or at such
other time and place as the parties hereto shall agree upon.
7. Actions at The Closing. At the Closing, Cipher and Galaxy Shareholders
will each deliver, or cause to be delivered to the other, the securities to be
exchanged in accordance with Section I of this Agreement and each party shall
pay any and all Federal and State taxes required to be paid in connection with
the issuance and the delivery of their own securities. All stock certificates
shall be in the name of the party to which the same are deliverable.
8. Conduct of Business, Board of Directors, etc. Between the date hereof
and the Closing Date, Galaxy will conduct its business in the same manner in
which it has heretofore been conducted and the Galaxy Shareholders will not
permit Galaxy to: (1) enter into any contract etc., other than in the ordinary
course of business; or (2) declare or make any distribution of any kind to the
stockholders of Galaxy, without first obtaining the written consent of Cipher.
Upon closing, the old officers and members of the board of directors of
Cipher will tender their resignations and a new Board of Directors will be
elected by the shareholders of Cipher, which shall consist of the following
individuals.
John J. Poelman
C. Parker Garlitz
Upon election of the above Board of Directors, and subject to the
authority of the Board of Directors as provided by law and the By-Laws of
Cipher, the new officers of Cipher, after the closing date of this Agreement
shall be as follows:
C. Parker Cralitz President and Chief Executive Officer
Brandon B. Lewis Secretary & Treasurer
9. Access to the Properties and Books of Galaxy. The Galaxy Shareholders
hereby grant to Cipher through their duly authorized representatives and
during normal business hours between the date hereof and the Closing Date the
right of full and complete access to the properties of Galaxy and the
opportunity to examine their books and records.
10. Indemnification
(a) Indemnification of Cipher. Galaxy agrees to indemnify, defend and
hold harmless Cipher, its shareholders, directors, officers, employees and
agents (the "Indemnitees"), from and against any losses, claims, damages or
liabilities, joint or several, including costs and reasonable attorneys fees
incurred in the investigation and defense of such claim to which any
Indemnitee becomes subject, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof), arise out of or are based,
directly or indirectly, upon (i) any untrue statement of any material fact
contained in this Agreement or in any documents or written material
furnished by Galaxy to Cipher, (ii) the omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading, (iii) any willful violation by Galaxy in connection with
the transactions contemplated herein of any applicable state or federal law
or any rule or regulation thereunder, or (iv) any breach by Galaxy of any
of its representations, warranties, covenants or agreements in this
Agreement. In addition, Galaxy agrees to reimburse each Indemnitee for any
legal or other expenses reasonably incurred by such Indemnitee in
connection with investigating or defending any such loss, claim. damage,
liability or action.
(b) Indemnification of Galaxy. Cipher agrees to indemnify, defend and
hold harmless Galaxy, its shareholders, directors, offices, employees and
agents (the "Galaxy Indemnitees"), from and against any losses, claims,
damages or liabilities, joint or several, including costs and reasonable
attorneys fees incurred in the investigation and defense of such claims to
which any Galaxy Indemnitee becomes subject, in so far as such losses,
claims, damages or liabilities (or actions in respect thereof), arise out of
or are based, directly or indirectly, upon (i) any untrue statement of any
material fact contained in this Agreement or in any documents or written
material fiunished by Cipher to Galaxy, (ii) the omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein, in light of the cicumstances under which they were made
not misleading, (iii) any willful violation by Cipher in connection with the
transactions contemplated herein of any applicable state or federal law or any
rule or regulation thereunder, or (iv) any breach by Cipher of any of its
representations, warranties, covenants or agreements in this Agreement.
In addition, Cipher agrees to reimburse each Galaxy Indemnitee for any legal
or other expenses reasonably incured by such Galaxy Indemnitee in connection
with investigating or defending any such loss, claim, damage, liability or
action.
11. Miscellaneous
(a) This Agreement shall be controlled, construed and enforced in
accordance with the laws of the State Of Nevada.
(b) Each of the Constituent Corporations shall bear and pay all costs
and expenses incurred by it or on its behalf in connection with the
consummation of this Agreement, including, without limiting the generality of
the foregoing, fees and expenses of financial consultants, accountants and
counsel and the cost of any documentary stamps, sales and excise taxes which
may be imposed upon or be payable in respect to the transaction.
(c) At any time before or after the approval and adoption by the
respective stockholders of the Constituent Corporations, if required, this
Reorganization Agreement may be amended or supplemented by additional written
agreements, as may be determined in the judgment of the respective Boards of
Directors of the Constituent Corporations to be necessary, desirable or
expedient to further the purpose of this Reorganization Agreement, to clarify
the intention of the duties, to add to or to modify the covenants, terms or
conditions contained herein or otherwise to effectuate or facilitate the
consummation of the transaction contemplated hereby. Any written agreement
referred to in this paragraph shall be validly and sufficiently authorized for
the purposes of this Reorganization Agreement if signed on behalf of Galaxy or
Cipher as the case may be, by its Chairman of the Board, or its President
(d) This Reorganization Agreement may be executed in any number of
counterparts and each counterpart hereof shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
Reorganization Agreement.
(e) This Agreement shall be binding upon and shall inure to the benefit
of the heirs, executors, administrators and assigns of the Galaxy Shareholders
and upon the successors and assigns of Cipher.
(f) All notices, requests, instructions or other documents to be
given hereunder shall be in writing and sent by registered mail:
If to Galaxy Shareholders, then: 3227 N. Canyon Road
Provo, UT 94604
If to Cipher, then: 3170 West Sahara, Suite D21
Las Vegas, NV 99102
The foregoing Reorganization Agreement, having been duly approved or
adopted by the Board of Directors, and duly approved or adopted by the
stockholders of the constituent corporation, as required, in the manner
provided by the laws of the States of Nevada, and Wyoming, the Chairman of the
Board, the President and the Secretary of said corporations, and the
Shareholders of Galaxy do now execute this Reorganization Agreernent under the
respective seals of said corporation by the authority of the directors and
stockholders of each, as required, as the act, deed and agreement of each of
said corporations. This Stock-For-Stock Agreement may be signed in two or more
counterparts.
CIPHER VOICE INC.
BY:/S/Roger P. Lund
Roger P. Lund, President
GALAXY MALL, INC.
By:/S/C. Parker Garlitz
C. Parker Garlitz, President
<PAGE>
Acknowledgment of Execution of Agreement
By Officer of
Cipher Voice, Inc.
STATE OF UTAH
COUNTY OF UTAH
BE IT REMEMBERED that on this 4th day of December, 1996, personally came
before me, a Notary Pubtic in and for jurisdiction aforesaid, Roger P. Lund,
President of Cipher Voice, Inc., a Nevada corporation, and one of the
corporations described in and which executed the foregoing Agreement of
Reorganization, known to me personally to be such, and he, the said, Roger P.
Lund, as such President, duly executed said Agreement of Reorganization before
me and acknowledged said Agreement of Reorganization are in the handwritting
of said President of Cipher Voice, Inc.
IN WITNESS WHEREOF, I have hereunto set my hand and seal of office the
day and year aforesaid.
/S/Kristie Jacobson
Notary Public
KRISTIE JACOBSON
NOTARY PUBLIC STATE OF UTAH
FIRST SECURITY
1389 N UNIVERSITY
PROVO UTAH 134604
COMM: EXP. 12-5-99
<PAGE>
Acknowledgment of Execution of Agreement
By Officer of
Galaxy Mall, Inc.
STATE OF UTAH
COUNTY OF UTAH
BE IT REMEMBERED that on this 4th day of December, 1996, personally came
before me, a Notary Pubtic in and for jurisdiction aforesaid, C. Parker
Garlitz, President of Galaxy Mall, Inc., a Wyoming corporation, and one of the
corporations described in and which executed the foregoing Agreement of
Reorganization, known to me personally to be such, and he, the said, C. Parker
Garlitz, as such President, duly executed said Agreement of Reorganization
before me and acknowledged said Agreement of Reorganization are in the
handwritting of said President of Galaxy Mall, Inc.
IN WITNESS WHEREOF, I have hereunto set my hand and seal of office the
day and year aforesaid.
/S/Kristie Jacobson
Notary Public
KRISTIE JACOBSON
NOTARY PUBLIC STATE OF UTAH
FIRST SECURITY
1389 N UNIVERSITY
PROVO UTAH 134604
COMM: EXP. 12-5-99
<PAGE>
Acknowledgment of Execution of Agreement
By Shareholder of
Galaxy Mall, Inc.
STATE OF UTAH
COUNTY OF UTAH
BE IT REMEMBERED that on this 4th day of December, 1996, personally came
before me, a Notary Public in and for jurisdiction aforesaid, John J. Poelman,
shareholder of Galaxy Mall, Inc., a corporation of the State of Wyoming, known
to me personally to be such, and he, the said, John J. Poelman, as a
shareholder of Galaxy Mall, Inc., duly executed the attached Reorganization
Agreement between Cipher Voice, Inc., a Nevada corporation and Galaxy Mall,
Inc., a Wyoming corporation, before me and acknowledged said Reorganization
Agreement to be the act, deed and agreement between themselves, as
shareholders of Galaxy Mall, Inc. and Cipher Voice, Inc., and the signature of
C. Parker Garlitz, to said foregoing Reorganization Agreement is in the
handwritting of C. Parker Garlitz, a shareholder of Galaxy Mall, Inc.
IN WITNESS WHEREOF, I have hereunto set my hand and seal of office the
day and year aforesaid.
/s/Marlyn Jensen
Notary Public
NOTARY PUBLIC
MARLYN JENSEN
3280 N. Frontage Rd.
Lehi, Utah 84043
My Commission expires
February 9, 2000
STATE OF UTAH
<PAGE>
Acknowledgment of Execution of Agreement
By Shareholder of
Galaxy Mall, Inc.
STATE OF UTAH
COUNTY OF UTAH
BE IT REMEMBERED that on this 4th day of December, 1996, personally came
before me, a Notary Public in and for jurisdiction aforesaid, Terral Cochran,
shareholder of Galaxy Mall, Inc., a corporation of the State of Wyoming, known
to me personally to be such, and he, the said, Terral Cochran, as a
shareholder of Galaxy Mall, Inc., duly executed the attached Reorganization
Agreement between Cipher Voice, Inc., a Nevada corporation and Galaxy Mall,
Inc., a Wyoming corporation, before me and acknowledged said Reorganization
Agreement to be the act, deed and agreement between themselves, as
shareholders of Galaxy Mall, Inc. and Cipher Voice, Inc., and the signature of
C. Parker Garlitz, to said foregoing Reorganization Agreement is in the
handwritting of C. Parker Garlitz, a shareholder of Galaxy Mall, Inc.
IN WITNESS WHEREOF, I have hereunto set my hand and seal of office the
day and year aforesaid.
/s/Marlyn Jensen
Notary Public
NOTARY PUBLIC
MARLYN JENSEN
3280 N. Frontage Rd.
Lehi, Utah 84043
My Commission expires
February 9, 2000
STATE OF UTAH
<PAGE>
Acknowledgment of Execution of Agreement
By Shareholder of
Galaxy Mall, Inc.
STATE OF UTAH
COUNTY OF UTAH
BE IT REMEMBERED that on this 4th day of December, 1996, personally came
before me, a Notary Public in and for jurisdiction aforesaid, Jamie P.
Richardson, shareholder of Galaxy Mall, Inc., a corporation of the State of
Wyoming, known to me personally to be such, and he, the said, Jamie P.
Richardson, as a shareholder of Galaxy Mall, Inc., duly executed the attached
Reorganization Agreement between Cipher Voice, Inc., a Nevada corporation and
Galaxy Mall, Inc., a Wyoming corporation, before me and acknowledged said
Reorganization Agreement to be the act, deed and agreement between themselves,
as shareholders of Galaxy Mall, Inc. and Cipher Voice, Inc., and the signature
of C. Parker Garlitz, to said foregoing Reorganization Agreement is in the
handwritting of C. Parker Garlitz, a shareholder of Galaxy Mall, Inc.
IN WITNESS WHEREOF, I have hereunto set my hand and seal of office the
day and year aforesaid.
/s/Marlyn Jensen
Notary Public
NOTARY PUBLIC
MARLYN JENSEN
3280 N. Frontage Rd.
Lehi, Utah 84043
My Commission expires
February 9, 2000
STATE OF UTAH
<PAGE>
Acknowledgment of Execution of Agreement
By Shareholder of
Galaxy Mall, Inc.
STATE OF UTAH
COUNTY OF UTAH
BE IT REMEMBERED that on this 4th day of December, 1996, personally came
before me, a Notary Public in and for jurisdiction aforesaid, Corey D.
Cochran, shareholder of Galaxy Mall, Inc., a corporation of the State of
Wyoming, known to me personally to be such, and he, the said, Corey D.
Cochran, as a shareholder of Galaxy Mall, Inc., duly executed the attached
Reorganization Agreement between Cipher Voice, Inc., a Nevada corporation and
Galaxy Mall, Inc., a Wyoming corporation, before me and acknowledged said
Reorganization Agreement to be the act, deed and agreement between themselves,
as shareholders of Galaxy Mall, Inc. and Cipher Voice, Inc., and the signature
of C. Parker Garlitz, to said foregoing Reorganization Agreement is in the
handwritting of C. Parker Garlitz, a shareholder of Galaxy Mall, Inc.
IN WITNESS WHEREOF, I have hereunto set my hand and seal of office the
day and year aforesaid.
