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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF THE
SECURITIES EXCHANGE ACT OF 1934
ESAT, INC.
(Exact Name of Registrant as Specified in Its Charter)
NEVADA 95-0344604
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification Number
16520 HARBOR BOULEVARD, BLDG G 92708
FOUNTAIN VALLEY, CALIFORNIA (Zip code)
(Address of Principal Executive Offices)
714-418-3200
(Registrant's Telephone Number, Including Area Code)
Securities to be registered pursuant to Section 12(b) of the Act:
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Title Of Each Class Name Of Each Exchange On Which
To Be So Registered Each Class Is To Be Registered
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NONE
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Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.001
(Title of Class)
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TABLE OF CONTENTS. (LIST)
ITEM 1. BUSINESS.
Forward Looking Statements
This Item contains forward-looking statements. Please review the
information in light of the risk factors and other cautionary statements
identifying important factors that could cause actual results to differ
materially from those in the forward-looking statements. In particular, please
see "Risk Factors" in Item 14.
Overview
eSat, Inc. ("eSat" or "Company") is a high-speed satellite Internet
Service Provider, or ISP, and satellite Internet access equipment and services
developer for businesses, educational institutions and government. The Company's
product line is based on its Global Satellite Internet (GSI(TM)) gateway and
DigiNXT(TM) Internet gateway which provide any existing local area network (LAN)
with high-speed Internet access rivaling T-1 and cable. The Company's
ChannelCasting(TM) product will provide the simultaneous broadcast of large
video and data files to multiple destinations over eSat's high-speed satellite
transmission system. eSat's SAMS(TM) product (Satellite Accessed Material for
Schools) provides managed educational content of over 60,000 pre-screened web
pages accessible to students over eSat's satellite system. Within the next 18
months, eSat, Inc. plans to be a worldwide satellite Internet Service Provider.
See Item 14, Risk Factors: Risks Associated with Domestic and Worldwide Proposed
Expansion.
ESAT'S STRATEGY
As dependence on the Internet as an information source grows, the
Company anticipates growth in demand for fast, cost-effective Internet access.
Dial-up modems operate at relatively slow transmission speeds. ISDN and DSL,
although faster than dial-up modems, have significant transmission speed
limitations. DSL is not widely available and requires extensive infrastructure
modifications. DSL subscribers generally must be within two miles of a central
telephone switch. While T-1, cable, and fiber connections can provide speed,
they are costly and/or not always available. With the introduction of digital
high definition television programming, the bandwidth capacity of cable will be
strained. The Company is positioning itself to fill the market need for
high-speed low cost Internet access.
eSat's strategy is to provide products and services for high-speed
satellite Internet access and data delivery. Customers include businesses,
educational institutions, government agencies and eventually home users. By
leveraging satellite technology, the Company is positioned to become a worldwide
provider in the Internet access industry. Product lines were developed to fill
voids in the Internet access and high-speed data delivery arena with
applications both domestically and internationally. The Company's intent is for
businesses and organizations to benefit from the affordability, ease of
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use, and high-speed access to the Internet by using the Company's products and
services. See Item 14, Risk Factors: "Developing Market; New Entrants" and
"Competition".
eSat has designed ChannelCasting(TM) which uses multicasting technology
to broadcast large data and video files to multiple locations simultaneously via
eSat's high-speed satellite Internet transmission system. The Company plans to
offer ChannelCasting(TM) as a new solution to broadcasting a single stream of
data to multiple locations at a low cost. The Company plans to capture
significant revenue from this product. ChannelCasting(TM) is an ideal solution
for large corporations, content providers, government agencies and distance
learning applications. eSat will enable customers to create ChannelCasting(TM)
networks to efficiently distribute secure and high quality content. SEE Item 14,
Risk Factors: "Market Acceptance", "Dependence on New Products and "Product
Enhancement Introductions; Product Delays".
eSat plans to offer high-speed satellite Internet solutions coupled with
value-added products and services from content providers. The Company plans to
form strategic alliances with companies that offer media and content to enhance
the use of satellite Internet technologies. The Company's international strategy
is to form joint ventures with partners in other countries such as Asia, Europe,
Latin America, the Middle East and Africa. See Item 14, Risk Factors: "Risks
Associated with Domestic and Worldwide Proposed Expansion".
The Company's sales strategies are designed to address the Internet
access needs of the different segments of the marketplace. The Global Satellite
Internet ("GSI(TM)") and DigiNXT(TM) gateways target businesses and government
agencies. Satellite Accessed Material for Schools ("SAMS(TM)") was specifically
developed to address the demand for educational access solutions. SAMS(TM)
brings high-speed Internet access to schools in a managed educational
environment. All products are designed and built to offer ease of installation
and use with a plug and play format, and quality high-speed Internet access.
Historical Summary of the Company
eSat was incorporated on June 23, 1995, pursuant to the laws of the
State of Nevada, as U. S. Connect 1995, Inc., for the purposes of marketing and
servicing transaction processing services, prepaid long distance cards, ATM
machines and payment systems to small-to-medium sized merchants. In October
1995, the Company consummated a public offering of its securities from which it
derived gross proceeds of approximately $100,000. Prior to October 1998, the
Company had not commenced operations and was seeking to establish a new
business. On October 8, 1998, the Company consummated an Agreement and Plan of
Merger ("Merger") with Technology Guardian, Inc., a California corporation
("TGI"), whereby all the issued and outstanding shares of TGI were exchanged for
shares of the Company's Common Stock. In connection with the Merger, the Company
changed its name to Technology Guardian,
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Inc., and succeeded to the business of TGI immediately prior to the Merger. The
Company amended its certificate of incorporation to change its name to "eSat,
Inc." on January 26, 1999.
The Company's research and development began in late 1996 for the
satellite Internet access products and services. The Company also engaged in
reselling network computer related products concurrently with the early stage
development of the Company's satellite Internet products and services. The
development of the satellite Internet products and services continued during
1997 and into the first quarter of 1998. In the 1st quarter of 1998, the Company
terminated its sales of network computer related products and concentrated
entirely on the completion of its satellite Internet access products and
services. In the second quarter of 1998, the Company started beta sales and
installation of its initial satellite Internet access products. GSI(TM)Also in
1998, the Company developed the Satellite Accessed Materials for Schools
("SAMS(TM)"), described below. The SAMS(TM) system was installed in several
schools for beta testing. Through the end of 1998, the Company beta tested its
satellite Internet products and continued the development of the product. This
product development was completed in January 1999, and was incorporated into all
the Company's products and services known as the Global Satellite Internet
("GSI(TM)"), DigiNXT(TM), SAMS(TM) and Internet Kiosks. In the fourth quarter of
1998, as the development of the GSI(TM) neared completion, the Company decided
to halt the beta distribution of its initial product in anticipation of the
introduction of the new GSI(TM) product which was introduced in January 1999.
The Company has upgraded a number of the original installations made in 1998
with the GSI(TM) product, and the GSI(TM)/DigiNXT(TM) is now the flagship
product sold by the Company.
In the fourth quarter of 1998, the Company began the development of its
ChannelCasting(TM) product described below.
In the fourth quarter of 1998, the Company completed installation of its
equipment at its Network Operations Center ("NOC") in Durham, North Carolina.
The NOC houses the Company's computer equipment and software, and functions as a
junction point for all the Internet related data traffic from the Company's
customers using the Company's service and acts as the uplink to the satellites.
The Company contracts outside for these services.
PRODUCTS AND SERVICES
Global Satellite Internet ("GSI(TM)") /DigiNXT(TM) Internet Gateway
The Company's flagship product, the Global Satellite Internet
("GSI(TM)") gateway, uses satellite technology to download Internet services at
speeds comparable to T-1 and cable at an affordable cost. The GSI(TM) gateway
system consists of a computer server configured with the Company's hardware and
software, a satellite dish, and appropriate satellite dish mounting equipment.
By capitalizing on the imbalance between the small amount of data sent to access
the Internet and the large amount returned (statistically
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shown to be a ratio ranging from 15:1 to 40:1 depending on the application), the
Company can couple any type of outbound method such as dial-up modems, ISDN,
DSL, frame relay, or T-1 connections, with its small satellite dish for
downloads and provide high-speed Internet access for an entire local area
network (LAN). The delivery system for all of the Company's products, the
GSI(TM), connects to an existing local area network to provide high-speed
Internet access to each workstation. The GSI(TM) is delivered completely
pre-configured as a plug and play module for local area networks and is
compatible with Microsoft Windows operating systems, Apple's Macintosh operating
systems and UNIX operating systems. The GSI(TM) is designed to incorporate ease
of installation and use with a plug and play format, and quality high speed
Internet access.
The DigiNXT(TM) Internet gateway is eSat's retail product that uses the
GSI(TM) satellite technology. DigiNXT(TM) is currently being sold nationwide
through CompUSA stores and gives the retailer a true high-speed Internet access
solution for their commercial business customers.
The Company currently offers a GSI(TM) gateway for local area networks
serving up to 250 users per system with contracts of up to a three year
duration.
ChannelCasting (TM)
In the fourth quarter of 1998, the Company commenced the development of
ChannelCasting(TM). ChannelCasting(TM) provides the ability to broadcast large
data and video files to multiple locations simultaneously using the Company's
GSI(TM) products. The data and video files are transmitted over the Internet to
the Company's Network Operations Center (NOC), where it will uplink to the
Company's satellite network and transmit to the specified destinations.
ChannelCasting(TM) provides an ideal solution for large corporations, content
providers, government agencies and distance learning applications. eSat will
enable customers to create ChannelCasting(TM) networks to efficiently distribute
secure and high quality content. With ChannelCasting(TM), the large data and
video files are downloaded via the satellite transmission, which allows the
customer's bandwidth to be efficiently utilized without purchasing additional
bandwidth. The Company provides a conditioned satellite receiver card and
additional software installed in the GSI(TM) gateway. This enhanced product
provides an additional benefit to the high-speed, low cost satellite Internet
service offered with the GSI(TM) gateway. Customers may use the
ChannelCasting(TM) product as a stand alone feature or use it as an additional
enhancement with the satellite Internet access. The Company has developed and
tested ChannelCasting(TM) and released its beta version on April 30, 1999.
Satellite Accessed Material for Schools (SAMS(TM))
The Company's powerful educational tool, Satellite Accessed Material for
Schools ("SAMS"), is designed for schools and educational institutions. By
packaging its GSI(TM) gateway with managed educational content from third-party
providers, the Company provides quality high-speed Internet access to schools at
a cost which the Company believes will be acceptable to school boards and
administrators.
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With SAMS(TM), up to 250 students per gateway are able to access the
Internet in a protected, managed environment at high speeds. SAMS(TM)
educational content consists of over 60,000 web-based pages suitable for
students in grades Kindergarten through 12. Teachers may choose to keep students
within the protected environment or to allow full Internet access.
Satellite Internet Kiosks
The Company has developed an Internet Kiosk for the purpose of creating
a high-speed public access Internet solution. These easy-to-use Kiosks are
intended to provide an on-demand solution and convenient way to send e-mail or
browse the Internet. The Company's future plans include installation of its
Satellite Internet Kiosks in such public places as airport terminals and hotels.
Although prototypes have been developed, the Company has not yet implemented
this aspect of its business plan.
Core Technology
The Company's technology consists of a configuration of software and a
satellite receiver card that allows a user to implement satellite access to the
Internet by splitting the outbound traffic over any conventional method, from
the in-bound traffic received via satellite. This hybrid technology allows a
user access to the Internet at high speeds from their local workstation. The
GSI(TM) connects outbound through a single connection via modem, cable
connection, ISDN or DSL lines, or other connections to the Internet. High-speed
download is achieved via satellite and the GSI(TM) connected to a local network
connects to the desktop user. One portion of the Company's technology manages
the returning data by directing the data to be sent through a satellite uplink
facility to an orbiting satellite, which transmits the returning data from the
satellite to the user. The user receives this data through a small satellite
dish, typically a round 18-inch dish mounted on the roof at the user's facility,
which is linked to the GSI(TM).
There are at this time no material patents, however, the Company holds
and has applied for trademarks and licenses.
The Company's GSI(TM) gateway system includes a server pre-loaded with
the software and preconfigured for use, a satellite receiver card installed in
the server, and the satellite dish. The customer may contract with a local
installer for the installation of the satellite dish, or the Company will make
the arrangements to furnish and install the satellite dish. The Company then
delivers the GSI(TM) gateway in a plug and play condition, requiring only that
the customer change its routing on the its workstations to utilize the Company's
Internet gateway. This simple procedure for the one-time installation by the
customer does not require the Company's personnel to make an on-site visit for
purposes of installing the Company's GSI(TM) gateway.
Marketing and Sales
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The Company sells or plans to sell its products to the commercial
markets including: businesses, schools, libraries, hotels, tract home
developers, hospitals, medical facilities, government agencies and more. There
are no consumer/home products or services at this time, although, the company is
exploring possible application in this area.
The Company distributes its products through value-added resellers
("VARs") and independent sales organizations. The Company recently entered into
a contract with Galaxy Internet (a subsidiary of Arrow Technologies), to market
and resell the Company's products and services. The contract is designed with
incentives for Galaxy Internet to generate revenues for the Company in excess of
$15,000,000 in 1999 and $20,000,000 in the subsequent three years.
In cooperation with Galaxy Internet as the VAR, CompUSA is set up to
begin selling to its business customers the Company's DigiNXT(TM) high-speed
satellite Internet gateway. The DigiNXT(TM) product is now available through its
business services departments in CompUSA's stores nationwide.
The Company's GSI(TM) products are also distributed through independent
sales organizations. The Company has entered into agreements with Advantage
Associates, Inc. in Washington, D.C. Advantage Associates, Inc. will market the
products primarily to Federal Government agencies, and other large businesses
and institutions. Their compensation is based on stock options contingent on the
level of sales they achieve. SEE Item 6, Executive Compensation. William
Sarpalius, a principal of Advantage Associates, Inc., is a member of the board
of directors of the Company. See Item 5, Directors and Executive Officers. SEE
Item 14, Risk Factors: "Market Acceptance".
Federal Agency Market
The Company's GSI(TM) products are currently being demonstrated to
various government agencies in a phase I product and applications testing. Once
the tests have been successfully completed the Company anticipates that a number
of government agencies will begin recommending the Company's GSI(TM) gateway as
a part of their communications programs. The Company anticipates that the
Federal Government will be one of the Company's largest customers. See Item 14,
Risk Factors: "Market Acceptance".
The Educational Market
The Federal Government's "E-RATE" program provides $1.8 billion of
federal funding for schools and libraries to be used exclusively for providing
Internet access to schools. The Company's SAMS(TM) marketing efforts are geared
toward taking advantage of the Federal E-RATE Program. The Federal Government
allocates E-RATE funds to the states in block grants, which must use the funds
in a "fair and equitable" format. The
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requirement means that educational sites throughout a state must have uniform
speeds and pricing in a wireless manner. Once states receive funding, the E-RATE
Program has an anticipated duration of 18 months. At this date, the Company
believes it meets all government guidelines for providing Internet access to
schools in the manner required by the E-RATE program. The Company currently has
the SAMS(TM) Internet gateway operating in schools in very remote Hawaiian
locations and in various other educational institutions across the country to
show the systems' abilities. See Item 14, Risk Factors: "Market Acceptance".
The International Market
The Company plans for joint ventures with one or more parties
headquartered in various countries to be eSat international partners. The
Company plans for international joint ventures to contribute significant
revenue. The Company has identified major satellite broadcast footprints to
create international joint ventures establishing eSat satellite Internet
service. The planned joint ventures would establish eSat satellite service in
the international regions as follows: Asia North, Asia South, Europe, Eastern
Europe/Russia, India, Central America, Latin America, the Middle East, and
Africa. The initial funding for a joint venture is expected to be provided by
the partner in the headquartered country, for example, Asia South would
establish "eSat-Asia South." eSat-Asia South would provide the Company's
high-speed satellite Internet products and services under the eSat name and
branding. Through such ventures, eSat-Asia South would be positioned to provide
services to other countries in the Pacific Rim basin including Hong Kong, China,
Australia, New Zealand, Singapore, Malaysia, Thailand, Philippines, Indonesia
and other regions.
Joint venture partners would receive exclusive rights to market and
distribute the Company's products and services. The partner pays the Company an
initial funding amount to cover various costs including the costs associated
with establishing a dedicated Network Operations Center (NOC). The joint venture
would be a minimum of 40% or more owned by the Company. The partner would
purchase the GSI(TM) gateway and other eSat products from the Company, and would
be required to sell a minimum number of systems annually. The Company would
receive a license and royalty fee calculated as a portion of gross revenues. The
joint venture partner would pay monthly fees to the Company to cover satellite
time, maintenance of the NOC, and maintenance of the fiber connection to the
NOC.
The joint venture licensing rights would be contingent on achieving
specific future sales revenue to the Company. The realization of these revenues
will depend upon the successful implementation by the joint venture partner of
its business plan. The joint venture would be managed by the joint venture
partner and the Company would not have direct control for implementing the joint
venture's business plan.
The Company has been in discussions and anticipates starting joint
ventures in Europe, Asia and Latin America in the middle to late 1999. The
Company anticipates starting joint ventures in the remaining international joint
venture footprint countries
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sometime in 1999. See Item 14, Risk Factors: "Risks Associated with Domestic and
Worldwide Proposed Expansion".
In April, 1999, the Company signed a Memorandum of Understanding with
Lion Monaco, Inc., a Delaware corporation, with its principal place of business
in Monaco. Under this Memorandum, Lion Monaco and the Company contemplate a
joint venture ("eSat-Europe") to be 40% owned by the Company to market and
distribute the Company's products in Europe. Under this Memorandum, eSat-Europe
would be required to sell a minimum of 500 systems annually. eSat Europe would
pay a license fee to the Company based on a percentage of gross sales. In
addition, Lion Monaco would pay the Company a fee of $2,000,000. The
consummation of this transaction is dependent upon the satisfactory completion
by the Company of its due diligence investigation of Lion Monaco.
Diversification of Business
The Company is not dependent on any one customer or group of customers.
However, the Company's business plan calls for significant orders from the
Federal Government, the E-RATE program and large corporations. See Item 14, Risk
Factors: "Market Acceptance and Distribution".
Backlog of Orders
The Company currently does not have a backlog of orders.
Revenue Recognition Policies
The Company currently prices its products and services at a monthly
charge per server. A server can accommodate up to 250 users. Upon the purchase
of one of the Company's products or services, the customer signs a service
contract with a typical duration of up to three years. The Company is planning
to discount the service contract on a non-recourse basis to a commercial finance
company which will pre-approve the customers' credit. The Company will establish
as part of operations a reserves to assure sufficient resources to pay third
party providers for services rendered in providing the satellite uplink and
transmitting the Internet data from the satellite during the term of the
contract.
Competition
The Company anticipates competition from Internet Service Providers
which provide satellite downlink data transmission in the commercial/business,
government and education sectors. A major competitor is DirecPC from Hughes
Network Systems which provides satellite-based Internet and data delivery
service to home consumers, businesses and schools.
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The Company's competitors also include the established Internet service
providers which provide high speed connections. These providers include firms
offering ISDN, DSL, frame relay, cable modem, T-1, and direct fiber connections.
There are numerous providers of these services and no one provider dominates the
market. Many service providers are affiliated with public utilities. At this
time, the Company believes no competitor has a dominant position in the
worldwide ISP market segment.
The Company competes principally on price and performance. The Company
offers a plug and play format, with each gateway delivered pre-configured for
the customer's geographic location, local connection to the Internet, and
connection to a local area network.
The Company's pricing of products and services is subject to change in
accordance with market changes and competitive conditions.
Research and Development
The Company plans to devote significant resources to continued research
and development of various Internet related products and services. See Item 14,
Risk Factors: Dependence on New Products and Product Enhancement Introductions;
Product Delays
Employees
The Company currently has twenty-four employees. Eighteen employees are
located at the Company's headquarters in Fountain Valley, California, four
employees in the Company's Washington, D.C., office, and two regional employees
at various locations around the country.
Available Information
Prior to the effectiveness of this Registration Statement, the Company
has not been required to file periodic reports with the Securities and Exchange
Commission.
ITEM 2. FINANCIAL INFORMATION
Forward Looking Statements
This Item contains forward-looking statements. Please review the
information in light of the risk factors and other cautionary statements
identifying important factors that could cause actual results to differ
materially from those in the forward-looking statements.
Selected Financial Data
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Set forth below are selected financial data for the Company for each of
the last three fiscal years.
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1998 1997 1996
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<S> <C> <C> <C>
Net Sales $ 341,047 $ 1,201,044 $ 1,529,518
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Income (loss) from continuing operations ($3,259,069) ($ 316,307) ($ 164,005)
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Income (loss) from continuing operations per share ($ 0.20) ($ 0.03) ($ 0.02)
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Total Assets $ 3,261,387 $ 453,920 $ 131,371
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Total Current Assets $ 2,920,921 $ 427,965 $ 101,436
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Long Term Liabilities $ 0 $ 119,265 $ 21,353
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Cash Dividends $ 0 $ 0 $ 0
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</TABLE>
The comparisons between 1998 and 1997 should be evaluated in light of
four significant factors: (1) merger of the Company with TGI in October 1998,
accounted for as a pooling of interests, such that the selected financial data
reflect primarily the activities of TGI; (2) the decision in 1997 to discontinue
the sale of networking equipment and focus all efforts on the GSI(TM) product
line; (3) the decision in 1998 to discontinue the sale in the fourth quarter of
1998 of all initial products of the Company pending the completion of the
GSI(TM) product; and (4) private placements of equity securities by the Company
in 1998 that raised significant equity capital. See Item 1, Historical Summary
of the Company; Item 2, Management's Discussion and Analysis of Financial
Condition, and Item 10, Recent Sales of Unregistered Securities. As a result,
the comparison of the data is not particularly meaningful.
The comparisons with 1996 should be evaluated in light of the factors
set forth above, and in addition, in light of the fact that the financial data
for 1996 reflect only the operations of TGI and have not been combined and
restated as a result of the merger. As a result, the comparison of the data is
not particularly meaningful.
Management's Discussion and Analysis of Financial Condition
THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF
THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND
NOTES THERETO INCLUDED ELSEWHERE IN THIS REPORT
Overview
The Company is a high-speed satellite Internet Service Provide (ISP),
and satellite Internet access equipment and services developer for businesses,
educational institutions and government. The Company's product line is based on
its Global Satellite Internet (GSI(TM)) gateway and DigiNXT(TM) Internet gateway
which provide any existing local area network (LAN) with high-speed Internet
access rivaling T-1 and cable. The Company's SAMS(TM) product provides managed,
educational content of over 60,000 pre-screened web pages accessible to students
over the Company's satellite system. The Company's ChannelCasting(TM) product
will provide the simultaneous broadcast of large video and data files to
multiple destinations over the Company's high-speed satellite transmission
system. Within the next 18 months, the Company
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plans to be a worldwide satellite Internet Service Provider. Currently, the
Company has created a high-speed satellite Internet gateway system with a
satellite footprint that encompasses the United States, and parts of Canada and
Mexico. See Item 14, Risk Factors: "Risks Associated with Domestic and Worldwide
Proposed Expansion".
The Company has experienced net losses from operations of $3,908,139 or
$0.26 per share (basic and diluted), since its inception in February 1996, as
Technology Guardian, Inc., through the end of 1998. The Company anticipates that
it will continue to incur net losses into the third quarter of 1999.
The Company continues to expend substantial resources on sales and
marketing in its attempts to increase its market share in the satellite ISP
market. There can be no assurances, however, that the Company will achieve or
sustain profitability or positive cash flow from its operations. See Item 14,
Risk Factors: "Lack of Operating History", "Insufficient Capital", and "Market
Acceptance".
The market for the Company's services is rapidly evolving and is
characterized by an increasing number of new technologies, which include ground
based Internet Service Provider (ISP) technologies that may represent
competition to the Company's service. The Company and its prospects must be
considered in light of the risks, expenses and difficulties encountered by
companies in the new and rapidly evolving market for Internet services and
products. See Item 14, Risk Factors, generally.
U.S. Connect 1995 Prior To The Merger With The Company
The Company was formed in June 1995, as U.S. Connect 1995, with the
intention of engaging in the telephony business. However, there was never any
substantial business generated by the Company and the Company remained dormant
with no operations from its inception until the merger with Technology Guardian,
Inc., a California corporation. The Company changed its name to eSat, Inc., in
January 1999.
This discussion and analysis refers to the past operating history of
Technology Guardian, Inc., a California corporation, and not that of U.S.
Connect 1995.
Description Of The Merger
The Company finalized a reverse merger with U.S. Connect 1995 (OTC BB:
USCJ) on October 8, 1998. Prior to that date, the two companies were separate
and had no combination of business activities. The stock trading prior to that
date reflected only U.S. Connect 1995, until October 1998, when the merger was
consummated.
The merger was accounted for as a pooling of interests.
Results Of Operations
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1998 1997 1996
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<S> <C> <C> <C>
Revenue* $ 341,047 $ 1,201,044 $ 1,529,518
</TABLE>
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<TABLE>
<S> <C> <C> <C>
Cost of Sales ($ 685,570) ($ 345,491) ($ 875,124)
Gross Profit ($ 344,523) ($ 855,553) ($ 654,394)
Sales and Marketing, General and ($2,914,545) ($1,171,860) ($ 812,663)
Administrative, and other operating
expenses
Net Loss (Basic and Diluted) ($3,290,336) ($ 453,998) ($ 164,005)
</TABLE>
* - This revenue decline is directly attributable to the shift in the Company's
focus to high-speed satellite Internet products and services and away from the
sale of networking and computing product and services. In the first quarter
1998, the Company stopped selling networking and computing products and
services. In the fourth quarter 1998, the Company stopped selling its initial
satellite Internet products and services altogether, pending the completion of
its GSI(TM) products. During 1998, the Company engaged in capital raising
efforts and the development of its GSI(TM) Internet related products and
services along with beta marketing and testing.
Liquidity
At March 1, 1999, the Company had cash on hand of $3,406,015. The current
short-term cash needs of the Company are approximately $400,000 per month
without accounting for sales revenue. Depending on the amount and timing of
future sales and receipts, the company may need additional capital prior to the
beginning of the fourth quarter 1999. Currently, the company has no commercial
lines of credit established, other than that mentioned in the following
paragraphs under Revenue.
The Company has signed a letter of intent with Tradeway Securities
Group, Inc., pursuant to which Tradeway Securities Group will assist the Company
in raising additional capital pursuant to Regulation D. The terms of the letter
intent provide for the Company issuing 1,500,000 shares at $8.00 per share, for
a total capital raise of $12,000,000, less commissions and expenses of 13%.
