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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
General Form of Registration of Securities of Small Business Issuers
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
TeraGLOBAL COMMUNICATIONS CORP.
(Name of Small Business Issuer in its charter)
Wyoming
(State or other jurisdiction of incorporation or organization)
33-0827963
(I.R.S. Employer Identification No.)
225 Broadway Street, Suite 1600
San Diego, California 92101
(Address of principal executive offices) (Zip Code)
(619) 231-0555
(Issuer's telephone number)
Securities to be registered under Section 12(b) of the Act:
Title of each class to be Name of each exchange on which
so registered each class is to be registered
- ----------------------------------- -----------------------------------
- ----------------------------------- -----------------------------------
Securities to be registered under Section 12(g) of the Act:
Common Stock, par value $.001
(Title of Class)
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PART 1
BUSINESS
Overview
TeraGlobal Communications Corp., a Wyoming corporation (the "Company")
is a communications technology company with existing products and products under
development designed to fulfill diverse market needs. The Company currently
offers a range of video conferencing /collaboration products for the consumer
and business markets. In addition, the Company is developing and introducing a
set of communication technology products and services that include the hardware,
software, connectivity, network and advanced compression technology necessary to
deliver real time point-to-multi-point interactive multimedia communication
solutions including high quality video, audio, virtual reality and traditional
documents. The Company believes its products will address the growing demand for
high speed data transmission including voice, video, text and graphics. The
Company is in the process of developing product applications to address the
telemedicine, corporate distance training, distance education and corporate and
organizational communication markets.
The Company has developed and is in the process of developing a suite
of products to address these markets, including the following:
- TeraConference. A standard-based video conferencing solution for
business applications which provides high quality video
conferencing for any number of users.
- The POTS Box(TM). This product allows a user to turn an existing
touch-tone phone and television into an inexpensive video
conferencing system.
- TeraCom. A communication service currently under development
that "converges" voice, video and data networks. TeraCom
includes all of the hardware, software, and support necessary to
deliver the richest mix of audio, video, virtual reality and
traditional documents.
- TeraMedia. A high-end version of TeraCom currently under
development that will allow video production professionals in
different locations to simultaneously view and edit full-motion
video.
- Fingerprint Scanner. The Company is completing development of a
USB based (Universal Serial Bus) fingerprint scanner for the
Power MacIntosh and the new iMac line of Apple Computers.
The Company's products are developed on a core base of proprietary and
licensed technology. This core technology can be applied to a variety of
applications. Initial aspects of the Company's technological developments
include the following:
- Advanced Video Compression. The Company licenses a Wavelet
compression/decompression algorithm which it has enhanced
through proprietary modifications to run in a highly optimized
fashion on a new ultra high-speed microprocessor.
- Advanced Processing Power. The Company has developed a
multiprocessor acceleration card using the new PowerPC processor
from Motorola with the capability to receive and display
full-motion video, transmit full-motion video, display
high-resolution graphics in real-time, and render 3D elements in
real-time simultaneously.
- Routerless Network. Through a unique combination of
off-the-shelf hardware, custom network interface modules, and
custom written software drivers, the Company has developed a
means to distribute data to large numbers of users without the
need for a router.
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- Communication Modules. The Communication Module permits sites
with different access -- ISDN, Frame Relay, ATM, HDSL, or cable
modem -- to be part of the same corporate wide network.
The goal of TeraCom's development effort is to bring to market a
complete communication solution for any size organization regardless of the
technical skill of its membership or their respective geographic locations. The
primary engineering goal of this effort is to deliver the first true convergence
technology. As a convergence technology TeraCom will deliver the functionality
in a single solution currently provided by telephony, video conferencing, cable
TV, Internet, data warehousing, document management, office automation, and
general purpose computing.
Markets and Target Customers
The Company's technology may be used in the marketplace in a number of
applications. Initially, the Company is focusing its development efforts on
applications for the distance learning and corporate training markets. The
Company has current plans to expand into the medical and film production
industries.
Distance Education. TeraCom will allow a teacher to conduct classes of
any number of students anywhere in the world. Each student will view and hear
the teacher as if the teacher were on television. The teacher, in turn, can view
whatever currently appears on the students' monitors, and can also view a
separate monitor that will be divided into separate segments. One segment may
show a student who has just transmitted a question; another may show a list of
all students currently attending the class session. Further, the teacher can
conduct a "pop quiz" by asking a question, to which the students will enter a
response. Those responses will immediately be assessed and graded with the
results appearing on a segment of the teacher's monitor. The teacher also
controls what the students will view, whether himself or herself, another
student with a comment or question, or a page from a student's paper which the
teacher edits on- screen. Importantly, the Company's security and assessment
technology will allow the teacher to verify that a student is in fact who he or
she claims to be, by periodically requiring each student to place his or her
finger on a touch-pad that will identify his or her fingerprint.
Corporate Training and Communication. A large corporation or
organization with an international sales staff will be able to train the entire
sales staff simultaneously in the same manner as teachers will conduct Distance
Learning, and the President who needs to communicate immediately with his or her
entire corporation will now be able to do so. Further, the corporation's
engineers (or attorneys, etc.) will be able to simultaneously view and edit
designs for a new product (or an agreement for an acquisition, etc.),
eliminating travel costs and more effectively communicating with staff.
Medical Industry. An expert in neurosurgery in New York will be able
to watch and hear a surgeon perform an operation in Texas immediately as it
occurs, as if the expert were "looking over the shoulder" of the operating
surgeon, while the operating surgeon listens to instructions from the expert, or
even pauses to look at a diagram or model projected onto his monitor.
Film Production Industry. A producer in California and a director
filming in Connecticut, for example, will be able to simultaneously view and
edit the full-motion video film recorded earlier in the day, while viewing and
talking (interactive video conferencing) to each other on another segment of
their monitors.
Convergence Industry Background
In recent years, there has been a dramatic increase in demand by
businesses and consumers for high-speed data access to the Internet and to
private corporate networks. This demand is being driven by the growth in users
who are accessing networks for a variety of applications, including
communications via the Internet and corporate intranets, electronics commerce
and telecommuting. These applications often require the transmission of large,
multimedia intensive files, necessitating the need for high-speed data access
services. According to projections from International Data Corporation, the
number of devices accessing the Internet will grow to over 500 million by 2002.
This will require
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vast increases in the efficiency of communications technology and develop a
great demand for higher capacity communications networks.
Advances in technology have also given rise to the demand for
"convergence", the integration of communications and computers. Converged
networks will combine voice, video and data, over a single communications line.
The ability to deliver voice, video and data over the same bandwidth has been
viewed as the inevitable evolution to the next step in communications.
International Data Corp. predicts that revenues in this market will grow to $24
billion by 2002. The adoption of digital communications standards for
televisions, cameras and computers is the first step that will allow this to be
a reality.
To effect this transmission, different media are reduced to pieces of
data or "packets." Through the use of high-flexibility packet-switched networks,
the Internet Protocol (IP) is bringing about a revolution of change and
opportunity. IP means new business solutions over new infrastructures creating a
fundamental shift in the way communication networks are designed and operated.
The significant hurdle to reaching a true converged network has been the
processing power and transmission speed necessary to move vast quantities of
packets in real time.
Existing architecture, hardware and software were not developed to
handle the volume of data necessary to deliver real time, full-motion video and
other high speed data delivery demands. Video conferencing products through
systems which lack adequate bandwidth or processing result in clipped and
fragmented imaging. Transmitting data such as movies in real time through the
Internet is not currently feasible because existing routers do not provide
uninterrupted flow of 30 frames per second broadcast quality video. Participants
with existing investment in current technology are taking steps to increase the
capacity of that infrastructure including the development of larger bandwidth,
faster switches, and enhanced routers in an effort to move data through networks
more rapidly. All of these will enhance the performance of existing systems, but
retain the structural limitations.
The TeraCom Solution
The Company is in the final stages of developing its "next generation"
product; a complete and supported solution for corporate communications and
training. Code named "TeraCom," the solution provides what TeraGlobal management
believes to be the first real-time point-to-multi-point interactive multimedia
based communications capability. TeraCom users will be able to create,
distribute, and manage their information content and access a full range of
communication services through a single technology. The ability to use any media
type such as audio, video, graphics (still, 2D and 3D), animation, documents,
virtual reality, etc. in any combination is the central strength of the TeraCom
product line. This strength combined with the ability to communicate in
real-time regardless of geographic location and the number of simultaneous users
represents the technology convergence the rest of the industry has been trying
to achieve.
Existing Digital Signal Process (DSP) solutions and video compression
technologies have not achieved the performance required of integrating all media
types in a seamless fashion in real-time. Because the Company was able to
approach this problem without a significant investment in existing technology,
inventory or architecture, it was able to craft a solution which maximized
performance and flexibility. The Company researched the capabilities of all new
processor technologies. Under a technology non-disclosure relationship with
Motorola, the Company determined that the Altivec and PowerPC microprocessor
combination not only provided the necessary processing power but that it
surpassed all existing processor technologies in performance, power consumption,
flexibility and cost. The Company also sought the best data compression
technology available, and enhanced that technology. The Company has already
ported its new Wavelet video compression technology to Altivec chip set. As part
of the TeraCom product line, the Company can bring to market what it believes,
based on its industry research, is the highest quality video streaming
capability in the industry.
When completely developed and implemented, the TeraCom system will
allow users within a university, governmental agency or corporation to be
connected to a secure private network. This network will be able to stream full
motion video in real time in two directions. In addition, the network can be
connected to the Internet or other
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existing architecture. Because the Company's products are software-based, they
are both powerful and easy to adapt and upgrade without costly changes to
computer hardware. Converged networks could redefine business communications in
the 21st century, creating competitive and productive advantages by enhancing
communication and collaboration among employees whether operating in the same
building or across continents.
Existing Products
TeraConference(TM). TeraConference is a standards based hardware codec
(compression/decompression) technology as an existing video conferencing
solution for business applications. TeraConference uses both hardware and
software to provide a high quality video conferencing system. TeraConference can
be configured for any number of collaborators including individual desktop
workstations, fixed or portable systems for larger groups, or any other venue
for large audiences. The TeraConference system includes a 350 MHZ PC, a monitor
with built-in audio speakers, UPS, a composite color camera, image quality of 15
fps (CIF Standard) and 30 fps (QCIF Standard), publishing software (cross
platform), productivity software, the ability to provide ATM connectivity, frame
relay connectivity, Internet connectivity, LAN connectivity, ISDN connectivity,
and T1 connectivity.
TeraConference customers are also provided full-time technical support
through the Company's "up-and-running" guaranty, which includes an on-line help
desk and phone support in order to provide remote diagnostic and repair
capability for system and network connectivity. The following companies are
currently using TeraConference: Scripps Clinics in multiple locations; the
Orange County Board of Education; the Saddleback Valley Unified School District
in Orange County, California; the Department of Justice; the Orange County
Marine Institute; the New York City School Board; Virginia Technical Institute,
the Pentagon, GE Capital Investments, World Circuit, a telecommunications
company in Los Angeles, California, and the Youthful Offender Program for the
State of California, Southwestern College in San Ysidro, California, Equitable
in Los Angeles, California, and Wheat International, Hawaii.
The POTS Box(TM). The POTS Box(TM) is an inexpensive video
conferencing system designed to transmit voice and images via traditional phone
lines. POTS stands for "plain old telephone service." This product is directed
to a segment of the market where image size, transfer speed and resolution are
not as critical as price. It is designed to allow anyone who wants to combine
video with a phone call, regardless of their technological savvy, to use their
existing touch-tone phone and TV to add a new dimension to communications. The
product works by connecting any television or computer monitor with any
touch-tone phone. Its main components are a digital camera, video processing
board and high performance modem. The product is easy to install and use,
allowing the Company to market it to home users and other non-business
consumers. The price is about $500. The strategy is to appeal to the desire to
have more intimate conversations with loved ones and see them, with the option
to record those conversations, both video and audio, on a regular VCR.
WATERLOG-Registered Trademark- Series. The WATERLOG-Registered
Trademark- Series of products includes high-precision instrumentation for
fluid level measurement used in the environmental industry, including
submersible and non-submersible sensors, data loggers and data recorders, and
combinations of the foregoing. These products are designed for ground and
surface water monitoring, well testing and stream gauging as well as other
applications. The products are designed to monitor, among other things,
streams, rivers, canals, ponds, reservoirs, lakes, aquifers, tanks and
waste-water plants. Customers include the U.S. Army Corps of Engineers, the
U.S. Environmental Protection Agency, municipalities, engineering firms,
foreign governments, and domestic and foreign private industry and
consultants. The Company believes that its WATERLOG-Registered Trademark-
Series products are recognized by both customers and competition as the
"industry standard." This product was added as a result of the Company's
acquisition of Design Analysis Associates, Inc.
Products Under Development
TeraCom. TeraCom is the Company's "next generation" communication
service. The TeraCom service "converges" traditional voice, e-mail, video
conferencing, facsimile, and data networks. The service also includes all of the
software and support necessary for any size organization to rapidly create,
distribute, and manage content
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regardless of the subject matter. The service is delivered through a
client/server computer network called a TeraCom Service Cell. When TeraCom
service is ordered one or more custom designed TeraCom Service Cells are
constructed for the customer, creating a private and secure communication
infrastructure. By design, the TeraCom service provides a level of quality,
reliability, security, and functionality that the Internet and other
communication technologies cannot currently offer. The TeraCom service provides
the customer with a complete communication infrastructure and all the tools
necessary to effectively use it.
Each TeraCom Service Cell is engineered to support up to several
thousand Clients communicating in an interactive fashion simultaneously. View a
Service Cell as a three-dimensional communication matrix that supports any
combination of point-to-point and point-to-multi-point communication sessions. A
Client with its camera, speakers, microphone, display(s), and powerful
processor(s) is designed to deliver the richest mix of audio, video, graphics,
virtual reality, documents, and data possible. As part of a single TeraCom
Service Cell an individual TeraCom Client can reside in any location worldwide,
with large quantities of other Clients in a classroom-like environment, or any
combination thereof. The TeraCom Service Cell is designed to guarantee access to
valuable content at all times. The Company's new fingerprint scanner allows a
customer to have any number of users per TeraCom Client, and makes logging onto
the TeraCom service a secure, reliable, fast, and simple process.
TeraCom is a packet-based communication technology. Any form of
information on any subject can be organized as a stream of digital packets and
sent to any number of recipients. This is the foundation of the ability to
deliver convergence. The appropriate combination of audio, video, text, and
graphics dramatically increases the effectiveness of any communication process.
TeraCom employs a unique dual data structure technology designed to
support real-time data transmission. One data structure is time based to ensure
synchronization of an unlimited number of video, audio, text, graphic,
animation, virtual reality, and interactivity tracks. The other data structure
facilitates both high-speed packet transmission and managed data distribution.
The first is done by the use of arrays of data indexes (pointers to all data
elements). The second employs the use of reference and profile data necessary to
track whose data is used by whom. In other words, the reference and profile data
is critical for finding, registering, publishing, and tracking usage of Content
and Services in a distributed communication environment. Without an audit trail
of what every user does and what data they access there is no assessment,
collaboration, or automated administration. It is this new data structure
implementation that facilitates responsive interaction and subsequently
real-time assessment. The Internet, a 20 year old technology designed to
distribute reference and research materials in non-real-time, is being patched
with real-time functionality. The current data structures of the Internet cannot
inherently track data access and usage.
In a distributed communication environment it is necessary to have the
appropriate database access services to find and view data as if it resides
locally to the individual user. TeraCom has an advanced object-oriented
relational database engine that not only takes advantage of the new dual
component data structure but allows data to be stored on any data storage device
accessible via a data packet transmission. For example, this means that if each
User has a 9 GByte hard disk drive on a 100 Client TeraCom Service Cell then
each User has access to 900 GBytes of data storage capacity.
TeraCom offers a full suite of content development tools that allows a
subject matter expert to focus on content development versus the complexity of
the software. Using the world's first "media processor", a TeraCom user can
freely mix audio, video, text, and graphics appropriately to create the desired
content or services. TeraCom includes a Digital Versatile Disc (DVD) Read Only
Memory (ROM) based library of audible and visual elements that can be used
during the Content development process. An example of the Content elements
includes high quality still images, 2D images, 3D images, audio clips, etc. By
using a library that also resides on the TeraCom Client allows pointers to
resident DVD based data to be transmitted instead of sending the actual data.
This facilitates the distribution of interactive multimedia Content without
actually consuming bandwidth and subjecting the User to unnecessary delays. This
also preserves communication bandwidth for real-time data like audio and video.
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The TeraCom Server software knows how to rapidly assemble and
distribute data packets derived from user requests and interaction. It takes
great simplicity to be effective within a real-time packet distribution
infrastructure. Current server software cannot achieve the required efficiencies
established by the TeraCom requirements. In addition, the server software can be
used to customize data packets based on a user profile so that, for example,
different language versions of the same document can be transmitted in real time
to a number of users located worldwide. The TeraCom Server software also has
another key component, packet routing, eliminating the need for a router. The
purchase of a router represents the largest capital cost component of current
communication infrastructures. It also represents one more device handling data
packets contributing to existing inefficiencies. By eliminating the need for a
router TeraCom also eliminates the expensive skilled labor necessary to keep
them running. The TeraCom Client software is a user friendly, highly integrated
application that resides on a TeraCom Client computer.
TeraCom provides the Manager software to allow a subject matter expert
(teacher) to control a communication session. This session is live, full duplex,
point-to-multi-point in nature and includes live audio and video. The Manager
software lets the subject matter expert distribute prepared course content or
any other content desired. It is the Manager software that facilitates real-time
assessment as well as acting as the moderator during live collaboration. This
functionality is accomplished by analyzing the accumulated audit trail. For the
participants of the communication session, the Manager software facilitates the
electronic equivalent of raising your hand. The audio and video of a session
participant can be either broadcast to every user in the session or privately
transmitted to the subject matter expert (individual operating the TeraCom
Manager software). TeraCom provides a remote security software package due to
the necessity to deliver accredited course material, certification of skill
mastery, and to control access to sensitive Content. This security software
allows a security agent to validate, confirm, monitor, or limit in any way
desired the actions of any user on any TeraCom Service Cell.
Assessment is the most expensive and time-consuming aspect of
effective communication and the very first thing to be eliminated or neglected.
Assessment is simply the analysis of interaction and can now be highly
automated. The ability to automate the assessment process is the essence of the
TeraCom solution. By analyzing the accumulated audit trail the Administrator
software knows who has accessed what data, when, for how long, and what they did
with it. By hitting the clearly presented Help Desk button in any TeraCom
software package, the user is connected to a member of the TeraCom Help Desk
staff. The Help Desk staff member can either talk the user through the
resolution of their problem or take control of their computer and solve the
problem remotely.
TeraMedia. TeraMedia has all the functionality of TeraCom and adds
capabilities that are specific to the film production, post-production and
commercial production companies to cost effectively and securely transfer full
motion, real-time, video and audio. The combination and interoperability of the
high bandwidth connectivity and the instantaneous, interactive communications
functionality of TeraMedia meets current demand from the production and
post-production industries.
Fingerprint Scanner. The Company is completing development of a USB
based (Universal Serial Bus) Fingerprint Scanner for the Power MacIntosh and the
new iMac line of Apple Computers. The current labor cost to the industry of
issuing, maintaining and re-issuing passwords is growing. Through the use of the
TeraCom Fingerprint Scanner, network managers can provide a more secure,
economical, and intuitive means to control access. The TeraCom Fingerprint
Scanner can be used to grant prescribed levels of access or restriction at any
time in the communications process. There are a number of current and potential
applications for this product. In the corporate and government setting method
and database access can be limited for specified individuals. Parents or
businesses can restrict access to Internet sites. Internet commerce transactions
using credit cards can be validated through fingerprint signatures. In the
education arena, sign on times and testing can be validated. In addition,
multiple users can use a single computer without having access to the other
users' information. The product is expected to ship in the first quarter of
1999. TeraGlobal will be using the TeraCom Fingerprint Scanner for account
management and accredited course content delivery in its TeraCom product line.
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Technology
The Company's products are being developed on a core base of
proprietary and licensed technology including the following:
Advanced Video Compression. TeraCom includes a new highly optimized
Wavelet compression/decompression algorithm for video. Video places the greatest
demand on communication bandwidth. Low compression ratios for video translate
directly into a vastly more expensive communication infrastructure in order to
move data packets. By offering a higher quality of video that simultaneously
requires less bandwidth, TeraCom can deliver the best cost to performance ratio
in the industry. Moreover, because of the extent of data compression, each
TeraCom Client can send and receive the highest quality video simultaneously to
any number of users during a communication Session. For a fraction of what it
currently costs to broadcast one way video to a large body of viewers TeraCom
can provide two way interactive video.
Advanced Processing Power. For the TeraCom solution to deliver on the
claims of real-time performance, deal with multiple video streams, and handle
complex media types (3D graphics, virtual reality, and advanced simulations) a
next generation processor was required. After researching the capabilities of
all new processor technologies, the Company selected Motorola's new PowerPC 780
microprocessor with AltiVec technology on all of its computers. Based on the
Company's research, there is currently no other processor from any other vendor
that can deliver the performance of the PowerPC 780.
Routerless Network. TeraCom employs a new proprietary Server
architecture to deliver data to TeraCom Clients. The Server uses a unique
routerless design and takes advantage of the processing power of the new Altivec
chipset from Motorola. Each Server is responsible for a finite number of
Clients. This gives each Client access to greater responsiveness in comparison
to overloaded Internet servers. Due to the low cost per Server it is feasible to
put more than one Server on line for each group of Clients. Eliminating the
router eliminates a majority of the capital cost to build a network, reduces
complexity, and lowers operational labor costs. By using a high-speed
communication backbone (like ATM) to connect the Servers, in combination with
the TeraCom Server software, a cluster of Servers looks like a single high
performance Server to the TeraCom Clients. However, each user has more
processing power dedicated to delivering them data packets as well as
dramatically greater reliability through redundancy. An even higher level of
savings is achieved by dramatically reducing the number of long distance call
charges. This is accomplished by physically placing Servers from the cluster
within a local calling area concentration of TeraCom Clients.
Communication Modules. TeraCom is designed to service a user in any
location. To address this issue, the Company abstracted the communication layer
so that a TeraCom Client computer can use any communication technology that can
deliver a stream of data packets whether modem, ISDN, ATM or frame relay. The
abstraction is delivered by using a proprietary communication module that
connects to a TeraCom client via full-duplex 100 Base-T ethernet connection. The
Company is developing a complete array of Communication Modules that interface
with all known communication standards. This concept also protects the User from
planned obsolescence. When a cheaper and faster means of communication becomes
available in a User's location their communication module can be exchanged. The
User does not need a new computer or new software and they do not have to learn
new features. The TeraCom User receives better performance at a lower cost and
does not get subjected to a complicated upgrade process. To upgrade, the User
unplugs the old Communication Module and plugs in the new unit. For example, in
addition to supporting all traditional video formats and standards, TeraCom will
take advantage of a new digital video standards as they are developed. The
current NTSC video format is limited to 525 lines of video at a specified
refresh rate. Eventually TeraCom will support High Definition Television (HDTV)
transmission, the next video transmission standard.
Optimized Computer Architecture. TeraCom supports the ability for the
Client communication terminal to record both the incoming and outgoing streams
of data packets. In this situation, an outgoing video stream and an incoming
video stream are being recorded simultaneously while these respective streams
are being compressed and decompressed. If desired, both video streams are also
being viewed on the local computer display. All of this must take place while
providing a responsive User interface. The User may be participating in a
Session that may be rendering
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3D elements, displaying a virtual reality scene, or while participating in an
advanced simulation. Current computer architectures cannot move anywhere near
this much data simultaneously. Through a multiple phase development effort,
TeraCom computers will achieve the required data throughput capacity. This
includes a wider PCI bus, FireWire video, multiprocessor card with FireWire, and
a number of other optimizations.
Platform Neutral. The TeraCom communication terminal can run all major
operating systems allowing any popular application to be run. A TeraCom
communication terminal can connect to all major communication networks at the
same time participating in a TeraCom communication Session. A TeraCom
communication terminal can support a connection to all standards based video
conferencing products. Each TeraCom communication terminal has the necessary
software to convert all major file formats. Each TeraCom communication terminal
can import/export all major audio, video, and graphic formats. In essence,
TeraCom can protect a customer from losing a past investment in technology and
software while supporting an entirely new set of critical communication
capabilities.
Objective
The goal of TeraCom's development effort is to bring to market a
complete communication solution for any size organization regardless of the
technical skill of its membership or their respective geographic locations. The
primary engineering goal of this effort is to deliver the first true convergence
technology. As a convergence technology TeraCom will deliver the functionality
in a single solution currently provided by telephony, video conferencing, cable
TV, Internet, data warehousing, document management, office automation, and
general purpose computing.
Strategy
The Company's strategy for reaching its objectives over the short run
includes the following elements:
(1) Develop a high quality technologically advanced multimedia
convergence technology and service that provides maximum performance and
flexibility to customers.
(2) Leverage strategic alliances with product and service suppliers
whose products or services represent the best of class to concentrate resources
on the Company's core development expertise.
(3) Establish relationships with high-end customers who will benefit
from the Company's technology and will have the resources to assist in the
development of communication solutions to address an industry's needs.
(4) Maintain a network-based communication solution that is fully
supported and provides reliable access.
Research and Development
Research and development activity continues to be the focal point of
the Company and the catalyst and engine behind the Company's success and ability
to achieve its business plan objectives. The research and development functions
of the Company are performed by a combination of interdisciplinary talent that
is utilized throughout the Company's technical operations. Approximately 15
individuals, with a combined total of more than 200 years of related experience,
collaborate in product development activities, including electrical, mechanical
and material engineers and quality assurance support. Key elements of the
Company's research and development strategy include:
Product Flexibility. The Company seeks to implement product
modifications and enhancements in order to meet the needs of
particular customers and markets. For example, based in part on
feedback from early adopters, TeraCom will be modified to meet the
distinct requirements of both the movie production industry and the
medical industry.
Use of Industry Standard Components. The Company's design philosophy
emphasizes the use of industry standard hardware and software
components whenever possible to reduce time to market, decrease the
cost of
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goods and lesson the risks inherent in new design. The Company
maximizes the use of third-party software for operating systems and
standard programs such as e-mail and internet browsers, allowing the
companies designers and engineers to concentrate on proprietary
software.
New Technologies. Whenever possible, the Company seeks to produce the
highest quality products by incorporating cutting-edge technology. For
example, through its strategic relationship with Motorola, Inc., the
Company has secured early access to the new Altivec microprocessor
chip produced for Apple by Motorola. Access to such cutting edge
technology will compliment the Company's proprietary technology such
as its routerless server cluster.
Because of its stage of development and the nature of its products,
the Company is highly dependent on a number of experienced and qualified
technical personnel. There is currently a high demand for skilled programmers
and engineers. In order to continue to maintain its technological advantages,
the Company will have to be successful in attracting and retaining a strong
technical staff.
Strategic Alliances
The success of the Company is, and will continue to be, dependent in
part upon a number of strategic relationships. At present, the Company has
established relationships with the following entities:
Apple Computer. The Company is currently one of only fifteen
Proprietary Value Added Resellers ("VAR") for Apple Computer. In addition to the
standard VAR license and ability to buy Apple product directly from Apple
Computer, the Company's development staff enjoys a direct line of communication
with engineers at Apple Computer. Developers are not generally permitted direct
communication to engineers and must coordinate their efforts through developer
services. This type of relationship ensures that the solution developed by the
Company takes full advantage of Apple Computer's technology. This also gives the
Company engineers and programmers early access to a variety of innovative new
technologies. The current relationship with Apple Computer also includes the
ability to buy all maintenance parts directly (from mother boards to power
supplies). This access to parts permits the Company to act as a full service
provider in servicing and maintaining the TeraCom solution. Apple Computer has
agreed to a program of joint press releases and to promote the TeraGlobal
solutions through their sales and distribution channels.
Motorola, Inc. The Company is an Alpha Test site for Motorola, Inc.'s
new Altivec microprocessor. This relationship makes the Company part of the
processor "bring up" team which is responsible for bringing this new processor
to market. This allows the Company's engineers to develop an expertise and new
product around what the Company believes to be the world's fastest processor
before potential competition even knows the processor exists. This relationship
also allows the Company's development team to talk directly to the designers of
the processor which ensures that the Company can maximize the performance of the
TeraCom product line. Traditionally, the processor user is restricted to
studying the available literature and must work independently of the processor
manufacturer. The current relationship allows the Company to buy processors and
other key semiconductor parts directly from Motorola in quantity. As with Apple
Computer, Motorola Semiconductor has agreed to a program of joint press releases
and to promote the TeraGlobal solutions through their sales and distribution
channels.
Sprint Communications. The Company has chosen Sprint as its preferred
supplier of bandwidth in delivering its TeraCom service. Sprint was chosen based
on the fact that it has the most comprehensive fiber optic broadband network.
Its ATM SONET ring topology is ideal for the TeraCom system. This allows the
Company's engineers to access the OC-3 backbone of Sprint's network directly
from TeraCom servers, thus eliminating the need for expensive hardware
components. The Company is confident that Sprint's redundant network
architecture will reach the vast majority of its intended target market.
Ingram Micro. The Company has entered into a contract manufacturing
agreement with Ingram Micro, Inc. for the assembly, integration and distribution
of the Company's product line. Through this arrangement, the Company secures
immediate experienced and scalable manufacturing capacity as well as access to
Ingram Micro's distribution
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<PAGE>
channels. Ingram Micro is the world leading wholesale distributor of technology
products and services and a leading provider of assembly and integration
services. Ingram Micro has a worldwide distribution market and the ability to
meet large TeraCom production requirements.
The amount and timing of resources which these strategic partners
devote to these activities will not be within the control of the Company. There
can be no assurance that strategic partners will perform their obligations as
expected or that any revenue will be derived from strategic arrangements. If any
of the Company's strategic partners breaches or terminates its agreement with
the Company or otherwise fails to conduct its collaborative activities in a
timely manner, the development, commercialization or marketing of the product
which is the subject of the agreement may be delayed and the Company may be
required to undertake unforeseen additional responsibilities or to devote
additional resources to development, commercialization or marketing of its
products. The inability to enter into strategic relationships or the failure of
a strategic partner to perform its obligations could have a material adverse
effect on the Company's business, financial condition and results of operations.
There can be no assurance that the Company will be able to negotiate acceptable
strategic agreements in the future, that the resulting relationships will be
successful or that the Company will continue to maintain or develop strategic
relationships or to replace strategic partners in the event any such
relationships are terminated. The Company's failure to maintain any strategic
relationship could materially and adversely affect the Company's business,
financial condition and results of operations.
Suppliers
The Company is currently dependent upon a few critical suppliers for
the success of its business. The Company's business strategy has been to combine
its proprietary technology and products with "best of class" technology and
products and design an integrated, seamless product that takes advantage of the
superior quality of its components. As a result, the Company has necessarily
placed heavy reliance on suppliers of key elements of the Company's products.
The TeraCom service to be provided relies on access to a
communications network. The Company has secured Sprint as its provider of this
network. A significant portion of the cost of maintaining the TeraCom service
will be connecting to the telecommunications network. While several companies
compete globally for market share of the worldwide telecommunications market,
the performance, reliability and profitability of the TeraCom service will
depend heavily on the quality of the network and the price of connectivity that
the Company is able to secure from its telecommunications provider.
The Company currently licenses its Wavelet compression module which is
a significant contribution to the Company's ability to compress data. The
Company has enhanced the basic module licensed by the Company, and owns those
modifications. However, the existing license requires the Company to pay a
royalty for each unit sold by the Company. Failure to pay such royalties when
due could result in the termination of the license. Any loss of that license
could result in delays in securing or developing alternative technology.
In addition, the Company's compression technology is dependent upon
its continued access to the newly developed Altivec semiconductor chip, which it
currently purchases from Motorola, Inc. The combination of the Company's
enhanced Wavelet module and the processing power of the Altivec chip are the
engine behind the Company's data compression which makes the products viable.
Any extended interruption in the supply of any of the key components currently
obtained from a single or limited source could affect the Company's ability to
meet its scheduled product deliveries to customers, and thus have a material
adverse effect on the Company's business, financial condition and results of
operations.
There can be no assurance that, as the Company's demand for such parts
and supplies increase, the Company or its manufacturers will be able to obtain
such parts and supplies in a timely manner in the future. In addition, financial
or other difficulties facing such suppliers or significant worldwide demand for
such components could adversely affect the availability of such components. If
the Company or its manufacturers were unable to obtain a sufficient supply of
components from their current sources, the Company could experience difficulties
in obtaining alternative sources or
10
<PAGE>
in altering product designs to use alternative components. Resulting delays or
reductions in product shipments could damage customer relationships and could
adversely affect the Company's business, financial condition or results of
operations. Further, the Company may also be subject to increases in component
costs, which could also have a material adverse effect on its gross margin or
results of operations.
Manufacturing
The Company's initial prototype requirements will be manufactured
in-house through its wholly-owned subsidiary, Design Analysis Associates, Inc.
For production scale manufacturing, the Company has established a relationship
with Ingram Micro for the purposes of assembly, integration and distribution of
substantially all of the Company's product line. This relationship will allow
the Company to concentrate on its core competencies of design and development
and out source the assembly and shipment of product to its customers. The
relationship capitalizes on the ISO-9002 assembly facilities and global
proliferation of Ingram Micro's distribution network. Ingram Micro Inc. is the
world's leading wholesale distributor of technology products and services, and a
leading provider of assembly and integration services. The relationship will
shorten the Company's time to market for the wide proliferation of its core
product and services, providing several of the required assembly and
distribution components for delivery of products.
Beyond initial production runs, the Company does not manufacture any
of its products, but instead relies on Ingram Micro and contract manufacturers
to assemble, test and package the Company's products. Any interruption in the
operations of Ingram Micro or other contract manufacturers would adversely
affect the Company's ability to meet its scheduled product deliveries to
customers. In addition, as the Company makes enhancements to its existing
products and introduces new products, there can be no assurance that these
manufacturers will be able to meet the technological or delivery requirements
for such products. These contract manufacturers have had only limited experience
manufacturing the Company's products. In addition, the Company's inability to
accurately forecast the actual demand for its products could result in supply,
manufacturing or testing capacity constraints. Such constraints could result in
delays in the delivery of the Company's products or the loss of existing or
potential customers, either of which could have a material adverse effect on the
Company's business, operating results or financial condition. There can be no
assurance that the Company or any third party manufacturer will be successful in
manufacturing the Company's products in commercial quantities or in sufficient
volumes to meet anticipated demand.
Sales and Marketing
The Company currently employs 6 full-time sales people to generate
orders and focus its marketing efforts for its current TeraConference, POTS Box
and WATERLOG product lines. In addition to customer specific marketing efforts,
the Company's marketing activities include attendance at major industry trade
shows and conferences (e.g. AFCEA and MacWorld), the distribution of sales and
product literature and ongoing communications with its customers, the press and
industry analysts.
Because TeraCom is a new and developing product, the Company has
chosen to focus its marketing efforts on the use of "early adopters" of this
product in order to refine the product and develop the visibility in the
marketplace. The Company has strategically chosen early adopters that are
influential and highly visible in their industries, and are in a position to
recommend company products to other prospective customers. The Company has
identified three early adopters in the corporate training, consulting services
and distance education markets. The Company's is seeking early adopters within
the advertising, federal government and tele-medicine customer categories for
TeraCom and member of the entertainment industry for its TeraMedia product.
The Company's primary business model is designed to ease the
transition for early adopters and all future customers to its communication
service. By pricing the service on a fixed monthly fee over a 3-year term with
annual renewals for connectivity, software upgrades and help desk, potential
customers do not have the large up-front capital costs associated with a large
communication network purchases. The monthly service fee will include recovery
of hardware, software with continuous upgrades, bandwidth, network management
and maintenance and help desk.
11
<PAGE>
By pricing on a monthly fee basis, potential customers can easily
compare their current expenditures on network maintenance, connectivity
bandwidth, software upgrades and initial hardware capital costs and hardware
maintenance and upgrade costs to TeraCom's total cost. In addition TeraCom will
have added functionality that existing products can not offer. Such as real-time
two-way video conferencing, fully integrated multimedia communications,
real-time assessment, complete audit trail, completely network security, 24/7
interactive help desk, point to point communications and point to multi point
communications.
TeraGlobal has not simply chosen these early adopters for their
visibility and market potential. They are also the ideal candidates to assist
the Company in achieving their long-term marketing goals for the product and
TeraCom's future product evolutions. As all communication services new products
and services need to win market acceptance through an often-traveled road. First
high-end business productivity applications where the economic benefits outweigh
any premium in cost over existing systems. Second the use of the service will
expand within the early adopters after proving its functionality, competitive
advantage and overall cost savings through productivity gains. By completing
these steps the Company will have the additional information necessary to market
TeraCom to a wider audience. Until then the Company's focus is on the chosen and
additional early adopters as it will be easier to increase their usage of the
product and increase sales than to expand distribution. In addition, the current
and potential early adopters of TeraCom have significant market presence and on
their own can generate significant revenues for the Company.
Customer Support
In addition to ongoing client prospecting and product demonstrations
through direct sales, one of the most cost-effective sales tools for the
Company's current TeraConference systems is a satisfied customer. The Company's
customers will generally require significant support and training with respect
to the Company's products, particularly in the initial deployment and
implementation stage. The Company currently employs 3 full-time personnel to
provide such support, via telephone, teleconference or on-site visits, and
anticipates hiring additional staff as its customer base grows. Next to product
quality and ease of use, the Company will always place customer satisfaction and
technical support as its highest marketing priorities. However, the Company has
limited experience with widespread deployment of its products to a diverse
customer base, and there can be no assurance that it will have adequate
personnel to provide the levels of support that its customers may require during
initial product deployment or on an ongoing basis. An inability to provide
sufficient support to its customers could delay or prevent the successful
deployment of the Company's products. Failure to provide adequate support could
have an adverse impact on the Company's reputation and relationship with its
customers, could prevent the Company from gaining new customers and could have a
material adverse effect on the Company's business, financial condition or
results of operations.
Competition
The telecommunications, multimedia and convergence industry is highly
competitive, continually evolving and subject to rapid technological change. The
Company believes that it must remain competitive with regard to each of the
following factors in order to be successful: price, proprietary technology and
network engineering, product features and enhancements (including improvements
in product performance, reliability, size, compatibility and scalability),
breadth of product lines, product ease of deployment, sales and distribution
capability and technical support and service. Several significant companies are
seeking to deliver high volume data transmission through different alternatives.
These include efforts to increase bandwidth by installing more fiber optic
lines, increasing the efficiency of existing router-based server networks,
compressing data, and dividing bandwidth into smaller increments. Competitors
seeking to address these issues include AT&T, Microsoft, Intel, Cisco Systems,
Inc., Lucent Technologies, 3Com, Nortel, Net Rythyms, Tut Systems and others.
Substantially all of these companies have greater distribution channels, longer
tradition and greater financial resources than the Company. Furthermore, such
competitors may undertake more extensive marketing campaigns, adopt more
aggressive pricing policies and devote substantially more resources to
developing new products than the Company. There can be no assurance that the
Company will have the financial resources, technical expertise or marketing,
manufacturing, distribution and support capabilities to compete successfully.
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<PAGE>
Intellectual Property
The Company's success and ability to compete is dependent in part upon
its proprietary technology. The Company relies on a combination of patent,
copyright and trade secret laws and non-disclosure agreements to protect its
proprietary technology. The Company currently has a United States patent
application pending which covers a substantial portion of the Company's TeraCom
Service Cell and network technology. The Company may seek to file a number of
patents emanating from this original application to expand the scope of patent
coverage. There can be no assurance that patents will be issued with respect to
pending or future patent applications or that the Company's patents will be
upheld as valid or will prevent the development of competitive products. The
Company is in the process of filing trademark applications with the PTO to
register the names "TeraGlobal," "TeraConference,""TeraMedia" and "The POTS
Box."
The Company also seeks to protect its intellectual property rights by
limiting access to the distribution of its software, documentation and other
proprietary information. In addition, the Company enters into confidentiality
agreements with its employees and certain customers, vendors and strategic
partners. There can be no assurance that the steps taken by the Company in this
regard will be adequate to prevent misappropriation of its technology or that
the Company's competitors will not independently develop technologies that are
substantially equivalent or superior to the Company's technologies.
The Company is also subject to the risk of adverse claims and
litigation alleging infringement of the intellectual property rights of others.
In this regard, there can be no assurance that third parties will not assert
infringement claims in the future with respect to the Company's current or
future products or that any such claims will not require the Company to enter
into license arrangements or result in protracted and costly litigation,
regardless of the merits of such claims. No assurance can be given that any
necessary licenses will be available or that, if available, such licenses can be
obtained on commercially reasonably terms.
Government Approvals
The Company and its customers are subject to varying degrees of
federal, state and local regulation. The jurisdiction of the Federal
Communications Commission ("FCC") extends to the communications industry,
including products such as those sold by the Company. The FCC has promulgated
regulations that, among other things, set installation and equipment standards
for communications systems. There can be no assurance that future regulations
adopted by the FCC or other regulatory bodies will not have a material adverse
effect on the Company. Further, regulation of the Company's customers may
adversely impact the Company's business, operating results and financial
condition. For example, FCC regulatory policies affecting the availability of
data and Internet services and other terms on which telecommunications companies
conduct their business, may impede the Company's penetration of certain markets.
Changes in, or the failure by the Company to comply with, applicable domestic
and international regulations could have a material adverse effect on the
Company's business, operating results and financial condition. In addition, the
increasing demand for communications systems has exerted pressure on regulatory
bodies worldwide to adopt new standards for such products and services,
generally following extensive investigation of and deliberation over competing
technologies. The delays inherent in this governmental approval process may
cause the cancellation, postponement or rescheduling of the installation of
communications systems by the Company's customers, which in turn may have a
material adverse effect on the sale of products by the Company to such
customers.
In the United States, in addition to complying with FCC regulations,
the Company's products are required to meet certain safety requirements. For
example, the Company is required to have certain of its products certified by
Underwriters Laboratory in order to meet federal requirements relating to
electrical appliances to be used inside the home, and certain products must be
Network Equipment Building Standard ("NEBS") certified before they may be
deployed by certain customers. Outside of the United States, the Company's
products are subject to the regulatory requirements of each country in which the
products are manufactured or sold. These requirements are likely to vary widely,
and there can be no assurance that the Company will be able to obtain on a
timely basis or at all such regulatory approvals as may be required for the
manufacture, marketing and sale of its products. Any delay in or failure to
obtain
13
<PAGE>
such approvals could have a material adverse effect on the Company's business,
financial condition or results of operations.
The Company and its products may also be subject to U.S. and foreign
regulation regarding export restrictions and controls on technology such as that
incorporated into the Company's products.
Risks Associated with Year 2000 Problem
In less than two years, computer systems and/or software used by many
companies may need to be upgraded to accept four digit entries to distinguish
21st century dates from 20th century dates. As is the case with most other
companies using computers in their operations, the Company recognizes the need
to ensure that its operations will not be adversely impacted by software and/or
system failures related to such "Year 2000" noncompliance. Within the past
twelve months, the Company has been upgrading components of its own internal
computer and related information and operational systems and continues to assess
the need for further system redesign and believes it is taking the appropriate
steps to ensure Year 2000 compliance. Based on information currently available,
the Company believes that the costs associated with Year 2000 compliance, and
the consequences of incomplete or untimely resolution of the Year 2000 problem,
will not have a material adverse effect on the Company's business, financial
condition and results of operations in any given year. However, even if the
internal systems of the Company are not materially affected by the Year 2000
problem, the Company's business, financial condition and results of operations
could be materially adversely affected through disruption in the operation of
the enterprises with which the Company interacts. There can be no assurance that
third party computer products used by the Company are Year 2000 compliant.
Further, even though the Company believes that its current products are Year
2000 compliant, there can be no assurance that under actual conditions such
products will perform as expected or that future products will be Year 2000
compliant. Any failure of the Company's products to be Year 2000 compliant could
result in the loss of or delay in market acceptance of the Company's products
and services, increased service and warranty costs to the Company or payment by
the Company of compensatory or other damages which could have a material adverse
effect on the Company's business, financial condition and results of operations.
Employees
The Company currently has approximately 50 full-time employees,
including 16 in administration, 3 in technical support, 15 in product
development, 6 in sales and marketing and 10 in manufacturing. When the Company
acquired Design Analysis Associates, it had approximately 18 full-time employees
and 6 part-time employees which are included in the previous totals. The
Company's employees are non-union and none are represented by an organized labor
union. The Company believes its relationship with its employees is very good and
the Company has never experienced an employee related work stoppage. The Company
will need to hire and retain highly-qualified experienced technical and select
management personnel in order to execute its business plan, complete product
development and maintain technical advantages over competitors in the
marketplace. Competition for skilled engineers has become intense over recent
years, and no assurances can be given that the Company will be able to locate
and hire such personnel, or that, if hired, the Company will continue to be able
to pay the higher salaries necessary to retain such skilled employees.
Additional Information
The Company intends to provide an annual report to its security
holders, and to make quarterly reports available for inspection by its security
holders. The annual report will include audited financial statements.
Upon completion of this offering, the Company will be subject to the
informational requirements of the Securities Exchange Act of 1934 (the "Exchange
Act") and, in accordance therewith, will file reports, proxy statements and
other information with the Commission. Such reports, proxy statements and other
information may be inspected at public reference facilities of the Commission at
Judiciary Plaza, 450 Fifth Street N.W., Washington D.C. 20549; Northwest Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661; 7 World
Trade Center, New
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<PAGE>
York, New York, 10048; and 5670 Wilshire Boulevard, Los Angeles, California
90036. Copies of such material can be obtained from the Public Reference Section
of the Commission at Judiciary Plaza, 450 Fifth Street N.W., Washington, D.C.
20549 at prescribed rates.
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following historical financial data, except for the information
provided as of and for the nine months ended September 30, 1998, have been
derived from historical consolidated financial statements of the Company that
have been audited by Singer Lewak Greenbaum and Goldstein LLP, independent
auditors (the "Consolidated Financial Statements"). The historical financial
data provided as of and for the nine months ended September 30, 1998 have been
derived from the Company's unaudited internal consolidated interim financial
statements (the "Unaudited Internal Consolidated Interim Financial Statements,"
and together with the Consolidated Financial Statements, the "Financial
Statements"), but in the opinion of the Company's management contain all
adjustments, consisting only of normal recurring accruals, which are necessary
for a fair presentation of the information below.
<TABLE>
<CAPTION>
Balance Sheet Data: December 31, 1997 September 30, 1998
-------------------------- -------------------------
(unaudited)
<S> <C> <C>
Cash and cash equivalents $ 27,705 500,052
Furniture and equipment, net 19,437 1,222,740
Total assets 58,024 17,297,850
Current liabilities 192,898 2,006,826
Total Shareholders' Equity (Deficit) (134,874) 13,457,803
</TABLE>
<TABLE>
<CAPTION>
Period from February Nine Months Ended
Statements of Operations Data: 7, 1997 (Inception) to September 30, 1998
December 31, 1997 (unaudited)
----------------------------- -----------------------
<S> <C> <C>
Sales -- 280,484
Cost of Sales -- 216,806
Operating Expenses:
Legal $ 67,463 189,684
General and administrative 130,237 1,407,936
Research and development, related parties 41,259 1,011,776
Consulting, related party 94,488 83,250
Selling -- 119,236
Total operating expenses 333,447 2,811,882
Loss from operations (333,447) (2,748,204)
Other income(expenses):
Interest income 754 894
Interest expense (3,601) (80,702)
Other income 759 -
Total other income (expense) (2,088) (79,808)
Net loss (355,535) (2,827,033)
Basic loss per common share (0.09) (0.25)
Weighted average common shares
outstanding 3,627,064 11,367,009
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
With the exception of historical matters, the matters discussed herein
are forward looking statements that involve risks and uncertainties. Forward
looking statements include, but are not limited to, statements concerning
anticipated trends in revenues and net income, the date of introduction or
completion of the Company's products, projections concerning operations and
available cash flow. The Company's actual results could differ materially from
the results discussed in such forward looking statements. The following
discussion of the Company's financial condition and results of operations should
be read in conjunction with the Company's financial statements and the related
notes thereto appearing elsewhere herein.
Overview
The Company is engaged in the development of communication
productivity solutions and multimedia (voice, video, image and data)
collaboration systems. The Company commenced operations in this business in
February 1997. Since that time, the Company has devoted substantially all of its
resources to the formation of its infrastructure and the research and
development of its products. The Company did not generate any revenues until
July 1998.
In July 1998, the Company acquired all of the membership interests of
ISG Acquisition LLC, and with that substantially all of the assets of
Interactive Solutions Group, Inc. for $251,000. In August 1998, the Company
completed a successful exchange offer acquiring 99% of the outstanding stock of
TechnoVision Communications, Inc. for an aggregate of 3,555,756 shares. In
November 1998, the Company completed the acquisition of Design Analysis
Associates, Inc. in exchange for 1,100,000 shares of stock and certain earnout
rights. Each of these acquisitions was accounted for on a purchase method of
accounting.
The Company is currently receiving revenues from the sale of
TeraConference(TM) and The POTS Box(TM). With the addition of Design Analysis
effective November 1, 1998 the Company's revenues will increase to reflect sales
of the addition of the WaterLOG(TM) series of existing products. The Company
expects to begin shipping units of its TeraCom product to early adopters in the
first quarter of 1999. Significant sales of TeraCom are not expected until the
third quarter of 1999 at the earliest. In addition, the Company expects initial
sales of its Fingerprint Scanner to commence in the first quarter of 1999.
Over the next twelve months, the Company intends to increase its
revenues by releasing its products under development to its target markets.
However, the Company will continue the research and development of its products,
increase the number of its employees, and expand its facilities where necessary
to meet product development and completion deadlines. The Company believes,
based on currently proposed plans and assumptions relating to its operations,
that existing capital and anticipated funds from operations will not be
sufficient to sustain operations and planned expansion in the next six to nine
months. Consequently, the Company will seek additional financing in order to
sustain operations and achieve planned expansion. There can be no assurance that
such additional funds will be available or that, if available, such additional
funds will be on terms acceptable to the Company.
The Company anticipates that it will incur operating losses in the
next six to nine months. The Company's lack of an operating history makes
predictions of future operating results difficult to ascertain. The Company's
prospects must be considered in light of the risks, expenses and difficulties
frequently encountered by companies in their early stage of development,
particularly companies in new and rapidly evolving markets such as multi-media
communications. Such risks for the Company include, but are not limited to, an
evolving and unpredictable business model and the management of growth. To
address these risks, the Company must, among other things, obtain a customer
base, implement and successfully execute its business and marketing strategy,
continue to develop and upgrade its technology and products, provide superior
customer services and order fulfillment, respond to competitive developments,
and attract, retain and motivate qualified personnel. There can be no assurance
that the Company will be successful in addressing such risks, and the failure to
do so can have a material adverse effect on the Company's business prospects,
financial condition and results of operations.
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<PAGE>
Results of Operations
Period from February 7, 1997 (Inception) to December 31, 1997
The first year of operation for the Company achieved two main goals.
The formation of the Company's organization to pursue its business strategy and
achieving the public company status to assist in funding the Company's
objectives.
Sales. The Company experienced no sales in the period ended December
31, 1997.
General and Administrative. General and administrative, legal and
consulting expenses for the period from February 7 to December 31, 1997 were
$292,188, of which $94,488 was accrued to be paid to Paul Cox for his services
as President. Also included is $67,463 in legal expenses required for the
formation and initial financing of the Company.
Research and Development. Research and Development expenses were
$41,259 for the period from February 7 to December 31, 1997.
Nine Months Ended September 30, 1998 (Unaudited)
The first nine months of 1998 saw the Company dramatically increase
infrastructure and employees from three people at the beginning to 14 people by
June 30, 1998 and 25 by the period end. Nearly all of these employees were
engineers associated with the Company's research and development process.
Beginning in July 1998 and consummating August 1998, the Company acquired
substantially all of the common stock of TechnoVision Communications, Inc. The
results of operations for the period ended September 30, 1998 include the
operations of TechnoVision Communications, Inc. for the period from June 30 to
September 30, 1998.
Sales. Sales for the period ended September 30, 1998 were $280,484,
comprised principally of the sale of TeraConference product. The Company
anticipates that sales will increase dramatically as a result of the
introduction of new products such as the fingerprint Scanner, TeraCom Service,
the WaterLOG products and the enhancement of other existing products.
Cost of Sales. Costs of sales for the period ended September 30, 1998
was $216,806.
General and Administrative. General and administrative, legal and
consulting expenses for the nine months ending September 30, 1998 were
$1,680,870. This amount includes $525,264 in amortized goodwill resulting from
the acquisition of TechnoVision Communications, Inc. and ISG. This reflects also
the additional support that has been necessary for the increased administrative
activity in Research and Development and administration of the public company
status that was achieved late last year. Management feels that this figure will
continue to grow significantly in the last quarter of the year as well as 1999
as a result of the acquisition of TechnoVision and the additional resources
necessary to prepare for the introduction of the Company's products to the
marketplace.
Research and Development. Research and development expenses grew to
$1,011,776 during the first nine months of 1998 from the $41,259 expensed in
fiscal 1997. This substantial increase indicates personnel and management's
focus in completing the development of the Company's TeraCom product. This
category will continue to be the priority of the Company and is expected to
continue to grow in the last quarter of 1998. Research and development
expenses will be higher in the last quarter as the engineering team was not
complete until the third month of 1998. In addition, the team continues to
grow as more development targets are identified and customers start to add on
specific product requirements for expected shipments.
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<PAGE>
Selling. Selling expenditure for the period totaled $119,236. This
reflects the starting efforts of the Company in introducing the products into
the marketplace. This category will increase dramatically over the next six to
nine months as the Company rolls-out its complete product line.
Liquidity and Capital Resources
Since its inception, the Company has financed its formation and
operations primarily through the sale of equity securities and convertible debt.
During 1998, the Company completed the sale of 900,000 shares of its common
stock for $900,000, of which $90,000 was received before December 31, 1997. In
May 1998, the Company raised an additional $150,000 upon the sale of a
convertible debenture. The debenture was converted into 100,000 shares of common
stock in October of 1998 with a forfeiture of interest payable. During September
of 1998 the Company received a share subscription for $74,375 and issued
convertible debentures totaling $850,000. Consequently, from inception to
September 1998, the Company had raised as an aggregate of $1,055,375 in cash
through share subscriptions net of costs and $1,000,000 in convertible
debentures. Subsequent to September the Company received $125,000 from the sale
of another convertible debenture.
As of September 30, 1998, the Company had cash and cash equivalents
totaling $500,052 and a working capital deficit of $(1,164,367). The Company
expects cash flows from operating activities to continue to be slightly negative
as increases in sales are offset by increases in general and administrative
expenses necessary to complete the Company's infrastructure and product
development and rollout.
In July 1998, the Company acquired ISG Acquisition LLC for $251,000,
including assumption of certain liabilities of which $145,000 remained unpaid at
September 30, 1998. The Company has paid $92,000 of that amount and expects to
pay the balance in full during the last quarter of 1998. During the period ended
September 30, 1998, the Company acquired substantially all of the outstanding
common stock of TechnoVision Communications, Inc. TechnoVision Communications,
Inc. was operating at a loss, and is not expected to enhance operating income.
Effective November 1, 1998, the Company acquired Design Analysis Associates,
Inc., which has operating profitably in the past and is expected to marginally
contribute to operating income in the last quarter of 1998 and in 1999.
Because of the Company's cash flow position, the Company has not had
any significant discussions with commercial lenders. Historically, the Company
has secured some financing through equipment lease financing. The Company may
seek additional equipment financing in the future provided cash flows are
adequate to service the lease payments. The Company has secured equipment lease
financing in the past from Alliance Leasing. Alliance Leasing is currently in
bankruptcy and under investigation by the SEC. The Company has been subpoenaed
for its records relating to its transactions with Alliance Leasing. The Company
is not presently a target of the investigation, and denies any wrongdoing in
connection with the Alliance Leasing transaction.
At September 30, 1998, the Company's cash reserves are sufficient to
cover the Company's operations for approximately two months. In addition, the
acquisition of Design Analysis brings a positive cash flow thereby reducing the
monthly cash requirements for the consolidated Company. Management plans to
obtain additional debt and equity financing to fulfill its development
activities and in conjunction with its plans to apply for reporting status and
listing on a national stock exchange in the first half of 1999. However, no
assurances can be given that such financing will be available on terms
acceptable to the Company or at all.
19
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding
beneficial ownership of the Company's Common Stock as of October 31, 1998 (a) by
each person who is known by the Company to own beneficially more than 5% of the
Company's Common Stock, (b) by each of the Company's directors, and (c) by all
officers and directors of the Company as a group. Except as provided below, each
person's address is c/o TeraGlobal Communications Corp., 225 Broadway Street,
San Diego, California 92101.
<TABLE>
<CAPTION>
Name and Address of Beneficial Amount and Nature of
Owner Beneficial Owner Percentage of Class
- ------------------------------------ ----------------------------- -----------------------------
<S> <C> <C>
Paul Cox 6,525,450 40.7%
Grant K. Holcomb 1,424,550(1) 8.7%
David Fann 1,300,000(1) 8.0%
Issa Nakhleh 63,850(2) 0.4%
William I. Fletcher Family Trust 1,108,333 6.9%
All Executive Officers and
Directors (four persons) 9,313,850(2)(3) 56.0%
</TABLE>
- ----------------
(1) Includes 300,000 shares issuable upon the exercise of outstanding stock
options.
(2) Includes 10,600 shares issuable upon the exercise of outstanding stock
options.
(3) Includes 610,600 shares issuable upon the exercise of outstanding stock
options.
MANAGEMENT
Directors , Executive Officers, Promoters and Control Persons
The following table sets forth certain information with respect to the
Company's directors and executive officers.
<TABLE>
<CAPTION>
Name Age Position
- --------------------------- -------------- ----------------------------------------
<S> <C> <C>
Paul Cox 35 Chairman of the Board and President
David Fann 43 Director and Chief Executive Officer
Grant Holcomb 39 Director, Chief Technical Officer and
Secretary
Issa Nakhleh 35 Chief Financial Officer
</TABLE>
Paul Cox has been Chairman of the Board, Chief Executive Officer and
President of the Company since its incorporation. He founded ATI Access
Technologies Inc. in 1996 and Video Stream Inc. in February of 1997. Mr. Cox
holds a B.A. in International Relations and Economics from the University of
British Columbia, and has a diverse entrepreneurial background as well as
backgrounds in asset management, technology management, banking and finance.
20
<PAGE>
David Fann has been the President of TechnoVision, Inc., a subsidiary
of the Company, since Nov. 1995. From February 1995 to October 1995, Mr. Fann
served as Vice President of Sales and Marketing for Quadraplex, a video
conferencing company. He co-founded Totally Automated Systems Communications in
January 1993 and served as Vice President of that company from January 1993
until January 1995. From January 1987 to December 1992, he served as Operations
Officer for Networks, Inc. From January 1982 to December 1986, Mr. Fann was
Regional Manager for FFR.
Grant Holcomb has been a director and the Chief Technical Officer and
Secretary of the Company since December 1997. Mr. Holcomb was the founder and
President of Interactive Solution Group, Inc., where he developed user intraface
applications for some of the core technologies currently utilized by the
Company, from July 1996 until November of 1997. Mr. Holcomb worked as Vice
President of Research and Development at Multimedia Design Corporation from July
1991 to April 1996. He served in the United States Marine Corps as an Operations
and Commanding Officer in Operations Desert Shield and Desert Storm from August
1990 to April 1991. From August 1987 to August 1990, he served as an instructor
of Electrical Engineering and Digital Logic and Microprocessors at the U.S.
Naval Academy. Mr. Holcomb holds a Bachelor of Science degree in Electrical
Engineering from The Citadel and has completed his academic requirements for his
Masters of Science degree in Electrical Engineering from The Naval Postgraduate
School.
Issa Nakhleh has been the Chief Financial Officer of the Company since
June, 1998. From November 1995 to May 1996, Mr. Nakhleh was associated with
European Acquisition Capital, a subsidiary of Enskildia Banken of Sweden. From
July 1995 until October 1995, he was associated with NatWest Ventures, a
subsidiary of the NatWest Banking Group, the second largest venture capital
company in the United Kingdom. With NatWest, he prepared a detailed statistical
analysis of 250 investments totaling $500 million. In June 1995, Mr. Nakhleh
obtained his MBA (Distinction) from the University of Warwick, Coventry,
England. From April 1992 to July 1994, he held an associate position within a
public accounting firm advising primarily on corporate finance and corporate
governance for public companies. From June 1990 to March 1992, Mr. Nakhleh
served as Vice President, Finance and Administration, for a video and audio
storage products manufacturer. From 1987 to 1990, he served as controller for a
lighting products manufacturer. In 1989, Mr. Nakhleh obtained his professional
accounting designation from the Certified General Accountants Association of
Canada.
All directors hold office until the next annual meeting of
stockholders and until their successors are elected. Officers are elected to
serve, subject to the discretion of the Board of Directors, until their
successors are appointed.
The compensation and benefits program of the Company is designed to
attract, retain and motivate employees to operate and manage the Company for the
best interests of its constituents.
Executive compensation is designed to provide incentives for those
senior members of management who bear responsibility for the Company's goals and
achievements. The compensation philosophy is based on a base salary, with
opportunity for significant bonuses to reward outstanding performance, and a
stock option program.
Executive Officer Compensation
The Company did not pay any of its officers or directors in excess of
$100,000 for the fiscal year ended December 31, 1997. Paul Cox, the Company's
Chief Executive Officer from October 31 through December 31, 1997 received cash
compensation of $94,488. He did not receive any other compensation.
Employment Agreements
The Company has entered into Employment Agreements with each of
Messrs. Paul Cox, David Fann and Grant Holcomb effective as of September 30,
1998. Pursuant to the Agreements, Paul Cox will serve as President of the
Company, David Fann will serve as Chief Executive Officer of the Company and
Grant Holcomb will serve as Chief
21
<PAGE>
Technology Officer of the Company. The Agreements provide for a base annual
salary of $162,000 per annum, or a higher amount as the Board of Directors may
determine.
In addition to base salary, Messrs. Fann, Cox and Holcomb are
eligible for bonuses under certain conditions. Both Messrs. Fann and Holcomb
are eligible for stock option grants under the Company's 1997 Stock Option
Plan and all other profit sharing or bonus plans generally available to
Company officers.
The Agreements expire on September 30, 2002. In the event the
executives are terminated without cause, the executives will receive the salary
remaining through the end of the term of the Employment Agreement, and
continuation of certain employee benefits.
1997 Stock Option Plan
The Company's 1997 Stock Option Plan (the "1997 Plan") authorizes the
Company to grant to its directors, officers and key employees qualified and
non-qualified stock options to purchase shares of the Company's Common Stock. At
September 30, 1998, 1,500,000 shares were reserved for issuance under the 1997
Plan of which 1,159,575 were subject to outstanding options and 340,825 remained
available for future grants. The Board of Directors or the Compensation
Committee of the Board of Directors (the "Committee") administers the 1997 Plan.
The Committee selects the recipients to whom options are granted and determines
the number of shares to be awarded. Options granted pursuant to the 1997 Plan
are exercisable at a price determined by the Committee at the time of the grant,
but in no event will the option price be lower than the fair market value of the
Common Stock on the date of the grant. Options become exercisable at such times
and in such installments (which may be cumulative) as the Committee provides in
the terms of each individual option agreement. In general, the Committee is
given broad discretion to issue options in exchange and to accept a wide variety
of consideration (including shares of Common Stock of the Company, promissory
notes, or unexercised options) in payment for the exercise price of stock
options.
Director Compensation
Directors currently receive no compensation for their services to the
Company as directors, but are reimbursed for expenses actually incurred in
connection with attending meetings of the Board of Directors.
Certain Relationships and Related Transactions
The Company' predecessor was formed in February 1997 under name Video
Stream, Inc. under the Canadian Corporations Act. Video Stream Inc. was founded
to perform research and development on various connectivity solutions and went
on to develop specialty communications technology hardware and services. In
October 1997, Video Stream, Inc. was merged with and into Triple "D" Court, a
Wyoming corporation, with the shareholders of Video Stream, Inc. gaining control
of the combined entity. Triple "D" Court was a publicly traded shell
corporation, with no operations, whose shares were traded on the NASDAQ OTC
Bulletin Board. Following the consummation of the merger the surviving entity
changed its name to Video Stream International, Inc. Effective September 1998,
the Company officially changed its name to "TeraGlobal Communications Corp."
TechnoVision Communications, Inc. ("TechnoVision") was founded in
November of 1995 by David Fann, its President and a director of TechnoVision.
Pursuant to an exchange offer which concluded August 10, 1998, the Company
acquired 99.1% of the outstanding Common Stock of TechnoVision from its
stockholders on the basis of one share of the Company's stock for every two
shares of TechnoVision stock exchanged. Mr. Fann is an officer and director of
TechnoVision and was at the time of the Exchange Offer.
The Company acquired from Interactive Solutions Group, Inc. all of the
membership interests in ISG Acquisition, LLC, a Delaware limited liability
company wholly owned by Interactive Solutions Group pursuant to a Purchase
Agreement in July 1998. ISG Acquisition holds substantially all of the assets of
Interactive Solutions Group
22
<PAGE>
related to the network and multimedia products and technologies. The interest in
ISG Acquisition was acquired by the Company in exchange for the forgiveness of a
loan of $160,000 and the assumption of liabilities of ISG Acquisition up to
$91,000, for a total purchase price of $251,000. Interactive Solutions Group was
formed on July 15, 1996 by Grant Holcomb, a director and officer of the Company.
Mr. Holcomb is an officer and director of the Company, and was at the time of
the acquisition of Interactive Solutions Group.
In October 1998, Design Analysis Associates, a Utah corporation,
merged into a wholly-owned subsidiary of the Company, renamed Design Analysis
Associates. The sole shareholder of Design Analysis Associates, the William I.
Fletcher Family Trust, received 1.1 million shares of the Company's common stock
in the merger transaction with potential to acquire up to an additional 400,000
shares in connection with certain earn-out provisions. The Company has entered
into a lease for real property in Logan, Utah, to house the Design Analysis
Associates, Inc. subsidiary. The Company leases a 13,000 square foot mixed-use
facility at fair market rental from an entity that is controlled by Mr. William
I. Fletcher. Mr. Fletcher is a partner of the LP that holds the real estate of
the Company.