/s/Marlyn Jensen
Notary Public
NOTARY PUBLIC
MARLYN JENSEN
3280 N. Frontage Rd.
Lehi, Utah 84043
My Commission expires
February 9, 2000
STATE OF UTAH
<PAGE>
Acknowledgment of Execution of Agreement
By Shareholder of
Galaxy Mall, Inc.
STATE OF UTAH
COUNTY OF UTAH
BE IT REMEMBERED that on this 4th day of December, 1996, personally came
before me, a Notary Public in and for jurisdiction aforesaid, C. Parker
Garlitz, shareholder of Galaxy Mall, Inc., a corporation of the State of
Wyoming, known to me personally to be such, and he, the said, C. Parker
Garlitz, as a shareholder of Galaxy Mall, Inc., duly executed the attached
Reorganization Agreement between Cipher Voice, Inc., a Nevada corporation and
Galaxy Mall, Inc., a Wyoming corporation, before me and acknowledged said
Reorganization Agreement to be the act, deed and agreement between themselves,
as shareholders of Galaxy Mall, Inc. and Cipher Voice, Inc., and the signature
of C. Parker Garlitz, to said foregoing Reorganization Agreement is in the
handwritting of C. Parker Garlitz, a shareholder of Galaxy Mall, Inc.
IN WITNESS WHEREOF, I have hereunto set my hand and seal of office the
day and year aforesaid.
/s/Marlyn Jensen
Notary Public
NOTARY PUBLIC
MARLYN JENSEN
3280 N. Frontage Rd.
Lehi, Utah 84043
My Commission expires
February 9, 2000
STATE OF UTAH
<PAGE>
Acknowledgment of Execution of Agreement
By Shareholder of
Galaxy Mall, Inc.
STATE OF UTAH
COUNTY OF UTAH
BE IT REMEMBERED that on this 4th day of December, 1996, personally came
before me, a Notary Public in and for jurisdiction aforesaid, Sue Ann Cochran,
shareholder of Galaxy Mall, Inc., a corporation of the State of Wyoming, known
to me personally to be such, and he, the said, Sue Ann Cochran, as a
shareholder of Galaxy Mall, Inc., duly executed the attached Reorganization
Agreement between Cipher Voice, Inc., a Nevada corporation and Galaxy Mall,
Inc., a Wyoming corporation, before me and acknowledged said Reorganization
Agreement to be the act, deed and agreement between themselves, as
shareholders of Galaxy Mall, Inc. and Cipher Voice, Inc., and the signature of
C. Parker Garlitz, to said foregoing Reorganization Agreement is in the
handwritting of C. Parker Garlitz, a shareholder of Galaxy Mall, Inc.
IN WITNESS WHEREOF, I have hereunto set my hand and seal of office the
day and year aforesaid.
/s/Marlyn Jensen
Notary Public
NOTARY PUBLIC
MARLYN JENSEN
3280 N. Frontage Rd.
Lehi, Utah 84043
My Commission expires
February 9, 2000
STATE OF UTAH
<PAGE>
Acknowledgment of Execution of Agreement
By Shareholder of
Galaxy Mall, Inc.
STATE OF UTAH
COUNTY OF UTAH
BE IT REMEMBERED that on this 4th day of December, 1996, personally came
before me, a Notary Public in and for jurisdiction aforesaid, Darin Baird,
shareholder of Galaxy Mall, Inc., a corporation of the State of Wyoming, known
to me personally to be such, and he, the said, Darin Baird, as a shareholder
of Galaxy Mall, Inc., duly executed the attached Reorganization Agreement
between Cipher Voice, Inc., a Nevada corporation and Galaxy Mall, Inc., a
Wyoming corporation, before me and acknowledged said Reorganization Agreement
to be the act, deed and agreement between themselves, as shareholders of
Galaxy Mall, Inc. and Cipher Voice, Inc., and the signature of C. Parker
Garlitz, to said foregoing Reorganization Agreement is in the handwritting of
C. Parker Garlitz, a shareholder of Galaxy Mall, Inc.
IN WITNESS WHEREOF, I have hereunto set my hand and seal of office the
day and year aforesaid.
/s/Marlyn Jensen
Notary Public
NOTARY PUBLIC
MARLYN JENSEN
3280 N. Frontage Rd.
Lehi, Utah 84043
My Commission expires
February 9, 2000
STATE OF UTAH
<PAGE>
SCHEDULE I
Shares to be allocated:
SCHEDULE SHAREHOLDERS GALAXY MALL, INC.
SHAREHOLDER GALAXY SHOWS NEW SHARES
Brandon Lewis 0.9770 8,000
Stanley Dalton 0.3664 3,000
Dahlen Downing 0.3664 3,000
Wenlock D. Free Jr. 0.3664 3,000
Adam T. Maher 0.3664 3,000
G. Philip Ungricht 0.3664 3,000
Marek Shon 0.3664 3,000
Mike Frost 0.3664 3,000
Craig M. Peterson 0.3664 3,000
Kent Dennis Jepperson 1.5756 13,000
Wyatt C. Carmen 0.1212 1,000
Brad A. Moulton O.1212 1,000
Adrian P. Ungricht 0.1212 1,000
Russ R. Woolcott 0.1212 1,000
Gretchen Pratley 0.1212 1,000
Willard J. Pack 0.1212 1,000
John J. Poelman 119.7050 980,213
Kirstyn Anderberg 12.9449 106,000
Ryan C. Poelman 12.3343 101,000
Jay Garrett Poelman 12.8228 105,000
Lisa L. Poelman 12.3343 101,000
J. Blair Poelman 12.3343 101,000
Aftyn M. Morrison 12.2121 100,000
Gail Terry 3.0530 25,000
Sue Ann Cochran 78.8444 645,661
Dustin L. Cochran 21.4934 176,000
Corey D. Cochran 3.1752 26,000
Jaimie B. Richardson 1.3434 11,000
Marlyn Jensen 1.2212 10,000
Terral Cochran 21.9819 180,000
Daren Baird 20.5164 168,000
Steven Blaine Blonquist 12.2121 100,000
Aaron M. Gale 0.6060 5,000
C. Parker Garlitz 33.0335 273,126
W. Gail Garlitz 1.8180 15,000
Grover C. Cochran 19.4787 160,000
York Chandler 19.4787 160,000 (note l)
Total (439.1546) or 440 Shares 3,600,000
EXCHANGE AGREEMENT
THIS AGREEMENT is made effective as of the 1st day of October,
1997, between GALAXY MALL, INC., a Wyoming Corporation with a
principal place of business at 3227 North Canyon Road, Suite 500,
Provo, Utah 84604, (hereinafter referred to as GALAXY), and PROFIT
EDUCATION SYSTEMS, INC., a Wyoming Corporation with a principal
place of business at 3227 North Canyon Road, Suite 200, Provo, Utah
84604, (hereinafter referred to as PES).
WITNESSETH
WHEREAS GALAXY, is in the business of providing electronic
storefronts, Internet hosting and related services via an
electronic mall on the World Wide Web known as "Galaxy Mall"; and
WHEREAS PES is in the business of promoting and conducting
Internet Marketing workshops; and
WHEREAS GALAXY desires to purchase the business and all
related marketing programs from PES for storefronts and advertising
on the Galaxy Mall; and
WHEREAS PES desires to sell or transfer ownership to GALAXY
for said marketing programs and their related income opportunities;
and
WHEREAS GALAXY and PES are willing to enter into an exclusive
exchange and royalty agreement pursuant to the terms hereof.
NOW, THEREFORE, in consideration of the promises and other
good and valuable consideration, the receipt and sufficiency of
which the parties hereto acknowledge, the parties agree to, and
hereby agree as follows:
1. EXCHANGE AND TRANSFER TERMS: The transfer of the marketing
business shall be done on an assumption of debt and any and all
ongoing liabilities of PES.
A. GALAXY carries on its books a receivable from PES in the
amount of approximately $450,000 more or less. This receivable in
its entire amount from PES is hereby canceled or forgiven.
B. PES currently has outstanding payables of approximately
$500,000 which are hereby assumed by GALAXY, and which will be paid
from either profits from GALAXY or equity financing to be arranged
in the future by GALAXY.
C. PES currently has approximately $100,000 more or less in
pre-paid marketing costs along with computers, office equipment,
merchant account deposits, and other related inventory and
miscellaneous assets of approximately $150,000 more or less. These
assets are hereby transferred to GALAXY.
2. ASSUMPTION OF LEASES, SPEAKING FEES, AND COMPANY
OBLIGATIONS: GALAXY hereby agrees to assume full and complete
responsibility for the payment of all sums due or that may become
due in the future for such items as:
A. Long term lease on 2 high speed printers for marketing and
promotion materials.
B. Assumption of all telecommunication, phone, Internet
connection, rent and related lease or payment obligations.
C. PES has in place speakers, presenters, and staff for
Internet conferences and workshops. GALAXY hereby assumes the
obligation of making such individuals either GALAXY employees or
recognizing them as independent contractors providing services for
GALAXY.
3. CANCELLATION OF PREVIOUS EXCLUSIVE MARKETING AGREEMENT.
GALAXY and PES hereby terminate the prior exclusive marketing
agreement dated August 1, 1996 between the two parties in which PES
agreed to provide marketing services for GALAXY in return for
ninety percent (90%) of the gross receipts from all GALAXY or
Galaxy Mall Internet training events. From this date forward GALAXY
assumes all responsibility for marketing its Internet training
events and for providing customer service for same. Customer
service for said Internet Training events was to be provided under
contract with PES and COOP Communications. PES hereby releases
GALAXY from said contractual obligation with the express
understanding that by separate agreement the existing customer
service business provided by COOP Communications will be
transferred to GALAXY.
4. BENEFICIAL INTERESTS. GALAXY and PES understand and recognize
that John J. Poelman, is a stockholders of both GALAXY and PES.
5. TERM OF THIS AGREEMENT. This Agreement will remain in effect in
perpetuity.
6. ASSIGNMENT. PES and GALAXY agree that this Agreement may only be
assigned to another party if said assignment does not injure the
non assigning party.
7. COMPLIANCE WITH LAWS. GALAXY and PES shall conduct and maintain,
at all times, its activities and business operations in strict
compliance with all federal and state laws as applicable hereto.
8. NOTICES. All notices, requests, demands, and other
communications under this Agreement shall be in writing and shall
be deemed to have been duly given on the date of service if served
personally on the party to whom notice is to be given, or on the
third day after mailing, if mailed to the party to whom notice is
to be given, by first-class, registered or certified mail,
postage prepaid, and unless either party should notify the other
party in writing of a change of address, properly addressed, as
follows:
To: GALAXY Attention: Brandon Lewis
Chief Operating Officer
Galaxy Mall, Inc.
3227 N. Canyon Road, Suite 500
Provo, UT 84604
To: PES Attention: John J. Poelman
President
Profit Education Systems, Inc.
3227 N. Canyon Road, Suite 200
Provo, UT 84604
9. ENTIRE AGREEMENT. This Agreement contains the entire
understanding of the parties. It may not be changed orally, but
only by an agreement in writing signed by the party against whom
enforcement of any waiver, change, modification, extension, or
discharge is sought.
10. SUCCESSION. This Agreement shall inure to the benefit and be
binding upon the parties hereto and upon their assignees and
successors in interest of any kind whatsoever.
11. SECTION HEADINGS. The section headings herein have been
inserted for convenience only and shall not be deemed to limit or
otherwise affect the construction of any provision herein.
12. SITUS. This Agreement shall be governed by the laws of the
state of Utah.
13. ATTORNEY'S FEES. In the event of a breach of this Agreement,
the breaching party shall pay to the enforcing party all
reasonable costs of enforcement, with or without suit, including
a reasonable attorney's fee, together with such other legal costs
as may be authorized by law.
14. SEVERABILITY. In the event any section, paragraph, or portion
of this Agreement shall be deemed to be by any court having
lawful jurisdiction of the subject matter of this Agreement
void, voidable, or invalid for any reason, this Agreement shall
be otherwise valid, and enforceable as if said void, voidable, or
invalid article, section, paragraph, or portion of this Agreement
had not been a part hereof in the first instance.
15. AUTHORITY TO BIND. Each person executing this Agreement
hereby warrants that he has full and legal authority to execute
this Agreement for and on behalf of the respective parties,
and no further approval or consent of any other person is
necessary in connection therewith. Further, each person
executing this Agreement covenants and represents that the
execution of this Agreement is not in contravention of and will
not result in a breach of any other agreement, contract,
instrument, order, judgement or decree to which such person is a
party.
16. COUNTERPARTS. This Agreement may be executed in duplicate
originals, each of which shall be considered an original. For
purposes of this section 16, facsimile copies of this Agreement
executed and transmitted by a party shall be binding against such
party as an original thereof.
17. CONFIDENTIALITY. The parties agree that the terms of this
Agreement shall remain confidential and shall not be publicized
nor disclosed, other than to management without the prior written
consent of the non-disclosing party.
IN WITNESS WHEREOF, the parties hereto this 15th day of August,
1997 have hereunto set their hands and seals effective the day
and year first written above.
GALAXY MALL, INC.
BY:/S/Brandon Lewis, Chief
Operating Officer
PROFIT EDUCATION SYSTEMS, INC.
BY:/S/John J. Poelman, President
TRANSFER AGREEMENT
THIS AGREEMENT is made effective as of the lst day of 0ctober, 1997, between
GALAXY MALL, INC., a Wyoming Corporation with a principal place of business at
3227 North Canyon Road, Provo, Utah 84604, (hereinafter referred to as
GALAXY), and COOP BUSINESS SERVICES, a privately held business owned by VICKI
POELMAN AND JOHN J. POELMAN with a principal place of business at 3227 North
Canyon Road, Suite 200, Provo, Utah 84604, (hereinafter referred to as COOP).