Tradeway Securities Group would also receive options to purchase 375,000 shares
of common stock of the Company at $11.625 per share, for a term of five years.
Revenue
The Company generates its revenue by selling high speed Internet access.
Generally this revenue is generated by two or three year service subscription
contracts with the Company's customers. The Company markets to businesses,
educational institutions and government agencies. The Company currently does not
sell its products and services to the home/consumer market.
When a customer makes an application for a subscription contract, the
applicant's credit is reviewed by the Company's contracted financial services
company. Upon approval of the customer's credit, the Company accepts the
customer's subscription. The Company then has the option to submit the
appropriate sales documentation to a finance company that advances funds to the
Company, less finance and related fees. This amount may vary depending on normal
commercial factors, such as prevailing interest rates. Under this method, it is
contemplated that in most cases funds will be received from the finance company
on a nonrecourse basis and the finance company will handle all billing and
collection activities. See Item 14, Risk Factors: "Insufficient Capital".
The Company submits the customer's applications for approval to the
finance company upon receipt. After approval, the Company will ship within ten
days. After
Page 13 of 34
<PAGE> 14
receipt of the shipping documents, the finance company will remit funds directly
to the Company. The Company books this revenue in the current quarter and makes
provisions for the long-term liability of providing the customer high-speed
satellite Internet service. If the contracts are retained by the Company,
revenue is recognized as the services are provided according to the terms of the
agreement.
Typically, the Company includes in its satellite service, its GSI(TM)
gateway server and satellite dish at a set price. The customer pays for the
installation of the satellite dish. The typical installation costs are those of
a standard mini-satellite dish or approximately $300. The GSI(TM) gateway is a
simple installation with plug and play format that requires no contracted
installation service.
Cost of Sales
The cost of sales includes three primary elements. Typically, the first
element includes the computer server, utilizing Windows NT and Intel Pentium
CPUs, including assembly and shipping. The server assembly is performed by
subcontractors and the software is installed and configured by the Company.
There is no customer installation of hardware or software required. The second
item includes the sales commissions paid to VARs and other distributors. The
commissions are paid quarterly during the duration of the contract. The Company
reserves against the unpaid commissions. The third element is the cost to the
Company of providing Internet access to its customers for a three year period.
This amount is reserved by the Company over the life of the contract. The
reserved funds are kept in interest bearing bank accounts. They are booked as an
asset of the Company with an offsetting liability.
These costs may change as a result of changes in the marketplace. The
cost of sales may increase with increased marketing personnel and additional
sales commissions or other factors.
Sales and Marketing
Sales and Marketing expenses consist primarily of sales commissions,
salaries, cost promotional material, travel, VAR/Distributor commissions and
advertising. The Company's sales and marketing expenses will grow rapidly as the
Company expands the sales and marketing efforts nationwide and internationally.
The Company expects to hire additional sales personnel in 1999. The Company does
not defer sales, marketing or other direct costs associated with the acquisition
of customers. For 1998, the sales and marketing expenses were $340,820. These
were primarily for the beta marketing and beta sales efforts of the Company's
GSI(TM) products and services.
General and Administrative
General and Administrative expenses consist primarily of costs
associated with the accounting and human resources needs, professional expenses,
leasing of facilities, insurance, legal, depreciation expenses, and payroll. In
1998, this amounted to
Page 14 of 34
<PAGE> 15
$2,573,725. Of this amount, approximately $700,000 consisted of commissions
earned by investment bankers in the capital raising efforts of the company. This
represents approximately 27.20 percent of the total General and Administrative
expenses for 1998.
Change In Products And Sales
With the formation of Technology Guardian, Inc., in February 1996, the
Company made a strategic decision to sell and market networking and computing
related products and services which were not Internet related. This strategy
provided the Company with cash flow for operations and its own research and
development in the area of high-speed satellite Internet access. This resulted
in the following sales:
<TABLE>
<CAPTION>
Revenue
----------
<S> <C>
1996 $1,529,518
1997 $1,201,044
1998 $ 341,047
</TABLE>
The sales for 1996 were almost exclusively for the networking and
computing related products and services. The sales in 1997 were mostly for the
networking and computing related products and services. In 1997, the company
sold approximately $150,000 of its initial satellite Internet products and
services.
The Company decided in the first quarter 1998 to halt the sales of
networking and computing products and services. The Company focused on the
development of its high-speed satellite Internet related technology. During this
period, the Company obtained financing through private offerings of its
securities. See Item 10, Recent Sales of Unregistered Securities.
Capital Resources
The Company has not generated net cash from its operations since
inception. The Company has funded its operations and development of its product
and services primarily through sales of non-satellite Internet related products
and services, and private sales of equity securities and lease financing. Cash
used in operations are $812, 663, $1,171,860 and $2,914,515 for the years 1996
through 1998 respectively.
Year 2000 Compliance.
The Company has assessed its year 2000 readiness and believes its
systems are compliant. The Company has purchased or procured its essential
equipment, software, systems, and inventory within the past 18 months. The
Company has sought and received confirmation from its key third-party suppliers
and vendors that the hardware, software, products, and services furnished by
these vendors are year 2000 compliant. These vendors include the manufacturer of
the Company's proprietary computer boards and the vendors of the servers used in
the Company's products, the software publisher of the software licensed by the
Company, and satellite and communications companies that
Page 15 of 34
<PAGE> 16
transmit data on behalf of the Company. In addition, the vendors of the
Company's own internal network, computer, accounting, and other systems have
assured the Company that their products are year 2000 compliant.
The Company relies on the general communications infrastructure
maintained by the established telecommunications companies to transmit its data
to it NOC uplink site, to uplink to a satellite, and for rebroadcast by the
satellite to the Company's customers. Accordingly, if the telecommunications
companies and satellite operators do not have their systems year 2000 compliant,
then the Company and its customers could suffer the consequences of the failure
of one or more components of the telecommunications infrastructure in common
with other users. For the Company, the consequences could be that customers will
refuse to pay for the Company's services and products and the Company will
suffer a decline in revenues. In addition, costs would go up as the Company
would seek to mitigate its problems.
Total costs incurred in connection with the Company's year 2000
compliance efforts have not been material and the Company expects minimal
additional costs in calendar year 1999 to assure year 2000 readiness. The
Company will conduct ongoing testing of new features, components, and systems as
they are added to the Company's products.
The Company has only generalized contingency plans for year 2000
contingencies. In general, the Company expects that any year 2000 problems will
occur in the telecommunications infrastructure. If such problems occur which
interrupt the Company's services to its customers, the Company intends to
immediately seek to obtain such services from telecommunications companies that
are able to continue offering services. Since the Company cannot know which
Companies will have year 2000 services interruptions, the Company has not made
specific plans for alternate service providers at this time.
ITEM 3. PROPERTIES.
The Company does not own any materially important physical properties.
The Company leases its headquarters under the terms of a commercial lease for
office space. The lease term expires in October 2003. The Company could move its
headquarters without any material adverse affect on the Company. The Company
leases space from Microspace Corporation in Durham, North Carolina, which houses
computer equipment owned by the Company in connection with the uplink to the
satellite network. The Company could replace the Durham NOC without any material
adverse effect on the Company.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of May 6, 1999, the ownership of the
Company's Common Stock by (i) each director and executive officer of the
Company, (ii) all executive officers and directors of the Company as a group,
and (iii) all persons known by the Company to beneficially own more than 5% of
the Company's Common Stock.
Page 16 of 34
<PAGE> 17
<TABLE>
<CAPTION>
Title of Class Name and Address of Beneficial Owner Amount and Percent of
Nature of Class of total
Beneficial Shares and
Ownership (1) options
<S> <C> <C> <C>
Common David B. Coulter (2) 4,475,000 25.15 %
16520 Harbor Blvd, Bldg. G
Fountain Valley, California 92708
Common Chester (Chet) L. Noblett Jr. (3) 2,614,913 14.78%
16520 Harbor Blvd, Bldg. G
Fountain Valley, California 92708
Common Salvatore Piraino (4) 136,103 0.83%
16520 Harbor Blvd, Bldg. G
Fountain Valley, California 92708
Common William Sarpalius (5) 1,331,838 7.61%
908 Pennsylvania Ave., S.E.
Washington, D.C. 20003
Common Jeffrey Hecht (6) 382,912 2.31%
16520 Harbor Blvd, Bldg. G
Fountain Valley, California 92708
Common Gary Pan (7) 20,000 .12%
C/o United Asia Capital Partners
Suite 201 - 290 Fu Hsing North Road
Taipei 104, Taiwan
Common Michael C. Palmer (9) 110,000 .67%
16520 Harbor Blvd, Bldg. G
Fountain Valley, California 92708
Common Jim Mack (8) 324,294 1.95%
16520 Harbor Blvd, Bldg. G
Fountain Valley, California 92708
Common Montefort Investissments 1,072,969 6.59%
Rue De Rhone 78
Ch 1204
Geneva, Switzerland
Common Directors and Executive Officers as a group 4,920,060 25.09%
</TABLE>
Page 17 of 34
<PAGE> 18
(1) Calculated pursuant to Rule 13d-3(d) of the Securities Exchange Act of
1934. Unless otherwise stated below, each such person has sole voting
and investment power with respect to all such shares. Under Rule
13d-3(d), shares not outstanding which are subject to options, warrants,
rights or conversion privileges exercisable within 60 days are deemed
outstanding for the purpose of calculating the number and percentage
owned by such person, but are not deemed outstanding for the purpose of
calculating the percentage owned by each other person listed.
(2) Includes options to purchase: (i) 1,500,000 shares of the Company's
common stock at $3.00 per share for a period of five years from August
22, 1998.
(3) Includes options to purchase; (i) 762,802 shares of the Company's common
stock at $0.7168 per share for a period of five years from date of
grant, and, (ii) 333,333 shares of the Company's common stock at $3.00
per share for a period of five years from date of grant; and, (iii)
300,000 shares of the Company's common stock at $3.00 per share for a
period of five years from date of grant contingent upon the Company
achieving $30,000,000 gross revenues in 1999.
(4) Includes options to purchase 16,103 shares of the Company's common stock
at $0.7168 per share for a period of five years from date of grant; and,
(ii) 20,000 shares of the Company's common stock at $17.41 per share for
a period of five years from date of grant
(5) Includes options to purchase: (i) 26,838 shares of the Company's common
stock at $0.7168 per share for a period of five years from date of
grant; and, (ii) 20,000 shares of the Company's common stock at $17.41
per share for a period of five years from date of grant; and, (iii)
200,000 shares of the Company's common stock at $2.00 per share for a
period of 18 months from date of grant if the following performance
criteria are met:
<TABLE>
<S> <C>
------------------------------------------------------------------------
Shares subject to purchase: If the Company achieves the following
gross revenues in conjunction with
the East Coast Sales office:
------------------------------------------------------------------------
150,000 $15,000,000 between March 1, 1999, and
August 31, 2000.
------------------------------------------------------------------------
50,000 $30,000,000 between March 1, 1999, and
February 29, 2000.
------------------------------------------------------------------------
</TABLE>
This total includes options to purchase 360,000 shares of the Company's
common stock at $2.00 per share for a period of 18 months for from date
of grant, held in the name of Carol Sarpalius, spouse of William
Sarpalius. 300,000 of these shares may be purchased if the following
performance criteria are met:
<TABLE>
<S> <C>
------------------------------------------------------------------------
Shares subject to purchase: If the
Company achieves the following
gross revenues in conjunction with
the East Coast Sales office:
------------------------------------------------------------------------
250,000 $750,000 between January 1, 1999, and
------------------------------------------------------------------------
</TABLE>
Page 18 of 34
<PAGE> 19
<TABLE>
<S> <C>
------------------------------------------------------------------------
June 30, 2000.
------------------------------------------------------------------------
50,000 $15,000,000 in 1999.
------------------------------------------------------------------------
</TABLE>
60,000 of these shares may be purchased by Carol Sarpalius for a period
of five years from date of grant.
This total includes options granted on October 8, 1998, to purchase
600,000 shares of the Company's common stock at $2.00 per share for a
period from the date of grant to August 24, 2003, if the following
performance criteria are met:
<TABLE>
<S> <C>
------------------------------------------------------------------------
Shares subject to purchase: If the Company achieves the following
sales:
------------------------------------------------------------------------
150,000 1,000 Units of the Company's products
within one year from date of grant.
------------------------------------------------------------------------
50,000 1,000 Units of the Company's products
within six months of the date of grant.
------------------------------------------------------------------------
150,000 2,000 Units of the Company's products
within one year from the date of grant.
------------------------------------------------------------------------
50,000 2,000 Units of the Company's products
within six months of the date of grant.
------------------------------------------------------------------------
100,000 3,000 Units of the Company's products by
December 31, 2000.
------------------------------------------------------------------------
100,000 4,000 Units of the Company's products by
December 31, 2000.
------------------------------------------------------------------------
</TABLE>
(6) Includes options to purchase: (i) 27,912 shares of the Company's common
stock at $0.7168 per share for a period of five years from date of
grant; and, (ii) 225,000 shares of the Company's common stock at $3.00
per share for a period of five years from date of grant
(7) Includes options to purchase 20,000 shares of the Company's common stock
at $17.41 per share for a period of five years from date of grant.
(8) Includes options to purchase: (i) 4,294 shares of the Company's common
stock at $0.7168 per share for a period of five years from date of
grant; and, (ii) 300,000 shares of the Company's common stock at $2.00
per share for a period of five years from date of grant.
(9) Includes options to purchase 100,000 shares of the company's common
stock at $9.75 per share for a period of five years from date of grant.
Item 5. Directors and Executive Officers.
The following table sets forth the names and positions of the directors
and executive officers and key employees of the Company:
<TABLE>
<CAPTION>
Officer
Name Since Age Position
---- ----- --- --------
<S> <C> <C> <C>
</TABLE>
Page 19 of 34
<PAGE> 20
<TABLE>
<S> <C> <C> <C>
Michael C. Palmer 50 CEO and Director 1999
CFO 1998
Chester (Chet) L. Noblett, Jr. 55 COO, Secretary, Treasurer 1997
and Director
Salvatore A. Piraino 72 Director 1997
William C. Sarpalius 50 Director 1997
Gary Pan 53 Director 1998
Jeffrey Hecht 47 Vice President of 1998
Operations
Jim Mack 26 Chief Technology Officer 1998
</TABLE>
The directors of the Company are elected to hold office until the next
annual meeting of shareholders and until their respective successors have been
elected and qualified. Officers of the Company are elected annually by the Board
of Directors and hold office until their successors are elected and qualified.
The following sets forth biographical information concerning the
Company's directors and executive officers for at least the past five years.
MICHAEL C. PALMER has been the Chief Executive Officer and a director of
the Company since March 1999. Mr. Palmer has held the position of Chief
Financial Officer since November 1998 and has been affiliated with the Company
since December 1997. Since 1978, Mr. Palmer has been a partner of Parks, Palmer,
Turner and Yemenedjian, a firm of Certified Public Accountants. Mr. Palmer
previously served as a director of Western Waste Industries (NYSE: WW). He
received a B.S. degree in Business Administration in 1972 and a M.S. degree in
Business Taxation in 1975 from the University of Southern California.
CHESTER (CHET) L. NOBLETT, JR. has been Chief Operating Officer,
Treasurer, Secretary and a Director of the Company since June 1997. From 1990 to
1996, Mr. Noblett was employed as the chief executive officer for Tradom
International, a subsidiary of an Asahi Shouian, Inc., an international food
brokerage company. From 1975 to 1990, he was chief executive officer of C.
Noblett & Associates, a food brokerage company. Mr. Noblett is also president
and a director of Cyber Village Network, a computer software company. Mr.
Noblett received a B.S. degree in Business Administration from the University of
Southern California in 1971.
SALVATORE A. PIRAINO has been a director of the Company since December
1997. From September 1992 to the present, Mr. Piraino has operated Management
and
Page 20 of 34
<PAGE> 21
Technical Services, a management consultant firm providing management,
engineering and manufacturing expertise to a number of small companies. From
1974 to 1992, Mr. Piraino was employed as a director, program manager, product
line manager and assistant division manager for Hughes Aircraft Company. Mr.
Piraino received a B.E. degree in Engineering from Loyola University in 1950.
WILLIAM C. SARPALIUS has been a director of the Company since December
1997. From 1995 to present, Mr. Sarpalius has served as president and chief
executive officer of Advantage Associates, Inc., a lobbying firm located in
Washington, D.C. Previously, Mr. Sarpalius served as a U. S. Congressman from
the State of Texas from 1989 to 1995. In 1995, Mr. Sarpalius received a
presidential appointment to the United States Department of Agriculture as
Western Regional Director. Mr. Sarpalius received a bachelors degree in
Agriculture Science from Texas Tech University in 1972 and a masters degree in
Agriculture Science from West Texas State in 1978.
GARY (GUO AN) PAN has been a director of the Company since September
1998. From 1997 to present, Mr. Pan has served as the managing director for
United Asia Capital Partners, an investment management and financial services
firm. From 1993 to 1997, Mr. Pan served as president of Sunridge International,
Inc., and from 1992 to 1993, as senior vice president of the Great Wall Group.
Mr. Pan currently serves as a director on the following privately held
corporations: United Asia Capital Partners, Harvest Communications, and Quadra
Pharmaceuticals, Inc. Mr. Pan received a B.S. degree in Electrical Engineering
from National Taiwan University, a M.S. degree in Electrical Engineering from
University of Waterloo, and his Ph.D. in Management from the University of
California at Los Angeles.
JEFFREY HECHT was appointed as the Company's Vice President of
Operations in March 1998. From March 1997 to March 1998, Mr. Hecht was vice
president of operations for ACOM Computer Inc., a software development company
in Long Beach, California. From December 1993 to February 1997, Mr. Hecht served
as the vice president and chief information officer for Strategic Mortgage
Services, a financial services company. Mr. Hecht received a B.S. in Business
Administration from Arizona State University in 1976.
JIM MACK was appointed as the Company's Chief Technology Officer in
September 1998. From May 1997 to September 1998, Mr. Mack was the Senior Systems
Engineer for Versant, Inc., a manufacturer of object-oriented database
technologies. From February 1995 to May 1997, Mr. Mack was Object Technology
Specialist with IBM, working with such firms as Kodak and MCI. Mr. Mack received
a B.S. degree in Computer Science from University of Missouri-Rolla in 1994.
ITEM 6. EXECUTIVE COMPENSATION.
Page 21 of 34
<PAGE> 22
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Name of Individual Or Capacities In Which Aggregate
Identity of Group Remuneration Remuneration
Was Received
- ------------------------------------------------------------------------------------------
<S> <C> <C>
David B. Coulter Chief Executive Officer, $222,657
President, Director
- ------------------------------------------------------------------------------------------
Chester (Chet) L. Noblett, Jr. Chief Operating Officer, $163,500.10
Executive Vice President
Director, Secretary,
Treasurer,
- ------------------------------------------------------------------------------------------
</TABLE>
Page 22 of 34
<PAGE> 23
OPTION GRANTS IN FISCAL YEAR 1998
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Individual Grants Potential Realizable Value at
Assumed Annual Rates of Stock Price
Appreciation for Option Term
- -------------------------------------------------------------------------------------------------------------------------------
Name Number of Percent of Exercise Market Expiration Market 5% ($) 10% ($)
Shares Total of Base Price on Date Closing
Underlying Options Price Date of price on
Options Granted to ($/Sh) Grant (1) May 6,1999,
Employees of $10.625
in Fiscal
Year
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David C. Coulter, 1,910,885 31.19 $ .7168 $ .7168 August, 2003 $18,933,431 $ 3,120,409 $ 3,937,572
President
- -------------------------------------------------------------------------------------------------------------------------------
David C. Coulter, 1,500,000 27.14% $ 3.00 $ 3.00 October, 2003 $11,437,500 $ 5,743,267 $ 7,247,295
President
- -------------------------------------------------------------------------------------------------------------------------------
Chester Noblett 762,802 12.45% $ .7168 $ .7168 August, 2003 $ 7,557,995 $ 697,841 $ 880,589
- -------------------------------------------------------------------------------------------------------------------------------
Chester Noblett 633,000 10.33% $ 3.00 $ 3.00 October, 2003 $ 4,826,625 $ 2,423,659 $ 3,058,359
- -------------------------------------------------------------------------------------------------------------------------------
Jeff Hecht 27,912 0.46% $ .7168 $ .7168 August, 2003 $ 276,558 $ 25,535 $ 32,222
- -------------------------------------------------------------------------------------------------------------------------------
Jeff Hecht 225,000 3.67% $ 3.00 $ 3.00 October, 2003 $ 1,715,625 $ 861,490 $ 1,087,094
- -------------------------------------------------------------------------------------------------------------------------------
Jim Mack 4,294 0.07% $ .7168 $ .7168 August, 2003 $ 42,546 $ 3,928 $ 4,957
- -------------------------------------------------------------------------------------------------------------------------------
Jim Mack 300,000 4.90% $ 3.00 $ 3.00 October, 2003 $ 2,287,500 $ 1,148,653 $ 1,449,459
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The options granted to the officers and directors set forth in the
foregoing chart were granted by Technology Guardian, Inc. ("TGI"), a
California corporation, prior to the merger with the Company. There was
no market for the TGI stock at that time. The exercise price of $.7168
of the options reflected the price of the TGI shares at the time as
measured by the price at which TGI was then issuing stock in a private
offering. The exercise price of $3.00 reflected the judgment of the
board of directors of TGI of the value of the shares of TGI immediately
prior to the merger with the Company. The Company assumed the
obligation to honor the options granted by TGI.
Page 23 of 34
<PAGE> 24
In determining the compensation of David B. Coulter and Chet Noblett,
the board of directors took the following factors into account. Mr. Coulter and
Mr. Noblett served as officers of Technology Guardian, Inc., a California
corporation, prior to the merger of TGI into the Company. Prior to the merger,
TGI was a privately held company. The salaries paid to Mr. Coulter and Mr.
Noblett by TGI prior to the merger were set at the rate of $300,000 per year,
and $225,000 per year, respectively. In connection with the pending merger of
TGI into the Company and in connection with the private offering of stock of TGI
prior to the merger, and the subsequent private offering of stock of the Company
subsequent to the merger, Mr. Coulter and Mr. Noblett agreed to reduce their
salaries to $150,000 and $130,000 respectively. In addition, Mr. Coulter agreed
to cancel a net total 5,288,553 of his shares of common stock of TGI prior to
the merger.
In consideration for the reduction in salary and the cancellation of
shares, and in order to induce Mr. Noblett to accept full-time employment with
the Company, the Company and TGI agreed to grant to Mr. Coulter an option to
purchase 1,500,000 shares of common stock at $0.7168 per share and to Mr.
Noblett an option to purchase 500,000 shares of common stock at $0.7168, the
price at which TGI was then selling shares of common stock in a private
offering.
In addition, the board of directors of TGI granted Mr. Noblett an option
to purchase 333,000 shares of common shares exercisable at $3.00 per share in
connection with his services in guiding TGI through the merger process with the
Company. Finally, the board of directors of the Company approved the grant to
Mr. Noblett of an option to purchase 300,000 shares of common stock at $3.00 per
share subject to the Company achieving $30 million in revenues in 1999.
The Company has entered into an employment agreement with Chester (Chet)
L. Noblett for a period of five years commencing September 25, 1997. Under the
agreement, Mr. Noblett receives a salary of $130,000 per year and certain other
fringe benefits. The employment agreement includes a cost-of-living increase at
the rate of 2 1/2 percent per annum, plus any other increase which may be
determined from time to time in the discretion of the Company's Board of
Directors. Pursuant to the employment agreement, Mr. Noblett is provided with a
car on such lease terms to be determined by the Company, provided that the
monthly operating costs (including lease payments) to be paid by the Company
will not exceed $750.
Salvatore A. Piraino, who serves as the audit committee, receives a
payment of $500 per month for his services. This compensation commenced in
September, 1998.
Prior to the merger of Technology Guardian, Inc., a California
corporation, into the Company, TGI granted shares of common stock to the
following members of its board of directors as compensation for serving on the
board of directors:
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
Name Shares Granted:
- --------------------------------------------------------------------------------
Salvatore A. Piraino 25,000
- --------------------------------------------------------------------------------
</TABLE>
Page 24 of 34
<PAGE> 25
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
Frank Moy 25,000
- --------------------------------------------------------------------------------
Gil Siegel 12,500
- --------------------------------------------------------------------------------
Don Sriro 12,500
- --------------------------------------------------------------------------------
</TABLE>
The Company also reimburses members of the board of directors for their
travel, entertainment, and other out-of-pocket expenses incurred on behalf of
the Company.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In April 1997, Technology Guardian, Inc., entered into a settlement
agreement among TGI, Cyber Village Network, Inc. ("CVN") and Chet Noblett in
which CVN and Chet Noblett agreed to release TGI from all potential claims
arising from: (i) a certain option agreement dated August 6, 1997 ("Option
Agreement"); and, (ii) an agreement entered into among TGI, David Coulter, as
TGI's then President, CVN and Chet Noblett as agent for CVN ("Commission
Agreement"), in exchange for the issuance of 849,750 shares of TGI's Common
Stock.
The Option Agreement granted options to CVN to purchase shares equal to
10% of TGI's issued and outstanding shares in exchange for forgiveness of a
$100,000 promissory note held by CVN, as well as the option to purchase shares
equal to 30% of TGI's issued and outstanding shares in exchange for $1,200,000.
Further, the Option Agreement provided that David Coulter, TGI's former
president, had the right to repurchase shares from CVN equal to 15% of TGI's
common stock following the exercise of the option by CVN in exchange for
$1,200,000. Mr. Coulter offset his obligation to pay CVN $1,200,000 by the
$1,200,000 payable to TGI by CVN pursuant to its exercise of options. The
Commission Agreement provided that TGI and Mr. Coulter, TGI's then President,
would pay Mr. Noblett, as agent for CVN, an amount equal to 6% of the gross
proceeds received by TGI from any underwriting arranged by Andrew Glashow and
Joe Py, including bridge financing, and subsequently, Mr. Noblett would rebate
one-third of aforementioned fees to Mr. Coulter. The Option Agreement was
subsequently canceled and the parties released each other from all claims.
Prior to the issuance of the 1,030,000 shares of TGI's stock as a result
of the exercise of the option agreement by CVN and the 849,750 shares received
in consideration for the Settlement Agreement, for a total of 1,879,750 Shares,
Mr. Noblett, as agent for CVN, assigned 1,060,000 shares to certain persons as
consideration for loans made to CVN. In March 1998 TGI completed payment to Mr.