During 1997 and 1998, Grant Holcomb, a current officer and director of
the Company, provided consulting services for the Company in connection with the
development of the TeraCom product and related technologies. The Company paid
Mr. Holcomb $10,000 in the year ended December 31, 1997 and for the nine month
period ended September 30, 1998. In addition, Mr. Holcomb provided consulting
services with TechnoVision in connection with the development of the
TeraConference technology. TechnoVision paid Mr. Holcomb approximately $30,000
in the year ended December 31, 1997 and $20,000 in the six month period ended
June 30, 1998. During 1998, TechnoVision loaned an aggregate of $56,500 to Grant
Holcomb. The loans are evidenced by promissory notes, payable on or before June
1, 1999, bearing interest at 8% per annum.
DESCRIPTION ALL OF SECURITIES
Common Stock
The Company is authorized to issue 50,000,000 shares of Common Stock,
$.001 par value, of which 16,005,756 were outstanding at November 6, 1998.
Holders of Common Stock are entitled to dividends, pro rata, when, as and if
declared by the Board of Directors out of funds available therefor. Holders of
Common Stock are entitled to cast one vote for each share held at all
stockholder meetings for all purposes, including the election of directors. The
holders of more than 50% of the Common Stock issued and outstanding and entitled
to vote, present in person or by proxy, constitute a quorum at all meetings of
stockholders. The vote of the holders of a majority of Common Stock present at
such a meeting will decide any question brought before such meeting, except for
certain actions such as amendments to the Company's Articles of Incorporation,
mergers or dissolutions which require the vote of the holders of a majority of
the outstanding Common Stock. Upon liquidation or dissolution, the holder of
each outstanding share of Common Stock will be entitled to share equally in the
assets of the Company legally available for distribution to such stockholder
after payment of all liabilities. Holders of Common Stock are not granted any
preemptive, subscription, redemption rights or registration rights. All
outstanding shares of Common Stock are fully paid and nonassessable.
Preferred Stock
The Company is authorized to issue 100,000 shares of Preferred Stock,
$1.00 par value, of which no shares are currently outstanding. Holders of
Preferred Stock are not entitled to any voting rights. In all other respects,
the rights and preferences of the Preferred Stock are equivalent to those of the
Common Stock.
23
<PAGE>
PART II
Market Price of Dividends All of The Registrant's Common Equity and Other
Shareholder Matters
The Company's Common Stock is traded on the NASDAQ Bulletin Board
under the symbol "TGCC." The following table sets forth, for the fiscal period
indicated, the high and low closing bid prices for the Common Stock as reported
on the NASDAQ Bulletin Board. The quotations for the Common Stock traded on the
NASDAQ Bulletin Board may reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
High Low
---------------- -------------
<S> <C> <C>
Fiscal 1997
November 1, 1997 to December 31, 1997 1.42 1.30
Fiscal 1998
First Quarter 1.44 0.81
Second Quarter 6.63 1.03
Third Quarter 5.13 3.06
Fourth Quarter to the date of this 4.75 3.06
document
</TABLE>
Dividend Policy
The Company has never declared or paid cash dividends on its Common
Stock. The Company currently anticipates that it will retain all future earnings
for use in the operation and expansion of its business and does not anticipate
paying any cash dividends in the foreseeable future.
Litigation
The Company has been named in a securities class action lawsuit filed
by two former TechnoVision shareholders on July 15, 1998 in Los Angeles County
Superior Court. The Complaint names the Company, TechnoVision, Grey Venture
Capital, Inc. and certain present and former officers and employees of each as
defendants. The Complaint alleges that the Company, TechnoVision and Grey
Venture Capital, Inc. each conspired and engaged in fraudulent and deceptive
sales practices in connection with TechnoVision's private placement of
securities in an offering conducted by Grey Venture Capital, Inc. from November
1997 through May 1998. The Complaint as originally filed stated causes of action
for breach of fiduciary duties, intentional misrepresentation and fraudulent
concealment, negligent misrepresentation, violation of California securities
laws, unfair trade practices, negligence, RICO violations conversion and
conspiracy. The Company demurred to all causes of action in the Complaint with
the exception of negligent misrepresentation. The demurrer was sustained without
leave to amend as to the violation of California securities laws, unfair trade
practices and RICO violations, causes of action, and sustained with leave to
amend as to the remaining causes of action. The Complaint as amended now states
causes of action for breach of fiduciary duty, intentional misrepresentation and
fraudulent concealment, negligent misrepresentation, conversion and conspiracy.
The Company intends to demurrer again with respect to substantially all of the
remaining causes of action. The Complaint seeks damages in an amount to be
proved. The Company denies any involvement or wrongdoing in connection with the
private placement and intends to vigorously defend the lawsuit.
24
<PAGE>
TechnoVision, along with David Fann its Chief Executive Officer, has
been sued by Darryl Spangler, a shareholder in TechnoVision for breach of
contract, misrepresentation and fraud, and breach of fiduciary duty. The
Complaint, originally filed in January 1998, has been amended twice and split
into two separate Complaints, stating causes of action for breach of fiduciary
duty in a derivative claim in one instance and breach of contract and fraud in
the second instance. The Complaint arises out of a settlement agreement entered
into between TechnoVision and Mr. Spangler. Under the terms of the Settlement
Agreement, Mr. Spangler was given 750,000 shares of TechnoVision's Common Stock,
which are subject to a repurchase option in favor of TechnoVision. The Complaint
alleges that TechnoVision fraudulently induced Mr. Spangler to enter into the
Settlement Agreement. The Complaint seeks to invalidate the Settlement
Agreement, cause TechnoVision to issue to Mr. Spangler 2,000,000 shares of
Common Stock, invalidate the repurchase option and pay damages. The Company
denies any wrongdoing and intends to vigorously defend the lawsuit.
Changes in and Disagreements with Accountants
The Company has not had any changes in or disagreements with
Accountants since inception.
Recent Sales of Unregistered Securities
The Company was incorporated in August of 1987 in the state of Wyoming
with an initial share allocation of 55 shares. These shares have been forward
split twice. In March of 1994 these shares were forward split on a ratio of 2000
for 1. This resulted in an outstanding share total of 110,000. In July of 1994
another forward split on a ratio of 20 for 1 was completed resulting in a total
outstanding of 2,200,000.
In October of 1997, the Company issued 7,650,000 shares for the
acquisition of Video Stream, Inc., a Canadian Corporation. These shares were
issued to the principals of Video Stream, Inc. in a share exchange. Paul Cox and
Grant Holcomb received 6,524,450 and 1,124,550 shares, respectively.
In December of 1997, the Company completed a private placement for
500,000 shares. The proceeds from this placement were $100,000.
In June of 1998, the Company completed a private placement for 900,000
shares. The proceeds from this placement were $900,000.
In May of 1998, the Company issued a convertible debenture raising
$150,000. The debenture is convertible into 100,000 shares. The holder has
requested the conversion of this debenture and the Company issued these shares
in October 1998.
In August of 1998, the Company completed the acquisition of
TechnoVision Communications, Inc., a Georgia corporation, via a share exchange.
All TechnoVision shareholders were offered one share in the Company in exchange
for two shares in TechnoVision, except for a founding shareholder whom accepted
a earlier offer from the Company for his 2,000,000 shares in TechnoVision. At
closing on August 10, 1998, the Company had received by tender 99.1% of the
outstanding shares in TechnoVision. The Company is pursuing the remaining
shareholders and expects to issue 3,591,503 shares for 100% of TechnoVision. As
of the date of this form, the Company issued 3,555,756 shares to former
TechnoVision shareholders.
The Company has negotiated a debt settlement with William Fletcher for
an amount of $25,000 in June of 1998 for 8,333 shares. The Company has yet to
issue these shares.
In October of 1998, the Company acquired Design Analysis Associates
Inc of Logan Utah for a minimum of 1,100,000 shares and a maximum of 1,500,000
shares. The acquisition calls for a valuation of Design Analysis of two times
their 1998 sales with the initial $2.475 million in sales compensated for by
issuing shares in the Company at an issue price of $4.50. The market close of
the Company's shares on the date of the transaction was agreed upon. The
25
<PAGE>
next $625,000 in sales is to be compensated at an issue price of $6.25 per
share. Any further sales over $3.1 million is to be compensated on the market
close of the Company's shares at December 15, 1998. As of September 1998, Design
Analysis sales were approximately $3.1 million.
In October of 1998, the Company completed a convertible debenture
raising $475,000. The term note is for 2 years and earns interest at 9%. The
conversion price is $4.00 per share. As of September 30, 1998, $350,000 had been
received.
The Company issued a convertible debenture raising $500,000 in
September of 1998. The note is for 2 years and earns interest at 9%. the
conversion price is $4.25 per share.
Indemnification of Directors and Officers
Under the Wyoming General Corporation Law and the Company's Articles
of Incorporation, the Company's directors will have no personal liability to the
Company or its stockholders for monetary damages incurred as the result of the
breach or alleged breach by a director of his "duty of care." This provision
does not apply to the directors' (i) acts or omissions that involve intentional
misconduct or a knowing and culpable violation of law, (ii) acts or omissions
that a director believes to be contrary to the best interests of the corporation
or its shareholders or that involve the absence of good faith on the part of the
director, (iii) approval of any transaction from which a director derives an
improper personal benefit, (iv) acts or omissions that show a reckless disregard
for the director's duty to the corporation or its shareholders in circumstances
in which the director was aware, or should have been aware, in the ordinary
course of performing a director's duties, of a risk of serious injury to the
corporation or its shareholders, (v) acts or omissions that constituted an
unexcused pattern of inattention that amounts to an abdication of the director's
duty to the corporation or its shareholders, or (vi) approval of an unlawful
dividend, distribution, stock repurchase or redemption. This provision would
generally absolve directors of personal liability for negligence in the
performance of duties, including gross negligence.
The effect of this provision in the Company's Articles of
Incorporation is to eliminate the rights of the Company and its stockholders
(through stockholder's derivative suits on behalf of the Company) to recover
monetary damages against a director for breach of his fiduciary duty of care as
a director (including breaches resulting from negligent or grossly negligent
behavior) except in the situations described in clauses (i) through (vi) above.
This provision does not limit nor eliminate the rights of the Company or any
stockholder to seek non-monetary relief such as an injunction or rescission in
the event of a breach of a director's duty of care. In addition, the Company's
Articles of Incorporation provide that if the California General Corporation Law
is amended to authorize the future elimination or limitation of the liability of
a director, then the liability of the directors will be eliminated or limited to
the fullest extent permitted by the law, as amended. The California General
Corporation Law grants corporations the right to indemnify their directors,
officers, employees and agents in accordance with applicable law. The Company's
Bylaws provide for indemnification of such persons to the full extent allowable
under applicable law.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling
the Company pursuant to the foregoing provisions, the Company has been informed
that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
26
<PAGE>
PART F/S
TeraGlobal Communications Corp Audited Consolidated Financial
Statements to December 31, 1997 and Unaudited Consolidated Financial
Statements to September 30, 1998
TechnoVision Communications, Inc. Audited Financial Statements to
December 31, 1997
TechnoVision Communications, Inc. Audited Financial Statements to
December 31, 1996
Design Analysis Associates, Inc. Audited Financial Statements to
December 31, 1997
Design Analysis Associates, Inc. Audited Financial Statements to
December 31, 1996
27
<PAGE>
TERAGLOBAL COMMUNICATIONS CORP.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM FEBRUARY 7, 1997
(INCEPTION) TO DECEMBER 31, 1997 AND
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998 (UNAUDITED)
<PAGE>
TERAGLOBAL COMMUNICATIONS CORP.
AND SUBSIDIARIES
CONTENTS
December 31, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-1
FINANCIAL STATEMENTS
Consolidated Balance Sheets F-2 - F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Shareholders' Equity (Deficit) F-5
Consolidated Statements of Cash Flows F-6 - F-7
Notes to Consolidated Financial Statements F-8 - F-22
</TABLE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
TeraGlobal Communications Corp.
We have audited the accompanying consolidated balance sheet of TeraGlobal
Communications Corp. and subsidiaries as of December 31, 1997, and the related
consolidated statements of operations, shareholders' equity (deficit), and cash
flows for the period from February 7, 1997 (inception) to December 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of TeraGlobal
Communications Corp. and subsidiaries as of December 31, 1997, and the
consolidated results of their operations and their consolidated cash flows for
the period from February 7, 1997 (inception) to December 31, 1997 in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company incurred a net loss of $335,535 during the
period from February 7, 1997 (inception) to December 31, 1997, and, as of that
date, the Company's current liabilities exceeded its current assets by $154,311,
its total liabilities exceed its total assets by $134,874, and it had negative
cash flows from operations of $211,068. In addition, the Company is involved in
certain litigation in which the outcome is uncertain as discussed in Note 7.
These factors, among others, as discussed in Note 2 to the financial statements,
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
July 17, 1998
<PAGE>
TERAGLOBAL COMMUNICATIONS CORP.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and September 30, 1998 (unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ASSETS
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
---------------- ----------------
(unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 27,705 $ 500,052
Accounts receivable - 43,193
Note receivable - related party - 56,500
Inventory - 38,641
Prepaid expenses and other current assets, including $4,351
and $1,900 (unaudited) from a related party 10,882 204,073
---------------- ----------------
Total current assets 38,587 842,459
Furniture and equipment, net 19,437 1,222,740
Excess of cost over fair value of net assets acquired, net of
accumulated amortization of $0 and $525,264 (unaudited) - 15,232,651
--------------- ----------------
Total assets $ 58,024 $ 17,297,850
--------------- ----------------
--------------- ----------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
TERAGLOBAL COMMUNICATIONS CORP.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
December 31, 1997 and September 30, 1998 (unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
(unaudited)
---------------- -------------------
<S> <C> <C>
Current liabilities
Accounts payable, including $84,000 and $113,250 (unaudited)
to a related party $ 111,819 $ 756,788
Short-term loans 77,583 192,896
Convertible promissory note - 127,500
Accrued expenses, including $0 and $113,086 (unaudited)
to a related party 3,496 171,886
Notes payable - 66,508
Current portion of note payable - related party - 150,000
Current portion of capitalized lease obligations - 541,248
--------------- -----------------
Total current liabilities 192,898 2,006,826
Convertible promissory notes - 850,000
Note payable - related party, less current portion - 209,460
Capitalized lease obligations, less current portion - 773,761
--------------- -----------------
Total liabilities 192,898 3,840,047
--------------- -----------------
Commitments and contingencies
Shareholders' equity (deficit)
Preferred stock, $1.00 par value, no voting rights
100,000 shares authorized
no shares issued and outstanding - -
Common stock, $0.001 par value
50,000,000 shares authorized, 9,850,000 and
14,805,756 (unaudited) shares issued and outstanding 9,850 14,806
Additional paid-in capital 55,890 16,588,367
Common stock subscribed 190,000 74,375
Accumulated deficit (391,480) (3,218,513)
Cumulative foreign currency translation adjustment 866 (1,232)
--------------- -----------------
Total shareholders' equity (deficit) (134,874) 13,457,803
--------------- -----------------
Total liabilities and shareholders' equity (deficit) $ 58,024 $ 17,297,850
--------------- -----------------
--------------- -----------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
TERAGLOBAL COMMUNICATIONS CORP.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Period from February 7, 1997 (Inception) to December 31, 1997 and
for the Nine Months Ended September 30, 1998 and 1997 (unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, September 30, September 30,
1997 1998 1997
(unaudited) (unaudited)
---------------- ---------------- ----------------
<S> <C> <C> <C>
Net sales $ - $ 280,484 $ -
Cost of sales - 216,806 -
Gross profit - 63,678 -
Operating expenses
Legal 67,463 189,684 -
General and administrative 130,237 1,407,936 84,035
Selling - 119,236 -
Research and development 41,259 1,011,776 9,795
Consulting, related party 94,488 83,250 44,050
---------------- --------------- ----------------
Total operating expenses 333,447 2,811,882 137,880
---------------- --------------- ----------------
Loss from operations (333,447) (2,748,204) (137,880)
---------------- --------------- ----------------
Other income (expense)
Interest income 754 894 577
Interest expense (3,601) (80,702) -
Other income 759 - -
---------------- --------------- ----------------
Total other income (expense) (2,088) (79,808) 577
---------------- --------------- ----------------
Net loss before minority interest (335,535) (2,828,012) (137,303)
Minority interest in loss of subsidiary - 979 -
---------------- --------------- ----------------
Net loss (335,535) (2,827,033) (137,303)
---------------- --------------- ----------------
---------------- --------------- ----------------
Basic loss per share $ (0.09) $ (0.25) $ (0.06)
---------------- --------------- ----------------
---------------- --------------- ----------------
Weighted-average common shares outstanding 3,627,064 11,367,009 2,200,000
---------------- --------------- ----------------
---------------- --------------- ----------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
TERAGLOBAL COMMUNICATIONS CORP.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
For the Period from February 7, 1997 (Inception) to December 31, 1997
and for the Nine Months Ended September 30, 1998 (unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock Additional Common
-------------------------- Paid-In Stock
Shares Amount Capital Subscribed
------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Balance, February 7, 1997 2,200,000 $ 2,200 $ (2,200) $ -
Common stock issued by Video Stream, Inc. for services
rendered - related party 9,795
Common stock issued by Video Stream, Inc. for stock
dividend - related party 69,930
Cancellation of common stock issued by
Video Stream, Inc. for stock dividend (13,985)
Reverse merger
Shares issued for the acquisition of Video Stream, Inc. 7,650,000 7,650 (7,650)
Common stock subscribed 190,000
Change in cumulative translation adjustment
Net loss
------------ ----------- ------------ ------------
Balance, December 31, 1997 9,850,000 9,850 55,890 190,000
Common stock issued (unaudited) 1,210,000 1,210 789,790
Common stock subscribed (unaudited) 74,375
Common stock issued for acquisition of
TechnoVision Communications, Inc. (unaudited) 3,555,756 3,556 15,552,877
Issuance of common stock subscribed (unaudited) 190,000 190 189,810 (190,000)
Change in cumulative translation adjustment (unaudited)
Net loss (unaudited)
------------ ----------- ------------ ------------
Balance, September 30, 1998 (unaudited) 14,805,756 $ 14,806 $ 16,588,367 $ 74,375
------------ ----------- ------------ ------------
------------ ----------- ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
Cumulative
Foreign
Currency
Accumulated Translation
Deficit Adjustment Total
------------ -------------- ------------
<S> <C> <C> <C>
Balance, February 7, 1997 $ - $ - $ -
Common stock issued by Video Stream, Inc. for services
rendered - related party 9,795
Common stock issued by Video Stream, Inc. for stock
dividend - related party (69,930) -
Cancellation of common stock issued by
Video Stream, Inc. for stock dividend 13,985 -
Reverse merger
Shares issued for the acquisition of Video Stream, Inc. -
Common stock subscribed 190,000
Change in cumulative translation adjustment 866 866
Net loss (335,535) (335,535)
------------- -------------- -------------
Balance, December 31, 1997 (391,480) 866 (134,874)
Common stock issued (unaudited) 791,000
Common stock subscribed (unaudited) 74,375
Common stock issued for acquisition of
TechnoVision Communications, Inc. (unaudited) 15,556,433
Issuance of common stock subscribed (unaudited) -
Change in cumulative translation adjustment (unaudited) (2,098) (2,098)
Net loss (unaudited) (2,827,033) (2,827,033)
------------- -------------- -------------
Balance, September 30, 1998 (unaudited) $ (3,218,513) $ (1,232) $13,457,803
------------- -------------- -------------
------------- -------------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
TERAGLOBAL COMMUNICATIONS CORP.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Period from February 7, 1997 (Inception) to December 31, 1997 and
for the Nine months Ended September 30, 1998 and 1997 (unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, September 30, September 30,
1997 1998 1997
---------------- --------------- ---------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Cash flows from operating activities
Net loss $ (335,535) $ (2,827,033) $ (137,303)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation 4,860 67,116 -
Amortization of goodwill - 525,264 -
Minority interest - (979) -
Issuance of stock by Video Stream, Inc. to
related party for services rendered 9,795 - 9,795
(Increase) decrease in
Accounts receivable - 212,608 (2,797)
Prepaid expenses and other current assets (5,503) 2,615 -
Inventory - (4,523) -
Increase (decrease) in
Accounts payable 111,819 823,263 62,922
Accrued expenses 3,496 (81,810) -
---------------- --------------- ---------------
Net cash used in operating activities (211,068) (1,283,479) (67,383)
---------------- --------------- ---------------
Cash flows from investing activities
Acquisition of ISG membership interests - (105,800) -
Acquisition of ATI Access Technologies, Inc. 1 - 1
Purchase of furniture and equipment (854) (3,929) -
Acquisition of TechnoVision Communications cash - 54,629 -
---------------- --------------- ---------------
Net cash provided by (used in) investing activities (853) (55,100) 1
---------------- --------------- ---------------
Cash flows from financing activities
Proceeds from short-term loan 69,920 127,338 91,566
Payments on notes payable - (85,667) -
Payments on short-term loan (69,920) (12,025) (24,297)
Proceeds from loan from affiliate 48,760 - -
Proceeds from common stock subscription 190,000 74,375 -
Payments on capital leases - (59,497) -
Proceeds from common stock issuance - 791,000 -
Proceeds from convertible promissory notes - 977,500 -
---------------- --------------- ---------------
Net cash provided by financing activities 238,760 1,813,024 67,269
---------------- --------------- ---------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
TERAGLOBAL COMMUNICATIONS CORP.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
For the Period from February 7, 1997 (Inception) to December 31, 1997 and
for the Nine months Ended September 30, 1998 and 1997 (unaudited)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, September 30, September 30,
1997 1998 1997
---------------- --------------- ----------------
(unaudited) (unaudited)
<S> <C> <C> <C>
Cumulative translation adjustment $ 866 $ (2,098) $ -
---------------- --------------- ----------------
Net increase (decrease) in cash and cash
equivalents 27,705 (472,347) (113)
Cash and cash equivalents, beginning of period - 27,705 -
---------------- --------------- ----------------
Cash and cash equivalents (book overdraft), end
of period $ 27,705 $ 500,052 $ (113)
---------------- --------------- ----------------
---------------- --------------- ----------------
</TABLE>
Supplemental schedule of non-cash investing and financing activities
As discussed further in Note 8, during the period from February 7, 1997
(inception) to December 31, 1997, Video Stream, Inc. declared and issued a stock
dividend of 100,000 shares of its common stock valued at $69,930. 80,000 of
these shares, valued at $55,936, were issued to a current shareholder/officer
and a former shareholder/officer of the Company. 20,000 shares, valued at
$13,985, were issued to ATI Access Technologies, Inc. and were subsequently
cancelled prior to December 31, 1997.
During the nine months ended September 30, 1998, the Company issued 190,000
shares valued at $190,000 that had been subscribed at December 31, 1997.
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
TERAGLOBAL COMMUNICATIONS CORP.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Period from February 7, 1997 (Inception) to December 31, 1997 and
for the Nine Months Ended September 30, 1998 and 1997 (unaudited)
(The information with respect to the nine months ended
September 30, 1998 and 1997 is unaudited.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 1 - DESCRIPTION OF BUSINESS
TeraGlobal Communications Corp. (a Wyoming corporation) and
subsidiaries (the "Company") is engaged in the development of
communications productivity solutions and multimedia (voice, video,
image, and data) collaboration systems. Effective September 17, 1998,
the Company changed its name from Video Stream International, Inc. to
TeraGlobal Communications Corp.
Canada, Inc. was formed under the laws of Canada on February 7, 1997
and subsequently changed its name to Video Stream, Inc. ("VSI") on
April 25, 1997. On October 31, 1997, Triple "D" Court, Inc. ("Triple
D") acquired all of the outstanding stock of VSI in exchange for an
aggregate of 7,650,000 shares of newly issued common stock. For
accounting purposes, the transaction has been treated as a
recapitalization of VSI, with VSI as the accounting acquirer (reverse
acquisition). The operations of Triple D have been included with those
of the Company from the acquisition date. Triple D subsequently
changed its name to TeraGlobal Communications Corp. Triple D was
incorporated in Wyoming on February 7, 1997 and was a development
stage enterprise from the date of incorporation until its acquisition
of VSI. Triple D had no assets or liabilities at the date of the
acquisition and did not have significant operations prior to the
acquisition. Therefore, no pro forma information is presented.
ATI Access Technologies, Inc.
On December 11, 1997, VSI completed a merger with ATI Access
Technologies, Inc. (previously B.C. LTD) ("ATI"), a Canadian company,
whereby VSI purchased the net assets of ATI through the forgiveness of
a short-term loan to ATI by VSI of $48,760 and payment of $1. The
acquisition was accounted for in a manner similar to a pooling of
interests. The assets acquired and the liabilities assumed were as
follows:
<TABLE>
<CAPTION>
<S> <C>
Note receivable $ 2,797
Prepaids and other current assets 2,582
Furniture and equipment, at net book value 23,443
Short-term loan to VSI 48,760
----------------
Total assets 77,582
Short-term loan (77,583)
Purchase price $ (1)
----------------
----------------
</TABLE>
F-8
<PAGE>
TERAGLOBAL COMMUNICATIONS CORP.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Period from February 7, 1997 (Inception) to December 31, 1997 and
for the Nine Months Ended September 30, 1998 and 1997 (unaudited)
(The information with respect to the nine months ended
September 30, 1998 and 1997 is unaudited.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 1 - DESCRIPTION OF BUSINESS (Continued)
Acquisitions
During June 1998, the Company made an offer, pursuant to a
confidential Private Placement Memorandum, an Exchange Offer letter,
and related Letter of Transmittal, to shareholders of TechnoVision
Communications, Inc. ("TechnoVision"), a Georgia company, to acquire
all of the issued and outstanding common stock of TechnoVision.
TechnoVision shareholders were offered one common share of the Company
for every two common shares of TechnoVision tendered. Such offer
originally expired on July 15, 1998, but was extended to August 7,
1998. At the date of this report, the Company believes that
TechnoVision shareholders have tendered approximately 99% of the total
issued and outstanding common shares of TechnoVision, and as a result,
believes it has effective control of TechnoVision.
The Company purchased the net assets of TechnoVision through the
forgiveness of a short-term loan by TechnoVision to the Company of
$334,884 and payment of $15,556,433 in common stock of the Company.
The acquisition was accounted for by the purchase method. The assets
acquired and the liabilities assumed were as follows:
<TABLE>
<S> <C>
Cash $ 54,629
Accounts receivable 255,801
Prepaids and other current assets 195,806
Note receivable - related party 56,500
Inventory 34,118
Furniture and equipment, at net book value 1,266,490
Accounts payable (156,590)
Customer deposits (105,000)
Notes payable (511,636)
Capital leases (1,374,505)
Minority interest (979)
-------------
Total assets (285,366)
Excess of cost over fair value of net assets acquired 15,506,915
-------------
Consideration $ 15,221,549
-------------
-------------
</TABLE>
F-9
<PAGE>
TERAGLOBAL COMMUNICATIONS CORP.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Period from February 7, 1997 (Inception) to December 31, 1997 and
for the Nine Months Ended September 30, 1998 and 1997 (unaudited)
(The information with respect to the nine months ended
September 30, 1998 and 1997 is unaudited.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 1 - DESCRIPTION OF BUSINESS (Continued)
Acquisitions (Continued)
The information provided in the above table is based on TechnoVision's
unaudited financial statements as of June 30, 1998. The consideration
is based on the issuance of 3,555,756 shares for 99% of TechnoVision
at the closing price for the Company's stock on August 10, 1998, the
closing date of the acquisition, of $4.375 per share, reduced by the
value of the forgiven short-term loan. The excess of cost over fair
value of net assets acquired is being amortized on a straight-line
basis over five years.
Effective July 28, 1998, the Company acquired all of the membership
interests in ISG Acquisition, LLC, a Delaware limited liability
company wholly-owned by Interactive Solutions Group, in exchange for
the forgiveness of a loan for $160,000 and the assumption of
liabilities of ISG Acquisition, LLC up to $91,000 for a total purchase
price of $251,000. The principal shareholder of Interactive Solutions
Group was a director and officer of the Company at December 31, 1997
and September 31, 1998. The excess of cost over fair value of net
assets acquired is being amortized on a straight-line basis over five
years.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles which contemplate
continuation of the Company as a going concern. However, during the
period from February 7, 1997 (inception) to December 31, 1997, the
Company incurred a net loss of $335,535, and as of that date, the
Company's current liabilities exceeded its current assets by $154,311,
its total liabilities exceed its total assets by $134,874, and it had
negative cash flows from operations of $211,068. In addition, the
Company is involved in certain litigation in which the outcome is
uncertain as discussed in Note 7. These factors raise substantial
doubt about the Company's ability to continue as a going concern.
F-10
<PAGE>
TERAGLOBAL COMMUNICATIONS CORP.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Period from February 7, 1997 (Inception) to December 31, 1997 and
for the Nine Months Ended September 30, 1998 and 1997 (unaudited)
(The information with respect to the nine months ended
September 30, 1998 and 1997 is unaudited.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Basis of Presentation (Continued)
Recovery of the Company's assets is dependent upon future events, the
outcome of which is indeterminable. Successful completion of the
Company's development program and its transition to the attainment of
profitable operations is dependent upon the Company obtaining adequate
debt and equity financing to fulfill its development activities and
achieving a level of sales adequate to support the Company's cost
structure. In addition, realization of a major portion of the assets
in the accompanying balance sheet is dependent upon the Company's
ability to meet its financing requirements and the success of its
plans to sell its products. The financial statements do not include
any adjustments relating to the recoverability and classification of
recorded asset amounts or amounts and classification of liabilities
that might be necessary should the Company be unable to continue in
existence.
Management plans to obtain additional debt and equity financing. In
addition, the Company believes that the acquisition of Design Analysis
Associates, Inc. will bring a positive cash flow thereby reducing the
monthly cash requirements of the consolidated Company. (See further
discussion of the acquisition of Design Analysis Associates, Inc. in
Note 12.)
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 disclosures of contingent assets and liabilities at
the date of the financial statements, as well as the reported amounts
of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of
TeraGlobal Communications Corp. and its wholly-owned subsidiaries, ATI
Access Technologies, Inc., TGC Acquisition, Inc., TeraGlobal
Communications (Canada) Corporation, and TechnoVision Communications,
Inc. All intercompany accounts and transactions have been eliminated.
F-11
<PAGE>
TERAGLOBAL COMMUNICATIONS CORP.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Period from February 7, 1997 (Inception) to December 31, 1997 and
for the Nine Months Ended September 30, 1998 and 1997 (unaudited)
(The information with respect to the nine months ended
September 30, 1998 and 1997 is unaudited.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Minority Interest
The accompanying consolidated balance sheet as of September 30, 1998
does not reflect a minority interest liability as TechnoVision, on a
stand-alone basis, had a shareholders' deficit as of that date. The
accompanying consolidated statement of operations for the nine months
ended September 30, 1998 reflects the minority interest's share of
TechnoVision's losses for the two months since its acquisition only in
the amount of minority interest recorded at the time of the
acquisition of TechnoVision. The remainder of the minority interest's
share of TechnoVision's losses for the two months since its
acquisition is not reflected as the related accrual would result in
the Company's recording of a minority interest receivable.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers
all highly-liquid investments purchased with original maturities of
three months or less to be cash equivalents.
Inventory
Inventory is stated at the lower of cost or market. Cost is determined
using specific identification and consists of raw materials.
Furniture and Equipment
Furniture and equipment are recorded at cost, less accumulated
depreciation. Depreciation is provided using the straight-line method
over an estimated useful life of five years. Betterments, renewals,
and extraordinary repairs that extend the life of the asset are
capitalized; other repairs and maintenance charges are expensed as
incurred. The cost and related accumulated depreciation applicable to
assets retired are removed from the Company's accounts, and the gain
or loss on dispositions, if any, is recognized in the statement of
operations.
Development Stage Enterprise
During the nine months ended September 30, 1998, the Company ceased to
be a development stage company as defined in Statement of Financial
Accounting Standards ("SFAS") No. 7, "Accounting and Reporting by
Development Stage Enterprises." The Company's planned principal
operations have commenced, and there have been significant revenues
from those operations.
Research and Development Costs
Research and development costs are charged to expense as incurred.
F-12
<PAGE>
TERAGLOBAL COMMUNICATIONS CORP.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Period from February 7, 1997 (Inception) to December 31, 1997 and
for the Nine Months Ended September 30, 1998 and 1997 (unaudited)
(The information with respect to the nine months ended
September 30, 1998 and 1997 is unaudited.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
The Company accounts for income taxes under the asset and liability
method, which requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that
have been included in the financial statements or tax returns. Under
this method, deferred income taxes are recognized for the tax
consequences in future years of differences between the tax bases of
assets and liabilities and their financial reporting amounts at each
period-end based on enacted tax laws and statutory tax rates
applicable to the periods in which the differences are expected to
affect taxable income. Valuation allowances are established, when
necessary, to reduce deferred tax assets to the amount expected to be
realized. The provision for income taxes, if applicable, represents
the tax payable for the period and the change during the period in
deferred tax assets and liabilities.
Earnings per Share
During the period from February 7, 1997 (inception) to December 31,
1997, the Company adopted SFAS No. 128, "Earnings per Share." Basic
earnings per share is computed by dividing income available to common
shareholders by the weighted-average number of common shares
outstanding. Diluted earnings per share is computed similar to basic
earnings per share except that the denominator is increased to include
the number of additional common shares that would have been
outstanding if the potential common shares had been issued and if the
additional common shares were dilutive. Diluted earnings per share are
not presented for 1998 and 1997 because common stock equivalents are
anti-dilutive.
Recent Accounting Pronouncements
The Financial Accounting Standards Board ("FASB") issued SFAS No. 130,
"Reporting Comprehensive Income," which is effective for financial
statements with fiscal years beginning after December 15, 1997. SFAS
No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of
general-purpose financial statements. The Company does not expect
adoption of SFAS No. 130 to have a material effect, if any, on its
financial position or results of operations.
F-13
<PAGE>
TERAGLOBAL COMMUNICATIONS CORP.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Period from February 7, 1997 (Inception) to December 31, 1997 and
for the Nine Months Ended September 30, 1998 and 1997 (unaudited)
(The information with respect to the nine months ended
September 30, 1998 and 1997 is unaudited.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent Accounting Pronouncements (Continued)
The FASB issued SFAS 131, "Disclosure about Segments of an Enterprise
and Related Information," which is effective for financial statements
with fiscal years beginning after December 31, 1997. This statement
establishes standards for the way that public entities report selected
information about operating segments, products, and services,
geographic areas, and major customers in interim and annual financial
reports. The Company does not expect adoption of SFAS No. 131 to have
a material effect, if any, on its financial position or results of
operations.
Fair Value of Financial Instruments
The Company measures its financial assets and liabilities in
accordance with generally accepted accounting principles. For certain
of the Company's financial instruments, including cash and cash
equivalents, accounts receivable, notes receivable, accounts payable,
and accrued expenses, the carrying amounts approximate fair value due
to their short maturities. The amounts shown for short-term loans and
notes payable also approximate fair value because current interest
rates offered to the Company for short-term loans of similar
maturities are substantially the same or the difference is immaterial.
NOTE 3 - NOTE RECEIVABLE - RELATED PARTY
The loans are to a current officer/director of the Company. The notes
are due on or before June 1, 1999, bear interest at 8% per year, and
are unsecured.
F-14
<PAGE>
TERAGLOBAL COMMUNICATIONS CORP.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Period from February 7, 1997 (Inception) to December 31, 1997 and
for the Nine Months Ended September 30, 1998 and 1997 (unaudited)
(The information with respect to the nine months ended
September 30, 1998 and 1997 is unaudited.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 4 - FURNITURE AND EQUIPMENT
Furniture and equipment consisted of the following:
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
--------------- ----------------
(unaudited)
<S> <C> <C>
Furniture and fixtures $ - $ 28,979
Office equipment 674 1,075
Computers and software 23,623 1,264,662
--------------- ----------------
24,297 1,294,716
Less accumulated depreciation 4,860 71,976
--------------- ----------------
Total $ 19,437 $ 1,222,740
--------------- ----------------
--------------- ----------------
</TABLE>
Depreciation expense for the period from February 7, 1997 (inception)
to December 31, 1997 and for the nine months ended September 30, 1998
was $4,860 and $67,116 (unaudited), respectively.
NOTE 5 - SHORT-TERM LOANS
Principal is due on demand and is unsecured. Amounts do not accrue
interest.
NOTE 6 - NOTES PAYABLE
Notes payable at September 30, 1998 consisted of the following:
<TABLE>
<S> <C>
Note payable to former officer/director and current shareholder,
dated April 27, 1998, is non-interest bearing, and unsecured.
Monthly payments of $12,500 are required, and the note is due
in April 2001. $ 359,460
Notes payable with various dates to former employees are
unsecured, non-interest bearing, and are payable upon demand. 66,508
----------
</TABLE>
F-15
<PAGE>
TERAGLOBAL COMMUNICATIONS CORP.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Period from February 7, 1997 (Inception) to December 31, 1997 and
for the Nine Months Ended September 30, 1998 and 1997 (unaudited)
(The information with respect to the nine months ended
September 30, 1998 and 1997 is unaudited.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 6 - NOTES PAYABLE (Continued)
<TABLE>
<S> <C>
$ 425,968
Less current portion 216,508
----------------
Long term portion $ 209,460
----------------
----------------
</TABLE>
NOTE 7 - CONVERTIBLE PROMISSORY NOTES
On May 8, 1998, the Company entered into a Subscription Agreement and
a 10.25% Convertible Subordinated Promissory Note (the "Note") for
$150,000, and incurred offering costs of $22,500 in connection
therewith. Principal and interest thereon are due on November 8, 1998
if the Note has not been converted prior to such date by either party
to the Note. Otherwise, the remaining principal amount of this Note
will automatically be converted to the Company's common stock on
November 8, 1998. The conversion price applicable to this Note is
$1.50. During July 1998, the Company received a notice of conversion
from the lender and is in the process of facilitating the conversion.
During September 1998, the Company entered into two convertible
promissory notes. The first note is unsecured, bears interest at 9%
per year, and is convertible upon issuance into shares of the
Company's common stock at $4.00 per share. The principal is due on
November 30, 2000, and interest is due annually. The Company has the
right to call the note, with accrued interest, upon 30-days
notification to the lender. At September 30, 1998, the Company had
received $350,000 under this note.
The second note is unsecured, bears interest at 9% per year, and is
convertible upon issuance into shares of the Company's common stock at
$4.25 per share. The principal is due on November 30, 2000, and
interest is due annually. The Company has the right to call the note,
with accrued interest, upon 30-days notification to the lender. At
September 30, 1998, the Company had received $500,000 under this note.
F-16
<PAGE>
TERAGLOBAL COMMUNICATIONS CORP.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Period from February 7, 1997 (Inception) to December 31, 1997 and
for the Nine Months Ended September 30, 1998 and 1997 (unaudited)
(The information with respect to the nine months ended
September 30, 1998 and 1997 is unaudited.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Leases
The Company leases certain facilities for its corporate offices under
a month-to-month and a one year operating lease agreement. Rent
expense was $9,506 and $113,912 (unaudited) for the period from
February 7, 1997 (inception) to December 31, 1997 and for the nine
months ended September 30, 1998, respectively.
As discussed in Note 1, the Company assumed certain non-cancelable
capital leases for computers and software as part of its acquisition
of TechnoVision. Future minimum lease payments under non-cancelable
capital leases with initial or remaining terms of one year or more at
September 30, 1998 are as follows:
<TABLE>
<CAPTION>
Year Ending Capital
September 30, Leases
------------- ---------------
<S> <C>
1999 $ 1,110,707
2000 796,704
--------------
1,907,411
Less amount representing interest 592,402
--------------
1,315,009
Less current portion 541,248
--------------
Long-term portion $ 773,761
--------------
--------------
</TABLE>
Leased capital assets included in furniture and equipment consisted of
the following:
<TABLE>
<CAPTION>
December 31, September 30,
1997 1998
--------------- ----------------
(unaudited)
<S> <C> <C>
Computers and software $ - $ 1,185,221
Less accumulated amortization - 71,577
--------------- ----------------
Total $ - $ 1,113,644
--------------- ----------------
--------------- ----------------
</TABLE>
F-17
<PAGE>
TERAGLOBAL COMMUNICATIONS CORP.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Period from February 7, 1997 (Inception) to December 31, 1997 and
for the Nine Months Ended September 30, 1998 and 1997 (unaudited)
(The information with respect to the nine months ended
September 30, 1998 and 1997 is unaudited.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 8 - COMMITMENTS AND CONTINGENCIES (Continued)
Litigation
The Company has been named in a securities class action lawsuit filed
by two former TechnoVision shareholders on July 15, 1998 in Los
Angeles County Superior Court. The Compliant names the Company,
TechnoVision, Grey Venture Capital, Inc., and certain present and
former officers and employees of each as defendants. The Complaint
alleges that the Company, TechnoVision, and Grey Venture Capital, Inc.
each conspired and engaged in fraudulent and deceptive sales practices
in connection with TechnoVision's private placement of securities in
an offering conducted by Grey Venture Capital, Inc. from November 1997
through May 1998. The Complaint, as originally filed, stated causes of
action for breach of fiduciary duties, intentional misrepresentation
and fraudulent concealment, negligent misrepresentation, violation of
California securities laws, unfair trade practices, negligence,
Racketeer Influenced and Corrupt Organizations Act of 1970 ("RICO")
violations, conversion, and conspiracy. The Company demurred to all
causes of action in the Complaint with the exception of negligent
misrepresentation. The demurrer was sustained with lease to amend
certain causes of action. The Complaint as amended now states causes
of action for breach of fiduciary duty, intentional misrepresentation
and fraudulent concealment, negligent misrepresentation, conversion,
and conspiracy. The Company intends to demurrer again with respect to
substantially all of the causes of action. The Complaint seeks damages
in an amount to be proved. The Company denies any involvement or
wrongdoing in connection with the private placement and intends to
vigorously defend the lawsuit.
F-18
<PAGE>
TERAGLOBAL COMMUNICATIONS CORP.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Period from February 7, 1997 (Inception) to December 31, 1997 and
for the Nine Months Ended September 30, 1998 and 1997 (unaudited)
(The information with respect to the nine months ended
September 30, 1998 and 1997 is unaudited.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 8 - COMMITMENTS AND CONTINGENCIES (Continued)
Litigation (Continued)
TechnoVision, along with its chief executive officer, has been sued by
a shareholder of TechnoVision for breach of contract,
misrepresentation and fraud, and breach of fiduciary duty. The
Complaint, originally, filed in January 1998, has been amended twice
and split into two separate Complaints, stating causes of action for
breach of fiduciary duty in a derivative claim in one instance and
breach of contract and fraud in the second instance. The Complaint
arises out of a Settlement Agreement entered into between TechnoVision
and the shareholder. Under the terms of the Settlement Agreement, the
shareholder was given 750,000 shares of TechnoVision's common stock,
which are subject to a repurchase option in favor of TechnoVision. The
Complaint alleges that TechnoVision fraudulently induced the
shareholder to enter into the Settlement Agreement. The Complaint
seeks to invalidate the Settlement Agreement, cause TechnoVision to
issue to the shareholder 2,000,000 shares of its common stock,
invalidate the repurchase option, and pay damages. The Company denies
any wrongdoing and intends to vigorously defend the lawsuit.
Due to the uncertainty related to the above issues, the Company
maintains no reserves for these issues.
NOTE 9 - SHAREHOLDERS' EQUITY (DEFICIT)
Preferred Stock
The Company has 100,000 authorized shares of $1.00 par value preferred
stock that have no voting rights. The preferred stock may be issued in
series, from time to time, with such designations, rights,
preferences, and limitations as the Board of Directors may determine
by resolution. The Company had no preferred stock issued and
outstanding at December 31, 1997 or September 30, 1998.
Common Stock
During the year ended December 31, 1997, the Company received $100,000
for the subscription of 500,000 shares of common stock to be issued
subsequent to December 31, 1997. These shares were issued in September
1998. In addition, the Company received $90,000 related to the
subscription of 900,000 shares of common stock to be issued subsequent
to December 31, 1997. The Company received the remaining $791,000, net
of offering costs of $19,000, related to this sale of stock during
June 1998 and issued the shares during September 1998.
F-19
<PAGE>
TERAGLOBAL COMMUNICATIONS CORP.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Period from February 7, 1997 (Inception) to December 31, 1997 and
for the Nine Months Ended September 30, 1998 and 1997 (unaudited)
(The information with respect to the nine months ended
September 30, 1998 and 1997 is unaudited.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NOTE 9 - SHAREHOLDERS' EQUITY (DEFICIT) (Continued)
Common Stock (Continued) During the nine months ended September 30,
1998, the Company received $74,375 (unaudited) related to the
subscription of 17,500 shares (unaudited) of common stock to be issued
subsequent to September 30, 1998.
Video Stream, Inc.
Prior to the reverse acquisition discussed in Note 1, VSI issued
10,000 shares of common stock to a consultant for research and
development services rendered. Such issuance resulted in an expense of
$9,795, based on the invoice amount for the services. This consultant
subsequently became an officer of the Company during the year ended
December 31, 1997.
In addition, VSI declared and issued a stock dividend for 100,000
shares prior to the reverse acquisition. 20,000 of these shares were
canceled prior to December 31, 1997.
Stock Option Plan
The Company adopted the 1997 Stock Option Plan (the "1997 Plan")
during November 1997 and amended it in September 1998. Under the terms
of the 1997 Plan, the aggregate number of shares that may be issued
pursuant to the exercise of options granted initially will not exceed
1,500,000, provided that such number shall be adjusted annually by the
Board of Directors on July 1 to a number equal to 10% of the number of
shares of stock of the Company outstanding on June 30 of the
immediately preceding year, or 1,500,000, whichever is greater, and
provided further that such number will be increased by the number of
shares of option stock that the Company subsequently may reacquire
through repurchase or by other means. Options are not considered to be
granted until an option agreement is executed. Non-qualified options
may be issued at a price less than, equal to, or greater than the fair
market value of the common stock on the grant date. Incentive stock
options must be issued at a price not less than 100% of the fair
market value of the common stock on the grant date. Non-qualified and
incentive stock options expire up to ten years from the grant date. At
December 31, 1997 and September 30, 1998, the granting of 500,000
options at exercise prices from $1.35 to $1.50 per share, and
1,159,175 options at exercise prices ranging from $1.35 to $3.75 per
share, respectively, had been authorized by the Option Committee;
however, no option agreements had been executed during 1997 or during
the nine months ended September 30, 1998. Accordingly, no pro forma
earnings have been included in the financial statements for the year
ended December 31, 1997.
NOTE 10 - INCOME TAXES
F-20
<PAGE>
TERAGLOBAL COMMUNICATIONS CORP.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Period from February 7, 1997 (Inception) to December 31, 1997 and
for the Nine Months Ended September 30, 1998 and 1997 (unaudited)
(The information with respect to the nine months ended
September 30, 1998 and 1997 is unaudited.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
As of December 31, 1997, the Company had approximately $474,000 in
Canadian net operating loss carryforwards that may be offset against
future taxable income through 2004. The deferred income tax benefit of
the loss carryforward is the only significant deferred income tax
asset or liability of the Company and has been offset by a valuation
allowance of the same amount as management does not believe the
recoverability of this deferred tax asset is more likely than not.
Accordingly, no deferred income tax benefit has been recognized in
these financial statements.
NOTE 11 - RELATED PARTY TRANSACTIONS
At December 31, 1997 and September 30, 1998, $671 and $623
(unaudited), respectively, of the short-term loans outstanding were
due to a former shareholder/officer of VSI.
During the period from February 7, 1997 (inception) to December 31,
1997 and the nine months ended September 30, 1998, the Company paid
$94,488 and $83,250 (unaudited), respectively, to an officer/director
for consulting services rendered and had an account payable to the
officer/director for $84,000 and $139,336 (unaudited) at December 31,
1997 and September 30, 1998, respectively.
At December 31, 1997 and September 30, 1998, the Company had a prepaid
expense and other assets of $4,351 and $1,900 (unaudited),
respectively, from a company whose principal shareholder is a former
shareholder/officer of VSI.
During the period from February 7, 1997 (inception) to December 31,
1997, the Company paid $31,464 to certain former shareholders/officers
of VSI for research and development. During the nine months ended
September 30, 1998, the Company paid $63,250 (unaudited) to two
shareholders/officers for research and development.
During the period from February 7, 1997 (inception) to December 31,
1997 and the nine months ended September 30, 1998, ATI purchased
certain computer equipment for $23,443 and $0 (unaudited),
respectively, from TechnoVision.
Prior to its acquisition by the Company, the Company paid TechnoVision
approximately $133,000 for certain cost reimbursements and loaned
TechnoVision approximately $70,000.
NOTE 12 - SUBSEQUENT EVENTS (UNAUDITED)
Convertible Promissory Note
During October 1998, the Company entered into a $125,000 convertible
promissory note,
F-21
<PAGE>
TERAGLOBAL COMMUNICATIONS CORP.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Period from February 7, 1997 (Inception) to December 31, 1997 and
for the Nine Months Ended September 30, 1998 and 1997 (unaudited)
(The information with respect to the nine months ended
September 30, 1998 and 1997 is unaudited.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
which is convertible at $4.00 per share.
During October 1998, the Company completed the conversion of the
10.25% Convertible Subordinated Promissory Note for $150,000 and
issued 100,000 shares of common stock.
Acquisition
Effective November 1, 1998, the Company acquired, pursuant to an
Agreement of Merger, all of the issued and outstanding common stock of
Design Analysis Associates, Inc. ("DAA"), a Utah company, in exchange
for 1,100,000 shares of the Company's common stock. In addition, under
the terms of the Agreement of Merger, the Company will issue up to an
additional 400,000 shares of common stock if the gross sales of DAA
exceed certain amounts. The acquisition was accounted for under the
purchase method. The assets acquired and the liabilities assumed were
as follows:
<TABLE>
<S> <C>
Cash $ 220,371
Accounts receivable 534,986
Investments 37,500
Inventory 25,700
Furniture and equipment, at net book value 196,093
Accounts payable (103,954)
----------------
Total assets 910,695
----------------
Excess of cost over fair value of net assets acquired 2,939,305
----------------
Consideration $ 3,850,000
----------------
----------------
</TABLE>
The information provided in the above table is based on DAA's
unaudited financial statements. The consideration is based on the
issuance of 1,100,000 shares at the closing price of the Company's
stock on October 29, 1998, the closing date of the acquisition, of
$3.50 per share. The excess of cost over fair value of net assets
acquired will be amortized on a straight-line basis over ten years.
F-22
<PAGE>
TeraGlobal COMMUNICATIONS CORP. AND SUBSIDIARIES
Proforma Consolidated Balance Sheet
As of December 31, 1997
<TABLE>
<CAPTION>
TeraGlobal
Communications, TechnoVision
Corp. and Communications Design Analysis
Subsidaries Inc. Associates, Inc. Adjustment Total
ASSETS
<S> <C> <C> <C>
Current assets
Cash and cash equivalents $ 27,705 $ (410) $ (21,223) $ $ 6,072
Accounts receivable 10,971 314,834 325,805
Prepaid expenses and other current assets 10,882 59,036 69,918
Investments 16,700 16,700
Inventory 82,785 38,427 121,212
---------- ---------- ---------- ----------- -----------
Total current assets 38,587 152,382 348,738 -- 539,707
Furniture and equipment, net 19,437 156,194 82,102 257,733
Organization costs, net 10,764 10,764
Guaranty deposits 5,752 5,752
Goodwill, net 16,161,064 3 16,161,064
---------- ---------- ---------- ----------- -----------
Total assets 58,024 325,092 430,840 16,161,064 16,975,020
---------- ---------- ---------- ----------- -----------
---------- ---------- ---------- ----------- -----------
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities
Accounts payable, including $113,250 to
related parties 111,819 361,181 88,838 (334,884)2 226,954
Accrued liabilities, including $113,086
to related parties 3,496 20,580 24,076
Accrued retirement & profit sharing 242,946 242,946
Short term loans, including $623
to a related party 77,583 133,997 211,580
---------- ---------- ---------- ----------- -----------
192,898 495,178 352,364 (334,884) 705,556
Long term liabilities 83,187 83,187
---------- ---------- ---------- ----------- -----------
Total Liabilities 192,898 578,365 352,364 (334,884) 788,743
---------- ---------- ---------- ----------- -----------
Shareholders' Deficit
Preferred stock, $1.00 par value, no
voting rights 100,000 shares authorized
no shares issued and outstanding
Common stock, $.001 par value
50,000,000 shares authorized
14,841,502 shares issued and outstanding 9,850 1,720,570 200 17,685,663 1 19,416,283
Additional paid-in capital 55,890 800 109,769 4 166,459
Common stock subscribed 190,000 190,000
Accumulated deficit (391,480) (1,973,843) 77,476 (1,299,484)5 (3,587,331)
Cumulative foreign currency translation
adjustment 866 866
---------- ---------- ---------- ----------- -----------
(134,874) (253,273) 78,476 16,495,948 16,186,277
---------- ---------- ---------- ----------- -----------
$ 58,024 $ 325,092 $ 430,840 $16,975,020 $16,975,020
---------- ---------- ---------- ----------- -----------
---------- ---------- ---------- ----------- -----------
</TABLE>
Explanation of Pro Forma Adjustments
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Adjusting Journal Entry 1
Investment in TVC 15,556,433 x
Common Stock (TGC) 15,556,433 1
To record issuance of shares to acquire TVC
Adjusting Journal Entry 2
Investment in DAA 3,850,000 x
Common Stock (TGC) 3,850,000 1
To record issuance of chares to acquire DAA
Adjusting Journal Entry 3
Goodwill 15,506,915 3
Common Stock (TVC) 1,720,570 1
Accounts Payable (TGC) 334,884 2
Paid in Capital 32,093 4
Investment in TVC 15,556,433 x
Earnings (TVC) 1,973,843 5
Balance 17,562,369 17,562,369
Consolidate/Eliminate TVC at 12-31-97
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Adjusting Journal Entry 4
Amortization Expense 2,842,934 5
Goodwill 2,842,934 3
To record TVC amort for 11 months
Adjusting Journal Entry 5
Amortization Expense 352,917 5
Goodwill 352,917 3
To record DAA amort for 11 months
Adjusting Journal Entry 6
Goodwill 3,850,000 3
Common Stock DAA 200 1
Paid in Cap DDA 800 4
Earnings DAA 77,476 5
Investment in DAA 3,850,000 x
Paid in Cap TGC 78,476 4
Balance 3,928,476 3,928,476
Consolidate/Eliminate DAA at 12-31-97
</TABLE>
F-23
<PAGE>
TeraGLOBAL COMMUNICATIONS CORP. AND SUBSIDIARIES
Proforma Consolidated Statement of Operations
For Year Ended December 31, 1997
<TABLE>
<CAPTION>
For the Period from
February 7, 1997
(Inception) to For the Year ended For the Year ended
December 31, 1997 December 31, 1997 December 31, 1997
TeraGlobal
Communications, Techno Visiona Design Analysis
Corp. and Subsidaries Communications Inc Associates, Inc.
<S> <C> <C> <C>
Sales $ $ 547,363 $ 3,749,38
Cost of sales 530,998 2,603,125
----------- -----------
Gross profit -- 16,365 1,146,113
Operating expenses
Legal 67,463 70,019 2,737
General and administrative 130,237 272,292 984,130
Research and development 41,259 675,148
Consulting, related party 94,488
Selling 504,839 123,738
---------------- ------------- --------------
333,447 1,522,298 1,110,605
---------------- ------------- --------------
Loss from operations (333,447) (1,505,933) 35,508
---------------- ------------- --------------
Other income (expenses)
Fines and penalties (66)
Income taxes (800)
Interest income 754
Interest expense (3,601) (11,066) (13,354)
Investment loss (25,000)
Other income 759
---------------- ------------- --------------
Total other income (expense) (2,088) (11,932) (38,354)
---------------- ------------- --------------
Net Loss $ (335,535) $(1,517,865) $ (2,846)
---------------- ------------- --------------
Basic loss per common share $ (0.09)
----------------
Weighted-average common shares outstanding 3,627,064
----------------
</TABLE>
<TABLE>
<CAPTION>
Adjustments Total
<S> <C> <C>
Sales $ $ 4,296,601
Cost of sales 3,134,123
----------- -----------
Gross profit 1,162,478
Operating expenses
Legal 140,219
General and administrative 3,195,851 5 4,582,510
Research and development 716,407
Consulting, related party 94,488
Selling 628,577
----------- -----------
3,195,851 6,162,201
----------- -----------
Loss from operations (3,195,851) (4,999,723)
----------- -----------
Other income (expenses)
Fines and penalties (66)
Income taxes (800)
Interest income 754
Interest expense (28,021)
Investment loss (25,000)
Other income 759
----------- -----------
Total other income (expense) -- (52,374)
----------- -----------
Net Loss $(3,195,851) $(5,052,097)
----------- ------------
Basic loss per common share (0.58)
------------
Weighted-average common shares outstanding 8,683,064
------------
</TABLE>
F-24
<PAGE>
TeraGLOBAL COMMUNICATIONS, CORP. AND SUBSIDARIES
Proforma Consolidated Balance Sheet
As of September 30, 1998
<TABLE>
<CAPTION>
TeraGlobal
Communications,
Corp. and Design Analysis
Subsidaries Associates, Inc. Adjustments Total
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 500,052 $ 220,371 $ $ 720,423
Accounts receivable 43,193 534,986 578,179
Notes receivable - related party 56,500 56,500
Inventory 38,641 25,700 64,341
Investments 37,500 37,500
Prepaid expenses and other current assets 204,073 204,073
------------ ------------ ----------- ------------
Total current assets 842,459 818,557 -- 1,661,016
Furniture and equipment, net 1,222,740 196,093 1,418,833
Goodwill on acquisition of
Design Analysis Associates 3,561,250 (1) 3,561,250
Goodwill on acquisition of
TechnoVision Communications Inc. 15,232,651 15,232,651
------------ ------------ ----------- ------------
Total assets 17,297,850 1,014,649 3,561,250 21,873,749
------------ ------------ ----------- ------------
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities
Accounts payable, including $113,250 to related parties 756,788 103,954 860,742
Short Term Loans 192,896 192,896
Convertible Debenture 127,500 127,500
Accrued liabilities, including $113,086 to related parties 171,886 171,886
Notes payable 66,508 66,508
Current Portion of notes payable, related party 150,000 150,000
Current Portion of capitalized lease obligations 541,248 541,248
------------ ------------ ----------- ------------
2,006,826 103,954 -- 2,110,780
Long term liabilities
Convertible debentures 850,000 850,000
Notes Payable, less current portion 209,460 209,460
Capitalized lease obligations 773,761 773,761
------------ ------------ ----------- ------------
Total Liabilities 3,840,047 103,954 -- 3,944,001
------------ ------------ ----------- ------------
Shareholders' Deficit
Preferred stock, $1.00 par value, no voting rights
100,000 shares authorized
no shares issued and outstanding
Common stock, $.001 par value
50,000,000 shares authorized
14,841,502 shares issued and outstanding 14,806 3,850,000 (2) 3,864,806
Additional paid-in capital 16,588,367 800 77,676 (3) 16,666,843
Common stock subscribed 74,375 200 (200)(4) 74,375
Accumulated Deficit (3,218,513) 909,695 (366,226)(5) (2,675,044)
Cumulative foreign currency translation adjustment (1,232) (1,232)
------------ ------------ ----------- ------------
13,457,803 910,695 3,561,250 17,929,748
------------ ------------ ----------- ------------
$ 17,297,850 $ 1,014,649 $ 3,561,250 $ 21,873,749
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
</TABLE>
Explanation of Pro Forma Entries
<TABLE>
<CAPTION>
<S> <C> <C>
Adjusting Journal Entry 1
Goodwill 3,850,000 (1)
Common Stock DAA 200 (4)
Paid in Cap DAA 800 (3)
Earnings DAA 77,476 (5)
Investment in DAA 3,850,000 (2)
Paid in Cap TGC 78,476 (3)
3,928,476 3,928,476
Consolidate/Eliminate DAA at September 30, 1998
Adjusting Journal Entry 2
Amortization Expense 288,750 (5)
Goodwill 288,750 (1)
To record DAA amortization for 9 months
</TABLE>
F-25
<PAGE>
TeraGLOBAL COMMUNICATIONS CORP. AND SUBSIDIARIES
Proforma Consolidated Statement of Operations
For Period Ended September 30, 1998
<TABLE>
<CAPTION>
For the 9 months For the 9 months
ending September 30, ending September 30,
1998 1998
TeraGlobal
Communications, Design Analysis
Corp. and Subsidaries Associates, Inc. Adjustments Total
<S> <C> <C> <C> <C>
Sales $ 280,484 $ 3,198,808 $ 3,479,292
Cost of sales 216,806 1,773,454 1,990,260
---------- ---------- --------- ----------
Gross profit 63,678 1,425,354 1,489,032
Operating expenses
Legal 189,684 6,200 195,884
General and administrative 1,407,936 595,592 288,750 5 2,292,278
Research and development 1,011,776 1,011,776
Consulting, related party 83,250 83,250
Selling 119,236 53,085 172,321
---------- ---------- --------- ----------
2,811,882 654,878 288,750 3,755,510
---------- ---------- --------- ----------
Loss from operations (2,748,204) 770,476 (288,750) (2,266,478)
---------- ---------- --------- ----------
Other income (expenses)
Interest income 894 10,170 11,065
Interest expense (80,702) (80,702)
Other income -- --
---------- ---------- --------- ----------
Total other income (expense) (79,808) 10,170 -- (69,637)
---------- ---------- --------- ----------
Net Loss before Minority Interest (2,828,012) 780,646 (288,750) (2,336,115)
Minority Interet in loss of subsidiary 979 -- -- 979
Net Gain(Loss) (2,827,033) 780,646 (288,750) (2,335,136)
Basic loss per common share $ (0.25) (0.18)
---------- ----------
---------- ----------
Weighted-average common shares outstanding 11,367,009 12,867,009
---------- ----------
---------- ----------
</TABLE>
F-26
<PAGE>
TECHNOVISION COMMUNICATIONS, INC.
(A Development Stage Company)
Audited Financial Statements
For the Year Ended December 31, 1997
and the Period from December 8, 1995 (Inception)
to December 31, 1997
F-27
<PAGE>
TECHNOVISION COMMUNICTIONS, INC.
AND SUBSIDIARIES
(A Development Stage Company)
Contents
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Certified Public Accountants F-32
Financial Statements
Balance Sheet F-33
Statements of Operations F-34
Statements of Cash Flows F-35
Statements of Shareholders' Equity F-37
Notes to Financial Statements F-38 - F-44
</TABLE>
F-28
<PAGE>
REPORT ALL OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
Board of Directors
TechnoVision Communications, Inc.
I have audited the accompanying balance sheet of TechnoVision Communications,
Inc., (a development stage company) as of December 31, 1997 and 1996 and the
related statements of operations, shareholders' equity, and cash flows for the
period ending December 31, 1997 and the period from December 8, 1995,
(inception), to December 31, 1997. These financial statements are the
responsibility of the Company's management. My responsibility is to express an
opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation
basis for my opinion. I believe that my audit provides a reasonable basis for my
opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of TechnoVision Communication, Inc. as
of December 31, 1997 and 1996, and the results of their operations and their
cash flows for the period ending December 31, 1997 and for the period from
(inception) December 8, 1995 to December 31, 1997 in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern as discussed in Note 2 to the financial
statements, the Company incurred a net loss of $1,973,473 during the period from
December 8, 1995 (inception) to December 31, 1997, and, as of that date, the
Company's current liabilities exceeded its current assets by $342,796, its total
liabilities exceed its total assets by $253,273. In addition the company is
involved in certain litigation in which the outcome is uncertain as discussed in
Note 9. These factors, among others, as discussed in Note 2 to the financial
statements raise substantial doubt about the company's ability to continue as a
going concern. Management's plans in regards to these matters are also described
in Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Louis Tommasino, CPA
September 25, 1998
San Diego, California
F-29
<PAGE>
TECHNOVISION COMMUNICATIONS, INC.
(A Development Stage Company)
Balance Sheet
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ (410) $ 80,847
Accounts receivable 10,971 34,580
Stock subscription receivable -- 37,999
Inventory 82,785 --
Prepaid expenses 59,036 --
----------------- -----------------
Total current assets 152,382 153,426
Furniture and equipment, net 156,194 211,875
Other Assets
Guaranty deposits 5,752 --
Organization cost net 10,764 --
----------------- -----------------
Total other assets 16,516 --
----------------- -----------------
Total assets 325,092 365,301
----------------- -----------------
----------------- -----------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 353,359 $ 130,170
Short-term loans including $66,508 to related parties 126,508 64,612
Accrued taxes 7,822 --
Leases payable current portion 7,489 --
----------------- -----------------
Total current liabilities 495,178 194,782
Long-Term Liabilities
Leases payable 43,230 --
Note payable - Shareholder related party 39,957 --
----------------- -----------------
Total long-term liabilities 83,187 --
----------------- -----------------
Total liabilities 578,365 194,782
Commitments and Contingencies
Shareholders' equity
Common stock, no par value
10,000,000 shares authorized
6,624,442 shares issued and outstanding 1,720,570 588,500
Common stock subscribed -- 37,999
Deficit accumulated during the development stage (1,973,843) (455,980)
----------------- -----------------
Total shareholders' equity (253,273) 170,519
----------------- -----------------
Total liabilities and shareholders' equity $ 325,092 $ 365,301
----------------- -----------------
----------------- -----------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE>
TECHNOVISION COMMUNICATIONS, INC.
(A Development Stage Company)
Statement of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period
from Inception
December 8, 1995
For the Year to December 31,
ending December 1997
31, 1997 ----------------
---------------
<S> <C> <C>
Operating Revenue
System sales $ 547,363 $ 869,169
Cost of Sales
System sales 495,922 678,309
Commissions 35,076 73,109
----------- -----------
Total costs of sales 530,998 751,418
----------- -----------
Gross profit from operations 16,365 117,751
----------- -----------
Operating Expenses
Consulting -- 118,528
Depreciation and amortization 36,985 47,822
Legal expenses 70,019 108,559
General and administrative 235,307 544,907
Marketing and advertising 276,444 325,334
Salaries and payroll taxes 228,395 228,395
Research and development 675,148 706,117
----------- -----------
Total operating expenses 1,522,298 2,079,662
----------- -----------
Loss from operations (1,505,933) (1,961,917)
----------- -----------
Other income (expenses)
Interest expense (11,066) (11,066)
Income taxes (800) (800)
Fines and penalties (66) (66)
----------- -----------
Total other income (expenses) (11,932) (11,932)
----------- -----------
Net loss $(1,517,865) $(1,973,843)
----------- -----------
----------- -----------
Basic loss per common share $ (0.23) $ (0.30)
----------- -----------
----------- -----------
Weighted average common share outstanding 6,624,442 6,624,442
----------- -----------
----------- -----------
Loss per share fully diluted $ (0.21) $ (0.28)
----------- -----------
----------- -----------
Fully diluted common shares outstanding 7,063,442 7,063,442
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE>
TECHNOVISION COMMUNICATIONS, INC.