WITNESSETH
WHEREAS GALAXY, is in the business of providing electronic storefront,
Internet hosting and related services via an electronic mail on the World Wide
Web known as "Galaxy Mall"; and
WHEREAS COOP is in the business of offering customer support,
electronic storefront programming, and client interface with merchants and
clients of the electronic Internet Mall known as "The Galaxy Mall"; and
WHEREAS GALAXY desires to assume the customer service and programming
business and all related customer service, computer programming, or client
interface programs from COOP for merchants and storefronts on the Galaxy Mall;
and
WHEREAS COOP is willing to transfer the customer service and
programming business and all related customer service, computer programming,
or client interface programs from COOP for merchants and storefronts on the
Galaxy Mall; and
WHEREAS COOP understands there is an undetermined value for said
customer service business and its related income opportunity; and
WHEREAS GALAXY and COOP are willing to enter into an exchange agreement
pursuant to the terms hereof
NOW, THEREFORE, in consideration of the promises and other good and
valuable consideration, the receipt and sufficiency of which the parties
hereto acknowledge, the parties agree to, and hereby agree as follows:
I . TRANSFER TERMS FOR THE COOP BUSINESS: COOP currently has outstanding
payables of approximately $85,000.00 more or less which are hereby assumed by
GALAXY. COOP currently has certain computers, office equipment and other
related inventory items, more or less. These assets are hereby transferred to
GALAXY.
2. ASSUMPTION OF LEASES, AND COMPANY OBLIGATIONS: GALAXY hereby agrees to
assume full and complete responsibility for the payment of all sums due or
that may become due in the future by COOP for such items' as:
A. Assumption of all telecommunication, phone, Internet connection, rent
and related lease or payment obligations.
B. Assumption of all existing payables for expenses directly or
indirectly incurred in providing customer service to Galaxy Mall merchants.
3. AGREEMENT OF CANCELLATION OF PREVIOUS EXCLUSIVE MARKETING AGREEMENT. GALAXY
and COOP hereby agree to the termination of that prior exclusive
marketing agreement dated August 1, 1996 between GALAXY ENTERPRISES, INC., the
parent company of GALAXY, and PROFIT EDUCATION SYSTEM, INC., in which the
parties agreed that COOP would provide the customer service and programming
responsibilities for merchants and clients of The Galaxy Mall. From the
effective date of this agreement GALAXY assumes all responsibility for
providing the customer service and programming functions for merchants and
clients of GALAXY or The Galaxy Mall.
4. BENEFICIAL INTERESTS. GALAXY understands and recognizes that John J.
Poelman, and Vicki Poelman are either stockholders of both GALAXY and COOP or
have employment, speaking, or consulting agreements with one or both
companies.
5. TERM OF THIS AGREEMENT. This Agreement will remain in effect in perpetuity.
6. ASSIGNMENT COOP agrees that this Agreement may only be assigned to another
party if said assignment does not injure the non assigning party.
7. COMPLIANCE WITH LAWS. GALAXY and COOP shall conduct and maintain, at all
times, its activities and business operations in strict compliance with all
federal and state laws as applicable hereto.
8. NOTICES. All notices, requests, demands, and other communications under
this Agreement shall be in writing and shall be deemed to have been duly given
on the date of service if served personally on the party to whom notice is to
be given, or on the third day after mailing, if mailed to the party to whom
notice is to be given, by first-class, registered or certified mail,
postage prepaid, and unless either party should notify the other party in
writing of a change of address, properly addressed, as follows:
To: GALAXY Attention: Brandon Lewis, Vice President
Galaxy Mall, Inc.
3227 N. Canyon Road, Suite 500
Provo, UT 84604
To: JOHN J. POELMAN John J. Poelman
4009 Quail Run Dr.
Provo, UT 84604
To: VICKI POELMAN Vicki Poelman
4009 Quail Run Dr.
Provo, UT 84604
9. ENTIRE AGREEMENT. This Agreement contains the entire understanding of the
parties. It may not be changed orally, but only by an agreement in writing
signed by the party against whom enforcement of any waiver, change,
modification, extension, or discharge is sought.
10. SUCCESSION. This Agreement shall inure to the benefit and be binding upon
the parties hereto and upon their assignees and successors in interest of any
kind whatsoever.
11. SECTION HEADINGS. The section headings herein have been inserted for
convenience only and shall not be deemed to limit or otherwise affect the
construction of any provision herein.
12. SITUS. This Agreement shall be governed by the laws of the state of Utah.
13. ATTORNEY'S FEES. In the event of a breach of this Agreement, the breaching
party shall pay to the enforcing party all reasonable costs of enforcement,
with or without suit, including a reasonable attorney's fee, together with
such other legal costs as may be authorized by law.
14. SEVERABILITY. In the event any section, paragraph, or portion of this
Agreement shall be deemed to be by any court having lawful jurisdiction of the
subject matter of this Agreement void, voidable, or invalid for any reason,
this Agreement shall be otherwise valid, and enforceable as if said void,
voidable, or invalid article, section, paragraph, or portion of this Agreement
had not been a part hereof in the first instance.
15. AUTHORITY TO BIND. Each person executing this Agreement hereby warrants
that he has full and legal authority to execute this Agreement for and on
behalf of the respective parties, and no further approval or consent of any
other person is necessary in connection therewith. Further, each person
executing this Agreement covenants and represents that the execution of
this Agreement is not in contravention of and will not result in a breach of
any other agreement, contract, instrument, order, judgement or decree to which
such person is a party.
16. COUNTERPARTS. This Agreement may be executed in duplicate originals, each
of which shall be considered an original. For purposes of this section 2 1,
facsimile copies of this Agreement executed and transmitted by a party shall
be binding against such party as an original thereof.
17. CONFIDENTIALITY. The parties agree that the terms of this Agreement shall
remain confidential and shall not be publicized nor disclosed, other than to
management without the prior written consent of the non-disclosing party.
IN WITNESS WHEREOF, the parties hereto this 15th day of August, 1997
have hereunto set their hands and seals effective the day and year first
written above.
GALAXY MALL, INC.
By:/S/Brandon Lewis
Brandon Lewis, Vice President
JOHN J. POELMAN
By:/s/John J. Poelman
John H. Poelman
VICKI POELMAN
By:/s/Vicki Poelman
Vicki Poelman
GALAXY ENTERPRISES, INC.
1997 Employee Stock Option Plan
1 . Purpose. The purpose of this Galaxy Enterprises, Inc. Stock Option
Plan ("Plan") is to further the growth and development of Galaxy Enterprises,
Inc. ("Company") and its subsidiaries by providing, through ownership of stock
of the Company, an incentive to officers, other key employees and directors,
including nonemployee directors, who are in a position to contribute
materially to the prosperity of the Company, to increase such persons'
interests in the Company's welfare, to encourage them to continue their
services to the Company or its subsidiaries, and to attract individuals of
outstanding ability to enter the employment of the Company or its
subsidiaries.
2. Incentive and Non-Qualified Stock Options. Two types of options
(referred to herein as "options" without distinction between such two types)
may be granted under the Plan: Options intended to qualify as incentive stock
options ("incentive stock options") under Section 422 of the Internal Revenue
Code of 1954, as amended ("Code"); and other options not specifically
authorized or qualified for favorable income tax treatment by the Code
("non-qualified stock options").
3. Administration.
3.1 Administration by Board. Subject to Section 3.2, the Plan shall be
administered by the Board of Directors of the Company ("Board"). Subject to
the provisions of the Plan, the Board shall have authority to construe and
interpret the Plan, to promulgate, amend, and rescind rules and regulations
relating to its administration, from time to time to select from among the
eligible employees (as determined pursuant to Section 4) of the Company and
its subsidiaries those employees to whom options will be granted, to determine
the timing and manner of the grant of options, to determine the exercise
price, the number of shares covered by and all of the terms of the options, to
determine the duration and,purpose of leaves of absence which may be granted
to optionee without constituting termination of their employment for purposes
of the Plan, and to make all of the determinations necessary .or advisable for
administration of the Plan. The interpretation and construction by the Board
of any provision of the Plan, or of any agreement issued and executed under
the Plan, shall be final and binding upon all parties. No member of the Board
shall be liable for any action or determination undertaken or made in good
faith with respect to the Plan or any agreement executed pursuant to the Plan.
3.2 Administration by Committee. The Board may, in its sole discretion,
delegate any or all of its administrative duties to one or more committees
(the "Committee A, or Committee B") of not less than three individuals, at
least two of whom shall be members of the Board, to be appointed by and serve
at the pleasure of the Board. From time to time, the Board may increase or
decrease (to not less than three members) the size of the Committees, and add
additional members to, or remove members from, the Committees. The Committees
shall act pursuant to a majority vote, or the written consent of a majority of
its members, and minutes shall be kept of all of its meetings and copies
thereof shall be provided to the Board. Subject to the provisions of the Plan
and the directions of the Board, the Committees may establish and follow such
rules and regulations for the conduct of its business as it may deem
advisable. No member of the Committees shall be liable for any action or
determination undertaken or made in good faith with respect to the Plan or any
agreement executed pursuant to the Plan.
4. Eligibility. Any employee (including any officer or director who is
an employee) of the Company or any of its subsidiaries shall be eligible to
receive an option under the Plan and any non-employee director of the Company
shall be eligible to receive a non-qualified stock option under the Plan;
provided, however, that no person who owns stock possessing more than 10% of
the total combined voting power of all classes of stock of the Company or any
of its parent or subsidiary corporations shall be eligible to receive an
option under the Plan unless at the time such option is granted the option
price (determined in the manner provided in Section 6.3) is at least 110% of
the fair market value of the shares subject to the option and such option by
its terms is not exercisable after the expiration of five years from the date
such option is granted. An employee and a non-employee director may receive
more than one option under the Plan.
5. Shares Sub*ect to Options. The stock available for grant of options
under the Plan shall be shares of the Company's authorized but unissued, or
reacquired, common stock. The aggregate number of shares which may be issued
pursuant to exercise of options granted under the Plan shall not exceed
1,000,000 shares of common stock (subject to adjustment as provided in Section
6.15). In the event that any outstanding option under the Plan for any reason
expires or is terminated, the shares of common stock allocable to the
unexercised portion of the option shall again be available for options under
the Plan as if no option had been granted with respect to such shares.
6. Terms and Conditions of Options. Options granted under the Plan
shall be evidenced by agreements (which need not be identical) in such form
and containing such provisions which are consistent with the Plan as the Board
or Committee shall from time to time approve. Each agreement shall specify
whether the option granted thereby is an incentive stock option or a
non-qualified stock option. Such agreements may incorporate all or any of the
terms hereof by reference and shall comply with and be subject to the
following terms and conditions:
6.1. Optionee's Employment Agreement. Each optionee shall agree to
remain in the employ of or to continue to act as a director of the Company, as
appropriate, and to render services to, the Company or its subsidiaries for a
period of one year from the date the option is granted, but such agreement
shall not obligate the Company or any of its subsidiaries to continue to
employ the optionee or to have the optionee act as a director of the Company
for any period.
6.2 Number of Shares Subiect to Option. Each option agreement shall
specify the number of shares subject to the option.
6.3 Option Price. The purchase price for the shares subject to any
option shall not be less than 100% of the fair market value of the shares of
common stock of the Company on the date the option is granted. For purposes of
the Plan, the "fair market value" of any share of common stock of the Company
at any date shall be (a) if the common stock is listed on an established stock
exchange or exchanges, the last reported sale price per share on the day prior
to such date on the principal exchange on which it is traded, or if no sale
was made on such day on such principal exchange, the closing reported bid
price on such day on such exchange, or (b) if the common stock is not then
listed on an exchange, the last reported sale price per share on the day prior
to such date reported by NASDAQ or, if sales are not reported by NASDAQ or no
sale was made on such day, the closing bid price per share for the common
stock in the over-the-counter market as quoted on NASDAQ on the day prior to
such date, or (c) if the common stock is not then listed on an exchange or
quoted on NASDAQ, an amount determined in good faith by the Board or the
Committee.
6.4 Medium and Time of Payment. The purchase price for any shares
purchased pursuant to exercise of an option granted under the Plan shall be
paid in full upon exercise of the option in cash, or by check, or, at the
discretion of the Board or the Committee, upon such terms and conditions as
the Board or the Committee shall approve, by transferring to the Company for
redemption shares of common stock of the Company at their fair market value
(determined in the manner provided in Section 6.3 as of the date provided in
Section 6.6). Shares of common stock transferred to the Company upon exercise
of an option shall not increase the number of shares available for issuance
under the Plan. Notwithstanding the foregoing, the Company may extend and
maintain, or arrange for the extension and maintenance of, credit to any
optionee to finance the Optionee's purchase of shares pursuant to exercise of
any option, on such terms as may be approved by the Board or the Committee,
subject to applicable regulations of the Federal Reserve Board and any other
laws or regulations in effect at the time such credit is extended.
6.5 Term of Option. No option shall be exercisable after the expiration
of the earliest of - (a) ten (10) years after the date the option is granted,
(b) three (3) months after the date the Optionee's employment with the Company
and its subsidiaries terminates if such termination is for any reason other
than permanent disability, death, or cause, unless the optionee dies or
becomes permanently disabled within three (3) months after the date of such
termination, (c) thirty (30) days after the date the Optionee's employment
with the Company and its subsidiaries terminates if such termination is for
cause, as determined by the Board or the Committee, in its sole discretion, or
(d) one (1) year after the date the optionee's employment with the Company and
its subsidiaries terminates if such termination is a result of death or
permanent disability or the optionee dies or becomes permanently disabled
within three (3) months after the date of such termination; provided, however,
that the option agreement for any option may provide for shorter periods in
each of the foregoing instances. For the purpose of this Section 6.5,
"permanent disability" shall mean a disability of the type defined in Section
22(e)(3) of the Code.