Noblett of a bonus in the amount of $100,000 for certain services provided in
assisting TGI with obtaining additional capital.
In May, 1998 David Coulter transferred 379,250 shares of his stock to
Cyber Village Network. Mr. Coulter then canceled 5,414,172 shares of common
stock of TGI in
Page 25 of 34
<PAGE> 26
connection with the pending private placement of shares of TGI. Of these shares
canceled, TGI reissued 125,619 to him in August 1998, prior to completion of the
merger described in Item 1 ("Merger").
In connection with the Merger, the Company assumed the obligations of
TGI to issue options to purchase 2,000,000 shares of TGI common stock on a pro
rata basis to all TGI shareholders as of August 30, 1998, at an exercise price
of $.7168 per share, exercisable for five (5) years from date of grant. In
addition, the Company assumed the obligations of TGI for options to purchase
1,500,000 shares of TGI common stock to Mr. Coulter, then-President of TGI, and
500,000 shares of TGI common stock to Mr. Noblett, the Vice President and Chief
Operating Officer of TGI, at an exercise price of $.7168 per share, exercisable
for five (5) years from date of grant. On October 13, 1998 the Board of
Directors of the Company authorized the issuance of additional options to
purchase 1,000,000 shares of Common Stock to Mr. Coulter, and 333,333 shares of
Common Stock to Mr. Noblett, at an exercise price of $3.00 per share,
exercisable for five (5) years from date of grant subject to the Company
achieving $30,000,000 in sales in 1999.
On March 22, 1999, David B. Coulter resigned as a director and officer
of the Company. Pursuant to a resignation agreement, Mr. Coulter agreed to
cancel 1,767,769 shares of common stock, reducing the number of shares he holds
to 3,000,000 shares of common stock. The 3,000,000 shares retained by Mr.
Coulter are nonvoting. In addition, Mr. Coulter agreed to cancel all options
held by him to purchase 3,410,885 shares of common stock, and accept in lieu
thereof options to purchase 1,500,000 shares of common stock, with an exercise
price of $3.00 per share, for five years from August 22, 1999. Mr. Coulter
agreed to the termination of his employment agreement, together with a severance
payment provided by the employment agreement. The Company agreed to pay Mr.
Coulter a severance payment of $150,000, payable at the rate of $30,000 per
month from the time of resignation, and to pay Mr. Coulter for consulting with
the Company at the rate of $10,000 per month for a total of 36 months,
commencing upon his resignation. The Company and Mr. Coulter have entered into a
general mutual release of claims.
ITEM 8. LEGAL PROCEEDINGS.
Technology Guardian, Inc. v. Peripherals Plus, Inc., Case No. 224498 in
the Municipal Court of the State of California, County of Orange, West Orange
County, was commenced by the filing of a complaint by Company on May 31, 1996
for the recovery of contract damages in the sum of approximately $16,000. The
defendant Peripherals Plus, Inc. cross-complained for contract and related
damages in the approximate sum of $19,000. The action was removed from the
Court's Civil Active List pursuant to the parties' stipulation to submit the
controversy to binding arbitration. The matter has not yet been set for
arbitration hearing, and is still pending. The anticipated settlement cost to
the Company will be approximately $18,000.
Page 26 of 34
<PAGE> 27
Supercom, Inc. v. Technology Guardian, Inc., Case No. 798002 in the
Superior Court of the State of California, County of Orange, was commenced by
Supercom on August 10, 1998. In this lawsuit, Supercom seeks the recovery of
approximately $47,000 for goods sold and delivered to the Company. The Company
has filed a cross-complaint against Supercom seeking damages of approximately
$50,000 on the grounds that the goods delivered by Supercom were defective and
that Supercom failed to fulfill its service and repair obligations. The case is
set for trial on July 12, 1999. The Company intends to vigorously defend against
Supercom's claims and to vigorously prosecute its cross-complaint, but will not
foreclose the possibility of settlement. The outcome cannot intelligently be
evaluated at this time. The range of potential loss on this claim is $50,000.
As of December 31, 1998, there existed a potential claim against the
Company by its former counsel, Brenman, Bromberg & Tenenbaum of Denver Colorado,
in the approximate sum of $80,000 for attorneys' fees alleged to be due and owed
by the Company. On January 4, 1999, Brenman, et al. filed a lawsuit and obtained
a writ of attachment on a Company escrow account held at a bank in Denver, in
the District Court, City and County of Denver, Colorado, Case No. 99C0013, for
recovery of approximately $80,000. The Company has filed counter-claims against
the Brenman firm, and third party claims against its principal, Albert Brenman,
for damages and rescission. The Company's claims will be vigorously prosecuted.
The matter will likely be arbitrated during the 1999 calendar year. The Company
successfully moved the court to lift the writ of attachment and the court
ordered Brenman, Bromber & Tenenbaum to pay the Company' legal fees associated
with the writ.
Deanna L. Lepper v. Technology Guardian, Inc., Case No. 804914 in the
Superior Court of the State of California, County of Orange, was commenced by
Ms. Lepper on January 28, 1999. In this lawsuit, Ms. Lepper seeks the recovery
of unspecified damages for alleged wrongful termination. The Company intends to
vigorously defend against Ms. Lepper's claims and perceives the case as having a
modest cost of defense value.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
The Company's Common Stock, par value $.001 per share, is not eligible
for listing on the Nasdaq system; however, the Company's Common Stock is traded
on the
Page 27 of 34
<PAGE> 28
Electronic Bulletin Board under the trading symbol "ASAT". The following
table sets forth the high and low bid prices for the Company's Common Stock
since the beginning of the fiscal year 1997, as adjusted for the 1:50 reverse
stock split. The quotations reflect inter-dealer prices, with no retail mark-up,
mark-down or commissions, and may not represent actual transactions. The
information presented has been derived from National Quotation Bureau, Inc.
<TABLE>
<S> <C> <C>
FIRST QUARTER 25.00 6.25
SECOND QUARTER 12.50 1.56
THIRD QUARTER 12.50 1.56
FOURTH QUARTER 12.50 1.00
1998 FISCAL YEAR
FIRST QUARTER 1.00 .05
SECOND QUARTER .05 .05
THIRD QUARTER (AFTER A 1 FOR 50 REVERSE SPLIT) 5.50 .625
FOURTH QUARTER 16.00 5.00
</TABLE>
On December 31, 1998, the last reported bid and asked prices for the Common
Stock were $15.50 and $15.75, respectively.
As of March 31, 1999, there were 434 active holders of record of the
Company's Common Stock.
The Company has never declared a dividend on its Common Stock, and it is
anticipated that any earnings which might be available for distribution as
Common Stock dividends will be retained for the Company's operations for the
foreseeable future.
The transfer agent for the Company's Common Stock is Pacific Stock
Transfer Co., 5844 South Pecos Road, Suite D, Las Vegas, Nevada 89120.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
The Company entered into an Amended and Restated Stock Purchase
Agreement with Pacific Capital Group Ltd. ("Pacific Capital"), whereby pursuant
to the terms of a Confidential Offering Memorandum dated July 2, 1998 ("Pacific
Capital Offering"), Pacific Capital had the right to purchase up to 4,185,000
shares of the Company's Common Stock for a purchase price of $.7168 per share,
or $2,999,809 in the aggregate. In accordance with the terms and conditions of
the Pacific Capital Offering, 754,045 shares were sold under the exemptions from
registration contained in Section 3(b) of the Act and Rule 504 of Regulation D
under the Act ("Rule 504"). The balance of 3,430,955 shares were offered
pursuant to the exemption contained in Regulation S under the Act
Page 28 of 34
<PAGE> 29
("Regulation S"). Pacific Capital purchased 2,092,500 shares for a total of
$1,500,000, of which 754,045 shares were sold under Rule 504, and the remaining
1,338,455 under Regulation S.
Subsequent to the merger, Corporate Financial Enterprises ("CFE")
assisted the Company in the placement of 2,092,500 shares under Regulation D.
This offering was completed between October, 1998, and January, 1999. As
compensation, CFE received options to purchase 350,000 shares of common stock at
$0.7168 per share.
In connection with the Merger, the Company assumed the obligations of
TGI to honor options to purchase 2,000,000 shares of TGI Common Stock, $.001 par
value per share, on a pro rata basis to all TGI shareholders as of August 30,
1998, at an exercise price of $.7168 per share, exercisable for five (5) years
from date of grant. In addition, the Company assumed the obligations of TGI
wherein TGI issued options to purchase 1,500,000 shares of TGI Common Stock,
$.001 par value per share, to David B. Coulter, President of TGI, and 500,000
shares of TGI Common Stock, $.001 par value per share, to Chester L. Noblett,
the Vice President and COO of TGI, at an exercise price of $.7168 per share,
exercisable for five (5) years from date of grant. On October 13, 1998 the Board
of Directors authorized the issuance of additional options to purchase 1,000,000
shares of Common Stock to Mr. Coulter, and 333,333 shares of Common Stock to Mr.
Noblett, at an exercise price of $3.00 per share, exercisable for five (5) years
from date of grant. See Item 7, "Certain Relationships and Related
Transactions".
The Merger was consummated on October 8, 1998. Under Rule 145
promulgated by the Securities and Exchange Commission, the shares of the Company
received by the shareholders of TGI in connection with the Merger are deemed
newly issued shares. Of the shares of the Company outstanding after the merger,
1,050,400 shares are attributed to the original shareholders of U.S. Connect
1995, and 9,315,000 shares were issued to shareholders of TGI. Of these shares,
1,338,455 shares were issued under Regulation S, and 7,976,545 shares were
issued under Regulation D. After the merger the Company issued 2,092,500 shares
of common stock under Regulation S according to its agreement with CFE at $.7168
cents per share.
On October 28, 1998, the Company commenced a private placement for
2,000,000 shares of common stock under Rule 506, at $2.40 per share. Tradeway
Securities, Inc., acted as the placement agent. The Company completed this
offering in January 1999, with gross proceeds of $4,800,000. Tradeway Securities
Group, Inc., acted as placement agent and received commissions of $480,000, plus
a $144,000 nonaccountable expense allowance, warrants to purchase 500,000 shares
of common stock at $2.64 per share exercisable through January, 2004.
The Company has agreed to issue Loyalty Options to acquire up to 500,000
shares of the Company's Common Stock to be granted to those shareholders who
retain ownership of the shares within the Units purchased in a private offering
commenced
Page 29 of 34
<PAGE> 30
October 28, 1998, for two years from the date of purchase (the Loyalty period).
The options will be issued on the basis of one option for each 25 shares
purchased. The options are exercisable at an exercise price of $4.80 per share
for a period of three years from the date of issue. No Loyalty Options have been
issued at this time.
In January, 1999, David B. Coulter transferred warrants to purchase
650,000 shares at $0.7168 per share to Corporate Financial Enterprises, which
then exercised the option. The shares were issued pursuant to Section 4(2) of
the Securities Act of 1933, as amended.
In the period of November, 1998, through April 1, 1999, four holders of
warrants exercised their warrants in a cashless exercise with respect to 612,614
shares of common stock. These shares were issued pursuant to Section 4(2) of the
Securities Act of 1933, as amended.
On February 8, 1999, a shareholder exercised options to purchase 25,000
shares at an exercise price of $0.7168. The Company received proceeds of
$17,920. These shares were issued pursuant to Section 4(2) of the Securities Act
of 1933, as amended.
Pursuant to an agreement of September, 1998, the Company issued 33,482
shares to the Pacific Capital Group for proceeds of $24,000. These shares were
issued pursuant to Regulation S.
In February, 1999, the Company issued 205,000 shares under Regulation S
to investors residing in Asia.
On January 4, 1999, the Company issued one share to an investor for
$15.50. This share was issued pursuant to Section 4(2) of the Securities Act of
1933, as amended.
On December 18, 1998, the Company issued 1,000 shares to an investor at
$0.85 per share for total proceeds of $850. These shares were issued pursuant to
Section 4(2) of the Securities Act of 1933, as amended.
In January and February, 1999, the Company issued 18,487 shares of
common stock to Asian investors pursuant to Regulation S. The shares were sold
for $2.45 cents per share, with the Company retaining net proceeds of $1.55 per
share, and paying a commission of $0.90 per share to Corporate Financial
Enterprises, Inc., pursuant to an agreement executed by David B. Coulter and
Corporate Financial Enterprises on October 15, 1998. The gross proceeds to the
Company amounted to $45,293 and the net proceeds amounted to $28,654.85. CFE
received $16,638.15 in commissions.
Page 30 of 34
<PAGE> 31
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.
Common Stock
The Company is authorized to issue up to 50,000,000 shares of Common
Stock, $.001 par value. Each share of Common Stock is entitled to share pro rata
in dividends and distributions, if any, with respect to the Common Stock when,
as and if declared by the Board of Directors from funds legally available
therefor, subject to the preferential rights of holders of shares of any series
of outstanding Preferred Stock. The Company has never paid any dividends on its
Common Stock and does not intend to do so in the foreseeable future. No holder
of Common Stock has any preemptive right to subscribe for any securities of the
Company. Upon liquidation, dissolution or winding up of the Company, each share
of the Common Stock is entitled to share ratably in the amount available for
distribution to holders of Common Stock. All shares of Common Stock presently
outstanding are fully paid and nonassessable.
Each holder of Common Stock is entitled to one vote per share with
respect to all matters that are required by law to be submitted to shareholders.
Shareholders are not entitled to cumulative voting in the election of directors.
Accordingly, the holders of more than 50% of the shares voting for the election
of directors can elect 100% of the directors if they choose to do so; and, in
such event, the holders of the remaining shares voting for the election of the
directors will be unable to elect any person to the Board of Directors.
As of May 6, 1999, the Company had issued and outstanding 16,293,215
shares of Common Stock and had reserved 7,178,914 shares of Common Stock for
issuance upon exercise of outstanding options.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Articles of Incorporation limit the liability of directors
to shareholders for monetary damages for breach of a fiduciary duty except in
the case of liability: (i) for any breach of their duty of loyalty to the
Company or its shareholders; (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (iii) for
certain unlawful distributions; or, (iv) for any transaction from which the
director derived an improper personal benefit.
The Company's Articles of Incorporation and Bylaws provide for the
indemnification of directors and officers of the Company to the maximum extent
permitted by law. The Bylaws provide generally for indemnification as to all
expenses incurred or imposed upon them as a result of actions, suits or
proceedings if they act in good faith and in a manner they reasonably believe to
be in or not opposed to the best interests of the Company. These agreements,
among other things, indemnify the Company's employees, officers and directors
for certain expenses (including attorneys' fees), judgments, fines and
settlement amounts incurred by such person in any action or
Page 31 of 34
<PAGE> 32
proceeding, including any action by or in the right of the Company, on account
of services as any employee, officer or director of the Company or as an
employee, officer or director of any affiliate of the Company. The Company
believes that these provisions and agreements are necessary to attract and
retain qualified persons as directors and officers.
There is no pending litigation or proceeding involving a director,
officer, employee or other agent of the Company as to which indemnification is
being sought, and the Company is not aware of any pending or threatened
litigation that may result in claims for indemnification by any director,
officer, employee or other agent.
The Company has purchased Directors and Officers liability insurance to
defend and indemnify Directors and Officers who are subject to claims made
against them for their actions and omissions as directors and officers of the
Company. The insurance policy provides standard Directors and Officers Liability
insurance in the amount of $5,000,000.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Item 15.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
FORWARD LOOKING STATEMENTS AND RISK FACTORS
This Form 10 contains certain forward-looking statements within the
meaning of Section 27A of the Act and Section 21E of the Securities Exchange Act
of 1934, as amended, and the Company intends that such forward-looking
statements be subject to the safe harbors for such statements under such
sections. The Company's forward-looking statements include the plans and
objectives of management for future operations, including plans and objectives
relating to the Company's planned marketing efforts and future economic
performance of the Company and future capital raising activities of the Company.
The forward-looking statements and associated risks set forth in this Form 10
include or relate to the ability of the Company to: (i) obtain meaningful
consumer acceptance and a successful market for the product on a national and
international basis at competitive prices; (ii) develop and maintain an
effective national and international sales network; (iii) forecast demand for
its product; (iv) maintain pricing and thereby maintain adequate profit margins;
and, (v) achieve adequate intellectual property protection.
The forward-looking statements herein are based on current expectations
that involve a number of risks and uncertainties. Such forward-looking
statements are based on assumptions that: (i) the Company will obtain equity
and/or debt capital; (ii) there will be no material adverse competitive or
technological change in condition of the Company's business; (iii) there will be
a demand for the Company's product; (iv) the
Page 32 of 34
<PAGE> 33
Company's forecasts accurately anticipate market demand; and, (v) there will be
no material adverse change in the Company's operations, business or governmental
regulation affecting the Company or its suppliers. The foregoing assumptions are
based on judgments with respect to, among other things, future economic,
competitive and market conditions, and future business decisions, all of which
are difficult or impossible to predict accurately and many of which are beyond
the Company's control. Accordingly, although the Company believes that the
assumptions underlying the forward-looking statements are reasonable, any such
assumption could prove to be inaccurate and therefore there can be no assurance
that the results contemplated in forward-looking statements will be realized. In
addition, as disclosed elsewhere in "Risk Factors", there are a number of other
risks inherent in the Company's business and operations which could cause the
Company's operating results to vary markedly and adversely from prior results,
or the results contemplated by the forward-looking statements. Management
decisions, including budgeting, are subjective in many respects and periodic
revisions must be made to reflect actual conditions and business developments,
the impact of which may cause the Company to alter its marketing, capital
investment and other expenditures, which may also materially adversely affect
the Company's results of operations. In light of significant uncertainties
inherent in forward-looking information included herein, the inclusion of such
information should not be regarded as a representation by the Company or any
other person that the Company's objectives or plans will be achieved.
SIGNIFICANT OPERATING LOSSES;
For the fiscal year ended December 31, 1998, the Company incurred a loss
of $3,290,336 as compared to a loss of $453,798 for the fiscal year ended
December 31, 1997. The loss was primarily due to: (i) employee compensation
which increased because of additional sales and operations staff hired by the
Company in 1998 in anticipation of future growth of the Company's operations;
and, (ii) expenses related to marketing. In addition, the Company incurred
significant research and development costs associated with its new products.
There can be no assurance that the Company will be able to generate sufficient
revenues to operate profitably in the future or to pay the Company's debts as
they become due. The Company is dependent upon successful completion of future
capital infusions to continue operations. See "Management's Discussion and
Analysis of Financial Condition" and "Financial Statements."
RISKS ASSOCIATED WITH DOMESTIC AND WORLDWIDE PROPOSED EXPANSION
The Company intends to expand its operations domestically and
internationally, and will seek to expand the range of its services and penetrate
new geographic markets; however, the Company has no experience in effectuating
rapid expansion or in managing operations which are geographically dispersed.
Although the Company believes it has an adequate infrastructure, there can be no
assurance the Company's current management, personnel and other corporate
infrastructure will be adequate to manage the Company's growth. Expansion
internationally will require joint venture partners outside the United States
who will provide capital and personnel to fund the operations internationally.
The Company has very limited experience in international joint venture
transactions. The Company executed a letter of intent with the Lion Monaco in
April, 1999, for expansion into Europe. The Company has no other joint venture
partners at this time. There can be no assurance that the Lion Monaco will
perform its contemplated duties in Europe, that the Company will be able to
successfully joint venture with other entities in other parts of the world, or
that joint venture partners will be able to raise the capital and employ the
personnel required to successfully implement worldwide operations. Accordingly,
there is significant risk that the Company will not be able to meet its goal of
substantial international expansion within the next twelve months.
LACK OF OPERATING HISTORY
The Company has a limited operating history upon which an evaluation of
the Company can be based. The Company's prospects are subject to the risks,
expenses and uncertainties frequently encountered by companies in the new and
rapidly evolving markets for Internet and interactive media products and
services. In addition, the Company will be subject to all of the risks,
uncertainties, expenses, delays, problems and difficulties typically encountered
in the growth of an emerging business and the development and commercialization
of new products. There can be no assurance that unanticipated expenses, problems
or technical difficulties will not occur which would result in material delays
in product commercialization or that the Company's efforts will result in
successful product commercialization.
INSUFFICIENT CAPITAL
<PAGE> 34
The Company anticipates, based on its current proposed plans and
assumptions relating to its operations, that current cash reserves, together
with projected cash flow from operations, will be sufficient to satisfy its
contemplated cash requirements through the third quarter of 1999. Thereafter,
the Company will require substantial additional financial resources to fund its
operations. The expansion into new product areas will also require substantial
financial funding. The failure to acquire additional funding when required will
have a material adverse effect on the Company's business prospects. The Company
will rely on a finance company for the nonrecourse financing of customer
contracts to generate cash for the Company. Changes in the economy generally, or
in the Internet access field in particular, might make financing of customer
contracts unavailable, or if available, at unfavorable rates. Without the proper
financing of customer contracts by a finance company, the Company is likely to
have difficulty in funding its on-going operations.
MARKET ACCEPTANCE AND DISTRIBUTION
The Company is at an early stage of development and its earnings growth
depends primarily upon market acceptance of its products and services, including
the Global Satellite Internet gateway, DigiNXT gateway, SAMS(TM) programs
offered to school systems, and ChannelCasting(TM). There can be no assurance
that the Company's product development efforts will progress further with
respect to any potential new products or that they will be successfully
completed. In addition, there can be no assurance that the Company's potential
new products will be capable of being produced in commercial quantities at
reasonable costs or that these potential products, if introduced, will be
successfully marketed or will achieve customer acceptance. The Company is
dependent on value-added resellers, VARs, and distributors in addition to its
direct sales force to market its products. There is no assurance that Galaxy
Internet or any other VAR will be successful in marketing the Company's
products.
The Company's success is dependent in part on its ability to sell its
products to governmental agencies, including public school districts, and large
business organizations. Selling to governmental agencies and larger companies
generally requires a long sales process, with multiple layers of review and
approval. Often nonbusiness factors enter into the decision to purchase
products. Such factors might include the residence and origin of the supplier of
the products, the nature of the supplier and the distributor, the ethnic and
gender characteristics of personnel and owners of the Company selling or
distributing the products, political and other contacts, and other peculiar
factors. Accordingly, the success of selling to these potential customers is
uncertain.
The Company does not have sufficient experience in marketing its
products to determine the optimum distribution methods. It is unclear whether
marketing through VARs or mass retailers such as CompUSA will result in
acceptable sales levels. Accordingly, the Company might be in a position
requiring change in its sales, distribution, and marketing strategies and
implementation.
DEPENDENCE ON NEW PRODUCTS AND PRODUCT ENHANCEMENT INTRODUCTIONS; PRODUCT DELAYS
<PAGE> 35
The Company's success in the Internet access business depends on, among
other things, the timely introduction of successful new products or enhancements
of existing products to replace declining revenues from products at the latter
stage of a product cycle. Consumer preferences for software products are
difficult to predict, and few consumer software products achieve sustained
market acceptance. If revenues from new products or enhancements do not replace
declining revenues from existing products, the Company's business, operating
results and financial condition could be materially adversely affected. The
process of developing Internet access products such as those offered by the
Company is extremely complex and is expected to become more complex. A
significant delay in the introduction of one or more new products or
enhancements could have a material adverse effect on the ultimate success of
such products and on the Company's business, operating results and financial
condition.
DEVELOPING MARKET; NEW ENTRANTS
The market for Internet products and computer software is rapidly
evolving and is characterized by an increasing number of market entrants who
have introduced or developed products and services. Although the Company
currently believes that the diverse segments of the Internet market will provide
opportunities for more than one supplier of products and services similar to
those of the Company, it is possible that a single supplier may dominate one or
more market segment.
COMPETITION
The Company competes with many other Internet access servers. The
Company will face competition from numerous sources, online and Internet service
providers and others with the technical capabilities and expertise which would
encourage them to develop and commercialize competitive products and services.
Certain of such competitors have substantially greater financial, technical,
marketing, distribution, personnel and other resources than the Company.
Increased competition, resulting from, among other things, the timing of
competitive product releases and the similarity of such products to those of the
Company, may result in significant price competition, any of which could have a
material adverse effect on the Company's business, operating results or
financial condition. Current and future competitors with greater financial
resources than the Company may be able to carry larger inventories, undertake
more extensive marketing campaigns, adopt more aggressive pricing policies and
make higher offers or guarantees to software developers and co-development
partners than the Company. There can be no assurance that the Company will have
the resources required to respond effectively to the market or technological
changes or to compete successfully with current or future competitors or that
competitive pressures faced by the Company will not materially and adversely
affect the Company's business, operating results or financial condition.
GOVERNMENT REGULATION
<PAGE> 36
The Company is not currently subject to direct regulation by any
government agency in the United States, other than regulations applicable to
businesses generally, and there are currently few laws or regulations directly
applicable to access to or commerce on the Internet. Due to the increasing
popularity and use of the Internet, it is possible that laws and regulations may
be adopted with respect to the Internet, covering issues such as user privacy,
pricing and characteristics and quality of products and services. For example,
although the Communications Decency Act was held to be unconstitutional, there
can be no assurance that similar legislation will not be enacted in the future.
Such laws or regulations could also limit the growth of the Internet, which
could in turn decrease the demand for the Company's proposed products and
services and increase the Company's cost of doing business. Inasmuch as the
applicability to the Internet of the existing laws governing issues such as
property ownership, libel and personal privacy is uncertain, any such new
legislation or regulation or the application of existing laws and regulations to
the Internet could have an adverse effect on the Company's business and
prospects.
DEPENDENCE ON MANAGEMENT
The success of the Company will be dependent largely upon the personal
efforts of its Chief Executive Officer, Michael C. Palmer and its Chief
Operating Officer, Secretary, and Treasurer, Chester L. Noblett. The loss of
their services could have a material adverse effect on the Company's business
and prospects. The success of the Company is also dependent upon its ability to
hire and retain additional qualified management, marketing, technical, financial
and other personnel. Competition for qualified personnel is intense and there
can be no assurance that the Company will be able to hire or retain qualified
personnel. Any inability to attract and retain qualified management and other
personnel could have a material adverse effect on the Company.
LIABILITY FOR INFORMATION SERVICES
Because materials may be downloaded by the online or Internet services
operated or facilitated by the Company and may be subsequently distributed to
others, there is a potential that claims will be made against the Company for
defamation, negligence, copyright or trademark infringement, personal injury or
other theories based on the nature and content of such materials. Such claims
have been brought, and sometimes successfully pressed, against online service
providers in the past. Although the Company carries general liability insurance,
the
<PAGE> 37
Company's insurance may not cover potential claims of this type or may not be
adequate to indemnify the Company for all liability that may be imposed. Any
imposition of liability or legal defense expenses that are not covered by
insurance or in excess of insurance coverage could have a material adverse
effect on the Company's business, operating results and financial condition.