(A Development Stage Company)
Cash Flows from Operating Activities
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period
from Inception
December 8, 1995
For the Year to December 31,
ending December 1997
31, 1997 ----------------
---------------
<S> <C> <C>
Cash Flows from Operating Activities
Net Loss $(1,517,865) $ (1,973,843)
Adjustments to reconcile net loss to net cash
Used in operating activities
Depreciation amortization 36,985 47,822
Increase (decrease)in
Accounts payable 223,189 353,359
Accrued taxes 7,822 7,822
Leases payable 50,719 50,719
Decrease (increase) in
Accounts receivable 23,609 (10,973)
Inventories (82,785) (82,785)
Prepaid expenses (59,036) (59,036)
Other assets (19,828) (19,828)
------------ -------------
Net cash used in operating activities $(1,337,190) $ (1,686,743)
------------ -------------
Cash Flows from Investing Activities
Purchase of furniture and equipment (60,775) (285,487)
Reclass of demo equipment to inventory 82,785 82,785
------------ -------------
Net cash provided (used) in investing activities 22,010 (202,702)
------------ -------------
Cash Flows from Financing Activities
Proceeds from notes from shareholders 39,957 39,957
Proceeds from short-term loans 61,896 128,508
Proceeds from common stock subscription 1,132,070 1,720,570
Decrease (increase) in
Stock subscription receivable 37,999 --
Increase (decrease) in
Common stock subscribed (37,999) --
------------ -------------
Net cash provided by financing activities 1,233,923 1,889,035
------------ -------------
Net decrease in cash and cash equivalents $ (81,257) $ (410)
Cash and cash equivalents beginning of period 80,847 --
------------ -------------
Cash and cash equivalents end of period $ (410) $ (410)
------------ -------------
------------ -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE>
TECHNOVISION COMMUNICATIONS, INC.
(A Development Stage Company)
Cash Flows from Operating Activities
For the Year ending December 31, 1997
and the Period from (Inception) December 8, 1995 to December 31, 1997
- --------------------------------------------------------------------------------
Supplemental disclosures of cash flow information.
During the period ending December 31, 1997, the Company paid no income taxes.
During the period ending December 31, 1997, the Company paid interest in the
amount of $11,066.
F-33
<PAGE>
TECHNOVISION COMMUNICATIONS, INC.
(A Development Stage Company)
Statement of Shareholders' Equity
For the Year ended December 31, 1997
and the Period from December 8, 1995 (inception) to December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Common during the
------------------------- Stock Development
Shares Amount Subscribed Stage Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance December 8, 1995 0 $ 0 $ 0 $ 0 $ 0
Common stock issued to the original
Founders and Shareholders of the Company 4,000,000 40,000 40,000
Common stock issued by TechnoVision 853,501 548,500 548,500
Common stock subscribed 1996 37,000 37,999 37,999
Net loss from inception
December 8, 995 to December 31, 1996 (455,980) (455,980)
----------- ----------- ----------- ----------- -----------
Balance December 31, 1996 4,891,500 $ 588,500 $ 37,999 $ (455,980) $ 170,519
Common stock issued by TechnoVision, 37,999 (37,999)
1997
Common stock subscribed 1997 1,732,942 1,094,071 1,094,071
Net loss of the year ended December 31, (1,517,863) (1,517,863)
1997
----------- ----------- ----------- ----------- -----------
Balance, December 31, 1997 6,624,442 $ 1,720,570 $ -- $(1,973,843) $ (253,273)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-34
<PAGE>
TECHNOVISION COMMUNICATIONS, INC.
(A Development Stage Company)
Notes to Financial Statements
For the Year ended December 31, 1997
and the Period from December 8, 1995 (inception) to December 31, 1997
- --------------------------------------------------------------------------------
NOTE 1 - DESCRIPTION ALL OF BUSINESS
TechnoVision Communication, Inc. (the "Company") is a development
stage enterprise and is engaged in the development of video
conferencing products.
The Company was incorporated under the laws of the state of Georgia on
December 8, 1995. During the period beginning December 8, 1995 and
ending December 31, 1995 there was no activity. The company commenced
formal operations on January 1, 1996.
NOTE 2 - SUMMARY ALL OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles, which contemplate
continuation of the Company as a going concern. However, during the
period from December 8, 1995 (inception) to December 31, 1997, the
Company incurred a net loss of $1,973,843, and as of that date, the
Company's current liabilities exceeds its current assets by $342,796,
and it had negative cash flows from operations of $81,257. In addition,
the Company is involved in certain litigation in which the outcome is
uncertain as discussed in Note 9. The Company is also in the
development stage at December 31, 1997. These factors raise substantial
doubt about the Company's ability to continue as a going concern.
Recovery of the Company's assets is dependent upon future events, the
outcome of which is indeterminable. Successful completion of the
Company's development program and its transition to the attainment of
profitable operations is dependent upon the Company obtaining adequate
debt and equity financing to fulfill its development activities and
achieving a level of sales adequate to support the Company's cost
structure. In addition, realization of a major portion of the assets in
the accompanying balance sheet is dependent upon the Company's ability
to meet its financing requirements and the success of its plans to sell
its products. The financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset
amounts or amounts and classification of liabilities that might be
necessary should the Company be unable to continue in existence.
Management plans to raise additional equity capital, continue to
develop its products, and look for merger or acquisition candidates.
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 disclosures of contingent assets and liabilities at the
date of the financial statements, as well as the reported amounts of
revenues and expenses during the reported period. Actual results could
differ from those estimates.
F-35
<PAGE>
TECHNOVISION COMMUNICATIONS, INC.
(A Development Stage Company)
Notes to Financial Statements
For the Year ended December 31, 1997
and the Period from December 8, 1995 (inception) to December 31, 1997
- --------------------------------------------------------------------------------
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly-liquid investments purchased with original maturities of three
months or less to be cash equivalents.
NOTE 2 - SUMMARY ALL OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Inventory
Inventories are recorded at cost. During 1997 the company reclassified
its demo equipment in the amount of $ 82,785 to inventory, because this
equipment will be sold to the public. Inventory consists of all costs
relating to the production of video communications equipment. Inventory
at December 31, 1997 is in the amount of $82,785.
Furniture and Equipment
Furniture and equipment are recorded at cost, less accumulated
depreciation. Depreciation is provided using the straight-line method
over an estimated useful life of five years. Betterments, renewals, and
extraordinary repairs that extend the life of the asset are
capitalized; other repairs and maintenance charges are expensed as
incurred. The cost and related accumulated depreciation applicable to
assets retired are removed from the Company's accounts, and the gain or
loss on dispositions, if any, is recognized in the statement of
operations.
Organization Costs
Organization costs are being amortized over five years using the
straight-line method. Amortization expense for the year ending December
31, 1997 is in the amount of $ 3,312.
Development Stage Enterprise
The Company is a development stage company as defined in Statement of
Financial Accounting Standards ("SFAS") No. 7, "Accounting and
Reporting by Development Stage Enterprises." The Company is devoting
substantially all of its present efforts to establish a new business.
All losses accumulated since inception have been considered as part of
the Company's development stage activities, even though the company's
operations have commenced, the company is currently in its development
stage.
Research and Development Costs
Research and development costs are charged to expense as incurred.
F-36
<PAGE>
TECHNOVISION COMMUNICATIONS, INC.
(A Development Stage Company)
Notes to Financial Statements
For the Year ended December 31, 1997
and the Period from December 8, 1995 (inception) to December 31, 1997
- --------------------------------------------------------------------------------
NOTE 2 - SUMMARY ALL OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
The Company accounts for income taxes under the liability and asset
method, which requires the recognition of deferred tax liabilities and
assets for the expected future tax consequences of events that have
been included in the financial statements or tax returns. Under this
method, deferred income taxes are recognized for the tax consequences
in the future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each period-end
based on enacted tax laws and statutory tax rates applicable to the
periods in which the differences are expected to affect taxable income.
Valuation allowances are established, when necessary, to reduce
deferred tax assets to the amount expected to be realized. The
provision for income taxes if applicable, represents the tax payable
for the period and the change during the period in deferred tax assets
and liabilities.
Earnings per Share
For the period from December 8, 1995 (inception) to December 31, 1997,
the Company adopted SFAS No. 128, "Earnings per Share." Basic earnings
per share is computed by dividing income available to common
shareholders by the weighted-average number of common shares
outstanding. Diluted earnings per share is computed similar to basic
earnings per share except that the denominator is increased to include
the number of additional common shares that would have been outstanding
if the potential common shares had been issued and if the additional
common shares were dilative.
Recent Accounting Pronouncements
The financial Accounting Standards Board ("FASB") issues SFAS No. 130,
"Reporting Comprehensive Income, "which is effective for financial
statements with fiscal years beginning after December 15, 1997. SFAS
No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of
general-purpose financial statements. The Company does not expect
adoption of SFAS No. 130 to have a material effect, if any, on its
financial position or results of operations.
FASB issued SFAS 131, "Disclosure about Segments of an Enterprise and
Related Information," issued by FASB, which is effective for financial
statements with fiscal years beginning after December 31, 1997. This
statement establishes standards for the way that public entities report
selected information about operating segments, products, and services,
geographic areas, and major customers in interim and annual financial
reports. The Company does not expect adoption of SFAS No. 131 to have a
material effect, if any, on its financial position or results of
operations.
F-37
<PAGE>
TECHNOVISION COMMUNICATIONS, INC.
(A Development Stage Company)
Notes to Financial Statements
For the Year ended December 31, 1997
and the Period from December 8, 1995 (inception) to December 31, 1997
- --------------------------------------------------------------------------------
NOTE 2 - SUMMARY ALL OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fair Value of Financial Instruments
The Company measures its financial assets and liabilities in accordance
with generally accepted accounting principles. For certain of the
company's financial instruments, including cash and cash equivalents,
accounts payable, and accrued expenses, the carrying amounts
approximate fair value due to their short maturities. The amounts shown
for short-term loans also approximate fair value because current
interest rates offered to the Company for short-term loans of similar
maturities are substantially the same.
NOTE 3 - FURNITURE AND EQUIPMENT
Furniture and equipment at December 31, 1997 and 1996, consisted of the
following:
<TABLE>
<CAPTION>
December 1997 December 1996
------------- -------------
<S> <C> <C>
Office equipment $ 34,735 $ 27,000
Computer equipment and software 164,722 195,712
Transportation equipment 4,656 --
------------- -------------
240,113 222,712
Less accumulated depreciation 47,919 10,837
------------- -------------
Total $156,194 $211,875
------------- -------------
------------- -------------
</TABLE>
Depreciation expense for the period ending December 31, 1997 and 1996
was $33,673 and $10,837.
NOTE 4 - SHORT-TERM LOANS
Principal is due on demand and is unsecured. Amounts do not accrue
interest.
F-38
<PAGE>
TECHNOVISION COMMUNICATIONS, INC.
(A Development Stage Company)
Notes to Financial Statements
For the Year ended December 31, 1997
and the Period from December 8, 1995 (inception) to December 31, 1997
- --------------------------------------------------------------------------------
NOTE 5 - COMMITMENTS AND CONTINGENCIES
Lease
The company entered into a lease agreement with Sentre Partners, San
Diego 225 RPF III Limited Liability Company, a Delaware Limited
Liability company, whereby the company will provide $120,000 of Video
Conference Equipment in exchange for eighteen months of rent. The
company leases other facilities for its corporate offices, under a
month-to-month operating lease agreement. Rent expense was $75,704 for
the period ending December 31, 1997.
Capital Leases
The company acquired some of its computer and telephone equipment in
1997 under the provisions of a long-term lease. For financial statement
purposes, minimum lease payments relating to this equipment of $58,208
have been capitalized. Accumulated depreciation on the equipment on
December 31, 1997 was $11,642.
The following is a schedule by years of future minimum lease payments
under capital leases together with the present value of the net minimum
lease payments
<TABLE>
<CAPTION>
Year Ended
1997 1998 2000
-------- -------- --------
<S> <C> <C> <C>
Minimum lease payments $12,854 $27,888 $ 9,248
Lease amount representing interest 5,365 9,155 432
-------- -------- --------
Present value of net minimum lease $ 7,489 $18,733 $ 8,816
payment
Current portion by year $ 7,489 $18,733 $ 8,816
</TABLE>
Litigation
The company and certain of its officers are subject to certain
litigation. Related to its 1998 common stock exchange offer made by
Video Stream International, Inc. as more fully described in NOTE 9.
F-39
<PAGE>
TECHNOVISION COMMUNICATIONS, INC.
(A Development Stage Company)
Notes to Financial Statements
For the Year ended December 31, 1997
and the Period from December 8, 1995 (inception) to December 31, 1997
- --------------------------------------------------------------------------------
NOTE 6 - SHAREHOLDERS' EQUITY
Common Stock
The Company issued 4,000,000 shares of common stock to its founders and
original shareholders of the company and received $40,000 for the
issuance of those shares of stock, during the period from December 8,
1995 (inception) to December 31, 1996.
During the year ending December 31, 1997 the company received
$1,094,071 for the subscription of 1,732,942 shares of stock.
Stock Option Plan
The company adopted a Stock Option Plan. (the "Plan") in 1997. Under
the terms of the plan options are granted to employees, officers, and
directors of the Company to purchase shares of the company's common
stock at an option price of $1.00 per share. Options generally vest and
become exercisable to the extent of 25% three months from the grant
date and the remainder ratably over the twelve months period,
thereafter. If an employee terminates his/her employment all vested
options will remain with the employee until March 31, 2006. At December
31, 1997 there were 973,000 shares under option and 439,000 vested
shares outstanding. These vested option shares outstanding will be used
to calculate the fully diluted shares outstanding.
NOTE 7 - INCOME TAXES
As of December 31, 1997, the company had approximately $1,973,843 in
net operating loss carry forwards that may be offset against future
taxable income through the year 2018. The company also has a research
activities credit in the amount of $55,737 to offset against future
corporate taxes. The deferred income tax benefit of the loss carry
forward is the only significant deferred income tax asset or liability
of the Company and has been offset by a valuation allowance of the same
amount as management does not believe the recoverability of this
deferred tax asset is more likely than not. Accordingly, no deferred
income tax benefit has been recognized in these financial statements.
NOTE 8 - RELATED PARTIES
At December 31, 1997, $126,508 of the short- term loans outstanding
were due to the current shareholders and officers of the company.
During the period from December 8, 1995 (inception) to December 31,
1997 the company paid to officers and shareholders of the Company
$33,323 of reimbursement for General and Administrative expenses.
During the period ending December 31, 1997 the Company paid salaries to
officers and shareholders of the
F-40
<PAGE>
TECHNOVISION COMMUNICATIONS, INC.
(A Development Stage Company)
Notes to Financial Statements
For the Year ended December 31, 1997
and the Period from December 8, 1995 (inception) to December 31, 1997
- --------------------------------------------------------------------------------
company in the amount of $94,402.
NOTE 9 - SUBSEQUENT EVENTS
During June 1998, the Company's shareholders were offered, pursuant to
a Confidential Private Placement Memorandum made by Video Stream
International, Inc. to acquire all of the issued and outstanding common
stock of the Company. The shareholders of the Company are being offered
one common share of Video Stream International, Inc. for every two
common shares of the Company's stock tendered. Such offer originally
expired on July 15, 1998, but was extended to August 7, 1998. At the
date of this report, Video Stream International, Inc. believes that the
Company's shareholders have tendered approximately 99.1% of the total
issued and outstanding common shares of TechnoVision, and as a result,
Video Stream International, Inc. believes it has effective control of
the Company.
The Company has been named in a securities class action lawsuit filed
by two former shareholders of the Company on July 15, 1998 in Los
Angeles County Superior Court. The Compliant names the Company, Video
Stream International, Inc., Grey Venture Capital, Inc. and certain
present and former officers and employees of each as defendants. The
Complaint alleges that the Company and each conspired and engaged in
fraudulent and deceptive sales practice in connection with private
placement of securities in an offering conducted by Grey Venture
Capital from November 1997 through May 1998. The Complaint states
causes of action for breach of fiduciary duties, intentional
misrepresentation and fraudulent concealment, negligent
misrepresentation, unfair trade practices, negligence, Racketeer
Influenced and Corrupt Organizations Act of 1970 ("RICO") violations,
conversion, and conspiracy. The Company denies any involvement or
wrongdoing in connection with the private placement and intends to
vigorously defend the lawsuit.
The Company along with its Chief Executive Officer has been sued by
shareholder in for breach of contract, misrepresentation and fraud, and
breach of fiduciary duty.
The Complaint arises out of a settlement agreement entered into between
the Company and the shareholder. Under the terms of the Settlement
Agreement, the shareholder was given 750,000 shares of TechnoVision's
common stock which are subject to a repurchase option in favor of the
Company
The Complaint alleges that TechnoVision fraudulently induced the
shareholder to enter into the Settlement Agreement. The Complaint seeks
to invalidate the Settlement Agreement, cause the Company to issue to
the shareholder 2,000,000 shares of its common stock, invalidate the
repurchase option, and pay damages. The Company denies any wrongdoing
and intends to vigorously defend the lawsuit.
F-41
<PAGE>
TECHNOVISION COMMUNICATIONS, INC.
Audited Financial Statements
For the Period from December 8, 1996 (Inception)
to December 31, 1996
F-42
<PAGE>
TECHNOVISION COMMUNICTIONS, INC.
AND SUBSIDIARIES
(A Development Stage Company)
Contents
December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Certified Public Accountants F-47
Financial Statements
Balance Sheet F-48
Statements of Operations F-49
Statements of Cash Flows F-50
Statements of Shareholders' Equity F-51
Notes to Financial Statements F-52-F-56
</TABLE>
F-43
<PAGE>
REPORT ALL OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
Board of Directors
TechnoVision Communications, Inc.
I have audited the accompanying balance sheet of TechnoVision Communications,
Inc. (a development stage company as of December 31, 1996 and the related
statements of operations, shareholders' equity, and cash flows for the period
from December 8, 1995, (inception) to December 31, 1996. These financial
statements are the responsibility of the Company's management. My responsibility
is to express an opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of TechnoVision Communication, Inc. as
of December 31, 1996, and the results of their operations and their cash flows
for the period from December 8, 1995, (inception) to December 31, 1996 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
company will continue as a going concern as discussed in Note 2 to the financial
statements, the company incurred a net loss of $(455,980) during the period from
December 8, 1995 (inception) to December 31, 1996, and, as of that date, the
Company's current liabilities exceeded its current assets by $41,356. In
addition, the Company is involved in certain litigation in which the outcome is
uncertain as discussed in Note 9. These factors, among others, as discussed in
Note 2 to the financial statements raise substantial doubt about the company's
ability to continue as a going concern. Management's plans in regards to these
matters are also described in Note 2. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Louis Tommasino, CPA
September 25, 1998
San Diego, California
F-44
<PAGE>
TECHNOVISION COMMUNICATIONS, INC.
(A Development Stage Company)
Balance Sheet
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, 1996
-----------------
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 80,847
Accounts receivable 34,580
Stock subscription receivable 37,999
-----------------
Total current assets 153,426
Furniture and equipment, net 211,875
-----------------
Total assets $ 365,301
-----------------
-----------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 130,170
Short-term loans including $64,612 to related parties 64,612
-----------------
Total current liabilities 194,782
Commitments and Contingencies
Shareholders' equity
Common stock, no par value
10,000,000 shares authorized
4,891,500 shares issued and outstanding 588,500
Common stock subscribed 37,000
Deficit accumulated during the development stage (455,980)
-----------------
Total shareholders' equity 170,519
-----------------
Total liabilities and shareholders' equity $ 365,301
-----------------
-----------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-45
<PAGE>
TECHNOVISION COMMUNICATIONS, INC.
(A Development Stage Company)
Statement of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period from
December 8, 1995
(inception to
December 31, 1996
-----------------
<S> <C>
Operating Revenue
System sales $ 321,806
-----------------
Cost of Sales
Systems costs 182,387
Commissions 38,033
-----------------
Total costs of sales 220,420
-----------------
Gross profit from operations 101,386
-----------------
Operating Expenses
Consulting, related party 118,528
Depreciation 10,837
Legal expenses 38,540
General and administrative 309,600
Marketing and advertising 48,890
Research and development 30,971
-----------------
Total operating expenses $ 557,366
-----------------
Loss from operations (455,980)
-----------------
Other income (expenses) --
Net loss $ (455,980)
-----------------
Basic loss per common shares $ (0.09)
-----------------
Weighted average common shares outstanding 4,891,500
-----------------
</TABLE>
The accompanying notes are an integral part of these financial statements
F-46
<PAGE>
TECHNOVISION COMMUNICATIONS, INC.
(A Development Stage Company)
Cash Flows form Operating Activities
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss $(455,980)
Adjustments to reconcile net loss to net cash
Used in operating activities
Depreciation 10,837
Increase (Decrease) in accounts payable 130,170
Decrease (Increase) in accounts receivable (34,580)
-------------
Net cash used in operating activities $(349,553)
-------------
Cash flows from investing activities
Purchase of furniture and equipment (222,712)
-------------
Net cash used in investing activities (222,712)
-------------
Cash flow from investing activities
Proceeds from short-term loans 64,612
Proceeds from common stock subscription 588,500
Decrease (increase) in
Stock subscription receivable (37,999)
Increase (decrease) in
Common stock subscribed 37,999
-------------
Net cash provided by financial activities 653,112
-------------
Net increase in cash and cash equivalents $ 80,847
-------------
Cash and cash equivalents, beginning of period --
Cash and cash equivalents, end of period $ 80,847
-------------
</TABLE>
SUPPLEMENTAL DISCLOSURES ALL OF CASH FLOW INFORMATION
During the period from December 8, 1995 (inception) to December 31, 1996, the
Company paid no income taxes
During the period from December 8, 1995 (inception) to December 31, 1996, the
Company paid no interest
The accompanying notes are an integral part of these financial statements.
F-47
<PAGE>
TECHNOVISION COMMUNICATIONS, INC.
(A Development Stage Company)
Statement of Shareholders' Equity
For the Period from December 8, 1995 (Inception) to December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Deficit/Accumulated
Common Stock during the
--------------------------- Common Stock Development
Shares Amount Subscribed Stage Total
------------ ------------ ------------ ------------------- ------------
<S> <C> <C> <C> <C> <C>
Balance, December 8, 1995 0 $ 0 $ 0 $ 0 $ 0
Common stock issued to the
original founders and
shareholders of the 4,000,000 40,000 40,000
Company
Common stock issued for 853,501 548,500 548,500
cash
Common stock subscribed 37,000 37,000 37,999
Net loss (455,980) (455,980)
------------ ------------ ------------ ---------------- ------------
Balance, December 31, 1996 $ 4,891,500 $ 588,500 $ 37,999 $ (455,980) $ 170,519)
------------ ------------ ------------ ---------------- ------------
------------ ------------ ------------ ---------------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-48
<PAGE>
TECHNOVISION COMMUNICATIONS, INC.
(A Development Stage Company)
Notes to Financial Statements
For the Period from December 8, 1995 (Inception) to December 31, 1996
- --------------------------------------------------------------------------------
NOTE 1 - DESCRIPTION ALL OF BUSINESS
TechnoVision Communication, Inc. (the "Company") is a development stage
enterprise and is engaged in the development of video conferencing
products.
The company was incorporated under the laws of the state of Georgia on
December 8, 1995. The company did not commence its operation until
January 1, 1996 and therefore, did not have any financial activity from
the period December 8, 1995 to January 1, 1996.
NOTE 2 - SUMMARY ALL OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles, which contemplate
continuation of the Company as a going concern. However, during the
period from December 8, 1995 (inception) to December 31, 1996, the
Company incurred a net loss of $455,980, and as of that date, the
Company's current liabilities exceeds its current assets by $41,356,
and it had negative cash flows from operations of $349,553. In
addition, the Company is involved in certain litigation in which the
outcome is uncertain as discussed in Note 9. The Company is also in the
development stage at December 31, 1996. These factors raise substantial
doubt about the Company's ability to continue as a going concern.
Recovery of the Company's assets is dependent upon future events, the
outcome of which is indeterminable. Successful completion of the
Company's development program and its transition to the attainment of
profitable operations is dependent upon the Company obtaining adequate
debt and equity financing to fulfill its development activities and
achieving a level of sales adequate to support the Company's cost
structure. In addition, realization of a major portion of the assets in
the accompanying balance sheet is dependent upon the Company's ability
to meet its financing requirements and the success of its plans to sell
its products. The financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset
amounts or amounts and classification of liabilities that might be
necessary should the Company be unable to continue in existence.
Management plans to raise additional equity capital, continue to
develop its products, and look for merger or acquisition candidates.
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 disclosures of contingent assets and liabilities at the
date of the financial statements, as well as the reported amounts of
revenues and expenses during the reported period. Actual results could
differ from those estimates.
Cash and Cash Equivalents
F-49
<PAGE>
TECHNOVISION COMMUNICATIONS, INC.
(A Development Stage Company)
Notes to Financial Statements
For the Period from December 8, 1995 (Inception) to December 31, 1996
- --------------------------------------------------------------------------------
For purposes of the statements of cash flows, the Company considers all
highly-liquid investments purchased with original maturities of three
months or less to be cash equivalents.
NOTE 2 - SUMMARY ALL OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Furniture and Equipment
Furniture and equipment are recorded at cost, less accumulated
depreciation. Depreciation is provided using the straight-line method
over an estimated useful life of five years. Betterments, renewals, and
extraordinary repairs that extend the life of the asset are
capitalized; other repairs and maintenance charges are expensed as
incurred. The cost and related accumulated depreciation applicable to
assets retired are removed from the Company's accounts, and the gain or
loss on dispositions, if any, is recognized in the statement of
operations.
Development Stage Enterprise
The Company is a development stage company as defined in Statement of
Financial Accounting Standards ("SFAS") No. 7, "Accounting and
Reporting by Development Stage Enterprises." The Company is devoting
substantially all of its present efforts to establish a new business,
and its planned principal operations have not yet commenced. All losses
accumulated since inception have been considered as part of the
Company's development stage activities.
Research and Development Costs
Research and development costs are charged to expense as incurred.
Income Taxes
The Company accounts for income taxes under the liability and asset
method, which requires the recognition of deferred tax liabilities and
assets for the expected future tax consequences of events that have
been included in the financial statements or tax returns. Under this
method, deferred income taxes are recognized for the tax consequences
in the future years of differences between the tax bases of assets and
liabilities and their financial reporting amounts at each period-end
based on enacted tax laws and statutory tax rates applicable to the
periods in which the differences are expected to affect taxable income.
Valuation allowances are established, when necessary, to reduce
deferred tax assets to the amount expected to be realized. The
provision for income taxes if applicable, represents the tax payable
for the period and the change during the period in deferred tax assets
and liabilities.
Earnings per Share
For the period from December 8, 1995 (inception) to December 31, 1996,
the Company adopted SFAS No. 128, "Earnings per Share." Basic earnings
per share is computed by dividing income available to common
shareholders by the weighted-average number of common shares
outstanding. Diluted earnings per share is computed similar to basic
earnings per share except that the denominator is increased to include
the
F-50
<PAGE>
TECHNOVISION COMMUNICATIONS, INC.
(A Development Stage Company)
Notes to Financial Statements
For the Period from December 8, 1995 (Inception) to December 31, 1996
- --------------------------------------------------------------------------------
number of additional common shares that would have been outstanding if
the potential common shares had been issued and if the additional
common shares were dilutive.
NOTE 2 - SUMMARY ALL OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent Accounting Pronouncements
The financial Accounting Standards Board ("FASB") issues SFAS No. 130,
"Reporting Comprehensive Income, "which is effective for financial
statements with fiscal years beginning after December 15, 1997. SFAS
No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of
general-purpose financial statements. The Company does not expect
adoption of SFAS No. 130 to have a material effect, if any, on its
financial position or results of operations.
FASB issued SFAS 131, "Disclosure about Segments of an Enterprise and
Related Information," issued by FASB, which is effective for financial
statements with fiscal years beginning after December 31, 1997. This
statement establishes standards for the way that public entities report
selected information about operating segments, products, and services,
geographic areas, and major customers in interim and annual financial
reports. The Company does not expect adoption of SFAS No. 131 to have a
material effect, if any, on its financial position or results of
operations.
Fair Value of Financial Instruments
The Company measures its financial assets and liabilities in accordance
with generally accepted accounting principles. For certain of the
company's financial instruments, including cash and cash equivalents,
accounts payable, and accrued expenses, the carrying amounts
approximate fair value due to their short maturities. The amounts shown
for short-term loans also approximate fair value because current
interest rates offered to the Company for short-term loans of similar
maturities are substantially the same.
NOTE 3 - FURNITURE AND EQUIPMENT
Furniture and equipment at December 31, 1996, consisted of the
following:
<TABLE>
<S> <C>
Office equipment $ 27,000
Computer equipment and software 195,712
--------
222,712
Less accumulated depreciation 10,837
--------
Total $211,875
--------
--------
</TABLE>
Depreciation expense for the period from December 8, 1995 (inception)
to December 31, 1996 was $10,837
F-51
<PAGE>
TECHNOVISION COMMUNICATIONS, INC.
(A Development Stage Company)
Notes to Financial Statements
For the Period from December 8, 1995 (Inception) to December 31, 1996
- --------------------------------------------------------------------------------
NOTE 4 - SHORT-TERM LOANS
Principal is due on demand and is unsecured. Amounts do not accrue
interest.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
Lease
The company leases certain facilities for its corporate officers, under
a month -to -month operating lease agreement. Rent expense was $18,270
for the period from December 8, 1995 (inception ) to December 31, 1996.
Litigation
The company and certain of its officers are subject to certain
litigation, related to its 1998 common stock exchange offer made by
Video Stream International, Inc. as more fully described in NOTE 9.
NOTE 6 - SHAREHOLDERS' EQUITY
Common Stock
During the year ending December 31, 1996 the company received $588,500
for the subscription of 4,891,500 shares of stock. The company had a
subscription receivable balance in the amount of $37,999 at December
31, 1996. In addition, the Company issued 4,000,000 shares of common
stock to its founders and original shareholders of the corporation and
received $40,000 for the issuance of those shares of stock.
NOTE 7 - INCOME TAXES
As of December 31, 1996, the company had approximately $455,980 in net
operation loss carryforwards that may be offset against future taxable
income through the year 2017. The deferred income tax benefit of the
loss carryforward is the only significant deferred income tax asset or
liability of the Company and has been offset by a valuation allowance
of the same amount as management does not believe the recoverability of
this deferred tax asset is more likely than not. Accordingly, no
deferred income tax benefit has been recognized in these financial
statements.
NOTE 8 - RELATED PARTIES
At December 31, 1996, $64,612 of the short- term loans outstanding were
due to the current shareholders and officers of the company.
F-52
<PAGE>
TECHNOVISION COMMUNICATIONS, INC.
(A Development Stage Company)
Notes to Financial Statements
For the Period from December 8, 1995 (Inception) to December 31, 1996
- --------------------------------------------------------------------------------
During the period from December 8, 1995 (inception) to December 31,
1996 the company paid to officers and shareholders of the Company
$33,323 of reimbursement for general and administrative expenses.
NOTE 9 - SUBSEQUENT EVENTS
During June 1998, the Company's shareholders were offered, pursuant to
a Confidential Private Placement Memorandum made by Video Stream
International, Inc. to acquire all of the issued and outstanding common
stock of the Company. The shareholders of the Company are being offered
one common share of Video Stream International, Inc. for every two
common shares of the Company tendered. Such offer originally expired on
July 15, 1998, but was extended to August 7, 1998. At the date of this
report, Video Stream International, Inc. believes that the Company's
shareholders have tendered approximately 99.1% of the total issued and
outstanding common shares of the Company, and as a result, Video Stream
International, Inc. believes it has effective control of TechnoVision
Communication, Inc.
The Company has been named in a securities class action lawsuit filed
by two former Shareholders' of the Company on July 15, 1998 in Los
Angeles County Superior Court. The Compliant names the Company, Video
Stream International, Inc., Grey Venture Capital, Inc. and certain
present and former officers and employees of each as defendants. The
Complaint alleges that the Company and each conspired and engaged in
fraudulent and deceptive sales practices in connection with private
placement of securities in an offering conducted by Grey Venture
Capital from November 1997 through May 1998. The Complaint states
causes of action for breach of fiduciary duties, intentional
misrepresentation and fraudulent concealment, negligent
misrepresentation, unfair trade practices, negligence, Racketeer
Influenced and Corrupt Organizations Act of 1970 ("RICO") violations,
conversion, and conspiracy. The Company denies any involvement or
wrongdoing in connection with the private placement and intends to
vigorously defend the lawsuit.
The Company along with its Chief Executive Officer has been sued by one
of its shareholders for breach of contract, misrepresentation and
fraud, and breach of fiduciary duty. The Complaint arises out of a
settlement agreement entered into between the Company and the
shareholder. Under the terms of the Settlement Agreement, the
shareholder was given 750,000 shares of the Company's' common stock
which are subject to a repurchase option in favor of the Company. The
Complaint alleges that the Company fraudulently induced the shareholder
to enter into the Settlement Agreement.
The Complaint seeks to invalidate the Settlement Agreement, cause the
Company to issue to the shareholder 2,000,000 shares of its Common
stock, invalidate the repurchase option, and pay damages. The Company
denies any wrongdoing and intends to vigorously defend the lawsuit.
F-53
<PAGE>
DESIGN ANALYSIS ASSOCIATES, INC.
FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1997
F-54
<PAGE>
DESIGN ANALYSIS ASSOCIATES, INC.
Contents
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Auditor's Report F-59
Balance Sheet F-60
Statement of Income and Retained Earnings F-61
Statement of Cash Flows F-62
Notes to Financial Statements F-63
</TABLE>
F-55
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Design Analysis Associates, Inc.
Logan UT 84321
I have audited the accompanying balance sheet of Design Analysis Associates,
Inc. (a corporation) as of December 31, 1997 and the related statements of
income and retained earnings, and cash flows for the year then ended. These
financial statements are the responsibility of Design Analysis' management. My
responsibility is to express an opinion on these financial statements based on
my audit.
I conducted may audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Design Analysis Associates, Inc. as
of December 31, 1997, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
Steven R. Misener
Certified Public Accountant
October 10, 1998
F-56
<PAGE>
DESIGN ANALYSIS ASSOCIATES, INC
Balance Sheet
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS
Current assets:
Accounts receivable $314,834
Inventory (note 1) 16,700
Investments 38,427
-----------
Total current assets $369,961
Fixed assets: (note 1)
Lab equipment 516,026
Leasehold improvements 35,235
Office furniture 22,693
-----------
Fixed assets 573,954
Less accumulated depreciation (491,852)
-----------
Total fixed assets 82,102
-----------
Total assets $452,063
-----------
-----------
LIABILITIES AND EQUITY
Current liabilities:
Cash overdraft $21,223
Accounts payable 88,838
Accrued expenses 20,580
Accrued retirement & profit sharing 242,946
-----------
Total current liabilities $373,587
Stockholders' equity:
Common stock 200
Paid-in capital 800
Retained earnings 77,476
-----------
Total equity 78,476
-----------
Total liabilities and equity $452,063
-----------
-----------
</TABLE>
See accompanying notes and accountant's report.
F-57
<PAGE>
DESIGN ANALYSIS ASSOCIATES, INC
Statement of Income and Retained Earnings
For the Year ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Income:
Sales $ 3,749,238
Cost of sales 2,469,894
-----------
Gross profit 1,279,344
-----------
General, administrative and overhead expenses:
Office salaries and wages 310,585
Marketing 123,738
Insurance 79,567
Commissions 133,231
Retirement contributions 242,946
Repairs and maintenance 15,362
Utilities and telephone 38,124
Supplies 60,342
Employee benefits 62,847
Dues and subscriptions 1,916
Taxes and licenses 7,733
Depreciation (note 1) 37,075
Rent 86,663
Legal and accounting 2,737
Meals and entertainment 8,521
Equipment lease 32,449
-----------
Total general, administrative and overhead expenses 1,243,836
-----------
Income (loss) from operations 35,508
Other income (expenses)
Interest income --
Interest expense (13,354)
Investment loss (25,000)
-----------
Net income (loss) (2,846)
Retained earnings, beginning 80,322
Owner draws --
-----------
Retained earnings, ending $ 77,476
-----------
-----------
</TABLE>
See accompanying notes and accountant's report.
F-58
<PAGE>
DESIGN ANALYSIS ASSOCIATES, INC
Statement of Cash Flows
For the Year ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income (loss) $ (2,846)
Non-cash items included in net income:
Depreciation 37,075
Net (increase) decrease in receivables, inventory and payables 189,007
-----------
Net cash provided (used by operating activities 223,236
-----------
Cash flows from investing activities:
Purchase of equipment and leasehold improvements (22,378)
-----------
Net cash provided (used) by investing activities (22,378)
-----------
Cash flows from financing activities:
Loan payment (100,000)
Owner (draws) contributions --
-----------
Net cash provided (used by financing activities (100,000)
-----------
Net increase (decrease) in cash 100,858
Cash at beginning of period (122,081)
-----------
Cash at end of period $ (21,223)
-----------
-----------
</TABLE>
See accompanying notes and accountant's report.
F-59
<PAGE>
DESIGN ANALYSIS ASSOCIATES, INC.
Notes to Financial Statements
December 31, 1997
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY ALL OF SIGNIFICANT ACCOUNTING POLICIES
This summary of accounting policies of Design Analysis Associates, Inc.
(the "Company") is presented to assist in understanding the Company's
financial statements. The financial statements and notes are
representations of the Company's management, who are responsible for
their integrity and objectivity. These accounting policies conform to
generally accepted accounting principles and have been consistently
applied in the preparation of the financial statements.
Business Activity
The Company was incorporated in 1973 under the laws of the State of
Utah. The accrual method of accounting is used for financial reporting.
The business develops and sells water measurement equipment and also
provides hardware and software consulting services.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined by the first-in, first-out method.
Property and Equipment
Property and equipment are carried at cost. Depreciation is computed
using the straightline and accelerated methods. When assets are retired
or otherwise disposed of, the cost and related accumulated depreciation
are removed from the accounts, and any resulting gain or loss is
recognized in income for the period. The cost of maintenance and
repairs is charged to expense as incurred; significant renewals and
betterments are capitalized. Deduction is made for retirement resulting
from betterments or renewals.
NOTE 2 - RENT
The Company rents is building under an informal arrangement with a
partnership owned 33% by the Company's majority stockholder. Monthly
rentals under this informal arrangement are presently $7,026.
NOTE 3 - DEFINED CONTRIBUTION PENSION PLAN
The Company has a defined contribution pension plan covering all
qualifying employees. The Company makes a contribution to the plan each
year based on a percent of the employee's compensation. Total expenses
for the year ended December 31, 1997 was $242,946.
NOTE 4 - INCOME TAXES
The Company has elected, with the consent of its stockholders, to be
taxes as an "S" Corporation under the Internal Revenue Code. An "S"
Corporation does not generally pay income taxes but, instead, its
stockholders are taxed on the Company's income. Therefore, these
statements do not include any provision for corporate income taxes.
F-60
<PAGE>
DESIGN ANALYSIS ASSOCIATES, INC.
FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996
F-61
<PAGE>
DESIGN ANALYSIS ASSOCIATES, INC.
Contents
December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
<S> <C>
Auditor's Report F-66
Balance Sheet F-67
Statement of Income and Retained Earnings F-68
Statement of Cash Flows F-69
Notes to Financial Statements F-70 - F-71
</TABLE>
F-62
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Design Analysis Associates, Inc.
Logan UT 84321
I have audited the accompanying balance sheet of Design Analysis Associates,
Inc. (a corporation) as of December 31, 1996 and the related statements of
income and retained earnings, and cash flows for the year then ended. These
financial statements are the responsibility of Design Analysis' management. My
responsibility is to express an opinion on these financial statements based on
my audit.
I conducted may audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Design Analysis Associates, Inc. as
of December 31, 1996, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.
Steven R. Misener
Certified Public Accountant
October 10, 1998
F-63
<PAGE>
DESIGN ANALYSIS ASSOCIATES, INC
Balance Sheet
December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Current assets:
Accounts receivable 320,378
Inventory (note 1) 1,500
----------
Total current assets $321,878
Fixed assets: (note 1)
Lab equipment 493,648
Leasehold improvements 35,235
Office furniture 22,693
----------
Fixed assets 551,576
Less accumulated depreciation (454,777)
----------
Total fixed assets 96,799
---------
Total assets $418,677
---------
---------
LIABILITIES AND EQUITY
Current liabilities:
Cash overdraft 122,081
Accounts payable 104,585
Accrued expenses 10,689
Notes payable, short-term (note 2) 100,000
----------
Total current liabilities $337,355
Stockholders' equity:
Common stock 200
Pain-in capital 800
Retained earnings 80,322
----------
Total equity 81,322
---------
Total liabilities and equity $418,677
---------
---------
</TABLE>
See accompanying notes and accountant's report.
F-64
<PAGE>
DESIGN ANALYSIS ASSOCIATES, INC
Statement of Income and Retained Earnings
For the Year ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Income:
Sales $ 3,375,608
Cost of sales 2,403,404
-----------
Gross profit 972,204
-----------
General, administrative and overhead expenses:
Office salaries and wages 342,633
Marketing 159,138
Insurance 65,267
Commissions 46,010
Pension and profit sharing 14,626
Repairs and maintenance 19,457
Utilities and telephone 41,471
Supplies 47,912
Employee benefits 20,127
Dues and subscriptions 1,409
Taxes and licenses 4,016
Depreciation (note 1) 39,189
Rent 85,251
Training and seminars 3,399
Legal and accounting 27,563
Meals and entertainment 12,130
Equipment lease 87,782
-----------
Total general, administrative and overhead expenses 1,040,693
-----------
Income (loss) from operations (68,489)
Other income (expenses)
Interest income 106
Interest expense (8,433)
-----------
Net income (loss) (76,816)
Retained earnings, beginning 213,932
Owner draws (56,794)
-----------
Retained earnings, ending $ 80,322
-----------
-----------
</TABLE>
See accompanying notes and accountant's report.
F-65
<PAGE>
DESIGN ANALYSIS ASSOCIATES, INC
Statement of Cash Flows
For the Year ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income (loss) $ (76,816)
Non-cash items included in net income:
Depreciation 39,189
Net (increase) decrease in receivables, inventory and payables (46,097)
----------
Net cash provided (used) by operating activities (83,724)
----------
Cash flows from investing activities:
Purchase of equipment and leasehold improvements (22,763)
----------
Net cash provided (used) by investing activities (22,763)
----------
Cash flows from financing activities:
Loan proceeds 100,000
Owner (draws) contributions (56,794)
----------
Net cash provided (used) by financing activities 43,206
----------
Net increase (decrease) in cash (63,281)
Cash at beginning of period (58,800)
----------
Cash at end of period $(122,081)
----------
----------
</TABLE>
See accompanying notes and accountant's report.
F-66
<PAGE>
DESIGN ANALYSIS ASSOCIATES, INC.
Notes to Financial Statements
December 31, 1996
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY ALL OF SIGNIFICANT ACCOUNTING POLICIES
This summary of accounting policies of Design Analysis Associates, Inc.
(the "Company") is presented to assist in understanding the Company's
financial statements. The financial statements and notes are
representations of the Company's management, who are responsible for
their integrity and objectivity. These accounting policies conform to
generally accepted accounting principles and have been consistently
applied in the preparation of the financial statements.
Business Activity
The Company was incorporated in 1973 under the laws of the State of
Utah. The accrual method of accounting is used for financial reporting.
The business develops and sells water measurement equipment and also
provides hardware and software consulting services.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined by the first-in, first-out method.
Property and Equipment
Property and equipment are carried at cost. Depreciation is computed
using the straightline and accelerated methods. When assets are retired
or otherwise disposed of, the cost and related accumulated depreciation
are removed from the accounts, and any resulting gain or loss is
recognized in income for the period. The cost of maintenance and
repairs is charged to expense as incurred; significant renewals and
betterments are capitalized. Deduction is made for retirement resulting
from betterments or renewals.
NOTE 2 - LINE ALL OF CREDIT
The Company has a line of credit with a bank. Maximum borrowings are
$100,000, interest is payable monthly at the bank's prime rate plus
1.50%, principal is payable on demand, and collateralization is
provided by accounts receivable and inventory. The balance owed at
December 31, 1996 was $100,000.
Interest expense was $8,433 for the year ended December 31, 1996.
NOTE 3 - RENT
The Company rents is building under an informal arrangement with a
partnership owned 33% by the Company's majority stockholder. Monthly
rentals under this informal arrangement are presently $7,026.
NOTE 4 - DEFINED CONTRIBUTION PENSION PLAN
The Company has a defined contribution pension plan covering all
qualifying employees. The Company makes a contribution to the plan each
year based on a percent of the employee's compensation. Total expenses
for the year ended December 31, 1996 was $14,091.
F-67
<PAGE>
DESIGN ANALYSIS ASSOCIATES, INC.
Notes to Financial Statements
December 31, 1996
- --------------------------------------------------------------------------------
NOTE 5 - INCOME TAXES
The Company has elected, with the consent of its stockholders, to be
taxes as an "S" Corporation under the Internal Revenue Code. An "S"
Corporation does not generally pay income taxes but, instead, its
stockholders are taxed on the Company's income. Therefore, these
statements do not include any provision for corporate income taxes.
F-68
<PAGE>
PART IV - Exhibits
<TABLE>
<S> <C>
3.1 Articles of Incorporation, as amended
3.2 Bylaws, as amended
4.1 Form of Convertible Debenture
5.1 Legal Opinion re Legality
10.1 Agreement and Plan of Merger with Design Analysis Associates, Inc. dated September 30, 1998
10.2 Asset Purchase Agreement with Interactive Solutions Group, Inc. dated July 31, 1998
10.4 Ingram Micro Agreement
10.5 Employment Agreement with Mr. Cox
10.6 Employment Agreement with Mr. Fann
10.7 Employment Agreement with Mr. Holcomb
10.8 Employment Agreement with Mr. Nakhleh
10.9 1997 Employee Stock Option Plan
10.10 MENTAT Agreement
10.11 Alliance Leasing Form of Capital Equipment Lease
10.12 Infinop Licensing Agreement
11 Statement re Computation of Earnings Per Share
21 Subsidiaries of the Registrant
24 Power of Attorney
27 Financial Data Schedule
</TABLE>
II-1
<PAGE>
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.
TERAGLOBAL COMMUNICATIONS CORP.
Date: November 25, 1998 By: /s/ DAVID FANN
-----------------------------------
David Fann, Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints David Fann and Paul Cox, or either of
them, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place, and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Signature Title Date
/s/ DAVID FANN Director and Chief Executive Officer November 25, 1998
- ------------------
David Fann
/s/ PAUL COX Chairman of the Board and President November 25, 1998
- ------------------
Paul Cox
/s/ GRANT K. HOLCOMB Director, Chief Technology Officer November 25, 1998
- -------------------- and Secretary
Grant K. Holcomb
II-2
<PAGE>
ARTICLES OF INCORPORATION
OF
TRIPLE "D" COURT INC.
The undersigned incorporator declares that he has organized a corporation
with the State of Wyoming, and the following are the Articles of Incorporation
by which said corporation shall be governed.
I.
The name of the corporation shall be TRIPLE "D" COURT, INC.
II.
The existence of the corporation shall perpetual.
III.
The corporation shall have unlimited powers to engage and do any lawful act
concerning any and all businesses, for which corporations shall be organized
under the Wyoming Business Corporation's Act except banking and insurance.
IV.
The corporation shall have the authority to issue 55 shares of capital
stock without par value. All stock shall be common voting stock and shall not be
divided into classes. Said stock shall not commence business until consideration
in the value of at least five-hundred ($500.00) dollars has been received for
the issuance of its shares.
V.
The registered office of the corporation in the State of Wyoming shall be
4848 Lafayette #35, Casper, Wyoming 82604. The registered sent shall be T. W.
Pittman
VI.
The corporation shall be managed by a board of one director Until the stock
in the corporation shall be beneficially owned by not less than two shareholders
at which time the board of directors shall be not less than two until the stock
in the corporation shall be beneficially owned by not less than three
shareholders at which time the corporation shall be managed by a board of not
less than three directors, as set in the bylaws.
<PAGE>
The name of the person who shall manage the offices and concerns of the
corporation for the first corporate year and until his successors shall have
been duly elected is:
2
<PAGE>
SECRETARY OF STATE
STATE OF WYOMING
THE CAPITOL
CHEYENNE, WY 82002-0020
ARTICLES OF AMENDMENT
(BY SHAREHOLDERS)
1. THE NAME OF THE CORPORATION IS: TRIPLE "D" COURT, INC.
2. ARTICLE IV IS AMENDED AS FOLLOWS: The 110,000 shares of authorized
outstanding shall have a forward split of 20 for 1 (twenty for one) making
a total of 2,200,000 (two million two hundred thousand).
The Corporation shall authorize 100,000 shares of Preferred stock at a par
of $1.00 per share, which is in addition to the 50,000,000 shares that is
authorized at this time, making a total of 50,100,000 shares of authorized
shares, with 2,200,000 shares issued and outstanding of the capital common
shares.
The preferred 100,000 shares shall have (no) voting rights.
3. The amendment was adopted on April 6, 1994 by the shareholders.
4. The designation, number of outstanding shares, number of votes entitled to
be cast by each voting group entitled to vote separately on the amendment:
110,000 and the number of votes of each voting group indisputably
represented at the meeting: 110,000 (100%) held by 30 shareholders.
5. Either the total number of votes cast for and against the amendment by each
voting group entitled to vote separately on the amendment OR the total
number of undisputed votes cast for the amendment by each voting group:
100% of the shares were voted
-------------------------------------------
6. The number of votes cast for the amendment by each voting group was
sufficient for approval by that voting group.
Yes (100%)
1
<PAGE>
7. If an amendment provides for an exchange, reclassification, or cancellation
of issued share, provisions for implementing the amendment if not contained
in the amendment itself.
2
<PAGE>
SECRETARY OF STATE
STATE OF WYOMING
THE CAPITOL
CHEYENNE, WY 82002-0020
ARTICLES OF AMENDMENT
(BY SHAREHOLDERS)
1. THE NAME OF THE CORPORATION IS: Triple "D" Court Inc.
2. ARTICLE ______ IS AMENDED AS FOLLOWS: See attached Articles.
Article I - VI including and/or up to Article XIII
The total number of articles for the company will be VIII
3. The amendment was adopted on January 12, 1994 , by the shareholders.
4. The designation, number of outstanding shares, number of votes entitled to
be cast by each voting group entitled to vote separately on the amendment:
55 Fifty Five , and the number of votes of each voting group indisputably
represented at the meeting: 55 Fifty Five
5. Either the total number of votes cast for and against the amendment by each
voting group entitled to vote separately on the amendment OR the total
number of undisputed votes cast for the amendment by each voting group:
55 Fifty Five, all vote for the Amendments
------------------------------------------
6. The number of votes cast for the amendment by each voting group was
sufficient for approval by that voting group.
7. If an amendment provides for an exchange, reclassification, or cancellation
of issued share, provisions for implementing the amendment if not contained
in the amendment itself.
1
<PAGE>
ARTICLES OF INCORPORATION
AMENDED
OF
TRIPLE "D" COURT INC.
ARTICLE I - NAME
The name of the Corporation shall be Triple "D" Court Inc.
ARTICLE II - DURATION
The period of its duration shall be perpetual unless dissolved or
terminated according to law.
ARTICLE III - CORPORATE PURPOSES
The general purposes and objects for which the corporation is organized are
to engage primarily in any type of manufacturing, and/or marketing of any legal
products both retail and wholesale. Real estate unimproved or improved, land
development, and/or investment in real property or real estate related
endeavors. To engage in any business, investment or other pursuit or activity,
whether retail or wholesale, whether commercial or industrial; and to perform
any and all other lawful acts or purposes as are or may be granted to corporate
entitles under the laws of the State of Wyoming and by any other state or
foreign country. The corporation may conduct its business anywhere within the
States of the United States of America or in any foreign country, without in any
way limiting the foregoing powers. It is hereby provided that the corporation
shall have the power to do any and all acts and things that may be reasonably
necessary or appropriate to accomplish any of the foregoing purposes for which
the corporation is formed.
ARTICLE IV - SHARES OF STOCK
The aggregate number of shares which the corporation shall have authority
to issue is 50,000,000 shares of common stock at par value of .001 per share, or
a total capitalization of $50,000.00.
The original 55 shares of issued and outstanding shares shall be forward
split (2,000 for 1) Two Thousand for One and is apart and included in the
(50,000,000)
1
<PAGE>
Fifty Million total Capital Authorized Common Shares. Making a total of
(110,000) One Hundred Ten Thousand Shares issued and outstanding.
There shall be no cumulative voting, and all pre-emptive rights are denied.
Each share shall entitle the holder thereof to one vote at all meetings of the
stockholders.
Stockholders shall not be liable to the corporation or its creditors for
any debts or obligations of the corporation.
ARTICLE V - STOCK RESTRICTIONS
All shares of stock in the company are assignable and any stockholder may
sell, assign and transfer his shares and certificates of stock at pleasure
except that no such transfer, sale or assignment shall be valid unless and until
it shall have been entered upon the books of the company and the old certificate
or certificates shall have been surrendered for cancellation to the secretary
and a new certificate or certificates issued in lieu of the same.
ARTICLE VI - COMMENCING BUSINESS
The corporation will not commence business until consideration of the value
of at least One Thousand Dollars (1,000.00) has been received for the issuance
of shares.
ARTICLE VII - REGISTERED AGENT AND OFFICE
The name and post office address of its initial registered agent is Robert
Fowler, 214 So. Center Street, Casper, Wyoming 82601
ARTICLE VIII - DIRECTORS
That the number of directors of this corporation, their qualifications,
terms of office and the time and manner of their election, removal and
resignation shall be as follows:
The number of directors shall not be less than two (2) nor more than seven
(7), the exact number within such limits to be determined in the manner
prescribed by the by-laws.
Directors shall be elected at the annual meeting of the stock holders of
this corporation and shall serve for one (1) year and until their successors
shall have been duly elected and qualified.
2
<PAGE>
A majority of the entire number of directors, but not less than (2), shall
be necessary to form a quorum of the board of directors, authorized to transact
the business and exercise the corporate powers of the corporation.
Such officers shall consist of:
(a) President;
(b) One or more Vice Presidents as shall be provided by the by-laws or the
board of directors;
(c) A Secretary; and,
(d) A Treasurer - may be held by officers who concurrently hold another
office.
Such officers shall be elected annually by the board of directors and shall
serve for one (1) year and until their successors shall have been duly elected
and qualified.
Any officer may be removed by vote of a majority of the board of directors
or in such other manner as may be prescribed in the by-laws.
ARTICLE IX
That the following named person, parties hereto, shall be the directors and
officers of this corporation from the date hereof and until their successors
shall have been elected and qualified:
PRESIDENT & DIRECTOR: DONALD C. BRADLEY
7551 West Charleston, Suite #35
LAS VEGAS, NV 89117
VICE PRESIDENT & DIRECTOR: John Katter
3148 Nordic Drive
Sandy, UT 84092
SECRETARY/TREASURER & DIRECTOR: SHIRLENE BRADLEY
7551 West Charleston #35
LAS VEGAS, NV 89117
3
<PAGE>
ARTICLE X - SHAREHOLDER LIABILITY
That the private property of the stockholders of this corporation shall not
be liable for the debts or obligations of the corporation.
ARTICLE XI - INCORPORATORS
The name and address of each incorporator is:
Listed in original articles filed.
ARTICLE XII - 1244 STOCK
Shares of stock of this corporation authorized and issued pursuant to these
Articles of Incorporation within two (2) years from the date of incorporation
are, for the purpose of the Internal Revenue Code, authorized and issued in
compliance with and as prescribed by Section 1244 of the Internal Revenue Code
of 1954, as amended shall be known as "Section 1244 Stock".
ARTICLE XIII - DIRECTORS' AND OFFICERS' CONTRACTS
No contract or other transaction between this corporation and one or more
of its directors or any other corporation, firm, association or entity in which
one or more of its directors are directors or officers are financially
interested shall be either void or voidable because of such relationship or
interest, or because such director or directors are present at the meeting of
the board of directors or a committee thereof, which authorizes, approves or
ratifies such contracts or transaction, or because his or their votes are
counted for such purpose, if: (a) the fact of such relationship or interest is
disclosed or known to the board of directors or committee which authorizes,
approves or ratifies the contract or transaction by vote or consent sufficient
for the purpose without counting the votes or consents of such interested
director; or (b) the fact of such relationship or interest is disclosed or known
to the shareholders entitled to vote and they authorize, approve or ratify such
contract or transaction by vote or written consent; or, (c) the contract or
transaction is fair and reasonable to the corporation. Common or interested
directors may be counted in determining the presence of a quorum at a meeting of
the board of directors or committee thereof which authorizes, approves or
ratifies such contract or transaction.
4
<PAGE>
PAGE 1
BYLAWS OF
TRIPLE "D" COURT, INC.
WYOMING CORPORATION
ARTICLE I. OFFICE
The Board of Directors shall designate and the Corporation shall
maintain a principal office. The location of the principal office may be changed
by the Board of Directors. The Corporation may also have offices in such other
places as the Board may from time to time designate. "The location of the
principal office, resident office and resident agent shall be according to the
records in the office of the Secretary of State of Wyoming" any changes by
resolution or otherwise shall be recorded with the Secretary of State under
provisions of the Wyoming Business Corporation Act.
ARTICLE II. SHAREHOLDERS MEETING
1. ANNUAL MEETINGS
The annual meeting of the shareholders of the Corporation shall be held
at such place within or without the State of Wyoming as shall be set forth in
compliance with these Bylaws. The meeting shall be held on the first day of
August of each year. If such day is a legal holiday, the meeting shall be on the
next business day. This meeting shall be for the election of Directors and for
the transaction of such other business as may property come before it.
2. SPECIAL MEETINGS
Special meetings of shareholders, other than those regulated by
statute, may be called by the President upon written request of the holders of
50% or more of the outstanding shares entitled to vote at such special meeting.
Written notice of such meeting starting the place, the date and hour of the
meeting, the purpose or purposes for which it is called, and the name of the
person by whom or at whose direction the meeting is called shall be given.
3. NOTICE OF SHAREHOLDERS MEETINGS.
The Secretary shall give written notice stating the place, day, and
hour of the meeting, and in the case of a special meeting, the purpose or
purposes for which the meeting is called, which shall be delivered not less than
ten or more than twenty days before the date of the meeting, either personally
or by mail to each shareholder of the record entitled to vote at such meeting.
If mailed, such notice shall be deemed to be delivered when deposited in the
Untied States mail, addressed tot he shareholder at his address as it appears on
the books of the Corporation, with postage thereon prepaid. Attendance at the
meeting shall constitute a waiver of notice thereof.
4. PLACE OF MEETINGS
The Board of Directors may designate any place, either within or
without the State of Nevada, as the place of meeting for any annual meeting or
for any special meeting called by the Board of Directors. A waiver of notice
signed by all shareholders entitled to vote at a meeting may designate any
place, either within or without the State of Wyoming, as the place for the
holding of such meeting. If no designation is
<PAGE>
BYLAWS OF TRIPLE "D" COURT PAGE 2
made, or if a special meeting be otherwise called, the place of meeting shall be
the principal office of the Corporation.
5. RECORD DATE
The Board of Directors may fix a date not less than ten nor more than
twenty days prior to any meeting as the record date for the purpose of
determining shareholders entitled to notice of and to vote at such meetings of
the shareholders entitled to notice of and to vote at such meetings of the
shareholders. The transfer books may be closed by the Board of Directors for a
stated period not to exceed fifty days for the purpose of determining
shareholders entitled to receive payments of any dividend, or in order to make a
determination of shareholders for any other purpose.
6. QUORUM
A majority of the outstanding shares of the Corporation entitled to
vote, represented in person or by proxy, shall constitute a quorum at a meeting
of shareholders. If less than a majority of the outstanding shares are
represented at a meeting, a majority of the shares so represented may adjourn
the meeting from time to time without further notice. At a meeting resumed after
any such adjournment at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally noticed.
7. VOTING
A holder of an outstanding share, entitled to vote at a meeting, may
vote at such meeting in person or by proxy. Except as otherwise may be provided
in the Articles of Incorporation, every shareholder shall be entitled to one
vote for each share standing in his name on the record of shareholders. Except
as herein or in the Articles of Incorporation otherwise provided, all corporate
action shall be determined by a majority of the votes cast at a meeting of
shareholders by the holders of shares entitled to vote thereon.
8. PROXIES
At all meetings of shareholders, a shareholder may vote in person or by
proxy executed in writing by the shareholder of by his duly authorized attorney
in fact. Such a proxy shall be filed with Secretary of the Corporation before or
at the time of the meeting. No proxy shall be valid after eleven months from the
date of its execution, unless otherwise provided in the proxy.
9. INFORMAL ACTION BY SHAREHOLDERS
Any action required to be taken at a meeting of the shareholders, may
be taken without a meeting if a consent in writing, setting forth the action so
taken, shall be signed by a majority of the shareholders entitled to vote with
respect to the subject matter thereof.
ARTICLE III. BOARD OF DIRECTORS
1. GENERAL POWERS
The business and affairs of the Corporation shall be managed by its
Board of Directors. The Board of Directors may adopt such rules and regulations
for the conduct of their meetings and the management of the Corporation as they
appropriate under the circumstances. The Board shall have the authority to
authorize changes in the Corporation's capital structure.
2. NUMBER, TENURE AND QUALIFICATION
<PAGE>
BYLAWS OF TRIPLE "D" COURT PAGE 3
The number of Directors of the Corporation shall be a number between
one and nine, as the Directors may be resolution determine from time to time.
Each of the Directors shall hold office until the next annual meeting of
shareholders and until his successor shall have been elected and qualified.
3. REGULAR MEETINGS
A regular meeting of the Board of Directors shall be held without other
notice than by this Bylaw, immediately following after and at the same place as
the annual meeting of shareholders. The Board of Directors may provide, by
resolution, the time and place for the holding of additional regular meetings
without other notice than this resolution.
4. SPECIAL MEETINGS
Special Meetings of the Board of Directors may be called by order of
the Chairman of the Board or the President. The Secretary shall give notice of
the time, place and purpose or purposes of each special meeting by mailing the
same at least two days before the meeting or by telephone or telegraphing the
same at least one day before the meeting to each Director.
5. QUORUM
A majority of the members of the Board of Directors shall constitute a
quorum for the transaction of business, but less than a quorum may adjourn any
meeting from time to time until a quorum shall be present, whereupon the meeting
may be held, as adjourned, without further notice. At any meeting at which every
Director shall be present, even through without any formal notice, any business
may be transacted.
6. MANNER OF ACTING
At all meetings of the Board of Directors, each Director shall have one
vote. The act of a majority of Directors present at a meeting shall be the act
of the full Board of Directors provided that a quorum is present.
7. VACANCIES
A vacancy in the Board of Directors shall be deemed to exist in the
case of death, resignation, or removal of any Director, or if the authorized
number of Directors be increased, or if the shareholders fail at any meeting of
the shareholders at which any Director is to be elected, to elect the full
authorized number to be elected at that meeting.
8. REMOVALS
Directors may be removed at any time by a vote of the shareholders
holding a majority of the shares outstanding and entitled to vote. Such vacancy
shall be filled by the Directors then in office, though less than a quorum, to
hold office until the next annual meeting or until his successor is duly elected
and qualified, except that any directorship to be filled by election by the
shareholders at the meeting at which the Director is removed. No reduction of
the authorized number of directors shall have the effect of removing any
Director prior to the expiration of his term of office.
9. RESIGNATION
A Director may resign at any time by delivering written notification
thereof to the President or Secretary of the Corporation. Resignation shall
become effective upon its acceptance by the Board of Directors; provided,
however, that if the Board of Directors has not acted thereon within ten (10)
days from the date of its delivery, the resignation shall upon the tenth day be
deemed accepted.
10. PRESUMPTION OF ASSENT
<PAGE>
BYLAWS OF TRIPLE "D" COURT PAGE 4
A director of the Corporation who is present at a meeting of the Board
of Directors at which action on any corporate matter is taken shall be presumed
to have assented to the action taken unless his dissent shall be entered in the
minutes of the meeting or unless he shall file his written dissent to such
action with the person acting as the secretary of the meeting before the
adjournment thereof or shall forward such dissent by registered mail to the
Secretary of the Corporation immediately after the adjournment of the meeting.
Such right to dissent shall not apply to a Director who voted in favor of such
action.
11. COMPENSATION
By resolution of the Board of Directors, the Directors may be paid
their expenses, if any, of attendance at each meeting of the Board of Directors
or a stated salary as Director. No such payment shall preclude any Director from
serving the Corporation in any other capacity and receiving compensation
therefore.
12. EMERGENCY POWER
When, due to a national disaster or death, a majority of the Directors
are incapacitated or otherwise unable to attend the meetings and function as
Directors, the remaining members of the Board of Directors shall have all the
powers necessary to function as a complete Board, and for the purpose of doing
business and filling vacancies shall constitute a quorum, until such time as all
Directors can attend or vacancies can be filed pursuant to these Bylaws.
13. CHAIRMAN
The Board of Directors may elect from its own number a Chairman of the
Board, who shall preside at all meetings of the Board of Directors, and shall
perform such other duties as may be prescribed from time to time by the Board of
Directors. The Chairman may by appointment fill any vacancies on the Board of
Directors.
<PAGE>
BYLAWS OF TRIPLE "D" COURT PAGE 5
ARTICLE IV. OFFICERS
1. NUMBER
The Officers of the Corporation shall be a President, one or more Vice
Presidents, and a Secretary Treasurer, each of whom shall be elected by a
majority of the Board of Directors. Such other Officers and Assistant Officers
as may be deemed necessary may be elected or appointed by the Board of
Directors. In its discretion, the Board of Directors may leave unfilled for any
such period as it may determine any office except those of President and
Secretary. Any two or more offices may be held by the same person, except the
office of President and Secretary. Officers may or may not be Directors or
shareholders of the Corporation.