6.6 Exercise of Option. No option shall be exercisable during the
lifetime of an optionee by any person other than the optionee or at any time
prior to six months from the date the option is granted. Subject to the
foregoing, the Board or the Committee shall have the power to set the time or
times within which each option shall be exercisable and to accelerate the time
or times of exercise; provided that the exercise schedule established by the
Board or the Committee for any option granted under the Plan shall
provide that the option shall become exercisable no slower than on a
cumulative basis with respect to 20% of the total number of shares of common
stock covered by the option one year after the date on which the option is
granted and with respect to an additional 20% of such total number of shares
of common stock at the end of each consecutive one-year period thereafter
until the option has become exercisable with respect to such total number of
shares of common stock. To the extent that an optionee has the right to
exercise an option and purchase shares pursuant thereto, the option may be
exercised from time to time by written notice to the Company, stating the
number of shares being purchased and accompanied by payment in full of the
purchase price for such shares. If shares of common stock of the Company are
used in part or full payment for the shares to be acquired upon exercise of
the option, such shares shall be valued for the purpose of such exchange as of
the date of exercise of the option in accordance with the provisions of
Sections 6.3 and 6.4. Any certificate(s) for shares of outstanding common
stock of the Company used to pay the purchase price shall be accompanied by
stock power(s) duly endorsed in blank by the registered holder of the
certificate(s) (with the signature thereon guaranteed). In the event the
certificate(s) tendered by the optionee in such payment cover more shares than
are required for such payment, the certificate(s) shall also be accompanied by
instructions from the optionee to the Company's transfer agent with respect to
disposition of the balance of the shares covered thereby.
6.7 No Transfer of Option. No option shall be transferable by an
optionee otherwise than by will or the laws of descent and distribution.
6.8 Prior Outstanding Incentive Stock Options. No incentive stock option
granted under the Plan shall be exercisable to any extent at any time while
there is outstanding any incentive stock option which was granted prior to the
granting of such option to the optionee by the Company or any subsidiary or
parent corporation of the Company or any predecessor corporation of the
Company or any subsidiary or parent corporation of the Company. For the
purpose of this Section 6.8, an option shall be outstanding until such
time as the option is exercised in full or expires by reason of lapse of time.
6.9 Limit on Incentive Stock Options. The aggregate fair market value.
(determined as of the time the option is granted) of the stock for which any
employee may be granted incentive stock options in any calendar year (under
all option plans of the Company and its parent and subsidiary corporations)
shall not exceed $1,000,000 plus any unused limit carryover to such year
allowed under Section 422 of the Code.
6.10 Restriction on Issuance of Shares. The issuance of options and
shares shall be subject to compliance with all of the applicable requirements
of law with respect to the issuance and sale of securities.
6.11 Investment Representation. Any optionee may be required, as a
condition of issuance of shares covered by his or her option, to represent
that the shares to be acquired pursuant to exercise of the option will be
acquired for investment and without, a view to distribution thereof; and in
such case, the Company may place a legend on the certificate evidencing the
share reflecting the fact that they were acquired for investment and cannot be
sold or transferred unless registered under the Securities Act of 1933, as
amended, or unless counsel for the Company is satisfied that circumstances of
the proposed transfer do not require such registration.
6.12 Rights as a Shareholder or Employee. An optionee or transferee of
an option shall have no rights as a shareholder of the Company with respect to
any shares covered by any option until the date of the issuance of a share
certificate for such shares. No adjustment shall be made for dividends
(ordinary or extraordinary, whether cash, securities, or other property) or
distributions or other rights for which the record date is prior to the date
such share certificate is issued, except as provided in Section 6.15.
Nothing in the Plan or in any option agreement shall confer upon any employee
any right to continue in the employ of the Company or any of its subsidiaries
or interfere in any way with the right of the Company or any subsidiary to
terminate the optionee's employment at any time.
6.13 No Fractional Shares. In no event shall the Company be required to
issue fractional shares upon the exercise of an option.
6.14 Termination of Employment, Disability, or Death. The option
agreement for any option may provide that: (a) in the event an optionee, while
still living, ceases to be an employee of the Company or any of its
subsidiaries for any reason other than the termination of his employment for
cause (as such cause may be determined by the Board or the Committee in its
sole discretion), any option or unexercised portion thereof granted
to the optionee may, to the extent (and only to the extent) such option would
have been exercisable by the optionee on the date on which he or she ceases to
be an employee, be exercised by the optionee within three months of the date
on which he or she ceased to be an employee, but in any event not later than
the date of expiration of the option; and (b) in the event of the death or
permanent disability (as defined in Section 22(e)(3) of the Code) of the
optionee while he or she is an employee of the Company or any of its
subsidiaries or of the death of the optionee within not more than three months
of the date on which he or she ceased to be an employee, any option or
unexercised portion thereof granted to the optionee, to the extent (and only
to the extent) exercisable by him or her on the date of death or disability,
may be exercised by the optionee's personal representatives, heirs, or
legatees at any time prior to the expiration of one year from the date on
which the optionee ceased to be an employee, but in any event not later than
the date of expiration of the option. Notwithstanding the foregoing, in the
event that an optionee's employment with the Company or any of its
subsidiaries is terminated for cause, as determined by the Board or the
Committee, in its sole discretion, any option or unexercised portion thereof
granted to the optionee may, to the extent (and only to the extent) such
option would have been exercisable by the optionee on the date on which his or
her employment was terminated, be exercised by the optionee within thirty days
after the date on which his or her employment was terminated, but in any event
not later than the earlier or (i) the date of expiration of the option, and
(ii) the date of expiration of such 30-day period, regardless of whether or
not the optionee dies within such 30-day period. For purposes of the Plan, the
termination of a non-employee director's employment with the Company or any of
its subsidiaries shall be deemed to have occurred on the termination of such
director's status as a director of the Company.
6.15 Recapitalization or Reorganization of Company. Except as otherwise
provide herein, appropriate and proportionate adjustment shall be made in the
number and class of shares subject to the Plan and to the option rights
granted under the Plan and the exercise price of such option rights, in the
event of a stock dividend (but only on common stock), stock split, reverse
stock split, recapitalization, reorganization, merger, consolidation,
separation, or like change in the capital structure of the Company. In the
event of a liquidation of the Company, or a merger, reorganization, or
consolidation of the Company with any other corporation in which the company
is not the surviving corporation or the Company becomes a wholly-owned
subsidiary of another corporation, any unexercised options theretofore granted
under the Plan shall be deemed canceled unless the surviving corporation in
any such merger, reorganization, or consolidation elects to assume the options
under the Plan or to issue substitute options in place thereof; provided,
however, that, notwithstanding the foregoing, if such options would otherwise
be canceled in accordance with the foregoing, the optionee shall have the
right, exercisable during a thirty-day period ending on the fifth day prior to
such liquidation, merger, or consolidation, to exercise the optionee's option
in whole or in part without regard to any installment exercise provisions in
the optionee's agreement. To the extent that the foregoing adjustments relate
to stock or securities of the Company, such adjustments shall be made by the
Board or the Committee, the determination of which in that respect shall be
final, binding, and conclusive, provided that each option granted pursuant to
the Plan shall not be adjusted in a manner that causes the option to fail to
continue to qualify as an incentive stock option within the meaning of Section
422 of the Code.
6.16 Modification, Extension, and Renewal of Options. Subject to the
terms and conditions and within the limitations of the Plan, the Board or
Committee may modify, extend, or renew outstanding options granted under the
Plan, accept the surrender of outstanding options (to the extent not
theretofore exercised), and authorize the granting of new options in
substitution therefor (to the extent not theretofore exercised). Without the
consent of the optionee, the Board or Committee shall not, however, modify any
outstanding incentive stock option in any manner which would cause the option
not to qualify as an incentive stock option within the meaning of Section
422 of the Code. Notwithstanding the foregoing, no modification of an option
shall, without the consent of the optionee, alter or impair any rights of the
optionee under the option.
6.17 Other Provisions. Each option may contain such other terms,
provisions, and conditions not inconsistent with the Plan as may be determined
by the Board or Committee.
7. Termination or Amendment of Plan. The Board may at any time
terminate or amend the Plan; provided that, without approval of the
shareholders of the Company, there shall be, except by operation of the
provisions of Section 6.15, no increase in the total number of shares covered
by the Plan, no change in the class of persons eligible to receive options
granted under the Plan, no reduction in the exercise price of options
granted under the Plan, and no extension of the latest date upon which options
may be exercised; and provided further that, without the consent of the
optionee, no amendment may adversely affect any then outstanding option or any
unexercised portion thereof.
8. Indemnification. In addition to such other rights of indemnification
as they may have as members of the Board or the Committee, the members of the
Board or the Committee administering the plan shall be indemnified by the
Company against reasonable expenses, including attorney's fees, actually and
necessarily incurred in connection with the defense of any action, suit, or
proceeding, or in connection with any appeal therein, to which they or any of
them may be a party by reason of any action taken or failure to act under or
in connection with the Plan or any option granted thereunder, and against all
amounts paid by them in settlement thereof (provided such settlement is
approved by independent legal counsel selected by the Company) or paid by them
in satisfaction of a judgment in any action, suit, or proceeding, except in
relation to matters as to which it shall be adjudged in such action, suit or
proceeding that such member is liable for negligence or misconduct in the
performance of his duties, provided that within 60 days after institution of
any such action, suit or proceeding, the member shall in writing offer the
Company the opportunity, at its own expense, to handle and defend the same.
9. Shareholder Approval and Term of Plan. The Plan shall be submitted
for approval by the shareholders of the Company, which approval must occur on
or prior to October 26, 1998. In the event such shareholder approval is not
obtained on or before October 26, 1998, this plan shall continue in full force
and effect but shall permit the grant of only non-qualified stock options.
Unless sooner terminated by the Board in its sole discretion, the Plan will
expire on December 31, 2015.
Galaxy Enterprises, Inc.
Incentive Stock Option Agreement
This Incentive Stock Option Agreement is made and entered into by and
between Galaxy Enterprises, Inc. a Nevada Corporation ("Company"),
and ("Optionee")
as of the day of 19 with respect to the
following facts:
A. During October, 1997, The Board of Directors of the Company adopted
the Galaxy Enterprises, Inc. Employee Stock Option Plan ("Plan") to authorize
the Company to grant incentive stock options and non-qualified stock options
under the Plan to employees and non-employee directors of the Company or any
of its subsidiaries;
B. During 1998, the shareholders of the Company approved the Plan as so
adopted;
C. Optionee has received and reviewed a copy of the Plan; and
D. Optionee is an employee or a non-employee director of the Company or
one of its subsidiaries.
NOW THEREFORE, in consideration of the premises and intending to be
legally bound, the parties agree as follows:
1 . Grant of Option. Subject to the terms and conditions set forth
herein, the Company hereby grants to the Optionee an incentive stock option
("Option") to
purchase from the Company,
at the price of Dollars ($ per share,
) shares of the Company's
authorized and unissued or reacquired shares of
common stock, of $.007 par
value per share.
2. Incentive Stock Option. The Option granted to Optionee pursuant to
this Agreement is intended to qualify as an "incentive stock option" under
section 422 of the Internal Revenue Code of 1954, as amended ("Code").
3. Administration. The Plan provides that it shall be administered by
the Board of Directors of the Company ("Board"), or, in the Board's sole
discretion, by a committee ("Committee") consisting of not less than three (3)
individuals, at least two (2) of whom shall be members of the Board. Subject
to the provisions of the Plan, the Board or the Committee shall have authority
to construe and interpret the Plan and this Agreement, to promulgate, amend,
and rescind rules and regulations relating to the administration of the Plan
and this Agreement, and to make all of the determinations necessary or
advisable for administration of the plan and this Agreement. The
interpretation and construction by the Board or the Committee of any provision
of this agreement, shall be final and binding upon all parties. No member of
the Board or the Committee shall be liable for any action or determination
undertaken or made in good faith with respect to the Plan or this Agreement.
4. Term of Option. Unless earlier exercised pursuant to Section 5 of
this Agreement, the Option shall terminate on, and shall not be exercisable
after the expiration of the earliest of: (a) ten (10) years after the date
first above written, (b) three (3) months after the date Optionee's employment
with the Company and its subsidiaries terminates if such termination is for
any reason other than permanent disability, death, or cause, unless Optionee
dies or becomes permanently disabled within three (3) months after the date of
such termination, (c) thirty (30) days after the date Optionee's employment
with the Company and its subsidiaries terminates if such termination is for
cause, as determined by the Board or the Committee, in its sole discretion,
and (d) one (1) year after the date Optionee's employment with the Company and
its subsidiaries terminates if such termination is the result of death or
permanent disability or the optionee dies or becomes permanently disabled
within three (3) months after the date of such termination. For purposes of
this Agreement "permanent disability" shall mean a disability of the type
defined in Section 22(e)(3) of the Internal Revenue Code of 1954, as amended.