DILUTION OF INVESTMENT FROM EXERCISE OF WARRANTS
The Company has a total of 16,293,215 shares of Common Stock
outstanding. The Company has issued 7,168,914 outstanding warrants to purchase
shares of common stock at a weighted average price of $2.64 per share. This
price is substantially below the current public market price of $10.625 as of
May 6, 1999. Accordingly, if and when the warrants are exercised, there will be
substantial dilution of the current common stock holders.
AUTHORIZATION OF PREFERRED STOCK
The Company's Board of Directors is authorized to issue up to 10,000,000
shares of preferred stock without any need for approval of shareholders. The
Board of Directors has the power to establish the dividend rates, liquidation
preferences and voting rights of any series of preferred stock and these rights
may be superior to the rights of holders of the Common Stock. The Board also may
establish redemption and conversion terms and privileges with respect to any
shares of preferred stock. The issuance of any shares of preferred stock having
rights superior to those of the Common Stock may result in a decrease in the
value or market price of the Common Stock, should such a market develop, and
could be used by the Board as a device to prevent a change in control of the
Company.
NO DIVIDENDS
The Company has not paid and does not expect to pay any dividends in the
foreseeable future.
SHARES ELIGIBLE FOR FUTURE SALE
As of May 6, 1999, there are 13,848,126 "restricted shares" of the
Company's Common Stock issued and outstanding as that term is defined under Rule
144 promulgated under the Act. Of these shares, 5,262,080 shares are held by
directors, officers, or 10% shareholders. 8,196,046 shares are held by other
shareholders. These shares were deemed issued upon the consummation of the
merger on October 8, 1998. The Company has issued 1,395,089 shares of the
Company's Common Stock pursuant to the exemption from registration provided
under Rule 504 promulgated under Regulation D of the Securities and Exchange Act
of 1933, as amended (the "Act") ("Rule 504"). Ninety days after this Form 10
Registration Statement becomes effective, the 5,886,235 shares held by the
non-affiliate shareholders will become eligible for trading, subject to the
volume limitations and other applicable limitations of Rule 144. The Company is
unable to predict the effect that sales of such shares may have on the then
prevailing market price of the Common Stock. Nonetheless, the possibility exists
that the sale of these shares may have a depressive effect on the price of the
Company's Common Stock.
<PAGE> 38
CONTROL BY PRESENT SHAREHOLDERS
<PAGE> 39
The officers and directors and the two largest shareholders of the
Company have in the aggregate beneficial ownership of 36.37% of the outstanding
shares of Common Stock of the Company, and 41.24% of shares on a fully diluted
basis. The Company does not have cumulative voting in the election of directors;
and the minority shareholders will not be able to elect any director to the
Company's Board of Directors.
ANTI-TAKEOVER PROVISIONS
The Company's Board of Directors can, without obtaining shareholder
approval, issue shares of Preferred Stock having rights that could adversely
affect the voting power of the Common Stock. The possible issuance of shares of
Preferred Stock can be used to oppose hostile takeover attempts.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
(a) The Company's financial statement for the year ending December 31,
1998, is filed as part of this Registration Statement.
(b) The exhibits required by Item 601 of Regulation S-K are set forth
below.
Page 33 of 34
<PAGE> 40
SIGNATURES
Pursuant to the requirements of 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.
ESAT, INC.
(Registrant)
Date: May 7, 1999 By /s/ Michael C. Palmer
Michael C. Palmer, Chief Executive
Officer, Chief Financial Officer
EXHIBIT INDEX
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Number Description Page
- ------------------------------------------------------------------------------------------
<S> <C> <C>
(2) a. Agreement of Merger
- ------------------------------------------------------------------------------------------
b. Articles of Merger
- ------------------------------------------------------------------------------------------
(3) a. Amended and Restated Articles of Incorporation
- ------------------------------------------------------------------------------------------
b. Amendment to Articles of Incorporation
- ------------------------------------------------------------------------------------------
c. Bylaws
- ------------------------------------------------------------------------------------------
(10) a. Galaxy Contract
- ------------------------------------------------------------------------------------------
b. Advantage Associates Option Contracts
- ------------------------------------------------------------------------------------------
c. William Sarpalius Option Contract
- ------------------------------------------------------------------------------------------
d. Lori Walker Option Contracts
- ------------------------------------------------------------------------------------------
e. Carol Sarpalius Option Contracts
- ------------------------------------------------------------------------------------------
f. David Coulter Resignation Agreement
- ------------------------------------------------------------------------------------------
g. Chester Noblett Employment Agreement
- ------------------------------------------------------------------------------------------
h. David Coulter Option Agreement
- ------------------------------------------------------------------------------------------
i. Chester Noblett Option Agreement
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
(23) Consent of Independent Accountant
- ------------------------------------------------------------------------------------------
</TABLE>
Page 34 of 34
<PAGE> 1
EXHIBIT 2(a)
AGREEMENT AND PLAN OF MERGER
BETWEEN
TECHNOLOGY GUARDIAN, INC.
AND
U. S. CONNECT 1995, INC.
DATED
SEPTEMBER 15, 1998
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
Section 1. Effective Date...................................................................1
Section 2. Governing Law....................................................................1
Section 3. Articles of Incorporation........................................................2
Section 4. Bylaws...........................................................................2
Section 5. Manner of Converting Shares......................................................2
5.1 Conversion.............................................................2
5.2 Exchange of Certificates...............................................3
5.3 Fractional Shares......................................................3
5.4 Unexchanged Certificates...............................................3
5.5 Legend on USC Certificates Issued in Conversion of
certain TGI Common.....................................................4
Section 6. Board of Directors and Officers..................................................5
Section 7. Effect of the Merger.............................................................5
Section 8. Approval of Shareholders.........................................................5
Section 9. Representations and Warranties of TGI............................................5
9.1 Corporate Organization and Good Standing...............................6
9.2 Capitalization. .......................................................6
9.3 Subsidiaries...........................................................6
9.4 Financial Statements...................................................6
9.5 Absence of Undisclosed Liabilities.....................................6
9.6 Absence of Certain Changes.............................................6
9.7 Litigation, Etc........................................................6
9.8 Contracts..............................................................6
9.9 Title..................................................................7
9.10 Tax Returns............................................................7
9.11 No Violation...........................................................7
9.12 Authorization..........................................................7
9.13 Books and Records......................................................7
9.14 Disclosure.............................................................7
9.15 Broker's or Finder's Fees..............................................7
9.16 Due Diligence..........................................................7
Section 10. Representations and Warranties of USC.......................................... 8
10.1 Corporate Organization and Good Standing...............................8
10.2 Capitalization.........................................................8
10.3 Financial Statements...................................................8
10.4 Absence of Undisclosed Liabilities.....................................8
10.5 Absence of Certain Changes.............................................8
10.6 Litigation.............................................................8
10.7 Contracts..............................................................8
10.8 Title..................................................................9
10.9 Tax Returns............................................................9
10.10 No Violation...........................................................9
ii
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
10.11 Authorization..........................................................9
10.12 Books and Records......................................................9
10.13 Disclosure.............................................................9
10.14 Broker's or Finder's Fees..............................................9
Section 11. Conduct of TGI Pending the Effective Date.......................................9
11.1 Certificate of Incorporation and Bylaws................................9
11.2 Capitalization, Etc...................................................10
11.3 Shareholders' Meeting.................................................10
11.4 Conduct of Business...................................................10
Section 12. Conduct of USC Pending the Effective Date......................................10
12.1 Certificate of Incorporation and Bylaws. .............................10
12.2 Capitalization, Etc. .................................................10
12.3 Shareholders' Meeting.................................................10
12.4 Conduct of Business...................................................10
Section 13. Conditions Precedent to Obligation of TGI......................................10
13.1 USC's Representations and Warranties..................................10
13.2 USC's Covenants.......................................................10
13.3 Shareholder Approval..................................................11
13.4 Dissenting Shareholders of USC........................................11
13.5 Opinion of USC's Counsel..............................................11
13.6 Accountant's Letter. .................................................11
13.7 Proxy Information.....................................................11
13.8 Assets. ..............................................................12
Section 14. Conditions Precedent to Obligation of USC......................................12
14.1 TGI's Representations and Warranties..................................12
14.2 TGI's Covenants.......................................................12
14.3 Shareholder Approval..................................................12
14.4 Dissenting Shareholders of TGI........................................12
14.5 Opinion of TGI's Counsel..............................................12
14.6 Accountant's Letter...................................................13
14.7 Proxy Information.....................................................13
14.8 Funding...............................................................13
14.9 Due Diligence.........................................................13
Section 15. Access.........................................................................13
Section 16. Stand-still Agreement..........................................................13
Section 17. Notice of Events...............................................................14
Section 18. Termination....................................................................14
18.1 Circumstances of Termination. ........................................14
18.2 Effect of Termination.................................................14
Section 19. General Provisions..............................................................15
19.1 Further Assurances....................................................15
19.2 Waiver................................................................15
19.3 Entire Agreement......................................................15
19.4 Headings..............................................................15
iii
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
19.5 Governing Law.........................................................15
19.6 Assignment............................................................15
19.7 Counterparts..........................................................15
Section 20. Survival of Representations, Warranties and Agreements.........................15
Section 21. Indemnity Agreements of USC and TGI............................................15
Section 22. Fees and Expenses..............................................................16
Section 23. Other Agreements...............................................................16
23.1 Public Disclosure.....................................................16
23.2 Notices...............................................................16
23.3 Binding Effect........................................................17
23.4 Entire Agreement......................................................17
23.5 Schedules and Exhibits................................................17
23.6 Applicable Law and Jurisdiction.......................................17
23.7 No Benefit to Third Parties. .........................................17
23.8 Counterparts. ........................................................17
23.9 Acknowledgments.......................................................18
</TABLE>
SCHEDULES
Schedule 3 Amended and Restated Articles of Incorporation
Schedule 5.1(a) USC Common Stock Ownership
Schedule 5.1(c) TGI Options
Schedule 5.2(a) TGI Common Stock Ownership
Schedule 9.5 TGI Absence of Undisclosed Liabilities
Schedule 9.6 TGI Changes in Business as of June 30, 1998
Schedule 9.7 Litigation
Schedule 9.8 Contracts
iv
<PAGE> 5
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER ("Agreement") dated as of September
__, 1998, between Technology Guardian, Inc., a California corporation ("TGI")
and Technology Guardian, Inc., a Nevada corporation (formerly U.S. Connect,
1995, Inc., a Nevada corporation)("USC"), being sometimes referred to herein as
the "Constituent Corporations".
WHEREAS, the Board of Directors of each Constituent Corporation
deems it advisable for the general welfare of its Constituent Corporation and
its shareholders that the Constituent Corporations merge into a single
corporation pursuant to this Agreement and the applicable laws of the States of
Nevada and California; and
WHEREAS, the Constituent Corporations desire to adopt this
Agreement as a Plan of Reorganization and to consummate the merger in accordance
with the provisions of Section 368(a)(1) of the Internal Revenue Code of 1986,
as amended;
NOW, THEREFORE, the Constituent Corporations agree that TGI shall
be merged with and into USC as the surviving corporation in accordance with the
applicable laws of California and Nevada, that the name of the surviving
corporation shall be Technology Guardian, Inc. (which in its capacity as
surviving corporation is hereinafter called the "Surviving Corporation"), and
that the terms and conditions of the merger and the mode of carrying it into
effect shall be as follows:
Section 1. Effective Date
The merger provided for in this Agreement shall become effective
upon the completion of the following:
(1) Adoption of this Agreement by the shareholders of TGI
pursuant to the laws of the State of California and by the shareholders of USC
pursuant to the laws of the State of Nevada;
(2) Execution and filing of the Certificate of Merger as required
by the laws of the States of California and Nevada; and
(3) Execution and filing of the Articles of Merger with the
Secretary of State in accordance with the laws of the State of Nevada.
The Constituent Corporations shall agree upon the date (the
"Effective Date") on which the Certificate of Merger and the Articles of Merger
shall be filed, but such filings shall take place with reasonable promptness
after the approval of this Agreement by the shareholders of the Constituent
Corporations and the fulfillment or waiver of the terms and conditions in
Sections 13 and 14 hereof.
Section 2. Governing Law
The Surviving Corporation shall be governed by the laws of the
State of Nevada.
Section 3. Articles of Incorporation
The Articles of Incorporation of USC, as amended and restated, a
copy of which is attached as Schedule 3, shall be the Articles of Incorporation
of the Surviving Corporation from and after the Effective Date, subject to the
right of the Surviving Corporation to amend its Articles of Incorporation in
accordance with the laws of the State of Nevada.
Section 4. Bylaws
<PAGE> 6
The Bylaws of the Surviving Corporation shall be the Bylaws of
USC as in effect on the date of this Agreement.
Section 5. Manner of Converting Shares
5.1 Conversion. The mode of carrying the merger into effect and
the manner and basis of converting the shares of TGI into shares of the
Surviving Corporation are as follows:
(1) For and in consideration of the exchange of all shares of TGI
Common Stock ($.001 par value) issued and outstanding on the Effective Date:
(a) Acknowledging that USC has recapitalized its issued and
outstanding shares of Common Stock ($.001 par value) from
10,020,000 shares to 200,400 shares by a reverse split of 1
share for 50 shares, USC will issue an additional 850,000
shares to persons listed on Schedule 5.1(a) in exchange for
the consideration listed opposite their name, resulting in
1,050,400 shares issued and outstanding.
(b) USC will grant assignable warrants to Pacific Continental
Securities, Inc. (Pacific)to purchase 350,000 (post-split)
shares exercisable at $.71 per share of the USC stock in
lieu of the TGI warrants to purchase up to 350,000 shares
of TGI stock. These options will not be granted to Pacific
until completion of the Private Placement (purchase of
4,185,000 shares of TGI common stock by Pacific) as set
forth in section 14.8. The warrants may be exercised for a
period of two (2) years from the date of issuance and may
only be exercised after the closing bid price of TGI's
(formerly USC) common stock has equaled or exceeded $5.00
per share for a period of 10 consecutive trading days, as
reflected on the Electronic Bulletin Board.
(c) USC will assume the obligations of TGI regarding all
outstanding stock options to purchase shares of common
stock at $.71 per share for a five (5) year period from
date of grant, previously granted to the following
individuals: options to purchase 1,500,000 shares of
common stock to David Coulter; options to purchase 500,000
shares to Chester (Chet) Noblett; and additional options
to acquire 2,000,000 shares of common stock issued to the
shareholders of TGI as listed on Schedule 5.1(c).
(d) USC shall issue to the present holders of TGI Common Stock
9,315,000 shares of USC Common Stock so that such holders
shall own not less than 89.8663% of the issued and
outstanding shares of USC Common Stock.
(e) 2,092,500 shares of USC common stock will be issued to
Pacific Capital Group, LTD. or its transferees with
respect to those shares acquired pursuant to a private
placement in accordance with the terms of a Confidential
Offering Memorandum dated July 2, 1998 as amended
(COM)as set forth in section 14.8. Up to an additional
2,092,500 shares of USC common stock will be issued upon
completion of the Private Placement in accordance with
the COM. Should all of these shares or any portion
thereof be issued there will be a total of not more than
13,500,000 shares of USC to be issued to present holders
of TGI stock and the purchasers of its Private
Placement, so that a total of not more than 14,550,400
shares of USC shall be issued and outstanding upon
completion of such private placement.
(2) Each share of TGI Common Stock which is issued and
outstanding on the Effective Date shall, by virtue of the merger and without any
action on the part of TGI, be retired and cancelled.
5.2 Exchange of Certificates. As promptly as practicable after
the Effective Date, each holder of an outstanding certificate or certificates
theretofore representing shares of TGI Common Stock shall surrender the same to
Signature Stock Transfer ("Exchange Agent"), Dallas, Texas, and shall receive in
exchange a certificate or certificates
2
<PAGE> 7
representing the number of full shares of USC Common Stock into which the shares
of TGI Common Stock represented by the certificate or certificates so
surrendered shall have been converted. The name, address and amount of shares
owned by each holder of TGI Common Stock is set forth on Schedule 5.2.
5.3 Fractional Shares. Fractional shares of USC Common Stock
shall not be issued.
5.4 Unexchanged Certificates. Until surrendered, each outstanding
certificate which, prior to the Effective Date, represented TGI Common Stock
shall be deemed for all purposes, other than the payment of dividends or other
distributions, to evidence ownership of the whole number of shares of USC Common
Stock into which it is to be converted, and no dividend or other distribution
payable to holders of USC Common Stock as of any date subsequent to the
Effective Date shall be paid to the holders of outstanding certificates. There
shall be paid to the record holders of the certificates issued in exchange
therefor the amount, without interest thereon, of dividends and other
distributions which would have been payable with respect to the shares of USC
Common Stock represented thereby.
5.5 Legend on USC Certificates Issued in Conversion of certain
TGI Common. Each of the certificates representing shares of USC Common Stock
issued in conversion of the TGI Common Stock as provided for herein shall bear
the following legends:
(1) The certificates of present holders representing 9,315,000
shares of TGI Common Stock herein shall bear the following legend:
The securities represented by this Certificate have not
been registered under the Securities Act of 1933 (the
"Act") and are "restricted securities" as that term is
defined in Rule 144 under the Act. The securities may not
be offered for sale, sold or otherwise transferred except
pursuant to an effective registration statement under the
Act or pursuant to an exemption from registration under
the Act, the availability of which is to be established to
the satisfaction of the Corporation.
(2) The certificates representing the 754,045 shares of TGI
Common Stock which were sold pursuant to the exemptions from registration
contained in Section 3(b) of the Act shall bear the following legend:
The securities represented by this Certificate have not
been registered under the Securities Act of 1933 (the
"Act"), in reliance upon the exemptions from the
registration requirements under the Act pursuant to
Section 3(b) and Rule 504 of Regulation D of the Act, and
that the Shares have not been registered under any blue
sky or state securities laws; and the securities can not
be sold, transferred or assigned to any person or entity
without compliance with the provisions of applicable state
blue sky or securities laws until such time as the Shares
have been qualified for secondary trading in the various
states, or pursuant to an exemption from registration
under State Securities laws, the availability of which is
to be established to the satisfaction of the corporation's
counsel.
(3) The certificates representing the 1,338,455 shares of TGI
Common Stock which were sold pursuant to the exemptions from registration
provided by Regulation S of the Act shall bear the following legend:
The securities represented by this Certificate have not
been registered with the Securities and Exchange
Commission (the "SEC") under the United States Securities
Act of 1933 (the "Securities Act"), or the securities act
of any State under any State Securities Law. They are
being offered pursuant to an exemption from registration
under Regulation S ("Regulation S") promulgated under the
Securities Act. The Securities may not be offered, sold or
otherwise transferred in the United States or to U.S.
Persons (as such term is defined in Regulation S) unless
the securities are registered under the Securities Act and
applicable State Securities Laws, or such
3
<PAGE> 8
offers, sales and transfers are made pursuant to
available exemptions from the registration requirements
of those laws.
Section 6. Board of Directors and Officers
Until the election and qualification of their successors, the
members of the Board of Directors of the Surviving Corporation shall be the
Board of Directors of TGI in office on the Effective Date. The elected officers
of the Surviving Corporation, who shall continue in office at the pleasure of
the Board of Directors of the Surviving Corporation, shall be the elected
officers of TGI on the Effective Date. The Directors and Officers of USC shall
resign on the Effective Date.
Section 7. Effect of the Merger
On the Effective Date, the separate existence of TGI shall cease
(except insofar as continued by statute) and it shall be merged with and into
the Surviving Corporation. All the property of each of the Constituent
Corporations, and all debts due to either of them, shall be transferred to and
vested in the Surviving Corporation, without further act or deed. The Surviving
Corporation shall thenceforth be responsible and liable for all the liabilities
and obligations of each of the Constituent Corporations, and any claim or
judgment against either of the Constituent Corporations may be enforced against
the Surviving Corporation.
Section 8. Approval of Shareholders
This Agreement shall be submitted to the shareholders of the
Constituent Corporations as provided by the applicable laws of their respective
states of incorporation at meetings called for that purpose. There shall be
required for the adoption of this Agreement: (1) as to TGI, the affirmative vote
of the holders of at least a majority of all the shares of its Common Stock
issued and outstanding and entitled to vote; and (2) as to USC, the affirmative
vote of the holders of at least a majority of all the shares of its Common Stock
issued and outstanding and entitled to vote.
Section 9. Representations and Warranties of TGI
TGI represents and warrants that:
9.1 Corporate Organization and Good Standing. TGI is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California, and is qualified to do business as a foreign
corporation in each jurisdiction, if any, in which its property or business
requires such qualification.
9.2 Capitalization. TGI's authorized capital stock consists of:
50,000,000 shares of TGI Common Stock, $0.001 par value, of which as of August
31, 1998, 11,407,500 shares are issued and outstanding, fully paid and
nonassessable; and 10,000,000 shares of TGI Preferred Stock, $0.001 par value,
of which no shares have been issued. There are no options, warrants or rights
outstanding to purchase shares of TGI Common Stock from TGI except as disclosed
on Schedule 9.2.
9.3 Subsidiaries. TGI has no subsidiaries.
9.4 Financial Statements. TGI's balance sheet as of December 31,
1997, and the related statements of income and retained earnings for the years
ended December 31, 1996 and December 31, 1997, all certified by Lichter &
Associates., independent certified public accountants, and the unaudited balance
sheet and related statements of income and retained earnings for the period
ended June 30, 1998, copies of which are to be delivered by TGI to USC, fairly
present the financial condition of TGI as of said dates and the results of its
operations for the periods then ended, in conformity with
4
<PAGE> 9
generally accepted accounting principles consistently applied for the periods
covered and shall comply in form and substance with applicable rules and
regulations of the United States Securities and Exchange Commission ("SEC").
9.5 Absence of Undisclosed Liabilities. Except to the extent
reflected or reserved against in TGI's balance sheet as of June 30, 1998, TGI
did not have at that date any liabilities or obligations (secured, unsecured,
contingent or otherwise) of a nature customarily reflected in a corporate
balance sheet prepared in accordance with generally accepted accounting
principles ("Liabilities"). All Liabilities incurred subsequent to June 30, 1998
are set forth in Schedule 9.5 hereto.
9.6 Absence of Certain Changes. Except as disclosed on Schedule
9.6, there has been no material adverse change in the business, properties or
financial condition of TGI since June 30, 1998.
9.7 Litigation, Etc. Except as disclosed on Schedule 9.7, there
is no litigation, proceeding or investigation pending or, to the knowledge of
TGI, threatened against TGI which if successful might result in a material
adverse change in the business, properties or financial condition of TGI or
which questions the validity or legality of this Agreement or of any action
taken or to be taken by TGI in connection with this Agreement.
9.8 Contracts. Except as disclosed on Schedule 9.8, TGI is not a
party to any material contract not in the ordinary course of business which is
to be performed in whole or in part at or after the date of this Agreement.
9.9 Title. TGI has good and marketable title to all property
included in the balance sheet of TGI as of June 30, 1998, other than property
disposed of in the ordinary course of business after said date. Except as
disclosed on Schedule 9.9, the properties of TGI as previously disclosed in
writing to USC, are not subject to any mortgage, encumbrance or lien of any kind
except minor encumbrances which do not materially interfere with the use of the
property in the conduct of the business of TGI.
9.10 Tax Returns. TGI has timely filed all required federal,
state and local tax returns and has no outstanding tax liabilities, including
but not limited to income, withholding, property and corporate franchise taxes.
9.11 No Violation. Consummation of the merger will not constitute
or result in a breach or default under any provision of any charter, bylaw,
indenture, mortgage, lease or agreement, or any order, judgment, decree, law or
regulation to which any property of TGI is subject or by which TGI is bound,
except for breaches or defaults which in the aggregate would not have a
materially adverse effect on TGI's properties, business operations or financial
condition.
9.12 Authorization. Execution of this Agreement has been duly
authorized and approved by TGI's Board of Directors.
9.13 Books and Records. The corporate minute books, stock
certificate books, stock registers and other corporate records of TGI are
correct and complete in all material respects, and the signatures appearing on
all documents contained therein are the true signatures of the persons
purporting to have signed the same.
9.14 Disclosure. Neither this Agreement nor any Schedule, Exhibit
or certificate delivered in accordance with the terms hereof, or any document or
statement in writing which has been supplied by or on behalf of TGI or by any of
TGI's directors or officers, in connection with the transactions contemplated
hereby, contains any untrue statement of a material fact, or omits any statement
of a material fact necessary in order to make the statements contained herein or
therein not misleading. There is no fact or circumstance known to TGI which
materially and adversely affects or which may materially and adversely affect
its business, prospects or financial condition or its assets, which has not been
set forth in this Agreement, the Schedules, Exhibits, certificates or statements
furnished in writing to USC in connection with the transactions contemplated by
this Agreement.
9.15 Broker's or Finder's Fees. No broker, finder or similar
intermediary is entitled to fees in connection with the transactions
contemplated by this Agreement by virtue of any action or agreement of TGI.
5
<PAGE> 10
9.16 Due Diligence. TGI has completed its due diligence review of
USC.
Section 10. Representations and Warranties of USC
USC represents and warrants that:
10.1 Corporate Organization and Good Standing. USC is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Nevada, and is qualified to do business as a foreign corporation
in each jurisdiction, if any, in which its property or business requires such
qualification.
10.2 Capitalization. USC's authorized capital stock consists of:
(i) 50,000,000 shares of Common Stock, ($.001 par value), of which 1,050,400
shares are issued and outstanding, fully paid and nonassessable; and, (ii)
10,000,000 shares of Preferred Stock ($.001 par value) none of which are issued
and outstanding. There are no options, warrants or rights outstanding to
purchase shares of USC Common Stock from USC.
10.3 Financial Statements. USC's balance sheet as of June 30,
1998 and the related statements of income and retained earnings for the years
ended June 30, 1997 and 1998, all certified by Robert C. Downing, independent
certified public accountant, and the audited balance sheet and related
statements of income and retained earnings for the period ended August 31, 1998,
copies of which have been delivered by USC to TGI, fairly present the financial
condition of USC as of said dates and the results of its operations for the
periods then ended, in conformity with generally accepted accounting principles
consistently applied for the periods covered and comply in form and substance
with applicable regulations of the SEC.