2. ELECTION AND TERM OF OFFICE
The Officers of the Corporation to be elected by the Board of Directors
shall be elected annually by the Board of Directors at the first meeting of the
Board of Directors held after each annual meeting of the shareholders. If the
election of Officers shall not be held at such meeting, such election shall be
held as soon thereafter as convenient. Each Officer shall hold office until his
successor shall have been duly elected and shall have qualified or until his
death or until he shall resign or shall have been removed in the manner
hereinafter provided.
3. RESIGNATIONS
Any Officer may resign at any time by delivering a written resignation
either to the President or to the Secretary. Unless otherwise specified therein,
such resignation shall take effect upon delivery.
4. REMOVAL
Any Officer or agent may be removed by the Board of Directors whenever
in its judgment the best interests of the Corporation will be served thereby,
but such removal shall be without prejudice to the contract rights, if any of
the person(s) so removed. Election or appointment of an Officer or agent shall
not of itself create contract rights. Any such removal shall require a majority
vote of the Board of Directors, exclusive of the Officer in question if he is
also a Director.
5. VACANCIES
A vacancy in any office because of death, resignation, removal,
disqualification, or otherwise, or if a new office shall be created, may be
filled by the Board of Directors for the unexpired portion of the term.
6. PRESIDENT
The President shall be the chief executive and administrative Officer
of the Corporation. He shall preside at all meetings of the stockholders and, in
the absence of the Chairman of the Board, at meetings of the Board of Directors.
He shall exercise such duties as customarily pertain to the office of the
President and shall have general and active supervision over the property,
business and affairs of the Corporation and over its several Officers, agents,
or employees other than those appointed by the Board of Directors. He may sign,
execute and deliver in the name of the Corporation, powers of attorney,
contracts, bonds and other obligations, and shall perform such other duties as
may be prescribed from time to time by the Board of Directors or by the Bylaws.
<PAGE>
BYLAWS OF TRIPLE "D" COURT PAGE 6
7. VICE PRESIDENT
The Vice President shall have such powers and perform such duties as
may be assigned to him by the Board of Directors or the President. In the
absence or disability of the President, the Vice President designated by the
Board or the President shall perform the duties and exercise the powers of the
President. A Vice President may sign and execute contracts and other obligation
pertaining to the regular course of his duties.
8. SECRETARY
The Secretary shall keep the minutes of all meetings of the
stockholders and of the Board of Directors and, to the extend ordered by the
Board of Directors or the President, the minutes of meetings of all committees.
He shall cause notice to be given at a meeting of stockholders, of the Board of
Directors, and of any committee appointed by the Board, He shall have custody of
the corporate seal and general charge of the records, documents and papers of
the Corporation not pertaining to the performance of the duties vested in other
Officers, which shall at all reasonable times be open to the examination of any
Directors. He may sign or execute contracts with the President or Vice President
thereunto authorized in the name of the corporation and affix the seal of the
Corporation thereto. He shall perform such other duties as may be prescribed
from time to time by the Board of Directors or by the Bylaws.
9. TREASURER
The Treasurer shall have general custody of the collection and
disbursement of funds of the Corporation. He shall endorse on behalf of the
Corporation for collection checks, notes and other obligations, and shall
deposit the same to the credit of the Corporation in such bank or banks or
depositories as the Board of Directors may designate. He may sign, with the
President or such other persons as may be designated for the purpose of the
Board of Directors, all bills of exchange or promissory notes of the
Corporation. he shall enter or cause to be entered regularly in the books of the
Corporation full and accurate account of all monies received and paid by him on
account of the Corporation; shall at all reasonable times exhibit his books and
accounts to any Director of the Corporation upon application at the office of
the Corporation during business hors; and, whenever required by the Board of
Directors or the President, shall render a statement of his accounts. He shall
perform such other duties as may be prescribed from time to time by the Board of
Directors or by the Bylaws.
10. OTHER OFFICERS
Other Officers shall perform such duties and shall have such powers as
may be assigned to them by the Board of Directors.
11. SALARIES
The salaries or other compensation of the Officers of the Corporation
shall be fixed from time to time by the board of Directors, except that the
Board of Directors may delegate to any person or group of persons the power to
fix the salaries or other compensation of any subordinate Officers or agents. No
Officer shall be prevented from receiving any such salary or compensation by
reason of the fact that he is also a Director of the Corporation.
<PAGE>
BYLAWS OF TRIPLE "D" COURT PAGE 7
12. SURETY BONDS
In case the Board of Directors shall so require, any Officer or agent
of the Corporation shall execute to the Corporation a bond in such sums with
such surety or sureties as the Board of Directors may direct, conditioned upon
the faithful performance of his duties to the Corporation, including
responsibility for negligence and for the accounting for all property, monies or
securities of the Corporation which may come into his hands.
ARTICLE V. CONTRACTS, LOANS, CHECKS AND DEPOSITS
1. CONTRACTS
The Board of Directors may authorize any Officer or Officers, agent or
agents, to enter into any contract or execute and deliver any instrument in the
name of and on behalf of the Corporation, and such authority may be general or
confined to specific instances.
2. LOANS
No loan or advance shall be contracted on behalf of the Corporation, no
negotiable paper or other evidence of its obligation under any loan or advance
shall be issued in its name, and no property of the Corporation shall be
mortgaged, pledged, hypothecated or transferred as security for the payment of
any loan, advance, indebtedness or liability of the Corporation unless and
except as authorized by the Board of Directors. Any such authorization may be
general or confined to specific instances.
3. DEPOSITS
All funds of the Corporation not otherwise employed shall be deposited
from time to time to the credit of the Corporation in such banks, trust
companies, or other depositories as the Board of Directors may select, or as may
be selected by an Officer or Agent of the Corporation authorized to do so by the
Board of Directors.
4. CHECKS AND DRAFTS
All notes, drafts, acceptances, checks, endorsements and evidences of
indebtedness of the Corporation shall be signed by such Officer or Officers or
such agent or agents of the Corporation and in such manner as the Board of
Directors may from time to time determine.
5. BONDS AND DEBENTURES
Every bond or debenture issued by the Corporation shall be evidenced by
an appropriate instrument which shall be signed by the President or Vice
President and by the Treasurer or by the Secretary, and sealed with the seal of
the Corporation. The seal may be facsimile, engraved or printed. Where such bond
or debenture is authenticated with the manual signature of an authorized Officer
of the Corporation or other trustee designated by the indenture of a trust or
other agreement under which such security is issued, the signature of any of the
Corporation's Officers named thereon may be facsimile. In case any Officer who
signed, or whose facsimile signature has been used on any such bond or
debenture, shall cease to be an Officer of the Corporation for any reason before
the same has been delivered by the Corporation, such bond or debenture may
nevertheless be adopted by the Corporation and issued and delivered as though
the person who signed it or whose facsimile signature has been used thereon had
note ceased to be such Officer.
ARTICLE VI. CAPITAL STOCK
1. CERTIFICATE OF SHARES
<PAGE>
BYLAWS OF TRIPLE "D" COURT PAGE 8
The shares of the Corporation shall be represented by certificates
prepared by the Board of Directors and signed by the President. The signatures
of such Officers upon a certificate may be facsimiles if the certificate is
countersigned by a transfer agent or registered by a registrant other than the
Corporation itself or one of its employees. all certificates for shares shall be
consecutively numbered or otherwise identified. The name and address of the
person to whom the shares represented thereby are issued, with the number of
shares and date of issue, shall be entered on the stock transfer books of the
Corporation. All certificates surrendered to the Corporation for transfer shall
be canceled except that in case of a lost, destroyed or mutilated certificate, a
new one may be issued therefore upon such terms and indemnity to the Corporation
as the Board of Directors may prescribe.
2. TRANSFER OF SHARES
Transfer of shares of the Corporation shall be made only on the stock
transfer books of the Corporation by the holder of record thereof or by his
legal representative, who shall furnish proper evidence of authority to
transfer, or by his attorney thereunto authorized by power of attorney duly
executed and filed with the Secretary of the Corporation, and on surrender for
cancellation of the certificate for such shares. The person in whose name shares
stand on the books of the Corporation shall be deemed by the Corporation to be
the owner thereof for all purposes.
3. TRANSFER AGENT AND REGISTRAR
The Board of Directors shall have the power to appoint one or more
transfer agents and registrars for the transfer and registration of certificates
of stock of any class, and may require that stock certificates shall be
countersigned and registered by one or more of such transfer agents and
registrars.
4. LOST OR DESTROYED CERTIFICATES
The Corporation may issue a new certificate to replace any certificate
theretofore issued by it alleged to have been lost or destroyed. The Board of
Directors may require the owner of such a certificate or his legal
representative to give the Corporation a bond in such sum and with such sureties
as the Board of Directors may direct to indemnify the Corporation as transfer
agents and registrars, if any, against claims that may be made on account of the
issuance of such new certificates. A new certificate may be issued without
requiring any bond.
5. CONSIDERATION FOR SHARES
The capital stock of the Corporation 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 determination of the Board of Directors as to the
value of any property or services received in full or partial payment of shares
shall be conclusive.
6. REGISTERED SHAREHOLDERS
The Corporation shall be entitled to treat the holder of record of any
share or shares of stock as the holder thereof, in fact, and shall not be bound
to recognize any equitable or other claim to or on behalf of this Corporation to
any and all of the rights and powers incident to the ownership of such stock at
any such meeting, and shall have power and authority to execute and deliver
proxies and consents on behalf of this Corporation in connection with the
exercise by this Corporation of the rights and powers incident to the ownership
of such stock. The Board of Directors, from time to time, may confer like powers
upon any other person or persons.
ARTICLE VII. INDEMNIFICATION
<PAGE>
BYLAWS OF TRIPLE "D" COURT PAGE 9
No Officer or Director shall be personally liable for any obligations
of the Corporation or for any duties or obligations arising out of any acts or
conduct of said Officer or Director performed for or on behalf of the
Corporation. The Corporation shall and does hereby indemnify and hold harmless
each person and his heirs and administrators who shall serve at any time
hereafter as a Director or Officer of the Corporation from and against and all
claims, judgements and liabilities to which such persons shall become subject by
reason of his having heretofore or hereafter been a Director or Officer of the
Corporation, or by reason of any action alleged to have heretofore or hereafter
taken or omitted to have been taken by him as such Director or Officer, and
shall reimburse each such person for all legal and other expenses reasonably
incurred by him in connection with any such claim or liability, including power
to defend such persons from all suits as provided for under the provisions of
the Wyoming Business Corporation Act; provided, however, that no such persons
shall be indemnified against, or be reimbursed for, any expense incurred in
connection with any claim or liability arising out of his own negligence or
willful misconduct. The rights accruing to any person under the foregoing
provisions of this section shall not exclude any other right to which he may
lawfully be entitled, nor shall anything herein contained restrict the right of
the Corporation to indemnify or reimburse such person in any proper case, event
though not specifically herein provided for. The Corporation, its Directors,
Officers, employees and agents shall be fully protected in taking any action or
making any payment, or in refusing so to do in reliance upon the advice of
counsel.
ARTICLE VIII. NOTICE
Whenever any notice is required to be given to any shareholder or
Director of the Corporation under the provisions of Wyoming Business Corporation
Act, a waiver thereof in writing signed by the person or persons entitled to
such notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice. Attendance at any meeting shall
constitute a waiver of notice of such meetings, except where attendance is for
the express purpose of objecting to the holding of that meeting.
ARTICLE IX. AMENDMENTS
These Bylaws may be altered, amended, repealed, or new Bylaws adopted
by a majority of the entire Board of Directors at any regular or special
meeting. Any Bylaw adopted by the Board may be repealed or changed by the action
of the shareholders.
ARTICLE X. FISCAL YEAR
The fiscal year of the Corporation shall be fixed and may be varied by
resolution of the Board of Directors.
ARTICLE XI. DIVIDENDS
The Board of Directors may at any regular or special meeting, as they
deem advisable, declare dividends payable out of the surplus of the Corporation.
<PAGE>
BYLAWS OF TRIPLE "D" COURT PAGE 10
ARTICLE XII. CORPORATE SEAL
The seal of the Corporation shall be in the form of a circle and shall
bear the name of the Corporation and the year of incorporation per sample
affixed hereto.
\SIGNED\ Date: AUGUST 20, 1987
- ----------------------------------- ------------------------
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), IN RELIANCE UPON THE EXEMPTIONS FROM REGISTRATION PROVIDED IN THE
ACT AND REGULATION D UNDER THE ACT. ANY SUBSEQUENT TRANSFER OF THIS SECURITY OR
ANY INTEREST THEREIN WILL BE UNLAWFUL UNLESS IT IS REGISTERED UNDER THE ACT OR
UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE. FURTHERMORE, IT IS UNLAWFUL
TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY OR ANY INTEREST THEREIN,
WITHOUT THE OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT THE PROPOSED
TRANSFER OR SALE DOES NOT AFFECT THE EXEMPTIONS RELIED UPON BY THE COMPANY IN
ORIGINALLY DISTRIBUTING THE SECURITY AND THAT REGISTRATION IS NOT REQUIRED.
TeraGlobal Communications Corp.
9% Convertible Promissory Note
$__________ November ___, 1998
No. ____
TeraGlobal Communications Corp., a Wyoming corporation ("TeraGlobal"), for
value received, hereby promises to pay to _________________ or registered
assigns, at the principal sum of ___________ Dollars on or before November 30,
2000 (the "Maturity Date"), as specified herein, and to pay interest thereon
(calculated on the basis of a 365 day year) at a rate of 9.0% PER ANNUM,
accruing from the date of issuance of this Note, payable on November 30, 1999
(the "Interest Payment Date"). Principal and any accrued and unpaid interest
shall be due on the Maturity Date.
1. MAXIMUM INTEREST. In no event whatsoever shall the amount paid, or
agreed to be paid, to Holder for the use, forbearance or detention of money to
be loaned hereunder or otherwise, for the performance or payment of any covenant
or obligation contained herein, exceed the maximum amount permissible under
applicable law. If from any circumstance whatsoever fulfillment of any provision
hereof exceeds the limit of validity prescribed by law, then, IPSO FACTO, the
obligation to be fulfilled shall be reduced to the limit of such validity, and
if from any such circumstance Holder shall ever receive as interest under this
Note or otherwise an amount that would exceed the highest lawful rate, such
amount that would be excessive interest shall be applied to the reduction of the
principal amount owing hereunder and not to the payment of interest, or if such
excessive interest exceeds the unpaid balance of principal, such excess shall be
refunded to TeraGlobal.
<PAGE>
2. CONVERSION RIGHT. At any time and from time to time during the period
beginning on the issuance of this Note and thereafter while any principal or
interest hereunder remains outstanding, Holder shall have the right, but not the
obligation, to convert outstanding principal and accrued and unpaid interest on
this Note into fully paid and nonassessable shares of TeraGlobal's common stock
("Common Stock" or the "Shares") at the price per Share of $4.25, subject to any
adjustment provided under Section 2.3, (the "Conversion Price") of the principal
due Holder on the Maturity Date as follows (the "Conversion Right").
2.1 METHOD OF EXERCISE. The Conversion Right shall be exercised, in
whole or in part, by delivery to TeraGlobal of the original executed copy of
this Note and the form of subscription agreement attached hereto duly executed.
Upon receipt of such notice, TeraGlobal shall issue to the Holder certificates
for the total number of whole Shares with respect to which the Conversion Right
is being exercised in such denominations as the Holder requests, and a
replacement Note for any portions of this Note not converted. The outstanding
balance of principal and interest due hereunder shall be reduced to reflect any
and all conversions into Shares.
2.2 INVESTMENT INTENT. The Holder hereof represents and warrants to
TeraGlobal that the Conversion Right and, to the extent the Conversion Right is
exercised, the Shares, are being acquired for such Holder's own account for
investment purposes only and such Holder has no present intention or agreement
to effect any distribution of any portion of the Conversion Right, the Shares,
or any rights with respect thereto.
2.3 ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
2.3.1 STOCK SPLITS. If TeraGlobal at any time or from time to time
after the issuance date of this Note effects a subdivision of the outstanding
Common Stock, the Conversion Price then in effect immediately before that
subdivision shall be proportionately decreased, and conversely, if TeraGlobal at
any time or from time to time after the date of this Note combines the
outstanding shares of Common Stock, the Conversion Price then in effect
immediately before the combination shall be proportionately increased. Any
adjustment under this subsection 2.3.1 shall become effective at the close of
business on the date the subdivision or combination becomes effective.
2.3.2 DIVIDENDS AND DISTRIBUTIONS. In the event TeraGlobal, at any
time or from time to time after the date of this Note, makes, or fixes a record
date for the determination of holders of Common Stock entitled to receive, a
dividend or other distribution payable in additional shares of Common Stock,
then and in each such event the Conversion Price then in effect shall be
decreased as of the time of such issuance or, in the event such a record date is
fixed, as of the close of business on such record date, by multiplying the
Conversion Price then in effect by a fraction (i) the numerator of which is the
total number of shares of Common Stock issued and outstanding immediately prior
to the time of such issuance or the close of business on such record date, and
(ii) the denominator of which shall be the total number of shares of Common
Stock issued and outstanding immediately prior to the time of such issuance or
the close of business on such record
2
<PAGE>
date plus the number of shares of Common Stock issuable in payment of such
dividend or distribution; provided, however, that if such record date is fixed
and such dividend is not fully paid or if such distribution is not fully made on
the date fixed therefor, the Conversion Price shall be recomputed accordingly as
of the close of business on such record date and thereafter the Conversion Price
shall be adjusted pursuant to this subsection 2.3.2 as of the time of actual
payment of such dividends or distributions.
2.3.3 RECAPITALIZATION OR RECLASSIFICATION. If the Shares issuable
upon the conversion of this Note are changed into the same or a different number
of shares of any class or classes of stock, whether by recapitalization,
reclassification or otherwise (other than a subdivision or combination of shares
or stock dividend or a reorganization, merger, consolidation or sale of assets,
provided for elsewhere in this Section 2.3), then, and in any such event, the
Conversion Right shall thereafter refer to the right to convert this Note into
such number and kind of securities as would have been issuable to the Holder
here as a result of such change if, immediately prior to such change, such
Holder had exercised the Conversion Right as to the entire outstanding balance
of principal and interest hereunder, subject to further adjustment as provided
herein.
2.3.4 SALE OF TERAGLOBAL. If at any time or from time to time there
is a capital reorganization of the Common Stock (other than a recapitalization,
subdivision, combination, reclassification or exchange of shares provided for
elsewhere in this Section 2.3) or a merger or consolidation of TeraGlobal with
or into another company, or the sale of all or substantially all of TeraGlobal's
properties and assets to any other person, the Conversion Right shall thereafter
refer to the right to convert this Note into such number and kind of securities
and property as would have been issuable or distributable to the Holder hereof
on account of such reorganization, merger, consolidation or sale if, immediately
prior thereto, such Holder had exercised the Conversion Right as to the entire
outstanding balance of principal and interest hereunder. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 2.3 with respect to the rights of such Holder after the
reorganization, merger, consolidation or sale to the end that the provisions of
this Section 2.3 (including adjustment of the Conversion Price then in effect
and number of shares purchasable upon conversion of this Note) shall be
applicable after that event and be as nearly equivalent to the provisions hereof
as may be practicable.
2.3.5 NO FRACTIONAL SHARES. Any fraction of a share that would
otherwise be issuable in connection with this Note shall be rounded upward to
the next full number.
2.3.6 OBSERVANCE OF DUTIES. TeraGlobal shall not, by amendment of
its Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by TeraGlobal but shall at all
times in good faith assist in the carrying out of all the provisions of this
Section 2.3 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Right of the Holder hereof
against dilution or other impairment.
3
<PAGE>
3. REGISTRATION AND LEGENDS. This Note and the Shares issuable upon
conversion of this Note have not been registered under the Securities Act of
1933, as amended ("the Act"). Upon conversion, in whole or in part, of this
Note, the certificates representing the Shares shall bear the following legend:
THIS SECURITY HAS NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT
OF 1933 ("ACT") OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE OFFERED
OR SOLD UNLESS REGISTERED AND QUALIFIED PURSUANT TO THE APPLICABLE
PROVISIONS OF FEDERAL AND STATE SECURITIES LAWS OR UNLESS AN EXEMPTION FROM
SUCH REGISTRATION OR QUALIFICATION APPLIES. THEREFORE, NO SALE OR TRANSFER
OF THIS SECURITY SHALL BE MADE, NO ATTEMPTED SALE OR TRANSFER SHALL BE
VALID, AND THE ISSUER SHALL NOT BE REQUIRED TO GIVE ANY EFFECT TO ANY SUCH
TRANSACTION UNLESS (A) SUCH TRANSACTION HAS BEEN DULY REGISTERED UNDER THE
ACT AND QUALIFIED OR APPROVED UNDER APPROPRIATE STATE SECURITIES LAWS, OR
(B) THE ISSUER HAS FIRST RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO IT
THAT SUCH REGISTRATION, QUALIFICATION OR APPROVAL IS NOT REQUIRED.
4. NOTICE OF SIGNIFICANT EVENTS. If, prior to the Maturity Date, any of the
following shall occur:
(a) TeraGlobal shall declare a dividend or authorize any other
distribution on its Common Stock; or
(b) TeraGlobal shall authorize the granting to the shareholders of its
Common Stock of rights to subscribe for or purchase any securities or any other
similar rights; or
(c) any reclassification, reorganization or similar change of Common
Stock, or any consolidation or merger to which TeraGlobal is a party, or the
sale, lease, or exchange of any significant portion of the assets of TeraGlobal;
or
(d) the voluntary or involuntary dissolution, liquidation or winding up
of TeraGlobal; or
(e) any purchase, retirement or redemption by TeraGlobal of its Common
Stock;
then, and in any such case, TeraGlobal shall deliver to Holder written notice
thereof at least 30 days prior to the earliest applicable date specified below
with respect to which notice is to be given, which notice shall state the
following:
4
<PAGE>
(1) the date on which a record is to be taken for the purpose of such dividend,
distribution or rights, or, if a record is not to be taken, the date as of which
the shareholders of Common Stock of record to be entitled to such dividend,
distribution or rights are to be determined;
(2) the date on which such reclassification, reorganization, consolidation,
merger, sale, transfer, dissolution, liquidation, winding up or purchase,
retirement or redemption is expected to become effective, and the date, if any,
as of which the Company's shareholders of Common Stock of record shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon such reclassification, reorganization, consolidation, merger,
sale, transfer, dissolution, liquidation, winding up, purchase, retirement or
redemption; and
(3) if any matters referred to in the foregoing clauses (1) and (2) are to be
voted upon by shareholders of Common Stock, the date as of which those
shareholders to be entitled to vote are to be determined.
5. REDEMPTION. The Notes are subject to redemption, at the option of
TeraGlobal, in whole or in part, without premium or penalty, on a pro rata basis
on not less than 30 days' prior notice by certified mail to each Holder of Notes
to be redeemed, by repayment of the outstanding principal amount of each Note or
such portion thereof being redeemed, plus accrued and unpaid interest, if any,
to the Redemption Date. In the event of redemption of this Note in part only, a
new Note or Notes for the unredeemed portion hereof shall be issued in the name
of the Holder hereof upon the cancellation hereof.
6. EVENTS OF DEFAULT/ACCELERATION. The occurrence and continuance of any
one or more of the following events shall constitute an "Event of Default"
hereunder:
(a) TeraGlobal fails to pay any amount due under this Note, and the
same is not remedied within five (5) days;
(b) TeraGlobal makes a general assignment for the benefit of
creditors; any proceeding is instituted by or against TeraGlobal
seeking to adjudicate it a bankrupt or insolvent, seeking
liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief or composition of it or its debts under any
law relating to bankruptcy, insolvency or reorganization or
relief of debts, or seeking the entry of an order for relief or
the appointment of a receiver, trustee or other similar official
for it or for any substantial part of its property, PROVIDED
that, in any such case, if the same is dismissed or vacated
within 30 days of being instituted, then any such default shall
be deemed cured; or TeraGlobal takes any corporate action to
authorize any of the actions set forth above.
Upon any Event of Default under this Note, the then unpaid principal and
interest shall, at the election of Holder of this Note, be immediately due and
payable, all without demand, presentment or notice, each of which is hereby
waived by TeraGlobal, and Holder shall have all other rights
5
<PAGE>
accorded under this Note by law. All sums remaining unpaid on the Maturity Date
or the accelerated maturity date shall bear interest at the rate specified
above.
7. PERSONS DEEMED OWNERS. TeraGlobal may treat the Person in whose name
this Note is registered as the owner hereof for all purposes, whether or not
this Note shall be overdue, and TeraGlobal shall not be affected by notice to
the contrary.
8. NOTICES. All notices, requests, demands and other communications under
this Note shall be in writing and shall be deemed to have been duly given on the
date of delivery if delivered personally to the party to whom notice is to be
given, or on the third (3rd) day after mailing if mailed to the party to whom
notice is given, by first class mail, registered or certified, postage prepaid,
and properly addressed as follows:
If to TeraGlobal:
TeraGlobal Communications Corp.
225 Broadway Street, Suite 1600
San Diego, California 92101
Attention: President
If to Holder:
to the address last appearing for Holder on TeraGlobals records
Either party may change the address to which notices to such party are to be
addressed by giving the other party hereto written notice of such change in the
manner herein set forth.
9. BINDING EFFECT. The terms of this Note shall inure to the benefit of and
bind the parties hereto and their successors and assigns. As used herein the
term "TeraGlobal" shall include TeraGlobal Communications Corp. and any other
person or entity who may subsequently become liable for the payment hereof. The
term "Holder" shall include the named Holder as well as any other person or
entity to whom this Note or any interest in this Note is conveyed, transferred
or assigned.
10. GOVERNING LAW. This Note shall be governed by and construed in
accordance with the laws of the State of California.
6
<PAGE>
IN WITNESS WHEREOF, TeraGlobal has caused this instrument to be duly
executed.
Dated: _______________, 1998 TeraGlobal Communications Corp., a Wyoming
corporation
By:
------------------------------------
Paul Cox, President
By:
------------------------------------
Grant K. Holcomb, Secretary
<PAGE>
TeraGlobal Communications Corp.
225 Broadway Street, Suite 1600
San Diego, California 92101
Subscription Agreement for the Conversion of Note
The undersigned hereby irrevocably subscribes for the purchase of ________
Shares pursuant to and in accordance with the terms and conditions of this Note,
which Shares should be delivered to the undersigned at the address below. If
said number of Shares do not represent the entire outstanding balance of
principal and interest under this Note, a new Note of like tenor for the
remaining outstanding balance should be delivered to the undersigned at the
address stated below.
The undersigned agrees that: (1) the undersigned will not offer, sell,
transfer or otherwise dispose of any Shares unless either (a) a registration
statement, or post-effective amendment thereto, covering the Shares has been
filed with the Securities and Exchange Commission pursuant to the Securities Act
of 1933, as amended (the "Act"), such sale, transfer or other disposition is
accompanied by a prospectus meeting the requirements of Section 10 of the Act
forming a part of such registration statement, or post-effective amendment
thereto, which is in effect under the Act covering the Shares to be so sold,
transferred or otherwise disposed of, and all applicable state securities laws
have been complied with, or (b) counsel satisfactory to TeraGlobal
Communications Corp. has rendered an opinion in writing and addressed to
TeraGlobal Communications Corp. that such proposed offer, sale, transfer or
other disposition of the Shares is exempt from the provisions of Section 5 of
the Act in view of the circumstances of such proposed offer, sale, transfer or
other disposition; (2) TeraGlobal Communications Corp. may notify the transfer
agent for the Shares that the certificates for the Shares acquired by the
undersigned are not to be transferred unless the transfer agent receives advice
from TeraGlobal Communications Corp. that one or both of the conditions referred
to in (1)(a) and (1)(b) above have been satisfied; and (3) TeraGlobal
Communications Corp. may affix the legend set forth in Section 5.1 of this Note
to the certificates for the Shares hereby subscribed for, if such legend is
applicable.
Dated: Signed:
------------------------ --------------------------
Signature guaranteed:
Address:
-------------------------
-------------------------
- ------------------------------ -------------------------
(Signature must be guaranteed by a
guarantor institution participating
in a Medallion Signature Program)
<PAGE>
FORM OF ASSIGNMENT
For value received, the undersigned hereby sells, assigns and transfers
unto ______________________ the within Note of TeraGlobal Communications Corp.
and all rights thereunder, and hereby irrevocably constitute and appoints
_____________________ attorney to transfer the said Note on the Note Register,
with full power of substitution in the premises.
Dated:
----------------------------
-------------------------------------------
Social Security or other tax identification
number of transferee
-------------------------------------------
Signature of Person Assigning Note
Signature Guaranteed:
- -------------------------------------------
(Signature must be guaranteed by a guarantor
institution participating in a Medallion Signature
Program)
NOTICE: The Assignor's signature to this assignment must correspond with the
name as it appears upon the fact of the within Note in every particular
without alteration or any change whatever.
<PAGE>
November ___, 1998
TeraGlobal Communications Corp.
225 Broadway, Ste. 1600
San Diego, CA 92101
Re: TeraGlobal Communications Corp. (the "Company")
Gentlemen:
We have reviewed all pertinent corporate documents and materials required to be
reviewed in connection with the status of the shares of common stock ("Shares")
of the Company being registered with the U.S. Securities and Exchange Commission
on November ___, 1998 pursuant to Section 12(g) of the Securities Exchange Act
of 1934 on Form 10-SB (the "Registration Statement') and in connection therewith
render the following opinion:
1. All the Shares being registered pursuant to the Registration Statement
have been validly issued, are outstanding and are non-assessable.
2. All corporate action required to be taken by the Company in connection
with the registration of the shares has been taken.
Sincerely,
LUCE, FORWARD, HAMILTON & SCRIPPS LLP
<PAGE>
AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER (the "Agreement") is made and entered into
September 30, 1998, by and among TeraGlobal Communications Corp., a Wyoming
corporation ("TeraGlobal"); TeraGlobal's wholly owned subsidiary, TGC
Acquisition, Inc., a California corporation ("TGC Acquisition"); Design Analysis
Associates, Inc., a Utah corporation ("Design Analysis"); and William I.
Fletcher and Kathy Fletcher, as Trustees of the William I. Fletcher Family Trust
dated October 12, 1983, sole shareholder of Design Analysis (the "Shareholder");
with respect to the following facts:
A. Design Analysis is engaged in the business of providing design,
engineering and manufacturing services to the computer electronics industry (the
"Business").
B. TeraGlobal is engaged in the business of computer hardware and
software development for multi-media communications and desires to acquire
Design Analysis through a tax-free merger of Design Analysis into TGC
Acquisition, its wholly-owned subsidiary, pursuant to Sections 354(a)(1),
361(a), 368(a)(1)(A) and 368(a)(2)(D) of the Internal Revenue Code of 1986, as
amended (the "Code").
C. The parties intend that this Agreement constitute a "plan of
reorganization" within the meaning of Section 1.368-2(g) of the Income Tax
Regulations on the terms and conditions contained herein.
NOW, THEREFORE, in consideration of the foregoing premises and of the
mutual covenants contained herein, the parties hereto agree as follows:
1. THE MERGER AND RELATED TRANSACTIONS
1.1 THE MERGER. Subject to the terms and conditions of this Agreement,
Design Analysis will merge with and into TGC Acquisition at the Effective Time
(as defined below). TGC Acquisition shall be the corporation surviving the
Merger (the "Surviving Corporation"). The terms of the Merger will be as set
forth herein and in the Merger Agreement in the form attached hereto as EXHIBIT
1.1. (the "Merger Agreement").
1.2 THE CLOSING. A Closing of the Merger and related transactions
contemplated by this Agreement (the "Closing") shall take place at the offices
of Luce, Forward, Hamilton & Scripps LLP, 600 West Broadway, Suite 2600, San
Diego, California 92101, on or about September 30, 1998 or such earlier time and
other place as is mutually agreeable to the parties and following the
satisfaction or waiver of all other conditions to the obligations of the parties
to consummate the Merger and related transactions contemplated hereby (the
"Closing Date").
1.3 ACTIONS AT THE CLOSING. At the Closing, (i) Design Analysis will
deliver to TeraGlobal the various certificates, instruments, and documents
referred to in Section 7 below; (ii) TeraGlobal and TGC Acquisition will deliver
to Design Analysis the various certificates,
<PAGE>
instruments and documents referred to in Section 6 below; and (iii) TGC
Acquisition and TeraGlobal will file the Merger Agreement, together with the
Officers' Certificates required pursuant to Section 1103 of the California
Corporations Code in the form of EXHIBIT 1.3, with the California Secretary of
State. At the Closing, upon surrender of certificates properly endorsed for
transfer for each outstanding share of common stock of Design Analysis ("Design
Analysis Share"), TeraGlobal shall issue to the Shareholder the number of shares
of common stock of TeraGlobal ("TeraGlobal Shares") issuable in connection with
the Merger.
1.4 EFFECT OF MERGER.
1.4.1 GENERAL. The Merger shall become effective at the time the
Merger Agreement is filed with the California Secretary of State or at such
later time stated in the Merger Agreement (the "Effective Time"). The Merger
shall have the effect set forth in Section 1107 of the California Corporations
Code. The Surviving Corporation may, at any time after the Effective Time, take
any action (including executing and delivering any document) in the name and on
behalf of such entity or the entity with which it merged in order to carry out
and effectuate the transactions contemplated by this Agreement.
1.4.2 CONVERSION OF DESIGN ANALYSIS SHARES. At the Effective
Time, each Design Analysis Share then issued and outstanding shall, by virtue of
the Merger and without any action on the part of the holder thereof, be
converted into and represent the right to receive 5,500 TeraGlobal Shares (the
"Merger Consideration"). The Merger Consideration will be proportionately
adjusted in the event of any stock split or combination of the outstanding
shares of common stock of TeraGlobal ("TeraGlobal Shares") or of the Design
Analysis Shares occurring, or any stock dividend payable to holders of
TeraGlobal Shares or Design Analysis Shares the record date of which is, prior
to the Effective Time.
1.4.3 OTHER SHARES. Each share of TGC Acquisition common stock,
whether or not issued and outstanding, shall continue unchanged as shares of
common stock of the Surviving Corporation.
1.5 THE SURVIVING CORPORATION.
1.5.1 ARTICLES OF INCORPORATION. The Articles of Incorporation of
TGC Acquisition as in effect immediately prior to the Effective Time shall be
the Articles of Incorporation of the Surviving Corporation until thereafter
amended in accordance with applicable law and such Articles of Incorporation,
provided that such Articles shall be amended at the Effective Time to change the
name of TGC Acquisition to "Design Analysis Associates, Inc."
1.5.2 BYLAWS. The bylaws of TGC Acquisition as in effect
immediately prior to the Effective Time shall be the bylaws of the Surviving
Corporation until thereafter amended in accordance with applicable law, the
Articles of Incorporation of such Surviving Corporation and such bylaws.
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1.5.3 BOARD OF DIRECTORS. The directors of TGC Acquisition
immediately prior to the Effective Time, currently David Fann, shall be the
initial board of directors of the Surviving Corporation, each of such persons to
serve until his or her successor is duly elected and qualified.
1.5.4 OFFICERS. The officers of TGC Acquisition immediately prior
the Effective Time, currently David Fann, shall be the initial officers of the
Surviving Corporation, each of such officers to serve until his or her successor
is duly qualified.
1.6 EARN-OUT.
1.6.1 CALCULATION OF EARN-OUT. The Shareholder shall be entitled
to earn additional TeraGlobal Shares ("Earn-Out Shares") based on Surviving
Corporation's gross sales during the period from January 1 to December 31, 1998
(such period to be referred to as "Fiscal 1998" and such gross sales as "Fiscal
1998 Sales"). If Fiscal 1998 Sales are equal to or greater than $3.1 Million,
TeraGlobal shall issue in the name of and deliver to the Shareholder 200,000
Earn-Out Shares on April 15, 1999. In addition, on April 1, 1999, TeraGlobal
shall issue in the name of and deliver to the Shareholder that number of
Earn-Out Shares equal to two (2) times the amount by which Fiscal 1998 Sales
exceed $3.1 Million divided by the market closing price of TeraGlobal shares on
December 15, 1998; provided, however, that in no event shall the total amount of
Earn-Out Shares exceed 400,000.
1.6.2 CALCULATION OF FISCAL 1998 SALES. On or before April 1,
1999, TeraGlobal shall provide to the Shareholder the financial statements of
the Surviving Corporation for Fiscal 1998, as audited by an independent
certified public accountant in accordance with generally accepted accounting
principles, which statements shall include a calculation of Fiscal 1998 Sales,
which calculation shall be final and binding on the parties hereto.
2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF DESIGN ANALYSIS AND THE
SHAREHOLDER
Design Analysis and the Shareholder jointly and severally represent and
warrant to TeraGlobal and TGC Acquisition and agree as follows:
2.1 EXISTENCE: GOOD STANDING: CORPORATE AUTHORITY AND AUTHORIZATION.
Design Analysis is a corporation duly organized, validly existing and in good
standing under the laws of the State of Utah. Design Analysis is qualified to
do business and is in good standing in all other jurisdictions in which the
character or location of the properties owned or leased by it or the nature of
the business conducted by it makes such qualification necessary and where the
failure to so qualify would have a material adverse effect upon Design Analysis.
Design Analysis has the power to own its property and to carry on its business
as now being conducted. Design Analysis has the full power and authority to
enter into and perform its obligations under this Agreement and under each other
instrument and document executed and delivered by Design Analysis in connection
with this Agreement, and to take all actions required of it to consummate the
Merger.
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2.2 ACTIONS. Design Analysis and the Shareholder have taken all
corporate or other actions and proceedings necessary to be taken in connection
with the execution and delivery of this Agreement and the consummation of the
transactions contemplated by this Agreement. Design Analysis and the
Shareholder have duly and validly authorized, executed and delivered this
Agreement, which constitutes the legal, valid and binding obligation of Design
Analysis and the Shareholder, and is enforceable against each of them in
accordance with its terms.
2.3 NO BREACH. Design Analysis is not in violation or breach of any of
the terms, conditions or provisions of its Articles of Incorporation, its
Bylaws, or any indenture, mortgage or deed of trust or other contracts, lease,
instrument, court order, judgment, arbitration award, or decree affecting its
business, to which it is a party or by which it is bound, and has received no
notices of any of the foregoing.
2.4 NO DEFAULTS. The execution, delivery or performance of this
Agreement by Design Analysis and the Shareholder and consummation of the
transactions contemplated hereby will not violate or conflict with the
provisions of the Articles of Incorporation or Bylaws of Design Analysis or the
Trust Agreement of the Shareholder; result in any breach of or any default
under, or cause any acceleration of any obligation under, any contract,
mortgage, indenture, agreement, lease or other instrument to which Design
Analysis or the Shareholder is a party or by which it is bound or by which it
may be affected, or result in the creation of any lien or encumbrance upon any
of Design Analysis's assets; or violate any judgment, decree, order, statute,
rule or regulation applicable to Design Analysis or the Shareholder.
2.5 APPROVALS AND CONSENTS. Design Analysis is not legally or
contractually required to obtain any approvals or consents of any persons or
entities not a party to this Agreement in connection with the consummation of
the transactions contemplated by this Agreement. No permit, license, consent,
approval or authorization of, or filing with, any governmental regulatory
authority or agency is required in connection with the execution, delivery and
performance of this Agreement, or the consummation of the transactions
contemplated by this Agreement.
2.6 CAPITAL STOCK AND EXCLUSIVE DEALING. Design Analysis has an
authorized capitalization consisting of two hundred (200) shares of voting
common stock, no par value, of which two hundred (200) shares are issued,
outstanding, and held beneficially and of record only by the Shareholder. All
such outstanding shares have been duly authorized, are validly issued, and are
fully paid and nonassessable. There are no other shares of stock of Design
Analysis issued and outstanding. There are no outstanding options, warrants,
rights, preemptive rights, calls, commitments, conversion rights, rights of
exchange, plans or other agreements of any character providing for the purchase,
issuance or sale of any shares of the capital stock of Design Analysis, except
as contemplated by this Agreement. None of the outstanding Design Analysis
Shares have been issued in violation of any preemptive right or agreement,
commitment or obligation binding on Design Analysis or the Shareholder or any
applicable securities laws.
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2.7 SUBSIDIARIES. Design Analysis has no subsidiaries.
2.8 SHAREHOLDER MATTERS.
2.8.1 OWNERSHIP. The Shareholder has full power and authority to
execute and deliver this Agreement and to perform its obligations hereunder.
The Shareholder owns its Design Analysis Shares free and clear of any
encumbrance, lien, restriction or other defect in title. The Design Analysis
Shares will be transferred and exchanged in the Merger in the same condition as
represented in this Agreement.
2.8.2 INVESTMENT INTENT. The Shareholder is purchasing the
TeraGlobal Shares for investment for its own account and not with a view to a
sale or distribution thereof. The Shareholder believes that an investment in the
TeraGlobal Shares is suitable for the Shareholder based upon its investment
objectives and financial needs. The Shareholder (i) has adequate means of
providing for his current financial needs; (ii) has no need for liquidity in its
investment; (ii) at the present time, can afford a complete loss of such
investment; and (iv) does not have an overall commitment to investments which
are not readily marketable that is disproportionate to its net worth. The
Shareholder realizes that the purchase of the TeraGlobal Shares is a long-term
investment and that it must bear the economic risk of the investment for an
indefinite period of time. The Shareholder acknowledges that the TeraGlobal
Shares have not been registered under the Securities Act of 1933 or the
securities laws of any state, and may not be transferred in the absence of such
registration or the presence and availability of an exemption from registration.
The Shareholder has, prior to the purchase of the TeraGlobal Shares, had an
opportunity to obtain any information which he deems necessary to evaluate the
purchase of the TeraGlobal Shares and to verify the accuracy of the information
otherwise provided.
2.8.3 NO OBLIGATION TO REGISTER. The Shareholder understands that
TeraGlobal is under no obligation to register the sale, transfer or other
disposition of the TeraGlobal Shares by the Shareholder or on the Shareholder's
behalf under the Securities Act or to take any other action necessary in order
to make compliance with an exemption from such registration available.
2.8.4 LEGEND. The Shareholder understands that unless and until
the transfer by the Shareholder of his TeraGlobal Shares has been registered
under the Securities Act, the certificates issued to the Shareholder shall bear
the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"). THE SHARES HAVE BEEN ACQUIRED BY THE HOLDER NOT
WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY DISTRIBUTION
THEREOF WITHIN THE MEANING OF THE SECURITIES ACT AND MAY NOT BE
SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT OR
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IN ACCORDANCE WITH AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT."
2.9 FINANCIAL STATEMENTS. Design Analysis has previously delivered to
TeraGlobal a true, accurate and complete copy of the unaudited consolidated
financial statements for the fiscal year ended December 31, 1996 and 1997 and
the period from January 1, 1998 to August 13, 1998, attached hereto as EXHIBIT
2.9 (the "Financial Statements"). The Financial Statements have been prepared
in accordance with generally accepted accounting principles ("GAAP"), are
consistent in all respects with the books and records of Design Analysis and its
subsidiaries, and present fairly the financial position of the Business as of
the date shown thereon.
2.10 ABSENCE OF UNDISCLOSED LIABILITIES. Design Analysis has no
liability or obligation (absolute, accrued, contingent or otherwise) of a nature
required by GAAP to be reflected on a corporate balance sheet or disclosed in
the notes thereto, except for liabilities stated or adequately reserved against
in the Financial Statements, or for liabilities arising in the ordinary course
of business.
2.11 ABSENCE OF CERTAIN CHANGES AND EVENTS. With regard to Design
Analysis, there has not been since the date of the most recent Financial
Statements: (i) any material adverse change in the assets or liabilities of the
Business, other than changes in the ordinary course of business; (ii) any
damage, destruction or loss, whether or not covered by insurance, affecting its
tangible assets; (iii) any amendment, termination or cancellation of any
material contract; (iv) any failure to pay when due any material obligation; (v)
any material transactions entered into or any material liabilities or
obligations incurred; or (vi) any failure to operate the Business in the
ordinary course with an effort to preserve the goodwill of the Business as a
going concern.
2.12 TITLE TO ASSETS AND PROPERTIES; CONDITION.
2.12.1 Design Analysis owns or leases or otherwise has the right to
use all of its assets and properties, which are presently being used in or are
reasonably necessary to carry on its business and operations as presently
conducted, and such assets, properties and agreements are all of the assets,
properties and agreements which are used in or are reasonably necessary to carry
on its business and operations as presently conducted. All assets and
properties leased or owned are located in their offices at 75 West 100 South,
Logan, Utah.
2.12.2 Each lease or agreement under which Design Analysis is a
lessee of any property, real or personal, owned by a third party is a valid and
continuing agreement without any default of Design Analysis thereunder or, to
the best knowledge of Design Analysis, of the other party thereto, and this
Agreement and the consummation of the transactions contemplated hereby will not
cause any default under any such lease or agreement.
2.12.3 Design Analysis has good and marketable title to all
property and assets which it owns, free and clear of all mortgages, liens,
pledges, charges, claims, encumbrances or
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restrictions of any kind whatsoever (whether accrued, absolute, contingent, or
otherwise), except liens for liens of record against any real property interests
and current property taxes not yet due and payable and liens that do not
materially interfere with the ability of Design Analysis to conduct its business
or qualify as "material" liens.
2.12.4 Neither Design Analysis nor the Shareholder has received any
notice of violation of any regulation, ordinance, law, order or other
requirement relating to the property, real or personal, or Design Analysis'
Business. Neither Design Analysis nor the Shareholder is aware of any changes
in any such regulation, ordinance, law, order or other requirement affecting any
such property or any condemnation proceeding, pending or threatened, which might
prohibit Design Analysis from continuing its present use of such property or
from using such property for the purpose for which it was acquired, or which
might curtail or interfere with the present or proposed use of such property.
2.12.5 The furniture, fixtures, leaseholds, equipment and other
personal property of Design Analysis are in good operating condition and repair.
2.13 MATERIAL CONTRACTS. Design Analysis and the Shareholder have
delivered to TeraGlobal a true, accurate and complete copy of each contract
which is material to the operation of the Business ("Material Contracts").
Design Analysis is not in default under or in breach of any Material Contract.
To the knowledge of the Shareholder, no other party to any Material Contract is
in default thereunder or breach thereof. Neither the Shareholder nor Design
Analysis has received any claim or threat that Design Analysis has breached any
of the terms and conditions of any Material Contract. No person presently a
customer, agent, employee, or independent contractor of Design Analysis has
given notice of any intention to cancel or otherwise terminate its business
relationship with Design Analysis.
2.14 LITIGATION. There is no action, suit or proceeding at law or in
equity by any person or entity, or any arbitration or any administrative or
other proceeding by or before, or to the best knowledge of the Shareholder, any
investigation by, any governmental or other instrumentality or agency, pending,
or to the best knowledge of the Shareholder, threatened, against or affecting
Design Analysis or any of its properties or rights which could materially and
adversely affect the right or ability of Design Analysis to carry on its
business as now conducted, or which could materially and adversely affect its
financial condition or properties.
2.15 TAXES. All tax returns required to be filed by Design Analysis
have been true, accurate and complete in all respects and have been filed as of
the Closing Date and all liabilities thereunder have been paid in full. To the
extent that any returns have been audited by the applicable tax authorities, all
additional taxes claimed or assessed or deficiencies proposed as a result of
such audits have been paid in full or settled. There are no pending or, to the
knowledge of the Shareholder, threatened audits, investigations or claims
against Design Analysis or any of its subsidiaries.
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2.16 PERMITS. Set forth in EXHIBIT 2.16 is a complete and accurate list
of all material permits, licenses, approvals, franchises, notices,
authorizations issued by governmental entities or other regulatory authorities,
federal, state or local (collectively the "Permits"), held by Design Analysis in
connection with the Business. Each Permit is in full force and effect.
2.17 INSURANCE. Set forth in EXHIBIT 2.17 is a complete and accurate
list of insurance policies which Design Analysis maintains with respect to its
business, properties or employees. All such policies are in full force and
effect.
2.18 INTELLECTUAL PROPERTY. For purposes of this Agreement,
"Intellectual Property" shall mean inventions, copyrights, patents,
servicemarks, trademarks, tradenames, registrations and applications for the
registration of any of the foregoing, trade secrets, technical information,
knowhow, computer software programs in source and object code, actual and
prospective client customer lists, and all agreements relating to any of the
foregoing. Design Analysis owns and has the absolute and unrestricted right to
use all of its Intellectual Property fee and clear of the rights and claims of
any person. Set forth in EXHIBIT 2.18 is a complete and accurate list of all
trademarks, service marks, trade names, patents and copyrights used by Design
Analysis, together with all pending applications therefor. To the best
knowledge of the Shareholder, the use of the Intellectual Property of Design
Analysis does not infringe upon or otherwise violate the rights of any third
party.
2.19 COMPLIANCE WITH LAWS. To the best knowledge of the Shareholder,
Design Analysis is in compliance with all applicable laws, regulations, orders,
judgments and decrees of each and every jurisdiction in which it is doing
business, including applicable federal laws and regulations.
2.20 EMPLOYEE BENEFIT PLANS.
2.20.1 LIST OF PLANS. Set forth in EXHIBIT 2.20 is an accurate and
complete list of all employee benefit plans ("Employee Benefit Plans") within
the meaning of Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), whether or not any such Employee Benefit Plans are
otherwise exempt from the provisions of ERISA, established, maintained or
contributed to by Design Analysis.
2.20.2 STATUS OF PLANS. Design Analysis does not maintain or
contribute to any such Employee Benefit Plan subject to ERISA which is not in
substantial compliance with ERISA. Design Analysis has not incurred any
liability to the Pension Benefit Guaranty Corporation ("PBGC") in connection
with any Employee Benefit Plan.
2.20.3 CONTRIBUTIONS. Full payment has been made of all amounts
which Design Analysis is required, under applicable law or under any Employee
Benefit Plan or any agreement relating to any Employee Benefit Plan to which
Design Analysis is a party, to have paid as contributions.
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2.20.4 TAX QUALIFICATION. To the best knowledge of Shareholders,
each Employee Benefit Plan intended to be qualified under Section 401(a) of the
Code has been determined to be so qualified by the Internal Revenue Service.
2.20.5 TRANSACTIONS. Design Analysis has not engaged in any
transaction with respect to any Employee Benefit Plan which would subject it to
a tax, penalty or liability for prohibited transactions under ERISA or the Code,
nor have any of its directors, officers or employees, to the extent they or any
of them are fiduciaries with respect to such plans, materially breached any of
their responsibilities or obligations imposed upon fiduciaries under Title I of
ERISA or which would result in any claim being made under or by or on behalf of
any such plans by any party with standing to make such claim.
2.20.6 OTHER PLANS. Design Analysis does not presently maintain
any employee benefit plans or any other pension, welfare or retirement benefit
plans other than those listed in EXHIBIT 2.20.
2.21 INTERESTS IN CLIENTS, SUPPLIERS, ETC. Neither Design Analysis nor
any officer or director of Design Analysis owns or possesses, directly or
indirectly, any financial or proprietary interest in, or is a director, officer
or employee of, any corporation, limited liability company, partnership,
association, trust, joint venture or other business entity which is engaged in
the same or similar business as Design Analysis, or is a competitor or potential
competitor of Design Analysis.
2.22 CLIENTS. EXHIBIT 2.22 sets forth the names and addresses of all
currently active clients of Design Analysis. Except as set forth in EXHIBIT
2.22, no such client has given notice to Design Analysis intention to terminate,
cancel or otherwise modify its relationship with Design Analysis.
2.23 BANK ACCOUNTS. Set forth in EXHIBIT 2.23 is a correct and complete
list and description of all bank accounts, the balances thereof as of September
__, 1998, and the persons authorized to access such accounts and to incur
indebtedness on behalf of Design Analysis; and a correct and complete list of
all safe deposit boxes of Design Analysis has previously been provided to
TeraGlobal.
2.24 BROKER'S OR FINDER'S FEES. No agent, broker, person or firm acting
on behalf of Design Analysis or the Shareholder is, or will be, entitled to any
commission or broker's or finder's fees from any of the parties hereto, or from
any person controlling, controlled by or under common control with any of the
parties hereto, in connection with the transaction contemplated herein.
2.25 DISCLOSURE. Neither this Agreement nor any other materials
delivered to TeraGlobal in connection with the transactions contemplated by this
Agreement contains any untrue statement of a material fact or omits a material
fact necessary to make the statements contained herein or therein, in light of
the circumstances in which they were made, not misleading.
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3. REPRESENTATIONS OF TERAGLOBAL
TeraGlobal represents, warrants and agrees as follows:
3.1 EXISTENCE AND GOOD STANDING. TeraGlobal is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Wyoming. TeraGlobal is qualified to do business and is in good standing in all
other jurisdictions in which the character or location of the properties owned
or leased by it or the nature of the business conducted by it makes such
qualification necessary and where the failure to so qualify would have a
material adverse effect upon TeraGlobal. TeraGlobal has the power to own its
property and to carry on its business as now being conducted. TGC Acquisition
is a corporation duly organized, validly existing and in good standing under the
laws of the State of California. TeraGlobal and TGC Acquisition have the full
power and authority to enter into and perform their obligations under this
Agreement and under each other instrument and document executed and delivered by
TeraGlobal or TGC Acquisition pursuant hereto or in connection herewith, and to
take all actions required of them to consummate the Merger.
3.2 CORPORATE ACTIONS. TeraGlobal has taken all corporate actions and
proceedings necessary in connection with the execution and delivery of this
Agreement and the consummation of the transactions contemplated by this
Agreement. TeraGlobal has duly and validly authorized, executed and delivered
this Agreement, which constitutes the legal, valid and binding obligation of
TeraGlobal, and is enforceable against TeraGlobal in accordance with its terms.
3.3 NO BREACH. TeraGlobal is not in violation or breach of any of the
terms, conditions or provisions of its Article of Incorporation, its Bylaws, or
any indenture, mortgage or deed of trust or other contracts, lease, instrument,
court order, judgment, arbitration award, or decree affecting its business, to
which TeraGlobal is a party or by which it is bound, and has received no notices
of any of the foregoing.
3.4 NO DEFAULTS. TeraGlobal's execution, delivery or performance of
this Agreement and consummation of the transactions contemplated by this
Agreement will not violate or conflict with the provisions of the Articles of
Incorporation or Bylaws of TeraGlobal; result in any breach or in any default
under or cause any acceleration of any obligation under any contract, mortgage,
indenture, agreement, lease or other instrument to which TeraGlobal is a party
or by which it is bound, or result in the creation of any encumbrance upon any
of the assets or properties of TeraGlobal or violate any judgment, decree,
order, statute, law, rule or regulation applicable to TeraGlobal.
3.5 APPROVALS AND CONSENTS. TeraGlobal is not legally or contractually
required to obtain any approvals or consents of any persons or entities not a
party to this Agreement in connection with the consummation of the transactions
contemplated by this Agreement. No permit, license, consent, approval or
authorization of, or filing with, any governmental regulatory authority
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or agency is required in connection with the execution, delivery and performance
of this Agreement, or the consummation of the transactions contemplated by this
Agreement.
3.6 CAPITAL STOCK. TeraGlobal has an authorized capitalization
consisting of Fifty Million (50,000,000) shares of voting common stock, without
par value. As of August 8, 1998, Fourteen million Nine Hundred Forty nine
Thousand Eight Hundred Thirty-Six (14,949,830) shares were issued and
outstanding. All such outstanding shares have been duly authorized, are validly
issued, and are fully paid and nonassessable. The TeraGlobal Shares to be
issued pursuant to the Agreement are duly authorized and, when issued pursuant
to the Agreement, will be validly issued, fully paid and nonassessable. There
are no other shares of stock of TeraGlobal issued and outstanding. Other than
options issuable in connection with TeraGlobal's Employee Stock Option Plan, and
those issued as options or warrants in connection with financing of TeraGlobal,
there are no outstanding options, warrants, rights, preemptive rights, calls,
commitments, conversion rights, rights of exchange, plans or other agreements of
any character providing for the purchase, issuance or sale of any shares of the
capital stock of TeraGlobal, except as contemplated by this Agreement. None of
the outstanding TeraGlobal Shares have been issued in violation of any
preemptive right or agreement, commitment or obligation binding on TeraGlobal or
any applicable securities laws.
3.7 COMPLIANCE WITH LAWS. TeraGlobal is in compliance with all
applicable laws, regulations, orders, judgments and decrees of each and every
jurisdiction in which it is doing business, including applicable federal laws
and regulations, the violation of which would have a material adverse effect on
its operations.
3.8 BROKER'S OR FINDER'S FEES. No agent, broker, person or firm acting
on behalf of TeraGlobal or TGC Acquisition is, or will be, entitled to any
commission or broker's or finder's fees from any of the parties hereto, or from
any person controlling, controlled by or under common control with any of the
parties hereto, in connection with any of the transactions contemplated herein.
Any such broker's or finder's fees will be paid by TeraGlobal.
3.9 FINANCIAL STATEMENTS. TeraGlobal has previously delivered to
Design Analysis a true, accurate and complete copy of the unaudited consolidated
financial statements for the period from February 7, 1997 (inception) to
December 31, 1997 and the period from January 1, 1998 to June 30, 1998 (the
"TeraGlobal Financial Statements"). The TeraGlobal Financial Statements have
been prepared in accordance with GAAP, are consistent in all respects with the
books and records of TeraGlobal and its subsidiaries, and present fairly the
financial position of TeraGlobal as of the date shown thereon.
3.10 ABSENCE OF UNDISCLOSED LIABILITIES. TeraGlobal does not have any
liability or obligation (absolute, accrued, contingent or otherwise) of a nature
required by GAAP to be reflected on a corporate balance sheet or disclosed in
the notes thereto, which has not been disclosed to Design Analysis in writing.
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3.11 LITIGATION. Except for the suit by Darryl Spangler against
TechnoVision Communications, inc. and the suit by Messrs. Lam and Kees against
Videostream International, inc., there is no action, suit or proceeding at law
or in equity by any person or entity, or any arbitration or any administrative
or other proceeding by or before, or to the best knowledge of TeraGlobal, any
investigation by, any governmental or other instrumentality or agency, pending,
or to the best knowledge of TeraGlobal, threatened, against or affecting
TeraGlobal or any of its properties or rights which could materially and
adversely affect the right or ability of TeraGlobal to carry on its business as
now conducted, or which could materially and adversely affect the financial
condition, or properties of such companies.
3.12 DISCLOSURE. Neither this Agreement nor any other materials
delivered to Design Analysis in connection with the transactions contemplated by
this Agreement contains any untrue statement of a material fact or omits a
material fact necessary to make the statements contained herein or therein, in
light of the circumstances in which they were made, not misleading.
4. PRE-CLOSING COVENANTS OF DESIGN ANALYSIS
4.1 OPERATIONS. Design Analysis and the Shareholder agree, through the
Closing Date, to cause Design Analysis to: (i) preserve intact the business
organization and the goodwill of its customers, suppliers and others having a
relationship with it, (ii) protect its properties in good repair and condition,
normal wear and tear excepted, (iii) maintain its books of account and records
in the usual and ordinary manner, (iv) pay all accounts, taxes and other
obligations when they become due and payable in the ordinary course of business,
and (v) conduct the Business in the ordinary course consistent with prior
practices, or as required by this Agreement.
4.2 ACCESS TO PROPERTIES AND INFORMATION. TeraGlobal may, prior to the
Effective Time, through its employees, agents and representatives, make or cause
to be made a detailed review of the business and financial condition of Design
Analysis, and make or cause to be made such investigation as it deems necessary
or advisable of the properties, assets, businesses, books and records of Design
Analysis. Design Analysis agrees to furnish such assistance as TeraGlobal may
reasonably request in conducting such review and investigation and will provide,
and will cause its independent public accountants to provide, TeraGlobal and its
employees, agents and representatives full access to all books, records
(including tax returns filed or in preparation), personnel and premises of
Design Analysis and the audit work papers and other records of its independent
public accountants and shall provide to TeraGlobal such other information
concerning the business of Design Analysis and its subsidiary as TeraGlobal may
reasonably request.
4.3 RETIREMENT BENEFIT PLAN. Prior to the Closing Date, Design
Analysis shall transfer the sponsorship of, and otherwise convey and externalize
to an unrelated party, that certain ______________________________________Plan
dated ________________________ and listed on EXHIBIT 2.20, including all rights,
obligations and liabilities of Design Analysis thereunder, so that Design
Analysis bears no obligations or liability with respect to such plan as of the
Effective Time. Prior to the Closing Date, any other Employee Benefit Plan must
be fully funded or similarly
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transfered, conveyed and externalized by Design Analysis. TeraGlobal will not
assume responsibility for any liability under any of Design Analysis' existing
or prior Employee Retirement Benefit Plans, and Shareholder shall indemnify,
defend and hold TeraGlobal harmless for, from and against any liability, damage,
claim or loss arising out of any Employee Benefit Plan.
4.4 TRANSFER OF ASSETS. Prior to the Closing Date, the Shareholder
shall transfer to Design Analysis good and marketable title to all the assets
currently used in the Business including all equipment, furniture fixtures in
the land or building located in Logan, Utah, free and clear of all mortgages,
liens, encumbrances or other restrictions of any kind. The Shareholder shall
retain, and not transfer, any interest in the partnership which owns the land
Design Analysis currently occupies, but will cooperate with TCG Acquisition in
good faith to establish a mutually acceptable lease arrangement for the
facilities in Logan, Utah.
4.5 INSURANCE. Design Analysis shall maintain insurance with good and
responsible companies, including, but not limited to, general liability, product
liability, workers compensation, directors and officers liability, and property
damage insurance, to the extent as is customarily retained by it with respect to
its assets prior to the date of this Agreement, until the Merger has been fully
consummated.
4.6 RESTRICTIONS. Prior to the Closing Date, Design Analysis shall not
without the prior written consent of TeraGlobal: (i) issue any options, warrants
or other rights to subscribe for or purchase any capital stock or any securities
convertible or exchangeable into capital stock; (ii) directly or indirectly
redeem, purchase, acquire or pay a dividend or make a distribution on any
capital stock; (iii) borrow any funds or incur any indebtedness or encumber or
grant any security interest in any of its assets, (iv) enter into any agreement,
lease or commitment other than in the ordinary course of business, (v) cancel,
compromise or discount any indebtedness owed to it, (vi) purchase any assets
other than in the ordinary course of business, (vii) reclassify any of its
outstanding capital stock, (viii) merge or consolidate with, or agree to merge
or consolidate with, or purchase substantially all of the assets of, or
otherwise acquire any business or other entity or division thereof, (ix) make
any change in key management or employees, or (x) do, or commit to do, any act
which will cause a breach of this Agreement.
4.7 CONSENTS. To the extent that the consent or approval of any third
person is required under any contract in order to assign any such contract from
Design Analysis to TeraGlobal or otherwise by reason of the transactions
provided for in this Agreement, Design Analysis shall obtain such consents and
approvals on or before the Closing Date.
4.8 NOTIFICATION OF CERTAIN MATTERS. Design Analysis and the
Shareholder shall give prompt notice to TeraGlobal of (i) any material
inaccuracy in any representation or warranty made by either of them herein, or
(ii) any material failure to comply with or satisfy any covenant, condition or
agreement to be complied with by Design Analysis or the Shareholder under this
Agreement.
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4.9 BEST EFFORTS; FURTHER ASSURANCES. Subject to the terms and
conditions herein provided, Design Analysis shall cooperate and use its best
efforts to take, or cause to be taken, all appropriate action, and to make, or
cause to be made, all filings necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement. Design Analysis shall deliver or cause to be
delivered on the Closing Date, and thereafter at such other times and places as
shall be reasonably agreed upon, such additional instruments as TeraGlobal may
reasonably request for the purpose of consummating and carrying out this
Agreement and its terms, conditions and requirements.
5. PRE-CLOSING COVENANTS OF TERAGLOBAL
5.1 ACCESS TO PROPERTIES AND INFORMATION. TeraGlobal shall furnish
Design Analysis and its representatives with information concerning its business
affairs and copies of such documents, contacts, agreements and records as Design
Analysis may reasonably request. All such information provided to Design
Analysis in written form by TeraGlobal shall be true, complete and correct and
shall be deemed represented as such by TeraGlobal. The Shareholder shall be
responsible for ensuring that Design Analysis, its employees or representatives
maintain the confidentiality of any information learned during the investigation
subject to the terms of this Agreement.
5.2 NOTIFICATION OF CERTAIN MATTERS. TeraGlobal shall give prompt
notice to the Shareholder of (i) any material inaccuracy in any representation
or warranty made by it herein, or (ii) any material failure to comply with or
satisfy any covenant, condition or agreement to be complied with by TeraGlobal
under this Agreement.
5.3 BEST EFFORTS; FURTHER ASSURANCES. Subject to the terms and
conditions herein provided, TeraGlobal shall cooperate and use its best efforts
to take, or cause to be taken, all appropriate action, and to make, or cause to
be made, all filings necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement. TeraGlobal shall deliver or cause to be delivered on the
Closing Date, and thereafter at such other times and places as shall be
reasonably agreed upon, such additional instruments as Design Analysis or the
Shareholder may reasonably request for the purpose of consummating and carrying
out this Agreement and its terms, conditions and requirements.
6. CONDITIONS TO OBLIGATIONS OF DESIGN ANALYSIS
The obligations of Design Analysis to consummate the Merger and other
transactions described herein on the Closing Date are subject to satisfaction of
the following conditions.
6.1 GOOD STANDING CERTIFICATE. TeraGlobal shall have delivered to
Design Analysis (a) copies of TeraGlobal's articles of incorporation, including
all amendments thereto, certified by the corporate Secretary of TeraGlobal, (b)
certificates from the Secretary of State or other appropriate official of the
State of Wyoming to the effect that TeraGlobal is in good standing or
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existing in such jurisdiction and listing all charter documents of TeraGlobal on
file, (c) a certificate from the Secretary of State or other appropriate
official in each state in which TeraGlobal is qualified to do business to the
effect that TeraGlobal is in good standing in such state and (d) certificates as
to the tax status of TeraGlobal in the State of Wyoming and each state in which
TeraGlobal is qualified to do business.
6.2 NO MATERIAL ADVERSE CHANGE. Since June 30, 1998 there shall have
been no material adverse change in the assets or liabilities, the business or
financial condition, the results of operations, or prospects of TeraGlobal,
whether as a result of any legislative or regulatory change, revocation of any
license or rights to do business, fire, explosion, accident, casualty, labor
trouble, flood, drought, riot, storm, condemnation or act of God or other public
force or otherwise, other than any such change caused by the effect of
transactions contemplated by this Agreement, and TeraGlobal shall have delivered
to Design Analysis a certificate, dated the Closing Date, to such effect.