5. Exercise.
5.1 Exercisability. Subject to the terms and conditions of this
Agreement, the Option shall become exercisable with respect to
shares of common stock of the Company on and with respect to an
additional (_) shares of common stock of the Company
on of each consecutive calendar year thereafter until the Option has
become exercisable with respect to the total number of shares of common stock
of the Company set forth in Section 1 of this agreement. The Option may be
exercised by Optionee with respect to any shares of common stock of the
Company covered by the Option at any time on or after the date on which the
Option becomes exercisable with respect to such shares; provided that the
Option may not be exercised at any one time with respect to less than ten (10)
shares of common stock of the Company, unless the number of shares with
respect to which the Option is exercised is the total number of shares with
respect to which the Option is exercisable at that time.
5.2 Acceleration of Exercisability. If at any time during the
term of this Option there is outstanding (as that term is defined in Section 7
hereof) an incentive stock option (the "Latter Option") which was granted
after the granting of this Option and so long as the Later Option so provides,
Optionee may accelerate the date on which this Option becomes exercisable with
respect to such number of shares of common stock as the Later Option is then
exercisable (but not in excess of the total number of shares of common stock
the subject of this Option) by delivering written notice of such acceleration
to the Company; provided that: (a) Optionee must exercise this Option with
respect to the total number of shares of common stock for which the exercise
date is accelerated, (b) the Later Option thereupon shall cease to be
exercisable with respect to such number of shares of common stock and
thereafter shall become exercisable with respect to such number of shares of
common stock on the date on which this Option otherwise would have become
exercisable with respect to such number of shares of common stock, and (c) the
number of shares of common stock for which the exercise date is accelerated
may not be less than the lesser of (i) the total number of shares then subject
to this Option and (ii) the total number of shares with respect to which the
Later Option is then exercisable.
5.3 Notice of Exercise. Optionee shall exercise the Option by
delivering to the Company, either in person or by certified or registered
mail, written notice of election to exercise and payment in full of the
purchase price as provided in Section 5.4 of this Agreement. The written
notice shall set forth the whole number of shares with respect to which the
Option is being exercised.
5.4 Payment of Purchase Price. The purchase price for any shares
of common stock of the Company with respect to which Optionee exercises this
Option shall be paid in full at the time Optionee delivers to the Company the
written notice of election to exercise. The purchase price shall be paid in
cash, by check or, at the discretion of the Board or the Committee, upon such
terms and conditions as the Board or the Committee shall approve, by
transferring to the Company for redemption shares of common stock of the
Company at their fair market value determined in the manner provided in the
Plan. Notwithstanding the foregoing, the Company may extend and maintain, or
arrange for the extension and maintenance of, credit to Optionee to finance
payment of the purchase price on such terms as may be approved by the Board or
the Committee.
6. Issuance of Shares. Promptly after the Company's receipt of the
written notice of election provided for in Section 5.2 hereof and Optionee's
payment in full of the purchase price, the Company shall deliver, or cause to
be delivered to Optionee, certificates for the whole number of shares with
respect to which the Option is being exercised by Optionee. Shares shall be
registered in the name of Optionee. If any law or regulation of the Securities
and Exchange Commission or of any other federal or state governmental body
having jurisdiction shall require the Company or Optionee to take any action
prior to issuance to Optionee of the shares of common stock of the Company
specified in the written notice of election to exercise, or if any listing
agreement between the Company and any national securities exchange requires
such shares to be listed prior to issuance, the date for the delivery of such
shares shall be adjourned until the completion of such action and/or such
listing.
7. Fractional Shares.. In no event shall the Company be required to
issue fractional shares upon the exercise of all or any portion of the option.
8. Rights as a Shareholder. Optionee shall have no rights as a
shareholder of the Company with respect to any shares covered by the Option
until the date of the issuance of a share certificate for such shares. Except
as provided in Section 11 of this Agreement, no adjustment shall be made for
dividends (ordinary or extraordinary, whether cash, securities, or other
property) or distributions or other rights for which the record dates is prior
to the date such share certificate is issued.
9. Termination of Employment, Disability, or Death. In the event
Optionee ceases to be an employee of the Company and its subsidiaries for any
reason other than the termination of his employment for cause (as such cause
may be determined by the Board or the Committee, in its sole discretion) while
still living, the Option or unexercised portion thereof may, to the extent
(but only to the extent) that it would have been exercisable by Optionee on
the date on which Optionee ceased to be an employee, be exercised by Optionee
within three (3) months after the date on which Optionee ceased to be an
employee, but in no event after the date of expiration of the Option. In the
event of the death or disability (as defined in the Plan) of Optionee while
Optionee is an employee of the Company or any of its subsidiaries or within
not more than three (3) months after the date on which Optionee ceased to be
an employee of the Company or any of its subsidiaries, any unexercised portion
of the Option, to the extent (but only to the extent) exercisable by Optionee
on the date of death or disability, may be exercised by Optionee or, if
Optionee is then deceased, by Optionee's personal representatives, heirs, or
legatees at any time prior to the expiration of one (1) year from the date on
which Optionee ceased to be an employee of the Company or any of its
subsidiaries, but in no event after the termination of the Option.
Notwithstanding the foregoing, in the event that Optionee's employment with
the Company or any of its subsidiaries is terminated for cause, as determined
by the Board or the Committee, in its sole discretion, the Option or the
unexercised portion thereof may, to the extent (and only to the extent) the
Option would have been exercisable by Optionee on the date on which his or her
employment with the Company or any of its subsidiaries was terminated, be
exercised by Optionee within thirty (30) days after the date on which his or
her employment was terminated, but in any event not later than the earlier of
(i) the date of expiration of the Option, and (ii) the date of expiration of
such 30-day period, regardless of whether or not Optionee dies or becomes
permanently disabled within such 30-day period. Notwithstanding anything in
this Agreement to the contrary, the Option may not be exercised, and shall not
be or become exercisable, after the date of the termination of Optionee's
employment with the Company and its subsidiaries (regardless of the cause of
such termination of employment) except with respect to that number of shares
of common stock of the Company with respect to which the Option was
exercisable on the date of the termination of Optionee's employment.
10. Recapitalization or Reorganization of Company. Except as otherwise
provided herein, appropriate and proportionate adjustments shall be made in
the number and class of shares subject to the Option and the purchase price of
such shares in the event of a stock dividend (but only on common stock), stock
split, reverse stock split, recapitalization, reorganization, merger,
consolidation, separation, or like change in the capital structure of the
Company. In the event of a liquidation of the Company or a merger,
reorganization, or consolidation of the Company with any other corporation in
which the Company is not the surviving corporation or the Company becomes a
wholly-owned subsidiary of another corporation, any unexercised portion of the
Option shall be deemed canceled unless the surviving corporation in any such
merger, reorganization, or consolidation elects to assume the Option or to
issue substitute options in place thereof. Notwithstanding the foregoing, if
the Options otherwise would be canceled in accordance with the preceding
sentence, Optionee shall have the right, exercisable during a thirty-day
period ending on the fifth day prior to such liquidation, merger, or
consolidation, to exercise the Option in whole or in part without regard to
the installment exercise provisions of Section 5.1 hereof. To the extent that
the foregoing adjustments relate to stock or securities of the Company, such
adjustments shall be made by the Board or the Committee, the determination of
which shall be final, binding, and conclusive; provided that the Option shall
not be adjusted in a manner that causes it to fail to continue to qualify as
an incentive stock option within the meaning of Section 422 of the Code.
11. No Transfer of Option. Optionee may not transfer all or any part of
the Option except by Will or the laws of descent and distribution, and the
Option shall not be exercisable during the lifetime of Optionee by any person
other than Optionee or, in the event of the disability (as defined in the
Plan) of Optionee, Optionee's personal representative.
12. Investment Representation. Optionee hereby represents and warrants
to, and agrees with, the Company that, if he exercises the Option in whole or
in part at a time when there is not in effect under the Securities Act of
1933, as amended, a registration statement covering the shares issuable upon
exercise of the Option and available for delivery a prospectus meeting the
requirements of Section 10 of said Act, that Optionee may be required, as a
condition of issuance of the shares of common stock of the Company covered by
the Option, to represent to the Company that the shares issued pursuant to the
exercise of the Option are being acquire for investment and without a view to
distribution thereof; and that in such case the Company may place a legend on
the Certificates(s) evidencing the shares of the common stock of the Company
issued upon exercise of the Option reflecting the fact that the shares were
acquired for investment and cannot be sold or transferred unless registered
under said Act or unless counsel for the Company is satisfied that the
circumstances of the proposed transfer do not require such registration,
because there exists a valid exemption from the registration requirements of
said act.
13. Restriction on Transfer. Optionee shall not sell, assign, pledge,
hypothecate or otherwise transfer, whether or not for value, any or all of the
shares of the capital stock or the Company subject to the restrictions of this
Section 14 except in strict compliance with the terms of this Agreement. Any
transfer or attempted transfer of any of such shares which is not in strict
compliance with the terms of this Section 14 shall be null and void.
13.1 Stock Subject to Restriction. All of the shares of common
stock of the Company acquired by optionee upon exercise of the Option, as well
as (a) all shares of the capital stock or other securities of the Company
hereafter received by Optionee as a dividend or other distribution upon or
with respect to such shares, and (b) all shares of capital stock or other
securities of the Company into which such shares hereafter may be exchanged or
for which such shares may be exchanged, whether through reorganization,
recapitalization, stock split-ups or the like, shall be subject to the
provisions of this Agreement and shall be referred to as the "Restricted
Shares".
13.2 Option to Purchase. The Company and its nominee jointly and
severally shall have the option to purchase all, but not less than all, of the
Restricted Shares on the occurrence of any of the following events:
(a) Optionee agrees to sell, assign, pledge, hypothecate or otherwise
transfer, whether or not for value, any or all of the Restricted Shares or any
interest therein;
(b) Optionee is forced to transfer any or all of the Restricted Shares,
or any interest therein, in an involuntary transfer, including but not limited
to, a transfer pursuant to the entry of a court order or the enforcement of
any judgement;
(c) The filing of a voluntary or involuntary petition in bankruptcy by
or with respect to Optionee (other than an involuntary petition which is
dismissed within sixty (60) days after the date of filing the petition) or the
making by Optionee of an assignment for the benefit of creditors of the
employee; and
(d) Optionee's employment with the Company or any of its subsidiaries
is terminated for any reason.
Notwithstanding the foregoing, Optionee may, with the prior approval of the
Board or the Committee, transfer any of the Restricted Shares to other
employees of the Company or to his or her spouse or children or to a trust for
their benefit; provided that any such transferees shall acknowledge in writing
prior to such transfer that the transferred shares shall remain subject to the
provisions of this Section 14.
13.3 Notice. Optionee shall deliver to the Company within ten
(10) days after the occurrence of any of the events described in Section 14.2
above, written notice of the occurrence of such event. With respect to a
transfer described in paragraph (a) of Section 14.2 above, Optionee shall
specify in the written notice the identity of the proposed transferee, the
purchase price Optionee will receive in the proposed transfer, and the other
terms and conditions of the proposed transfer. The Company and/or its nominee
shall exercise, if at all, their options to purchase such shares within thirty
(30) days after the Company's receipt of written notice of the occurrence of
any such event. If the Company and/or its nominee do not exercise their
options to purchase such shares within such 30-day period, the options of the
Company and/or its nominee to purchase the shares covered by such written
notice shall terminate and Optionee thereafter shall be free to transfer such
shares without further complying with the provisions of this Section 14;
provided that if the written notice relates to a voluntary transfer of the
shares by Optionee in a transfer described in paragraph (a) of Section 14.2
above and the identity of the proposed transferee or the terms and conditions
of the proposed transfer are changed from those specified in the written
notice or the transfer is not completed within forty-five (45) days after the
expiration of the 30-day period Optionee shall be required to comply with the
provisions of this Section 14 to the same extent is if Optionee had not
previously given notice of such intended transfer.
13.4 Purchase Price. The purchase price for the Restricted Shares
purchased by the Company and/or its nominee pursuant to this Section 14 shall
be an amount equal to the fair market value of the shares of common stock of
the Company on the date the Company and/or its nominee exercise their option
to purchase. For purposes of this Section 14, the "fair market value" of any
share of common stock of the Company at any date shall be determined as
follows: (a) the Company, its nominee and Optionee shall agree on the fair
market value within thirty (30) days after the Company's and/or its nominee's
exercise of the option to purchase provided for in Section 14.2 above; (b) if
the Company, its nominee, and the Optionee do not agree on the fair market
value within such 30-day period, the parties jointly shall select a mutually
acceptable appraiser within fifteen (15 days after the end of such 30-day
period; and (c) if the parties cannot agree on a mutually acceptable appraiser
within such 15-day period, (i) the Company and/or its nominee jointly shall
select one appraiser, (ii) Optionee shall select one appraiser, and (iii) the
two appraisers so selected shall select a third mutually acceptable appraiser.
The fair marker value of the common stock shall be the value determined by the
appraiser, if only one appraiser is selected, or the average of the values
determined by all of the appraisers, if more than one appraiser is selected.
The Company and its nominee jointly shall pay one-half (1/2) of the cost of
the appraisal and the Optionee shall pay one-half (1/2) of the cost of the
appraisal. Except upon a showing of fraud, corruption or undue influence by
any party or appraiser, the fair market value determined by such appraisers
shall be conclusive for all purposes under this Section 14. Notwithstanding
anything in this Section 14 to the contrary, in no event shall the "fair
market value" of the common stock of the Company with respect to the transfer
described in paragraph (a) of Section 14.2 above exceed the purchase price
specified in the written notice provided by optionee pursuant to Section 14.3
above.