10.4 Absence of Undisclosed Liabilities. Except to the extent
reflected or reserved against in USC's balance sheet as of August 31, 1998 USC
did not have at that date any liabilities or obligations (secured, unsecured,
contingent or otherwise) of a nature customarily reflected in a corporate
balance sheet prepared in accordance with generally accepted accounting
principles ("Liabilities"). All Liabilities incurred subsequent to August 31,
1998 will be paid by USC prior to closing.
10.5 Absence of Certain Changes. There has been no material
adverse change in the business, properties or financial condition of USC since
August 31, 1998.
10.6 Litigation There is no litigation, proceeding or
investigation pending or, to the knowledge of USC, threatened against USC which
if successful might result in a material adverse change in the business,
properties or financial condition of USC or which questions the validity or
legality of this Agreement or of any action taken or to be taken by USC in
connection with this Agreement.
10.7 Contracts. USC is not a party to any material contract not
in the ordinary course of business which is to be performed in whole or in part
at or after the date of this Agreement.
10.8 Title. USC has good and valid title to all property included
in the balance sheet of USC as of August 31, 1998, other than property disposed
of in the ordinary course of business after said date. The properties of USC are
not subject to any mortgage, encumbrance or lien of any kind.
10.9 Tax Returns. USC has timely filed all required federal,
state and local tax returns and has no outstanding tax liabilities, including
but not limited to income, withholding, property and corporate franchise taxes.
10.10 No Violation. Consummation of the merger will not
constitute or result in a breach or default under any provision of any charter,
bylaw, indenture, mortgage, lease or agreement, or any order, judgment, decree,
law or regulation to which any property of USC is subject or by which USC is
bound, except for breaches or defaults which in the aggregate would not have a
materially adverse effect on USC's properties, business operations or financial
condition.
6
<PAGE> 11
10.11 Authorization. Execution of this Agreement has been duly
authorized and approved by USC's Board of Directors.
10.12 Books and Records. The corporate minute books, stock
certificate books, stock registers and other corporate records of TGI are
correct and complete in all material respects, and the signatures appearing on
all documents contained therein are the true signatures of the persons
purporting to have signed the same.
10.13 Disclosure. Neither this Agreement nor any Schedule,
Exhibit or certificate delivered in accordance with the terms hereof, or any
document or statement in writing which has been supplied by or on behalf of USC
or by any of USC's directors or officers, in connection with the transactions
contemplated hereby, contains any untrue statement of a material fact, or omits
any statement of a material fact necessary in order to make the statements
contained herein or therein not misleading. There is no fact or circumstance
known to USC which materially and adversely affects or which may materially and
adversely affect its business, prospects or financial condition or its assets,
which has not been set forth in this Agreement, the Schedules, Exhibits,
certificates or statements furnished in writing to TGI in connection with the
transactions contemplated by this Agreement.
10.14 Broker's or Finder's Fees. No broker, finder or similar
intermediary is entitled to fees in connection with the transactions
contemplated by this Agreement by virtue of any action or agreement of USC.
Section 11. Conduct of TGI Pending the Effective Date
TGI covenants that between the date of this Agreement and the
Effective Date:
11.1 Certificate of Incorporation and Bylaws. Other than as
required by this Agreement, no change will be made in TGI's certificate of
incorporation or bylaws.
11.2 Capitalization, Etc. Other than as required by this
Agreement, TGI will not make any change in its authorized or issued capital
stock, or issue, encumber, purchase or otherwise acquire any of its capital
stock other than as provided for in this Agreement.
11.3 Shareholders' Meeting. TGI will submit this Agreement to the
shareholders' meeting contemplated by Section 8 with a favorable recommendation
by its Board of Directors and will use its best efforts to obtain the requisite
shareholder approval.
11.4 Conduct of Business. TGI will use its best efforts to
maintain and preserve its business organization and goodwill intact, and will
not, without the written consent of USC, enter into any material commitment
except in the ordinary course of business other than as provided for in this
Agreement.
Section 12. Conduct of USC Pending the Effective Date
USC covenants that between the date of this Agreement and the
Effective Date:
12.1 Certificate of Incorporation and Bylaws. No change will be
made in USC's certificate of incorporation or bylaws without the consent of TGI.
12.2 Capitalization, Etc. USC will not make any change in its
authorized or issued capital stock, or issue, encumber, purchase or otherwise
acquire any of its capital stock, other than as provided for in this Agreement.
12.3 Shareholders' Meeting. USC will submit this Agreement to the
shareholders' meeting contemplated by Section 8 with a favorable recommendation
by its Board of Directors and will use its best efforts to obtain the requisite
shareholder approval.
7
<PAGE> 12
12.4 Conduct of Business. USC will use its best efforts to
maintain and preserve its business organization and goodwill intact, and will
not, without the written consent of TGI, enter into any material commitment
other than as provided for in this Agreement.
Section 13. Conditions Precedent to Obligation of TGI
TGI's obligation to consummate this merger shall be subject to
fulfillment on or before the Effective Date of each of the following conditions,
unless waived in writing by TGI:
13.1 USC's Representations and Warranties. The representations
and warranties of USC set forth in Section 10 hereof shall be true and correct
at the Effective Date as though made at and as of that date, except as affected
by transactions contemplated hereby.
13.2 USC's Covenants. USC shall have performed all covenants
required by this Agreement to be performed by it on or before the Effective
Date.
13.3 Shareholder Approval. This Agreement shall have been adopted
by the necessary vote of holders of the capital stock of the Constituent
Corporations as set forth in Section 8 hereof.
13.4 Dissenting Shareholders of USC. The number of shares of
Common Stock of USC with respect to which objections to the merger and demands
for payment of the fair value thereof shall have been made in accordance with
the provisions of Nevada law, and with respect to which such demands shall not
have been withdrawn with the consent of USC, shall not exceed five (5%) percent
of the number of shares entitled to object and make such demand.
13.5 Opinion of USC's Counsel. USC shall have delivered to TGI
the opinion of its counsel, Stephen A. Zrenda, Jr. P.C., dated the Effective
Date, in form and substance satisfactory to counsel for TGI, to the effect that:
(1) USC is a corporation duly organized, validly existing and in
good standing, and is duly qualified to do business as a foreign corporation in
each jurisdiction (if any) in which, to the best knowledge of counsel, its
property or business requires such qualification.
(2) USC's authorized capital stock is as set forth in Section
10.2 hereof.
(3) The execution and consummation of this Agreement have been
duly authorized and approved by USC's Board of Directors and shareholders and
consummation of this Agreement will not constitute or result in any breach or
default of the character described in Section 10.11 hereof of which counsel has
knowledge.
(4) Counsel has no knowledge of any liabilities or obligations of
the type described in Section 10.5 hereof, any litigation, proceeding, or
investigation of the type described in Section 10.7 hereof, or any defects in
title or mortgages, encumbrances or liens of the type described in Section 10.9
hereof.
(5) The shares of USC Common Stock into which TGI Common Stock is
to be converted pursuant to this Agreement will, upon such conversion, be duly
and validly authorized and issued, and will be fully paid and nonassessable.
(6) Counsel shall rely on representations contained in
certificates of officers and directors of USC and on Nevada counsel for USC as
basis for its opinion as represented herein.
13.6 Accountant's Letter. TGI shall have received a letter from
Robert C. Downing, certified public accountant, dated the Effective Date, in
form and substance satisfactory to TGI, stating that on the basis of
consultation with officers of USC, a limited review (but not an audit) of USC's
accounting records, and other specified procedures and inquiries, which TGI may
request in writing, nothing has come to their attention which indicates that
there has been any
8
<PAGE> 13
material adverse change in the financial condition of USC during the period from
June 30, 1998 to a specified date not more than five days prior to the Effective
Date and that all liabilities of USC have been paid.
13.7 Proxy Information. None of the information with respect to
USC which shall have been furnished by or on behalf of USC for inclusion in the
proxy solicitation material sent to the shareholders of TGI in connection with
the meeting of such shareholders to be held in accordance with Section 8 hereof
shall be false or misleading in any material respect or shall fail to state any
fact necessary to make the statements therein not false or misleading in any
material respect.
13.8 Assets. USC will have no cash on hand at Closing and no
unpaid liabilities. USC will provide documentation that all outstanding
liabilities as of the Effective Date of Merger shall have been fully paid and
cancelled.
Section 14. Conditions Precedent to Obligation of USC
USC's obligation to consummate this merger shall be subject to
fulfillment on or before the Effective Date of each of the following conditions,
unless waived in writing by USC:
14.1 TGI's Representations and Warranties. The representations
and warranties of TGI set forth in Section 9 hereof shall be true and correct at
the Effective Date as though made at and as of that date, except as affected by
transactions contemplated hereby.
14.2 TGI's Covenants. TGI shall have performed all covenants
required by this Agreement to be performed by it on or before the Effective
Date.
14.3 Shareholder Approval. This Agreement shall have been adopted
by the necessary vote of holders of the capital stock of the Constituent
Corporations as set forth in Section 8 hereof.
14.4 Dissenting Shareholders of TGI. TGI shall have no
shareholders dissenting from the merger.
14.5 Opinion of TGI's Counsel. TGI shall have delivered to USC
the opinion of its counsel, Brenman Bromberg & Tenenbaum, P.C., dated the
Effective Date, in form and substance satisfactory to counsel for USC, to the
effect that:
(1) TGI is a corporation duly organized, validly existing and in
good standing, and is duly qualified to do business as a foreign corporation in
each jurisdiction (if any) in which, to the best knowledge of counsel, its
property or business requires such qualification.
(2) TGI's authorized capital stock is as set forth in Section 9.2
hereof.
(3) The execution and consummation of this Agreement have been
duly authorized and approved by TGI's Board of Directors and shareholders and
consummation of this Agreement will not constitute or result in any breach or
default of the character described in Section 9.11 hereof of which counsel has
knowledge.
(4) Counsel shall rely on representations contained in
certificates of officers and directors of TGI and on California counsel for TGI
as basis for its opinion as represented herein.
14.6 Accountant's Letter. USC shall have received a letter from
Lichter & Associates, certified public accountants, dated the Effective Date, in
form and substance satisfactory to USC, stating that on the basis of
consultation with officers of TGI, a limited review (but not an audit) of TGI's
accounting records, and other specified procedures and inquiries, which USC may
request in writing, nothing has come to their attention which indicates that
there
9
<PAGE> 14
has been any material adverse change in the financial condition of TGI during
the period from June 30, 1998, to a specified date not more than five days prior
to the Effective Date.
14.7 Proxy Information. None of the information with respect to
TGI which shall have been furnished by or on behalf of TGI for inclusion in the
proxy solicitation material sent to the shareholders of USC in connection with
the meeting of such shareholders to be held in accordance with Section 8 hereof
shall be false or misleading in any material respect or shall fail to state any
fact necessary to make the statements therein not false or misleading in any
material respect.
14.8 Funding. TGI is presently conducting a private placement of
its common stock which shall result in net proceeds of not less than $2,999,809
less payment of expenses (the "Private Placement"). The Private Placement is
being made under the provisions of Rule 504 of Regulation D and Regulation S
promulgated under the Securities Act of 1933, as amended. The offering is being
made only to"Accredited Investors" as that term is defined in Regulation D, who
are not residents of the United States
14.9 Due Diligence. USC shall have completed a due diligence
review of all books, records and business and financial affairs of TGI
reasonably satisfactory to it.
Section 15. Access
From the date hereof to the Effective Date, USC and TGI shall
provide each other with such information and permit each other's officers and
representatives such access to its properties and books and records as the other
may from time to time reasonably request. If the merger is not consummated, all
documents received in connection with this Agreement shall be returned to the
party furnishing the same, and all information so received shall be treated as
confidential.
Section 16. Stand-still Agreement
From and after the date of this Agreement and up to and
including the Closing Date both parties agree to conduct their respective
businesses in the ordinary course and agree that during such period each shall
have the exclusive right to negotiate with the other with respect to the Merger
and during such period each party agrees not to directly or through
intermediaries solicit, entertain or otherwise discuss with any person or entity
any other offer and neither USC nor TGI will issue or agree to issue, except as
otherwise disclosed in this Agreement, any additional securities without the
consent of the other party. Without the consent of the other party, neither
party will, except in the ordinary course of business, transfer assets or create
liabilities other than those contemplated herein. All reasonable expenses
incurred in connection with the completion of the transactions contemplated
herein shall be deemed to be in the ordinary course of business. Should any
party be in violation of this provision, this agreement shall be null and void.
Section 17. Notice of Events
Each party shall promptly notify each other party of (a) any
event, condition or circumstance occurring from the date hereof through the
Closing Date that would constitute a violation or breach of this Agreement, or
(b) any event, occurrence, transaction or other item which would have been
required to have been disclosed on any Schedule, Exhibit or statement delivered
hereunder, had such event, occurrence, transaction or item existed on the date
hereof, other than items arising in the ordinary course of business which would
not render a change in any of the representations, warranties or other
agreements of said party.
Section 18. Termination
10
<PAGE> 15
18.1 Circumstances of Termination. This Agreement may be
terminated (notwithstanding approval by the shareholders of either party
hereto):
(1) By the mutual consent in writing of the Boards of Directors
of TGI and USC.
(2) By the Board of Directors of TGI if any condition provided in
Section 13 hereof has not been satisfied or waived on or before the Effective
Date.
(3) By the Board of Directors of USC if any condition provided in
Section 14 hereof has not been satisfied or waived on or before the Effective
Date.
(4) By the Board of Directors of USC if the Closing has not
occurred by September 30, 1998, subject to an extension of up to ten (10) days
which may be exercised by USC upon written notice to TGI. In addition, TGI may
extend the closing up to ten (10) days upon written notice to USC in the event
that: 1.) audited financial statements of TGI required for closing are not
available; and, 2.) such unavailability is not the result of TGI's inability to
be audited or failure to pay or cooperate with its auditors.
(5) By the Board of Directors of TGI if more than 5% of the
shareholders of TGI request appraisal rights prior to ratification and adoption
of this Agreement by the majority of outstanding shareholders of TGI.
18.2 Effect of Termination. In the event of a termination of this
Agreement pursuant to Section 18.1 (1) hereof, each party shall pay the costs
and expenses incurred by it in connection with this Agreement and no party (or
any of its officers, directors and shareholders) shall be liable to any other
party for any costs, expenses, damage or loss of anticipated profits hereunder.
Section 19 General Provisions
19.1 Further Assurances. At any time, and from time to time,
after the Effective Date, each party will execute such additional instruments
and take such action as may be reasonably requested by the other party to
confirm or perfect title to any property transferred hereunder or otherwise to
carry out the intent and purposes of this Agreement.
19.2 Waiver. Any failure on the part of either party hereto to
comply with any of its obligations, agreements or conditions hereunder may be
waived in writing by the party to whom such compliance is owed.
19.3 Entire Agreement. This Agreement constitutes the entire
agreement between the parties and supersedes and cancels any other agreement,
representation, or communication, whether oral or written, between the parties
hereto relating to the transactions contemplated herein or the subject matter
hereof.
19.4 Headings. The section and subsection headings in this
Agreement are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
19.5 Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of California,
without regard to conflict of laws. This Agreement shall be subject to the
jurisdiction and venue of the state and federal courts situated in Los Angeles,
California.
19.6 Assignment. This Agreement shall inure to the benefit of,
and be binding upon, the parties hereto and their successors and assigns;
provided, however, that any assignment by either party of its rights under this
Agreement without the written consent of the other party shall be void.
19.7 Counterparts. This Agreement may be executed simultaneously
in two or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
11
<PAGE> 16
Section 20. Survival of Representations, Warranties and Agreements
All of the representations and warranties of the parties
contained in this Agreement shall survive for a period of two years after the
Closing Date.
Section 21. Indemnity Agreements of USC and TGI
TGI and the officers, directors and major shareholders of USC
each shall indemnify, defend, reimburse and hold harmless the other from and
against any and all Losses resulting from:
(a) Any inaccuracy in, or breach of, any representation
and warranty or nonfulfillment of any covenant on the part of USC
or TGI, respectively, contained in this Agreement.
(b) Any misrepresentation in or omission from or
nonfulfillment of any covenant on the part of USC or TGI,
respectively, contained in any other agreement, certificate or
other instrument furnished or to be furnished to the other party
by that party pursuant to this Agreement.
Section 22. Fees and Expenses
Legal, accounting and other fees, costs and expenses to be
incurred by each party regarding this Agreement and the transactions
contemplated hereby shall be paid by the party incurring them. Notwithstanding
any other provision in this Agreement, in the event of any dispute or
controversy, in addition to any other remedies the prevailing party may obtain
in such dispute, the prevailing party in such dispute shall be entitled to
recover from the other party all of its reasonable legal fees and out-of-pocket
costs incurred by such party in enforcing or defending its rights hereunder.
Section 23. Other Agreements
23.1 Public Disclosure. None of the parties hereto shall issue
any press release or otherwise make any public statement with respect to the
transactions contemplated hereby not required by law except upon the written
consent of the other party hereto. Such approval shall not be unreasonably
withheld.
23.2 Notices. All consents, waivers, notices and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if delivered personally or sent by facsimile transmission or by
overnight courier to the parties at the following addresses or at such other
addresses as shall be specified by the parties by like notice:
(1) If to USC to:
U. S. Connect 1995, Inc.
With copies to:
Stephen A. Zrenda, Jr., Esq.
1520 Bank One Center
100 North Broadway
Oklahoma City, OK 73102-8601
Facsimile: (405) 235-2157
12
<PAGE> 17
(2) If to TGI to:
Technology Guardian, Inc.
14600 Goldenwest Street, Suite 203
Westminster, California 92683
Attn: David B. Coulter, President
Facsimile: (714) 898-9035
With a copy to:
Brenman Bromberg & Tenenbaum, P.C.
1775 Sherman Street, Suite 1001
Denver, Colorado 80203-4314
Attn: Albert Brenman, Esq.
Facsimile: (303) 839-1633
Any party may change the address to which notices, requests, demands and other
communications hereunder are to be sent to such party by giving the other
parties hereto written notice thereof in accordance with this Section 24.2.
23.3 Binding Effect. This Agreement shall be binding upon and
shall inure to the benefit of the parties and their respective successors and
assigns; provided that this Agreement may not be assigned by any party without
the consent of the other parties.
23.4 Entire Agreement. This Agreement (including the Exhibits and
Schedules referred to herein) constitutes the entire agreement and supersedes
all other prior agreements and undertakings, both written and oral, among the
parties, or any of them, with respect to the subject matter hereof.
23.5 Schedules and Exhibits. The Schedules and Exhibits referred
to in this Agreement shall be construed as an integral part of this Agreement as
if the same had been set forth herein and shall be satisfactory in form and
substance to each party hereto.
23.6 Applicable Law and Jurisdiction. This Agreement shall be
governed in all respects, including validity, interpretation and effect, by the
laws of the State of California without regard to conflict of law, except for
Nevada corporate law, which is in accordance with the laws of the State of
Nevada. This Agreement shall be subject to the jurisdiction and venue of the
state and federal courts situated in Los Angeles, California.
23.7 No Benefit to Third Parties. No provision of this Agreement
is intended to confer any rights or remedies upon any person not a party of this
Agreement.
23.8 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original but all of which, when
taken together, shall constitute only one document. It shall not be necessary in
making proof of this Agreement to produce or account for more than one such
counterpart.
23.9 Acknowledgments.
(a) The parties represent and acknowledge that each has been
represented and advised by counsel in connection with this
Agreement.
(b) TGI acknowledges that certain members of TGI's law firm
own shares of TGI common stock.
13
<PAGE> 18
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto as of the day and year first above written.
Technology Guardian, Inc., a Nevada
corporation (formerly, U.S. Connect 1995,
Inc., a Nevada corporation)
By
----------------------------------------
Charles McGuirk, President
TECHNOLOGY GUARDIAN, INC., a California
corporation
By
----------------------------------------
David B. Coulter, President
14
<PAGE> 1
EXHIBIT 2(b)
ARTICLES OF MERGER
OF
TECHNOLOGY GUARDIAN, INC.
AND
TECHNOLOGY GUARDIAN, INC.
FORMERLY U.S. CONNECT 1995, INC.
To the Secretary of State
State of Nevada
Pursuant to the provisions of Chapter 78, Nevada Revised Statutes, the
corporations herein named do hereby adopt the following Articles of Merger.
1. Annexed hereto and made a part hereof is the Plan of Merger for
merging Technology Guardian, Inc., a corporation for profit
organized under the laws of the State of California, with and
into Technology Guardian, Inc., formerly U.S. Connect 1995,
Inc., a corporation for profit organized under the laws of the
State of Nevada. The said Plan of Merger has been adopted by the
Board of Directors of Technology Guardian Inc. and by the Board
of Directors of Technology Guardian, Inc., formerly U.S. Connect
1995, Inc.
2. The Plan of Merger was approved by a majority of the outstanding
shareholders of Technology Guardian, Inc. pursuant to the
provisions of the California Corporation Code.
3. The said Plan of Merger was approved by a majority of the
outstanding shareholders of Technology Guardian, Inc. formerly
U.S. Connect 1995, Inc. pursuant to the provisions of Chapter
78, Nevada Revised Statutes.
4. The merger herein provided for shall become effective in the
State of Nevada on September , 1998.
<PAGE> 2
Signed on September , 1998
TECHNOLOGY GUARDIAN, INC.
By /s/ DAVID B. COULTER
-------------------------------------
David B. Coulter, President
By /s/ CHESTER L. NOBLETT, JR.
-------------------------------------
Chester L. Noblett, Jr., Secretary
TECHNOLOGY GUARDIAN, INC.
FORMERLY U.S. CONNECT 1995, INC.
By /s/ CHARLES MCGUIRK
-------------------------------------
Charles McGuirk, President
By /s/ Charles Peterson
-------------------------------------
Charles Peterson, Secretary
<PAGE> 1
EXHIBIT 3(a)
CERTIFICATE OF AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
TECHNOLOGY GUARDIAN, INC.
TECHNOLOGY GUARDIAN, INC., a corporation organized and existing under the
laws of the State of Nevada (the "CORPORATION"), hereby certifies as follows:
1. The name of the Corporation is Technology Guardian, Inc., formerly U.S.
Connect 1995, Inc. The original Certificate of Incorporation of the Corporation
was filed on June 23, 1995.
2. Pursuant to Section 78.403 of the Nevada Revised Statutes ("N.R.S"),
the Board of Directors of the Corporation has duly adopted by unanimous written
consent in accordance with N.R.S. 78.403, and a majority of the outstanding
stock entitled to vote has approved by written consent in accordance with N.R.S.
78.403, this Amended and Restated Certificate of Incorporation of the
Corporation, which amends and restates Articles of Incorporation of the
Corporation.
3. Pursuant to N.R.S. 78.403, the text of the Articles of Incorporation is
hereby restated to read in its entirety as follows:
ARTICLE I
NAME
The name of the Corporation is Technology Guardian, Inc.
ARTICLE II
RESIDENT AGENT OF THE CORPORATION
The Resident Agent of the Corporation is The Corporation Trust Company of
Nevada, One East First Street, Reno, Nevada 89501.
ARTICLE III
DURATION OF THE CORPORATION
The Corporation shall have perpetual existence.
ARTICLE IV
PURPOSE
The purpose, object and nature of the business for which this Corporation
is organized are:
(a) To engage in any lawful activity
<PAGE> 2
(b) To carry on such business as may be necessary, convenient, or
desirable to accomplish the above purposes, and to do all other
things incidental thereto which are not forbidden by law or by
these Articles of Incorporation.
ARTICLE V
POWERS OF THE CORPORATION
The powers of the Corporation shall be those powers granted by N.R.S.
Sections 78.060 and 78.070 under which this Corporation is formed. In addition,
the Corporation shall have the following specific powers:
(a) To elect or appoint officers and agents of the Corporation and
to fix their compensation.
(b) To act as an agent for any individual, association,
partnership, corporation or other legal entity;
(c) To receive, acquire, hold, exercise rights arising out of the
ownership or possession thereof sell, or otherwise dispose of
shares or other interests in, or obligations of, individuals,
associations, partnerships, corporations, or governments;
(d) To receive, acquire, hold, pledge, transfer, or otherwise
dispose of shares of the corporation, hut such shares may only
be purchased, directly or indirectly, out of earned surplus;
and
(e) To make gifts or contributions for the public welfare or for
charitable, scientific or educational purposes, and in time of
war, to make donations in aid of war activities.
ARTICLE VI
AUTHORIZED STOCK
The total number of shares of capital stock which the Corporation shall
have authority to issue is sixty million (60,000,000) shares, of which fifty
million (50,000,000) shares shall be common stock with a par value of $.001 per
share ("Common Stock"), and ten million (10,000,000) shares shall be preferred
stock with a par value of $.001 per share ("Preferred Stock").
The Board of Directors shall have full authority, to the extent permitted
by law, to adjust the capital stock of the Corporation, to designate classes or
series thereof and to determine whether all or any part of such Common Stock
shall have voting powers, full or limited, or no voting powers, and to determine
such designations, and such powers, preferences, relative, participating or
optional, or other special rights and the
<PAGE> 3
qualifications, limitations or restrictions thereof as the Board shall from time
to time determine in duly adopted resolutions.
ARTICLE VII
ASSESSMENT OF STOCK
The Capital stock of this Corporation, after the amount of the
subscription price has been fully paid in, shall not be assessable for any
purpose, and no stock issued as fully paid up shall ever be assessable or
assessed. The holders of such stock shall not be individually responsible for
the debts, contracts, or liabilities of the Corporation and shall not be liable
for assessments to restore impairments in the capital of the Corporation.
ARTICLE VIII
DIRECTORS OF THE CORPORATION
For the management of the business and for the conduct of the affairs of
the Corporation, and for the future definition, limitation regulation of the
powers of the Corporation and its directors and shareholders, it is further
provided:
Section 1.
Size of Board. The number of directors of the Corporation, their
qualifications, terms of office, manner of election, time and place of meeting,
and powers and duties shall be such as are prescribed by statute and in the
by-laws of the Corporation. The name and address of the directors constituting
the present board of directors, which shall be one (1) in number are:
<TABLE>
<CAPTION>
Name Address
<S> <C>
Charles McGuirk 4100 Westheimer Harbor, #110
Houston, TX 77027
</TABLE>
Section 2.