6.3 TRUTH OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of TeraGlobal contained in this Agreement or in any Exhibit delivered
pursuant thereto shall be true and correct in all material respects as of the
date of this Agreement and as of the Closing Date (as though made on and as of
the Closing Date) except (i) to the extent such representations and warranties
are by their express provisions made as of a specified date and (ii) for the
effect of transactions contemplated by this Agreement; and TeraGlobal shall have
delivered to Design Analysis on the Closing Date a certificate, dated the
Closing Date, to such effect.
6.4 PERFORMANCE OF AGREEMENTS. Each and all of the agreements of
TeraGlobal and TGC Acquisition to be performed on or before the Closing Date
pursuant to the terms hereof shall have been duly performed in all material
respects, and TeraGlobal shall have delivered to the Shareholder a certificate,
dated the Closing Date, to such effect.
6.5 PROCEEDINGS. All proceedings to be taken in connection with the
transactions contemplated by this Agreement and all documents incident thereto
shall be reasonably satisfactory in form and substance to the Shareholder and
his counsel.
6.6 NO LITIGATION THREATENED. No action or proceeding shall have been
instituted or, to the best knowledge of TeraGlobal and TGC Acquisition, shall
have been threatened before a court or other government body or by any public
authority to restrain or prohibit any of the transactions contemplated hereby.
TGC Acquisition shall have delivered to DAA a certificate, dated the Closing
Date, to such effect.
6.7 EMPLOYMENT AGREEMENTS. William I. Fletcher shall have entered into
a mutually acceptable employment agreement with TGC Acquisition (the "Employment
Agreement"), which among other things shall provide in the event of termination
by TGC Acquisition, either with cause or without, a severance payment will be
payable monthly to William I. Fletcher in an amount equal to his base salary for
a period of one year from the date of execution of the Employment Agreement.
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7. CONDITIONS TO OBLIGATIONS OF TERAGLOBAL
The obligations of TeraGlobal and TGC Acquisition to consummate the Merger
and other transactions described herein on the Closing Date are subject to
satisfaction of the following conditions.
7.1 GOOD STANDING AND TAX CERTIFICATES. Design Analysis shall have
delivered to TeraGlobal (a) copies of Design Analysis's articles of
incorporation, including all amendments thereto, certified by the corporate
Secretary of Design Analysis, (b) certificates from the Secretary of State or
other appropriate official of the State of Utah to the effect that Design
Analysis is in good standing or existing in such jurisdiction and listing all
charter documents of Design Analysis on file, (c) a certificate from the
Secretary of State or other appropriate official in each state in which Design
Analysis is qualified to do business to the effect that Design Analysis is in
good standing in such state and (d) certificates as to the tax status of Design
Analysis in the State of Utah and each state in which Design Analysis is
qualified to do business.
7.2 NO MATERIAL ADVERSE CHANGE. Since June 30, 1998 there shall have
been no material adverse change in the assets or liabilities, the business or
financial condition, the results of operations, or prospects of Design Analysis,
whether as a result of any legislative or regulatory change, revocation of any
license or rights to do business, fire, explosion, accident, casualty, labor
trouble, flood, drought, riot, storm, condemnation or act of God or other public
force or otherwise, other than any such change caused by the effect of
transactions contemplated by this Agreement, and Design Analysis shall have
delivered to TeraGlobal a certificate, dated the Closing Date, to such effect.
7.3 TRUTH OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Design Analysis and the Shareholder contained in this Agreement or
in any Exhibit delivered pursuant thereto shall be true and correct in all
material respects as of the date of this Agreement and as of the Closing Date
(as though made on and as of the Closing Date) except (i) to the extent such
representations and warranties are by their express provisions made as of a
specified date and (ii) for the effect of transactions contemplated by this
Agreement; and Design Analysis shall have delivered to TeraGlobal on the Closing
Date a certificate, dated the Closing Date, to such effect.
7.4 PERFORMANCE OF AGREEMENTS. Each and all of the agreements of
Design Analysis and the Shareholder to be performed on or before the Closing
Date pursuant to the terms hereof shall have been duly performed in all material
respects, and Design Analysis shall have delivered to TeraGlobal a certificate,
dated the Closing Date, to such effect.
7.5 NO LITIGATION THREATENED. No action or proceeding shall have been
instituted or, to the best knowledge of Design Analysis and the Shareholder,
shall have been threatened before a court or other government body or by any
public authority to restrain or prohibit any of the
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transactions contemplated hereby. Design Analysis shall have delivered to
TeraGlobal a certificate, dated the Closing Date, to such effect.
7.6 EMPLOYMENT AGREEMENTS. William I. Fletcher and Teryl Fletcher
shall have entered into the Employment Agreements.
7.7 NONCOMPETITION AGREEMENTS. William I. Fletcher shall have entered
into a noncompetition agreement with TeraGlobal in substantially the form of
EXHIBIT 7.7 (the "Noncompetition Agreement").
7.8 PROCEEDINGS. All proceedings to be taken in connection with the
transactions contemplated by this Agreement, including TeraGlobal's review of
Design Analysis as provided in Section 4.2, and all documents incident thereto,
shall be reasonably satisfactory in form and substance to TeraGlobal and its
counsel.
7.9 COMPLETION OF DUE DILIGENCE REVIEW. TeraGlobal shall be satisfied,
in its sole discrection with the results of its due diligence review of Design
Analysis, its business and propects.
8. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNITY
8.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND INDEMNITIES. The
representations, warranties and indemnities included or provided herein or any
exhibit or certificate or other document delivered pursuant hereto, shall
survive the Closing Date.
8.2 INDEMNIFICATION OF TERAGLOBAL. The Shareholder shall indemnify,
defend and hold harmless TeraGlobal, Surviving Corporation and their directors
and officers (collectively, the "TeraGlobal Parties") against and from any and
all damages, losses, claims, liabilities, charges, suits, penalties, costs and
expenses, including court costs, attorneys' fees and expenses and other costs of
collection (collectively "Loss" or "Losses"), which the TeraGlobal Parties may
sustain, or to which the TeraGlobal Parties may be subjected, arising out of or
attributable to any misrepresentation or breach of warranty by Design Analysis
in, or any breach or default by Design Analysis of or under any of the
covenants, agreements or other provisions of, the Agreement, including any
documents, instruments, exhibits or certificates delivered by or on behalf of
Design Analysis pursuant to the Agreement.
8.3 INDEMNIFICATION OF THE SHAREHOLDER. TeraGlobal shall indemnify,
defend and hold harmless the Shareholder against and from any and all damages,
losses, claims, liabilities, charges, suits, penalties, costs and expenses,
including court costs, attorneys' fees and expenses and other costs of
collection (collectively "Loss" or "Losses"), which the Shareholder may sustain,
or to which the Shareholder may be subjected, arising out of or attributable to
any misrepresentation or breach of warranty by TeraGlobal in, or any breach or
default by TeraGlobal of or under any of the covenants, agreements or other
provisions of, the Agreement, including any documents, instruments, exhibits or
certificates delivered by or on behalf of TeraGlobal pursuant to the Agreement.
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9. TERMINATION
9.1 TERMINATION EVENTS. This Agreement may, by notice given prior to
or at the Closing, be terminated:
9.1.1 by either TeraGlobal or Design Analysis if a material breach
of any provision of this Agreement has been committed by the other party and
such breach has not been waived or cured within 5 days after the breaching party
has been notified thereof:
9.1.2 by Design Analysis if any of the conditions in Section 6
have not been satisfied as of October 31, 1998 or if satisfaction of such a
condition is or becomes impossible (other than through the failure of Design
Analysis to comply with its obligations under this Agreement) and Design
Analysis has not waived such condition on or before October 31, 1998; or
9.1.3 by TeraGlobal, if any of the conditions in Section 7 not
been satisfied as of October 31, 1998 or if satisfaction of such a condition is
or becomes impossible (other than through the failure of TeraGlobal to comply
with their obligations under this Agreement) and TeraGlobal has not waived such
condition on or before October 31, 1998;
9.1.4 by mutual consent of TeraGlobal and Design Analysis; or
9.1.5 by either TeraGlobal or Design Analysis if the Closing has
not occurred (other than through the failure of any party seeking to terminate
this Agreement to comply fully with its obligations under this Agreement) on or
before October 31, 1998, or such later date as the parties may agree upon.
9.2 EFFECT OF TERMINATION. Each party's right of termination under
Section 9.1 is in addition to any other rights it may have under this Agreement
or otherwise, and the exercise of such right of termination will not be an
election of remedies. If this Agreement is terminated pursuant to Section 9.1,
all further obligations of the parties under this Agreement will terminate,
except that the obligations in Sections 9.3, 11.1, 11.2, 11.3, 11.4 and 11.5
will survive; provided, however, that if this Agreement is terminated by a party
because of a breach of the Agreement by the other party or because one or more
of the conditions to the terminating party's obligations under this Agreement is
not satisfied as a result of the other party's failure to comply with its
obligations under this Agreement, the terminating party's right to pursue all
legal remedies will survive such termination unimpaired.
9.3 RETURN OF DOCUMENTS IN EVENT OF TERMINATION; CONFIDENTIALITY. In
the event of the termination of this Agreement for any reason, TeraGlobal, on
one hand, and Design Analysis and the Shareholder, on the other, each will
deliver to the other all documents, work papers and other material obtained from
it relating to the transactions contemplated hereby, whether so obtained before
or after execution hereof, and will take all practicable steps to have any
information so
18
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obtained kept confidential. Unless and until the transactions contemplated
hereby are consummated, the parties shall hold confidential all information and
copies of documents and records obtained in the course of their investigations
or otherwise in connection with the transactions contemplated hereby and shall
not disclose such information to any person, except as may be required by
applicable law or stock exchange rules, and except to their respective
professional advisors, provided that such advisors are bound to keep such
information confidential.
10. POST CLOSING COVENANTS.
10.1 RIGHT OF FIRST REFUSAL ON WATER MONITORING BUSINESS. As described
in this Section 10.1, TeraGlobal and TGC Acquisition hereby grant to the
Shareholder a right of first negotiation on any sale of all or substantially all
of the assets used in connection with the water monitoring portion of the
Business (the "Water Monitoring Assets") for a period of three (3) years
following the date of this Agreement. This right of first negotiation shall be
extended to the Shareholder and may be assigned without consent to Mr. Teryl
Fletcher. Any other assignment is expressly prohibited. In the event that
TeraGlobal or TGC Acquisition desires to sell all or substantially all of the
Water Monitoring Assets, it shall promptly provide written notice of such desire
to the Shareholder. For a period of forty-five (45) days from the date of such
notice, Shareholder shall have the right to negotiate for the purchase of the
Water Monitoring Assets to be sold, and TeraGlobal and TGC Acquisition shall
negotiate in good faith with the Shareholder for such purchase and sale. In the
event that Shareholder and TeraGlobal fails to reach a mutually acceptable
agreement for the sale and purchase of such Water Monitoring Assets within such
forty-five (45) day period, TeraGlobal or TGC Acquisition shall be free to sell
such assets to a third party on whatever terms TeraGlobal in its discretion
deems appropriate.
11. MISCELLANEOUS
11.1 PROFESSIONAL EXPENSES. Design Analysis, the Shareholder and
TeraGlobal (on behalf of it and TGC Acquisition) shall each pay all of its own
professional expenses relating to negotiating, drafting and closing the
transactions contemplated by this Agreement, including, without limitation, the
fees and expenses of its counsel, financial advisers and accountants.
11.2 CHOICE OF LAW AND VENUE. This Agreement is made and entered into
in the State of California. It is the intention of the parties that this
Agreement shall be subject to and shall be governed by and construed in
accordance with the internal laws of the State of California without reference
to its choice of law provisions. Any legal proceeding arising out of this
Agreement shall be brought only in a state or federal court of competent
jurisdiction sitting in the County of San Diego, State of California, and all
parties hereto agree that venue shall lie therein and agree to submit themselves
to the personal jurisdiction of such court.
11.3 PUBLICITY. Except as otherwise required by law, or as may be
mutually consented and agreed to, none of the parties hereto shall issue any
press release or make any other public statement, in each case relating to or in
connection with or arising out of this Agreement or the
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matters contained herein, without obtaining the prior approval of both
TeraGlobal and Design Analysis to the contents and the manner of presentation
and publication thereof.
11.4 NOTICES. Any notice or other communications required or permitted
hereunder shall be sufficiently given if delivered in person or sent by express
mail or by registered or certified mail, postage prepaid, or by facsimile
transmission, receipt confirmed, addressed as follows:
If to TeraGlobal, TGC Acquisition or, If to Design Analysis or, after the
following the Merger, Design Analysis: Merger, the Shareholder:
TeraGlobal Communications Corp. Mr. William I. Fletcher
225 Broadway, Suite 1600 75 West 100 South
San Diego, California 92101 Logan, Utah 84321
Attention: Mr. Paul Cox Facsimile: (801) 753-7669
Facsimile: (619) 232-9454
or such other address as shall be furnished in writing by any such party, and
such notice or communication shall be deemed to have been given as of the date
so delivered, sent or mailed.
11.5 BINDING EFFECT. This Agreement and any amendment hereto, shall be
binding upon the parties hereto, their successors, heirs, next of kin,
executors, administrators, personal representatives, legal representatives,
assignees, creditors, including receivers, and all other persons with notice or
knowledge of the provisions hereof.
11.6 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original as against any
party hereto whose signature appears hereon, and all of which shall together
constitute one and the same instrument. This Agreement shall become binding
when one or more counterparts hereof, individually or taken together, shall bear
the signatures of all of the parties reflected hereon as the signatories.
11.7 ENTIRE AGREEMENT. This Agreement, and any related agreement
referred to herein, constitutes the entire agreement between the parties with
respect to its subject matter and there are no representations, warranties or
agreements between the parties which are not expressed herein. This Agreement
supersedes and replaces all prior understandings and agreements between the
parties hereto, whether written or oral, express or implied, with respect to its
subject matter.
11.8 AMENDMENTS. This Agreement may be amended or modified at any time
or times only by unanimous written agreement of the parties.
11.9 SEVERABILITY. The provisions of this Agreement are independent of
and severable from each other, and no provision shall be affected or rendered
invalid or unenforceable by virtue of the fact that for any reason any other or
others of them may be invalid or unenforceable in whole
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or in part. Further, if a court of competent jurisdiction determines that any
provision of this Agreement is invalid or unenforceable as written, such court
may interpret, construe, rewrite or revise such provision, to the fullest extent
allowed by law, so as to make it valid and enforceable consistent with the
intent of the parties hereto.
11.10 THIRD PARTY BENEFICIARIES. Each party hereto intends that this
Agreement shall not benefit or create any right or cause of action in or on
behalf of any person other than the parties hereto.
11.11 ATTORNEYS' FEES. In any legal proceeding arising out of this
Agreement, including with respect to any instrument, document or agreement made
under or in connection with this Agreement, the prevailing party shall be
entitled to recover its costs and actual attorneys' fees. As used in this
Agreement, "actual attorneys' fees" shall mean the full and actual cost of any
legal services actually performed in connection with the matters involved,
calculated on the basis of the usual hourly fees charged by the attorneys
performing such services.
[The remainder of this page intentionally left blank.]
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11.12 CONSTRUCTION. The captions contained in this Agreement are for
convenience of reference only and are not to be considered in construing this
Agreement. The language of this Agreement shall be construed as to its fair
meaning and not strictly for or against any party.
IN WITNESS WHEREOF, each of the parties herein below stated has executed
this Agreement as of the date and year first above written.
TERAGLOBAL: DESIGN ANALYSIS:
TERAGLOBAL COMMUNICATIONS CORP., DESIGN ANALYSIS ASSOCIATES,
A WYOMING CORPORATION INC., A UTAH CORPORATION
By: /s/ Paul Cox By: /s/ William Fletcher
------------------------------- --------------------------------
Paul Cox, President William I. Fletcher, President
By: /s/ Grant Holcomb By: /s/
------------------------------- --------------------------------
Grant K. Holcomb, Secretary
__________, Secretary
TGC ACQUISITION: SHAREHOLDER:
TGC ACQUISITION, INC.,
A CALIFORNIA CORPORATION /s/ William Fletcher
-----------------------------------
William I. Fletcher, and
By: /s/ David Fann
-------------------------------
David Fann, President and Secretary /s/ Kathy Fletcher
-----------------------------------
Kathy Fletcher, as Trustees of the
William I. Fletcher Family Trust
U/T/D ___________
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EXHIBIT 1.1
AGREEMENT OF MERGER
This Agreement of Merger is entered into between TGC Acquisition, Inc., a
California corporation (herein "Surviving Corporation") and Design Analysis
Associates, Inc., a Utah corporation (herein "Merging Corporation").
1. Merging Corporation shall be merged into Surviving Corporation.
2. Each outstanding share of Merging Corporation shall be converted
into 5,500 shares of TeraGlobal Communications Corp., parent of
Surviving Corporation.
3. The outstanding shares of Surviving Corporation shall remain
outstanding and are not affected by the merger.
4. Merging Corporation shall from time to time, as and when requested
by Surviving Corporation, execute and deliver all such documents
and instruments and take all such action necessary or desirable to
evidence or carry out this merger.
5. The effect of the merger and the effective date of the merger are
prescribed by law.
6. Article I of the Articles of Incorporation of Surviving Corporation
is amended to read as follows:
I.
The name of the corporation is:
Design Analysis Associates, Inc.
IN WITNESS WHEREOF the parties have executed this Agreement.
TGC ACQUISITION, INC., a California DESIGN ANALYSIS ASSOCIATES, INC.,
corporation a Utah corporation
By: By:
-------------------------------- --------------------------------
David Fann, President William I. Fletcher, President
By: By:
-------------------------------- --------------------------------
David Fann, Secretary , Secretary
--------------------
<PAGE>
EXHIBIT 1.3
OFFICERS CERTIFICATES
CERTIFICATE OF APPROVAL
OF
ARTICLES OF MERGER
William I. Fletcher and ____________, certify that:
1. They are the President and the Secretary, respectively, of Design
Analysis Associates, Inc., a Utah corporation.
2. The Articles of Merger in the form attached was duly approved by
the Board of Directors and shareholders of the corporation.
3. The shareholder approval was by the holders of 100% of the
outstanding shares of the corporation.
4. There is only one class of shares and the number of shares
outstanding is 200.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this Certificate are true and correct
of our own knowledge.
Date: September ___, 1998
----------------------------------
William I. Fletcher, President
----------------------------------
, Secretary
----------------
<PAGE>
CERTIFICATE OF APPROVAL
OF
ARTICLES OF MERGER
David Fann certifies that:
1. He is the President and the Secretary, respectively, of TGC
Acquisition, Inc., a California corporation.
2. The Articles of Merger in the form attached was duly approved by
the Board of Directors and shareholders of the corporation.
3. The shareholder approval was by the holders of 100% of the
outstanding shares of the corporation.
4. There is only one class of shares and the number of shares
outstanding is one.
5. No vote of the shareholders of TeraGlobal Communications Corp.,
parent of the corporation, was required.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this Certificate are true and correct
of our own knowledge.
Date: September ___, 1998
----------------------------------
David Fann, President
----------------------------------
David Fann, Secretary
<PAGE>
EXHIBIT 2.9
DESIGN ANALYSIS FINANCIAL STATEMENTS
(See attached.)
<PAGE>
EXHIBIT 2.16
LIST OF PERMITS
(See attached.)
<PAGE>
EXHIBIT 2.17
LIST OF INSURANCE POLICIES
1. Property, General Liability and Inland Marine insurance with General
Insurance Company of America.
2. Service and Technical Professional Liability Insurance with Evanston
Insurance Company.
<PAGE>
EXHIBIT 2.18
LIST OF INTELLECTUAL PROPERTY
(See attached.)
<PAGE>
EXHIBIT 2.20
EMPLOYEE BENEFIT PLANS
<PAGE>
EXHIBIT 2.22
LIST OF CLIENTS
<PAGE>
EXHIBIT 2.23
LIST OF BANK ACCOUNTS
<PAGE>
EXHIBIT 7.7
NONCOMPETITION AGREEMENT
This NONCOMPETITION AGREEMENT (the "Agreement") is made and effective as of
September ___, 1998, by and between TeraGlobal Communication Corporation, a
Wyoming corporation (the "Company") and William I. Fletcher ("Mr. Fletcher") and
is made with reference to the following facts:
A. The Company and Mr. Fletcher, as one of the Trustees of the William
I. Fletcher Family Trust UTD October 12, 1998, together with Design Analysis
Associates, Inc., a Utah corporation ("Design Analysis"), and TGC Acquisition,
Inc., a California corporation and wholly-owned subsidiary of the Company, have
entered into an Agreement of Merger dated September ____, 1998 (the "Merger
Agreement"), pursuant to which Design Analysis will merge into the Company.
B. The William I. Fletcher Family Trust UTD October 12, 1983, of which
Mr. Fletcher is a Trustee, is the sole shareholder of Design Analysis.
C. The Company is unwilling to enter into the Merger Agreement unless
Mr. Fletcher agrees to enter into this Agreement and Mr. Fletcher will
personally receive a benefit from the sale of Design Analysis.
NOW, THEREFORE, in consideration of the premises and mutual covenants,
representations and warranties contained herein and in the Merger Agreement, the
parties agree as follows:
1. NON-COMPETITION. Except as an employee, consultant or shareholder
of the Company or any subsidiary, affiliate or parent entity of the Company
(collectively, the "Company Entities"), Mr. Fletcher agrees that he will not at
any time within the five (5) year period immediately following the date of this
Agreement (the "Restricted Period"), directly or indirectly, in any territory in
the United States or any foreign country in which any of the Company Entities is
doing business or has actually investigated doing business or where the products
of any of the Company Entities are sold:
1.1 engage in, or have any interest in any person, firm,
corporation, or business (whether individually or as an employee, officer,
director, agent, shareholder, creditor, partner, consultant, holder of any
beneficial interest or otherwise other than as a beneficial holder of not more
than five percent (5%) of the outstanding voting stock of a company having at
least 500 holders of voting stock) that engages in, the business of electrical
or computer design, engineering or manufacturing or any other activity which is
the same as, similar to, or competitive with any activity now engaged in by any
of the Company Entities, as long as any of the Company Entities, or any
<PAGE>
transferee of all or substantially all of the assets or stock of any of the
Company Entities ("Transferee") shall engage in this or similar activity;
1.2 reveal any information regarding any of the Company Entities
or their products or services which the Company Entities deem to be
confidential;
1.3 attempt to hire any person who is employed by any of the
Company Entities, assist in the hiring by any other entity or person of any
person who is at the time employed by any of the Company Entities or encourage
any such employee to terminate his or her relationship with any of the Company
Entities; or
1.4 solicit or encourage any customer of any of the Company
Entities to terminate its relationship with any of the Company Entities or to
conduct with any other person any business that such customer conducts with any
of the Company Entities.
2. RIGHTS AND REMEDIES UPON BREACH. Mr. Fletcher recognizes and
agrees that any violation of Section 1 may not be reasonably or adequately
compensated in damages and that, if Mr. Fletcher commits a breach of, or
threatens to commit a breach of, Section 1 above, the Company shall have the
following rights and remedies, each of which shall be independent of the other
and severally enforceable, and all of which shall be in addition to, and not in
lieu of, any other rights and remedies available to the Company in law or
equity:
2.1 INJUNCTION. The Company shall be entitled to permanent and
temporary injunctive and equitable relief and, pending determination of any
dispute with respect to such violation, no bond or security shall be required in
connection therewith. Without limiting the generality of the foregoing, Mr.
Fletcher specifically acknowledges that a showing by the Company of any breach
of any provision of Section 1 shall constitute, for the purposes of all judicial
determinations of the issue of injunctive relief, conclusive proof of all of the
elements necessary to entitle the Company to interim and permanent injunctive
relief against Mr. Fletcher with respect to such breach.
2.2 SPECIFIC PERFORMANCE. The Company shall be entitled to, and
Section 1 shall be enforceable by, a decree of specific performance. Without
limiting the generality of the foregoing, Mr. Fletcher specifically acknowledges
that a showing by the Company of any breach of any provision of Section 1 shall
constitute, for the purposes of all judicial determinations of the issue of
injunctive relief, conclusive proof of all of the elements necessary to entitle
the Company to specific performance against Mr. Fletcher with respect to such
breach.
3. TERM. The term of this Agreement shall be equivalent to the
Restricted Period as defined in Section 1.
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4. GENERAL PROVISIONS.
4.1 ASSIGNMENT. No rights under this Agreement shall be
assignable nor duties delegable by either party, except that the Company may
assign and delegate any of its rights and duties hereunder to a Transferee.
Nothing contained in this Agreement is intended to confer upon any person or
entity, other than the parties hereto, their successors in interest and
Transferees, any rights or remedies under or by reason of this Agreement unless
expressly so stated to the contrary.
4.2 CONSTRUCTION. This Agreement shall be construed and
enforced in accordance with the laws of the State of California, excluding such
jurisdiction's principles of conflict of law.
4.3 SEVERABILITY. If any provision of this Agreement, or the
application thereof, shall for any reason and to any extent be held to be
invalid, illegal or unenforceable in any respect, such provision shall be
curtailed, limited or eliminated only to the extent necessary to avoid or remove
such invalidity, illegality or unenforceability, and as so modified shall be
interpreted to achieve to the extent possible, the economic, business and other
purposes of such provision, and as so modified, this Agreement shall remain in
full force and effect.
4.4 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
4.5 ATTORNEYS' FEES. If an action is instituted to enforce any
of the provisions of this Agreement, the prevailing party in such action shall
be entitled to recover from the losing party its or his reasonable attorneys'
fees and costs as set by the court.
4.6 NOTICES. Any notice required or permitted to be given under
this Agreement shall be sufficient if such notice is in writing, delivered
personally or sent by registered or certified mail, return receipt requested,
addressed as follows:
To Mr. Fletcher: To the Company:
William I. Fletcher TeraGlobal Communications Corp.
75 West 100 South 225 Broadway, Suite 1600
Logan, Utah 84321 San Diego, CA 92101
Attention: President
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Notice shall be deemed given on the date of personal delivery or the date
it is placed, postage prepaid, in a depository for United States Mail.
4.7 ENTIRE AGREEMENT. This Agreement contains the entire
agreement of the parties with respect to the non-competition of Mr. Fletcher.
This Agreement supersedes all other agreements whether oral or in writing,
hereto before made or existing between the Company and Mr. Fletcher relating to
the non-competition of Mr. Fletcher. This Agreement may only be changed by an
agreement in writing signed by the party against whom enforcement of any change,
modification, extension, waiver or discharge is sought.
4.8 WAIVER. The waiver by either party of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above.
THE COMPANY MR. FLETCHER
TeraGlobal Communications Corp.,
a Wyoming corporation
-------------------------------
William I. Fletcher
By:
---------------------------------
Paul Cox, President
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PURCHASE AGREEMENT
This Purchase Agreement (the "Agreement") is made as of July 28, 1998, by
and between Video Stream International, Inc., a Wyoming corporation ("Buyer"),
and Interactive Solutions Group, Inc., a North Carolina corporation ("Seller"),
with respect to the following facts:.
A. Buyer is engaged in the business of developing and marketing video
conferencing and other multimedia communications products and technologies.
B. Seller has developed certain products and technologies for computer
networks and multimedia communications, including the transfer of voice, video,
image and data which it has transferred to ISG Acquisition, LLC, a Delaware
limited liability company (the "Company"), a wholly owned subsidiary of Seller.
C. Seller desires to sell, and Buyer desires to purchase all of the
outstanding membership interests of the Company, for the consideration and on
the terms set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants contained herein, the parties agree as follows:
ARTICLE 1
SALE AND TRANSFER OF INTEREST; EXPENSES; CLOSING
1.1 AGREEMENT TO PURCHASE AND SELL INTEREST. Upon the terms and subject to
the conditions set forth in this Agreement, Seller hereby sells, transfers,
conveys, assigns and delivers to Buyer, and Buyer hereby purchases or acquires
from the Seller, all right, title and interest of Seller in and to all of the
membership interests in the Company (the "Interest").
1.2 PURCHASE PRICE. The total purchase price (the "Purchase Price") for the
Interest will be Two Hundred Fifty-one Thousand Dollars ($251,000), payable as
follows: (i) Buyer hereby cancels Seller's indebtedness to Buyer in the amount
of One Hundred Sixty Thousand Dollars ($160,000); and (ii) Buyer hereby assumes
up to Ninety-One Thousand Dollars ($91,000) of trade liablilities as described
herein.
<PAGE>
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF SELLER
2.1 ORGANIZATION AND GOOD STANDING. Seller is a corporation and the Company
is a limited liability company, each duly organized, validly existing and in
good standing in the jurisdiction of their incorporation or organization, with
full corporate power and authority to conduct its business as it is now being
conducted, to own or use the properties and assets that it owns or uses, and to
perform all its obligations under its contracts. Seller has no subsidiaries
other than the Company.
2.2 AUTHORITY; NO CONFLICT. This Agreement constitutes the legal, valid,
and binding obligation of Seller, enforceable against Seller in accordance with
its terms. Seller has the corporate right, and corporate power, to execute and
deliver this Agreement and to perform its obligations under this Agreement.
Neither the execution and delivery of this Agreement nor the consummation or
performance of any of the transactions contemplated hereby will, directly or
indirectly (with or without notice or lapse of time): contravene, conflict with,
or result in a violation of any provision of the Articles of Incorporation or
Bylaws of Seller or the Articles of Organization or Operating Agreement of the
Company; (ii) contravene, conflict with, or result in a violation of, or give
any governmental body or other person the right to challenge any of the
transactions contemplated hereby or to exercise any remedy or obtain any relief
under any legal requirement or any order to which Seller, the Company, or any of
the assets owned or used by Seller, may be subject; (iii) contravene, conflict
with, or result in a violation of any of the terms or requirements of, or give
any governmental body the right to revoke, cancel or terminate any governmental
authorization that is held by Seller, the Company, or that otherwise relates to
the business of, or any of the assets owned or used by the Company; (iv)
contravene, conflict with, or result in a violation or breach of any provision
of, or give any person the right to declare a default or exercise any remedy
under, or to accelerate the maturity or performance of, or to cancel, terminate,
or modify, any material contract to which Seller or the Company is a party; or
result in the imposition or creation of any encumbrance upon or with respect to
any of the assets owned or used by Seller. Seller is not required to give any
notice to or obtain any consent from any person in connection with the execution
and delivery of this Agreement or the consummation or performance of any of the
transactions contemplated hereby.
2.3 CONTRIBUTION OF ASSETS. Seller has contributed to the Company all of
its assets (the "Assets") used in connection with its computer networking and
multimedia communications business (the "Business"), including without
limitation:
(a) PROPERTY AND EQUIPMENT. All of Seller's right, title and interest
in and to all personal property and equipment used by Seller in the Business,
furniture and fixtures, leasehold improvements, freehold improvements and
computers (hardware and software) (the "Property and Equipment"). Such Property
and Equipment contains substantially all of those items listed on Seller's most
recent available listing of the Property and Equipment used by Seller in the
Business;
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(b) INVENTORY. All of the inventory (within the meaning ascribed under
generally accepted accounting principles) of the Business (the "Inventory");
(c) INTELLECTUAL PROPERTY. All intellectual property rights, including
but not limited to all trade secrets, U.S. and international copyrights,
trademarks and trademark registrations, patents, patentable inventions,
discoveries and improvements, any rights in any product, programming, technology
documentation or other work product (the "Intellectual Property").
(d) CUSTOMER LISTS. All customer and contact lists of the Seller
related to the Business or the Assets;
(e) CONTRACT RIGHTS. All rights under existing contacts to which Seller
is a party and which have been disclosed to Buyer.
(f) CLAIMS. Any and all claims and rights against third parties, if and
to the extent they relate to the condition of the Assets including, without
limitation, all rights under manufacturers' and vendors' warranties
(collectively the "Claims");
(g) CORPORATE RECORDS. The minute books, membership books, corporate
seals, member lists, sales records, tax return workpapers, and similar corporate
records of the Company.
(h) GOODWILL. All of Seller's goodwill in, and the going concern value
of, the Business; and
(i) OTHER. All trade names, trademarks, and logos, telephone numbers,
telephone and mobile communications equipment, service contracts, customer lists
and contracts, sales records, transferable licenses and permits, and normal
business records associated with the Business.
2.4 EXCLUDED ASSETS. The Assets contributed to the Company do not include,
and Seller shall not sell to Buyer, any of the following items (collectively,
the "Excluded Assets"):
(a) CASH. All cash on hand or in bank accounts, and any other cash
equivalents, including without limitation certificates of deposit, commercial
paper, treasury bills, asset or money market accounts, marketable securities and
all such similar accounts or investments.
(b) PREPAID ITEM. All deposits and prepaid expenses relating to the
Business or the Assets.
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(c) TAX REFUNDS. All amounts due the Seller in connection with any tax
refunds, prepaid taxes, rights under any tax-sharing agreement, or similar
payments.
(d) LICENSES AND PERMITS. All governmental licenses and permits, or
similar rights that cannot by their terms be assigned to the Company.
2.5 ASSUMED LIABILITIES.
(a) The liabilities transferred from Seller to the Company include only
the following liabilities and obligations (collectively, the "Assumed
Liabilities"): (i) the obligations of Seller under all contracts entered into by
Seller prior to the date of transfer; as used in this Agreement, the term
"Contract" shall mean any unexpired agreement, arrangement, commitment or
understanding, written or oral, entered into by Seller with respect to the
Business, written or oral, express or implied, to which Seller is a party or is
bound, including, without limitation, purchase orders, warehouse receipts,
leases, capital leases and collective bargaining agreements, but the term
"Contract" does not include any contract of insurance; (ii) all federal and
state income taxes due and owing for the year ended 1997 as well as current
trade payables of Seller relating to the Assets or the Business arising in the
ordinary course of business and disclosed to Buyer in an amount up to sixty-five
thousand dollars ($65,000); and (iii) all liabilities and obligations relating
to the Assets or the Business incurred on and after the date of transfer.
(b) The Assumed Liabilities shall not include, and Buyer shall not
assume or be liable for, and does not undertake or attempt to assume or
discharge any of the following: (i) except as described above, any income tax
liability or obligation of Seller relating to the operation of the Business
prior to the date of transfer or arising from, or incident to, the sale,
assignment, transfer and delivery of the Assets, or any delinquent sales,
payroll or other delinquent tax obligation; (ii) any workers' compensation
liabilities with respect to employees of the Business relating to illnesses or
injuries occurring prior to the date hereof; (iii) any liability or obligation
of Seller created under this Agreement or arising out of the transactions
contemplated hereby, except as specifically provided in this Agreement; or (iv)
any other liabilities or obligations of Seller not expressly assumed by Buyer
hereunder.
2.6 BOOKS AND RECORDS. The books of account, minute books, stock record
books, and other records of Seller and the Company, all of which have been made
available to Buyer, are complete and correct and have been maintained in
accordance with sound business practices.
2.7 TITLE TO PROPERTIES; ENCUMBRANCES. Seller owns all the properties and
assets (whether real, personal, or mixed and whether tangible or intangible),
located in the facilities owned or operated by Seller or reflected as owned in
the books and records of Seller (except for assets held under capitalized leases
disclosed) free and clear of all encumbrances.
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2.8 CONDITION AND SUFFICIENCY OF ASSETS. The buildings, plants, structures,
Property and Equipment are in normal operating condition and repair, and are
adequate for the uses to which they are being put.
2.9 TAXES. Except for federal and state income tax returns for the fiscal
year ended December 31, 1997, Seller has filed or caused to be filed on a timely
basis all tax returns that are or were required to be filed by it pursuant to
applicable legal requirements. Seller has paid, or made provision for the
payment of, all taxes that have or may have become due pursuant to those tax
returns or otherwise, or pursuant to any assessment received by Seller. Seller
has not been subject to any audit, and has not given or been requested to give
waivers or extensions (or is or would be subject to a waiver or extension given
by any other person) of any statute of limitations relating to the payment of
taxes of Seller or for which Seller may be liable. All tax returns filed by
Seller are true, correct, and complete in all material respects. There is no tax
sharing agreement that will require any payment by Seller after the date of this
Agreement.
2.10 EMPLOYEE BENEFITS. Seller has no pension plans or welfare plans.
Seller has no knowledge of any material liability being incurred under any
applicable government regulation relating to pension, retirement, welfare,
health or other benefit plans for employees.
2.11 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL AUTHORIZATIONS.
(a) To Seller's knowledge: (i) Seller is, and at all times has been,
in material compliance with each legal requirement that is or was applicable to
it or to the conduct or operation of its business or the ownership or use of any
material assets; (ii) no event has occurred or circumstance exists that (with or
without notice or lapse of time) (A) may constitute or result in a violation by
Seller of, or a failure on the part of Seller to comply with, any legal
requirement, or (B) may give rise to any obligation on the part of Seller to
undertake, or to bear all or any portion of the cost of, any remedial action of
any nature except for violations, failures or obligations which would not have a
material adverse effect on the business, operations and prospects of Seller; and
(iii) Seller has not received, any written notice from any governmental body or
any other person regarding (A) any actual, alleged, possible, or potential
violation of, or failure to comply with, any legal requirement, or (B) any
actual, alleged, possible, or potential obligation on the part of Seller to
undertake, or to bear all or any portion of the cost of, any remedial action of
any nature except for violations, failures or obligations which would not have a
material adverse effect on the business, operations and prospects of Seller.
(b) Seller and the Company has each material governmental
authorization that is necessary to permit Seller and the Company to lawfully
conduct and operate its business in the manner it currently conducts and
operates such business and to permit the Company to own and use its Assets in
the manner in which it currently owns and uses such Assets.
2.12 LEGAL PROCEEDINGS. There is no pending, or to Seller's knowledge,
threatened, legal proceeding that has been commenced by or against Seller or the
Company or that otherwise relates
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to or may affect the business of, or any of the Assets owned or used by, Seller
or the Company or the transactions contemplated hereby.
2.13 CONTRACTS; NO DEFAULTS. Sellers books and records, which have been
disclosed to Buyer, contains a complete and accurate list of: each Contract to
which Seller is a party with respect to which the outstanding obligation of any
party thereto is in excess of Twenty Thousand Dollars ($20,000); (ii) each
lease, rental or occupancy agreement, and other contract affecting the ownership
of, leasing of, title to, use of, or any leasehold or other interest in, any
real or personal property of Seller or the Company; (iii) each licensing
agreement or other contract with respect to any intellectual property of Seller
or the Company; (iv) each agreement and other Contract to or with any employee;
(v) each joint venture, partnership, and other Contract (however named)
involving a sharing of profits, losses, costs, or liabilities by Seller with any
other person; (vi) each contract containing covenants that in any way purport or
limit the freedom of Seller to engage in any line of business or to compete with
any person; (vii) each power of attorney of Seller that is currently effective
and outstanding. No related person or affiliate of Seller has any rights under,
and no such person has or may become subject to any obligation or liability
under, any material contract that relates to the business of, or any of the
assets owned or used by Seller. To Seller's knowledge, no officer, director,
agent, employee, consultant, or contractor of Seller is bound by any contract
that purports to limit the ability of such officer, director, agent, employee,
consultant, or contractor to (A) engage in or continue any conduct, activity, or
practice relating to the business of Seller, or (B) assign to Seller or to any
other person any rights to any invention, improvement, or discovery. To the
Seller's knowledge, no event has occurred or circumstance exists that (with or
without notice or lapse of time) may contravene, conflict with, or result in a
violation or breach of, or give Seller or other person the right to declare a
default or exercise any remedy under, or to accelerate the maturity or
performance of, or to cancel, terminate, or modify, any contract. To Seller's
knowledge, Seller has not given to or received from any other person any written
notice regarding any actual, alleged, possible, or potential violation or breach
of, or default under, any Contract.
2.14 ENVIRONMENTAL MATTERS. To Seller's knowledge, Seller's facilities have
been maintained in material compliance with all federal state and local
environmental protection, occupational, health and safety or similar laws,
ordinances, restrictions, licenses, and local environmental protection,
occupational health and safety or similar law ordinances, restrictions and
regulations. To Seller's knowledge, Seller has not disposed or arranged for the
disposal of any hazardous substance that was generated or used by Seller at any
off-site location that has been or is listed or proposed for inclusion on any
list promulgated by any governmental body for the purpose of identifying sites
which pose an imminent danger to health and safety.
2.15 INTELLECTUAL PROPERTY. Seller's books and records, which have been
provided to Buyer set forth a complete and accurate list of Intellectual
Property, which Seller or the Company owns or uses (whether or not under license
from third parties) together with identification of all parties thereto under
which Seller either obtains or grants the right to use any of said Intellectual
Property; (ii) all agreements and identification of all parties thereto under
which Seller or the Company either obtains or grants the right to use any of
said Intellectual Property; and (iii) all validity, infringement
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or other opinions of counsel which relate to the validity, infringement and/or
enforceability of any patent owned or controlled by a party other than Seller,
which relates to any aspect of the business of Seller or the Company. The
Company is the sole and exclusive owner of, and has the sole and exclusive right
to use, all of said Intellectual property without any obligation, consent or
assignment of any kind from any third party. To Seller's knowledge, the
Company's rights in the Intellectual Property are not being infringed by others,
nor does the conduct by Seller or the Company, infringe in any way upon the
rights of the type enumerated herein owned by others, and Seller has not
received any written claims or notices alleging such infringement.
2.16 RELATIONSHIPS WITH RELATED PERSONS. Neither Seller nor any related
person or other affiliate of Seller or of Seller has, or has had, any interest
in any property (whether real, personal, or mixed and whether tangible or
intangible), used in or pertaining to the business of Seller. Except for Grant
K. Holcomb's ownership interest in Buyer, neither Seller nor any related person
or other affiliate of Seller or of Seller owns, or has owned, (of record or as a
beneficial owner) an equity interest greater than one percent (1%) or any other
financial or profit interest in, a person that has had business dealings or a
material financial interest in any transaction with Seller or (ii) engaged in
competition with Seller with respect to any line of the products or services of
Seller (a "Competing Business") in any market presently served by Seller.
Neither Seller nor any related person or other affiliate of Seller or of Seller
is a party to any contract with, or has any claim or right against, Seller.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF BUYER
3.1 ORGANIZATION AND GOOD STANDING. Buyer is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Wyoming,
with full corporate power and authority to conduct its business as it is now
being conducted, to own or use the properties and assets that it owns or uses,
and to perform all its obligations under its contracts.
3.2 AUTHORITY; NO CONFLICT. This Agreement constitutes the legal, valid,
and binding obligation of Buyer, enforceable against Buyer in accordance with
its terms. Buyer has the power and corporate authority to execute and deliver
this Agreement and to perform its obligations under this Agreement. Neither the
execution and delivery of this Agreement nor the consummation or performance of
any of the transactions contemplated hereby will, directly or indirectly (with
or without notice or lapse of time): contravene, conflict with, or result in a
violation of any provision of the Articles of Incorporation or Bylaws of Buyer;
(ii) contravene, conflict with, or result in a violation of, or give any
governmental body or other person the right to challenge any of the transactions
contemplated hereby or to exercise any remedy or obtain any relief under any
legal requirement or any order to which Buyer, or any of the assets owned or
used by Buyer, may be subject; (iii) contravene, conflict with, or result in a
violation of any of the terms or requirements of, or give any governmental body
the right to revoke, cancel or terminate any governmental authorization that is
held by Buyer or that otherwise relates to the business of, or any of the assets
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owned or used by Buyer; (iv) contravene, conflict with, or result in a violation
or breach of any provision of, or give any person the right to declare a default
or exercise any remedy under, or to accelerate the maturity or performance of,
or to cancel, terminate, or modify, any material contract to which Buyer is a
party; or result in the imposition or creation of any encumbrance upon or with
respect to any of the assets owned or used by Buyer. Buyer is not required to
give any notice to or obtain any consent from any person in connection with the
execution and delivery of this Agreement or the consummation or performance of
any of the transactions contemplated hereby.
3.3 CAPITALIZATION. The authorized equity securities of Buyer consist of
50,000,000 shares of common stock and 100,000 shares of non voting preferred
stock. There are no other outstanding equity securities or other securities of
Buyer. There are no contracts relating to the issuance, sale, or transfer of
any equity securities or other securities of Buyer.
3.4 CERTAIN PROCEEDINGS. Except for the litigation brought by Darryl
Spangler against TechnoVision Communications, Inc., there is no pending
proceeding that has been commenced against Buyer and that challenges, or may
have the effect of preventing, delaying, making illegal, or otherwise
interfering with, any of the transactions contemplated hereby. To the best of
Buyer's knowledge, no such proceeding has been threatened.
ARTICLE 4
INDEMNIFICATION; REMEDIES
4.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND INDEMNITIES. All
covenants, agreements, representations and warranties of the parties under this
Agreement and any schedule or certificate or other document delivered pursuant
hereto shall survive the Closing; provided, however, that no claim for indemnity
under this Agreement with respect to any breach of any of the representations
and warranties of either Buyer or Seller shall be made after the period
specified in Section 4.3(a).
4.2 INDEMNITY.
(a) Buyer shall defend, indemnify, and hold Seller harmless from,
against and in respect of the full amount of any Damages (hereinafter defined)
which may accrue to or be sustained by Seller, arising out of, as a result of or
in respect of: any error, misstatement, omission or inaccuracy in any
representation or warranty of Buyer or the breach of any warranty of Buyer or
any omission to state or failure by Buyer to disclose any fact or facts known to
it which are necessary in order to make any such representation or warranty not
misleading, under this Agreement, or under any schedule, exhibit, certificate,
agreement, instrument or other document delivered pursuant thereto, and (ii) any
failure of Buyer duly to perform or observe any term, provision, instrument,
covenant or agreement to be performed or observed by Buyer pursuant to this
Agreement, or any schedule, certificate, agreement or other document entered or
delivered pursuant hereto.
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(b) Seller shall defend, indemnify, and hold Buyer harmless from,
against and in respect of the full amount of any Damages (hereinafter defined)
which may accrue to or be sustained by Buyer, arising out of, as a result of or
in respect of: any error, misstatement, omission or inaccuracy in any
representation or warranty of Seller or the breach of any warranty of Seller or
any omission to state or failure by Seller to disclose any fact or facts known
to it which are necessary in order to make any such representation or warranty
not misleading, under this Agreement, or under any schedule, exhibit,
certificate, agreement, instrument or other document delivered pursuant thereto,
and (ii) any failure of Seller duly to perform or observe any term, provision,
instrument, covenant or agreement to be performed or observed by Seller pursuant
to this Agreement, or any schedule, certificate, agreement or other document
entered or delivered pursuant hereto.
(c) The indemnification and hold harmless obligations of Buyer and of
Seller hereunder are hereinafter referred to as "Indemnification Obligations,"
and the party to whom such Indemnification obligations are owed (or would be
owed but for Section 4.3 or 4.4) is hereinafter sometimes referred to as
"Indemnified Party," and the party obligated to perform (or who would be
obligated to perform but for Section 4.3 or 4.4) such Indemnification
Obligations is hereinafter sometimes referred to as the "Indemnifying Party."
(d) For purposes of this Agreement, "Damages" shall be deemed to mean
and include any and all losses, liabilities, costs, expenses, judgments,
assessments, penalties, damages, fines, deficiencies, the fees and expenses of
experts, and reasonable attorneys' fees and expenses, costs of investigation and
court costs incident thereto. Damages shall be measured net of any insurance
recovery or retroactive insurance adjustment in respect of such Damages.
4.3 LIMITATIONS.
(a) The Indemnifying Party shall not be liable to the Indemnified Party
under Section 4.2 unless the Indemnified Party shall have asserted a claim
pursuant to Sections 4.2 by giving written notice to the Indemnifying Party of
the basis of its claim not later than one year from the date hereof.
(b) The Indemnifying Party shall not be liable to the Indemnified Party
under Sections 4.2 until the aggregate amount of Damages suffered by the
Indemnified Party shall exceed Fifty Thousand Dollars ($50,000.00) (the "Minimum
Loss") in the aggregate in excess of any applicable insurance coverage
maintained by the Indemnified Party, at which time the Indemnifying Party shall
be liable for the total aggregate Damages.
4.4 MAXIMUM LIABILITY. Notwithstanding any other provision of this
Agreement, neither Buyer nor Seller shall have any Indemnification Obligations
or liability under this Section 4 in excess of Two Million Dollars ($2,000,000)
(the "Maximum Liability")
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ARTICLE 5
GENERAL PROVISIONS
5.1 EXPENSES. Except as otherwise expressly provided in this Agreement,
each party to this Agreement will bear its respective expenses incurred in
connection with the preparation, execution, and performance of this Agreement
and the transactions contemplated hereby, including all fees and expenses of
agents, representatives, counsel, and accountants.
5.2 FURTHER ASSURANCES. The parties agree to furnish upon request to each
other such further information, to execute and deliver to each other such other
documents, and to do such other acts and things, all as the other party may
reasonably request for the purpose of carrying out the intent of this Agreement
and the documents referred to in this Agreement.
5.3 WAIVER. The rights and remedies of the parties to this Agreement are
cumulative and not alternative. Neither the failure nor any delay by any party
in exercising any right, power, or privilege under this Agreement or the
documents referred to in this Agreement will operate as a waiver of such right,
power, or privilege, and no single or partial exercise of any such right, power,
or privilege will preclude any other or further exercise of such right, power,
or privilege or the exercise of any other right, power, or privilege. To the
maximum extent permitted by applicable law, no claim or right arising out of
this Agreement or the documents referred to in this Agreement can be discharged
by one party, in whole or in part, by a waiver or renunciation of the claim or
right unless in writing signed by the other party; no waiver that may be given
by a party will be applicable except in the specific instance for which it is
given; and no notice to or demand on one party will be deemed to be a waiver of
any obligation of such party or of the right of the party giving such notice or
demand to take further action without notice or demand as provided in this
Agreement or the documents referred to in this Agreement.
5.4 ENTIRE AGREEMENT AND MODIFICATION. This Agreement supersedes all prior
agreements between the parties with respect to its subject matter and
constitutes (along with the documents referred to in this Agreement) a complete
and exclusive statement of the terms of the agreement between the parties with
respect to its subject matter. This Agreement may not be amended except by a
written agreement executed by the party to be charged with the amendment.
5.5 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS. Neither party may
assign any of its rights under this Agreement without the prior consent of the
other parties, which will not be unreasonably withheld or delayed, except that
Buyer may assign any of its rights under this Agreement to any directly or
indirectly wholly owned subsidiary of Buyer, and such assignment shall not
relieve Buyer of its duties and obligations hereunder. Subject to the preceding
sentence, this Agreement will apply to, be binding in all respects upon, and
inure to the benefit of the successors and permitted assigns of the parties.
Nothing expressed or referred to in this Agreement will be construed to give any
Person other than the parties to this Agreement any legal or equitable right,
remedy, or claim under or with respect to this Agreement or any provision of
this Agreement. This
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Agreement and all of its provisions and conditions are for the sole and
exclusive benefit of the parties to this Agreement and their successors and
assigns.
5.6 SEVERABILITY. If any provision of this Agreement is held invalid or
unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
5.7 SECTION HEADINGS, CONSTRUCTION. The headings of Sections in this
Agreement are provided for convenience only and will not affect its construction
or interpretation. All references to "Section" or "Sections" refer to the
corresponding Section or Sections of this Agreement. All words used in this
Agreement will be construed to be of such gender or number as the circumstances
require. Unless otherwise expressly provided, the word "including" does not
limit the preceding words or terms. All dollar values shall refer to United
States currency, unless otherwise noted.
5.8 GOVERNING LAW AND VENUE. This Agreement will be governed by the laws of
the State of California without regard to conflicts of laws principles. Any
proceeding arising out of this Agreement shall be brought only within a court of
competent jurisdiction located in the County of San Diego, State of California,
and by their execution of this Agreement, each of the parties expressly consent
and submit themselves to the jurisdiction of such courts.
5.9 ATTORNEYS' FEES. In any legal proceeding arising out of this Agreement,
including with respect to any instrument, document or agreement made under or in
connection with this Agreement, the prevailing party shall be entitled to
recover its costs and actual attorneys' fees. As used in this Agreement, "actual
attorneys' fees" shall mean the full and actual cost of any legal services
actually performed in connection with the matters involved, calculated on the
basis of the usual hourly fees charged by the attorneys performing such
services.
5.10 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first written above.
BUYER: SELLER:
Video Stream International, Inc. Interactive Solutions Group
By: /s/ Paul Cox By: /s/ Grant Holcomb
------------------------------ -----------------------------
Paul Cox, President Grant K. Holcomb, President
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RESALE AND CONFIGURATION SERVICES AGREEMENT
This Agreement ("Agreement") is by and between Video Stream International Inc.
("VSI") doing business as TeraGlobal Communications Corp., with its principal
place of business at 1140-999 West Hastings Street, Vancouver, British Columbia,
Canada V6C 2W2, and Ingram Micro Inc. ("Ingram") excluding its subsidiaries,
with its principal place of business at 230 Barmac Drive, Weston, Ontario,
Canada M9L 2Z3. This Agreement will include shipments to VSI's or its End
Customer locations globally, except where prohibited by law or authorization for
export is required.
WHEREAS, Ingram is in the business of reselling various computer products and of
configuring goods and products for shipment to VSI's specification and desires
to sell such configuration services to VSI.
WHEREAS, VSI desires to acquire certain configuration services and
goods/products for configuration systems and shipment to its customers, as
defined below.
NOW, THEREFORE, in consideration of the mutual promises and covenants herein,
the parties hereto agree as follows:
1. PURPOSE
The purpose of this Agreement is to provide the terms and conditions for
the purchase and resale by VSI and the sale by Ingram to VSI of various
computer products and services including hardware and software
("Product"), and configuration, goods warehousing and international
fulfillment services ("Services").
2. DEFINITIONS
For purposes of this Agreement, the following terms will have the
respective meanings indicated below:
A. The term "Goods" or "the Goods" will mean, individually and/or
collectively, any and all computer products or other such products or
components supplied by VSI or a third party arranged by VSI, which are
owned by VSI, and are to be stored or warehoused by Ingram for VSI for
the purpose of performing configurations services as defined
SECTION C.1. The term "Goods" or "the Goods" will not include
Products offered for sale by Ingram.
B. The term "Product" or "Products" will mean, individually and/or
collectively, the computer Products offered for sale by Ingram in its
Comprehensive Catalog ("Catalog"), as may be amended from time to
time.
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C. The term "Goods/Products" will mean either Goods and/or Products as
defined in SECTIONS 2.A and 2.B of this Agreement.
D. The term "Goods Warehousing" will mean receiving, storing, and
handling the Goods.
E. The term "Configuration Services" will mean the service of receiving
and processing Configuration orders from VSI, integrating
Goods/Product as specified by VSI into a computer system, or other
similar casing, and functionally testing the integrated computer
system to insure that the integration of components has been performed
correctly.
F. The term "Configuration" or "Configurations" will mean, individually
and/or collectively, the computer system, systems or other goods
resulting from Configuration Services provided by Ingram.
G. The term "VSI Purchase Order" will mean the purchase order submitted
by VSI to Ingram from time to time to perform Configuration Services
and to purchase Product from Ingram.
H. The term "Ingram Purchase Order" will mean the purchase order created
by Ingram and submitted to VSI for the purposes of Ingram receiving
shipment of Goods from VSI or a third party designated by VSI.
SECTION A: PRODUCT RESALE TERMS & CONDITIONS
1. DISTRIBUTION SOURCE
Upon execution of this Agreement, Ingram shall be a source for VSI's
distribution channel product and services needs. As a source, Ingram will
be a contact of choice and, subject to Product availability, a source for
VSI's purchasing needs through the distribution channel.
2. TERMS OF SALE
A. All Products delivered to VSI or its customers under the terms of this
Agreement will be deemed sold to VSI and will be subject to Ingram's
then-current standard Sales Terms and Conditions published in its
Comprehensive Catalog ("Catalog") at the time of purchase. Should
Ingram's Catalog provisions conflict with this Agreement, the
provisions of this Agreement will prevail.
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B. If authorization for resale is required by the publisher or
manufacturer of any Product, then Ingram will not be obligated to sell
such Product to VSI unless Ingram has received such required
authorization.
3. ORDERING
A. VSI will compile, update and provide Ingram with Goods/Product order
information. The order information will include the:
(i) Goods/Product type(s), (ii) unit quantity, (iii) Ingram SKU number
and/or Manufacturer Part Number, (iv) VSI's price or its price to its
Customer, (v) correct shipping information including name and address,
contact name, postal/zip code, (vi) specific instruction for
Configuration, and (vii) consignment inventory of Goods as required.
VSI personnel will identify, for each Product order, the ship-to
destination as either VSI, VSI's customer, or to some other specified
third party (i.e., freight forwarder). It is VSI's responsibility to
review each order and confirm the order status prior to shipment.
Ingram will, subject to Product availability and export compliance
review, use its best efforts to fill and ship all Product orders
placed by VSI within two (2) business days of order receipt according
to their terms in SECTION C.1.A. Ingram will make information
available to VSI within twenty four (24) hours of the receipt of VSI's
product order if the Product requested cannot be shipped to the
desired country.
B. Ingram will receive orders via telephone, facsimile, and/or Ingram
approved electronic ordering methods as defined in Ingram's Catalog
only from those who have been identified by VSI Administration as
authorized personnel and provide the Ingram customer number prior to
placing the order. VSI will disclose its Ingram customer number only
to its personnel with a need to know. Orders will be acknowledged by
Ingram but will not be deemed accepted until the Product is actually
shipped.
4. PRICING
Ingram will provide volume purchase pricing based on VSI's global net
purchases. Global net purchases are defined as total worldwide invoiced
purchases, less returns and other credit transactions that may occur.
Pricing will be not greater than the pricing offered to other similarly
situated global customers with similar purchase volumes.
5. RETURNS AND REFUSALS
A. VSI will be entitled to the same customer support, and defective
Product return privileges as is extended to Ingram's customers in
Ingram's Catalog. VSI must obtain a Return Material Authorization
("RMA") number from Ingram prior to the return of any Product. Ingram
will pay all freight charges associated with the
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return of Product that is returned due to error by Ingram or if
Product is returned because the Product is defective.
B. If Product is being returned as defective Product or due to some error
by Ingram, and is returned directly to Ingram by VSI without Ingram's
prior approval, Ingram will charge a $100 handling fee per shipment
for shipments with a value greater than $1000 and 10% of the invoice
amount for shipments less than $1000, in addition to any shipping
costs incurred. Said fee and costs incurred will be due as per
regular VSI/Ingram payment arrangements. All clearance of Product
through U.S. Customs and all duties, fees, fines or other costs must
be paid by VSI prior to Ingram's acceptance of any Product returns,
unless the product is defective or returned due to some error by
Ingram.
C. Refused shipments are to be returned to VSI by its Customers. Refused
shipments will not be accepted by Ingram unless Ingram agrees to
accept such refused shipments. If Ingram agrees to accept a refused
shipment form VSI, then VSI must obtain an RMA number from Ingram
prior to returning the refused shipment.
D. VSI will be the "Importer of Record" for all refused shipments and
Product returns from its Customers. It is understood between Ingram
and VSI that this does not constitute VSI's acceptance of shipping and
other costs incurred for shipping or product configuration errors by
Ingram.
SECTION B: LIMITED AGENCY
VSI hereby appoints and Ingram accepts such appointment as a VSI limited
agent for the purpose of arranging for the export of Configurations
delivered by Ingram to VSI or to VSI customers. VSI grants Ingram a Power
of Attorney to create and execute all the documentation needed to export
Configurations purchased by VSI for resale and export to VSI and/or its
Customers. VSI agrees to execute the agreement, Exhibit C herein, in a
form satisfactory to Ingram, evidencing Ingram's Limited Power of Attorney
as reflected in Exhibit C, attached.
1. INGRAM'S RESPONSIBILITIES ON BEHALF OF VSI
A. Recommend a carrier to meet VSI's shipment destination and delivery
time.
B. Upon VSI's acceptance of the carrier, arrange for the carriage of
Configurations to the address specified in the Purchase Order.
C. Determine the Export Classification Control Number ("ECCN") for each
Configuration in accordance with Department of Commerce regulations.
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D. Review all applicable regulations and manufacturers' warrantee issues
and laws covering the export or re-export of Configurations and
confirm appropriate allowed activities.
E. Review identity of consignee against the Table of Denials, listing of
Specially Blocked Nationals, and Denied Parties Listing and screen
shipments as required by Title 15 Code of Federal Regulations.
F. Assign the appropriate Harmonized Tariff Schedule number to each
Configuration and Product for purposes of export and import
compliance.
G. Prepare all the required documentation, including the commercial
invoices or other certificates of origin for export of Configurations
and Products.
H. Arrange for any required inspections and provide required shipping
documents for transportation and export.
I. Prepare Shipper's Export Declaration ("SED") documents and report to
the Bureau of the Census all exports that require such reporting.
J. Accept returned Configuration and Product shipments in accordance with
the terms and conditions identified in Sections A.5 and C.4.
K. Carry out all configuration and related activities such that they
conform to all ISO 9003 and ISO 9002 guidelines, requirements and
recommendations.
L. Ensure that all Configurations are tested without errors to VSI's
specifications and to ensure that shipping is carried out accurately
and correctly.
M. Negotiate pricing with transportation carriers recommended by Ingram.
2. VSI'S RESPONSIBILITIES
A. Enter orders with complete information and details of the shipment
required.
B. Provide its Employer Identification Number ("EIN") to Ingram prior to
commencement of the program.
C. Ensure Configuration shipments are in compliance with all U.S. and/or
Canadian export laws and regulations and that VSI is identified on all
documents as the "Exporter of Record".
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D. Instruct VSI's Customer on the shipment guidelines, appropriate
procedures, and Configuration restrictions.
E. Not to knowingly accept orders for Configurations that may not be
exported from Canada or the United States.
F. Establish VSI's delivery terms and communication of such to Ingram in
a timely manner.
G. Bear all costs and risk of loss for Configurations exported, and
importation on returns including, but not limited to, freight, freight
forwarder fees, in-transit insurance, document preparation fees,
duties, taxes, government fees, and Value Added Taxes unless such
configurations are returned as defective Product or due to some error
by Ingram.
H. Comply with all laws, regulations and rules relevant to the VSI
Product, as shipped, of the country to which the Configuration is
shipped from.
I. Review all Customer orders in accordance with Title 15 Code of Federal
Regulations for Table of Denials, Denied Parties Listings, and
Specially Blocked Nationals and deny acceptance of orders placed by
parties identified in those lists.
J. Follow and comply with Federal Trade Commission ("FTC") rules and
regulations which may be relevant to VSI.
3. FEES
A. Any other costs including, but not limited to, costs due to refused
orders, that Ingram incurs on behalf of VSI provided such costs are
not incurred as a result of error by Ingram or defective product, will
be invoiced to VSI at the actual costs. All payments will be due and
payable according to regular VSI/Ingram payment arrangements.
SECTION C: CONFIGURATION AND GOODS WAREHOUSING SERVICES
1. CONFIGURATION SERVICES
A. Subject to the availability of Goods/Product in Ingram's local
Configuration Center and technical review, Ingram will use its best
efforts to ship Configurations and Products within two (2) business
days from receipt of order from VSI. Such shipping will occur only if
the orders are clear and distinct and do not contain conflicting or
erroneous information or product incompatibility. In
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addition, all necessary build instructions and other pertinent work
instructions must be on hand and understood by the Ingram
Configuration Center.
B. Large and unusually complex orders will require review and scheduling
based on Ingram's capacity and the complexity of the Configuration.
C. Ingram will not be responsible for schedule slippage or related
expenses, including but not limited to, overtime labor and freight
associated with expediting the production or delivery of
Configurations containing Goods/Product supplied by VSI or supplied by
a third party arranged by VSI, if schedule delivery of Configurations
are delayed due to unavailability, late delivery or inoperative
Goods/Product provided by VSI or a third party arranged by VSI.
Ingram will notify VSI of potential schedule slippage or additional
expenses and VSI can authorize Ingram, in writing, for all such
mutually agreed upon charges prior to the charges being incurred.
D. In Ingram is unable to fulfill Configuration orders placed by VSI
because of acts of God, war, public enemies, seizure under legal
process, strikes, lockouts, riots and civil commotions, or because of
any reason beyond Ingram's influence or control, or because of any
other excuse provided by law, Ingram will not be liable for damages
resulting from failure to carry out such instructions. If such
inability continues for more than ten (10) days, VSI may terminate
this Agreement immediately upon written notice to Ingram and may
remove all or part of the Goods from Ingram's warehouse.
E. All fees fro Configuration Services are set forth in Exhibit A, herein
and are subject to change without notice.
2. SHIPPING
A. The Configurations and Products may be shipped directly to the
purchasing customer, or to a designated third party location. All
shipments will be F.O.B. origin with cost of freight paid according to
the standard terms and conditions listed in Ingram's Catalog with the
benefit to VSI of Ingram's preferred pricing from freight carriers.
B. VSI will examine all shipments that are shipped from Ingram directly
to VSI promptly upon receipt. No later than third (30) days after
receipt, VSI will notify Ingram of all claimed shortages or damaged
Configurations, or if rejection is intended, will specify all grounds
therefore. Failure to give such notice will be deemed a final
acceptance of the Products as of the date of shipment.
3. INVOICING AND BILLING
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A. Ingram will invoice VSI upon shipment of the Configurations to the
location specified on the VSI Purchase Order, with all invoices due
and payable according to VSI's current credit terms at the date of
invoice. Payment is to be remitted in Canadian dollars.
B. If VSI has a bonafide dispute with any invoice from Ingram, VSI agrees
to pay the undisputed portion of the invoice according to VSI's
current credit terms and will immediately notify Ingram of the
dispute. The parties will then have thirty (30) days in which to
resolve the dispute before such unpaid amounts will be considered
overdue or delinquent under this Agreement.
C. An interest charge of the lesser of one percent (1%) per month or the
maximum amount allowed by law will be charged on all thirty (30) day
or greater past due balances.
4. CONFIGURATION RETURNS
A. Prior to returning defective Configurations to Ingram, VSI will
contact a designated Ingram Customer Service Representative who will
provide the RMA number which must accompany all Goods/Product returned
to Ingram. RMA numbers will be written on the shipping label. Ingram
reserves the right to refuse any shipment of Configurations if VSI has
not provided the designated RMA number on the external shipping label.
B. All defective Configurations returned to Ingram by VSI will be
reviewed by Ingram prior to any credit or refund for such returns
being issued in accordance with SECTION C.4.A to VSI. Ingram will not
issue credit for Configurations that have been modified including, but
not limited to, the exchange of Goods/Product within the Configuration
with other Goods/Product not shipped in the original Configuration.
Ingram will provide notification to VSI of modification of
Configurations within one (1) business day of receipt of such
Configurations.