13.5 Payment. The purchase price for any Restricted Shares
purchased by the Company and/or its nominee pursuant to this Section 14 shall
be paid in full upon Optionee's transfer of the Restricted Shares to the
Company and/or its nominee, in cash, or by check; provided that if the Company
extended or arranged for the extension of any credit to Optionee to finance
Optionee's purchase of the Restricted Shares upon the exercise of the Option
and Optionee has not yet satisfied in full such credit obligation, the Company
may pay all or a portion of its purchase price by canceling the unpaid portion
of such credit obligation of Optionee.
13.6 Transfer Date. The Company shall designate a date, not less
than ten (10) nor more than forty-five (45) days after the date of the
Company's and/or its nominee's exercise of their options to purchase the
Restricted Shares, on which Optionee shall transfer the Restricted Shares to
the Company and/or its nominee and the Company and/or its nominee shall pay
the purchase price to Optionee.
13.7 Joint Exercise. Optionee acknowledges that the Company and
its nominee may exercise their options to purchase either separately or
jointly and in such proportions as they may determine, provided that together
they purchase all of the Restricted Shares held by Optionee and the subject of
the written notice specified in Section 14.3 above.
13.8 Termination of Restrictions. The provisions of this Section
14 shall lapse and be of no further force or effect from and after the date on
which the first of the following events occurs:
(a) The consummation by the Company of a bona fide underwritten public
offering of the common stock of the Company registered under the Securities
Act of 1933, as amended;
(b) The common stock of the Company is held of record by 500 or more
persons according to the stock record books of the Company; and
(c) The execution and delivery of binding agreements for the
consummation of any of the following transactions: (i) all or substantially
all of the assets and business of the Company are sold in substantially a
single transaction; or (ii) the Company is merged or consolidated with and
into another corporation and is not the surviving corporation; or (iii) eighty
percent (80%) or more in fair market value of the outstanding capital stock of
the Company is acquired by another person, firm or corporation; provided that
if any such agreements are canceled prior to the consummation of such
transactions or such transactions are otherwise abandoned prior to
consummation, the provisions of this Section 14 shall be reinstated and shall
apply to all Restricted Shares to the same extent as if no such binding
agreements had ever been entered into. For purposes of this subparagraph (c),
the granting by the Company to a third party of an option or other right to
effect in the future any of the transactions described in (i), (ii) or (iii)
above shall not constitute the execution and delivery of binding agreements
for the consummation of any of such transactions until the Company receives
written notice of the exercise of such option or right by the third party.
13.9 Legend. Optionee consents to the placement of the following
restrictive legend on each certificate representing any of the Restricted
Shares:
"NEITHER THESE SHARES NOR ANY INTEREST THEREIN MAY BE
SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE
TRANSFERRED EXCEPT IN COMPLIANCE WITH THE PROVISIONS
OF THAT INCENTIVE STOCK OPTION AGREEMENT WITH THE
ISSUER, AND DATED '1 19 , A COPY OF WHICH
MAY BE OBTAINED FROM THE ISSUER, AND ANY SUCH ATTEMPTED
TRANSFER IN VIOLATION THEREOF IS NULL AND VOID AND WILL
NOT BE RECOGNIZED BY THE ISSUER."
14. Employment Relationships.
14.1 Optionee's Employment Agreement. In consideration of the
grant of the Option pursuant to this Agreement, Optionee agrees to remain in
the employ of, and to render services to, the Company or its subsidiaries for
a period of one (1) year from the date first above written, but such agreement
shall not obligate the Company or any of its subsidiaries to continue to
employ Optionee for any period. Nothing in the Plan or in this Agreement shall
confer, or be deemed to confer, upon Optionee any right to continue in the
employ of the Company or its subsidiaries or interfere in any way with any
right of the Company or its subsidiaries to terminate Optionee's employment at
any time. Optionee acknowledges that notwithstanding anything to the contrary
in any agreement regarding his employment with the Company or any of its
subsidiaries, whether written or oral, express or implied, Optionee shall have
no right to exercise all or any portion of the Option or to receive any of the
shares of common stock of the Company subject to the Option except in
accordance with and on the terms and conditions specified in this Agreement.
14.2 Effect of Transfer of Employment. The transfer of Optionee
from the employ of the Company to any one of the Company's subsidiaries, or
vise versa, or from one such subsidiary to another shall not be deemed to
constitute a termination of employment of Optionee with the Company and its
subsidiaries.
14.3 Company's Right of Termination. Neither the execution,
delivery nor performance by the Company or Optionee of this Agreement shall
impose any obligation on the Company or any of its subsidiaries to continue
the employment of Optionee or lessen or affect the right of the Company to
terminate such employment or change the duties, compensation, or other terms
of employment of Optionee.
14.4 Other Employment Benefits. The acceptance by Optionee of
this Agreement with the Company shall not affect Optionee's eligibility for
any stock option, profit sharing, pension, bonus, insurance, or other
compensation-related plan or benefit which the Company or any of its
subsidiaries may provide to employees.
15. General Provisions.
15.1 Interpretation. This Agreement is subject to all of the
terms and conditions of the Plan, and in the event of any conflict between any
of the provisions of this Agreement and any of the provisions of the Plan, the
applicable provisions of the Plan shall control. Optionee agrees that any
dispute or disagreement which may arise under or as a result of this Agreement
shall be determined by the Board in the Board's sole discretion, and any
interpretation by the Board of the terms and conditions hereof shall be final
and binding.
15.2 Entire Agreement. This Agreement contains the entire
understanding between the parties with respect to the subject matter hereof,
and supersedes any and all prior written or oral agreements between the
parties with respect to the subject matter hereof. There are no
representations, agreements, arrangements, or understandings, either written
or oral, between or among the parties with respect to the subject matter
hereof which are not set forth in this Agreement.
15.3 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Utah.
15.4 Notices. Any notice given pursuant to this Agreement may be
served personally on the party to be notified or may be mailed, with postage
thereon fully prepaid, by certified or registered mail, with return receipt
requested, addressed as set forth by the party's signature of this Agreement
or at such other address as such party may designate in writing from time to
time. Any notice given as provided in the preceding sentence shall be deemed
delivered when given, if personally served, or ten (10) business days after
mailing, if mailed.
15.5 Further Acts. Each party to this Agreement agrees to perform
such further acts and to execute and deliver such other and additional
documents as may be reasonably necessary to carry out the provisions of this
Agreement.
15.6 Severability. If any term, provision, covenant, or
condition of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, or unenforceable for any reason, such invalidity,
illegality, or unenforceability shall not affect any of the other terms,
provisions, covenants, or conditions of this Agreement, each of which shall be
binding and enforceable.
IN WITNESS WHEREOF, the parties have entered into this Incentive Stock
Option Agreement as of the date first above written.
"COMPANY" "OPTIONEE"
Galaxy Enterprises, Inc.
890 North Industrial Park Drive
Orem, Utah 84057 Signature of Optionee
By
Name of Optionee (type or print)
Its Street Address
City State Zip Code
STOCK OPTION AGREEMENT
This Stock Option Agreement (*Agreement') is entered into as of the 10th
day of August, 1998 by and among B. RAY ANDERSON (*Optionee*) and GALAXY
ENTERPRISES, INC., a Nevada corporation (the "Company').
WHEREAS, in consideration for the Optionee agreeing to serve as a member
of the Company's Board of Directors, the Company desires to grant to Optionee
an option to acquire Ten thousand (10,000) shares of the Company's Common
Stock (the "Shares") pursuant to the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, the parties hereby agree as follows:
1. Grant of Option. The Company hereby grants to Optionee an option (the
"Option") to purchase all or any portion of the Shares, at a purchase price of
$1.375 per share (the "Exercise Price"), subject to the terms and conditions
set forth herein.
2. Vesting of Option. the Optionee shall have the immediate right to
exercise the Option, in full, upon execution of this Agreement
3. Term of Option. Optionee's right to exercise the Option shall
terminate on the date which is ten (10) years from the date hereof, regardless
of whether or not the Optionee is serving as a member of the Company's Board
of Directors.
4. Exercise of Option. Until termination of the right to exercise the
Option in accordance with Section 3 above, the Option may be exercised in
whole or in part by Optionee upon delivery to the Company of a check or cash
in the amount of the Exercise Price.
5. Representations and Warranties of Optionee. Optionee hereby
represents and warrants to the Company as follows:
(a) Investment Intent. Optionee is acquiring the Option for
investment for Optionee's own account and not with a view to, or for resale in
connection with any distribution thereof Optionee understands that the Shares
underlying the Option have not been registered under the Securities Act of
1933, as amended (the "Securities Act'), nor qualified under any applicable
state securities laws.
(b) Rule 144. Optionee acknowledges that the Shares underlying the
Option must be held indefinitely unless they are subsequently registered under
the Securities Act or an exemption from such registration is available.
Optionee has been advised or is aware of the provisions of Rule 144
promulgated under the Securities Act.
(c) Legend. Optionee understands that -the certificate evidencing
the Shares underlying the Option will bear a legend substantially as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933; THEY HAVE BEEN ACQUIRED BY THE HOLDER
FOR INVESTMENT AND MAY NOT BE PLEDGED, HYPOTHECATED, SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF EXCEPT AS MAY BE AUTHORIZED UNDER THE SECURITIES ACT
OF 1933, AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER.
6. Adjustments Upon Changes in Capital Structure. In the event that the
Outstanding shares of common Stock of the Company are hereafter increased or
decreased or changed into or exchanged for a different number or kind of
shares or other securities of the Company by reason of a recapitalization,
stock split, combination of shares, reclassification, stock dividend or other
change in the capital structure of the Company, then appropriate adjustment
shall be made to the number of Shares subject to the unexercised portion of
the Option and to the Exercise Price per share, in order to preserve, as
nearly as practical, but not to increase, the benefits of Optionee under the
Option.
7. Rights as Stockholder. Optionee (or transferee of the Option by will
or by the laws of descent and distribution) shall have no rights as a
stockholder with respect to any Shares covered by the Option until the date of
the issuance of a stock certificate or certificates to him or her for such
Shares pursuant to the exercise of such Option.
8. Miscellaneous.
(a) Severability. Should any provision or portion of this Agreement
be held to be unenforceable or invalid for any reason, the remaining
provisions and portions of this Agreement shall be unaffected by such holding.
(b) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed aa original and all of which
together shall be deemed one instrument.
(c) Entire Agreement, This Agreement constitutes the entire
agreement between the parties hereto pertaining to the subject matter hereof
and supersedes all prior agreements, understandings, negotiations and
discussions, whether oral or written. No supplement, modification, waiver or
termination of this Agreement shall be binding unless executed in writing by
the Party to be bound thereby. No waiver of any Of the Provisions of this
Agreement shall be deemed or shall constitute a waiver of any other provisions
hereof (whether or not similar), nor shall such waiver constitute a continuing
waiver unless otherwise expressly provided.
(d) Further Assurances. Each party hereto shall, from time to time at
and after the date hereof, execute and deliver such instruments, documents and
assurances and take such further actions as the other party may reasonably
request in order to carry out the purpose and intent of this Agreement.
(e) Notices, etc. All notices and other communications provided for
herein shall be in writing by hand-delivery, next-day air courier, certified
first class mail, return receipt requested, telex or facsimile:
If to the Company: GALAXY ENTERPRISES, INC.
890 North Industrial Park
Orem, Utah 84057
Attention: Frank C. Heyman
If to Optionee: B. Ray Anderson
34300 Lantern Bay Drive #33
Dana Point, California 92629
Except as otherwise provided in this Agreement, all such communications shall
be deemed to have been duly given when (i) delivered by hand, if personally
delivered, (ii) one Business Day after being timely delivered to a next-day
air courier, (iii) three Business Days following mailing by registered or
certified mail, return receipt requested, postage prepaid, (iv) when answered
back, if telexed, or (vi) when receipt is acknowledged by the recipient's
facsimile machine, if faxed.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
GALAXY ENTERPRISES, INC.
By:/S/John J. Poelman
Its: President
/s/B. Ray Anderson
B. Ray Anderson
STOCK OPTION AGREEMENT
This Stock Option Agreement ("Agreement") is entered into as of the 10th
day of August, 1998 by and among DARRAL G. CLARKE ("Optionee") and GALAXY
ENTERPRISES, INC., a Nevada corporation (the "Company").
WHEREAS, in consideration for the Optionee agreeing to serve as a member
of the Company's Board of Directors, the Company desires to grant to Optionee
an option to acquire Ten Thousand (10,000) shares of the Company's Common
Stock (the "Shares") pursuant to the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, the parties hereby agree as follows:
1 . Grant of Option. The Company hereby grants to Optionee an option
(the "Option") to purchase all or any portion of the Shares, at a purchase
price of $1.375 per share (the "Exercise Price"), subject to the terms and
conditions set forth herein.
2. Vesting of Option. The Optionee shall have the immediate right to
exercise the Option, in full, upon execution of this Agreement.
3. Term of Option. Optionee's right to exercise the Option shall
terminate on the date which is ten (10) years from the date hereof, regardless
of whether or not the Optionee is serving as a member of the Company's Board
of Directors.
4. Exercise of Option. Until termination of the right to exercise the
Option in accordance with Section 3 above, the Option may be exercised in
whole or in part by Optionee upon delivery to the Company of a check or cash
in the amount of the Exercise Price.
5. Representations and Warranties of Optionee. Optionee hereby
represents and warrants to the Company as follows:
(a) Investment Intent. Optionee is acquiring the Option for
investment for Optionee's own account and not with a view to, or for resale in
connection with any distribution thereof. Optionee understands that the Shares
underlying the Option have not been registered under the Securities Act of
1933, as amended (the "Securities Act"), nor qualified under any applicable
state securities laws.
(b) Rule 144. Optionee acknowledges that the Shares underlying the
Option must be held indefinitely unless they are subsequently registered under
the Securities Act or an exemption from such registration is available.