Powers of Board. In furtherance and not in limitation of the powers
conferred by the laws of the State of Nevada, the Board of Directors is
expressly authorized and empowered:
(a) To make, alter, amend, and repeal the By-Laws subject to the
power of the shareholders to alter or repeal the By-laws made
by the Board of Directors;
(b) Subject to the applicable provisions of the By-Laws then in
effect, to determine, from time to time, whether and to what
extent, and at what times and places, and under what
conditions and regulations, the accounts and books of the
Corporation, or any of them, shall be open to
<PAGE> 4
shareholder inspection. No shareholder shall have any right to
inspect any of the accounts, books or documents of the
Corporation, except as permitted by law, unless and until
authorized to do so by resolution of the Board of Directors or
of the Shareholders of the Corporation;
(c) To issue stock of the Corporation for money, property,
services rendered, labor performed, cash advanced,
acquisitions for other corporations or for any other assets of
value in accordance with the action of the board of directors
without vote or consent of the shareholders and the judgment
of the board of directors as to value received and in return
therefore shall be conclusive and said stock, when issued,
shall be fully-paid and non-assessable;
(d) To authorize and issue, without shareholder consent,
obligations of the Corporation, secured and unsecured, under
such terms and conditions as the Board, in its sole
discretion, may determine, and to pledge or mortgage, as
security therefore, any real or personal property of the
Corporation, including after-acquired property;
(e) To determine whether any and, if so, what part, of the earned
surplus of the Corporation shall be paid in dividends to the
shareholders, and to direct and determine other use and
disposition of any such earned surplus;
(f) To fix, from time to time, the amount of the profits of the
Corporation to be reserved as working capital or for any other
lawful. purpose;
(g) To establish bonus, profit-sharing, stock option, or other
types of incentive compensation plans for the employees,
including officers and directors, of the Corporation, and to
fix the amount of profits to be shared or distributed, and to
determine the persons to participate in any such plans and the
amount of their respective participations;
(h) To designate, by resolution or resolutions passed by a majority
of the whole Board, one or more committees, each consisting of
two or more directors, which, to the extent permitted by law
and authorized by the resolutions or the By-Laws, shall have
and may exercise the powers of the Board;
(i) To provide for the reasonable compensation of its own members
by By-Law, and to fix the terms and conditions upon which such
compensation will be paid; and
(j) In addition to the powers and authority herein before, or by
statute, expressly conferred upon it, the Board of Directors
may exercise all such powers and do all such acts and things as
may be exercised or done by
<PAGE> 5
the corporation, subject, nevertheless, to the provisions of
the laws of the State of Nevada, of these Amended and Restated
Articles of Incorporation, and of the By-Laws of the
Corporation.
Section 3.
Interested Directors. No contract or transaction between this Corporation
and any of its directors, or between this Corporation and any other corporation,
firm, association, or other legal entity shall be invalidated by reason of the
fact that the director of the Corporation has a direct or indirect interest,
pecuniary or otherwise, in such corporation, firm, association, or legal entity,
or because the interested director was present at the meeting of the Board of
Directors which acted upon or in reference to such contract or transportation,
or because he participated in such action, provided that: (1) the interest of
each such director shall have been disclosed to or known by the Board and a
disinterested majority of the Board shall have nonetheless ratified and approved
such contract or transaction (such interested director or directors may be
counted in determining whether a quorum is present for the meeting at which such
ratification or approval is given.); or, (2) the conditions of N.R.S. 78.140 are
met
ARTICLE IX
LIMITATION OF LIABILITY OF OFFICERS OR DIRECTORS
The personal liability of a director or officer of the corporation to the
corporation or the Shareholders for damages for breach of fiduciary duty as a
director or officer shall be limited to acts or omissions which involve
intentional misconduct, fraud or a knowing violation of law.
ARTICLE X
INDEMNIFICATION CLAUSE
Each director and each officer of the Corporation may be indemnified by
the Corporation as follows:
(a) The Corporation may indemnify any person who was or is a
parry, or is threatened to be made a party, to any threatened,
pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than
an action by or in the right of the corporation), by reason of
the fact that he is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request
of the corporation as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement,
actually and reasonably incurred by him in connection with the
action, suit or proceeding, if he acted in good faith and in a
manner which he reasonably believed to be in or not opposed to
the best interests
<PAGE> 6
of the corporation and with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was
unlawful.
(b) The termination of any action, suit or proceeding, by
judgment, order, settlement, conviction or upon a plea of nolo
contendere or its equivalent, does not of itself create a
presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to
the best interests of the corporation, and that, with respect
to any criminal action or proceeding, he had reasonable cause
to believe that his conduct was unlawful.
(b) The corporation may render any person who was or is a party,
or is threatened to be made a party, to any, threatened,
pending or completed action or suit by or in the right of the
corporation, to procure a judgment in its favor by reason of
the fact that he is or was a director, officer, employee or
agent of the corporation, or is or was serving at die request
of the corporation as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or
other enterprise against expenses including amounts paid in
settlement and attorneys' fees actually and reasonably
incurred by him in connection with the defense or settlement
of the action or suit, if he acted in good faith and in a
manner which he reasonably believed to be in or not opposed to
the best interests of the corporation. Indemnification may not
be made for any claim, issue or matter as to which such a
person has been adjudged by a court of competent jurisdiction,
after exhaustion of all appeals therefrom, to be liable to the
corporation, unless and only to the extent that the court in
which the action or suit was brought or other court of
competent jurisdiction determines upon application that in
view of all the circumstances of the case the person is fairly
and reasonably entitled to indemnity for such expenses as the
court deems proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in
subsections (a) and (b) of this Article, or in defense of any
claim, issue or matter therein, he must be indemnified by the
corporation against expenses, including attorney's fees,
actually and reasonably incurred by him in connection with the
defense.
(d) Any indemnification under subsections (a) and (b) unless
ordered by a court or advance pursuant to subsection (e), must
be made by the corporation only as authorized in the specific
case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances.
The determination must be made:
(i) By the Shareholders;
<PAGE> 7
(ii) By the Board of Directors by majority vote of a quorum
consisting of directors who were not parties to the act,
suit or proceeding;
(iii) If a majority vote of a quorum consisting of directors
who were not parties to the act, suit or proceeding so
orders, by independent legal counsel in a written
opinion; or
(iv) If a quorum consisting of directors who were not parties
to the act, suit or proceeding cannot be obtained, by
independent legal counsel in a written opinion.
(e) Expenses of officers and directors incurred in defending a
civil or criminal action, suit or proceeding must be paid by
the corporation as they are incurred and in advance of the
final disposition of the action, suit or proceeding, upon
receipt of an undertaking by or on behalf of the director or
officer to repay the amount if it is ultimately determined by
a court of competent jurisdiction that he is not entitled to
be indemnified by the corporation. The provisions of this
subsection do not affect any rights to advancement of expenses
to which corporate personnel other than directors or officer
may be entitled under any contract or otherwise by law.
(f) The indemnification and advancement of expenses authorized in
or ordered by a court pursuant to this section:
(i) Does not exclude any other rights to which a person
seeking indemnification or advancement of expenses may
be entitled under the certificate or articles of
incorporation or any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise,
for either an action in his official capacity or an
action in another capacity while holding his office,
except that indemnification, unless ordered by a court
pursuant to subsection (b) or for the advancement of
expenses made pursuant to subsection (e) may not be made
to or on behalf of any director or officer if an formal
adjudication establishes that his acts or omissions
involved intentional misconduct, fraud or a knowing
violation of the law and was material to the cause of
the action.
(ii) Continues for a person who has ceased to be a director,
officer, employee or agent and inures to the benefit of
the heirs, executors and administrators of such a
person.
<PAGE> 8
ARTICLE XI
PLACE OF MEETINGS AND CORPORATE RECORD BOOKS
Subject to the laws of the State of Nevada, the shareholders and the
Directors shall have power to hold their meetings, and the Directors shall have
power to have an office or offices and to maintain the books of the Corporation
outside the State of Nevada, at such place or places as may from time to time be
designated in the By-Laws or by appropriate resolution.
ARTICLES XII
AMENDMENT OF ARTICLES
The provisions of these Amended and Restated Articles of Incorporation may
be amended, altered or repealed from time to time to the extent and in the
manner prescribed by the laws of the State of Nevada, and additional provisions
authorized by such Jaws as are then in force may be added. All rights herein
conferred on the directors, officers and shareholders are granted subject to
this reservation.
We further declare under penalty of perjury under the laws of the
State of California that the matter set forth in this certificate are true and
correct of our own knowledge.
<PAGE> 9
IN WITNESS WHEREOF, the undersigned has executed this Amended and Restated
Articles of Incorporation this __ day of September, 1998.
TECHNOLOGY GUARDIAN, INC.
By: /s/ Charles McGuirk
------------------------------------
Charles McGuirk, President/Treasurer
STATE OF CA )
)ss.
COUNTY OF L.A. )
Subscribed, sworn to, and acknowledged before me by ____________________,
and ____________________, witnesses, on 9/21/98, 19__.
Witness my hand and official seal.
My commission expires _____________ .
Notary Public
[SEAL]
TECHNOLOGY GUARDIAN, INC.
By: /s/ Charles Peterson
--------------------------------------
Charles Peterson, Secretary
STATE OF CA )
)ss.
COUNTY OF L.A. )
Subscribed, sworn to, and acknowledged before me by ____________________,
and ____________________, witnesses, on 9/23/1998.
Witness my hand and official seal.
My commission expires _____________ .
Notary Public
[SEAL]
<PAGE> 1
EXHIBIT 3(b)
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
(After Issuance of Stock)
Technology Guardian, Inc.
-------------------------
Name of Corporation
We the undersigned David B. Coulter, President and Chet Noblett
------------------------------ ---------------------
President or Vice President Secretary or
Assistant Secretary
of Technology Guardian, Inc. do hereby certify:
-----------------------------------------------------
Name of Corporation
That the Board of Directors of said corporation at a meeting duly
convened, held on the 15th day of January 1999 adopted a
------------ ----------------------
resolution to amend the original articles as follows:
Article I is hereby amended to read as follows:
--------------
The name of the corporation is eSat Inc.
The number of shares of the corporation outstanding and entitled to vote
on an amendment to the Articles of Incorporation is 16,725,771 that the said
change(s) and amendment have been consented to and approved by a majority vote
of the stock-holders holding at least a majority of each class of stock
outstanding and entitled to vote thereon.
/s/ Chet Noblett
-----------------------------------
President or Vice President
/s/ Jeff Hecht
-----------------------------------
Secretary or Assistant Secretary
State of
-------------------------------
County of
-------------------------------
On 1/26/99 personally appeared before me, Notary Public. Chet Noblett &
Jeff Hecht who acknowledged that they executed the above instrument.
-----------------------------------
Signature of Notary
<PAGE> 1
EXHIBIT 3(c)
BY-LAWS OF
U.S. CONNECT 1995, INC.
ARTICLE I
SHAREHOLDERS
Section 1.01 Annual Meeting. The annual meeting of the
shareholders shall be held at such date and time as shall be designated by the
board of directors and stated in the notice of the meeting or in a duly-executed
waiver of notice thereof. If the corporation shall fail to provide notice of the
annual meeting of the shareholders as set forth above, the annual meeting of the
shareholders of the corporation shall be held during the month of November or
December of each year as determined by the Board of Directors, for the purpose
of electing directors of the corporation to serve during the ensuing year and
for the transaction of such other business as may properly come before the
meeting. If the election of the directors is not held on the day designated
herein for any annual meeting of the shareholders, or at any adjournment
thereof, the president shall cause the election to be held at a special meeting
of the shareholders as soon thereafter as is convenient.
Section 1.02 Special Meetings. Special meetings of the
shareholders may be called by the president or the Board of Directors and shall
be called by the president at the written request of the holders of not less
than 51% of the issued and outstanding shares of capital stock of the
corporation.
All business lawfully to be transacted by the shareholders may be
transacted at any special meeting at any adjournment thereof. However, no
business shall be acted upon at a special meeting, except that referred to in
the notice calling the meeting, unless all of the outstanding capital stock of
the corporation is represented either in person or by proxy. Where all of the
capital stock is represented, any lawful business may be transacted and the
meeting shall be valid for all purposes.
Section 1.03 Place of Meetings. Any meeting of the shareholders
of the corporation may be held at its principal office in the State of Nevada or
such other place in or out of the United States as the Board of Directors may
designate. A waiver of notice signed by the shareholders entitled to vote may
designate any place for the holding of such meeting.
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<PAGE> 2
Section 1.04 Notice of Meetings.
(a) The secretary shall sign and deliver to all shareholders
of record written or printed notice of any meeting at least
ten (10) days, but not more than sixty (60) days, before the
date of such meeting; which notice shall state the place, date
and time of the meeting, the general nature of the business to
be transacted, and, in the case of any meeting at which
directors are to be elected, the names of nominees, if any, to
be presented for election.
(b) In the case of any meeting, any proper business may be
presented for action, except that the following items shall be
valid only if the general nature of the proposal is stated in
the notice or written waiver of notice:
(1) Action with respect to any contract or transaction
between the corporation and one or more of its directors or
another firm, association, or corporation in which one or more
of its directors has a material financial interest;
(2) Adoption of amendments to the Articles of
Incorporation; or
(3) Action with respect to the merger, consolidation,
reorganization, partial or complete liquidation, or
dissolution of the corporation.
(c) The notice shall be personally delivered or mailed by
first class mail to each shareholder of record at the last
known address thereof, as the same appears on the books of the
corporation, and the giving of such notice shall be deemed
delivered the date the same is deposited in the United States
mail, postage prepaid. If the address of any shareholder does
not appear upon the books of the corporation, it will be
sufficient to address any notice to such shareholder at the
principal office of the corporation.
(d) The written certificate of the person calling any meeting,
duly sworn, setting forth the substance of the notice, the
time and place the notice was mailed or personally delivered
to the several shareholders, and the addresses to which the
notice was mailed shall be prima facie evidence of the manner
and
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<PAGE> 3
fact of giving such notice.
Section 1.05 Waiver of Notice. If all of the shareholders of the
corporation shall waive notice of a meeting, no notice shall be required, and,
whenever all of the shareholders shall meet in person or by proxy, such meeting
shall be valid for all purposes without call or notice, and at such meeting any
corporate action may be taken.
Section 1.06 Determination of Shareholders of Record.
(a) The Board of Directors may at any time fix a future date
as a record date for the determination of the shareholders
entitled to notice of any meeting or to vote or entitled to
receive payment of any dividend or other distribution or
allotment of any rights or entitled to exercise any rights in
respect of any other lawful action. The record date so fixed
shall not be more than sixty (60) days prior to the date of
such meeting nor more than sixty (60) days prior to any other
action. When a record date is so fixed, only shareholders of
record on that date are entitled to notice of and to vote at
the meeting or to receive the dividend, distribution or
allotment of rights, or to exercise their rights, as the case
may be, notwithstanding any transfer of any shares on the
books of the corporation after the record date.
(b) If no record date is fixed by the Board of Directors, then
(1) the record date for determining shareholders entitled to
notice of or to vote at a meeting of shareholders shall be at
the close of business on the business day next preceding the
day on which notice is given or, if notice is waived, at the
close of business on the day next preceding the day on which
the meeting is held; (2) the record date for determining
shareholders entitled to give consent to corporate action in
writing without a meeting, when no prior action by the Board
of Directors is necessary, shall be the day on which written
consent is given; and (3) the record date for determining
shareholders for any other purpose shall be at the close of
business on the day on which the Board of Directors adopts the
resolution relating thereto, or the sixtieth (60th) day prior
to the date of such other action, whichever is later.
3
<PAGE> 4
Section 1.07 Quorum: Adjourned Meetings.
(a) At any meeting of the shareholders, a majority of the
issued and outstanding shares of the corporation represented
in person or by proxy, shall constitute a quorum.
(b) If less than a majority of the issued and outstanding
shares are represented, a majority of shares so represented
may adjourn from time to time at the meeting, until holders of
the amount of stock required to constitute a quorum shall be
in attendance. At any such adjourned meeting at which a quorum
shall be present, any business may be transacted which might
have been transacted as originally called. When a
shareholders' meeting is adjourned to another time or place,
notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the
adjournment is taken, unless the adjournment is for more than
ten (10) days in which event notice thereof shall be given.
Section 1.8 Voting.
(a) Each shareholder of record, such shareholder's duly
authorized proxy or attorney-in-fact shall be entitled to one
(1) vote for each share of stock standing registered in such
shareholder's name on the books of the corporation on the
record date.
(b) Except as otherwise provided herein, all votes with
respect to shares standing in the name of an individual on the
record date (including pledged shares) shall be cast only by
that individual or such individual's duly authorized proxy or
attorney-in-fact. With respect to shares held by a
representative of the estate of a deceased shareholder,
guardian, conservator, custodian or trustee, votes may be cast
by such holder upon proof of capacity, even though the shares
do not stand in the name of such holder. In the case of shares
under the control of a receiver, the receiver may cast votes
carried by such shares even though the shares do not stand in
the name of the receiver provided that the order of the court
of competent jurisdiction which appoints the receiver contains
the authority to cast votes carried by such shares. If shares
stand in the name of a minor, votes may be
4
<PAGE> 5
cast only by the duly-appointed guardian of the estate of such
minor if such guardian has provided the corporation with
written notice and proof of such appointment.
(c) With respect to shares standing in the name of a
corporation on the record date, votes may be cast by such
officer or agents as the by-laws of such corporation prescribe
or, in the absence of an applicable by-law provision, by such
person as may be appointed by resolution of the Board of
Directors of such corporation. In the event no person is so
appointed, such votes of the corporation may be cast by any
person (including the officer making the authorization)
authorized to do so by the Chairman of the Board of Directors,
President or any Vice President of such corporation.
(d) Notwithstanding anything to the contrary herein contained,
no votes may be cast by shares owned by this corporation or
its subsidiaries, if any. If shares are held by this
corporation or its subsidiaries, if any, in a fiduciary
capacity, no votes shall be cast with respect thereto on any
matter except to the extent that the beneficial owner thereof
possesses and exercises either a right to vote or to give the
corporation holding the same binding instructions on how to
vote.
(e) With respect to shares standing in the name of two or more
persons, whether fiduciaries, members of a partnership, joint
tenants, tenants in common, husband and wife as community
property, tenants by the entirety, voting trustees, persons
entitled to vote under a shareholder voting agreement or
otherwise and shares held by two or more persons (including
proxy holders) having the same fiduciary relationship respect
in the same shares, votes may be cast in the following manner:
(1) If only one such person votes, the votes of such
person binds all.
(2) If more than one person casts votes, the act of the
majority so voting binds all.
(3) If more than one person casts votes, but the
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<PAGE> 6
vote is evenly split on a particular matter, the votes shall
be deemed cast proportionately as split.
(f) Any holder of shares entitled to vote on any matter may
cast a portion of the votes in favor of such matter and
refrain from casting the remaining votes or cast the same
against the proposal, except in the case of elections of
directors. If such holder entitled to vote fails to specify
the number of affirmative votes, it will be conclusively
presumed that the holder is casting affirmative votes with
respect to all shares held.
(g) If a quorum is present, the affirmative vote of holders of
a majority of the shares represented at the meeting and
entitled to vote on any matter shall be the act of the
shareholders, unless a vote of greater number or voting by
classes is required by the laws of the State of Nevada, the
Articles of Incorporation and these By-Laws.
Section 1.09 Proxies. At any meeting of shareholders, any holder of
shares entitled to vote may authorize another person or persons to vote by proxy
with respect to the shares held by an instrument in writing and subscribed to by
the holder of such shares entitled to vote. No proxy shall be valid after the
expiration of six (6) months from the date of execution thereof, unless coupled
with an interest or unless otherwise specified in the proxy. In no event shall
the term of a proxy exceed seven (7) years from the date of its execution. Every
proxy shall continue in full force and effect until its expiration or
revocation. Revocation may be effected by filing an instrument revoking the same
or a duly-executed proxy bearing a later date with the secretary of the
corporation.
Section 1.10 Order of Business. At the annual shareholders meeting,
the regular order of business shall be as follows:
(1) Determination of shareholders present and existence
of quorum;
(2) Reading and approval of the minutes of the previous
meeting or meetings;
(3) Reports of the Board of Directors, the president,
treasurer and secretary of the corporation, in the order named;
(4) Reports of committee;
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<PAGE> 7
(5) Election of directors;
(6) Unfinished business;
(7) New business;
(8) Adjournment.
Section 1.11 Absentees Consent to Meetings. Transactions of any
meeting of the shareholders are as valid as though had at a meeting duly-held
after regular call and notice if a quorum is present, either in person or by
proxy, and if, either before or after the meeting, each of the persons entitled
to vote, not present in person or by proxy (and those who, although present,
either object at the beginning of the meeting to the transaction of any business
because the meeting has not been lawfully called or convened or expressly object
at the meeting to the consideration of matters not included in the notice which
are legally required to be included therein), signs a written waiver of notice
and/or consent to the holding of the meeting or an approval of the minutes
thereof. All such waivers, consents, and approvals shall be filed with the
corporate records and made a part of the minutes of the meeting. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person objects at the beginning of the meeting to the transaction of
any business because the meeting is not lawfully called or convened and except
that attendance at a meeting is not a waiver of any right to object to the
consideration of matters not included in the notice if such objection is
expressly made at the beginning. Neither the business to be transacted at nor
the purpose of any regular or special meeting of shareholders need be specified
in any written wavier of notice, except as otherwise provided in Section 1.04(b)
of these By-Laws.
Section 1.12 Action Without Meeting. Any action which may be taken by
the vote of the shareholders at a meeting may be taken without a meeting if
consented to by the holders of a majority of the shares entitled to vote or such
greater proportion as may be required by the laws of the State of Nevada, the
Articles of Incorporation, or these ByLaws. Whenever action is taken by written
consent, a meeting of shareholders needs not be called or noticed.
ARTICLE II
DIRECTORS
Section 2.01 Number, Tenure and Qualification. Except as
otherwise provided herein, the Board of Directors of the corporation shall
consist of at least one (1) but no more than nine (9) persons, who shall be
elected at the annual meeting of the shareholders of the corporation and who
shall hold office for one (1) year or until their successors are elected and
qualify.
Section 2.02 Resignation. Any director may resign effective upon
giving written
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<PAGE> 8
notice to the chairman of the Board of Directors, the president, or the
secretary of the corporation, unless the notice specifies a later time for
effectiveness of such resignation. If the Board of Directors accepts the
resignation of a director tendered to take effect at a future date, the Board or
the shareholders may elect a successor to take office when the resignation
becomes effective.
Section 2.03 Reduction in Number. No reduction of the number of
directors shall have the effect of removing any director prior to the expiration
of his term of office.
Section 2.04 Removal.
(a) The Board of Directors or the shareholders of the
corporation, by a majority vote, may declare vacant the office
of a director who has been declared incompetent by an order of
a court of competent jurisdiction or convicted of a felony.
Section 2.05 Vacancies.
(a) A vacancy in the Board of Directors because of death,
resignation, removal, change in number of directors, or
otherwise may be filled by the shareholders at any regular or
special meeting or any adjourned meeting thereof or the
remaining director(s) by the affirmative vote of a majority
thereof. A Board of Directors consisting of less than the
maximum number authorized in Section 2.01 of ARTICLE II
constitutes vacancies on the Board of Directors for purposes
of this paragraph and may be filled as set forth above
including by the election of a majority of the remaining
directors. Each successor so elected shall hold office until
the next annual meeting of shareholders or until a successor
shall have been duly-elected and qualified.
(b) If, after the filing of any vacancy by the directors,
the directors then in office who have been elected by the
shareholders shall constitute less than a majority of the
directors then in office, any holder or holders of an
aggregate of five percent (5%) or more of the total number of
shares entitled to vote may call a special meeting of
shareholders to be held to elect the entire Board of
Directors. The term of office of any director shall terminate
upon such election of a successor.
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Section 2.06 Regular Meetings. Immediately following the
adjournment of, and at the same place as the annual meeting of the shareholders,
the Board of Directors, including directors newly elected, shall hold its annual
meeting without notice, other than this provision, to elect officers of the
corporation and to transact such further business as may be necessary or
appropriate. The Board of Directors may provide by resolution the place, date
and hour for holding additional regular meetings.
Section 2.07 Special Meetings. Special meetings of the Board of
Directors may be called by the chairman and shall be called by the chairman upon
the request of any two (2) directors or the president of the corporation.
Section 2.08 Place of Meetings. Any meeting of the directors of
the corporation may be held at its principal office in the State of Nevada, or
at such other place in or out of the United States as the Board of Directors may
designate. A waiver or notice signed by the directors may designate any place
for the holding of such meeting.
Section 2.09 Notice of Meetings. Except as otherwise provided in
Section 2.06, the chairman shall deliver to all directors written or printed
notice of any special meeting, at least three (3) days before the date of such
meeting, by delivery of such notice personally or mailing such notice first
class mail, or by telegram. If mailed, the notice shall be deemed delivered two
(2) business days following the date the same is deposited in the United States
mail, postage prepaid. Any director may waive notice of any meeting, and the
attendance of a director at a meeting shall constitute a waiver of notice of
such meeting, unless such attendance is for the express purpose of objecting to
the transaction of business threat because the meeting is not properly called or
convened.
Section 2.10 Quorum: Adjourned Meetings.
(a) A majority of the Board of Directors in office shall
constitute a quorum.
(b) At any meeting of the Board of Directors where a quorum is
not present, a majority of those present may adjourn, from
time to time, until a quorum is present, and no notice of such
adjournment shall be required. At any adjourned meeting where
a quorum is present, any business may be transacted which
could have been transacted at the meeting originally called.
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<PAGE> 10
Section 2.11 Action Without Meeting. Any action required or
permitted to be taken at any meeting of the Board of Directors or any committee
thereof may be taken without a meeting if a written consent thereto is signed by
all of the members of the Board of Directors or of such committee. Such written
consent or consents shall be filed with the minutes of the proceedings of the
Board of Directors or committee. Such action by written consent shall have the
same force and effect as the unanimous vote of the Board of Directors or
committee.
Section 2.12 Telephonic Meetings. Meetings of the Board of
Directors may be held through the use of a conference telephone or similar
communications equipment so long as all members participating in such meeting
can hear one another at the time of such meeting. Participation in such a
meeting constitutes presence in person at such meeting.
Section 2.13 Board Decisions. The affirmative vote of a majority
of the directors present at a meeting at which a quorum is present shall be the
act of the Board of Directors.
Section 2.14 Powers and Duties.
(a) Except as otherwise provided in the Articles of
Incorporation or the laws of the State of Nevada, the Board of
Directors is invested with the complete and unrestrained
authority to manage the affairs of the corporation, and is
authorized to exercise for such purpose as the general agent
of the corporation, its entire corporate authority in such
manner as it sees fit. The Board of Directors may delegate any
of its authority to manage, control or conduct the current
business of the corporation to any standing or special
committee or to any officer or agent and to appoint any
persons to be agents of the corporation with such powers,
including the power to sub-delegate, and upon such terms as
may be deemed fit.