C. Configurations returned to Ingram's configuration centre for repair or
correction will be repaired, corrected and shipped at Ingram's expense
within two (2) business days of receipt of such Configurations at
Ingram. Ingram will only pay the freight for Configurations returned
if Ingram and VSI mutually agree that the defect was due to Ingram
error.
D. Ingram will not accept Stock Balance returns on VSI configured
systems.
E. Ingram will notify VSI within two (2) business days of the return to
Ingram of Configurations that have been refused in shipment or result
from the cancellation
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of an order. VSI will within five (5) business days of such
notification attempt to restore the order and reship the Configuration
or reship the Configuration or Product to a new location.
Configurations that are not reshipped will be depopulated. If such
return was not due to fault by Ingram, Credit will be issued to VSI
for the amount of the original invoices less Configuration fees,
Depopulation fees (in accordance with EXHIBIT A), and the value of any
Goods/Product that cannot be used as new in a future VSI
Configuration. If such return was due to a fault by Ingram, then
Ingram shall be responsible for all such charges and cots.
5. CONFIGURATION SERVICES WARRANTY
A. Ingram will functionally test Configurations and Products to insure
that the integration of components has been performed correctly and
the computer system or Product meets the functionality and
compatibility specifications expected from such integration, but will
not be liable for incompatibilities or dysfunction caused by the
design, manufacture or condition of components not directly related to
the Configuration Services performed by Ingram.
B. Configuration Services will have a warranty of sixty days (60) from
date of shipment and does not affect the manufacturers warranties on
components used in configurations. Ingram provides no warranty of
Goods/Product used in Configurations.
C. EXCEPT AS SPECIFICALLY PROVIDED IN SECTIONS C.5.A AND C.5.B, THERE ARE
NO OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO
ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE.
6. GOODS WAREHOUSING
A. Ingram requires at least thirty (30) days written notice from VSI
advising Ingram as to the type, quantity, place of delivery, and
estimated time of arrival of Goods/Product that are to be warehoused.
Ingram will then establish an Ingram Purchase Order and send a copy of
the Purchase Order to VSI. The Ingram Purchase Order must be
referenced with the incoming Goods that are to be received by Ingram.
Ingram reserves the right to refuse any shipment of Goods where VSI
fails to provide the correct documentation.
B. Ingram will provide adequate warehouse space for all Goods forecasted.
If such warehouse space is found to be insufficient, Ingram will use
its best efforts to expand warehouse space in accordance with the
forecasted needs.
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C. Ingram will warehouse the Goods/Product in a manner to avoid
commingling of the Goods with Product until such time as the
Goods/Product are combined for the purpose of Configuration under this
Agreement.
D. Ingram will receive Goods shipped by VSI, or third party designated by
VSI, within twenty-four (24) hours of the delivery of such Goods at
Ingram. Ingram will post the receipt of Goods to Ingram's inventory
and ordering system at the time the Goods are received.
E. Ingram will notify VSI of any short shipments or damaged shipments
within forty-eight (48) hours of receiving the Goods at Ingram's
warehouse.
F. All shipment of Goods to Ingram or the return of Goods to VSI or to
VSI's designated third party will be F.O.B. Ingram at VSI's expense.
G. Ingram reserves the right to move, at its expenses, any Goods/Product
in storage from the warehouse in which they may be stored to any other
Ingram warehouse location. Ingram may, without notice, move
Goods/Product within the warehouse in which they are stored.
H. VSI will have the right, upon forty-eight (48) hours notice, to audit
inventory held by Ingram during normal business hours.
I. Ingram will be responsible for shrinkage or damage to the Goods
greater than two percent (2%) of the value of the Goods while in
Ingram's possession.
J. If the quality or condition of Goods received by Ingram poses a hazard
to property, warehouse or persons, and such condition was unknown by
Ingram at the time of receipt, Ingram will provide written notice to
VSI, and will require the timely removal of such Goods from Ingram's
warehouse. Ingram may return the Goods to VSI freight collect. If
such action is impracticable, Ingram may remove or dispose of the
Goods in any lawful manner, including sale or destruction of the
Goods, and will incur no liability by reason of such methods. VSI
will bear all costs associated with the return, removal, sale,
disposition, or destruction of all Goods deemed to be hazardous.
K. Goods Warehousing fees will be assessed for all Goods stored on behalf
of VSI. Storage and handling fees are specified in EXHIBIT B.
L. Ingram will provide VSI with weekly reports detailing on-hand
inventory.
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M. Ingram is responsible for the security and inventory accountability
while warehoused or in Ingram possession.
N. Ingram will agree to sign a confidentiality agreement, signed by both
parties, which will cover all company associates (personnel).
SECTION D: GENERAL TERMS & CONDITIONS
1. TERM AND TERMINATION
A. The initial term of this Agreement will commence on the Effective Date
set forth below and will continue for a period of one (1) year.
Either party may terminate this Agreement, with or without cause, by
giving thirty (30) days advance written notice to the other party.
Except that Ingram may terminate immediately if VSI is at any more
than ten (10) days delinquent in its payments to Ingram, requires
Ingram to perform an export shipment that is in contravention of the
U.S. export laws and regulations or fails to comply with any material
provision of this Agreement, ceases to conduct business in the normal
course, become insolvent, makes a general assignment for the benefit
of creditors, suffer or permit the appointment of a receiver for its
business or assets, avails itself of or become subject to any
proceeding under the Federal Bankruptcy Act or any other federal or
state statute relating to insolvency or the protection of rights of
creditors.
B. Termination of this Agreement will not relieve VSI of any amounts owed
or owing under this Agreement including, but not limited to, fees
associated with the warehoused Goods/Product and any work in process
costs. Upon termination, VSI will take all steps to have the Goods
removed from Ingram's warehouse within thirty (30) days after the date
of termination. In the event VSI fails to have Goods removed, Ingram
may take steps to remove the Goods and recover all associated costs as
provided by law, including, but not limited to sale of the Goods.
2. LIABILITY, LIMITATION OF DAMAGES, DISCLAIMERS
A. In the event of direct loss, injury or damage to the Goods while in
Ingram's possession, except for losses due to earthquakes, Ingram and
VSI will mutually decide which Goods require replacement, and Ingram
will replace the Goods lost or damaged. If such Goods cannot be
replaced, Ingram will pay VSI the actual costs incurred by VSI for
such Goods. VSI will allow Ingram to examine invoices, during normal
business hours, for such Goods upon request by Ingram.
Notwithstanding any other provision to the contrary in this Agreement,
Ingram's maximum liability for loss, injury or damage to Goods will
not exceed $1 million dollars.
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B. INGRAM WILL NOT BE LIABLE FOR ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL,
DIRECT OR INDIRECT DAMAGES SUFFERED OR INCURRED BY VSI ARISING OUT OF
OR IN ANY WAY CONNECTED WITH THE USE, STORAGE OR PERFORMANCE OF ANY OF
THE GOODS/PRODUCT OR CONFIGURATION.
C. VSI IS RESPONSIBLE FOR ANY WARRANTIES OR DISCLAIMERS WHICH IT MAY WISH
TO MAKE TO ITS CUSTOMERS WITH RESPECT TO THE GOODS OR CONFIGURATIONS
DELIVERED HEREUNDER.
3. INDEMNIFICATION
A. INGRAM WILL HAVE NO DUTY TO DEFEND, INDEMNIFY, AND HOLD HARMLESS VSI
FROM AND AGAINST ANY OR ALL DAMAGES AND COSTS INCURRED BY VSI ARISING
FROM THE INFRINGEMENT OF PATENTS OR TRADEMARKS OR THE VIOLATION OF
COPYRIGHTS FOR GOODS/PRODUCTS.
VSI SHALL INDEMNIFY, DEFEND AND HOLD HARMLESS INGRAM FROM AND AGAINST
ANY CLAIMS, DEMANDS, LIABILITIES OR EXPENSES (INCLUDING ATTORNEY'S
FEES AND COSTS) RESULTING FROM ANY ACT OR OMISSION OF VSI IN THE
PERFORMANCE OF ITS OBLIGATIONS UNDER THIS AGREEMENT INCLUDING VSI'S
ASSURANCES THAT ALL PRODUCT SHIPMENTS COMPLY WITH U.S. LAWS AND
REGULATIONS REGARDING THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.
4. SALES TAX
VSI will assume full responsibility for the collection of all end-user
sales tax and reporting to the appropriate state and local authorities.
VSI agrees to defend, indemnify, and hold harmless Ingram from and against
any and all damages and costs incurred (including penalties) which may
result from inadequate collection and reporting of end-user sales tax.
5. INDEPENDENT PARTIES
The parties agree that each, except for the limited agency authority
granted by this Agreement, operates as a business independent of the other.
Both parties agree that neither of them will hold itself out to be the
agent, partner or related party of the other.
12
<PAGE>
6.
ACCOUNT TEAM
Ingram will dedicate a Regional Account Manager for VSI, based in Richmond,
British Columbia, Canada. This person will coordinate with Ingram's Global
Account Team based in Santa Ana, USA for business outside of Canada.
7. TAXES
VSI will bear all applicable federal, state, municipal, and other
government taxes, excluding any state or federal income tax liability of
Ingram. Exemption certificates, valid in the place of delivery, will be
presented to Ingram prior to shipment if they are to be honored.
8. RESALE ONLY/EXPORT
A. Configurations sales to VSI are limited to i) only Goods/Product for
which VSI has the publisher/manufacturer authorization (if required);
ii) exports that are permitted without license and in accordance with
export laws and regulations (as identified by the U.S. Department of
Commerce, Bureau of Export Administration and defined as "County Group
B") and which shall expressly exclude all "Country Group D&E"
destinations or relevant Canadian export laws.
B. All Goods/Products delivered to VSI hereunder are for resale only and
will not be used for internal business purposes of VSI or any parent
company, subsidiary or affiliate of VSI. Shipment of the
Goods/Products outside Canada and the United States may require a
valid export license.
9. COMPLIANCE WITH EXPORT LAWS
The Goods/Products are controlled for export by the U.S. Department of
Commerce and the Canadian Government and may require authorization prior to
export or re-export from the United States or Canada. Certain encrypted
Goods/Products require approval prior to export or re-export. VSI agrees
that it will not export, re-export, or otherwise distribute Goods/Products,
or direct products thereof, in violation of any export control laws or
regulations of the United States or Canada. VSI warrants that it will not
export or re-export any Goods/Products with knowledge that they will be
used in the design, development, production, or use of chemical,
biological, nuclear, or ballistic weapons, or in a facility engaged in such
activities, unless VSI has obtained prior approval from the Department of
Commerce or the Canadian Government.
10. CONFIDENTIALITY
13
<PAGE>
This Agreement is and contains confidential information, and as such will
not be disclosed to any third party without the express written consent of
both parties. The parties agree to disclose the terms and conditions of
this Agreement only to their respective personnel with a need to know.
11. AUDITS AND ACCOUNT RECONCILIATION
For export compliance, Ingram reserves the right to audit VSI's business
process as part of Ingram's Due Diligence effort as required by the EAR's.
Ingram and VSI shall mutually resolve any and all existing discrepancies
between the respective books and records between the two parties, including
but not limited to, any amounts due and payable between the parties and
order stock discrepancies, both as to count and condition.
12. NOTICES
All notices and other communications relating to this Agreement or its
terms will be in writing and mailed via first class Postal Service,
certified or registered with return receipt requested or via facsimile.
All notices so mailed will be deemed received two (2) days after postmark
date and facsimiles will be deemed received upon notification of successful
transmission.
13. GOVERNING LAW
This Agreement will be deemed made in the State of California and will be
governed by and construed in accordance with California laws, excluding its
conflicts or choice of law rule or principles which might refer to the law
of another jurisdiction. The state and federal courts situated in Orange
County, California will have non-exclusive jurisdiction and venue over any
dispute or controversy which arises out of this Agreement.
14. HEADINGS
This Agreement may be executed in any number of original counterparts,
each of which when executed and delivered will be deemed to be an original
and all of which taken together will constitute but one and the same
instrument. Headings in this Agreement are included for convenience of
reference only and will not constitute a part of this Agreement for any
other purpose.
15. ENTIRE AGREEMENT
This Agreement (including any Exhibits and Addenda) constitutes the entire
Agreement between the parties regarding the subject matter herein, and will
cancel, terminate, and supersede any and all previous agreements,
proposals, representations, or statements, whether oral or written. The
terms of this Agreement will supersede the terms of any
14
<PAGE>
invoice or purchase order issued by either party. Any modifications of
this Agreement must be in writing and signed by an authorized
representative of each party.
16. SURVIVAL
Sections C.5, D.1, D.2, D.3, D.5, D.10, D.13, and D.16 shall survive the
expiration or earlier termination of this Agreement.
17. CURRENCY
All monetary figures quoted here are expressed in Canadian funds.
THIS AGREEMENT WILL BECOME EFFECT AS OF THE LAST DATE OF SIGNATURE BY THE
AUTHORIZED PARTIES BELOW.
"VSI" "INGRAM"
BY: /S/ PAUL COX BY: /S/ MURRAY WRIGHT
------------------------------------ ------------------------------------
NAME: PAUL COX NAME: MURRAY WRIGHT
---------------------------------- ----------------------------------
TITLE: PRESIDENT TITLE: VICE PRESIDENT SALES
--------------------------------- ---------------------------------
DATE: SEPTEMBER 1, 1998 DATE: SEPTEMBER 22, 1998
---------------------------------- ----------------------------------
15
<PAGE>
EXHIBIT A
CONFIGURATION SERVICES PRICING
REDACTED
<PAGE>
EXHIBIT B
GOODS WAREHOUSING FEES
REDACTED
<PAGE>
EXHIBIT C
SPECIAL LIMITED POWER OF ATTORNEY
The undersigned, Video Stream International Inc. ("VSI") doing business as
TeraGlobal Communications Corp., a _____________________ corporation, located at
1140-999 West Hastings Street, Vancouver, British Columbia V6C 2W2, hereby
appoints Ingram Micro Inc. ("Ingram"), a Delaware corporation, located at 1600
East St. Andrew Place, Santa Ana, California, 92705, as its limited agent
(attorney-in-fact) to act in its place for the purpose of executing export
documents. To further that purpose, the attorney-in-fact shall have the
following powers:
1. To prepare and execute:
Commercial Invoice Document (Export Certification Statement)
Shipper's Export Declaration
Shipper's Letter of Instruction
Bill of Lading/Air Waybill
Statement of Origin
I further grant to my attorney-in-fact the authority to take whatever other
actions are reasonably necessary to exercise the above noted items in 1.) "To
prepare and execute" of this "Exhibit C.
This power of attorney is granted for a period of Twelve (12) months. It shall
become effective on _________________, 19____, and terminate on
___________________, 19____.
FOR:
"VSI"
VIDEO STREAM INTERNATIONAL INC.
By:
----------------------------
(OFFICER OF THE COMPANY)
Name:
--------------------------
(PLEASE PRINT OR TYPE)
Title:
-------------------------
Date:
--------------------------
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is effective as of November ___,
1998, by and between TeraGlobal Communications Corp., a Wyoming corporation
("TeraGlobal") and Paul Cox ("Employee") with respect to the following facts.
A. Employer is engaged primarily in the development, production and sale of
interactive, multimedia communications technology and products.
B. Employer desires to engage Employee and Employee desires to accept such
engagement to provide such services to Employer as are set forth in this
Agreement.
NOW THEREFORE, in consideration of the foregoing premises and the mutual
agreements set forth herein, the parties hereto agree as follows:
1. EMPLOYMENT. Employer engages Employee to serve as President and Employee
hereby accepts such engagement upon the terms and conditions set forth herein.
2. DUTIES. Employee will devote his full business time, knowledge and skill to
the performance of the duties and responsibilities as President of Employer, as
such duties and responsibilities are performed by Employee as of the date of
this Agreement. Employee shall report directly to the Board of Directors of
Employer. Employee will not engage in any other gainful occupation which
requires his personal attention without prior consent of the Board of Directors
of Employer. Notwithstanding the foregoing, Employee shall perform such other
duties as the Board of Directors reasonably may require from time to time.
3. TERM AND TERMINATION.
3.1 TERM. The term of this Agreement shall be for a period of four (4)
years unless sooner terminated pursuant to any provision in this Section.
3.2 EVENTS TRIGGERING TERMINATION. At the written election of Employer in
its sole discretion, this Agreement shall terminate immediately, effective upon
the occurrence of any one of the following events:
(a) Employee's conviction of a felony or other crime involving moral
turpitude;
(b) After reasonable written notice, warning and opportunity to cure,
Employee's continuing material breach of or failure to perform his obligations
hereunder, continuing failure by Employee to abide by, conform with or otherwise
observe any material written policy of Employer, or the continuing failure to
conform to the reasonable directives of the Board of Directors of Employer;
(c) The death of Employee;
<PAGE>
(d) The disability of Employee. Employee shall be deemed disabled if the
Employee shall become incapacitated by reason of sickness, accident or other
physical or mental disability and shall for a period of sixty (60) consecutive
days be unable to perform his normal duties hereunder, with or without
reasonable accommodation by Employer.
In the event that Employee's employment is terminated by Employer pursuant
to Sections 3.1(a), 3.1(b), or 3.1(c), Employer shall promptly pay to Employee
(or in the event that such termination is pursuant to Section 3.1(c), to
Employee's estate or other legal representative) the annual base salary provided
for in Section 4.1 accrued to the date of Employee's termination and not
theretofore paid to Employee. Rights and benefits of Employee under the benefits
plans and programs of Employer shall be determined in accordance with the terms
of such plans and programs.
3.3 SEVERANCE COMPENSATION. If Employer terminates Employee's employment
with Employer and such termination is not pursuant to Sections 3.1(a), 3.1(b),
or 3.1(c) then Employer shall continue to pay to Employee his annual base salary
in the same periodic installments provided for in Section 4.1 hereof, plus
pro-rata compensation for vacation time accrued and unused, for the balance of
the term of this Agreement (the "Severance Period"); provided, however, that the
severance compensation to be paid to Employee in respect of a termination for
the reason specified in Section 3.1(d) shall be integrated with any disability
insurance proceeds paid to Employee during the Severance Period so that Employee
receives no more than an amount equal to 100% of his annual base salary under
Section 4.1 during the Severance Period. In addition, during the Severance
Period Employer shall continue to pay the automobile allowance set forth in
Section 4.5 and make all Employer contributions to medical and dental and life
insurance premiums for all Employer maintained plans under which Employee is an
insured or covered as of the commencement of the Severance Period.
4. COMPENSATION.
4.1 BASE SALARY. As compensation for all services rendered by Employee
under this Agreement, Employer shall pay Employee an annual base salary of One
Hundred Sixty-Two Thousand Dollars ($162,000), payable in accordance with the
standard payroll practices of Employer. This annual base salary may be augmented
by salary increases as determined by the Board of Directors. All regular
compensation shall be paid in accordance with Employer's standard payroll
procedures.
4.2 STOCK OPTIONS. Employee shall be eligible to receive options to
purchase common stock of Employer under Employer's 1997 Stock Option Plan, as
determined from time to time by the Board of Directors of Employer.
4.3 WITHHOLDING. All compensation paid to Employee under this Agreement
shall be subject to customary withholding and employment taxes as required by
federal and state law.
2
<PAGE>
4.4 OTHER BENEFITS. Employee shall be entitled to such other benefits,
including retirement benefits, as are provided to other full-time employees of
Employer, subject to any terms, conditions or restrictions associated with such
benefits, all as determined by written company policy in effect from time to
time during the term of this Agreement.
4.5 AUTOMOBILE ALLOWANCE. During the term of this Agreement, including any
Severance Period, Employee shall receive a $750 per month automobile allowance.
5. VACATION. Employee shall be entitled to four (4) weeks annual paid vacation
per year, subject to accrual and use in accordance with written company policy
in effect from time to time during the term of this Agreement and applicable
law. Employee's vacation will be scheduled at those times which are mutually
convenient to Employer's business and Employee.
6. BUSINESS EXPENSES. During the term of this Agreement, Employer shall
reimburse Employee for all reasonable and necessary out-of-pocket business
expenses of Employee related to Employee's duties hereunder in accordance with
the policies and procedures of Employer in effect from time to time, including,
without limitation:
(a) Actual expenses for travel, meals and lodging for necessary travel
between Employer's business locations;
(b) Actual expenses for travel, meals and lodging for other travel approved
in advance by Employer; and
(c) Professional entertainment and promotional expenses approved in advance
by Employer.
7. TRADE SECRETS.
7.1 TRADE SECRETS IN GENERAL. During the course of Employee's employment,
Employee will have access to various trade secrets of Employer. For purposes of
this Agreement, "Trade Secret" shall mean information which is not generally
known to the public and, as a result, is of economic benefit to Employer in the
conduct of its business. Employee and Employer agree that Trade Secrets shall
include but not be limited to all information developed or obtained by Employer
and comprising the following items, whether or not such items have been reduced
to tangible form (e.g., physical writing): all methods, techniques, processes,
ideas, trade names, service marks, slogans, forms, customer lists, pricing
structures, menus, business forms, marketing programs and plans, layouts and
designs, financial information, operational methods and tactics, cost
information, the identity of or contractual arrangements with suppliers, the
identity or buying habits of customers, accounting procedures, and any document,
record or other information of Employer relating to the above. Trade Secrets
include not only information belonging to Employer which existed before the date
of this Agreement, but also information developed by Employee for Employer or
its employees during the term of this Agreement.
3
<PAGE>
7.2 RESTRICTION ON USE OF TRADE SECRETS. Employee agrees that his use of
Trade Secrets is subject to the following restrictions during the term of the
Agreement and for an indefinite period thereafter so long as the Trade Secrets
have not become generally known to the public:
(a) NON-DISCLOSURE. Employee will not publish or disclose, or allow to
be published or disclosed, Trade Secrets to any person who is not an employee of
Employer unless such disclosure is necessary for the performance of Employee's
obligations under this Agreement.
(b) USE RESTRICTION. Employee shall use any Trade Secret only for the
limited purpose for which it was disclosed. Employee shall not disclose any
Trade Secret to any third party (including subcontractors) other than in
accordance with customary practices and existing agreements with customers and
shall disclose the Trade Secret only to other employees of Employer or as
provided under such agreements with customers having a need to know. Employee
shall promptly notify Employer of any Trade Secret disclosed other than in
accordance herewith.
(c) NON-REMOVAL. Employee will not remove any Trade Secrets from the
offices of Employer or the premises of any facility in which Employer is
performing services, or allow such removal, other than in accordance with
customary practices and existing agreements with customers.
(d) SURRENDER UPON TERMINATION. Upon termination of his employment with
Employer for any reason, Employee will surrender to Employer all documents and
materials in his possession or control which contain Trade Secrets.
(e) PROHIBITION AGAINST UNFAIR COMPETITION. At any time after the
termination of his employment with Employer for any reason, Employee will not
engage in competition with Employer while making use of the Trade Secrets of
Employer.
7.3 INVENTIONS. Any and all inventions, innovations, or improvements
("Inventions") made, developed or created by the Employee (whether at the
request or suggestion of Employer or otherwise, whether alone or in conjunction
with others, and whether during regular hours of work or otherwise) during the
term hereof which may be directly or indirectly useful in, or relate to, the
business of Employer, shall be promptly and fully disclosed by Employee to
Employer and shall be Employer's exclusive property as against Employee and
Employee shall promptly deliver to an appropriate representative of Employer all
papers, drawings, models, data and other material relating to any Inventions
made, developed or created by him as aforesaid. Employee shall, at the request
of Employer, and without any payment therefor, execute any documents necessary
or advisable in the opinion of Employer's counsel to direct issuance of patents
or copyrights to Employer with respect to such Inventions as are to be
Employer's exclusive property as against Employee or to vest in Employer title
to such Inventions as against Employee. The expense of securing any such patent
or copyright shall be borne by Employer. Notwithstanding the foregoing, the
Agreement does not require assignment of an Invention which qualifies fully for
protection under Section 2870 of the California Labor Code, a copy which is
attached as Exhibit A.
4
<PAGE>
7.4 NON SOLICITATION. During the term of employment of Employee and until
the expiration of twenty-four (24) months following the termination of the
employment of Employee, Employee shall not:
(a) advise or in any way encourage any person, firm or corporation who
is, at the time of termination of employment of Employee, or was at any time
during the term of employment of Employee with Employer, a customer or client of
Employer, to breach any contract with Employer;
(b) recruit, hire, assist others in the soliciting, recruiting or
hiring, or discuss other employment with, any person who is at the time of
termination of the employment of Employee with Employer, or was at anytime
during the employment of Employee with Employer, an employee of Employer, or
induce or attempt to induce any such employee to terminate his or her employment
with Employer; or
(c) use or disclose to any person, firm or corporation the name of any
present, former, prospective customer, client or employee of Employer.
8. UNFAIR COMPETITION, MISAPPROPRIATION OF TRADE SECRETS AND VIOLATION OF
SOLICITATION CLAUSES. Employee acknowledges that unfair competition,
misappropriation of Trade Secrets or violation of any of the provisions
contained in Section 7 would cause irreparable injury to Employer, that the
remedy at law for any violation or threatened violation thereof would be
inadequate, and that Employer shall be entitled to temporary and permanent
injunctive or other equitable relief without the necessity of proving actual
damages. Employee agrees that such relief shall be available in a court of law
regardless of the arbitration provisions contained in Section 16 of this
Agreement.
9. CONFLICT OF INTEREST. Employee acknowledges that the obligations and services
to be provided by Employee hereunder are special and unique. Employee agrees
that he will not at any time during the term of employment serve as an officer,
director, employee, or otherwise have an interest in any entity that engages in
business similar to that of Employer and Employer's subsidiaries. This provision
shall not apply to equity or stock ownership interests of less than 5% of any
publicly traded company.
10. SUCCESSORS AND ASSIGNS. The rights and obligations of the Employer under
this Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of Employer. Employee shall not be entitled to assign any
of his rights or obligations under this Agreement.
11. GOVERNING LAW. This Agreement shall be interpreted, construed, governed and
enforced in accordance with the laws of the State of California.
12. AMENDMENTS. No amendment or modification of the terms or conditions of this
Agreement shall be valid unless in writing and signed by the parties hereto.
5
<PAGE>
13. SEVERABILITY. Each term, condition, covenant or provision of this Agreement
shall be viewed as separate and distinct, and in the event that any such term,
covenant or provision shall be held by a court of competent jurisdiction to be
invalid, the remaining provisions shall continue in full force and effect.
Further, a court of competent jurisdiction shall have the authority to rewrite
and construe the provisions of this Agreement to render them enforceable the
maximum extent permitted by law, consistent with the parties intent as evidenced
herein.
14. WAIVER. A waiver by either party of a breach of provision or provisions of
this Agreement shall not constitute a general waiver, or prejudice the other
party's right otherwise to demand strict compliance with that provision or any
other provisions in this Agreement.
15. NOTICES. Any notice required or permitted to be given under this Agreement
shall be sufficient, if in writing, sent by certified mail to his residence in
the case of Employee, or hand delivered to the Employee, or to its principal
office (corporate office) in the case of the Employer.
16. ARBITRATION. Except as provided in Section 8, any dispute or claim that may
arise out of the provisions of this Agreement which cannot be resolved by
agreement of the parties acting in good faith within a reasonable time,
including any interpretation or alleged breach hereof, shall be resolved by
arbitration in accordance with the then-effective employment arbitration rules
of the San Diego, California, Chapter of the American Arbitration Association.
Except as otherwise set forth in Section 8 hereof, the parties intend that
litigation not be used to settle any dispute or claim arising out of this
Agreement. The written determination and award of the arbitrator or arbitrators,
as applicable, shall be final, binding and conclusive, and such determination
may be entered in any court of competent jurisdiction with each side to pay
their own attorneys' fees and costs.
17. ENTIRE AGREEMENT. Employee acknowledges receipt of this Agreement and agrees
that this Agreement and Exhibit A attached hereto represent the entire Agreement
with Employer concerning the subject matter hereof, and supersedes any previous
oral or written communications, representations, understandings or Agreements
with Employer or any officer or agent thereof. Employee understands that no
representative of the Employer has been authorized to enter into any Agreement
or commitment with Employee which is inconsistent in any way with the terms of
this Agreement.
18. CONSTRUCTION. This Agreement shall not be construed against any party on the
grounds that such party drafted the Agreement.
19. ACKNOWLEDGMENT. Employee acknowledges that he has had the opportunity to
consult with independent counsel of his own choice concerning this Agreement,
and that he has taken advantage of that opportunity to the extent that he
desires. Employee further acknowledges that he has read and understands this
Agreement, is fully aware of its legal effect, and has entered into it
voluntarily based on his own judgment.
6
<PAGE>
20. SURVIVORSHIP. The respective rights and obligations of Employee and Employer
hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations.
21. COUNTERPARTS. This Agreement may be executed in one or more counterpart
copies, each of which shall be deemed to be an original and all of which taken
together shall be deemed one and the same instrument.
22. CURRENCY. All currency expressed herein shall be in United States currency.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above.
TeraGlobal Communications Corp.,
a Wyoming corporation
By: /s/ David Fann
-------------------------------
David Fann, Chief Executive
Officer
/s/ Paul Cox
-------------------------------
Paul Cox
7
<PAGE>
EXHIBIT A
SECTION 2870
CALIFORNIA LABOR CODE
(a) Any provision in an employment agreement which provides that an
employee shall assign, or offer to assign, any of his or her rights in an
invention to his or her employer shall not apply to an invention that the
employee developed entirely on his or her own time without using the employer's
equipment, supplies, facilities, or trade secret information except for those
inventions that either:
(1) Relate at the time of conception or reduction to practice of
the invention to the employer's business, or actual or demonstrably
anticipated research or development of the employer; or
(2) Result from any work performed by the employee for the
employer.
(b) To the extent a provision in an employment agreement purports to
require an employee to assign an invention otherwise excluded from being
required to be assigned under subdivision (a), the provision is against the
public policy of this state and is unenforceable.
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is effective as of November ___,
1998, by and between TeraGlobal Communications Corp., a Wyoming corporation
("TeraGlobal") and David Fann ("Employee") with respect to the following facts.
A. Employer is engaged primarily in the development, production and sale
of interactive, multimedia communications technology and products.
B. Employer desires to engage Employee and Employee desires to accept
such engagement to provide such services to Employer as are set forth in this
Agreement.
NOW THEREFORE, in consideration of the foregoing premises and the mutual
agreements set forth herein, the parties hereto agree as follows:
1. EMPLOYMENT. Employer engages Employee to serve as Chief Executive Officer
and Employee hereby accepts such engagement upon the terms and conditions set
forth herein.
2. DUTIES. Employee will devote his full business time, knowledge and skill
to the performance of the duties and responsibilities as Chief Executive Officer
of Employer, as such duties and responsibilities are performed by Employee as of
the date of this Agreement. Mr. Fann shall also be primarily responsible for
overseeing the Company's sales and marketing efforts. Employee shall report
directly to the Board of Directors of Employer. Employee will not engage in any
other gainful occupation which requires his personal attention without prior
consent of the Board of Directors of Employer. Notwithstanding the foregoing,
Employee shall perform such other duties as the Board of Directors reasonably
may require from time to time.
3. TERM AND TERMINATION.
3.1 TERM. The term of this Agreement shall be for a period of four (4)
years unless sooner terminated pursuant to any provision in this Section.
3.2 EVENTS TRIGGERING TERMINATION. At the written election of Employer in
its sole discretion, this Agreement shall terminate immediately, effective upon
the occurrence of any one of the following events:
(a) Employee's conviction of a felony or other crime involving moral
turpitude;
(b) After reasonable written notice, warning and opportunity to cure,
Employee's continuing material breach of or failure to perform his obligations
hereunder, continuing failure by Employee to abide by, conform with or otherwise
observe any material written policy of Employer, or the continuing failure to
conform to the reasonable directives of the Board of Directors of Employer;
(c) The death of Employee;
<PAGE>
(d) The disability of Employee. Employee shall be deemed totally and
permanently disabled if the Employee shall become incapacitated by reason of
sickness, accident or other physical or mental disability and shall for a period
of sixty (60) consecutive days be unable to perform his normal duties hereunder,
with or without reasonable accommodation by Employer.
In the event that Employee's employment is terminated by Employer pursuant
to Sections 3.1(a), 3.1(b), or 3.1(c), Employer shall promptly pay to Employee
(or in the event that such termination is pursuant to Section 3.1(c), to
Employee's estate or other legal representative) the annual base salary provided
for in Section 4.1 accrued to the date of Employee's termination and not
theretofore paid to Employee. Rights and benefits of Employee under the
benefits plans and programs of Employer shall be determined in accordance with
the terms of such plans and programs.
3.3 SEVERANCE COMPENSATION. If Employer terminates Employee's employment
with Employer and such termination is not pursuant to Sections 3.1(a), 3.1(b),
or 3.1(c) then Employer shall continue to pay to Employee his annual base salary
in the same periodic installments provided for in Section 4.1 hereof, plus
pro-rata compensation for vacation time accrued and unused, for the balance of
the term of this Agreement (the "Severance Period"); provided, however, that the
severance compensation to be paid to Employee in respect of a termination for
the reason specified in Section 3.1(d) shall be integrated with any disability
insurance proceeds paid to Employee during the Severance Period so that Employee
receives no more than an amount equal to 100% of his annual base salary under
Section 4.1 during the Severance Period. In addition, during the Severance
Period Employer shall continue to pay the automobile allowance set forth in
Section 4.6 and make all Employer contributions to medical and dental and life
insurance premiums for all Employer maintained plans under which Employee is an
insured or covered as of the commencement of the Severance Period.
4. COMPENSATION.
4.1 BASE SALARY. As compensation for all services rendered by Employee
under this Agreement, Employer shall pay Employee an annual base salary of One
Hundred Sixty Two Thousand Dollars ($162,000), payable in accordance with the
standard payroll practices of Employer. This annual base salary may be
augmented by salary increases as determined by the Board of Directors. All
regular compensation shall be paid in accordance with Employer's standard
payroll procedures.
4.2 STOCK OPTIONS. Employee shall be eligible to receive options to
purchase common stock of Employer under Employer's 1997 Stock Option Plan, as
determined from time to time by the Board of Directors of Employer.
4.3 WITHHOLDING. All compensation paid to Employee under this Agreement
shall be subject to customary withholding and employment taxes as required by
federal and state law.
2
<PAGE>
4.4 OTHER BENEFITS. Employee shall be entitled to such other benefits,
including profit sharing plans and retirement benefits, as are provided to other
full-time employees of Employer, subject to any terms, conditions or
restrictions associated with such benefits, all as determined by written company
policy in effect from time to time during the term of this Agreement.
4.5 AUTOMOBILE ALLOWANCE. During the term of this Agreement, including
any Severance Period, Employee shall receive a $750 per month automobile
allowance.
5. VACATION. Employee shall be entitled to four (4) weeks annual paid
vacation per year, subject to accrual and use in accordance with written company
policy in effect from time to time during the term of this Agreement and
applicable law. Employee's vacation will be scheduled at those times which are
mutually convenient to Employer's business and Employee.
6. BUSINESS EXPENSES. During the term of this Agreement, Employer shall
reimburse Employee for all reasonable and necessary out-of-pocket business
expenses of Employee related to Employee's duties hereunder in accordance with
the policies and procedures of Employer in effect from time to time, including,
without limitation:
(a) Actual expenses for travel, meals and lodging for necessary travel
between Employer's business locations;
(b) Actual expenses for travel, meals and lodging for other travel
approved in advance by Employer; and
(c) Professional entertainment and promotional expenses approved in
advance by Employer.
7. TRADE SECRETS.
7.1 TRADE SECRETS IN GENERAL. During the course of Employee's employment,
Employee will have access to various trade secrets of Employer. For purposes of
this Agreement, "Trade Secret" shall mean information which is not generally
known to the public and, as a result, is of economic benefit to Employer in the
conduct of its business. Employee and Employer agree that Trade Secrets shall
include but not be limited to all information developed or obtained by Employer
and comprising the following items, whether or not such items have been reduced
to tangible form (e.g., physical writing): all methods, techniques, processes,
ideas, trade names, service marks, slogans, forms, customer lists, pricing
structures, menus, business forms, marketing programs and plans, layouts and
designs, financial information, operational methods and tactics, cost
information, the identity of or contractual arrangements with suppliers, the
identity or buying habits of customers, accounting procedures, and any document,
record or other information of Employer relating to the above. Trade Secrets
include not only information belonging to Employer which existed before the date
of this Agreement, but also information developed by Employee for Employer or
its employees during the term of this Agreement.
3
<PAGE>
7.2 RESTRICTION ON USE OF TRADE SECRETS. Employee agrees that his use of
Trade Secrets is subject to the following restrictions during the term of the
Agreement and for an indefinite period thereafter so long as the Trade Secrets
have not become generally known to the public:
(a) NON-DISCLOSURE. Employee will not publish or disclose, or allow
to be published or disclosed, Trade Secrets to any person who is not an employee
of Employer unless such disclosure is necessary for the performance of
Employee's obligations under this Agreement.
(b) USE RESTRICTION. Employee shall use any Trade Secret only for
the limited purpose for which it was disclosed. Employee shall not disclose any
Trade Secret to any third party (including subcontractors) other than in
accordance with customary practices and existing agreements with customers and
shall disclose the Trade Secret only to other employees of Employer or as
provided under such agreements with customers having a need to know. Employee
shall promptly notify Employer of any Trade Secret disclosed other than in
accordance herewith.
(c) NON-REMOVAL. Employee will not remove any Trade Secrets from
the offices of Employer or the premises of any facility in which Employer is
performing services, or allow such removal, other than in accordance with
customary practices and existing agreements with customers.
(d) SURRENDER UPON TERMINATION. Upon termination of his employment
with Employer for any reason, Employee will surrender to Employer all documents
and materials in his possession or control which contain Trade Secrets.
(e) PROHIBITION AGAINST UNFAIR COMPETITION. At any time after the
termination of his employment with Employer for any reason, Employee will not
engage in competition with Employer while making use of the Trade Secrets of
Employer.
7.3 INVENTIONS. Any and all inventions, innovations, or improvements
("Inventions") made, developed or created by the Employee (whether at the
request or suggestion of Employer or otherwise, whether alone or in conjunction
with others, and whether during regular hours of work or otherwise) during the
term hereof which may be directly or indirectly useful in, or relate to, the
business of Employer, shall be promptly and fully disclosed by Employee to
Employer and shall be Employer's exclusive property as against Employee and
Employee shall promptly deliver to an appropriate representative of Employer all
papers, drawings, models, data and other material relating to any Inventions
made, developed or created by him as aforesaid. Employee shall, at the request
of Employer, and without any payment therefor, execute any documents necessary
or advisable in the opinion of Employer's counsel to direct issuance of patents
or copyrights to Employer with respect to such Inventions as are to be
Employer's exclusive property as against Employee or to vest in Employer title
to such Inventions as against Employee. The expense of securing any such patent
or copyright shall be borne by Employer. Notwithstanding the foregoing, the
Agreement does not require assignment of an Invention which qualifies fully for
protection under Section 2870 of the California Labor Code, a copy which is
attached as Exhibit A.
4
<PAGE>
7.4 NON SOLICITATION. During the term of employment of Employee and until
the expiration of twenty-four (24) months following the termination of the
employment of Employee, Employee shall not:
(a) advise or in any way encourage any person, firm or corporation
who is, at the time of termination of employment of Employee, or was at any time
during the term of employment of Employee with Employer, a customer or client of
Employer, to breach any contract with Employer;
(b) recruit, hire, assist others in the soliciting, recruiting or
hiring, or discuss other employment with, any person who is at the time of
termination of the employment of Employee with Employer, or was at anytime
during the employment of Employee with Employer, an employee of Employer, or
induce or attempt to induce any such employee to terminate his or her employment
with Employer; or
(c) use or disclose to any person, firm or corporation the name ofany
present, former, prospective customer, client or employee of Employer.
8. UNFAIR COMPETITION, MISAPPROPRIATION OF TRADE SECRETS AND VIOLATION OF
SOLICITATION CLAUSES. Employee acknowledges that unfair competition,
misappropriation of Trade Secrets or violation of any of the provisions
contained in Section 7 would cause irreparable injury to Employer, that the
remedy at law for any violation or threatened violation thereof would be
inadequate, and that Employer shall be entitled to temporary and permanent
injunctive or other equitable relief without the necessity of proving actual
damages. Employee agrees that such relief shall be available in a court of law
regardless of the arbitration provisions contained in Section 16 of this
Agreement.
9. CONFLICT OF INTEREST. Employee acknowledges that the obligations and
services to be provided by Employee hereunder are special and unique. Employee
agrees that he will not at any time during the term of employment serve as an
officer, director, employee, or otherwise have an interest in any entity that
engages in business similar to that of Employer and Employer's subsidiaries.
This provision shall not apply to equity or stock ownership interests of less
than 5% of any publicly traded company.
10. SUCCESSORS AND ASSIGNS. The rights and obligations of the Employer under
this Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of Employer. Employee shall not be entitled to assign
any of his rights or obligations under this Agreement.
11. GOVERNING LAW. This Agreement shall be interpreted, construed, governed
and enforced in accordance with the laws of the State of California.
12. AMENDMENTS. No amendment or modification of the terms or conditions of
this Agreement shall be valid unless in writing and signed by the parties
hereto.
5
<PAGE>
13. SEVERABILITY. Each term, condition, covenant or provision of this
Agreement shall be viewed as separate and distinct, and in the event that any
such term, covenant or provision shall be held by a court of competent
jurisdiction to be invalid, the remaining provisions shall continue in full
force and effect. Further, a court of competent jurisdiction shall have the
authority to rewrite and construe the provisions of this Agreement to render
them enforceable the maximum extent permitted by law, consistent with the
parties intent as evidenced herein.
14. WAIVER. A waiver by either party of a breach of provision or provisions of
this Agreement shall not constitute a general waiver, or prejudice the other
party's right otherwise to demand strict compliance with that provision or any
other provisions in this Agreement.
15. NOTICES. Any notice required or permitted to be given under this Agreement
shall be sufficient, if in writing, sent by certified mail to his residence in
the case of Employee, or hand delivered to the Employee, or to its principal
office (corporate office) in the case of the Employer.
16. ARBITRATION. Except as provided in Section 8, any dispute or claim that
may arise out of the provisions of this Agreement which cannot be resolved by
agreement of the parties acting in good faith within a reasonable time,
including any interpretation or alleged breach hereof, shall be resolved by
arbitration in accordance with the then-effective employment arbitration rules
of the San Diego, California, Chapter of the American Arbitration Association.
Except as otherwise set forth in Section 8 hereof, the parties intend that
litigation not be used to settle any dispute or claim arising out of this
Agreement. The written determination and award of the arbitrator or
arbitrators, as applicable, shall be final, binding and conclusive, and such
determination may be entered in any court of competent jurisdiction with each
side to pay their own attorneys' fees and costs.
17. ENTIRE AGREEMENT. Employee acknowledges receipt of this Agreement and
agrees that this Agreement and Exhibit A attached hereto represent the entire
Agreement with Employer concerning the subject matter hereof, and supersedes any
previous oral or written communications, representations, understandings or
Agreements with Employer or any officer or agent thereof. Employee understands
that no representative of the Employer has been authorized to enter into any
Agreement or commitment with Employee which is inconsistent in any way with the
terms of this Agreement.
18. CONSTRUCTION. This Agreement shall not be construed against any party on
the grounds that such party drafted the Agreement.
19. ACKNOWLEDGMENT. Employee acknowledges that he has had the opportunity to
consult with independent counsel of his own choice concerning this Agreement,
and that he has taken advantage of that opportunity to the extent that he
desires. Employee further acknowledges that he has read and understands this
Agreement, is fully aware of its legal effect, and has entered into it
voluntarily based on his own judgment.
6
<PAGE>
20. SURVIVORSHIP. The respective rights and obligations of Employee and
Employer hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations.
21. COUNTERPARTS. This Agreement may be executed in one or more counterpart
copies, each of which shall be deemed to be an original and all of which taken
together shall be deemed one and the same instrument.
22. CURRENCY. All currency expressed herein shall be in United States
currency.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above.
TeraGlobal Communications Corp.,
a Wyoming corporation
By: /s/ Paul Cox
---------------------------------------
Paul Cox, President
/s/ David Fann
---------------------------------------
David Fann
7
<PAGE>
EXHIBIT A
SECTION 2870
CALIFORNIA LABOR CODE
(a) Any provision in an employment agreement which provides that an
employee shall assign, or offer to assign, any of his or her rights in an
invention to his or her employer shall not apply to an invention that the
employee developed entirely on his or her own time without using the employer's
equipment, supplies, facilities, or trade secret information except for those
inventions that either:
(1) Relate at the time of conception or reduction to practice of
the invention to the employer's business, or actual or demonstrably
anticipated research or development of the employer; or
(2) Result from any work performed by the employee for the
employer.
(b) To the extent a provision in an employment agreement purports to
require an employee to assign an invention otherwise excluded from being
required to be assigned under subdivision (a), the provision is against the
public policy of this state and is unenforceable.
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is effective as of November ___,
1998, by and between TeraGlobal Communications Corp., a Wyoming corporation
("TeraGlobal") and Grant Holcomb ("Employee") with respect to the following
facts.
A. Employer is engaged primarily in the development, production and sale
of interactive, multimedia communications technology and products.
B. Employer desires to engage Employee and Employee desires to accept
such engagement to provide such services to Employer as are set forth in this
Agreement.
NOW THEREFORE, in consideration of the foregoing premises and the mutual
agreements set forth herein, the parties hereto agree as follows:
1. EMPLOYMENT. Employer engages Employee to serve as Chief Technology Officer
and Employee hereby accepts such engagement upon the terms and conditions set
forth herein.
2. DUTIES. Employee will devote his full business time, knowledge and skill
to the performance of the duties and responsibilities as Chief Technology
Officer of Employer, as such duties and responsibilities are performed by
Employee as of the date of this Agreement. Employee shall report directly to
the Board of Directors of Employer. Employee will not engage in any other
gainful occupation which requires his personal attention without prior consent
of the Board of Directors of Employer. Notwithstanding the foregoing, Employee
shall perform such other duties as the Board of Directors reasonably may require
from time to time.
3. TERM AND TERMINATION.
3.1 TERM. The term of this Agreement shall be for a period of four (4)
years unless sooner terminated pursuant to any provision in this Section.
3.2 EVENTS TRIGGERING TERMINATION. At the written election of Employer in
its sole discretion, this Agreement shall terminate immediately, effective upon
the occurrence of any one of the following events:
(a) Employee's conviction of a felony or other crime involving moral
turpitude;
(b) After reasonable written notice, warning and opportunity to cure,
Employee's continuing material breach of or failure to perform his obligations
hereunder, continuing failure by Employee to abide by, conform with or otherwise
observe any material written policy of Employer, or the continuing failure to
conform to the reasonable directives of the Board of Directors of Employer;
(c) The death of Employee;
<PAGE>
(d) The disability of Employee. Employee shall be deemed disabled if the
Employee shall become incapacitated by reason of sickness, accident or other
physical or mental disability and shall for a period of sixty (60) consecutive
days be unable to perform his normal duties hereunder, with or without
reasonable accommodation by Employer.
In the event that Employee's employment is terminated by Employer pursuant
to Sections 3.1(a), 3.1(b), or 3.1(c), Employer shall promptly pay to Employee
(or in the event that such termination is pursuant to Section 3.1(c), to
Employee's estate or other legal representative) the annual base salary provided
for in Section 4.1 accrued to the date of Employee's termination and not
theretofore paid to Employee. Rights and benefits of Employee under the
benefits plans and programs of Employer shall be determined in accordance with
the terms of such plans and programs.
3.3 SEVERANCE COMPENSATION. If Employer terminates Employee's employment
with Employer and such termination is not pursuant to Sections 3.1(a), 3.1(b),
or 3.1(c) then Employer shall continue to pay to Employee his annual base salary
in the same periodic installments provided for in Section 4.1 hereof, plus
pro-rata compensation for vacation time accrued and unused, for the balance of
the term of this Agreement (the "Severance Period"); provided, however, that the
severance compensation to be paid to Employee in respect of a termination for
the reason specified in Section 3.1(d) shall be integrated with any disability
insurance proceeds paid to Employee during the Severance Period so that Employee
receives no more than an amount equal to 100% of his annual base salary under
Section 4.1 during the Severance Period. In addition, during the Severance
Period Employer shall continue to pay the allowance set forth in Section 4.6 and
make all Employer contributions to medical and dental and life insurance
premiums for all Employer maintained plans under which Employee is an insured or
covered as of the commencement of the Severance Period.
4. COMPENSATION.
4.1 BASE SALARY. As compensation for all services rendered by Employee
under this Agreement, Employer shall pay Employee an annual base salary of One
Hundred Sixty Two Thousand Dollars ($162,000), payable bi-weekly in arrears or
otherwise in accordance with the standard payroll practices of Employer. This
annual base salary may be augmented by salary increases as determined by the
Board of Directors. All regular compensation shall be paid in accordance with
Employer's standard payroll procedures.
4.2 STOCK OPTIONS. Employee shall be eligible to receive options to
purchase common stock of Employer under Employer's 1997 Stock Option Plan, as
determined from time to time by the Board of Directors of Employer.
2
<PAGE>
4.3 WITHHOLDING. All compensation paid to Employee under this Agreement
shall be subject to customary withholding and employment taxes as required by
federal and state law.
4.4 OTHER BENEFITS. Employee shall be entitled to such other benefits,
including profit sharing plans and retirement benefits, as are provided to other
full-time employees of Employer, subject to any terms, conditions or
restrictions associated with such benefits, all as determined by written company
policy in effect from time to time during the term of this Agreement.
4.5 AUTOMOBILE ALLOWANCE. During the term of this Agreement, including
any Severance Period, Employee shall receive a $750 per month automobile
allowance.
5. VACATION. Employee shall be entitled to four (4) weeks annual paid
vacation per year, subject to accrual and use in accordance with written company
policy in effect from time to time during the term of this Agreement and
applicable law. Employee's vacation will be scheduled at those times which are
mutually convenient to Employer's business and Employee.
6. BUSINESS EXPENSES. During the term of this Agreement, Employer shall
reimburse Employee for all reasonable and necessary out-of-pocket business
expenses of Employee related to Employee's duties hereunder in accordance with
the policies and procedures of Employer in effect from time to time, including,
without limitation:
(a) Actual expenses for travel, meals and lodging for necessary travel
between Employer's business locations;
(b) Actual expenses for travel, meals and lodging for other travel
approved in advance by Employer; and
(c) Professional entertainment and promotional expenses approved in
advance by Employer.
7. TRADE SECRETS.
7.1 TRADE SECRETS IN GENERAL. During the course of Employee's employment,
Employee will have access to various trade secrets of Employer. For purposes of
this Agreement, "Trade Secret" shall mean information which is not generally
known to the public and, as a result, is of economic benefit to Employer in the
conduct of its business. Employee and Employer agree that Trade Secrets shall
include but not be limited to all information developed or obtained by Employer
and comprising the following items, whether or not such items have been reduced
to tangible form (e.g., physical writing): all methods, techniques, processes,
ideas, trade names, service marks, slogans, forms, customer lists, pricing
structures, menus, business forms, marketing programs and plans, layouts and
designs, financial information, operational methods and tactics, cost
information, the identity of or contractual arrangements with suppliers, the
identity or buying habits of customers, accounting procedures, and any document,
record or other information of Employer relating to the
3
<PAGE>
above. Trade Secrets include not only information belonging to Employer which
existed before the date of this Agreement, but also information developed by
Employee for Employer or its employees during the term of this Agreement.
7.2 RESTRICTION ON USE OF TRADE SECRETS. Employee agrees that his use of
Trade Secrets is subject to the following restrictions during the term of the
Agreement and for an indefinite period thereafter so long as the Trade Secrets
have not become generally known to the public:
(a) NON-DISCLOSURE. Employee will not publish or disclose, or allow
to be published or disclosed, Trade Secrets to any person who is not an employee
of Employer unless such disclosure is necessary for the performance of
Employee's obligations under this Agreement.
(b) USE RESTRICTION. Employee shall use any Trade Secret only for
the limited purpose for which it was disclosed. Employee shall not disclose any
Trade Secret to any third party (including subcontractors) other than in
accordance with customary practices and existing agreements with customers and
shall disclose the Trade Secret only to other employees of Employer or as
provided under such agreements with customers having a need to know. Employee
shall promptly notify Employer of any Trade Secret disclosed other than in
accordance herewith.
(c) NON-REMOVAL. Employee will not remove any Trade Secrets from
the offices of Employer or the premises of any facility in which Employer is
performing services, or allow such removal, other than in accordance with
customary practices and existing agreements with customers.
(d) SURRENDER UPON TERMINATION. Upon termination of his employment
with Employer for any reason, Employee will surrender to Employer all documents
and materials in his possession or control which contain Trade Secrets.
(e) PROHIBITION AGAINST UNFAIR COMPETITION. At any time after the
termination of his employment with Employer for any reason, Employee will not
engage in competition with Employer while making use of the Trade Secrets of
Employer.
7.3 INVENTIONS. Any and all inventions, innovations, or improvements
("Inventions") made, developed or created by the Employee (whether at the
request or suggestion of Employer or otherwise, whether alone or in conjunction
with others, and whether during regular hours of work or otherwise) during the
term hereof which may be directly or indirectly useful in, or relate to, the
business of Employer, shall be promptly and fully disclosed by Employee to
Employer and shall be Employer's exclusive property as against Employee and
Employee shall promptly deliver to an appropriate representative of Employer all
papers, drawings, models, data and other material relating to any Inventions
made, developed or created by him as aforesaid. Employee shall, at the request
of Employer, and without any payment therefor, execute any documents necessary
or advisable in the opinion of Employer's counsel to direct issuance of patents
or copyrights to Employer with respect to such Inventions as are to be
Employer's exclusive property as against Employee or to vest in Employer title
to such Inventions as against Employee. The expense of securing any such patent
4
<PAGE>
or copyright shall be borne by Employer. Notwithstanding the foregoing, the
Agreement does not require assignment of an Invention which qualifies fully for
protection under Section 2870 of the California Labor Code, a copy which is
attached as Exhibit A.
7.4 NON SOLICITATION. During the term of employment of Employee and until
the expiration of twenty-four (24) months following the termination of the
employment of Employee, Employee shall not:
(a) advise or in any way encourage any person, firm or corporation
who is, at the time of termination of employment of Employee, or was at any time
during the term of employment of Employee with Employer, a customer or client of
Employer, to breach any contract with Employer;
(b) recruit, hire, assist others in the soliciting, recruiting or
hiring, or discuss other employment with, any person who is at the time of
termination of the employment of Employee with Employer, or was at anytime
during the employment of Employee with Employer, an employee of Employer, or
induce or attempt to induce any such employee to terminate his or her employment
with Employer; or
(c) use or disclose to any person, firm or corporation the name of
any present, former, prospective customer, client or employee of Employer.
8. UNFAIR COMPETITION, MISAPPROPRIATION OF TRADE SECRETS AND VIOLATION OF
SOLICITATION CLAUSES. Employee acknowledges that unfair competition,
misappropriation of Trade Secrets or violation of any of the provisions
contained in Section 7 would cause irreparable injury to Employer, that the
remedy at law for any violation or threatened violation thereof would be
inadequate, and that Employer shall be entitled to temporary and permanent
injunctive or other equitable relief without the necessity of proving actual
damages. Employee agrees that such relief shall be available in a court of law
regardless of the arbitration provisions contained in Section 16 of this
Agreement.
9. CONFLICT OF INTEREST. Employee acknowledges that the obligations and
services to be provided by Employee hereunder are special and unique. Employee
agrees that he will not at any time during the term of employment serve as an
officer, director, employee, or otherwise have an interest in any entity that
engages in business similar to that of Employer and Employer's subsidiaries.
This provision shall not apply to equity or stock ownership interests of less
than 5% of any publicly traded company.
10. SUCCESSORS AND ASSIGNS. The rights and obligations of the Employer under
this Agreement shall inure to the benefit of and shall be binding upon the
successors and assigns of Employer. Employee shall not be entitled to assign
any of his rights or obligations under this Agreement.
11. GOVERNING LAW. This Agreement shall be interpreted, construed, governed
and enforced in accordance with the laws of the State of California.
5
<PAGE>
12. AMENDMENTS. No amendment or modification of the terms or conditions of
this Agreement shall be valid unless in writing and signed by the parties
hereto.
13. SEVERABILITY. Each term, condition, covenant or provision of this
Agreement shall be viewed as separate and distinct, and in the event that any
such term, covenant or provision shall be held by a court of competent
jurisdiction to be invalid, the remaining provisions shall continue in full
force and effect. Further, a court of competent jurisdiction shall have the
authority to rewrite and construe the provisions of this Agreement to render
them enforceable the maximum extent permitted by law, consistent with the
parties intent as evidenced herein.
14. WAIVER. A waiver by either party of a breach of provision or provisions of
this Agreement shall not constitute a general waiver, or prejudice the other
party's right otherwise to demand strict compliance with that provision or any
other provisions in this Agreement.
15. NOTICES. Any notice required or permitted to be given under this Agreement
shall be sufficient, if in writing, sent by certified mail to his residence in
the case of Employee, or hand delivered to the Employee, or to its principal
office (corporate office) in the case of the Employer.
16. ARBITRATION. Except as provided in Section 8, any dispute or claim that
may arise out of the provisions of this Agreement which cannot be resolved by
agreement of the parties acting in good faith within a reasonable time,
including any interpretation or alleged breach hereof, shall be resolved by
arbitration in accordance with the then-effective employment arbitration rules
of the San Diego, California, Chapter of the American Arbitration Association.
Except as otherwise set forth in Section 8 hereof, the parties intend that
litigation not be used to settle any dispute or claim arising out of this
Agreement. The written determination and award of the arbitrator or
arbitrators, as applicable, shall be final, binding and conclusive, and such
determination may be entered in any court of competent jurisdiction with each
side to pay their own attorneys' fees and costs.
17. ENTIRE AGREEMENT. Employee acknowledges receipt of this Agreement and
agrees that this Agreement and Exhibit A attached hereto represent the entire
Agreement with Employer concerning the subject matter hereof, and supersedes any
previous oral or written communications, representations, understandings or
Agreements with Employer or any officer or agent thereof. Employee understands
that no representative of the Employer has been authorized to enter into any
Agreement or commitment with Employee which is inconsistent in any way with the
terms of this Agreement.
18. CONSTRUCTION. This Agreement shall not be construed against any party on
the grounds that such party drafted the Agreement.
19. ACKNOWLEDGMENT. Employee acknowledges that he has had the opportunity to
consult with independent counsel of his own choice concerning this Agreement,
and that he has taken advantage of that opportunity to the extent that he
desires. Employee further acknowledges that he has read
6
<PAGE>
and understands this Agreement, is fully aware of its legal effect, and has
entered into it voluntarily based on his own judgment.
20. SURVIVORSHIP. The respective rights and obligations of Employee and
Employer hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations.
21. COUNTERPARTS. This Agreement may be executed in one or more counterpart
copies, each of which shall be deemed to be an original and all of which taken
together shall be deemed one and the same instrument.
22. CURRENCY. All currency expressed herein shall be in United States
currency.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above.
TeraGlobal Communications Corp.,
a Wyoming corporation
By: /s/ David Fann
----------------------------------------
David Fann, Chief Operating Officer
/s/ Grant Holcomb
----------------------------------------
Grant Holcomb
7
<PAGE>
EXHIBIT A
SECTION 2870
CALIFORNIA LABOR CODE
(a) Any provision in an employment agreement which provides that an
employee shall assign, or offer to assign, any of his or her rights in an
invention to his or her employer shall not apply to an invention that the
employee developed entirely on his or her own time without using the employer's
equipment, supplies, facilities, or trade secret information except for those
inventions that either:
(1) Relate at the time of conception or reduction to practice of
the invention to the employer's business, or actual or demonstrably
anticipated research or development of the employer; or
(2) Result from any work performed by the employee for the
employer.
(b) To the extent a provision in an employment agreement purports to
require an employee to assign an invention otherwise excluded from being
required to be assigned under subdivision (a), the provision is against the
public policy of this state and is unenforceable.
<PAGE>
VIDEO STREAM INTERNATIONAL, INC.
AGREEMENT REGARDING EMPLOYMENT, OWNERSHIP OF
EMPLOYEE DEVELOPMENTS, AND CONFIDENTIALITY
PLEASE READ THIS AGREEMENT CAREFULLY. THIS AGREEMENT DESCRIBES THE BASIC LEGAL
AND ETHICAL RESPONSIBILITIES THAT YOU ARE REQUIRED TO OBSERVE AS AN EMPLOYEE
EXPOSED TO HIGHLY SENSITIVE TECHNOLOGY AND STRATEGIC INFORMATION IN PERFORMING
RESEARCH AND DEVELOPMENT. EMPLOYER BELIEVES THAT THIS AGREEMENT STRIKES A FAIR
BALANCE BETWEEN ITS INTERESTS AND YOUR NEEDS AND EXPECTATIONS. THIS AGREEMENT
IS LONG BECAUSE AN EFFORT HAS BEEN MADE TO BE AS CLEAR AND PRECISE AS POSSIBLE.
THIS AGREEMENT (the "Agreement") is effective as of the date shown below, by and
between VIDEO STREAM INTERNATIONAL, INC. ("Employer") and you, Issa Nakhleh, as
an employee ("You or "Employee") and is in consideration of the services to be
provided by You for Employer and the compensation for those services to be
provided to You by Employer, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged. You and Employer agree
as follows:
1. EMPLOYMENT AND SCOPE OF DUTIES
1.1 EMPLOYMENT. Employer hereby employs You to serve as the Chief
Financial Officer and You hereby accept such employment upon the terms and
conditions set forth in this Agreement.
1.2 EMPLOYMENT BY EMPLOYER AS SOLE OCCUPATION. Subject only to the
exceptions provided in this Agreement, You agree to devote your full business
time, attention, skill, and effort exclusively to the performance of the duties
and services customarily incident to Your position and/or to such other duties
and services as Employer may assign You from time to time. You agree not to
engage in any business activities or to render any services of a business,
commercial, or professional nature, whether or not for compensation, for the
benefit of anyone other than Employer, unless Employer has given its consent in
writing in advance. You agree not to work for any competitive enterprise during
your employment by Employer, including after hours, on weekends, or during
vacation time, even if only organizational assistance or limited consultation is
involved.
1.3 NONINTERFERENCE WITH THIRD-PARTY RIGHTS. Employer is employing You
with the understanding that (1) You are free to enter into employment with
Employer and (2) only Employer is entitled to the benefit of your work.
Employer has no interest in using any other person's patents, copyrights, trade
secrets, or trademarks in an unlawful manner. You agree not to misapply
proprietary rights that Employer has no right to use.
1.4 TERM OF EMPLOYMENT/TERMINATION. You and Employer understand and
expressly agree that Your employment is for an indefinite term and may be
terminated by either You or Employer at any time, with or without notice and
with or without cause. Employer requests, as a courtesy, that two weeks' notice
be given by you in advance of any termination by You of Your employment.
Employer reserves the absolute right to make any changes in assignment,
personnel, or employee benefits at any time. No representative of Employer has
any authority to make any contrary or inconsistent statements concerning the
term of your employment, or to alter the at will employment relationship, except
the President or Chief Executive Officer of the company, and only then in a
written agreement.
2. COMPENSATION AND BENEFITS
2.1 BASE SALARY. Employer shall pay You a base salary (the "Base Salary")
of Five Thousand Dollars ($5,000) per month, payable in accordance with
Employer's standard payroll practices and procedures as determined by Employer
from time to time.
2.2 WITHHOLDING. All compensation paid to You under this Agreement shall
be subject to customary
<PAGE>
withholding and employment taxes as required by federal and state law.
2.3 OTHER BENEFITS. You shall be entitled to participate in any, 401K,
health, medical, dental, disability and life insurance plans and any other
benefit plans as are provided by Employer to other full-time employees of
Employer, subject to any terms, conditions and restrictions associated with such
plans.
2.4 VACATION. You shall be entitled to three (3) weeks paid vacation per
calendar year.
3. OWNERSHIP OF EMPLOYEE DEVELOPMENTS
3.1 EXISTING PROPRIETARY RIGHTS. The only intangible interests and
properties (e.g., patents, patent applications, copyrights, trade secrets, and
trademarks) that You own or have an interest in at the time of execution of this
Agreement are those, if any, listed in Exhibit A attached hereto.
3.2 OWNERSHIP OF WORK PRODUCT.
a. For purposes hereof, "Work Product" shall mean all intellectual
property rights, including but not limited to all Trade Secrets, U.S. and
international copyrights, patentable inventions, discoveries and improvements,
and other intellectual property rights, in any product, programming,
documentation, technology, or other work product that relates to the past,
present and future business and interests of Employer and that You conceive,
develop, or deliver to Employer at any time during the term of your employment,
except that "Work Product" shall not include any invention (i) that You
developed entirely on your own time, without using Employer's equipment,
supplies, facilities or trade secret information and (ii) which neither
(A) related at the time of conception or reduction to practice to Employer's
business or actual or demonstrably anticipated research or development nor
(B) resulted from any work performed by You for Employer. Work Product shall
also include all intellectual property rights in any product, programming,
documentation, technology, or other Work Product that is now contained in any of
the products or systems, including development and support systems, of Employer,
or that otherwise relates to the business and interests of Employer, to the
extent You conceived, developed, or delivered such Work Product to Employer
prior to the date of this Agreement while You were engaged as an independent
contractor or an employee of Employer. You hereby irrevocably relinquish for
the benefit of Employer and its assigns any moral rights in the Work Product
recognized by applicable law.
b. Employer shall own all Work Product. All Work Product shall be
considered work made for hire by You and owned by Employer.
c. If any of the Work Product may not, by operation of law, be
considered work made for hire by You for Employer, or if ownership of all right,
title, and interest of the intellectual property rights therein shall not
otherwise vest exclusively in Employer, You agree to assign, and upon creation
thereof automatically assign, without further consideration, the ownership of
all Work Product, U.S. and international copyrights, patentable inventions, and
other intellectual property rights therein to Employer, its successors, and
assigns.
d. Employer, it successors, and assigns, shall have the right to
obtain and hold in its or their own name copyrights, registrations, and any
other protection available in the foregoing.
e. You agree to perform, upon the reasonable request of Employer,
during or after your employment, such further acts as may be necessary or
desirable to transfer, perfect, and defend Employer's ownership of the Work
Product. When requested, You will:
1. Execute, acknowledge, and deliver any requested affidavits and documents of
assignment and conveyance;
2. Obtain and aid in the enforcement of copyrights and, if applicable, patents
with respect to the Work Product in any countries;
3. Provide testimony in connection with any proceeding affecting the right,
title, or interest of Employer in any
<PAGE>
Work Product; and
4. Perform any other acts deemed necessary or desirable to carry out the
purposes of this Agreement.