Optionee has been advised or is aware of the provisions of Rule 144
promulgated under the Securities Act.
(c) Legend. Optionee understands that -the certificate evidencing
the Shares underlying the Option will bear a legend substantially as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933; THEY HAVE BEEN ACQUIRED BY THE HOLDER
FOR INVESTMENT AND MAY NOT BE PLEDGED, HYPOTHECATED, SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF EXCEPT AS MAY BE AUTHORIZED UNDER THE SECURITIES ACT
OF 1933, AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER.
6. Adjustments Upon Changes in Capital Structure. In the event that the
Outstanding shares of common Stock of the Company are hereafter increased or
decreased or changed into or exchanged for a different number or kind of
shares or other securities of the Company by reason of a recapitalization,
stock split, combination of shares, reclassification, stock dividend or other
change in the capital structure of the Company, then appropriate adjustment
shall be made to the number of Shares subject to the unexercised portion of
the Option and to the Exercise Price per share, in order to preserve, as
nearly as practical, but not to increase, the benefits of Optionee under the
Option.
7. Rights as Stockholder. Optionee (or transferee of the Option by will
or by the laws of descent and distribution) shall have no rights as a
stockholder with respect to any Shares covered by the Option until the date of
the issuance of a stock certificate or certificates to him or her for such
Shares pursuant to the exercise of such Option.
8. Miscellaneous.
(a) Severability. Should any provision or portion of this
Agreement be held to be unenforceable or invalid for any reason, the remaining
provisions and portions of this Agreement shall be unaffected by such holding.
(b) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed aa original and all of which
together shall be deemed one instrument.
(c) Entire Agreement, This Agreement constitutes the entire
agreement between the parties hereto pertaining to the subject matter hereof
and supersedes all prior agreements, understandings, negotiations and
discussions, whether oral or written. No supplement, modification, waiver or
termination of this Agreement shall be binding unless executed in writing by
the Party to be bound thereby. No waiver of any Of the Provisions of this
Agreement shall be deemed or shall constitute a waiver of any other provisions
hereof (whether or not similar), nor shall such waiver constitute a continuing
waiver unless otherwise expressly provided.
(d) Further Assurances. Each party hereto shall, from time to time
at and after the date hereof, execute and deliver such instruments, documents
and assurances and take such further actions as the other party may reasonably
request in order to carry out the purpose and intent of this Agreement.
(e) Notices, etc. All notices and other communications provided
for herein shall be in writing by hand-delivery, next-day air courier,
certified first class mail, return receipt requested, telex or facsimile:
If to the Company: GALAXY ENTERPRISES, INC.
890 North Industrial Park Drive
Orem, Utah 84057
Attention: Frank C. Heyman
If to Optionee: Darral G. Clarke
4102 North Quail Run
Provo, Utah 84604
Except as otherwise provided in this Agreement, all such communications shall
be deemed to have been duly given when (i) delivered by hand, if personally
delivered, (ii) one Business Day after being timely delivered to a next-day
air courier, (iii) three Business Days following mailing by registered or
certified mail, return receipt requested, postage prepaid, (iv) when answered
back, if telexed, or (vi) when receipt is acknowledged by the recipient's
facsimile machine, if faxed.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
GALAXY ENTERPRISES, INC.
By:
Its:
Darral G. Clarke
Consulting Agreement
THIS AGREEMENT is made effective as of the I st day of October, 1997,
between GALAXY MALL, INC., a Wyoming Corporation with a principal place of
business at 3227 North Canyon Road, Suite 500, Provo, Utah 84604, (hereinafter
referred to as GALAXY), and GARY COCHRAN with a principal place of business at
102 South Aspen Dr., Mapleton, UT 84664 (hereinafter referred to as COCHRAN)
WITNESSETH
WHEREAS GALAXY is in the business of providing electronic storefronts
and Internet presence via an electronic mall. on the World Wide Web known as
"The Galaxy Mall"; and
WHEREAS COCHRAN is experienced and in the business of developing direct
marketing programs and products, and offering consulting and marketing advice
on promoting and marketing on the Internet; and
WHEREAS COCHRAN desires to provide ongoing consulting services for
future marketing efforts in conjunction with present and future GALAXY
workshops, products, and services; and
WHEREAS COCHRAN is in the business of developing direct marketing
programs for doing business on the Internet; and
WHEREAS GALAXY desires COCHRAN to provide the above services for GALAXY;
and
WHEREAS GALAXY desires exclusive rights to use and sell COCHRAN's direct
marketing program which is based on his experience and name recognition, to
generate prospective purchasers of GALAXY's products, training, and services;
and
WHEREAS GALAXY and COCHRAN are willing to enter into a non-exclusive
consulting and marketing agreement pursuant to the terms hereof
NOW, THEREFORE, in consideration of the promises and other good and
valuable consideration, the receipt and sufficiency of which the parties
hereto acknowledge, the parties hereby agree as follows:
1. Consulting responsibilities. COCHRAN agrees to provide consulting
services
that are centered on improving existing and future marketing programs.
A. At GALAXY's request COCHRAN will assist in developing marketing
brochures, flyers, advertisements and related items that can be used in
conjunction with GALAXY's ongoing business efforts.
B. COCHRAN will assist in locating and training potential GALAXY
speakers and presenters who could present information on GALAXY's current
workshops or future programs.
C. COCHRAN will assist in the evaluation of future business products or
opportunities for GALAXY.
D. COCHRAN will develop specific products/programs which can be sold by
GALAXY.
2. Prior Efforts. GALAXY and COCHRAN agree that COCHRAN has provided
valuable consulting and marketing input that may or may not continue to be
used by GALAXY in its current or future marketing programs.
3. Time Allocation. GALAXY and COCHRAN agree that there is no direct
accounting required for time spent on consulting and marketing for GALAXY,
understanding that these consulting services will be provided on a part-time,
as needed, basis.
4. Compensation Terms. COCHRAN will be compensated for these consulting
efforts according to the following terms:
A. GALAXY will pay COCHRAN the sum of $60,000,00 annually for all
consulting services rendered as part of this Agreement. This sum will be paid
semi-weekly, or on such other dates as the parties mutually agree. Said annual
compensation will remain fixed for the first year of this agreement. Starting
with the second, year of this agreement the compensation amount will increase
by ten percent (10%) per annum. COCHRAN understands that GALAXY has certain
cash and budget restraints as of the effective date of this Agreement;
and COCHRAN agrees to provide the consulting services pertaining to this
Agreement without compensation from the effective date of this Agreement
through December 31, 1997. Regular semi-weekly compensation will begin
effective January 1, 1998.
B. GALAXY will pay all normal and reasonable business expenses related
to the fulfillment of COCHRAN'S responsibilities as outlined in this
Agreement, e.g. travel, lodging, and meat expenses. COCHRAN will provide to
GALAXY for prior approval, an estimate of expenses before they are incurred.
C. GALAXY acknowledges the fact that COCHRAN is in the process of
providing an updated marketing course for doing business on the Internet, and
accordingly agrees to market this new updated Internet course to its existing
and future customers. The preliminary title of this program is "How To Get A
Second Paycheck Without Getting A Second Job - SPECIAL INTERNET EDITION." This
course will include a resource manual, audio tapes, and practical
applications. It is acknowledged that COCHRAN has provided services
to GALAXY in 1997 for which COCHRAN was not paid, In consideration of this,
GALAXY agrees to pay COCHRAN a bi-weekly royalty based on actual funds
received by GALAXY, on a sliding scale, for this course according to the
following schedule:
Cumulative Sales of Courses Royalty Payment to Cochran
0 - 500 $25.00 per course
2,501 - 5,000 $20.00 per course
5,001 - Thereafter $15.00 per course
D. COCHRAN is in the process of testing a direct marketing program that will
be followed up by a telemarketing sales program, wherein COCHRAN will use his
past experience in direct marketing, the name recognition of Gary Cochran and
his course and television program called "How To Get A Second Paycheck Without
Getting A Second Job", and his Internet experience to offer Internet training
through a two step marketing effort. COCHRAN will create a preliminary portion
of the new Internet course designed to be distributed to prospective customers
free. GALAXY will pay the production, mailing, and shipping costs of the
entire program, however no royalty will -be paid to COCHRAN for this
preliminary section of the course. GALAXY agrees to compensate COCHRAN for all
GALAXY sales of products, training, or other services, to leads generated from
this program. Said compensation, in addition to the above royalties for any
and all courses sold, will be paid as follows:
(1) GALAXY agrees to pay COCHRAN the sum of five percent (5%) of the
gross sales of any and all GALAXY products, services, or training sold to new
leads generated by this program through any subsequent telemarketing efforts.
(2) GALAXY agrees to pay COCHRAN the sum of ten percent (10%) of the
gross sales of any courses sold to prior customers of COCHRAN. COCHRAN will
provide the mailing list for these customers. AD subsequent sales of GALAXY
products, training, or services to these same customers will be compensated at
the same five percent (5%) royalty as indicated in paragraph 4.D.(I) above.
(3) Galaxy agrees to make all payments that become due under this
paragraph as sales dollars are received by GALAXY at least monthly and/or as
mutually agreed to by the parties to this Agreement.
E. GALAXY and COCHRAN agree that compensation for any other COCHRAN books,
courses, training materials, or marketing programs other than those described
in this Agreement will be subject to negotiations at a future time, when the
value and potential of said items can be better established.
5. Term of this Agreement. -This Agreement will remain in effect for a
minimum period of three years.
A. This Agreement will be effective October 1, 1997.
B. Following the third year anniversary of this Agreement, the Agreement
shall automatically renew each year, for one (1) year periods, and will remain
in effect for as long as COCHRAN is willing to provide consulting services for
GALAXY, or GALAXY continues to market any COCHRAN products, training, or
services.
6. Cancellation and Assignment. GALAXY and COCHRAN agree that this agreement
can not be canceled for three years without approval of both parties. Any
cancellation will not negate any payments which may be due, or become due, as
a result of this Agreement. GALAXY and COCHRAN agree that COCHRAN may assign
any payments that are due, or may become due, through the terms of this
Agreement.
7. Compliance with Law . GALAXY and COCHRAN shall conduct and maintain, at
all times, its activities and business operations in strict compliance with
all federal and state laws as applicable hereto.
8. NOTICES. All notices, requests, demands, and other communications under
this Agreement shall be in writing and shall be deemed to have been duly given
on the date of service if served personally on the party to whom notice is to
be given, or on the third day after mailing, if mailed to the party to
whom notice is to be given, by first-class, registered or certified mail,
postage prepaid, and unless either party should notify the other party in
writing of a change of address, properly addressed, as follows:
To: GALAXY Attention: Brandon Lewis
Chief Operating Officer
Galaxy Mall, Inc.
3227 N. Canyon Road, Suite 500
Provo, UT 84604
To: COCHRAN Gary Cochran
102 South Aspen Dr.
Mapleton, UT 84664
9. ENTIRE AGREEMENT. This Agreement contains the entire understanding of the
parties. It may not be changed orally, but only by written agreement signed by
the party against whom enforcement of any waiver, change, modification,
extension, or discharge is sought.
10. SUCCESSION, This Agreement shall inure to the benefit and be binding upon
the parties hereto and upon their assignees and successors in interest of any
kind whatsoever.
11. SECTION HEADINGS, The section headings herein have been inserted for
convenience only and shall not be deemed to limit or otherwise affect the
construction of any provision herein.
12. SITUS. This Agreement shall be governed by the laws of the state of Utah.
13. ATTORNEY'S FEES. In the event of a breach of this Agreement, the breaching
party shall pay to the enforcing party all reasonable costs of enforcement,
with or without suit, including a reasonable attorney's fee, together with
such other legal costs as may be authorized by law.
14. SEVERABILITY. In the event any section, paragraph, or portion of this
Agreement shall be deemed to be by any court having lawful jurisdiction of the
subject matter of this Agreement void, voidable, or invalid for arty reason,
this Agreement shall be otherwise valid, and enforceable as if said void,
voidable, or invalid article, section, paragraph, or portion of this
Agreement had not been a part hereof in the first instance.
15. AUTHORITY TO BIND. Each person executing this Agreement hereby warrants
that he has full and legal authority to execute this Agreement for and on
behalf of the respective parties, and no further approval or consent of any
other person is necessary in connection therewith. Further, each person
executing this Agreement covenants and represents that the execution of this
Agreement is not in contravention of and will not result in a breach of any
other agreement contract, instrument, order, judgement or decree to which such
person is a party.
16. COUNTERPARTS. This Agreement may be executed in duplicate originals, each
of which shall be considered an original. For purposes of this section 16,
facsimile copies of this Agreement executed and transmitted by a party shall
be binding against such party as an original thereof.
17. CONFIDENTIALITY. The parties agree that the terms of this Agreement shall
remain confidential and shall not be publicized nor disclosed, other than to
GALAXY management, without the prior written consent of the non-disclosing
party.
IN WITNESS WHEREOF, the parties hereto this 30th day of August, 1997 have
hereunto set their hands and seals effective the day and year first written
above.
GALAXY MALL, INC.