(b) The Board of Directors shall present to the
shareholders at annual meetings of the shareholders, and when
called for by a majority vote of the shareholders at a special
meeting of the shareholders, a full and clear statement of the
condition of the corporation, and shall, at request, furnish
each of the shareholders with a true copy thereof.
(c) The Board of Directors, in its discretion, may submit
any contract or act for approval or ratification at any annual
meeting of the shareholders or any special meeting properly
called for the purpose of considering any such contract or
act, provided a quorum is present. The contract or act shall
be
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valid and binding upon the corporation and upon all the
shareholders thereof, if approved and ratified by the
affirmative vote of a majority of the shareholders at such
meeting.
(d) In furtherance and not in limitation of the powers
conferred by the laws of the State of Nevada, the Board of
Directors is expressly authorized and empowered to issue stock
of the Corporation for money, property, services rendered,
labor performed, cash advanced, acquisitions for other
corporations or for any other assets of value in accordance
with the action of the Board of Directors without vote or
consent of the shareholders and the judgment of the Board of
Directors as to the value received and in return therefore
shall be conclusive and said stock, when issued, shall be
fully-paid and non-assessable.
Section 2.15 Compensation. The directors shall be allowed and paid
all necessary expenses incurred in attending any meetings of the Board, but
shall not receive any compensation for their services as directors until such
time as the corporation is able to declare and pay dividends on its capital
stock.
Section 2.16 Board Officers.
(a) At its annual meeting, the Board of Directors shall
elect, from among its members, a chairman to preside at the
meetings of the Board of Directors. The Board of Directors may
also elect such other board officers and for such term as it
may, from time to time, determine advisable.
(b) any vacancy in any board office because of death,
resignation, removal or otherwise may be filled by the Board
of Directors for the unexpired portion of the term of such
office.
Section 2.17 Order of Business. The order of business at any meeting
of the Board of Directors shall be as follows:
(1) Determination of members present and existence of
quorum;
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(2) Reading and approval of the minutes of any previous
meeting or meetings;
(3) Reports of officers and committeemen;
(4) Election of officers;
(5) Unfinished business;
(6) New business;
(7) Adjournment.
ARTICLE III
OFFICERS
Section 3.01 Election. The Board of Directors, at its first
meeting following the annual meeting of shareholders, shall elect a president, a
secretary and a treasurer to hold office for one (1) year next coming and until
their successors are elected and qualify. Any person may hold two or more
offices. The Board of Directors may, from time to time, by resolution, appoint
one or more vice presidents, assistant secretaries, assistant treasurers and
transfer agents of the corporation as it may deem advisable; prescribe their
duties; and fix their compensation.
Section 3.02 Removal; Resignation. Any officer or agent elected
or appointed by the Board of Directors may be removed by it whenever, in its
judgment, the best interest of the corporation would be served thereby. Any
officer may resign at any time upon written notice to the corporation without
prejudice to the rights, if any, of the corporation under any contract to which
the resigning officer is a party.
Section 3.03 Vacancies. Any vacancy in any office because of
death, resignation, removal, or otherwise may be filled by the Board of
Directors for the unexpired portion of the term of such office.
Section 3.04 President. The president shall be the general
manager and executive officer of the corporation, subject to the supervision and
control of the Board of Directors, and shall direct the corporate affairs, with
full power to execute all resolutions and orders of the Board of Directors not
especially entrusted to some other officer of the corporation. The president
shall preside at all meetings of the shareholders and shall sign the
certificates of stock issued by the corporation, and shall perform such other
duties as shall be prescribed by the Board of Directors.
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Unless otherwise ordered by the Board of Directors, the president
shall have full power and authority on behalf of the corporation to attend and
to act and to vote at any meetings of the shareholders of any corporation in
which the corporation may hold stock and, at any such meetings, shall possess
and may exercise any and all rights and powers incident to the ownership of such
stock. The Board of Directors, by resolution from time to time, may confer like
powers on any person or persons in place of the president to represent the
corporation for these purposes.
Section 3.05 Vice President. The Board of Directors may elect one
or more vice presidents who shall be vested with all the powers and perform all
the duties of the president whenever the president is absent or unable to act,
including the signing of the certificates of stock issued by the corporation,
and the vice president shall perform such other duties as shall be prescribed by
the Board of Directors.
Section 3.06 Secretary. The secretary shall keep the minutes of
all meetings of the shareholders and the Board of Directors in books provided
for that purpose. The secretary shall attend to the giving and service of all
notices of the corporation, may sign with the president in the name of the
corporation all contracts authorized by the Board of Directors or appropriate
committee, shall have the custody of the corporate seal, shall affix the
corporate seal to all certificates of stock duly issued by the corporation,
shall have charge of stock certificate books, transfer books and stock ledgers,
and such other books and papers as the Board of Directors or appropriate
committee may direct, and shall, in general perform all duties incident to the
office of the secretary. All corporate books kept by the secretary shall be open
for examination by an director at any reasonable time.
Section 3.07 Assistant Secretary. The Board of Directors may
appoint an assistant secretary who shall have such powers and perform such
duties as may be prescribe for him by the secretary of the corporation or by the
Board of Directors.
Section 3.08 Treasurer. The treasurer shall be the chief
financial officer of the corporation, subject to the supervision and control of
the Board of Directors, and shall have custody of all the funds and securities
of the corporation. When necessary or proper, the treasurer shall endorse on
behalf of the corporation for collection checks, notes and other obligations,
and shall deposit all monies to the credit of the corporation in such bank or
banks or other depository as the Board of Directors may designate, and shall
sign all receipts and vouchers for payments made by the corporation. Unless
otherwise specified by the Board of Directors, the treasurer shall sign with the
president all bills of exchange and promissory notes of the corporation, shall
also have the care and custody of the stocks, bonds, certificates, vouchers,
evidence of debts, securities and such other property belonging to the
corporation as the Board of Director shall designate, and shall sign all papers
required by law, by these By-laws or by the Board of Directors to be signed by
the treasurer. The treasurer shall enter regularly in the books of the
corporation, to be kept for that purpose, full and accurate accounts of all
monies received and paid on account of the corporation and whenever required by
the Board of Directors, the treasurer shall render a statement of any or all
accounts. The treasurer shall at all reasonable
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times exhibit the books of account to any directors of the corporation and shall
perform all acts incident to the position of treasurer subject to the control of
the Board of Directors. The treasurer shall, if required by the Board of
Directors, give a bond to the corporation in such sum and with such security as
shall be approved by the Board of Directors for the faithful performance of all
the duties of the treasurer and for restoration to the corporation in the event
of the treasurer's death, resignation, retirement, or removal from office, of
all books, records, papers, vouchers, money and other property belonging to the
corporation. The expense of such bond shall be borne by the corporation.
Section 3.09 Assistant Treasurer. The Board of Directors may
appoint an assistant treasurer who shall have such powers and perform such
duties as may be prescribed by the treasurer of the corporation or by the Board
of Directors, and the Board of Directors may require the assistant treasurer to
give a bond to the corporation in such sum and with such security as it may
approve, for the faithful performance of the duties of assistant treasurer, and
for the restoration to the corporation, in the event of the assistant
treasurer's death, resignation, retirement or removal from office, of all books,
records, papers, vouchers, money and other property belonging to the
corporation. The expense of such bond shall be borne by the corporation.
ARTICLE IV
CAPITAL STOCK
Section 4.01 Issuance. Shares of capital stock of the corporation
shall be issued in such manner and at such times and upon such conditions as
shall be prescribed by the Board of Directors.
Section 4.02 Certificates. Ownership in the corporation shall be
evidenced by certificates for shares of stock in such form as shall be
prescribed by the Board of Directors, shall be under the seal of the corporation
and shall be signed by the president or the vice president and also by the
secretary or an assistant secretary. Each certificate shall contain the name of
the record holder, the number, designation, if any, class or series of shares
represented, a statement of summary of any applicable rights, preferences,
privileges, or restrictions thereon, and a statement that the shares are
assessable, if applicable. All certificates shall be consecutively numbered. The
name and address of the shareholder, the number of shares, and the date of issue
shall be entered on the stock transfer books of the corporation.
Section 4.03 Surrender: Lost or Destroyed Certificates. All
certificates surrendered to the corporation, except those representing shares of
treasury stock, shall be canceled and no new certificates shall be issued until
the former certificate for a like number of shares shall have been canceled,
except that in case of a lost, stolen, destroyed or mutilated
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certificate, a new one may be issued therefor. However, any shareholder applying
for the issuance of a stock certificate in lieu of one alleged to have been
lost, stolen, destroyed or mutilated shall, prior to the issuance of a
replacement, provide the corporation with his, her or its affidavit of the facts
surrounding the loss, theft, destruction or mutilation and an indemnity bond in
an amount and upon such terms as the treasurer, or the Board of Directors, shall
require. In no case shall the bond be in amount less than twice the current
market value of the stock and it shall indemnify the corporation against any
loss, damage, cost or inconvenience arising as a consequence of the issuance of
a replacement certificate.
Section 4.04 Replacement Certificate. When the Articles of
Incorporation are amended in any way affecting the statements contained in the
certificates for outstanding shares of capital stock of the corporation or it
becomes desirable for any reason, including, without limitation, the merger or
consolidation of the corporation with another corporation or the reorganization
of the corporation, to cancel any outstanding certificate for shares and issue a
new certificate therefor conforming to the rights of the holder, the Board of
Directors may order any holders of outstanding certificates for shares to
surrender and exchange the same for new certificates within a reasonable time to
be fixed by the Board of Directors. The order may provide that a holder of any
certificate(s) ordered to be surrendered shall not be entitled to vote, receive
dividends or exercise any other rights of shareholders until the holder has
complied with the order provided that such order operates to suspend such rights
only after notice and until compliance.
Section 4.05 Transfer of Shares. No transfer of stock shall be
valid as against the corporation except on surrender and cancellation by the
certificate therefor, accompanied by an assignment or transfer by the registered
owner made either in person or under assignment. Whenever any transfer shall be
expressly made for collateral security and not absolutely, the collateral nature
of the transfer shall be reflected in the entry of transfer on the books of the
corporation.
Section 4.06 Transfer Agent. The Board of Directors may appoint
one or more transfer agents and registrars of transfer and may require all
certificates for shares of stock to bear the signature of such transfer agent
and such registrar of transfer.
Section 4.07 Stock Transfer Books. The stock transfer books shall
be closed for a period of ten (10) days prior to all meetings of the
shareholders and shall be closed for the payment of dividends as provided in
Article V hereof and during such periods as, from time to time, may be fixed by
the Board of Directors, and, during such periods, no stock shall be
transferable.
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Section 4.08 Miscellaneous. The Board of Directors shall have the
power and authority to make such rules and regulations not inconsistent herewith
as it may deem expedient concerning the issue, transfer and registration of
certificates for shares of the capital stock of the corporation.
ARTICLE V
DIVIDENDS
Section 5.01 Dividends may be declared, subject to the provisions
of the laws of the State of Nevada and the Articles of Incorporation, by the
Board of Directors at any regular or special meeting and may be paid in cash,
property, shares of corporate stock, or any other medium. The Board of Directors
may fix in advance a record date, as provided in Section 1.06 of these By-laws,
prior to the dividend payment for the purpose of determining shareholders
entitled to receive payment of any dividend. The Board of Directors may close
the stock transfer books for such purpose for a period of not more than ten (10)
days prior to the payment date of such dividend.
ARTICLE VI
OFFICES; RECORDS; REPORTS; SEAL AND FINANCIAL MATTERS
Section 6.01 Principal Office. The principal office of the
corporation in the State of Nevada shall be the Law Offices of Max C. Tanner,
2950 East Flamingo Road, Suite G, Las Vegas, Nevada 89121, and the corporation
may have an office in any other state or territory as the Board of Directors may
designate.
Section 6.02 Records. The stock transfer books and a certified
copy of the By-laws, Articles of Incorporation, any amendments thereto, and the
minutes of the proceedings of the shareholders, the Board of Directors, and
committees of the Board of Directors shall be kept at the principal office of
the corporation for the inspection of all who have the right to see the same and
for the transfer of stock. All other books of the corporation shall be kept at
such places as may be prescribed by the Board of Directors.
Section 6.03 Financial Report on Request. Any shareholder or
shareholders holding at least five percent (5%) of the outstanding shares of any
class of stock may make a written request for an income statement of the
corporation for the three (3) month, six (6) month, or nine (9) month period of
the current fiscal year ended more than thirty (30) days prior to the date of
the request and a balance sheet of the corporation as of the end of such period.
In addition, if no annual report for the last fiscal year has been sent to
shareholders, such shareholder or shareholders may make a request for a balance
sheet as of the end of such fiscal year and an
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income statement and statement of changes in financial position for such fiscal
year. The statement shall be delivered or mailed to the person making the
request within thirty (30) days thereafter. A copy of the statements shall be
kept on file in the principal office of the corporation for twelve (12) months,
and such copies shall be exhibited at all reasonable times to any shareholder
demanding an examination of them or a copy shall be mailed to each shareholder.
Upon request by any shareholder, there shall be mailed to the shareholder a copy
of the last annual, semiannual or quarterly income statement which it has
prepared and a balance sheet as of the end of the period. The financial
statements referred to in this Section 6.03 shall be accompanied by the report
thereon, if any, of any independent accountants engaged by the corporation or
the certificate of an unauthorized officer of the corporation that such
financial statements were prepared without audit from the books and records of
the corporation.
Section 6.4 Right of Inspection.
(a) The accounting books and records and minutes of
proceedings of the shareholders and the Board of Directors and
committees of the Board of Directors shall be open to
inspection upon the written demand of any shareholder or
holder of a voting trust certificate at any reasonable time
during usual business hours for a purpose reasonably related
to such holder's interest as a shareholder or as the holder of
such voting trust certificate. This right of inspection shall
extend to the records of the subsidiaries, if any, of the
corporation. Such inspection may be made in person or by agent
or attorney, and the right of inspection includes the right to
copy and make extracts.
(b) Every director shall have the absolute right at any
reasonable time to inspect and copy all books, records and
documents of every kind and to inspect the physical properties
of the corporation and/or its subsidiary corporations. Such
inspection may be made in person or by agent or attorney, and
the right of inspection includes the right to copy and make
extracts.
Section 6.05 Corporate Seal. The Board of Directors may, by
resolution, authorize a seal, and the seal may be used by causing it, or a
facsimile, to be impressed or affixed or reproduced or otherwise. Except when
otherwise specifically provided herein, any officer of the corporation shall
have the authority to affix the seal to any document requiring it.
Section 6.06 Fiscal Year. The fiscal year-end of the corporation
shall be the
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calendar year or such other term as may be fixed by resolution of the Board of
Directors.
Section 6.07. Reserves. The Board of Directors may create, by
resolution, out of the earned surplus of the corporation such reserves as the
directors may, from time to time, in their discretion, think proper to provide
for contingencies, or to equalize dividends or to repair or maintain any
property of the corporation, or for such other purpose as the Board of Directors
may deem beneficial to the corporation, and the directors may modify or abolish
any such reserves in the manner in which they were created.
ARTICLE VII
INDEMNIFICATION
Section 7.01 Indemnification. The corporation shall, unless
prohibited by Nevada law, indemnify any person (an "Indemnitee") who is or was
involved in any manner (including, without limitation, as a party or a witness)
or is threatened to be so involved in any threatened, pending or completed
action suit or proceeding, whether civil, criminal, administrative, arbitrative
or investigative, including without limitation, any action, suit or proceeding
brought by or in the right of the corporation to procure a judgment in its favor
(collectively, a "Proceeding") by reason of the fact that he is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other entity or enterprise, against all Expenses and Liabilities actually and
reasonably incurred by him in connection with such Proceeding. The right to
indemnification conferred in this Article shall be presumed to have been relied
upon by the directors, officers, employees and agents of the corporation and
shall be enforceable as a contract right and inure to the benefit of heirs,
executors and administrators of such individuals.
Section 7.02 Indemnification Contracts. The Board of Directors is
authorized on behalf of the corporation, to enter into, deliver and perform
agreements or other arrangements to provide any Indemnitee with specific rights
of indemnification in addition to the rights provided hereunder to the fullest
extent permitted by Nevada Law. Such agreements or arrangements may provide (i)
that the Expenses of officers and directors incurred in defending a civil or
criminal action, suit or proceeding, must be paid by the corporation as they are
incurred and in advance of the final disposition of any such action, suit or
proceeding provided that, if required by Nevada Law at the time of such advance,
the officer or director provides an undertaking to repay such amounts if it is
ultimately determined by a court of competent jurisdiction that such individual
is not entitled to be indemnified against such expenses, (iii) that the
Indemnitee shall be presumed to be entitled to indemnification under this
Article or such agreement or arrangement and the corporation shall have the
burden of proof to overcome that presumption, (iv) for procedures to be followed
by the corporation and the Indemnitee in making any determination of entitlement
to
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indemnification or for appeals therefrom and (iv) for insurance or such other
Financial Arrangements described in Paragraph 7.02 of this Article, all as may
be deemed appropriate by the Board of Directors at the time of execution of such
agreement or arrangement.
Section 7.03 Insurance and Financial Arrangements. The corporation
may, unless prohibited by Nevada Law, purchase and maintain insurance or make
other financial arrangements ("Financial Arrangements") on behalf of any
Indemnitee for any liability asserted against him and liability and expenses
incurred by him in his capacity as a director, officer, employee or agent, or
arising out of his status as such, whether or not the corporation has the
authority to indemnify him against such liability and expenses. Such other
Financial Arrangements may include (i) the creation of a trust fund, (ii) the
establishment of a program of self-insurance, (iii) the securing of the
corporation's obligation of indemnification by granting a security interest or
other lien on any assets of the corporation, or (iv) the establishment of a
letter of credit, guaranty or surety.
Section 7.04 Definitions. For purposes of this Article:
Expenses. The word "Expenses" shall be broadly construed
and, without limitation, means (i) all direct and indirect
costs incurred, paid or accrued, (ii) all attorneys' fees,
retainers, court costs, transcripts, fees of experts, witness
fees, travel expenses, food and lodging expenses while
traveling, duplicating costs, printing and binding costs,
telephone charges, postage, delivery service, freight or other
transportation fees and expenses, (iii) all other
disbursements and out-of-pocket expenses, (iv) amounts paid in
settlement, to the extent permitted by Nevada Law, and (v)
reasonable compensation for time spent by the Indemnitee for
which he is otherwise not compensated by the corporation or
any third party, actually and reasonably incurred in
connection with either the appearance at or investigation,
defense, settlement or appeal of a Proceeding or establishing
or enforcing a right to indemnification under any agreement or
arrangement, this Article, the Nevada Law or otherwise;
provided, however, that "Expenses" shall not include any
judgments or fines or excise taxes or penalties imposed under
the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") or other excise taxes or penalties.
Liabilities. "Liabilities" means liabilities of any type whatsoever,
including, but not limited to, judgments or fines, ERISA or other excise taxes
and penalties, and amounts paid in settlement.
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Nevada Law. "Nevada Law" means Chapter 78 of the Nevada Revised
Statutes as amended and in effect from time to time or any successor or other
statutes of Nevada having similar import and effect.
This Article. "This Article" means Paragraphs 7.01 through 7.04 of
these bylaws or any portion of them.
Power of Stockholders. Paragraphs 7.01 through 7.04, including this
Paragraph, of these Bylaws may be amended by the stockholders only by vote of
the holders of sixty-six and two-thirds percent (66 2/3%) of the entire number
of shares of each class, voting separately, of the outstanding capital stock of
the corporation (even though the right of any class to vote is otherwise
restricted or denied); provided, however, no amendment or repeal of this Article
shall adversely affect any right of any Indemnitee existing at the time such
amendment or repeal becomes effective.
Power of Directors. Paragraphs 7.01 through 7.04 and this
Paragraph of these Bylaws may be amended or repealed by the Board of Directors
only by vote of eighty percent (80%) of the total number of Directors and the
holders of sixty-six and two-thirds percent (66 2/3%) of the entire number of
shares of each class, voting separately, of the outstanding capital stock of the
corporation (even though the right of any class to vote is otherwise restricted
or denied); provided, however, no amendment or repeal of this Article shall
adversely affect any right of any Indemnitee existing at the time such amendment
or repeal becomes effective.
ARTICLE VIII
BY-LAWS
Section 8.01 Amendment. Amendments and changes of the By-Laws may
be made at any regular or special meeting of the Board of Directors by a vote of
not less than all of the entire Board, or may be made by a vote of, or a consent
in writing signed by the holders of a majority of the issued and outstanding
capital stock.
Section 8.02 Additional By-Laws. Additional by-laws not
inconsistent herewith may be adopted by the Board of Directors at any meeting of
the Board of Directors at which a quorum is present by an affirmative vote of a
majority of the directors present or by the unanimous consent of the Board of
Directors in accordance with Section 2.11 of these By-laws.
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CERTIFICATION
I, the undersigned, being the duly elected secretary of the
Corporation, do hereby certify that the foregoing By-laws were adopted by the
Board of Directors on the 23rd day of June, 1995.
/s/ Brian Harris, Secretary
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EXHIBIT 10(a)
AGREEMENT
THIS AGREEMENT, effective November 17, 1998, by and between Technology
Guardian, Inc. ("TGI"), a Nevada corporation, with principal place of business
at 16520 Harbor Boulevard, Building G, Fountain Valley, California 92708, and
Galaxy Internet, Inc. ("Galaxy") an Indiana corporation, having its principal
place of business at 8645 Guion Road, Suite A, Indianapolis, Indiana, 46268.
WHEREAS, TGI is in the business of developing and manufacturing
products, including but not limited, internet access via satellite ("Products");
and
WHEREAS, Galaxy is in the business of marketing and distributing the
Products to its customers; and
WHEREAS, Galaxy has devoted substantial time and expense to market the
Products to its customer, CompUSA; and
WHEREAS, TGI and Galaxy acknowledge that it is in their mutual best
interest for CompUSA to sell the Products through its retail locations and
through CompUSA's other sales channels; and
WHEREAS, Galaxy has now developed a unique relationship with CompUSA
through its efforts to market the Products to CompUSA.
NOW THEREFORE,in consideration of the mutual covenants, terms and
conditions herein, the parties now agree as follow:
1. SCOPE OF AGREEMENT
A. TGI agrees that Galaxy shall have the exclusive right to
sell the Products, whether now existing or hereafter
developed, to CompUSA.
B. Galaxy agrees that, during the term of this agreement,
so long as Galaxy has the exclusive right to sell TGI
Products to CompUSA, Galaxy, its assigns,
successors-in-interest, subsidiaries, or any company or
organization controlled, owned, or managed in whole or
in part by Galaxy or its officers or directors, will not
sell to CompUSA any system, device, or product designed
to provide satellite access to the Internet, other than
Products supplied by TGI.
C. TGI agrees to take all reasonable and necessary steps to
supply Products sold
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by Galaxy to CompUSA.
2. GALAXY OBLIGATIONS
A. Galaxy shall use its best efforts to sell the Products
to CompUSA during the term of this Agreement.
B. Galaxy will work with TGI to develop unique and
exclusive branding for the Products sold to CompUSA.
Galaxy will work with TGI to develop a distinguished
cosmetic change to the server utilized in the Products
and to develop specific specifications for the server,
including possibly elevating the bandwidth exclusively
for Products sold to CompUSA.
C. Galaxy will ensure that the TGI logo supplied by TGI
will be on all Products and marketing materials utilized
by Galaxy for sale of Products to CompUSA. Galaxy shall
provide copies of all marketing materials to TGI prior
to sending same to CompUSA. Galaxy agrees that all
servers incorporated in the Products sold to CompUSA
will display "POWERED BY TGI".
D. Galaxy will assist TGI in the development and issuance
of press releases regarding sales of Products to
CompUSA. Galaxy will provide TGI with appropriate input
as to the time, nature and relative content of such
press releases.
E. Galaxy shall ensure that its sales of Products to
CompUSA, as contemplated by this agreement, shall at all
times meet or exceed the performance requirements set
forth in Exhibit "A", attached hereto and incorporated
by this reference as though fully set forth herein.
3. TGI OBLIGATIONS
A. TGI will use its continuing best efforts to timely
provide Products sold to CompUSA when and as required by
Galaxy. TGI agrees that it will drop ship Products to
CompUSA as required by Galaxy.
B. TGI will not sell Products to CompUSA, either directly
or indirectly, other than through Galaxy, pursuant to
this Agreement.
C. TGI will work with Galaxy to develop a unique and
exclusive branding for the Products sold to CompUSA by
Galaxy pursuant to this Agreement.
D. TGI agrees to purchase its server related products
directly from CompUSA to incorporate in the Products to
be sold by Galaxy to CompUSA for resale to CompUSA's
customers, so long as such products are priced at a
level equal to
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or lower than that price generally available in the
trade for equivalent products. TGI will cause the
outside of any such server to display "POWERED BY TGI".
The TGI logo shall appear on all marketing materials
used by Galaxy, including in store posters and displays.
TGI will bear the cost of labeling and producing such
materials, posters and displays. TGI will field test HP,
IBM and Compaq servers for those unique customers of
CompUSA who may require these particular brands of
server when purchasing Products through CompUSA. Any
such Products incorporating HP, IBM or Compaq servers
will require an appropriate price adjustment.
E. TGI will work with Galaxy to develop a unique and
exclusive branding for Products sold to CompUSA by
Galaxy pursuant to this Agreement. TGI will use the
brand name "Diginxt" or some other brand name developed
by TGI. TGI will work with Galaxy to develop a
distinguished cosmetic change in the server incorporated
in the Products sold to CompUSA pursuant to this
Agreement. The branding and cosmetic changes referred to
herein will be exclusively for Products sold to CompUSA
and to no other customers.
F. TGI will provide continuous Internet satellite access as
part of the Products sold to CompUSA pursuant to this
Agreement.
G. If Galaxy sells 1000 Product units to CompUSA by January
15, 2000, then TGI will grant to Galaxy an option to
purchase 100,000 shares of the common stock of TGI at a
purchase price of $11.50 per share, based on a pre-split
evaluation: e.g., if stock splits two for one, then
Galaxy will have an option to purchase 200,000 shares at
purchase price of $5.75 per share.