Employer shall reimburse all reasonable out-of-pocket expenses incurred by You
at Employer's request in connection with the foregoing, including (unless You
are otherwise being compensated at the time) a reasonable per diem or hourly fee
for services rendered following termination of your employment.
3.3 CLEARANCE PROCEDURE FOR PROPRIETARY RIGHTS NOT CLAIMED BY EMPLOYER.
a. If You ever wish to create or develop, on your own time and with
your own resources, anything that may be considered Work Product but to which
You believe You should be entitled to the personal benefit of, You are required
to follow the clearance procedure set forth on this section in order to ensure
that Employer has no claim to the proprietary rights that may arise.
b. Before You begin any development work on your own time, You must
give Employer advance notice of your plans and supply a description of the
development under consideration. Unless otherwise agreed in a writing signed by
Employer prior to receipt, Employer shall have no obligation of confidentiality
with respect to such description. Employer will determine, in good faith,
within thirty (30) days after You have fully disclosed your plans to Employer,
whether the development is claimed by Employer. If Employer determines that it
does not claim such development, You will be notified in writing and may retain
ownership of the development to the extent of what has been disclosed to
Employer. You shall also submit for further clearance any significant
improvement, modification, or adaptation so that it can be determined whether
the improvement, modification, or adaptation relates to the business or
interests of Employer.
c. Clearance under this procedure does not relieve You of the need
to obtain the written consent of Employer before engaging in business activities
or rendering business, commercial, or professional services for the benefit of
anyone other than Employer, as required in Section 1.1 hereof. Employer thus
reserves the right to exercise greater control over development work that You
might consider doing for profit after hours, as opposed to mere hobby work
pursued in your spare time.
4. CONFIDENTIALITY
4.1 CONFIDENTIAL INFORMATION DEFINED. For purposes of this Agreement,
"Confidential Information" means all information and material which is
proprietary to Employer or a Business Partner of Employer, whether or not marked
as "confidential" or "proprietary" and which is disclosed to or obtained by
Employee, which relates to the past, present, or future research, development,
or business activities of Employer or a Business Partner of Employer.
Confidential Information is all information or materials prepared by or for
Employer or a Business Partner of Employer and includes, without limitation, all
of the following: designs, drawings, specifications, techniques, models, data,
source codes, object codes, documentation, diagrams, flow charts, research,
development, processes, procedures "know-how," new product or new technology
information, product prototypes, product copies, manufacturing, development or
marketing techniques and material, development or marketing timetables,
strategies, and development plans, including trade names, trademarks, customer,
supplier, or personnel names, and other information related to customers,
suppliers, or personnel, pricing policies and financial information, and other
information of a similar nature, whether or not reduced to writing or other
tangible form, and other trade secrets or nonpublic business information.
Confidential Information does not include any information which (a) was in the
lawful and unrestricted possession of Employee prior to its disclosure to
Employee by Employer, (b) is or becomes generally available to the public by
acts other than those of the Employee after receiving it, or (c) has been
received lawfully and in good faith by Employee from a third party who did not
derive it from Employer. For purposes of this Agreement, "Business Partner"
shall mean any subsidiary or affiliate of Employer and any other person or
entity with which Employer has agreed to do business and which has shared with
Employer information or material which is proprietary to such person or entity.
4.2 BACKGROUND. You should recognize that your position with Employer
requires considerable responsibility and trust. Relying on your ethical
responsibility and undivided loyalty, Employer expects to entrust You
<PAGE>
with highly sensitive confidential, restricted, and proprietary information
involving Confidential Information. You should recognize that it could prove
very difficult to isolate this Confidential Information from business activities
that You might consider pursuing after termination of your employment, and in
some instances, You may not be able to compete with Employer in certain ways
because of the risk that Employer's Confidential Information might be
compromised. You are legally and ethically responsible for protecting and
preserving Employer's proprietary rights for use only for Employer's benefit,
and these responsibilities may impose unavoidable limitations on your ability to
pursue some kinds of business opportunities that might interest You during or
after your employment.
4.3 RESTRICTIONS ON USE AND DISCLOSURE OF CONFIDENTIAL INFORMATION. You
agree not to use, copy, disclose or allow access to any Confidential Information
of Employer during your employment and for so long afterwards as the pertinent
information or data remain Confidential Information, regardless of whether or
not the Confidential Information is in written or tangible form, except as
required to perform any duties for Employer.
4.4 SCREENING OF PUBLIC RELEASES OF INFORMATION. In addition, and without
any intention of limiting your other obligations under this Agreement in any
way, You may not, during your employment, reveal any nonpublic information
concerning the technology pertaining to the proprietary products and
manufacturing processes of Employer or a Business Partner of Employer
(particularly technology under current development or improvement), unless You
have obtained approval from Employer in advance. In that connection, You must
first submit to Employer for review any proposed scientific and technical
articles and the text of any public speeches relating to work done for Employer
before they are released or delivered. Employer has the right to disapprove and
prohibit, or delete any parts of, such articles or speeches that might disclose
Employer's Confidential Information or otherwise be contrary to Employer's
business interests.
5. RETURN OF MATERIALS
Upon the request of Employer and, in any event, upon the termination of
your employment, You must return to Employer and leave at its disposal all
memoranda, notes, records, drawings, manuals, computer programs, documentation,
diskettes, computer tapes, and other documents or media pertaining to the
business of Employer or your specific duties for Employer, including all copies
of such materials. You must also return to Employer and leave at its disposal
all materials involving any Confidential Information of Employer. This Section
5 is intended to apply to all materials made or compiled by You, as well as to
all materials furnished to You by anyone else in connection with your
employment.
6. PROHIBITION AGAINST UNFAIR BUSINESS PRACTICES
6.1 UNFAIR BUSINESS PRACTICES. Professional research and development
activity may be susceptible to unfair or questionable business practices. For
example, Confidential Information can be misappropriated and valuable documents
can be copied and taken for improper purposes. Industrial espionage can be a
serious concern for businesses that depend on sensitive technology for
commercial success. Employees working for companies engaged in research and
development can be targets of, or participants in, unfair business practices,
because of the special attractiveness of the advanced technology, computer
programs, product development strategies, and business opportunities they come
to know by virtue of their employment. It would be unfair for a former employee
or contractor of Employer to recruit personnel directly from the ranks of
Employer's own employees by using connections and inside information previously
acquired from Employer. Employer puts great emphasis on selecting, training,
and promoting talented individuals for positions of significant responsibility.
The time, effort, and capital invested by Employer in its work force should not
be diverted by someone operating on an inside track. In addition, it would be
unfair for individuals still employed by Employer to form and pursue a
competitive business while receiving wages and other benefits from Employer.
6.2 REFRAINING FROM HARMFUL ACTIONS. During your employment with Employer,
You agree to refrain from engaging in any action that might be harmful to
Employer or its business, unless Employer consents in advance. Your
responsibility to promote and support Employer's business by its very nature
requires You to prevent Employer from suffering injury or hardship, if it can be
avoided. This obligation is intentionally broad and general because it is
difficult to anticipate all possible circumstances, and You should resolve all
doubts by consulting Employer on how best to proceed. Moreover, You agree,
during your employment with Employer and for a period of two (2) years
thereafter,
<PAGE>
You will not participate in or encourage the solicitation or recruiting of any
employee of Employer to form or join another competing business. Employer
cannot prohibit You from terminating your employment and pursuing other kinds of
work, but if You should decide to form or join another competing business You
agree to advise Employer promptly, so that projects in progress and under
consideration are not needlessly disrupted and so that even the possibility that
Confidential Information may be compromised can be avoided.
6.3 REPORTING INSTANCES OF UNFAIR BUSINESS PRACTICES. During your
employment with Employer, if You learn or even suspect that any unfair or
questionable business practice may be occurring, You agree to advise Employer
promptly. This obligation is intentionally broad and general because, as with
Section 5.2 hereof, it is difficult to anticipate all possible circumstances,
and You should resolve all doubts by reporting to Employer the information that
has come to your attention. By way of example, You should report the incident
immediately if anyone who is, or within the most recent two years has been, an
employee or contractor of Employer contacts You or any other employee of
Employer with an offer to form or join another business. This type of contact
includes any meeting or communication not initiated by You or by the employee
receiving the offer, where it becomes known that a position of employment or an
opportunity to participate in a business enterprise might be available. The
obligation also applies to instances where a third party, such as a placement
agent or a business associate, contacts You or any other employee of Employer at
the instruction or suggestion of an employee or contractor of Employer.
7. MISCELLANEOUS
7.1 SPECIFIC PERFORMANCE. You acknowledge that any violation of this
Agreement would cause Employer irreparable harm that may not be reasonably or
adequately compensated in damages and that, if You commit a breach of, or
threaten to commit a breach of, this Agreement, Employer shall be entitled to
permanent and temporary injunctive and equitable relief and a decree of specific
performance and, pending determination of any dispute with respect to such
violation, no bond or security shall be required in connection therewith. Each
of the rights of Employer under this Section 7.1 shall be independent of the
other and severally enforceable, and shall be in addition to, and not in lieu
of, any other rights and remedies available to Employer in law or equity.
7.2 SURVIVAL OF OBLIGATIONS. The covenants in Sections 3 through 6 of
this Agreement shall survive termination of Your employment, regardless of who
causes the termination and under what circumstances.
7.3 CONSTRUCTION. The headings used herein are for convenience or
reference only and shall not affect the construction of, or be taken into
consideration in interpreting, any provision of this Agreement. In the
interpretation and construction of this Agreement, the acknowledge that the
terms hereof reflect extensive negotiations between the parties and that this
Agreement shall not be deemed, for the purpose of construction and/or
interpretation, that either party drafted this Agreement.
7.4 GOVERNING LAW, JURISDICTION AND VENUE. This Agreement will be
governed by and construed in accordance with the laws of the State of California
without reference to its choice of law rules and as if wholly performed within
the State of California. Any litigation regarding the interpretation, breach or
enforcement of this Agreement will be filed in and heard by the state or federal
courts with jurisdiction to hear such disputes in San Diego County, California,
and the parties hereby expressly submit to the jurisdiction of such courts.
7.5 ENTIRE AGREEMENT. This Agreement sets forth the entire understanding
and agreement between the parties with respect to the subject matter hereof and
supersedes all other oral or written representations and understandings. This
Agreement may only be modified by a writing signed by Employee and Employer.
7.6 NO IMPLIED LICENSE. No rights or obligations other than those
expressly recited herein are to be implied from this Agreement. No license is
hereby granted, directly or indirectly, to any of the Confidential Information
disclosed.
7.7 SEVERABILITY. The parties agree that this Agreement is severable and
that in the event any provision of this Agreement is held to be illegal, invalid
or unenforceable, the legality, validity and enforceability of the remaining
provisions will not be affected or impaired. Additionally, the parties
expressly grant to any court or other entity
<PAGE>
interpreting this Agreement the power and authority to modify the terms of this
Agreement to extent necessary to allow enforcement of this Agreement to the
fullest extent allowed by law.
7.8 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
successors, assigns and legal representatives of Employee, and inures to the
benefit of any successors or assigns of Employer.
7.9 WAIVERS. No waiver of any of the provisions of this Agreement shall
be deemed to be or shall constitute a waiver of any other provision of this
Agreement, whether or not similar, nor shall any waiver constitute a continuing
waiver. No waiver of any provision of this Agreement shall be binding on the
parties hereto unless it is executed in writing by the party making the waiver.
IN WITNESS WHEREOF, the parties have entered into this agreement as of the
date set forth below.
-----------------------------------
Date
EMPLOYEE:
/s/ Issa Nakhleh
-----------------------------------
Signature
Issa Nakhleh
-----------------------------------
Printed Name
###-##-####
-----------------------------------
Social Security Number
San Diego, CA
-----------------------------------
Address
-----------------------------------
Address
EMPLOYER:
VIDEO STREAM INTERNATIONAL, INC.
By: /s/ Paul Cox
--------------------------------
Signature
Paul Cox
-----------------------------------
Printed Name
President
-----------------------------------
Title
<PAGE>
EXHIBIT A
EMPLOYEE OWNED INTANGIBLE INTERESTS OR PROPERTIES
<PAGE>
VIDEO STREAM INTERNATIONAL, INC.
1997 STOCK OPTION PLAN
1. PURPOSE; EFFECTIVENESS OF THE PLAN.
(a) The purpose of this Plan is to advance the interests of the Company
and its stockholders by helping the Company obtain and retain the
services of employees, officers, consultants and directors, upon whose
judgment, initiative and efforts the Company is substantially
dependent, and to provide those persons with further incentives to
advance the interests of the Company.
(b) This plan will become effective on the date of its adoption by the
Board, provided the Plan is approved by the stockholders of the
Company (excluding holders of shares of Stock issued by the Company
pursuant to the exercise of options granted under this Plan) within
twelve months before of after that date. If the Plan is not so
approved by the stockholders of the Company, any options granted under
this Plan will be rescinded and will be void. This Plan will remain
in effect until it is terminated by the Board or the Committee (as
defined hereafter) under section 9 hereof, except that no ISO (as
defined herein) will be granted after the tenth anniversary of the
date of this Plan's adoption by the Board. This Plan will be governed
by, and construed in accordance with, the laws of the State of Nevada.
2. CERTAIN DEFINITIONS.
Unless the context otherwise requires, the following defined terms
(together with other capitalized terms defined elsewhere in this Plan) will
govern the construction of this Plan, and of any stock option agreements
entered into pursuant to this Plan:
(a) "10% Stockholder" means a person who owns, either directly or
indirectly by virtue of the ownership attribution provisions set forth
in Section 424(d) of the Code at the time he or she is granted an
Option, stock possessing more than ten percent (10%) of the total
combined voting power or value of all classes of stock of the Company
and/or of its subsidiaries;
(b) "1933 Act" means the Federal Securities Act of 1933, as amended;
(c) "1934 Act" means the Federal Securities Exchange Act of 1934, as
amended;
(d) "Board" means the Board of Directors of the Company;
1
Stock Option Plan adopted by the Board of Directors: November 24th, 1997
Stock Option Plan approved by the Shareholders: November 24th, 1997
<PAGE>
(e) "Called for under an Option" or words to similar effect, means
issuable pursuant to the exercise of an Option;
(f) "Code" means the International Revenue Code of 1986, as amended
(references herein to Sections of the Code are intended to refer to
Sections of the Code as enacted at the time of this Plan's adoption by
the Board and as subsequently amended, or to any substantially similar
successor provisions of the Code resulting from recodification,
renumbering or otherwise);
(g) "Committee" means a committee of two or more Disinterested Directors,
appointed by the Board, to administer and interpret this Plan;
provided that the term "Committee" will refer to the Board during such
times as no Committee is appointed by the Board;
(h) "Company" means American Natural Food Marketing Inc., a Nevada
corporation;
(i) "Disability" has the same meaning as "permanent and total disability"
as defined in Section 22(e)(3) of the Code;
(j) "Disinterested Director" means a member of the Board who is not during
the period of one year prior to his or her services as an
administrator of the Plan, of during the period of such service,
granted or awarded Stock, options to acquire Stock, or similar equity
securities of the Company under this Plan or any similar plan of the
Company;
(k) "Eligible Participants" means persons who, at a particular time, are
employees, officers, consultants, or directors of the Company or its
subsidiaries;
(l) "Fair Market Value" means, with respect to the Stock and as of the
date an ISO is granted hereunder, the market price per share of such
Stock determined by the Committee, consistent with the requirements of
Section 422 of the Code and to the extent consistent therewith, as
follows:
(i) If the Stock was traded on a stock exchange on the date in
question, then the Fair Market Value will be equal to the
closing price reported by the applicable composite transactions
report for such date;
2
<PAGE>
(ii) If the Stock was traded over-the-counter on the date in
question and was classified as a national market issue, then
the Fair Market Value will be equal to the last-transaction
price quoted by the NASDAQ system for such date;
(iii) If the Stock was traded over-the-counter on the date in
question but was not classified as a national market issue,
then the Fair Market Value will be equal to the average of the
last reported representative bid and ask prices quoted by the
NASDAQ system for such date; and
(iv) If none of the forgoing provisions is applicable, the Fair
Market Value will be determined by the Committee in good faith
on such basis as it deems appropriate.
(m) "ISO" has the same meaning as "incentive stock option" as defined in
Section 442 of the Code;
(n) "Just Cause Termination" means a termination by the Company of an
Optionee's employment by and/or service to the Company (or if the
Optionee is a director, removal of the Optionee from the Board by
action of the stockholders or, if permitted by applicable law and the
bylaws of the Company, the other directors), in connection with the
good faith determination of the Company's board of directors (or of
the Company's stockholders if the Optionee is a director and removal
of the Optionee from the Board is by action of the stockholders, but
in either case excluding the vote of the Optionee if he or she is a
director or a stockholder) that the Optionee has engaged in any acts
involving dishonesty or moral turpitude or in any acts that materially
and adversely affect the business, affairs or reputation of the
Company or its subsidiaries;
(o) "NSO" means any option granted under this Plan whether designated by
the Committee as a C4 non-qualified stock option", a "non-statutory
stock option" or otherwise, other than an option designated by the
Committee as an ISO, or any option so designated but which, for any
reason, fails to qualify as an ISO pursuant to Section 422 of the Code
and the rules and regulations thereunder;
(p) "Option" means an option granted pursuant to this Plan entitling the
option holder to acquire shares of Stock issued by the Company
pursuant to the valid exercise of the option;
3
<PAGE>
(q) "Option Agreement" means an agreement between the Company and an
Optionee, in form and substance satisfactory to the Committee in its
sole discretion, consistent with this Plan,
(r) "Option Price" with respect to any particular Option means the
exercise price at which the Optionee may acquire each share of the
Option Stock called for under such Option;
(s) "Option Stock" means Stock issued or issuable by the Company pursuant
to the valid exercise of an Option;
(t) "Optionee" means an Eligible Participant to whom Options are granted
hereunder, and any transferee thereof pursuant to a Transfer
authorized under this Plan;
(u) "Plan" means this 1997 Stock Option Plan of the Company;
(v) "QDRO" has the same meaning as "qualified domestic relations order as
defined in Section 414(p) of the Code;
(w) "Stock" means shares of the Company's Common Stock, $_____________ par
value;
(x) "Subsidiary" has the same meaning as "Subsidiary Corporation" as
defined in Section 424(o of the Code;
(y) "Transfer" with respect to Option Stock, includes, without limitation,
a voluntary or involuntary sale, assignment, transfer, conveyance,
pledge, hypothecation, encumbrance, disposal, loan, gift, attachment
or levy of such Option Stock, including without limitations an
assignment for the benefit of creditors of the Optionee, a transfer by
operation of law, such as a transfer by will or under the laws of
descent and distribution, an execution of judgment against the Option
Stock or the acquisition of record or beneficial ownership thereof by
a lender or creditor, a transfer pursuant to a QDRO, or to any decree
of divorce, dissolution or separate maintenance, any property
settlement, any separation agreement or any other agreement with a
spouse (except for estate planning purposes) under which a part or all
of the shares of Option Stock are transferred or awarded to the spouse
of the Optionee or are required to be sold; or a transfer resulting
from the filing by the
4
<PAGE>
Optionee of a petition for relief, of the filing of an involuntary
petition against such Optionee, under the bankruptcy laws of the
United States or of any other nation.
3. ELIGIBILITY.
The Company may grant Options under this Plan only to persons who are
Eligible Participants as of the time of such grant. Subject to the
provisions of section 4(d), 5 and 6 hereof, there is no limitation on the
number of Options that may be granted to an Eligible Participant.
4. ADMINISTRATION.
(a) COMMITTEE. The Committee, if appointed by the Board, will administer
this Plan. If the Board, in its discretion, does not appoint such a
Committee, the Board itself will administer this Plan and take such
other actions as the Committee is authorized to take hereunder;
provided that the Board may take such actions hereunder in the same
manner as the Board may take other actions under the Company's
Articles of Incorporation and by-laws generally.
(b) AUTHORITY AND DISCRETION OF THE COMMITTEE. The Committee will have
full and final authority in its discretion, at any time and from time
to time, subject only to the express terms, conditions and other
provisions of the Company's Articles of Incorporation, by-laws and
this Plan, and the specific limitations on such discretion set forth
herein:
(i) to select and approve the persons who will be granted Options
under this Plan from among the Eligible Participants, and to
grant to any person so selected one or more Options to purchase
such number of shares of Option Stock as the Committee may
determine;
(ii) to determine the period or periods of time during which Options
may be exercised, the Option Price and the duration of such
Options, and other matters to be determined by the Committee in
connection with the grant of specific Options under this Plan;
5
<PAGE>
(iii) to interpret this Plan, to prescribe, amend and rescind rules
and regulations relating to this Plan, and to make all other
determinations necessary or advisable for the operation and
administration of this Plan; and
(iv) to delegate all or a portion of its authority under subsections
(i) (ii) of this section (4)b to one or more directors of the
Company who are executive officers of the Company, but only in
connection with Options granted to Eligible Participants who
are not subject to the reporting and liability provisions of
Section 16 of the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder, and subject to such
restrictions and limitations (such as the aggregate number of
shares of Option Stock called for by such Options that may be
granted) as the Committee may decide to impose on such delegate
directors.
(c) LIMITATION ON AUTHORITY. Notwithstanding the forgoing, or any other
provision of this Plan, the Committee will have no authority to grant
Options to any of its members, whether or not approved by the Board.
(d) DESIGNATION OF OPTIONS. Except as otherwise provided herein, the
Committee will designate any Option granted hereunder either as an ISO
or as a NSO. To the extent that the Fair Market Value (determined at
the time the Option is granted) of Stock with respect to which all
ISOs are exercisable for the first time by any individual during any
calendar year (pursuant to this Plan and all plans of the Company
and/or its subsidiaries) exceeds $125,000.00, such option will be
treated as a NSO. Notwithstanding the general eligibility provisions
of section 3 hereof, the Committee may grant ISOs only to persons who
are employees of the Company and / or its subsidiaries.
(e) OPTION AGREEMENTS. Options will be deemed granted hereunder only upon
the execution and delivery of an Option Agreement by the Optionee and
a duly authorized officer of the Company. Options will not be deemed
granted hereunder merely upon the authorization of such grant by the
Committee.
5. SHARES RESERVED FOR OPTIONS.
(a) OPTION POOL. The aggregate number of shares of Option Stock that may
be issued pursuant to the exercise of Options granted under this Plan
initially will not
6
<PAGE>
exceed Nine Hundred Thousand (9000,000) (the "Option Pool"), provided
that such number shall be adjusted annually by the Board on July I to
a number equal to 10% of the number of shares of Stock of the Company
outstanding on June 30 of the immediately preceding year, or 900,000,
whichever is greater, and provided further that such number will be
increased by the number of shares of Option Stock that the Company
subsequently may reacquire through repurchase or otherwise. Shares of
Option Stock that would have been issuable pursuant to Options, but
that are no longer issuable because all or part of those Option have
terminated or expired, will be deemed not to have been issued for
purposes of computing the number of shares of Option Stock remaining
in the Option Pool and available for issuance.
(b) ADJUSTMENTS UPON CHANGES IN STOCK. In the event of any change in the
outstanding Stock of the Company as a result of a stock split, reverse
stock split, stock dividend, recapitalization, combination or
reclassification, appropriate proportionate adjustments will be made
in:
(i) the aggregate number of shares of Option Stock in the Option
Pool that may be issued pursuant to the exercise of Options
granted hereunder;
(ii) the Option Price and the number of shares of Option Stock
called for in each outstanding Option granted hereunder; and
(iii) other rights and matters determined on a per share basis under
this Plan or any Option Agreement hereunder.
Any such adjustments will be made only by the Board, and when so made will be
effective, conclusive and binding for all purposes with respect to this Plan and
all Options then outstanding. No such adjustments will be required by reason of
the issuance or sale by the Company for cash or other consideration of
additional shares of its Stock or securities convertible into or exchangeable
for shares of its Stock.
6. TERMS OF STOCK OPTION AGREEMENTS.
Each Option granted pursuant to this Plan will be evidenced by an agreement
(an "Option Agreement") between the Company and the Eligible Participant to
whom such Option is granted, in form and substance satisfactory to the
Committee in its sole discretion, consistent
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with this Plan. Without limiting the foregoing, each Option Agreement (unless
otherwise stated therein) will be deemed to include the following terms and
conditions:
(a) COVENANTS OF OPTIONEE. At the discretion of the Committee, the
Eligible Participant to whom an Option is granted hereunder, as a
condition to the granting of the Option, must execute and deliver to
the Company a confidential information agreement approved by the
Committee. Nothing contained in this Plan, any Option Agreement or in
any other agreement executed in connection with granting of an Option
under this Plan will confer upon and Optionee any right with respect
to the continuation of his or her status as an employee of,
consultant, a director, or officer of the Company or its subsidiaries.
(b) VESTING PERIODS. Except as otherwise provided herein, each Option
Agreement may specify the period or periods of time which each Option
or portion thereof will first become exercisable (the "Vesting
Period") with respect to the total number of shares of Option Stock
called for thereunder (the "Total Award Option Stock"). Such Vesting
Periods will be fixed by the Committee in its sole discretion, and may
be accelerated or shortened by the Committee in its discretion.
(c) EXERCISE OF THE OPTION.
(i) MECHANICS AND NOTICE. An Option may be exercised to the extent
exercisable (1) by giving written notice of exercise to the
Company, specifying the number of full shares of Option Stock
to be purchased and accompanied by the full payment of the
Option Price thereof and the amount of withholding taxes
pursuant to subsection 6(c)(ii) below; and (2) by giving
assurances satisfactory to the Company that the shares of
Option Stock to be purchased upon such exercise are being
purchased for investment and not with a view to resale in
connection with any distribution of such shares in violation of
the 1933 Act; provided, however, that in the event the Option
Stock called for under the Option in registered under the 1933
Act, or in the event resale of such Option Stock without such
registration would otherwise be permissible, this second
condition will be inoperative if, in the opinion of counsel for
the Company, such condition is not required under the 1933 Act,
or any other applicable law, regulation or rule of any
governmental agency.
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(ii) WITHHOLDING TAXES. As a condition to the issuance of the
shares of Option Stock upon full or partial exercise of a NSO
granted under this Plan, the Optionee will pay to the Company
in cash, or in such other form as the Committee may determine
in its sole discretion, the amount of the Company's tax
withholding liability required in connection with such
exercise. For purposes of this subsection 6(c)(ii), "tax
withholding liability" will mean all federal and state income
taxes, social security tax, and any other taxes applicable to
the compensation income arising from the transaction required
by applicable law to be withheld by the Company.
(d) PAYMENT OF OPTION PRICE. Each Option Agreement will specify the
Option Price with respect to the exercise of Option Stock thereunder,
to be fixed by the Committee in its sole discretion , but in no event
will the Option Price for an ISO granted hereunder be less than the
Fair Market Value (or, in case the Optionee is a 10% Stockholder, one
hundred and ten percent (110%) of such Fair Market Value) of the
Option Stock at the time such ISO is granted, and in no event will the
Option Price for a NSO granted hereunder be less than 85% of the Fair
Market Value. The Option Price will be payable to the Company in
United States dollars is cash or by check, or such other legal
consideration as may be approved by the Committee, in its sole
discretion.
(i) For example, the Committee, in its sole discretion, may permit
a particular Optionee to pay all or a portion of the Option
Price, and / or the tax withholding liability as set forth in
subsection 6(c)(ii) above, with respect to the exercise of an
Option either by surrendering shares of Stock already owned by
such Optionee or by withholding shares of Option Stock,
provided that the Committee determines that the fair market
value of such surrendered Stock or withheld Option Stock is
equal to the corresponding portion of such Option Price and /
or tax withholding liability, as the case may be, to be paid
for therewith.
(ii) If the Committee permits an Optionee to pay any portion of the
Option Price and / or tax withholding liability with shares of
Stock with respect to the exercise of an Option (the
"Underlying Option") as provided in subsection 6(d)(i) above,
then the Committee, in its sole discretion, may grant to such
Optionee (but only if the Optionee remains an Eligible
Participant at that time) additional NSOs, the number of shares
of Option Stock called for
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<PAGE>
thereunder to be equal to all or a portion of the Stock so
surrendered or withheld (a "Replacement Option"). Each
Replacement Option will be evidenced by an Option Agreement.
Unless otherwise set forth therein, each Replacement Option
will be immediately exercisable upon such grant (without any
Vesting Period) and will be coterminous with the Underlying
Option. The Committee, in its sole discretion, may establish
such other terms and conditions for Replacement Options as it
deems appropriate.
(e) TERMINATION OF THE OPTION. Except as otherwise provided herein, each
Option Agreement will specify the period of time, to be fixed by the
Committee in its sole discretion, during which the Option granted
therein will be exercisable, not to exceed ten years from the date of
grant in the case of an ISO (the "Option Period"); provided that the
Option Period will not exceed five years from the date of grant in the
case of an ISO granted to a 10% Stockholder. To the extent not
previously exercised, each Option will terminate upon the expiration
of the Option Period specified in the Option Agreement; provided,
however, that each such Option will terminate, if earlier:
(i) ninety days after the date that the Optionee ceases to be an
Eligible Participant for any reason, other than by reason of
death or disability or a Just Cause Termination;
(ii) twelve months after the date that the Optionee ceases to be an
Eligible Participant by reason of such Eligible Participant's
death or disability; or
(iii) immediately as of the date that the Optionee ceases to be an
Eligible Participant by reason of a Just Cause Termination.
In the event of a sale of all or substantially all of the assets of the Company,
or a merger or consolidation or other reorganization in which the Company is not
the surviving corporation, or in which the Company becomes a subsidiary of
another corporation (any of the foregoing events, a "Corporate Transaction"),
then notwithstanding anything else herein, the right to exercise all then
outstanding Options will vest immediately prior to such Corporate Transaction
and will terminate immediately after such Corporate Transaction; provided,
however, that if the Board, in its sole discretion, determines that such
immediate vesting of the right to exercise outstanding Options is not in the
best interests of the Company, then the successor corporation must agree to
assume the
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outstanding Options or substitute therefor comparable options of such successor
corporation or a parent or subsidiary of such successor corporation.
(f) OPTIONS NONTRANSFERABLE. No Option will be transferable by the
Optionee otherwise than by will or the laws of descent and
distribution, or in the case of a NSO, pursuant to a QDRO. During the
lifetime of the Optionee, the Option will be exercisable only by him
or her, or the transferee of a NSO if it was transferred pursuant to a
QDRO.
(g) QUALIFICATION OF STOCK. The right to exercise an Option will be
further subject to the requirement that if at any time the Board
determines, in its sole discretion, that the listing, registration or
qualification of the shares of Option Stock called for thereunder upon
any securities exchange or under any state or federal law, or the
consent or approval of any governmental regulatory authority, is
necessary or desirable as a condition of or in connection with the
granting of such Option or the purchase of shares of Option Stock
thereunder, the Option may not be exercised, in whole or in part,
unless and until such listing, registration, qualification, consent or
approval is effected or obtained free of any conditions not acceptable
to the Board, in its sole discretion.
(h) ADDITIONAL RESTRICTIONS ON TRANSFER. By accepting Options and / or
Option Stock under this Plan, the Optionee will be deemed to
represent, warrant and agree as follows:
(i) SECURITIES ACT OF 1933. The Optionee understands that the
shares of Option Stock have not been registered under the 1933
Act, and such shares are not freely tradable and must be held
indefinitely unless such shares are either registered under the
1933 Act or an exemption from such registration is available.
The Optionee understands that the Company is under no
obligation to register the shares of Option Stock.
(ii) OTHER APPLICABLE LAWS. The Optionee further understands that
Transfer of the Option Stock requires full compliance with the
provisions of all applicable laws.
(iii) INVESTMENT INTENT. Unless a registration statement is in
effect with respect to the sale of Option Stock obtained
through exercise of Options
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<PAGE>
granted hereunder: (1) upon exercise of any Option, the
Optionee will purchase the Option Stock for his or her own
account and not with a view to distribution within the meaning
of the 1933 Act, other than as may be effected in compliance
with the 1933 Act and the rules and regulations promulgated
thereunder; (2) no one else will have any beneficial interest
in the Option Stock; and (3) he or she has no present intention
of disposing of the Option Stock at any particular time.
(i) COMPLIANCE WITH LAW. Notwithstanding any other provision of this
Plan, Options may be granted pursuant to this Plan, and Option Stock
may be issued pursuant to the exercise thereof by an Optionee, only
after there has been compliance with all applicable federal and state
securities laws, and all of the same will be subject to this
overriding condition. The Company will not be required to register or
qualify Option Stock with the Securities and Exchange Commission or
any state agency, except that the Company will register with, or as
required by local law, file for and secure an exemption from such
registration requirements from the applicable securities
administrator.
(j) STOCK CERTIFICATES. Certificates representing the Option Stock issued
pursuant to the exercise of Options will bear all legends required by
law and necessary to effectuate this Plan's provisions. The Company
may place a "stop transfer" order against shares of the Option Stock
until all restrictions and conditions as set forth in this Plan and in
the legends referred to in section 6(k) have been complied with.
(k) NOTICES. Any notice to be given to the Company under the terms of an
Option Agreement will be addressed to the Company at its principal
executive office, Attention: Corporate Secretary, or at such other
address as the Company may designate in writing. Any notice to be
given to an Optionee will be addressed to the Optionee at the address
provided to the Company by the Optionee. Any such notice will be
deemed to have been duly given if and when enclosed in a properly
sealed envelope, addressed as aforesaid, registered and deposited,
postage and registry fee prepaid, in a post office or branch post
office regularly maintained by the United States Government.
(l) OTHER PROVISIONS. The Option Agreement may contain such other terms,
provisions and conditions, including such special forfeiture
conditions, rights of
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<PAGE>
repurchase, rights of first refusal and other restrictions on Transfer
of Option Stock issued upon exercise of any Options granted hereunder,
not inconsistent with this Plan, as may be determined by the Committee
in its sole discretion.
7. PROCEEDS FROM THE SALE OF OPTION STOCK.
Cash proceeds from the sale of shares of Option Stock issued from time to
time upon the exercise of Options granted pursuant to this Plan will be
added to the general funds of the Company and as such will be used from
time to time for general corporate purposes.
8. MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS.
Subject to the terms and conditions and within the limitations of this Plan
herein, or 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).
Notwithstanding the foregoing, however, no modification of any Option will,
without the consent of the holder of the Option, alter or impair any rights
or obligations under any Option granted under this Plan.
9. AMENDMENT AND DISCONTINUANCE.
The Board may amend, suspend or discontinue this Plan at any time or from
time to time; provided that no action of the Board will cause ISOs granted
under this Plan not to comply with Section 442 of the code unless the Board
specifically declares such action to be made for that purpose and provided
further that no such action may, without the approval of the stockholders
of the Company, materially increase (other than by reason of an adjustment
pursuant to section 5(b) hereof) the maximum aggregate number of shares of
Option Stock in the Option Pool that may be issued under Options granted
pursuant to this Plan or materially increase the benefits accruing to Plan
participants or materially modify eligibility requirements for the Plan
participants. Provided, further, that the provisions of section 6(m)
hereof may not be amended more often than once during any six (6) month
period, other than to comport with changes in the Code, the Employee
Retirement Income Security Act, or the rules and regulations thereunder.
Moreover, no such action may alter or impair any Option previously granted
under this Plan without the consent of the holder of such Option.
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<PAGE>
10. PLAN COMPLIANCE WITH RULE 16b-3.
With respect to persons subject to Section 16 of the Securities Exchange
Act of 1934, transactions under this Plan are intended to comply with all
applicable conditions of Rule 16b-3 or its successors under the 1934 Act.
To the extent any provision of this Plan or action by this Plan's
administrators fails to so comply, it shall be deemed null and void, to the
extent permitted by law.
11. COPIES OF THIS PLAN.
A copy of this Plan will be delivered to each Optionee at or before the
time he or she executes an Option Agreement.
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<PAGE>
LICENSE AGREEMENT FOR COMPUTER
SOFTWARE PACKAGE
Contract # TERAGLOBAL-98-1
This Agreement is made and entered into and effective as of November 19, 1998
(the "EFFECTIVE DATE") between Mentat Inc., a California corporation having a
principal place of business at 1145 Gayley Avenue, Suite 315, Los Angeles, CA
90024 ("MENTAT"), and TeraGlobal Communications Corporation, a Wyoming
corporation having a principal place of business at 225 Broadway, Suite 1600,
San Diego, CA 92101 ("LICENSEE").
1. DEFINITIONS
(a) "ADDENDUM" means an attachment to this Agreement describing ORIGINAL
SOFTWARE licensed to LICENSEE by this Agreement and the particular
terms associated with that ORIGINAL SOFTWARE.
(b) "LICENSEE SITE" means those buildings owned or leased by LICENSEE
which are used by LICENSEE for development and testing of PRODUCTS.
(c) "CONFIDENTIAL SOURCE CODE" means any portion of the human readable
source code of LICENSED SOFTWARE.
(d) "ORIGINAL SOFTWARE" means source and object code versions of MENTAT
software, provided by MENTAT, as identified in an ADDENDUM, executed
by both parties, and all enhancements, updates and bug fixes provided
to LICENSEE by MENTAT, together with supporting documentation as
described in each ADDENDUM.
(e) "DERIVATIVE SOFTWARE" means ORIGINAL SOFTWARE as modified by LICENSEE.
(f) "LICENSED SOFTWARE" means both ORIGINAL SOFTWARE and any ORIGINAL
SOFTWARE contained in DERIVATIVE SOFTWARE.
(g) "PRODUCTS" means the equipment or software programs utilizing the
OPERATING SYSTEM that are manufactured or marketed and distributed by
LICENSEE as a standard item available to customers of LICENSEE or to
the purchasing public.
(h) "SOURCE CODE FEE" means a one-time fee as described in Sections 2(a),
5(a) and each ADDENDUM.
(i) "SUPPORT FEE" means an annual fee as described in Section 6(b) and
each ADDENDUM.
<PAGE>
(j) "ANNUAL PERIOD" means a period of one (1) year following the execution
of an ADDENDUM and each anniversary of such execution.
(k) "DISTRIBUTION FEE" means a per-copy fee as described in Sections 2(b),
5(b) and each applicable ADDENDUM.
(l) "OPERATING SYSTEM" means the operating system or systems described in
each ADDENDUM.
2. LICENSE
(a) Subject to the payment of the applicable SOURCE CODE FEE in
Section 5(a) and each ADDENDUM, and the terms and conditions of this
Agreement, MENTAT hereby grants to LICENSEE a non-transferable and
non-exclusive license to use, copy and display ORIGINAL SOFTWARE and
to modify ORIGINAL SOFTWARE into DERIVATIVE SOFTWARE, and to use, copy
and display such DERIVATIVE SOFTWARE, and to integrate ORIGINAL
SOFTWARE and DERIVATIVE SOFTWARE with LICENSEE'S own proprietary
software; provided that all of the foregoing activities shall be only
for the purpose of development and testing PRODUCTS located within
LICENSEE SITES.
(b) Subject to the payment of the applicable DISTRIBUTION FEE in
Section 5(b) and each ADDENDUM and the terms and conditions of this
Agreement, MENTAT hereby grants to LICENSEE a non-transferable and
non-exclusive binary license to use, perform, display, reproduce and
sublicense the object code portion ("Binary Copies") of LICENSED
SOFTWARE to its customers for use solely on PRODUCTS.
(c) In conjunction with the licenses granted in Section 2(b), MENTAT
hereby grants to LICENSEE a non-transferable and non-exclusive license
to use, modify, reproduce, and distribute non-confidential portions of
the documentation supplied to LICENSEE with the ORIGINAL SOFTWARE for
the purpose of creating LICENSEE'S user manuals. LICENSEE agrees
that, at least thirty (30) days prior to distribution of any manuals
containing such documentation, that LICENSEE will provide the manuals
to MENTAT for their review.
3. CONFIDENTIALITY
(a) Except and to the extent provided in Section 3(b) below, LICENSEE
agrees not to allow any portion of the CONFIDENTIAL SOURCE CODE, or
any trade secrets or confidential information pertaining to such
CONFIDENTIAL SOURCE CODE to be disclosed, reproduced or otherwise used
except in accordance with Section 2(a) or for archival or backup
purposes at LICENSEE SITES.
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<PAGE>
(b) The undertakings and obligations of LICENSEE under this Section will
not apply, however, to any information which:
i. was in LICENSEE'S rightful possession before receipt from MENTAT
as can be demonstrated by LICENSEE'S records in existence before
receipt of the information from MENTAT;
ii. is or becomes a matter of public knowledge through no fault of
LICENSEE;
iii. is rightfully received by LICENSEE from a third party without a
duty of confidentiality;
iv. is independently developed by LICENSEE without reference to
MENTAT'S confidential information; or
v. is approved f or release by written authorization of MENTAT.
(c) LICENSEE shall not knowingly permit anyone to use any portion of
LICENSED SOFTWARE for purposes other than as authorized by this
Agreement. In the event LICENSEE becomes aware that LICENSED SOFTWARE
licensed or sublicensed under this Agreement is being used in an
unauthorized manner, LICENSEE shall immediately notify MENTAT in
writing of such facts and agrees to use reasonable efforts to have
such unauthorized use immediately terminated.
(d) LICENSEE agrees, and agrees to instruct its employees and authorized
contractors having access to LICENSED SOFTWARE, not to provide,
disclose or otherwise make available the CONFIDENTIAL SOURCE CODE of
LICENSED SOFTWARE, in whole or in part, to any person outside of
LICENSEE'S organization without the prior written approval of MENTAT.
(e) LICENSEE will ensure that all copies of LICENSED SOFTWARE reproduced,
sublicensed and delivered under this Agreement include in human
readable format any and all appropriate confidential, proprietary and
copyright notices and markings contained on the ORIGINAL SOFTWARE
provided by MENTAT.
(f) LICENSEE acknowledges and agrees that in the event of an unauthorized
reproduction, disclosure or use of the LICENSED SOFTWARE, or any trade
secrets or confidential information of MENTAT, MENTAT will not have an
adequate remedy at law, and therefore will be entitled to injunctive
or other equitable relief to restrain such reproduction, disclosure or
use, whether actual or threatened.
(g) The provisions of this Section 3 shall survive the termination or
expiration of this Agreement.
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<PAGE>
4. OWNERSHIP
(a) LICENSEE acknowledges that LICENSED SOFTWARE is the property of MENTAT
and contains valuable trade secrets and confidential information
proprietary to MENTAT. Unless assigned as set forth in
Section 4(b) below, Licensee shall own all right, title and interest
to all DERIVATIVE SOFTWARE, exclusive of the ORIGINAL SOFTWARE.
(b) For all bug fixes, corrections, or other modifications to the ORIGINAL
SOFTWARE which are provided by LICENSEE to MENTAT at LICENSEE'S sole
option and that MENTAT in its sole discretion decides to incorporate
into ORIGINAL SOFTWARE, LICENSEE hereby grants and assigns to MENTAT
all right, title and interest in and to such bug fixes, corrections,
or other modifications to the ORIGINAL SOFTWARE and all copyrights and
other intellectual property rights therein, together with all rights
arising from such copyright ownership. LICENSEE agrees to do and
cause to be done all matters and things as it may reasonably and
lawfully be required to do to secure to MENTAT the full use and
enjoyment of said copyright ownership, and without compensation.
(c) The LICENSED SOFTWARE is a commercial product developed solely at the
private expense of MENTAT. If the LICENSED SOFTWARE is used by, or
licensed to, any United States Government agency, whether military or
civilian, such use, reproduction, release, modification or disclosure
("use") of the LICENSED SOFTWARE, or any part thereof, including
related technical data, is restricted in accordance with Federal
Acquisition Regulation ("FAR") 12.212 for civilian agencies and
Defense Federal Acquisition Regulation Supplement ("DFARS") 227.7202
for military agencies. Such use is further restricted as set forth in
this Agreement or any ADDENDUM hereto.
5. LICENSE FEES
(a) In consideration of the source code license rights granted by MENTAT
to LICENSEE in Section 2(a) for the LICENSEE SITE, LICENSEE agrees to
pay SOURCE CODE FEES to MENTAT as stated in each ADDENDUM. SOURCE
CODE FEES are due upon execution of each ADDENDUM.
(b) In consideration of the binary redistribution rights granted by MENTAT
to LICENSEE in Section 2(b), LICENSEE agrees to pay DISTRIBUTION FEES
to MENTAT as stated in each ADDENDUM.
i. Within thirty (30) days after each calendar quarter LICENSEE
shall send to MENTAT a report setting forth LICENSEE'S number of
copies of the LICENSED
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<PAGE>
SOFTWARE distributed by LICENSEE during the preceding calendar
quarter for which a royalty fee is due, a computation of
royalties due, and payment of royalties due, in U.S. currency.
The first such royalty report shall be due within thirty (30)
days after June 30, 1999 and shall set forth LICENSEE'S number of
copies of the LICENSED SOFTWARE distributed by LICENSEE for the
period from the Effective Date of this Agreement through June 30,
1999 for which a royalty fee is due, a computation of royalties
due, and payment of royalties due, in U.S. currency.
ii. LICENSEE agrees that it will maintain records of production and
disposition of all copies of LICENSED SOFTWARE subject to
royalty. LICENSEE further agrees that it will, at MENTAT'S
expense, permit a mutually agreed upon certified public
accountant to have reasonable access, at a time mutually agreed
to during LICENSEE'S normal business hours, to audit on an annual
basis, LICENSEE'S records and books of account which solely
relate to production and disposition of copies of LICENSED
SOFTWARE subject to royalty, for the purpose of determining
whether the appropriate royalties have been paid to MENTAT.
Should such examination result in LICENSEE'S obligation to pay
additional royalties, LICENSEE shall pay to MENTAT such royalties
immediately with accrued interest as specified in
Section 5(c) below. Should such examination result in LICENSEE'S
obligation to pay additional royalties exceeding three percent
(3%) of the royalties paid by LICENSEE for the period examined,
Licensee shall also pay the costs and expenses accrued in
connection with such examination.
(c) All payments under this Agreement are payable thirty (30) days after
receipt by LICENSEE of an invoice from MENTAT. Any payments which are
past due shall accrue interest starting from the due date at a rate of
the lesser of (1) 1.5% per month; or (2) the maximum interest rate
allowed under law.
(d) All fees under this Agreement are exclusive of any applicable sales or
use tax.
6. SUPPORT AND TRAINING
(a) MENTAT agrees to support the ORIGINAL SOFTWARE at no additional charge
to LICENSEE for six (6) months following delivery.
(b) In consideration of the SUPPORT FEES as set forth in each ADDENDUM,
MENTAT agrees to support ORIGINAL SOFTWARE for the term of this
Agreement. For the purposes of these rights, each annual period will
start six (6) months following the execution of an ADDENDUM. SUPPORT
FEES will be invoiced thirty (30) days prior to the beginning of each
annual period for the entire annual period. LICENSEE will
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<PAGE>
notify MENTAT in writing ninety (90) days prior to the end of any
succeeding annual period if LICENSEE chooses to discontinue support.
(c) Support consists of consultation via telephone, electronic mail, or
fax for up to five (5) of LICENSEE'S technical representatives, and
any new versions, bug fixes, or enhancements made by MENTAT to the
ORIGINAL SOFTWARE during the term of this Agreement.
(d) If LICENSEE requests and MENTAT agrees to provide on-site support,
LICENSEE agrees to pay a reasonable consulting fee as well as travel,
meal, and lodging expenses of Mentat personnel for such on-site
support.
7. TERM AND TERMINATION
(a) This Agreement shall terminate:
i. thirty (30) days after written notice by either party, in the
event of any default by the other party of any material term,
covenant or obligation under this Agreement not cured during such
thirty (30) day period; or
ii. immediately upon MENTAT'S election, if a receiver, liquidator,
trustee or like official is appointed for LICENSEE or any
substantial portion of its property or if LICENSEE shall have
filed or consented to any petition in bankruptcy or other
insolvency proceedings or shall have made any assignment for the
benefit of creditors; or
iii. immediately upon LICENSEE'S election, if a receiver, liquidator,
trustee or like official is appointed for MENTAT or any
substantial portion of its property or if MENTAT shall have filed
or consented to any petition in bankruptcy or other insolvency
proceedings or shall have made any assignment for the benefit of
creditors; or
iv. immediately if pursuant to the option exercised by MENTAT under
Section 9(c).
(b) In the event that LICENSEE is able to terminate this Agreement for
MENTAT'S breach or for reasons described in 7(a)iii, LICENSEE will
have any one of the following options:
i. LICENSEE may terminate this Agreement immediately, subject to
LICENSEE'S compliance with the provisions of Section 7(c); or
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<PAGE>
ii. LICENSEE may retain and continue to exercise the license rights
granted to it hereunder, subject to compliance by LICENSEE with
the remaining terms and conditions of the Agreement including
payment of DISTRIBUTION FEES and SOURCE CODE FEES except that
LICENSEE will no longer be obligated to pay the SUPPORT FEES and
MENTAT will no longer be obligated to provide such support and
maintenance.
(c) Upon termination by MENTAT for LICENSEE'S material breach or for upon
termination by LICENSEE under Section 7(b)i, all rights granted by
MENTAT to LICENSEE shall terminate. The following conditions shall
apply on termination:
i. LICENSEE shall discontinue use of LICENSED SOFTWARE and shall
either deliver to MENTAT or destroy all LICENSED SOFTWARE, and
any related materials furnished by MENTAT, together with all
copies thereof;
ii. LICENSEE shall erase or destroy any part of LICENSED SOFTWARE
contained in computer memory or data storage apparatus under the
control of LICENSEE;
iii. LICENSEE shall warrant in writing to MENTAT within thirty (30)
days of termination that LICENSED SOFTWARE, related materials and
all copies thereof have either been returned to MENTAT or
destroyed and erased from computer memory or data storage
apparatus.
(d) Notwithstanding termination of this Agreement for any reason, any
license granted under this Agreement by LICENSEE prior to the date of
termination shall remain in full force and effect.
8. LIMITED WARRANTY, DISCLAIMER AND LIMITATION OF LIABILITY
(a) MENTAT represents and warrants that LICENSED SOFTWARE will perform
substantially as described in the documentation listed in the ADDENDUM
describing the LICENSED SOFTWARE and current as of the date of
delivery of such LICENSED SOFTWARE to LICENSEE.
(b) EXCEPT FOR THE EXPRESS LIMITED WARRANTIES SET FORTH ABOVE AND IN
SECTION 9, LICENSED SOFTWARE IS PROVIDED ON AN AS-IS BASIS. EXCEPT AS
SET FORTH IN SECTION 9, MENTAT HEREBY DISCLAIM AND LICENSEE HEREBY
EXPRESSLY WAIVES, ANY AND ALL EXPRESS WARRANTIES OR REPRESENTATIONS OF
ANY KIND OR NATURE, AND ANY AND ALL IMPLIED WARRANTIES, INCLUDING, BUT
NOT LIMITED TO, ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR
A PARTICULAR PURPOSE.
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<PAGE>
(c) THE PARTIES HEREBY AGREE THAT LICENSEE'S SOLE AND EXCLUSIVE REMEDY FOR
BREACH OF ANY WARRANTIES HEREIN IS THE REPAIR AND/OR REPLACEMENT OF
ANY DEFECTIVE SOFTWARE. IF FOR ANY REASON MENTAT IS UNABLE TO REPAIR
OR REPLACE ANY DEFECTIVE SOFTWARE WITHIN A COMMERCIALLY REASONABLE
TIME PERIOD, LICENSEE'S SOLE AND EXCLUSIVE REMEDY FOR BREACH OF ANY
WARRANTIES HEREIN IS THE REFUND OF THE SOURCE CODE FEES PREVIOUSLY
PAID BY LICENSEE TO MENTAT.
(d) EXCEPT WITH RESPECT TO ANY BREACH OF SECTIONS 2 OR 3 BY LICENSEE IN NO
EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR ANY SPECIAL,
INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFIT)
IN ANY WAY ARISING OUT OF OR RELATING TO THIS AGREEMENT WHETHER BASED
UPON WARRANTY, CONTRACT, TORT OR ANY OTHER LEGAL THEORY. IN ADDITION,
MENTAT'S TOTAL LIABILITY TO LICENSEE FOR DIRECT DAMAGES ARISING OUT OF
OR RELATING TO THIS AGREEMENT SHALL IN NO EVENT EXCEED THE TOTAL
AMOUNT OF THE FEES ACTUALLY PAID BY LICENSEE TO MENTAT UNDER THIS
AGREEMENT.
9. PATENT AND COPYRIGHT INDEMNIFICATION
(a) MENTAT represents and warrants that it has sufficient right, title and
interest in and to the LICENSED SOFTWARE to enter into this Agreement
and further warrants that it is not aware that the LICENSED SOFTWARE
infringes any patent, copyright, or trade secret belonging to a third
party in any country and that it has not been notified by a third
party of a possibility that the LICENSED SOFTWARE might infringe any
patent, copyright or other proprietary right of a third party. Each
of MENTAT'S employees, consultants, contractors, partners or agents
who has been or will be involved in the development of the ORIGINAL
SOFTWARE will have signed an agreement with MENTAT conveying all
proprietary rights in the ORIGINAL SOFTWARE to MENTAT and agreeing to
maintain in confidence all trade secrets embodied in the ORIGINAL
SOFTWARE. MENTAT represents and warrants that it has full power to
enter into this Agreement, to carry out its obligations under this
Agreement and to grant the rights granted to LICENSEE.
(b) MENTAT agrees at its expense to defend and indemnify LICENSEE in any
suit, claim or proceeding brought against LICENSEE alleging that
ORIGINAL SOFTWARE infringes a U.S. patent or a copyright in any
country, or violates a trade secret right of a third party; provided,
however that LICENSEE (1) notifies MENTAT promptly in writing of such
suit, claim or proceeding, (2) gives MENTAT full control of the
8
<PAGE>
defense of such suit, claim, or proceeding and full information and
assistance to defend such suit, claim or proceeding and (3) allows
MENTAT to pay any judgment of a court; provided that MENTAT shall have
no liability for settlements or costs incurred without its consent.
MENTAT shall have no liability to indemnify LICENSEE in any suit,
claim or proceeding brought against LICENSEE to the extent the
infringement or violation arises from the use of (1) altered ORIGINAL
SOFTWARE as originally supplied by MENTAT and such infringement or
violation would have been avoided if LICENSEE had used unaltered
ORIGINAL SOFTWARE as originally supplied, (2) non-licensed software
with LICENSED SOFTWARE and the claim for such infringement or
violation would have been avoided if such non-licensed software had
not been used.
(c) If LICENSEE'S use of ORIGINAL SOFTWARE is enjoined, or in the event
that MENTAT desires to minimize its liabilities hereunder, MENTAT
will, at its option, either, (1) substitute other equally suitable
software, or (2) modify ORIGINAL SOFTWARE so that it no longer is an
infringement or violation, or (3) obtain for LICENSEE the right to
continue its use. If none of the foregoing is reasonably available,
then MENTAT may terminate this Agreement upon thirty (30) days written
notice to LICENSEE. Upon satisfaction by LICENSEE of the conditions
set forth in Section 7(c), after termination by MENTAT in accordance
with this Section 9, MENTAT shall refund the pro-rated SOURCE CODE FEE
and pro-rated DISTRIBUTION FEES paid by LICENSEE to MENTAT under this
Agreement, based on the number of days remaining in a five year life.
(d) THE OBLIGATION OF MENTAT UNDER THIS SECTION 9 SHALL BE THE SOLE AND
EXCLUSIVE REMEDY OF LICENSEE IN THE EVENT OF ANY SUIT, CLAIM OR
PROCEEDING BROUGHT AGAINST LICENSEE ALLEGING THAT THE LICENSED
SOFTWARE INFRINGES ANY PATENT OR COPYRIGHT OR VIOLATES A TRADE SECRET
RIGHT OF A THIRD PARTY. ALL OTHER LIABILITIES OR OBLIGATION OF MENTAT
FOR DAMAGES INCLUDING, BUT NOT LIMITED TO, CONSEQUENTIAL AND
INCIDENTAL DAMAGES ARE SPECIFICALLY DISCLAIMED.
10. ENTIRE AGREEMENT
(a) This Agreement is the entire agreement between the parties pertaining
to this subject matter and supersedes all proposals or prior and
contemporaneous agreements or understandings of the parties regarding
such matter. Terms and conditions contained in any LICENSEE purchase
order or other ordering document or MENTAT acknowledgment or invoice
submitted pursuant hereto shall have no binding effect on either party
and will not modify this Agreement in any way.
9
<PAGE>
11. MISCELLANEOUS
(a) This Agreement shall not be binding on either party until accepted and
executed by each such party.
(b) No delay or failure of either party to exercise any right or remedy
will operate as a waiver thereof. No waiver of any of the provisions
of this Agreement for a particular situation shall be deemed or
constitute a permanent waiver of such provision for any other
situation nor shall such waiver constitute a continuing waiver for the
same situation if it should recur.
(c) Modification of this Agreement shall not be valid unless in writing
and signed by duly authorized representatives of both parties.
(d) This Agreement shall be construed in accordance with and governed by
the laws of the State of California without reference to conflicts of
laws provisions.
(e) The parties hereto agree not to disclose, advertise, or make known the
terms of this Agreement except; (A) with the other party's prior
written consent; or (B) to existing or potential bankers, investors,
attorneys, accountants, or similar agents; or (C) as may be required
by law or by the order of a court of competent jurisdiction.
(f) LICENSEE shall not export, re-export, or transfer directly or
indirectly LICENSED SOFTWARE to any country for which the United
States government requires exporters to obtain an export license or
other government approval at the time of export, re-export or
transfer, unless prior written authorization is obtained from MENTAT
and the appropriate governmental agencies.
(g) Other than failure to make payments when they are due, neither party
will be liable for any failure or delay in its performance under this
Agreement due to causes, including, but not limited to, acts of God,
acts of civil or military authority, fire, epidemic, flood,
earthquake, riot, war, sabotage, labor shortages or disputes, and
governmental actions, which are beyond its reasonable control,
provided that the delayed party: (i) gives the other party written
notice of such cause promptly, and in any event within fifteen (15)
days of discovery thereof; and (ii) uses its reasonable efforts to
correct such failure or delay in its performance. The delayed party's
time for performance or cure under this Section 11(g) will be extended
for a period equal to the duration of the cause or thirty (30) days,
whichever is less.
(h) The rights and liabilities of the parties hereto will bind and inure
to the benefit of their respective successors, executors and
administrators, as the case may be;
10
<PAGE>
provided that neither party may assign its rights or delegate its
obligations under this Agreement either in whole or in part, without
the prior written consent of the other party, except in the case of a
sale of all or substantially all of the assets or a controlling share
of the stock of the assigning party. Any attempted assignment in
violation of the provisions of this Section 11(h) will be void.
(i) If for any reason a court of competent jurisdiction finds any
provision of this Agreement, or portion thereof, to be unenforceable,
that provision of the Agreement will be enforced to the maximum extent
permissible so as to effect the intent of the parties, and the
remainder of this Agreement will continue in full force and effect.
(j) All notices required or permitted under this Agreement will be in
writing, will reference this Agreement and will be deemed given when:
(i) delivered personally; (ii) when sent by confirmed telex or
facsimile; (iii) five (5) days after having been sent by registered or
certified mail, return receipt requested, postage prepaid; or (iv) one
(1) day after deposit with a commercial overnight carrier, specifying
next-day delivery, with written verification of receipt. All
communications will be sent to the addresses set forth below to or
such other address as may be designated by a party by giving written
notice to the other party pursuant to this Section 11(j):
LICENSEE: MENTAT:
TeraGlobal Communications Corp. 1145 Gayley Avenue
225 Broadway, Suite 1600 Suite 315
San Diego, California 92101 Los Angeles, CA 90024
Attn: President Attn: President
(k) This Agreement may be executed in one or more counterparts, each of
which will be deemed an original, but which collectively will
constitute one and the same instrument.
(l) The headings and captions used in this Agreement are used for
convenience only and are not to be considered in construing or
interpreting this Agreement.
(m) In the event of any dispute concerning or arising out of this
Agreement, such dispute shall be submitted by the parties to
arbitration. Arbitration proceedings may be commenced by either party
giving the other party written notice thereof and proceeding
thereafter in accordance with the rules and procedures of the American
Arbitration Association. Any such arbitration shall take place before
a single arbitrator only in San Diego, California. Any such
arbitration shall be governed by and subject to the applicable laws of
the State of California (including the discovery provisions of the
California Civil Code and the
11
<PAGE>
California Code of Civil Procedure, including specifically
Section 1283.05 of the California Code of Civil Procedure), and the
then prevailing rules of the American Arbitration Association. The
arbitrator's award in any such arbitration shall be final and binding,
and a judgment upon such award may be enforced by any court of
competent jurisdiction.
(n) If either party hereto commences an arbitration or other action
against the other party to enforce any of the terms hereof or because
of the breach by such other party of any of the terms hereof, the
prevailing party shall be entitled, in addition to any other relief
granted, to all actual out-of-pocket costs and expenses incurred by
such prevailing party in connection with such action, including,
without limitation, all reasonable attorneys' fees.
(o) Notwithstanding Sections 11(m) and 11(n), either party shall have the
right to obtain injunctive relief from a court of competent
jurisdiction.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives.
MENTAT INCORPORATED LICENSEE
By: /S/ KAY A. GUYER By: /S/ PAUL COX
---------------------------------- ----------------------------------
Name (Print): Kay A. Guyer Name (Print): Paul Cox
------------------------ ------------------------
Title: President Title: President
------------------------------- -------------------------------
Date: November 19, 1998 Date: November 19, 1998
-------------------------------- --------------------------------
12
<PAGE>
ADDENDUM A: MENTAT XTP
This Addendum to the License Agreement for Computer Software Package, dated
__________________, 1998 ("EFFECTIVE DATE") between MENTAT INC. and TeraGlobal
Communications Corporation is intended by the parties to add the software named
herein to the list of ORIGINAL SOFTWARE licensed to LICENSEE by MENTAT. The
specific terms applicable to the software named herein are stated in this
Addendum.
1. DESCRIPTION OF THE SOFTWARE
(a) Mentat XTP
2. OPERATING SYSTEM
Apple Macintosh Mac OS version 8.5, or other version as specified by mutual
written agreement. Compatibility with the MacOS X architecture is not
included and may require substantial engineering effort and/or licensing of
Mentat Portable Streams.
3. LICENSE FEES (Redacted)
4. DELIVERABLES
(a) Delivery by MENTAT to LICENSEE of the following Deliverables to be on
or before two months from the EFFECTIVE DATE of this ADDENDUM.
i. XTP engine: compatible with version 4.0 of the XTP Forum Xpress
Transport Protocol specification.
ii. Port specific files for the OPERATING SYSTEM including a full
build environment and configurators necessary for the
installation and configuration of Mentat XTP on the OPERATING
SYSTEM. Configurator design will be a configurator file with
minimal functionality to install and set-up Mentat XTP on the
OPERATING SYSTEM.
iii. Documentation:
- MENTAT XTP VOLUME 1: PROGRAMMER'S GUIDE.
- MENTAT XTP VOLUME 2: INTERNALS.
(b) MENTAT will modify Mentat XTP within three months of the EFFECTIVE
DATE of this ADDENDUM to add knobs for the server to control the
multicast group.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Addendum to be execute their
duly authorized representatives.
MENTAT INCORPORATED LICENSEE
By: /S/ KAY A GUYER By: /S/ PAUL COX
---------------------------------- ----------------------------------
Name (Print): Kay A. Guyer Name (Print): Paul Cox
------------------------ ------------------------
Title: President Title: President
------------------------------- -------------------------------
Date: November 19, 1998 Date: November 19, 1998
-------------------------------- --------------------------------
2
<PAGE>
CONFIDENTIAL DISCLOSURE
AGREEMENT
EFFECTIVE DATE:
---------------
In order to protect certain proprietary, confidential information which may be
disclosed between them, Mentat Inc., a California corporation ("Mentat") and
TeraGlobal Communications Corporation ("Participant"), agree that:
1. The Discloser(s) of confidential The Recipient(s) of confidential
information hereunder is (are): information hereunder is (are):
Both Parties Both Parties
- -------------------------------------- --------------------------------
2. The parties' representatives for disclosing or receiving confidential
information are:
DC Palter, Kay Guyer, Jim Krupp Grant Holcomb, Rodney Gagnon
- -------------------------------------- ---------------------------------
(Mentat) (Participant)
3. The confidential information disclosed under this Agreement is described
as:
(1) BUSINESS AND TECHNICAL INFORMATION AND DATA RELATING TO MENTAT'S PRODUCTS,
CUSTOMERS, AND BUSINESS PLANS, AND (2) BUSINESS AND TECHNICAL INFORMATION AND
DATA RELATING TO PARTICIPANT'S PRODUCTS, CUSTOMERS, AND BUSINESS PLANS.
MENTAT'S SOURCE CODE AND ANY TRADE SECRETS OR CONFIDENTIAL INFORMATION
PERTAINING TO SUCH SOURCE CODE SHALL BE COVERED BY THE TERMS OF A SEPARATE
AGREEMENT BETWEEN THE PARTIES, LICENSE AGREEMENT FOR COMPUTER SOFTWARE PACKAGE
TERAGLOBAL-98-1 DATED ____________________ 1998.
4. This Agreement covers only confidential information which is disclosed
between the effective date and the date of termination of this agreement.
5. A Recipient's obligations regarding confidential information received under
this Agreement expire five years from the date of termination of this
agreement.
6. A Recipient agrees to return all written documents received from the
Discloser containing confidential information immediately upon request of
the Discloser.
7. A Recipient shall protect the confidential information against unauthorized
disclosure using the same degree of care, but no less than a reasonable
degree of care, as the Recipient uses to protect its own confidential
information of a like nature.
8. The party receiving confidential information ("Recipient") shall make use
of the confidential information only for the following purpose:
<PAGE>
Mentat: provide advice and Guidance regarding the use of LICENSED SOFTWARE
------------------------------------------------------------------------
Participant: design of Participant's products
------------------------------------------------------------------
9. A Recipient shall be obligated to protect only such confidential
information disclosed under this Agreement as is: (a) disclosed in tangible
form clearly labeled as confidential at the time of disclosure, or
(b) disclosed initially in non-tangible form identified as confidential at
the time of disclosure and, within thirty days following the initial
disclosure, summarized and designated as confidential in a written
memorandum delivered to the Recipient's representative named in paragraph 2
above.