By:/s/Brandon Lewis
Brandon Lewis, COO
GARY COCHRAN
By:/s/Gary Cochran
Gary Cochran
Royalty & Consulting Agreement
THIS AGREEMENT is made effective as of the 1st day of May, 1998, between
GALAXY MALL, INC., a Wyoming Corporation with a principal place of business at
890 North Industrial Park Dr., Orem, UT 84057, (hereinafter referred to as
GALAXY), and GARY COCHRAN With a principal place of business at 102 South
Aspen Dr., Mapleton, UT 84664 (hereinafter referred to as COCHRAN)
WITNESSETH
WHEREAS GALAXY is in the business of providing electronic storefronts,
banner advertising, and Internet presence via an electronic mall on the World
Wide Web known as "The Galaxy Mall"; and
WHEREAS COCHRAN is in the business of offering consulting and marketing
advice on Internet promotion; and
WHEREAS COCHRAN is also in the business of writing training manuals,
materials, courses, audio tape presentations and related educational items on
marketing techniques for the Internet; and
WHEREAS COCHRAN desires to provide certain Internet training courses and
materials with specific applications for using banner type advertisements in
conjunction with present and future GALAXY marketing programs; and
WHEREAS GALAXY has developed a banner advertising program and marketing
division of the company hereafter referred to as "BANNERWEB"; and
WHEREAS GALAXY desires COCHRAN to prepare and write certain banner
advertising courses that promote BANNERWEB and could be sold either directly
or indirectly by GALAXY on an "as soon as possible basis", and
WHEREAS GALAXY desires to use and market COCHRAN's proposed banner
advertising materials, and to generate additional revenue from existing and
future GALAXY customers and non-customers; and
WHEREAS GALAXY and COCHRAN are willing to enter into a royalty and
commission agreement pursuant to the terms hereof
NOW, THEREFORE, in consideration of the promises and other good and
valuable consideration, the receipt and sufficiency of which the parties
hereto acknowledge, the parties, and hereby agree as follows:
1. Research and Writing Responsibilities. COCHRAN agrees to continue to
research banner advertising on the Internet, and to use said research, along
with COCHRAN's personal knowledge and BANNERWEB marketing experience and
information to write a series of Internet training materials focused on banner
advertising in general and BANNERWEB specifically.
A. At GALAXY's request COCHRAN will prepare and write a beginning
banner advertising primer course consisting of a manual designed to promote
the sale of banner impressions on GALAXY's BANNERWEB network, and other GALAXY
products. Said primer course is presently referred to as "Getting Started With
BannerWeb - A Primer For Making Money With Banner Advertising" and is
referred to as "PRIMER" hereafter. PRIMER will be designed to explain Internet
banner advertising, and will promote the ongoing and future sales of GALAXY's
banner impressions, BannerWeb License, BannerWeb Network, and other
educational materials related to GALAXY products.
B. At GALAXY's request COCHRAN will prepare and write a comprehensive
banner advertising course designed to promote the sale of banner impressions
on GALAXY's BannerWeb network, and other GALAXY products. Said
comprehensive banner course is presently referred to as "BannerWeb -
Promotion Secrets, money-Making Strategies, and Internet Marketing Techniques
to Dramatically Increase Customer Traffic on the World Wide Web" and is
referred to "COURSE" hereafter. COURSE will be designed to consist of a
manual of approximately 150 -200 pages more or less, 8 - 10 audio cassette
tapes scripted and recorded by COCHRAN, and one or more charts or special
reports dealing with banner advertising. Said COURSE will promote the ongoing
and future sales of GALAXY's banner impressions, BannerWeb License, BannerWeb
Network, and other educational materials related to GALAXY products.
C. COCHRAN agrees to use the advertising principles, marketing
concepts, and guidelines established by GALAXY and BANNERWEB in both the
PRIMER and COURSE educational materials.
2. Ownership of Copyrights. GALAXY and COCHRAN agree that COCHRAN or
assignees will retain complete ownership to all copyrights for both the PRIMER
and COURSE, and COCHRAN will receive a royalty and/or commission for those
PRIMER and COURSE materials distributed directly or indirectly by GALAXY.
3. Completion Time. GALAXY and COCHRAN agree that COCHRAN will complete the
PRIMER by June 1, 1998 or as soon thereafter as possible. GALAXY and COCHRAN
further agree that COCHRAN will complete the COURSE by July 1, 1998 or as soon
thereafter as possible. GALAXY and COCHRAN agree that completion is defined as
the delivery of completed manuscripts including all necessary artwork on disk,
and audio cassette master recordings to GALAXY's offices by COCHRAN.
4. Right to Review. GALAXY and COCHRAN agree that GALAXY has the right to
review PRIMER and COURSE to insure compatibility with BANNERWEB guidelines,
and to make appropriate changes to PRIMER and / or COURSE prior to production,
marketing, and/or distribution.
5. Production Expenses. GALAXY and COCHRAN agree that GALAXY is responsible
for all direct and indirect production expenses of PRIMER and COURSE to
include, but not limited to audio recording expenses, printing costs,
duplication expenses, graphical design expenses, and all similar expenses. In
the event that GALAXY requests COCHRAN to advance any such expenses, GALAXY
agrees to reimburse COCHRAN in a timely manner for said expense advances.
6. Distribution or Re-Sale Rights. COCHRAN hereby grants GALAXY the exclusive
right to resell or distribute PRIMER and / or COURSE to GALAXY or BANNERWEB
business contacts. GALAXY and COCHRAN agree that GALAXY will pay COCHRAN
both a royalty and commission on sales of BANNERWEB and GALAXY products sold
as a result of said distribution or re-sale.
7. Pricing Rights. GALAXY and COCHRAN agree that, GALAXY has the right to
price the PRIMER and COURSE at prices determined solely by GALAXY. GALAXY and
COCHRAN agree that said pricing rights extend to both sales of PRIMER and
COURSE to existing and future GALAXY customers and to existing and future
non-GALAXY customers
8. Royalty Payments. GALAXY hereby agrees to pay, and COCHRAN agrees to
accept a royalty payment for all PRIMER and COURSE units sold or distributed
directly or indirectly by GALAXY.
A. GALAXY and COCHRAN agree the royalty payment for all PRIMER units
will be $4.00 per unit of PRIMER sold, distributed, or resold by GALAXY or ten
percent of the actual sales price received by GALAXY for each PRIMER unit
sold, whichever is more.
B. GALAXY and COCHRAN agree the royalty payment for all COURSE units
will be $15 - 00 per unit of COURSE sold, distributed, or resold by, GALAXY;
or ten percent (10%) of the actual sales price received by GALAXY for each
COURSE unit sold, whichever is more.
9. Commission Payments for Subsequent Sales of BANNERWEB and GALAXY Products.
GALAXY and COCHRAN agree that the purpose and content of the PRIMER and / or
COURSE products are specifically designed to lead to subsequent sales of
BANNERWEB and GALAXY PRODUCTS including, but not limited to banner impressions
on the BANNERWEB network, BANNERWEB license fees, existing and future
BANNERWEB PRODUCTS, and the PRIMER and COURSE products. GALAXY agrees to pay,
and COCHRAN agrees to accept a commission payment for all GALAXY or BANNERWEB
products subsequently sold to non-GALAXY customers who originally purchase
either the PRIMER or COURSE.
A. GALAXY and COCHRAN agree that the definition of a non-GALAXY customer
will be all other persons, businesses, or entities who become clients of
GALAXY through any marketing effort which includes the PRIMER or COURSE.
B. GALAXY and COCHRAN agree the commission payments for subsequent
sales of GALAXY products which include banners, banner impressions on the
BANNERWEB network, BANNERWEB license fees, existing and future BANNERWEB
PRODUCTS, and the PRIMER and COURSE products sold to non-GALAXY customers who
originally purchase either the PRIMER or COURSE will be ten percent (10%) of
the actual sales price received by GALAXY for said products.
10. Timing of GALAXY Payments to COCHRAN. GALAXY and COCHRAN agree that
GALAXY will pay COCHRAN, or his assigns, all royalty and commission payments
agreed to in this document in a timely fashion. Unless otherwise agreed upon
by GALAXY and COCHRAN said payments will be made on a weekly basis for all
payments cleared by GALAXY during the previous week, less a reasonable reserve
to protect against cancellations and or chargebacks.
11. Term of this Agreement. This Agreement will remain in effect for a minimum
period of three years.
A. This Agreement will be effective May 1, 1998.
B. Following the third year anniversary of this Agreement, it will
remain in effect on an annual basis, providing GALAXY continues to sell or
distribute the PRIMER or COURSE, or continues to market BANNERWEB or GALAXY
products, as defined in this Agreement, to non-GALAXY customers who have
previously purchased either the PRIMER or COURSE products according to in
paragraph 9 above.
12. Cancellation and Assignment. GALAXY and COCHRAN agree that this agreement
can not be canceled without the approval of both parties. Any cancellation
will not negate any payments which may be due, or come due as. a result of
this Agreement. GALAXY and COCHRAN agree that COCHRAN may assign any payments
that are due, or may become due through the terms of this Agreement,
13. Compliance with Laws. GALAXY and COCHRAN shall conduct and maintain, at
all times, its activities, and business operations in strict compliance with
all federal and state laws as applicable hereto.
14. NOTICES. All notices, requests, demands, and other communications under
this Agreement shall be in writing and shall be deemed to have been duly given
on the date of service if served personally on the party to whom notice is to
be given, or on the third day after mailing, if mailed to the party to
whom notice is to be given, by first-class, registered or certified mail,
postage prepaid, and unless either party should notify the other party in
writing of a change of address, properly addressed, as follows:
To: GALAXY Attention: Frank Heyman
Chief Financial Officer
Galaxy Mall, Inc.
890 N. Industrial Park Dr.
Orem, UT 84057
To: COCHRAN Gary Cochran
102 South Aspen Dr.
Mapleton, UT 84664
15. ENTIRE AGREEMENT. This Agreement contains the entire understanding of the
parties regarding the PRIMER and COURSE. It may not be changed orally, but
only by an agreement in writing signed by the party against whom enforcement
of any waiver, change, modification, extension, or discharge is sought.
16. SUCCESSION. This Agreement shall inure to the benefit and be binding upon
the parties hereto and upon their assignees and successors in interest of any
kind whatsoever.
17. SECTION HEADINGS. The section headings herein have been inserted for
convenience only and shall not be deemed to limit or otherwise affect the
construction of any provision herein.
18. SITUS. This Agreement shall be governed by the laws of the state of Utah.
19. ATTORNEYS FEES. In the event of a breach of this Agreement, the breaching
party shall pay to the enforcing party all reasonable costs of enforcement,
with or without suit, including a reasonable attorney's fee, together with
such other legal costs as may be authorized by law.
20. SEVERABILITY. In the event any section, paragraph, or portion of this
Agreement shall be deemed to be by any court having lawful jurisdiction of the
subject matter of this Agreement void, voidable, or invalid for any reason,
this Agreement shall be otherwise valid, and enforceable as if said void,
voidable, or invalid article, section, paragraph, or portion of this
Agreement had not been a part hereof in the first instance.
21. AUTHORITY TO BIND. Each person executing this Agreement hereby warrants
that he has full and legal authority to execute this Agreement for and on
behalf of the respective parties, and no further approval or consent of any
other person is necessary in connection therewith. Further, each person
executing this Agreement covenants and represents that the execution
of this Agreement is not in contravention of and will not result in a breach
of any other agreement, contract, instrument, order, judgement or decree to
which such person is a party.
22. COUNTERPARTS. This Agreement may be executed in duplicate originals, each
of which shall be considered an original. For purposes of this section 22,
facsimile copies of this Agreement executed and transmitted by a party shall
be binding against such party as an original thereof.
24. CONFIDENTIALITY. The parties agree that the terms of this Agreement shall
remain confidential and shall not be publicized nor disclosed, other than to
management without the prior written consent of the non-disclosing party.
IN WITNESS WHEREOF, the parties hereto this 1st day of May, 1998 have
hereunto set their hands and seals effective the day and year first written
above.
GALAXY MALL, INC.
By:/s/Frank Heyman
Frank Heyman, CFO
GARY COCHRAN
By/s/Gary Cochran
Gary Cochran
EXHBIIT 21
SUBSIDIARIES OF GALAXY ENTERPRISES, INC. (THE "ISSUER")
(1) Galaxy Mall, Inc., a Wyoming corporaiton (wholly-owned subsidiary).
Galaxy Mall, Inc. ("GMI") is the operating division of the Issuer,
maintaining the Galaxy Mall, an Internet shopping mall. GMI leases to its
customers electronic home pages, or "storefronts" on the Galaxy Mall and hosts
those storefront sites on its Internet server. GMI also markets Galaxy
products, and schedules and conducts Internet training workshops.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF GALAXY ENTERPRISES, INC. AND SUBSIDIARY FOR THE YEARS
ENDED DECEMBER 31, 1997 AND 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001063450
<NAME> GALAXY ENTERPRISES, INC.
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-END> DEC-31-1997 JUN-30-1998
<CASH> 113144 116106
<SECURITIES> 0 0
<RECEIVABLES> 41109 393980
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 202042 517417
<PP&E> 128294 165719
<DEPRECIATION> 6592 33744
<TOTAL-ASSETS> 1281815 1569547
<CURRENT-LIABILITIES> 1052555 958905
<BONDS> 0 0
0 0
0 0
<COMMON> 36901 36901
<OTHER-SE> 78279 78279
<TOTAL-LIABILITY-AND-EQUITY> 1281815 1569547
<SALES> 2495096 6168018
<TOTAL-REVENUES> 2495096 6168018
<CGS> 1056579 2720205
<TOTAL-COSTS> 1056579 2720205
<OTHER-EXPENSES> 1312675 2824222
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 433 780
<INCOME-PRETAX> 125409 622811
<INCOME-TAX> 38081 241429
<INCOME-CONTINUING> 87328 381382
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 87328 381382
<EPS-PRIMARY> .02 .07
<EPS-DILUTED> .02 .07
</TABLE>