10. The Agreement imposes no obligation upon a Recipient with respect to any
confidential information disclosed under this Agreement which: (a) was in
the Recipient's possession before receipt from Discloser; (b) is or becomes
a matter of public knowledge through no fault of Recipient; (e) is
rightfully received by Recipient from a third party without a duty of
confidentiality; (d) is disclosed by Discloser to a third party without a
duty of confidentiality on the third party; (e) is independently developed
by Recipient; (f) is disclosed under operation of law; or (g) is disclosed
by Recipient with Discloser's prior written approval.
11. Each Discloser warrants that it has the right to make the disclosures under
the Agreement, and all such disclosures are at the sole discretion of the
Discloser. NO OTHER WARRANTIES ARE MADE BY EITHER PARTY UNDER THIS
AGREEMENT, ANY INFORMATION EXCHANGED UNDER THIS AGREEMENT IS PROVIDED "AS
IS".
12. Neither party acquires any intellectual property rights under this
Agreement; neither party has an obligation under this Agreement to purchase
any service or item from the other party, or to deal exclusively with the
other party in any field; and neither party has an obligation under this
Agreement to offer for sale products using or incorporating the
confidential information. The Discloser may, at its sole discretion, offer
such products for sale and may modify them or discontinue sale at any time.
13. A Recipient shall adhere to the U.S. Export Administration Laws and
Regulations and shall not export or reexport any technical data or products
received from the Discloser or the direct products of such technical data
to any proscribed country listed in the U.S. Export Administration
Regulations unless properly authorized by the U.S. Government.
14. The parties do not intend that any agency or partnership relationship be
created between them by this Agreement.
2
<PAGE>
15. All additions or modifications to this Agreement must be made in writing
and must be signed by both parties. This Agreement is made under and shall
be construed according to the laws of the State of California.
16. Either party may terminate this Agreement at any time without cause upon
written notice to the other party. In the event this Agreement is
terminated, the receiving party shall promptly return or destroy (and
certify destruction of) all confidential information which it received from
the disclosing party along with all copies which it made.
17. Any other agreement between the parties shall not be affected by this
Agreement.
MENTAT INCORPORATED LICENSEE
By: /S/ KAY A. GUYER By: /S/ PAUL COX
---------------------------------- ----------------------------------
Name (Print): Kay A. Guyer Name (Print): Paul Cox
------------------------ ------------------------
Title: President Title: President
------------------------------- -------------------------------
Date: November 19, 1998 Date: November 19, 1998
-------------------------------- --------------------------------
3
<PAGE>
-------------------------
Lease Number: 9802002
-------------------------
ALLIANCE LEASING IN CONJUNCTION WITH JOINT VENTURE
750 B Street
Suite 1450
San Diego, CA 92101 Withrow, Mary Ellen
LESSEE: TechnoVision Communications, Inc.
- --------------------------------------------------------------------------------
QUANTITY DESCRIPTION: Model Number, Catalog Number, Serial Number, etc.
SEE ATTACHED ADDENDUM "A"
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
SCHEDULE OF PAYMENTS DURING ORIGINAL TERM OF LEASE ADVANCE RENTALS PAYABLE AT THE SIGNING OF LEASE
NUMBER OF MONTHS MONTHLY PAYMENT REPRESENTING A SECURITY DEPOSIT
<S> <C> <C>
27 $2,907.80 $8,873.40 (FIRST AND LAST TWO PAYMENTS PLUS
DOCUMENTATION FEES)
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
TERMS AND CONDITIONS
- --------------------------------------------------------------------------------
1. LEASE: TERM: RENTAL: Lessor hereby leases to Lessee and Lessee hereby leases
from Lessor the equipment described above (hereniafter, with all replacement
parts, repairs, additions and accessories incorporated therein and/or affixed
thereto, referred to as the "Equipment"), on terms and conditions set forth
above and below and continued on the following pages attached hereto; for the
term indicated above, commencing on the date (the "Commencement Date") that the
Equipment is accepted by the Lessee, and continuing thereafter until terminated
as provided for herein. Unless otherwise provided herein, the monthly payments
shall be payable on the corresponding day of each month thereafter, in the
amount stated above, until the total rent and all other obligations of Lessee
shall have been paid in full. All payments of rent shall be made to Lessor at
its address or at such other place as Lessor may designate in writing. Lessee
hereby authorizes Lessor to insert in this Lease the serial numbers and other
identification data of the equipment when determined by Lessor. THIS IS A
NON-CANCELABLE LEASE FOR THE TERM INDICATED ABOVE.
2. PURCHASE AND ACCEPTANCE: NO WARRANTIES. Lessee requests Lessor to purchase
the Equipment from the Vendor and arrange for delivery to Lessee at Lessee's
expense. Lessor shall have no responsibility for delay or failure of Vendor to
fill the order for the Equipment. THE LESSEE REPRESENTS THAT LESSEE HAS
SELECTED THE EQUIPMENT LEASED HEREUNDER PRIOR TO HAVING REQUESTED THE LESSOR TO
PURCHASE THE SAME FOR LEASING TO THE LESSEE, AND LESSEE AGREES THAT THE LESSOR
HAS MADE AND MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY KIND OR NATURE.
Signature By: /s/ John L. McDonald
-------------------------------------
Lessor: ALLIANCE LEASING
Date: 2/24/98
----------------------------------------
DIRECTLY OR INDIRECTLY, EXPRESSED OR IMPLIED, AS TO ANY MATTER WHATSOEVER,
INCLUDING THE SUITABILITY OF SUCH EQUIPMENT, ITS DURABILITY, ITS FITNESS FOR ANY
PARTICULAR PURPOSE, ITS MERCHANTABILITY, ITS CONDITION AND/OR ITS QUALITY AND AS
BETWEEN LESSEE AND LESSOR, AND LESSOR'S ASSIGNEE. LESSEE LEASES THE EQUIPMENT
"AS IS". LESSOR AND LESSOR'S ASSIGNEE SHALL NOT BE LIABLE TO LESSEE FOR ANY
LOSS, DAMAGE OR EXPENSE OF ANY KIND OR NATURE CAUSED DIRECTLY OR INDIRECTLY BY
ANY EQUIPMENT LEASED HEREUNDER OF THE USE OR MAINTENANCE THEREOF, OR THE FAILURE
OF OPERATION THEREOF, OR THE REPAIRS, SERVICE OR ADJUSTMENT THERETO, OR BY ANY
DELAY OR FAILURE TO PROVIDE ANY THEREOF, OR BY ANY INTERRUPTION OF SERVICE OR
LOSS OF USE THEREOF, OR THE USE THEREOF IN VIOLATION OF THE RIGHTS OF ANY PARTY
WHOMSOEVER, OR FOR ANY LOSS OF BUSINESS OR DAMAGE WHATSOEVER AND HOWEVER CAUSED
NO REPRESENTATION OR WARRANTY AS TO THE EQUIPMENT OR ANY OTHER MATTER BY THE
VENDOR SHALL BE BINDING ON THE LESSOR OR LESSOR'S ASSIGNS NOR SHALL THE BREACH
OF SUCH RELIEVE LESSEE OF, OR IN ANY WAY AFFECT, ANY OF LESSEE'S OBLIGATIONS TO
THE LESSOR OR LESSOR'S ASSIGNS AS SET FORTH HEREIN. LESSOR AND LESSOR'S ASSIGNS
DISCLAIM AND SHALL NOT BE RESPONSIBLE FOR ANY LOSS, DAMAGE OR INJURY TO PERSONS
OR PROPERTY CAUSED BY THE EQUIPMENT WHETHER ARISING THROUGH NEGLIGENCE OF LESSEE
OR IMPOSED BY LAW.
Signature By: /s/ David Fann
-------------------------------------
Lessee: TECHNOVISION COMMUNICATIONS
Date: 2/23/98
----------------------------------------
Symphony Towers, 750 B Street
Suite 1450
San Diego, CA 92101
619.234.1381 Fax 234.1993
Toll Free 888.448.8726, e-mail [email protected]
Page 1 of
<PAGE>
- --------------------------------------------------------------------------------
GUARANTY
- --------------------------------------------------------------------------------
To induce Lessor to enter into the Lease proposed hereon the undersigned
(jointly and severally, if more than one) unconditionally gurantees to Lessor
the prompt payment when due of all Lessee's obligations to Lessor under the
Lease. Lessor shall not be required to proceed against Lessee or the Equipment,
or to enforce any other remedies before proceeding against the undersigned. The
undersigned agrees to pay all attorney's fees and other expenses incurred by
Lessor by reason of default by the Lessee or the undersigned. The undersigned
waives notice of acceptance hereof and of all other notices or demands of any
kind to which the undersigned may be entitled. the undersigned consents to any
extensions or modifications of the lease and any indulgences granted to Lessee,
including, but not limited to, the release and/or compromise of any obligations
under any collateral for the lease. This is a continuing guaranty and shall not
be discharged or affected by death of the undersigned, shall bind the
undersigned and the heirs, administrators, representatives, successors and
assigns of the undersigned, and may be enforced by or for the benefit of Lessor
or any assigns or successor of Lessor. This guaranty is subject to the terms
and condition contained in Section 17 through 22, inclusive of the Lease, al of
which are incorporated herein.
Signature By: /s/ David Fann, President/CEO
-------------------------------------
For: TECHNOVISION COMMUNICATIONS, INC.
Date: 2/23/98
----------------------------------------
Address:
---------------------------------------------
- -------------------------------------------------------
- -------------------------------------------------------
- --------------------------------------------------------------------------------
CERTIFICATE OF ACKNOWLEDGMENT AND ACCEPTANCE OF LEASED EQUIPMENT
- --------------------------------------------------------------------------------
Lessee hereby acknowledges receipt of the Equipment described in its Lease with
Lessor (the "Equipment') and accepts the Equipment after full inspection thereof
as satisfactory for all purposes of the lease.
Signature /s/ David Fann
----------------------------------------
Title: President/CEO
----------------------------------------
Delivery Date:
----------------------------------------
IMPORTANT: Vendor and its representatives are not agents of Lessor. Neither
Vendor nor its representatives can waive, vary or alter any of the terms and
conditions of this Lease. Lessor does not warrant merchantability or fitness
for any particular use of equipment and disclaims any other warranty, express,
implied or statutory. Lease payments will be due despite dissatisfaction with
Equipment for any reason. If the Equipment is not properly installed, does not
operate as represented or warranted by Vendor or is unsatisfactory for any
reason, Lessee shall make any claim on account thereof solely against the Vendor
and hereby waives and releases any and all rights to now or hereafter assert any
claim against Lessor concerning the Equipment and shall nevertheless pay Lessor
all rent payable under this Lease. Lessor agrees to assign to Lessee; solely
for the purpose of making and prosecuting such claims, any rights it may have
against the Vendor for breach of warranty or representations respecting the
Equipment. Notwithstanding any fees that may be paid to Vendor or any agent of
Vendor, Lessee understands and agrees that neither the Vendor nor any agent of
the Lender is an agent of Lessor and that neither the Vendor nor any agent of
the Vendor is an agent of Lessor and that neither the Vendor nor his agent is
authorized to waive or alter any term or condition of this Lease.
3. LESSOR TERMINATION BEFORE EQUIPMENT ACCEPTANCE. If within 60 days from the
date Lessor orders the Equipment, same has not been delivered, installed and
accepted by Lessee (in a form satisfactory to Lessor) Lessor may , on 10 days
written notice, terminate this Lease and its obligations to Lessee.
4. TITLE. Lessor shall at all times retain title to the Equipment. All
documents of title and evidence of delivery shall be delivered to Lessor.
Lessee shall no change or remove any insignia or lettering which is on the
Equipment at the time of delivery thereof, or which is thereafter placed
thereon, indicating Lessor's ownership thereof; and at any time during the Lease
term, upon request by Lessor. Lessee shall affix to the Equipment in a
prominent place, labels, plates or other markings supplied by Lessor stating
that the Equipment is owned by Lessor. Lessor is hereby authorized by Lessee,
at Lessee's expense, to cause this Lease, or any statement or other instrument
in respect of this Lease showing the interest of Lessor in the Equipment,
including Uniform Commercial Code Financing Statements to be titled or
accredited and refiled and re-recorded. Lessee agrees to execute an d deliver
any statement or instrument requested by Lessor for such purpose and agrees to
pay or reimburse Lessor for any filing, recording or stamp fees or taxes arising
from the filing or recording of any such instrument or statement. Lessee shall,
at its expense, protect and defend Lessor's title at all times keeping the
Equipment free from all liens and claims whatsoever except for those created by
or arising through Lessor, and shall give Lessor immediate written notice
thereof and shall indemnify Lessor from any loss caused thereby. Lessee shall
execute and deliver to Lessor, upon Lessor's request, such further instruments
and assurances as Lessor deems necessary or advisable for the confirmation of
perfection of Lessor's rights hereunder, and to, any Uniform Commercial Code
Financing Statement(s) without Lessee's signature and, if the signature of
Lessee is required thereon, Lessees irrevocably appoints Lessor as Lessee's
Attorney-in-Fact to execute and file any such statement or other instrument in
the name of and on behalf of Lessee. Unless otherwise agreed in writing, Lessee
shall have no right to purchase or otherwise acquire title to or ownership of
any of the Equipment without modifying or limiting the foregoing. or derogating
from the intention of the parties that the transactions herein shall constitute
a Lease and not a Financing of the Equipment by Lessor, if any court or
competent jurisdiction shall hold that the transaction contemplated herein does
constitute a financing and not a lease of the Equipment by Lessor, then Lessor,
its first lien security in the Equipment as of the date hereof shall have all
rights and remedies of a secured party under the Uniform Commercial Code as
adopted in California and any other applicable jurisdiction.
5. CARE AND USE OF THE EQUIPMENT Lessee shall maintain the Equipment in good
operating condition, repair and appearance, and protect the same from
deterioration, other than normal wear and tear, shall use the Equipment in the
regular course of business only, within its normal capacity without abuse and in
a manner contemplated by the Vendor, shall comply with the laws, ordinances,
regulations, requirements and rules with respect to use, maintenance, and
operation of the Equipment, shall not make any modifications, alterations, or
additions to the Equipment (other than normal operating accessories or controls
which shall, when added to the Equipment become property of the Lessor) without
prior written consent of Lessor, which shall not be unreasonably withheld,
shall) not so affix the Equipment to realty as to change its nature to real
property or fixture, and agrees that the Equipment shall remain the personal
property at all times regardless of how attached or installed; shall keep the
Equipment at the location shown herein and shall not remove the Equipment
without the written consent of Lessor which shall not be unreasonably withheld.
Lessor shall have the right during normal business hours, upon reasonable prior
notice to the Lessee and subject to applicable laws and regulations, to enter
upon the premises where the Equipment is located in order to inspect, observe or
remove the Equipment, or otherwise protect Lessor's interest.
Symphony Towers, 750 B Street
Suite 1450
San Diego, CA 92101
619.234.1381 Fax 234.1993
Toll Free 888.448.8726, e-mail [email protected]
Page 2 of
<PAGE>
6. NET LEASE: TAXES. Lessee intends the rental payments hereunder to be net to
Lessor, and Lessee shall pay all sales, use, exercise, personal property, stamp,
documentary, ad valorem and other taxes, license and registration fees. fines,
penalties and other charges imposed on the ownership, possession or use of the
Equipment during the term of this Lease; shall pay all taxes (except Federal and
State net income taxes imposed on Lessor) with respect to this Lease and the
rental payments hereunder, and shall reimburse Lessor upon demand for any taxes
paid or advanced by Lessor. Lessee shall file all returns required by law or
Lessor and furnish copies to lessor.
7. INDEMNITY. Lessee shall and does hereby agree to indemnify and save Lessor,
its agents, servants, successors and assigns harmless against and from any and
all liability, damages, or loss, including reasonable counsel fees, arising out
of the ownership, selection, possession, leasing, renting, operation (regardless
of where, how and by whom operated), control, use condition (including, but not
limited to, latent and other defect, whether or not discovered by Lessee),
maintenance, delivery and return of the equipment. The indemnities and
obligations herein provided shall continue in full force and effect
notwithstanding termination of this Lease.
8. INSURANCE. Lessee shall keep the Equipment insured against all risks of
loss or damage from every cause whatsoever, in amounts determined by lessor.
The amount of such insurance shall be sufficient so that neither the Lessor nor
lessee will be considered a co-insurer. Lessee also shall carry public
liability insurance, personal injury and property damage, covering the
Equipment. All such insurance shall provide that losses, if any, shall be
payable to Lessor, and all such liability insurance shall include Lessor as
named insured and required that the insure give Lessor at least ten (10) days
written notice prior to cancellation thereof. Lessee shall pay the premiums for
such insurance and deliver to Lessor satisfactory evidence of the insurance
coverage required hereunder. The proceeds of such insurance payable as a result
of loss or damage to any item of the Equipment shall be applied to satisfy
Lessee's obligations as set forth in Paragraph 9 below. Lessee hereby
irrevocably appoints Lessor as Lessee's attorney-in-fact to make claim for,
receive payment of and execute and endorse all documents, checks or drafts
received in payment for loss or damage under any such insurance policy.
9. RISK OF LOSS. Lessee hereby assumes the entire risk of loss, damage or
destruction of the Equipment from any and every cause whatsoever during the term
of this Lease and thereafter until redelivery to Lessor. In the event of loss,
damage or destruction of any item of Equipment, Lessee at its expense (except to
the extent of any proceeds of insurance provided by Lessee which shall have been
received by Lessor as a result of such loss, damage or destruction), and at
Lessor's option, shall either (a) repair such item, returning to its previous
condition, unless damaged beyond repair, or (b) pay Lessor all unpaid rental
plus 10% of the original Equipment cost as may be allocated to such item, or (c)
replace such items with a like items acceptable to Lessor, in good condition and
of equivalent value, which shall become property of Lessor, included within the
term "Equipment" as used herein, and leased from Lessor herewith for the balance
of the full term of this Lease.
10. PERFORMANCE BY LESSOR OF LESSEE'S OBLIGATION. In the event Lessee fails to
comply with any provision of this Lease, Lessor shall have the right, but shall
not be obligated to effect such compliance on behalf of Lessee upon ten (10)
days prior written notice to Lessee. In such event, all moneys, expended by,
and all expenses of Lessor in effecting such compliance shall be deemed to be
additional rental, and shall be paid by Lessee at the time of the next monthly
payment of rent.
11. DEFAULT. If any one of the following events (each an "event of
default") shall occur, then to the extent permitted by applicable law, Lessor
shall have the right to exercise any one or more of the remedies set forth in
paragraph 12 below, (a) Lessee fails to pay nay rental or any other payment
hereunder when due, and such failure continues for five (5) days, or (b)
Lessee, or any guarantor becomes insolvent or makes assignment for the
benefit of creditors, or (c) a receiver, trustee, conservator or liquidator
of Lessee or any guarantor or of all or a substantial part of its assets is
appointed with or without the application or consent of Lessee or such
guarantor, or (d )a petition is filed by or against Lessee or any guarantor
under the Bankruptcy Code or any amendment thereto, or under any of the
insolvency law or laws providing of the relief of debtors, or (e) Lessee
fails to pay when due an obligation to Lessor arising independently of this
Lease and such failure continues for five (5) days, or (f) Lessee breaches
any other covenant, warranty or agreement hereunder, and such breach
continues for ten (10) days after written notice thereof.
12. REMEDIES. If an event of default shall occur as described in subparagraphs
(a) through (e) in Paragraph 11 hereinabove. Lessor may, at its option, at any
time (a) declare the entire amount of unpaid rental for the balance of the term
of this Lease plus 10% of the Equipment cost immediately due and payable,
whereupon Lessee shall become obligated to pay Lessor forthwith such amount, and
(b) without demand or legal process enter into the premises where the Equipment
may be found and take possession of and remove the Equipment, without liability
for such retaking. Lessor shall sell or otherwise dispose of any such Equipment
at a private or public sale. In the event Lessor takes possession of the
Equipment, Lessor shall give Lessee credit for any such sums received by Lessor
from the sale or rental of the Equipment after deduction of the expenses of the
sale or rental. Lessee shall also be liable for and shall pay to Lessor (a) all
expenses incurred by Lessor in connection with the enforcement of any of
Lessor's remedies, including all collection expenses, all expenses of
repossessing, storing, shipping, repairing and selling the Equipment, and (b)
reasonable attorney's fees and court costs, Lessor and Lessee acknowledge the
difficulty in establishing a value for the unexpired lease term and owing to
such difficulty agree that the provisions of this paragraph represent an agreed
measure of damages and are not to be deemed a forfeiture or penalty.
All remedies of lessor hereunder are cumulative, are in addition to any
other remedies provide for by law, and may, to the extent permitted by law, be
exercised concurrently or separately. The exercise of any one remedy shall not
be deemed an election of such remedy or to preclude the exercise of any other
remedy. No failure on the part of the Lessor to exercise and no delay in
exercising any right to remedy shall operate as a waiver thereof to modify the
terms of this Lease.
13. LATE CHARGES. Whenever any payment is not made by Lessee in full when due
hereunder, Lessee agreed to pay to Lessor, not later than one (1) month
thereafter, an amount equal to 10% of the full schedule payment but only to the
extent allowed by law. Such amount shall be payable in addition to all other
amounts payable by Lessee as a result or exercise of any of the remedies herein
provided.
14. ASSIGNMENT: NOTICE OF INTENDED ASSIGNMENT. Lessor may, without consent,
assign or transfer this Lease or any equipment, rent or other sums due or to
become due hereunder, an din such event Lessor's assignee or transferee shall
have thee rights, powers, privileges and remedies of lessor hereunder. Lessee
hereby acknowledges notice of Lessor's intended assignment of Lessor's interest
in this Lease, and upon such assignment Lessee agrees not to assert, as against
Lessor's assignee, any defense, setoff, recoupment, claim or counterclaim, that
it may have against Lessor whether arising under this Lease transaction or
otherwise. LESSEE SHALL NOT ASSIGN THIS LEASE OR THE EQUIPMENT COVERED HEREBY
WITHOUT LESSOR'S PRIOR WRITTEN CONSENT AND IF LESSOR SHALL PERMIT ANY SUCH
ASSIGNMENT BY LESSEE'S OBLIGATIONS HEREUNDER IN WRITING IN FORM AND SUBSTANCE
SATISFACTORY TO LESSOR, BUT NO SUCH ASSIGNMENT SHALL RELEASE LESSEE FROM ANY OF
LESSEE'S OBLIGATIONS HEREUNDER.
15. RETURN OF PROPERTY. Upon termination or expiration of this Lease, or any
extension thereof, the lessee shall forthwith deliver, freight prepaid, the
equipment to Lessor, at an address designated by Lessor, complete and in good
working order and condition, reasonable wear and tear alone excepted. The
Lessee shall also pay to Lessor such sums as may be necessary to cover
replacement for all damaged, broken or missing parts of the Equipment. If upon
such termination or expiration the lessee does not immediately return the
Equipment to the Lessor, the Equipment shall continue
Symphony Towers, 750 B Street
Suite 1450
San Diego, CA 92101
619.234.1381 Fax 234.1993
Toll Free 888.448.8726, e-mail [email protected]
Page 3 of
<PAGE>
to be held and leased hereunder and this Lease shall thereupon be extended
indefinitely as to term at the same monthly rental, subject to the right of
either the Lessee or the Lessor to terminate the Lease upon thirty (30) days
written notice, whereupon the Lessee shall forthwith deliver the Equipment to
the Lessor as set forth in this paragraph.
16. EFFECTIVE DATE. This Lease shall become valid when executed and accepted
by Lessor, notice of Lessor's acceptance of this Lease being hereby waived by
Lessee.
17. GOVERNING LAW. As used in this paragraph 17, "Applicable Jurisdiction"
means the state, as the same may change from time to time, where the holder of
the lessor's interest in this Lease maintains its principal office responsible
for administrating this Lease. This Lease and any guaranty hereof shall be
interpreted and construed in accordance with, and governed by, the laws of the
Applicable Jurisdiction applicable to Lease and guaranty agreements,
respectively, made and to be fully performed in the Applicable Jurisdiction.
18. CHOICE FOR FORUM FOR RESOLUTION OF DISPUTES. As used in this paragraph 18
"Applicable Jurisdiction" means the country within the state, as the same may
change from time to time, where the holder of Lessor's interest in this Lease
maintains its principal office responsible for administrating this Lease. All
actions, proceedings, or litigation brought by Lessor or Lessee or any guarantor
shall be instituted and prosecuted in the Applicable Jurisdiction. The parties
acknowledge their agreement that the state courts sitting in the Applicable
Jurisdiction shall be exclusive forum for all actions, proceedings or litigation
between or among the parties, notwithstanding that other courts may have
jurisdiction over the parties and the subject matter.
19. WAIVER OF JURY TRIAL, LESSEE AND ANY GUARANTOR WAIVE, INSOFAR AS PERMITTED
BY LAW, TRIAL BY JURY IN ANY ACTION, PROCEEDINGS OR LITIGATION BETWEEN OR AMONG
LESSOR, LESSEE OR ANY GUARANTOR.
20. NO SUBROGATION. Lessee, Lessor and any guarantor agree that no guarantor
shall have the right of subrogation to any right of Lessor in the Equipment or
this lease or against the Lessee, and that any such right of subrogation that
may exist, as well as any right of indemnity against Lessee for any obligation
which may be performed by guarantor until all such obligations to Lessor are
paid and satisfied in full.
21. SURVIVAL OF GUARANTY OBLIGATIONS. All obligations of guarantor shall
remain enforceable notwithstanding that this Lease, or any obligations performed
or to be performed hereunder, may b void or voidable as against Lessee or any of
Lessee's creditors, including, but not limited to, a trustee in bankruptcy, by
reason of any fact or circumstance.
22. MISCELLANEOUS. This Lease contains the entire agreement between the
parties and may not be altered, amended, modified, terminated or otherwise
changed except by a writing signed by an executive officer of the Lessor.
Lessor and Lessee intend this to be a valid and subsisting document and agree
that no provision of this Lease which may be deemed unenforceable shall in any
way invalidate any other provision or provisions of the Lease, all of which
shall remain in full force and effect. Any notice intend to be served hereunder
shall be deemed sufficiently sent if sent by regular mail, postage prepaid,
addressed to the party at the addresses contained hereon. This Lease shall be
binding upon the parties, their successors, legal representatives and assigns.
- --------------------------------------------------------------------------------
EARLY RELEASE CLAUSE
- --------------------------------------------------------------------------------
LESSEE SHALL HAVE THE RIGHT TO PETITION FOR AN EARLY RELEASE FROM THE LEASE
CONTRACT, OR RENEGOTIATE THE LEASE CONTRACT AFTER SIX (6) MONTHS HAVE LAPSED ON
THE LEASE CONTRACT. ALLIANCE LEASING COMPANY WILL CONSIDER THE PETITION IF (a)
ALL PAYMENTS HAVE BEEN MADE IN A TIMELY MANNER; (b) IF CURRENT FINANCIAL
CONDITION OF THE LESSEE WARRANTS TERMINATION OR CHANGE; (c) IF CREDIT OF
GUARANTOR HAS NOT BEEN ADVERSELY AFFECTED; AND (d) UPON CONSIDERATION OF OTHER
COMMERCIALLY REASONABLE FACTORS. LEASING COMPANY WILL NOT UNREASONABLY WITHHOLD
SUCH EARLY RELEASE.
Symphony Towers, 750 B Street
Suite 1450
San Diego, CA 92101
619.234.1381 Fax 234.1993
Toll Free 888.448.8726, e-mail [email protected]
Page 4 of
<PAGE>
ADDENDUM "A"
Equipment List for: TECHNOVISION COMMUNICATIONS, INC.
225 BROADWAY STREET, SUITE 1600
SAN DIEGO, CA 92101
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
QUANTITY ITEM NO. DESCRIPTION PRICE EXTENDED
PRICE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
6 M2BP166M32H2 Double Width Processor Module 2,955.00 17,730.00
- ------------------------------------------------------------------------------------------------------------------------------
2 CS-8800 System 8000 Enclosure 2,295.00 4,590.00
- ------------------------------------------------------------------------------------------------------------------------------
1 PSSS-4 System 8000 Peripheral Sharing Switch 1,275.00 1,275.00
- ------------------------------------------------------------------------------------------------------------------------------
2 TSU-LT Adtran #1202060L1 630.00 1,275.00
- ------------------------------------------------------------------------------------------------------------------------------
12 PN200 Sphere Com pSI 25 MB ATM NTC 395.00 4,740.00
- ------------------------------------------------------------------------------------------------------------------------------
28 SCL1.1 Sphereical Licenses 285.00 7,980.00
- ------------------------------------------------------------------------------------------------------------------------------
2 PB800 Sphere Com 8 Port Phone Hub 2,100.00 4,200.00
- ------------------------------------------------------------------------------------------------------------------------------
1 CH1600 Sphere Com 16 Prot POTS 4,125.00 4,125.00
- ------------------------------------------------------------------------------------------------------------------------------
1 VM3200 ATML Dual OC3 Card 1,980.00 1,980.00
- ------------------------------------------------------------------------------------------------------------------------------
18 NTIU/220TC Tone Commander 200.00 3,600.00
- ------------------------------------------------------------------------------------------------------------------------------
2 NTI-220 Rack 595.00 1,190.00
- ------------------------------------------------------------------------------------------------------------------------------
2 41600-i Levitron RJ11 55.29 110.58
- ------------------------------------------------------------------------------------------------------------------------------
100 Plug 8 Cond. 0.35 35.00
- ------------------------------------------------------------------------------------------------------------------------------
20 Cables AT607 1.10 22.00
- ------------------------------------------------------------------------------------------------------------------------------
SALE AMOUNT 52,837.58
- ------------------------------------------------------------------------------------------------------------------------------
FREIGHT 455.00
- ------------------------------------------------------------------------------------------------------------------------------
SALES TAX 4,094.92
- ------------------------------------------------------------------------------------------------------------------------------
LABOR 4,612.50
--------
--------
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL AMOUNT 62,000.00
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
SIGNATURE: /S/ DAVID FANN DATE: 3/3/98
------------------------------------------------------ ----------
TECHNOVISION COMMUNICATIONS, INC.
<PAGE>
ALLIANCE LEASING
OPTION TO PURCHASE
ADDENDUM TO LEASE NUMBER
Provided this lease has not been earlier terminated, and Lessee has faithfully
performed all Terms and Conditions thereunder including payment of all rents
and other sums when due, and Lessee is not then in default, Lessee shall have
the Option to Purchase at termination, the entire property covered by this
Lease, in an "as is, where is" condition, for the price of $6,200.00 which shall
be deemed to be its Fair Market Value at the termination of this Lease.
In the event that this Lease is paid off in full prior to the termination of the
original Lease Term, this Option to Purchase may be exercised by Lessee at the
time of the pay off in order to purchase all of the property covered by this
Lease, in an "as is, whereis" condition, for the price of $6,200.00 which shall
be deemed to be its Fair Market Value at the time of the pay off. In the event
of a pay off in which the Option to Purchase is not exercised, all of the
covered property shall be returned to Lessor, freight prepaid, per terms of the
Lease, as of the pay off date.
Unless the Lease is earlier terminated or paid off in full, this Option to
Purchase shall be exercised by notifying Lessor of Lessee's election to purchase
said Equipment in writing, not less than sixty (60) days prior to the expiration
of the Original Lease Term, and by making payment to Lessor of the full option
price for said property, plus applicable taxes, in cash at the time of said
election. In the event of a pay off, in full, prior to the expiration of the
Original Lease Term, this Option to Purchase may be exercised by notifying
Lessor of Lessee's election to purchase the covered property in writing, not
less than fifteen (15) days prior to the pay off of the lease and by making
payment to Lessor of the full option price for such property, plus applicable
taxes, in cash at the time of said pay off.
This addendum shall supersede any language to the contrary contained in any
other documents relating to this Commercial Equipment Lease.
LESSEE: TECHNOVISION COMMUNICATIONS LESSOR: ALLIANCE LEASING
BY: BY:
-------------------------------- -------------------------------
TITLE: TITLE:
----------------------------- ----------------------------
DATED: DATED:
----------------------------- ----------------------------
Symphony Towers, 750 B Street
Suite 1450
San Diego, CA 92101
619.234.1381 Fax 234.1993
Toll Free 888.448.8726, e-mail [email protected]
Page 6 of 7
<PAGE>
INSURANCE VERIFICATION
TO: Alliance Leasing
750 B Street, Suite 1450
San Diego, CA 92101
November ,1998
Gentleman:
This is to confirm that the equipment leased under Equipment Lease Number
9802002 is or will be covered as required in the lease document for property
damage coverage as against fire with extended coverage, vandalism, malicious
mischief, theft, and other such risks as well as public liability insurance.
ALLIANCE LEASING, and JOINT VENTURER are to be named as LOSS PAYEES on the
property coverage and as the ADDITIONALLY INSURED on the liability coverage.
Policy Number #GC50703
-----------------------------------
Insurance Company GREAT DIVIDE INSURANCE CO.
-----------------------------------
Agent Name MARVIN GILBERT
-----------------------------------
Address: NORTH COUNTY INSURANCE
-----------------------------------
350 E. GRAND AVENUE
-----------------------------------
ESCONDIDO, CA 92025
-----------------------------------
Phone Number: (760) 745-9511 X1131
-----------------------------------
Sincerely,
Lessee: TECHNOVISION COMMUNICATIONS, INC.
By: /s/ David Fann
--------------------------------------------------
Symphony Towers, 750 B Street
Suite 1450
San Diego, CA 92101
619.234.1381 Fax 234.1993
Toll Free 888.448.8726, e-mail [email protected]
Page 7 of 7
<PAGE>
LICENSING AGREEMENT
This LICENSING AGREEMENT (hereinafter "AGREEMENT") is entered into this 25th day
of June, 1998, by and between Infinet Op, Inc., d.b.a Infinop, a Texas
corporation with headquarters at 3401 East University #104, Denton, TX 76203
(hereinafter "LICENSOR") and Video Stream International, Inc., a Wyoming
corporation with offices at 225 Broadway, Suite 1600, San Diego, CA 92101
(hereinafter "LICENSEE").
RECITALS
WHEREAS LICENSOR has developed a computer software-based technology,
known as the Lightning Strike Compression Software Suite, for the compression
and transmission of video signal for the purpose of teleconferencing. This
technology, comprised of compression source code, includes the following items
and any combination thereof: (1) LSBinary, (2) LSStrike, (3) LSVideoN,
(4) LSVideoR (hereinafter "LICENSED SOFTWARE").
WHEREAS LICENSOR and LICENSEE are entering into this AGREEMENT for the
purpose of allowing LICENSEE to enhance the LICENSED SOFTWARE (hereinafter
"DERIVATIVE SOFTWARE") and develop a teleconferencing system (hereinafter the
"VIDEO STREAM MULTIMEDIA SYSTEM"), which incorporates the DERIVATIVE SOFTWARE,
that it can sell on a retail and/or wholesale basis.
AGREEMENT
I. DEFINITIONS
Unless otherwise specified, the following terms and phrases shall have the
following meanings throughout this AGREEMENT:
"DERIVATIVE SOFTWARE" shall refer to a version of LICENSED SOFTWARE (defined
herein) that has been enhanced and optimized by LICENSEE for use with the VIDEO
STREAM MULTIMEDIA SYSTEM.
"LICENSED SOFTWARE" shall refer to compression source code for a system known as
the Lightning Strike Compression Software Suite, supplied by LICENSOR to
LICENSEE, which includes the following items/modules/optimized versions and any
combination thereof: (1) LSBinary, (2) LSStrike, (3) LSVideoN, (4) LSVideoR.
"POWER PC APPLICATION" shall refer to the use of the "DERIVATIVE SOFTWARE"
applied to the Power PC platform only as modified for use in the VIDEO STREAM
MULTIMEDIA SYSTEM.
"SALES UNIT(s)" shall refer to DERIVATIVE SOFTWARE encapsulated within each
Power PC platform(s) and referred to by LICENSOR as a "CLIENT SYSTEM."
<PAGE>
"SUPPORT SERVICES" shall refer to any and all obligations of LICENSOR to provide
technical support, including but not limited to any corrections, bug fixes,
enhancements, updates or modifications, as those terms are commonly understood
in the computer software industry, to LICENSED SOFTWARE made by LICENSOR, that
may be necessary in order to fully perform its obligations as defined under
Section III and V(E) of this LICENSE AGREEMENT, as well as any other support
reasonably necessary to fully effectuate the intentions of the parties herein.
"VIDEO STREAM MULTIMEDIA SYSTEM" shall refer to a system comprised of both
hardware and software components, as those terms are understood in the computer
industry, assembled by LICENSEE for wholesale and retail distribution to be used
for the purpose of video teleconferencing.
II. GRANT OF RIGHTS
A. LICENSOR hereby grants to LICENSEE the nonexclusive, perpetual,
worldwide right to use LICENSED SOFTWARE to create DERIVATIVE SOFTWARE to be
used as part of the POWER PC APPLICATION of the VIDEO STREAM MULTIMEDIA SYSTEM.
B. LICENSOR hereby grants to LICENSEE the nonexclusive, perpetual,
worldwide right to use, reproduce and promote DERIVATIVE SOFTWARE created for
use as part of the POWER PC APPLICATION of the VIDEO STREAM MULTIMEDIA SYSTEM.
C. LICENSOR hereby grants to LICENSEE the nonexclusive, perpetual,
worldwide right to use, reproduce and promote LICENSED SOFTWARE without
modification as part of the VIDEO STREAM MULTIMEDIA SYSTEM.
D. The LICENSED SOFTWARE provided to LICENSEE and the DERIVATIVE
SOFTWARE developed by LICENSEE may only be utilized by LICENSEE in conjunction
with the VIDEO STREAM MULTIMEDIA SYSTEM and may not be resold independently of
the VIDEO STREAM MULTIMEDIA SYSTEM.
E. LICENSEE may make those copies of LICENSED SOFTWARE necessary to
be used solely by LICENSEE for which rights are granted hereunder.
F. LICENSOR and LICENSEE agree that LICENSOR owns all proprietary
rights, including patent, copyright, trade secret, trademark and other
proprietary rights in and to the LICENSED SOFTWARE and any corrections, bug
fixes, enhancements, updates or modifications, as those terms are commonly
understood in the computer software industry, to said software made by LICENSOR.
G. LICENSOR and LICENSEE agree that LICENSEE owns all proprietary
rights, including patent, copyright, trade secret, trademark and other
proprietary rights in and to the DERIVATIVE SOFTWARE and any corrections, bug
fixes, enhancements, updates or modifications, as those terms are commonly
understood in the computer software industry, to said
2
<PAGE>
software made by LICENSEE. LICENSOR and LICENSEE further agree that under no
circumstances will the DERIVATIVE SOFTWARE be deemed to be a work made-for-hire,
as that term is defined under the Copyright Act of 1976.
III. OBLIGATIONS OF LICENSOR
LICENSOR shall continually endeavor to improve LICENSED SOFTWARE in an effort to
provide LICENSEE with the best compression technology available. Should
LICENSEE discover an unrelated compression technology (other than wavelet-based)
which is more effective than that encompassed in LICENSED SOFTWARE, LICENSOR
shall have the right of first refusal to develop any such superior compression
technology or any superior file storage and transfer performance technologies
that may be utilized within the VIDEO STREAM MULTIMEDIA SYSTEM. Upon notice
from LICENSEE that such a technology (whether in development or completed and
available) is necessary for integration into the VIDEO STREAM MULTIMEDIA SYSTEM,
LICENSOR shall have thirty (30) days within which to study the unrelated (other
than wavelet-based) compression technology and report on the viability of the
development of an equal or superior compression technology and propose the
development project and the expected development time. LICENSOR shall have a
mutually acceptable time within which to develop and deliver the requested
technology. LICENSEE may then approve or reject the development project
proposed. Refusal of the proposed project by LICENSEE shall terminate
LICENSOR's right of first refusal. Should LICENSOR fail to deliver the
requested technology within the six (6) month time period, LICENSOR will be
deemed to have relinquished the right of first refusal and LICENSEE may request
software and services with respect to that technology from another source.
LICENSEE may terminate this AGREEMENT after twelve (12) months from the first
sale date following refusal of a development proposal by LICENSOR to meet or
exceed the performance of an unrelated (other than wavelet-based) compression
technology. Such termination will require sixty (60) days' notice delivered in
writing as such notice is provided for hereunder.
IV. OBLIGATIONS OF LICENSEE
Within nine (9) months of the execution of this AGREEMENT, LICENSEE will provide
hardware and software sufficient to link three (3) of LICENSEE's locations with
each other and with LICENSOR for the purpose of video conferencing. Hardware,
software, and network costs for this linkage shall be paid for by LICENSEE.
LICENSEE will keep consecutively numbered and dated records in its accounting
and invoicing system as a clear indication of unit sales and invoice sales for
VSI interactive multimedia system hardware systems as they relate to the payment
of royalties and license renewals.
LICENSEE agrees that it will not use any other wavelet-based compression
technology in the development, sale or operation of the VIDEO STREAM MULTIMEDIA
SYSTEM for a period of ninety-nine (99) years from the date of this AGREEMENT.
3
<PAGE>
V. FEES AND ROYALTIES
[REDACTED FOR PURPOSES OF CONFIDENTIALITY]
VI. AUDIT RIGHTS
LICENSEE shall retain sales records including: its books, papers and
other materials pertaining to sales transactions, royalties, renewal fees or
other payments made hereunder. Such records shall be maintained as digital
files and made available and accessible by LICENSOR at regular, specified times,
consistent with LICENSOR's business practice, but not less frequently than
quarterly, under this agreement. Paper records supporting any and all such
digital records shall be retained for a period of two years.
Within six (6) months of the LICENSOR's receipt of any royalty statement
or payment for any royalty period, the LICENSOR shall have a right, exercisable
in person or by any representative of the LICENSOR duly authorized in writing,
to examine the records of the LICENSEE with respect to transactions affecting
the LICENSOR's royalties for such period to verify the accuracy of the royalty
statement or payment received. This right may be exercised only upon no less
than fourteen (14) days written notice to the LICENSEE and during the LICENSEE's
normal business hours.
In the event the report of any just audit made in compliance hereunder
shows any miscalculation or error in the amount paid by LICENSEE to LICENSOR,
then LICENSEE shall pay all reasonable costs and fees associated with said
audit, unless such error or miscalculation was caused in any part by LICENSOR or
any such miscalculation or error total an amount less than $2,000.00.
VII. SOURCE CODE ESCROW
A. INITIAL DEPOSIT. Within thirty (30) days of the Effective Date of
this Agreement, LICENSOR shall deposit with Source Code Escrow Agent ("ESCROW
AGENT"), a complete copy of the Source Code of the LICENSED SOFTWARE as well as
a complete copy of the current systems documentation ("Documentation") for the
LICENSED SOFTWARE as they currently exist.
B. SUBSEQUENT DEPOSIT. Within thirty (30) business days after the
release to LICENSEE of any material update to the LICENSED SOFTWARE by LICENSOR
under this Agreement, LICENSOR shall deposit with ESCROW AGENT a complete copy
of the Source Code of the LICENSED SOFTWARE update as well as a complete copy of
any updated systems documentation for the LICENSED SOFTWARE update (hereinafter
referred to collectively as "Source Code").
C. PURPOSE OF DEPOSIT/FEES. The deposit of the Source Code and the
license thereof to LICENSEE are intended to provide assurance to LICENSEE of
access to, and the right of use of, the Source Code in the event that LICENSOR
fails (or is rendered unable by an Impact Event) to provide the Support Services
it may be obligated to render under this Agreement. ESCROW
4
<PAGE>
AGENT shall release copies of the Source Code deposited in escrow pursuant to
this Agreement only in accordance with the terms of this Agreement. In each
instance where ESCROW AGENT is authorized to release a copy of the Source Code
to LICENSEE, ESCROW AGENT may either release a copy on hand (provided that at
all times it shall retain at least one copy of the Source Code) or make
duplicate copy to be released to such LICENSEE. All fees and expenses due
ESCROW AGENT shall be split equally by the parties.
D. TRIGGERING EVENT. The escrow provisions of this Agreement shall
be triggered by any of the following events:
(1) LICENSOR discontinues the Support Services required
pursuant to this Agreement;
(2) LICENSOR ceases doing business; or
(3) LICENSOR declares bankruptcy, seeks protection under the
bankruptcy act, or if forced into bankruptcy by its creditors, unless such
bankruptcy proceedings are terminated within sixty (60) days of filing.
E. PROCEDURES.
(1) Notice. If LICENSEE determines that a Triggering Event has
occurred, it shall so notify LICENSOR in writing, describe such Triggering Event
in reasonable detail.
(2) Right to Cure. For a period of thirty (30) days following
its receipt of such notice ("Cure Period"), LICENSOR shall have the right to
cure the Triggering Event. If the Triggering Event cured within such Cure
Period, then such notice shall be of no effect, and this Agreement shall
continue as if no notice had been sent. In the event that, at the conclusion of
the Cure Period, LICENSEE reasonably determines that the Triggering Event has
not been substantially cured, LICENSEE may so notify both LICENSOR and ESCROW
AGENT in writing and demand that ESCROW AGENT release a copy of the Source Code
to LICENSEE.
(3) Dispute by LICENSOR. If LICENSOR disputes LICENSEE's claim
that the Triggering Event exists and has not been substantially cured following
the expiration of the Cure Period, LICENSOR may so notify ESCROW AGENT and
LICENSEE in writing within five (5) business days after receipt of LICENSEE's
demand for release of the Source Code. Failure of LICENSOR to give timely
notice within thirty (30) days of such an objection shall conclusively establish
its consent to the release of the Source Code to LICENSEE. If LICENSOR provides
notice of its objection, the parties shall utilize the Dispute Resolution
Process of Section XI.
F. LICENSE OF SOURCE CODE. In the event that a copy of the Source
Code is released to LICENSEE, LICENSEE shall received only a non-exclusive,
non-transferable license from LICENSOR to use, modify, maintain, and update the
Source Code as may be necessary to enable
5
<PAGE>
LICENSEE to exercise its rights under Section II. LICENSEE shall have no right
to sell, license, disclose or permit others access to the Source Code.
G. ESCROW FEES. LICENSEE shall pay all fees of ESCROW AGENT at its
prescribed rate.
H. EXCLUSIVE REMEDY. The release of the Source Code, subject to the
license restrictions of Section II, shall be the sole and exclusive remedy for
LICENSEE for the occurrence of a Triggering Event which is not cured during the
Cure Period. Such occurrence shall not constitute a material breach of this
Agreement and shall not permit termination under Section IX.
VIII. RESERVATION OF RIGHTS
All rights in the LICENSED SOFTWARE not specifically granted to Licensee, now or
hereafter known, developed or in existence and whether or not competitive with
the rights granted herein, are reserved to the Licensor in all forms of media
throughout the world for the Licensor's use or disposition at his sole
discretion, without obligation to the Licensee.
IX. NON-DISCLOSURE
In the performance of this Agreement or in contemplation thereof, each party and
its employees and agents may have access to private or confidential information
owned or controlled by the other party relating to equipment, apparatus,
programs, software, plans, drawings, specifications and other data (hereinafter
"Information"), and the Information may contain proprietary details and
disclosures. All Information supplied by one party to the other which is
clearly marked "Proprietary", or which is Licensed Software, or which is derived
therefrom (collectively, "Proprietary Information") shall remain the exclusive
property of the party supplying same. the receiving party shall use a
reasonable degree of care, which in any event shall not be less than the same
degree of care which the receiving party uses to protect its own proprietary and
confidential information, to keep, and have its employees and agents keep,
confidential any and all Proprietary Information. In keeping therewith, the
recipient shall not copy or publish or disclose the Proprietary Information to
others, without the disclosing party's written approval, nor shall the receiving
party make use of the Proprietary Information except for the purposes of
executing its obligations hereunder, and shall return the Proprietary
Information to the disclosing party at its request. These nondisclosure
obligations will not apply to Proprietary Information which: (a) becomes
generally known to the public by publication or by any means other than a breach
of duty on the party of the recipient hereunder; (b) is information previously
known to the recipient; (c) is information independently developed by or for the
recipient; or (d) is information released by the owning party without
restriction or released pursuant to a judicial or governmental decree.
X. DISPUTE RESOLUTION
6
<PAGE>
A. In the event of a dispute arising out of or in relation to the
terms of this Agreement, representatives of LICENSOR and LICENSEE shall meet and
endeavor to settle the dispute in an amicable manner through mutual
consultation. If such persons are unable to resolve the dispute in a
satisfactory manner within ten (10) business days, either party may seek binding
arbitration.
B. Upon receipt of written notice by either party calling for
arbitration with respect to any dispute arising out of or in relation to the
terms of this Agreement, the matter shall be submitted to binding arbitration
under the commercial rules of the American Arbitration Association as
constituted in the State selected for Arbitration, by a single arbitrator
appointed by each party with a third individual being selected by the two
representative arbitrators from the American Arbitration Association. Insofar
as possible, each arbitrator shall be, at the time of his or her selection, a
partner or manager of a national or regional accounting firm (including the
information processing, management support, and merger and acquisitions
operations or affiliates thereof) not regularly employed by LICENSOR or
LICENSEE. Each arbitrator shall be required to have substantial experience in
the field of computer software technology and licensing. The State selected for
arbitration will initially be selected by a flip of a coin between the two
signatories to this Agreement. Each such subsequent Arbitration shall alternate
between San Diego CA and Denton TX.
C. If the dispute relates to whether a Triggering Event has occurred
which was not cured by LICENSOR within the Cure Period under Section VII herein,
if the arbitrator determines that such Triggering Event and failure to cure has
occurred, he or she shall so notify the parties and the source code escrow agent
("ESCROW AGENT"). Upon receipt of such notice, ESCROW AGENT shall release a
copy of the Source Code to Licensee, subject to the license restrictions of
Section II.
D. A decision of the arbitrator shall be final and binding on the
parties and may be entered and enforced in any court of competent jurisdiction
by either party.
E. The prevailing party in any arbitration shall be awarded
reasonable attorneys' fees, expert witness costs and expenses, and all other
costs and expenses incurred directly or indirectly in connection with the
proceedings (including those of the ESCROW AGENT), unless the arbitrator for
good cause determines otherwise.
XI. ENTIRE AGREEMENT
This Agreement, including the Exhibits attached hereto, constitutes the entire
Agreement between LICENSEE and LICENSOR concerning the subject matter hereof and
supersedes all prior and contemporaneous agreements, oral or written, and all
other communications between the parties relating to the subject matter of this
Agreement. This Agreement may be amended only by an instrument in writing which
expressly refers to this Agreement and specifically states that it is intended
to amend it. Neither party is relying upon any warranties, representations, or
inducements not set forth herein.
XII. EXPORT RESTRICTIONS
7
<PAGE>
LICENSEE agrees that none of the Software or underlying information or
technology may be downloaded or otherwise exported or reexported (i) into (or to
a national or resident of) Cuba, Iraq, Libya, Yugoslavia, North Korea, Iran,
Syria or any other country to which the U.S. has embargoed goods; or (ii) to
anyone of the U.S. Treasury Department's List of Specially Designated Nationals
or the U.S. Commerce Department's Table of Denial Orders. LICENSEE further
represents and warrants that it is not located in, under the control of, or a
national or resident of any such country or on any such list.
XIII. FORCE MAJEURE
Neither party to this contract is in default hereunder by reason of its delay in
the performance of or failure to perform, in whole or in party, any of its
obligations hereunder, if such delay or failure resulted from acts of God or
other occurrences beyond its reasonable control and without its fault or
negligence. Such acts or occurrences shall include, but not be limited to,
earthquakes, floods, fire, power failures, communications failures, epidemics,
strikes, lockouts, war, terrorist activity or government regulations which go
into effect after the effective date of this Agreement.
XIV. INDEPENDENT CONTRACTOR
Neither party is, and will not hold itself out as a, representative, agent,
servant or employee of the other party for any purpose, except as may be
provided from time to time by other written instruments signed by both parties.
This Agreement creates no relationship of joint venture, partnership, limited
partnership, or agency between the parties, and the parties hereby acknowledge
that no other facts or relations exist that would create any such relationship
between them. Neither party has any right or authority to assume or to create
any obligation or responsibility on behalf of the other party except as may from
time to time be provided by written instrument signed by both parties.
XV. INDEMNIFICATION
A. Upon prompt notice, in writing, from LICENSEE or LICENSEE's
customer that an action has been commenced against LICENSEE or LICENSEE's
customer based on a claim that the Software, or any component thereof, infringes
any copyright, trademark, trade secret or United States patent, LICENSOR shall
defend or settle such action at its own expense and shall indemnify and hold
harmless and pay any costs or damages finally awarded against LICENSEE or
LICENSEE's customer including all expenses and legal fees (including LICENSEE's)
associated therewith. LICENSOR shall have sole control of the defense of such
action and all negotiations for its compromise ro settlement. In the event that
the Software becomes, or in the opinion of the LICENSOR is likely to become,
subject to a claim of infringement of any copyright, trademark, trade secret or
United States patents, LICENSEE or LICENSEE's customer shall permit LICENSOR, at
LICENSOR's option and expense, to either;
8
<PAGE>
(1) Procure, for the LICENSEE and its customers, the right to
continue using the Software; or,
(2) Replace or modify the Software so that it becomes
non-infringing, provided that the Software, as modified, is functionally
equivalent to the Software purchased pursuant to this Agreement, or conforms to
LICENSEE's or its customers' reasonable satisfaction; or,
(3) If neither (1) nor (2) is reasonably available to LICENSOR,
LICENSOR shall refund an amount equal to LICENSEE's purchase of the infringing
Software.
LICENSOR shall have no obligation or liability to LICENSEE or its
customers with respect to any copyright, trademark, trade secret or patent
infringement, or claim thereof, based on the use of the Software sold by
LICENSOR to LICENSEE or LICENSEE's customer in combination with other machines
or devices, other than for a purpose or in a manner for which it was intended,
or for Software which has been altered or modified.
The foregoing states the entire liability and obligation of LICENSOR to
LICENSEE or LICENSEE's customers with respect to infringement of any copyright,
trademark, trade secret or patent by the Software, or any component thereof, and
is LICENSEE and its customers' exclusive remedy as to LICENSOR.
XVI. INSURANCE
LICENSOR shall, through the term of this Agreement and for a period of no less
than one (1) year following termination or expiration of this Agreement,
maintain insurance obtained from a reputable carrier with a Best's rating of "A"
or better in the amounts and for the purposes set forth in this Section XVII.
A. GENERAL LIABILITY. LICENSOR will carry general liability
insurance, which will include but not be limited to products liability coverage,
covering any and all claims, demands and causes of action for personal injury or
property damage arising out of or purporting to arise out of any defects in or
failure to perform by the Licensed Products and any physical or intangible
material used in connection therewith in a minimum amount of $2,000,000 combined
annually and $1,000,000 for each occurrence for personal injury and property
damage.
B. ERRORS AND OMISSIONS. LICENSOR will carry errors and omissions
insurance, which will include but not be limited to indemnification, for claims
arising out of: (i) infringement of copyright, patent, or trademark, whether
under statutory or common law; (ii) invasion or infringement of or interference
with the right of privacy or publicity, whether under common law or statutory
law; or (iii) libel or slander. The amount of coverage under such insurance
shall be a minimum of $1,000,000 for each occurrence.
XVII. SEVERABILITY
9
<PAGE>
Should any clause, provision or portion of this Agreement be ruled invalid,
void, illegal, or otherwise unenforceable by any court, magistrate, referee,
arbitrator, or by any other process or in any other proceeding, it shall be
deemed to be stricken and the remainder of this Agreement shall continue to be
in effect and fully enforceable.
XVIII. WARRANTIES
A. LICENSOR represents and warrants that LICENSOR owns and/or
controls certain preexisting and evolving creative materials which will be
incorporated into the Title, including without limitation, certain design and
development tools, creative premises and structures, codes,
routines/subroutines, displays, data, specifications, methodologies,
documentation and other software programming materials and concepts, in addition
to various other properties and materials and rights therein and thereto,
including, but not limited to, literary, musical, documentary, audio-visual
properties and materials utilized in the creation and production of multimedia
titles, whether or not software-based or software-driven (collectively, the
"Source Materials") with respect to the LICENSED SOFTWARE. Except as provided
in this Agreement, the Source Materials and all copies and reproductions thereof
shall remain the exclusive property of LICENSOR.
B. WARRANTY PERIOD. Licensor warrants and represents that for a
period of two (2) years following LICENSEE'S acceptance of each of the modules
of the LICENSED SOFTWARE (hereinafter the "Warranty Period") each such module
shall perform in accordance with industry standards without bugs or crashes. In
the event any module fails to perform substantially in accordance with industry
standards during the Warranty Period, LICENSOR shall promptly repair or modify
the module to correct any defects in its operation and will maintain it in good
working order. During the Warranty Period, LICENSOR shall make available to
LICENSEE, free of charge, all enhancements, upgrades and corrections affecting
the module that are announced by and available from LICENSOR.
C. VIRUS. LICENSOR further warrants and represents
(1) that the LICENSED SOFTWARE it delivers to LICENSEE shall be
free of any introduced computer virus or any other similar, harmful, malicious
or hidden programs or data;
(2) that neither the LICENSED SOFTWARE nor the media containing
the LICENSED SOFTWARE specifically contains any 'back door', 'time bomb',
'Trojan horse', 'worm', 'drop dead device', 'virus' or other software code
designed to (i) permit access or use of the end user's computer system by a
non-authorized party, (ii) disable, damage or erase any software or data on the
end user's system, or (iii) perform any other unauthorized action on the end
user's system; and
(3) the LICENSED SOFTWARE does not contain preprogrammed
preventative routines or similar devices which could prevent LICENSEE or its
customers from exercising any of
10
<PAGE>
the rights granted under the LICENSE AGREEMENT, or from utilizing the LICENSED
SOFTWARE for the purposes for which it was designed.
D. YEAR 2000. LICENSOR warrants that the occurrence in or use by the
LICENSED SOFTWARE of dates on or after January 1, 2000, ("Millennial Dates")
will not materially adversely affect its performance with respect to
date-dependent data, computations, output, or other functions (including,
without limitation, calculating, comparing and sequencing) and that the Software
will create, store, process and output information related to or including
Millennial Dates without error or omissions and at no additional cost to
Licensee. At LICENSEE'S request, LICENSOR will provide evidence sufficient to
demonstrate adequate testing of the Software to meet the foregoing requirement.
XIX. NOTICES
All notices required to be given hereunder shall be made to either party in
writing and sent by certified mail or registered mail to the address of the
other party as first written on page one (1) hereinabove. The date of such
notice for purposes of commencing notice requirements hereunder or otherwise
shall be the date of postmark deposit as made by the United States Post Office
for registered or certified mail.
XX. TERMINATION
If LICENSEE shall fail to fulfill one or more of its obligations under this
agreement, LICENSOR may, upon its election in addition to any other remedies
that it may have, at any time terminate all the rights granted by it hereunder
by not less than two (2) months' written notice to LICENSEE specifying any such
breach, unless within the period of such notice all breaches specified therein
shall have been remedied. Upon such termination LICENSEE shall destroy all
copies of LICENSED SOFTWARE in its possession and certify such destruction in
writing to LICENSOR within thirty (30) days of termination.
A. Pornographic Distribution. LICENSOR may terminate this Agreement
on sixty (60) days' notice in accordance with notice provisions hereof ONLY IF
LICENSEE itself knowingly uses or causes the use of the LICENSED SOFTWARE to
transfer multimedia files containing material deemed pornographic under Federal
law. This Section XXI shall not apply to any customers or end-users of LICENSEE
or LICENSEE's products.
B. Termination for Cause. Any party may terminate this Agreement for
good cause at any time upon fifteen (15) days prior written notice to all other
parties subject to the provisions of Section 12.2, hereinbelow. For the
purposes of this Agreement, good cause shall include any default of payment or
performance hereunder, material breach of warranty expressed hereunder or any
breach of any section or agreement contained in this Agreement and/or upon any
acts of gross misconduct or negligence as committed by any party hereto directly
affecting this Agreement or the performance of this Agreement.
11
<PAGE>
C. CURE OF DEFAULT/BREACH. Within fifteen (15) days of receipt of
notice of material breach and/or default hereunder, any party receiving such
notice shall be allowed to fully cure the default and/or breach identified in
the notice ("Cure Period"). If, upon conclusion of the Cure Period, the party
receiving notice of default and/or breach has not fully cured the default and/or
breach identified in the notice the termination shall become effective and the
party receiving the notice shall have waived it's right to cure the default
and/or breach and shall be subject to all legal remedies available to the
non-breaching parties.
D. Change of LICENSOR Ownership. Should a significant change of
LICENSOR ownership or corporate control occur such that competitors of LICENSEE
gain majority ownership or management control of LICENSOR, then LICENSEE has the
right to terminate this Agreement immediately.
XXI. ASSIGNMENT
LICENSOR agrees that this Agreement and the rights granted herein may be
assigned without approval by LICENSEE to any entity resulting from any merger or
other combination made by LICENSEE and said Agreement and rights shall inure
fully to the benefit of such successor or assign. No such assignment shall
relieve LICENSEE from any and all obligation owned by LICENSEE to LICENSOR
hereunder.
XXII. GOVERNING LAW
This Agreement, its validity, construction and interpretation and any dispute
arising hereunder, whether resolved under Section XI hereinabove or otherwise,
shall at all times be construed and interpreted under the laws of the State of
California. Any action or claim for resolution filed and arising from this
Agreement shall be made in the Federal or State courts of the State of
California.
XXIII. TERM
This Agreement shall become effective upon execution and shall continue in full
force and effect for a period of two (2) years thereafter ("Initial Period").
Thereafter the Initial Period, this Agreement shall automatically renew for
additional one (1) year periods unless terminated in accordance herein. Should
either party wish to terminate this Agreement or modify this Agreement at the
conclusion of the Initial Period or any additional period, it may do so my
notifying the other party in writing at least thirty (30) days prior to the
conclusion of any such period.
XXIV. NO WAIVER
No term or provision hereof will be considered waived by either party and no
breach excused by either party, unless such waiver or consent is in writing
signed on behalf of the party against whom
12
<PAGE>
the waiver is asserted. No consent by either party to, or waiver of, a breach
by either party, whether express or implied, will constitute a consent to,
waiver of, or excuse of any other, different, or subsequent breach by either
party.
XXV. PARTIAL INVALIDITY
If any provision of this Agreement is held invalid or unenforceable by any court
of competent jurisdiction, it is the intent of the parties that such provision
shall be ineffective only to the extent of such prohibition or invalidity and
that all other provision of this Agreement be construed to remain fully valid,
enforceable and binding on the parties.
XXVI. HEADINGS
The descriptive headings of this Agreement are inserted for convenience only and
do not in any way limit or amplify the terms of this Agreement.
XXVII. COUNTERPARTS
This Agreement may be signed in counterpart, which when taken together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, and in acknowledge that the parties hereto have read and
understood each and every provision hereof, the parties have executed this
AGREEMENT on the date first set forth above.
FOR: INFINET OP, INC. FOR VIDEO STREAM INTERNATIONAL, INC.
By: /s/ Paul Fisher By: /s/ Paul Cox
------------------------------------- ---------------------------------
Paul Fisher Paul Cox
Its: Chief Technical Officer Its: President
13
<PAGE>
TeraGlobal Communications Corp and Subsidiaries 25-Nov-98
Cumulative Weighted Average Shares Outstanding 06:53 AM
Nine Months Ended September 30, 1998
<TABLE>
<CAPTION>
Increase Days
Date (Decrease) Outstanding Outstanding Share-days
<S> <C> <C> <C> <C>
0
12/31/97 9,850,000 1 9,850,000
01/01/98 500,000 10,350,000 160 1,656,000,000
06/10/98 650,000 11,000,000 16 176,000,000
06/26/98 250,000 11,250,000 45 506,250,000
08/10/98 3,555,756 14,805,756 51 755,093,556
09/30/98 0 14,805,756 0 0
----------- ---------------------------------
4,955,756 273 3,103,193,556
----------- ---------------------------------
----------- ---------------------------------
Basic Weighted Shares OS 11,367,009
--------------
--------------
Net Income ($2,827,033)
--------------
--------------
Basic EPS $ (0.25)
--------------
--------------
Common Stock Equivalents @ 9/30/98
$150,000 convertible prom. note 100,000
$375,000 convertible prom. note (@ $4.00) 93,750
$500,000 convertible prom. note (@ $4.25) 117,647
--------------
Total shares to be issued 311,397
--------------
--------------
Diluted Weighted Shares OS 11,678,406
--------------
--------------
Diluted EPS $ (0.24)
--------------
--------------
</TABLE>
<PAGE>
SUBSIDIARIES OF THE REGISTRANT
1. TeraGlobal Communications Corp. (Canada)
2. TechnoVision Communications, Inc.
3. Design Analysis Associates, Inc.
4. ATI Access Technologies, Inc.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AUDITED
FINANCIAL STATEMENTS FOR PERIOD FROM FEBRUARY 7, 1997 (INCEPTION) TO DECEMBER
31, 1997 AND THE UNAUDITED FINANCIAL STATEMENTS FOR THE 9 MONTHS ENDING
SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 9-MOS OTHER
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 FEB-07-1997
<PERIOD-END> SEP-30-1998<F1> DEC-31-1997<F2>
<CASH> 500,052 27,705
<SECURITIES> 0 0
<RECEIVABLES> 43,193 0
<ALLOWANCES> 0 0
<INVENTORY> 38,641 0
<CURRENT-ASSETS> 842,459 38,587
<PP&E> 1,294,716 24,297
<DEPRECIATION> (71,976) (4,860)
<TOTAL-ASSETS> 17,297,850 58,024
<CURRENT-LIABILITIES> 2,006,826 192,898
<BONDS> 0 0
0 0
0 0
<COMMON> 16,603,173 65,740
<OTHER-SE> 74,375 190,000
<TOTAL-LIABILITY-AND-EQUITY> 17,297,850 58,024
<SALES> 280,484 0
<TOTAL-REVENUES> 280,484 0
<CGS> 216,706 0
<TOTAL-COSTS> 216,806 0
<OTHER-EXPENSES> 2,811,882 333,447
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 80,702 3,601
<INCOME-PRETAX> (2,827,033) (335,535)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (2,827,033) (335,535)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,827,033) (335,525)
<EPS-PRIMARY> (0.25) (0.09)
<EPS-DILUTED> 0 (0.09)
<FN>
<F1> NINE MONTHS ENDING SEPTEMBER 30, 1998 (UNAUDITED)
<F2> PERIOD FROM FEBRUARY 7, 1997 (INCEPTION) TO DECEMBER 31, 1997
</FN>
</TABLE>