4. PRICING
A. The Products purchased by Galaxy for sale to CompUSA
pursuant to this Agreement shall be at the prices and
terms reflected on Exhibit "B" attached hereto, and
incorporated by this reference as though fully set forth
herein. The prices shown on Exhibit "A" shall not be
increased during the first year, and thereafter the
prices will not be increased without a ninety (90) day
prior written notice. In any event, the prices for
monthly internet satellite access for Products sold to
CompUSA shall not exceed the then current price per
month existing on the inception date of any CompUSA
customer agreement during the term of any given CompUSA
customer agreement whether or not such CompUSA customer
agreement extends beyond the termination date of this
agreement.
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B. Galaxy has the sole right to determine its selling price
for Products sold to CompUSA under the terms of this
Agreement.
5. TERM
A. The term of this Agreement (hereinafter "Term") is five
(5) years, commencing on January 13, 1999. Galaxy shall
have the right to extend the Term of this Agreement for an
additional five (5) years upon written notice to TGI prior
to the expiration of the Term.
B. Prior to the expiration of the Term, this Agreement can be
terminated for any reason by written agreement signed by
TGI and Galaxy.
C. This Agreement may be terminated by TGI at any time upon
written notice to Galaxy upon the occurrence of any of the
following events:
(i) the assignment by Galaxy of any interest in this
Agreement without TGI's prior written consent,
which consent shall not be unreasonably withheld.
(ii) any sale, transfer, or relinquishment, voluntary
or involuntary, by operation of law or otherwise
of any majority interest in the direct or
indirect ownership of Galaxy's business, without
the prior written approval of TGI, which
approval shall not be unreasonably withheld.
(iii) Galaxy's insolvency or a composition among
Galaxy's creditors, or the filing of a voluntary
petition in bankruptcy, or the appointment of a
referee, trustee, conservator, or a receiver for
a substantial portion of Galaxy's assets.
D. This Agreement may be terminated by Galaxy at any time
upon written notice to TGI upon the occurrence of any of
the following events:
(i) any assignment by TGI of any interest in this
Agreement without Galaxy's prior written
consent.
(ii) any sale, transfer, or relinquishment, voluntary
or involuntary, by operation of law or
otherwise, of any majority interest in the
direct or indirect ownership of TGI's business
or any material change in TGI's management,
without prior written approval from Galaxy,
which approval shall not be unreasonably
withheld.
(iii) TGI's insolvency, or a composition among TGI's
creditors, or the filing of a voluntary petition
in bankruptcy, or the appointment of a referee,
trustee, conservator or receiver for a
substantial portion of TGI's
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assets.
E. Upon termination of this Agreement, Galaxy shall account
for and return to TGI all unsold Products previously
delivered to Galaxy, and written materials which were
provided to Galaxy by TGI pursuant to this Agreement.
F. Upon termination of this Agreement, Galaxy agrees to
immediately cease selling Products to CompUSA.
G. Termination of this Agreement will have no effect upon
TGI's continuing obligation to provide internet
satellite access for Products previously sold to
customers of CompUSA. TGI acknowledges that its Products
will be sold to customers for stated periods of time,
such as twelve (12) months, twenty-four (24) months or
thirty-six (36) months. Customers of CompUSA will
purchase Products which will include the necessary
server and other hardware as well as ongoing internet
satellite access for a stated term. Whether or note this
Agreement has terminated, TGI will have the obligation
to continue to provide internet satellite access to such
customers, provided that TGI is paid the monthly
satellite access fee for each such Product through the
balance of the term of any such customer agreement.
6. COVER
A. TGI and Galaxy agree that should TGI default in its
obligations to provide Products to Galaxy for sale to
CompUSA, or should TGI fail in its obligations to
provide continuing internet satellite service for
Products sold to customers of CompUSA, Galaxy shall have
the right to cover any such breach by TGI. Prior to
exercising such right to cover as to purchase of
hardware, Galaxy shall first provide notice of such
alleged default to TGI and TGI shall have a thirty (30)
day grace period to cure any such default. Prior to
exercising such right to cover as to Internet satellite
service interrupted for reasons other that Acts of God,
Galaxy shall provide 48 hours prior written notice to
TGI.
If Internet satellite service is interrupted due to Acts
of God, the TGI shall have a reasonable time, not to
exceed 21 days, to cure such interruption in service,
during which time, Galaxy will be credited for that loss
in service. In the event that TGI cannot cure such
interruption in service, TGI will use its best efforts
to assist Galaxy to secure alternate Internet satellite
service.
For purposes of this Agreement, Galaxy's right to cover
will include but not be limited to the right to sell any
substantially similar Internet satellite access product
through CompUSA, as developed or manufactured by an
entity other than TGI, or to otherwise provide
substitute internet satellite access to customers of
CompUSA that have purchased Products.
7. TRADEMARKS AND TRADE NAMES
5
<PAGE> 6
A. No rights or interests in the trademarks or the trade names
owned by TGI is conferred upon Galaxy. Such trademarks or
trade names may not be used in any manner contrary to the
established policies of TGI.
B. No rights in the trademarks or the trade names owned or
licensed by Galaxy shall be conferred upon TGI. TGI shall
have no right to use any such trademarks or trade names
except as approved by Galaxy in writing.
8. APPLICABLE LAW
A. All transactions between TGI and Galaxy shall be deemed to
take place in the State of California. All such
transactions and all questions of construction,
interpretation and performance of this Agreement and any
amendments and supplements hereto shall be governed by the
laws of the State of California without regard to conflict
of law provisions. The federal and state courts located in
California shall have exclusive jurisdiction and venue
concerning any and all matters and disputes related to or
arising out of this Agreement, or the relationship between
the parties or any transaction between the parties premised
upon or related to this Agreement. Should any provision of
this Agreement in any way violate any law, such provision
shall be deemed deleted, and the remainder of the Agreement
shall remain in full force and effect.
9. WAIVER
A. No waiver of any provision of this Agreement shall act as a
waiver of any other provision or as a continuing waiver.
10. NOTICES
A. Any notices given under this Agreement shall be deemed to
have been sufficiently given when sent by the United States
registered or certified mail as provided herein or as
subsequently changed by prior written notice duly given.
B. Any notices to TGI shall be addressed as follows:
Technology Guardian, Inc.
Attn: Chet Noblett, Executive V.P. and C.O.O.
16520 Harbor Blvd., Bldg. G
Fountain Valley, California 92708
C. Any notices to Galaxy shall be addressed as follows:
Galaxy Internet, Inc.
Attn: James Eiteljorg, President
8645 Guion Road, Suite A,
6
27
<PAGE> 7
Indianapolis, Indiana, 46268
D. Three (3) business days following the date of mailing shall
be deemed the date on which notice has been given.
11. COOPERATION
A. The parties hereto pledge to work together in a friendly,
close and conscientious manner for mutual benefit and to
adhere to both the letter and spirit of this agreement.
12. INTERPRETATION
A. If any part of this agreement should be determined to be
invalid, illegal or inoperative, for any reason, it is the
intention of the parties that the remaining parts, so far
as possible and reasonable, shall be effective and fully
operative. In the event of litigation, the parties hereby
request the Court to interpret and enforce this agreement
in a manner so as to effectuate and carry out, as nearly as
may be possible the intent of the parties and the spirit of
this agreement as shown by the terms hereof, specifically
including the term held invalid, illegal or inoperative.
13. MEDIATION AND ARBITRATION
A. Should any dispute arise with respect to this agreement,
the parties agree to first submit such dispute to mediation
in a good-faith attempt to resolve the dispute; should
mediation be unsuccessful, or if the parties are unable to
agree upon a suitable mediator, the parties further agree
to submit the dispute to binding arbitration pursuant to
the Commercial Arbitration Rules of the American
Arbitration Association.
14. ADDITIONAL DOCUMENTS
A. Each party hereto agrees to promptly execute such further and
additional documents as may be reasonably required or desirable to
fully and properly effectuate this terms of this agreement both in
letter and in spirit.
15. ASSIGNMENT
A. TGI shall not assign this Agreement without Galaxy's
consent.
7
<PAGE> 8
B. Galaxy shall not assign this Agreement without TGI's
consent, which consent shall not be unreasonably withheld.
16. RELATIONSHIP WITH PARTIES
A. In the performance of its obligation under this Agreement,
Galaxy will operate solely as an independent contractor and
will not have the authority to act for, represent or bind
TGI except as provided in this Agreement.
B. In the performance of its obligation under this Agreement,
TGI will operate solely as a independent contractor and
will not have the authority to act for, represent or bind
Galaxy except as provided in this Agreement.
17. CONFIDENTIALITY
A. Galaxy agrees that the Terms of this Agreement and all
information relating to this Agreement and the business of
TGI are confidential and proprietary and will not be
disclosed to any third party without the prior written
consent of TGI. Information need not be marked
"Confidential" to be treated as such. This obligation of
confidentiality shall survive the termination of this
Agreement.
B. TGI agrees that the terms of this Agreement all information
relating to this Agreement and the business of Galaxy are
confidential and proprietary and will not be disclosed to
any third party without the prior written consent of
Galaxy. Information need not be marked "Confidential" to be
treated as such. This obligation of confidentiality shall
survive the termination of this Agreement.
18. INDEMNIFICATION
A. Each party will indemnify, defend and hold harmless the
other party and its officers, directors, employees,
affiliates and agents from any against any and all claims,
costs, damages, expenses and liabilities, including
attorney fees, resulting from or relating to a party's
performance of or failure to perform its obligations under
this Agreement.
B. This obligation of indemnification shall survive the
termination of this Agreement.
19. ENTIRE AGREEMENT
8
<PAGE> 9
A. This Agreement represents the only understanding between
TGI and Galaxy concerning the subject matter hereof. This
Agreement terminates and supersedes all prior agreements
(except the Mutual Non-disclosure Agreement), if any,
between the parties hereto and their predecessors.
B. This Agreement may not be extended, supplemented, amended
or modified in any way except by a document in writing
signed by TGI and Galaxy.
20. AUTHORITY AND COUNTERPARTS
A. The individuals executing this Agreement on behalf of TGI
and Galaxy represent that they are fully and duly
authorized and empowered to do so for and on behalf of
their respective principals.
B. This Agreement may be executed in counterparts, and upon
execution of this Agreement in counterparts, shall become
a binding an enforceable agreement between the parties.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date first written above.
GALAXY INTERNET, INC. TECHNOLOGY GUARDIAN, INC.
By: By:
---------------------------- ---------------------------
Title: Title:
------------------------ ------------------------
Date: Date:
------------------------- -------------------------
9
<PAGE> 10
EXHIBIT "A" TO JANUARY 13, 1999 AGREEMENT
BETWEEN TECHNOLOGY GUARDIAN, INC.
AND GALAXY INTERNET, INC.
PERFORMANCE REQUIREMENTS
Galaxy will sell a minimum of 500 Product units per year. In the event that
Galaxy has not sold 500 products units by April 1, 2000, then Galaxy shall have
an additional l80 days in which to sell sufficient numbers of Product units to
reach a sales rate of 500 Product units per year, i.e., Galaxy must then have
sold 750 Product units by October 1, 2000.
Galaxy is required to sell a minimum of forty-one (41) units per month. After
each quarter, TGI will review Galaxy's sales of Product units for that quarter.
If, in that quarter, Galaxy has not sold 123 units, then Galaxy will pay to TGI
an offset sum of money equivalent to number of units sold that quarter
multiplied by $150. If, in that quarter under consideration, Galaxy has sold
more than 123 units, then TGI will rebate to Galaxy, a sum of money equal to the
number of units in excess of 123 units sold multiplied by $150. In calculating
the number of Product units sold, TGI will count all Product units sold by
Galaxy to CompUSA, regardless of whether a given transaction is a purchase
(Option A, Exhibit "B) or lease (Option B, Exhibit "B") from TGI to Galaxy.
In recognition of the fact that Galaxy needs time to develop its market before
sales "ramp up", the initial quarter to be reviewed for purposes of offset or
rebate will be that quarter ending December 31, 1999.
TGI and Galaxy agree to meet and confer from time to time, but not less than one
time per contract year, for the purpose of adjusting the Performance Requirement
up or down as necessary to address changing market conditions. The parties agree
that they will negotiate in good faith and act reasonably, and that any
adjustment to this Performance Requirement will be in a writing signed by the
parties, and become part of this Agreement as an amendment.
GALAXY INTERNET, INC. TECHNOLOGY GUARDIAN, INC.
By: By:
---------------------------- ---------------------------
Title: Title:
------------------------ ------------------------
Date: Date:
------------------------- -------------------------
<PAGE> 11
EXHIBIT "B" TO JANUARY 13, 1999 AGREEMENT
BETWEEN TECHNOLOGY GUARDIAN, INC.
AND GALAXY INTERNET, INC.
PRICING FOR DIGINXT
<TABLE>
<S> <C>
OPTION A:
Purchase all equipment from TGI, including server,
dish, LNB, mount, software, with appropriate license $4597
Monthly Internet Access $293 per mo.
OPTION B:
TGI will lease and license to Galaxy, equipment,
software, and Internet Access
12 month contract $600 per mo.
24 month contract $600 per mo. For mos. 1 thru 12
$400 per mo. For mos. 13 thru 24
36 month contract $600 per mo. For mos. 1 thru 12
$400 per mo. For mos. 13 thru 24
$400 per mo. For mos. 25 thru 36
</TABLE>
GALAXY INTERNET, INC. TECHNOLOGY GUARDIAN, INC.
By: By:
---------------------------- ---------------------------
Title: Title:
------------------------ ------------------------
Date: Date:
------------------------- -------------------------
<PAGE> 1
EXHIBIT 10(b)
No.4-011
THE OPTION TO PURCHASE SHARES OF THE COMMON STOCK OF TECHNOLOGY GUARDIAN, INC.,
REPRESENTED BY THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT"), AND ARE "RESTRICTED SECURITIES" AS THAT TERM IS DEFINED IN
RULE 144 UNDER THE ACT. NEITHER THE OPTIONS NOR THE UNDERLYING SHARES MAY BE
OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT, THE AVAILABILITY OF WHICH IS TO BE
ESTABLISHED TO THE SATISFACTION OF SAID CORPORATION AND SUCH FURTHER
RESTRICTIONS AS THE BOARD OF DIRECTORS MAY DETERMINE.
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT effective as of this 1st day of September, 1998,
between Technology Guardian, Inc., a California corporation (the "Corporation"),
and Advantage Associates (the "Recipient").
WHEREAS, the Corporation, by action of the Board of Directors on July
28, 1998, has authorized the granting of stock options to purchase 150,000
shares of this Corporation's common stock, $.001 par value ("Common Stock"), to
Advantage Associates at an exercise price of $2.00 per share.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy whereof is hereby acknowledged, the Corporation and the Optionee agree
as follows:
1. Grant of Option. The Corporation hereby grants to Advantage
Associates an option to purchase (the "Option") an aggregate of
150,000 shares of the Corporation's common stock for a purchase
price of $ 2.00 per share (the "Option Price").
2. Vesting of Option. This option shall be immediately fully vested
from the Date of Grant.
3. Exercise of Option. This Option may be exercised in whole or in
part at any time during the term of the Option, provided,
however, no portion of this Option shall be exercisable after
the expiration of the term thereof.
The Option may be exercised, as provided in this Paragraph 3, by
notice and payment to the Corporation as provided in Paragraph 5
hereof.
4. Conversion. In lieu of exercising this Option as specified in
Paragraph 3, the Recipient may from time to time convert this
Option, in whole or in part, into a number of shares determined
by dividing (a) the aggregate Fair Market Value (determined on
the date of exercise) of the shares of the Corporation's Common
Stock issuable upon exercise of this Option (less the number of
shares as to which this Option has been previously exercised)
minus the aggregate Option Price of such shares minus all
amounts which it is required to withhold under federal, state or
local law in connection with the exercise of the Option, by (b)
the Fair Market Value (determined on the date of exercise) of
one share. This is represented mathematically as: {{(FMV per
share) X [(number of share issuable under the Option) - (share
previously issued and converted under the Option)]} - (amount
required to be withheld)} / (FMV per share). For purpose of this
Paragraph 4, "Fair Market Value" shall be the value determined
in accordance with the following provisions:
(a) If the Common Stock is not at the time listed or
admitted to trading on any stock exchange but is traded
on the Nasdaq National Market System or the Nasdaq
SmallCap Market, the Fair Market Value shall be the
closing selling price per share of Common Stock on the
date in question, as such price is reported by the
National Association of Securities Dealers through the
Nasdaq National Market System or any successor system or
the Nasdaq SmallCap Market or any successor market. If
there is no closing selling price for the common stock
on the date in question, then the FMV shall be the
closing selling price on the last preceding date for
which such quotation exists.
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<PAGE> 2
(b) If the Common Stock is at the time listed or admitted to
trading on any stock exchange, the Fair Market Value
shall be the closing selling price per share of Common
Stock on the date in question on the stock exchange
determined by the Board of Directors of the Corporation
to be the primary market for the Common Stock, as such
price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing
selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the
closing selling price on the last preceding date for
which such quotation exists.
(c) If the Common Stock is at the time neither listed nor
admitted to trading on any stock exchange, not traded on
the Nasdaq National Market System nor on the Nasdaq
SmallCap Market, then such Fair Market Value shall be
determined by the Board of Directors of the Corporation
after taking into account such factors as the Board of
Directors of the Corporation shall deem appropriate.
5. Manner of Exercise.
(a) During the lifetime of the Recipient, only he may
exercise the Option or any portion thereof. After the
death of the Recipient, any exercisable portion of the
Option may, prior to the time when the Option becomes
unexercisable under Section 3.3, be exercised by the
Recipient's personal representative or by any person
empowered to do so under the Recipient's will or under
the then applicable laws of descent and distribution.
(b) The Option, or any exercisable portion thereof, may be
exercised solely by delivery to the Secretary or the
Secretary's office of all of the following prior to the
time when such exercisable Option or portion thereof
becomes unexercisable:
(i) Notice in writing signed by the Recipient, or such
other person then entitled to exercise the Option or
portion thereof, stating that the Option or portion
thereof is thereby exercised, such notice complying with
all applicable rules established by the Corporation; and
(ii) (a) Full payment (in cash or by check) for the
shares with respect to which such Option or
portion thereof is exercised; or
(b) With the consent of the Corporation, shares
of the Company's Common Stock owned by the
Recipient duly endorsed for transfer to the
Company with a Fair Market Value on the date of
delivery equal to the aggregate purchase price
of the shares with respect to which such Option
or portion thereof is exercised.
6. Term of Option. The term of the Option will be through August
24, 2003, subject to Paragraphs 8 and 9 as provided in this
Agreement.
The Recipient of the Option will not have any rights to
dividends or any other rights of a shareholder with respect to
any shares of Common Stock subject to the Option until such
shares shall have been purchased through the exercise of the
Option and has been evidenced on the stock transfer records of
the Corporation maintained by the Corporation's transfer agent.
7. Performance Restrictions. The Recipient of this Option will not
have the right to exercise this Option until confirmation by the
Board of Directors that the following performance goals have
been completed:
NET SALES OF 1,000 UNITS SOLD BY THE EAST COAST OFFICE IN THE 12 MONTH
PERIOD BEGINNING MARCH 1, 1999. HOWEVER, IF NET SALES OF 1,000 UNITS HAVE
BEEN ACHIEVED BY AUGUST 31, 1999, THEN THE NUMBER OF SHARES SUBJECT TO
THIS OPTION SHALL BE INCREASED BY 50,000 SHARES. SALES SHALL BE DEEMED
COMPLETED DURING THE FOREGOING PERIODS IF A CONTACT LEADING TO A SALE HAS
BEEN MADE WITH A CUSTOMER DURING THE RELEVANT TIME PERIOD, AND THE SALE IS
COMPLETED WITHIN SIX MONTHS AFTER THE END OF THE RELEVANT TIME PERIOD.
AFTER SUCH 1,000 UNITS IN NET SALES HAVE BEEN ACHIEVED, THEN THE RECIPIENT
SHALL BE ENTITLED TO THE RIGHTS DESCRIBED IN SECTION 11(b), SUBJECT TO
THE REQUIREMENTS AND LIMITATIONS OF SECTION 11. ANY PARTY WHICH ACQUIRES
CONTROL OF THE CORPORATION SHALL BE REQUIRED TO HONOR THE RIGHTS OF
ADVANTAGE SET FORTH IN THIS AGREEMENT SUBSEQUENT TO THE ACQUISITION OF
CONTROL.
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<PAGE> 3
For purposes of this paragraph, the East Coast Office shall mean
the people working out of the office of the Corporation located
in the Washington, D.C., metropolitan area as of the date of
this Agreement, and those who subsequently work in at such
office as approved by the Corporation as part of the East Coast
Office. The East Coast Office shall also include those VARs
recruited by and working under the direction of the East Coast
Office.
For purposes of this paragraph, a "unit" shall consist of a
server and associated hardware and the Corporation's software
that allows high-speed access to the Internet, together with a
service contract of at least two years duration. For purposes of
definition of "unit" in this paragraph, a server and/or
associated hardware may be furnished by the customer in lieu of
a server and associated hardware furnished by the Corporation.
A sale of a unit shall be deemed to occur or at such time as a
sale is recognized by the Corporation in accordance with
generally accepted accounting principles. Units which are
returned to the Corporation shall be deducted from the number of
Units sold. The number of Units sold less the number of Units
returned shall be the net Units sold.
8. Transferability Restriction. The Option may not be assigned,
transferred or otherwise disposed of, or pledged or hypothecated
in any way (whether by operation of law or otherwise) (1)
without the consent of the Corporation, and (2) such transfer is
not in violation of the Securities Act of 1933, the Corporate
Securities Laws of the State of California, or the securities
laws of any state. Any assignment, transfer, pledge,
hypothecation or other disposition of the Option or any attempt
to make any such levy of execution, attachment or other process
not in accordance with the foregoing sentence shall cause the
Option to terminate immediately upon the happening of any such
event, and the Recipient shall lose all rights under this
agreement, provided, however, that any such termination of the
Option under the foregoing provisions of this Paragraph 6, will
not prejudice any rights or remedies which the Corporation may
have under this Agreement or otherwise.
9. Death, Disability or Retirement of Recipient. The Recipient's
rights to exercise this Option upon the death, disability or
retirement of the Recipient are set forth as follows:
(a) If the Recipient ceases to be in Service to the
Corporation for a reason other than permanent disability
or death, the Recipient must, within (2) months after
the date of termination of such Service, but in no event
after the Option's stated expiration date, exercise some
or all of the Options that the Recipient was entitled to
exercise on the date the Recipient's Service terminated.
All options which have not vested in accordance with
Paragraph 2 will thereafter be void for all purposes. If
the Recipient ceases to be in Service to the Corporation
by reason of permanent disability within the meaning of
section 22(e)(3) of the Internal Revenue Code (as
determined by the Board of Directors), the Recipient
will have two (2) months after the date of termination
of Service, but in no event after the stated expiration
date of the Recipient's Options, to exercise Options
that the Recipient was entitled to exercise on the date
the Recipient's Service terminated as a result of the
disability.
(b) If a Recipient dies while in the Corporation's Service,
any Options that the Recipient was entitled to exercise
on the date of death will be exercisable within the
six-month period following the date of issuance of
letters testamentary or letters of administration of a
deceased Recipient, in the case of the Recipient's death
during his Service to the Corporation's Board, but not
later than one year after the Recipient's death or until
the stated expiration date of the Recipient's Option,
whichever occurs first, by the person or persons
("successors") to whom the Recipient's rights pass under
a will or by the laws of descent and distribution. As
soon as practicable after receipt by the Corporation of
such notice and of payment in full of the Option Price,
a certificate or certificates representing the Optioned
Shares shall be registered in the name or names
specified by the successors in the written notice of
exercise and shall be delivered to the successors.
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<PAGE> 4
(c) The term "Service" means service as an employee, as an
independent contractor, or an employee of an independent
contractor.
10. No Registration Obligation. The Recipient understands that the
Option is not registered under the Securities Act of 1933, as
amended (the "Securities Act") and the Corporation has no
obligation to register under the Securities Act the Option or
any of the shares of Common Stock subject to and issuable upon
the exercise of the Option. The Recipient represents that the
Option is being acquired by him for investment and acknowledges
that all certificates for the shares issued upon exercise of the
Option will bear the following legend unless such shares are
registered under the Securities Act prior to their issuance:
The shares of Common Stock evidenced by this
certificate have been issued to the registered
owner in reliance upon written representations
that these shares have been purchased solely for
investment. These shares may not be sold,
transferred or assigned unless in the opinion of
the Corporation and its legal counsel such
sales, transfer or assignment will not be in
violation of the Securities Act of 1933, as
amended, and the rules and regulations
thereunder.
The Recipient further understands and agrees that the Option may be
exercised only if at the time of such exercise the Recipient and the Corporation
are able to establish the existence of an exemption from registration under the
Securities Act and applicable state laws.
11. Effect of Certain Changes.
(a) If there is any change in the number of shares of
outstanding Common Stock through the declaration of
stock dividends, or through a recapitalization resulting
in stock splits or combinations or exchanges of such
shares, the number of shares of Common Stock available
for Options and the number of such shares covered by
outstanding Options, and the exercise price per share of
the outstanding Options, shall be proportionately
adjusted by the Board to reflect any increase or
decrease in the number of issued shares of Common Stock:
provided, however, that any fractional shares resulting
from such adjustment shall be eliminated.
(b) In the event of the proposed dissolution or liquidation
of the Corporation, or any corporate separation or
division, including, but not limited to, split-up,
split-off or spin-off, or a merger or consolidation of
the Corporation with another corporation, or any sale or
transfer by the Corporation of all or substantially all
its assets or any tender offer or exchange offer for or
the acquisition, directly or indirectly, by any person
or group for more than 50% of the then outstanding
voting securities of the Corporation, the board may
provide that the Recipient shall have the right to
exercise such Option (at its then current Option Price)
solely for the kind and amount of shares of stock and
other securities, property, cash or any combination
thereof receivable upon such dissolution, liquidation,
corporate separation or division, merger or
consolidation, sale or transfer of assets or tender
offer or exchange offer, by a Recipient of the number of
shares of Common Stock for which such Option might have
been exercised immediately prior to such dissolution,
liquidation, corporate separation or division, or merger
or consolidation: sales or transfer of assets or tender
offer or exchange offer, or in the alternative the Board
may provide that each Option granted herein shall
terminate as of a date fixed by the Board: provided,
however, that not less than 30 day's written notice of
the date so fixed shall be given to the Recipient, who
shall have the right, during the period of 30 days
preceding such termination, to exercise the Option.
(c) Paragraph (b) of this Section 11 shall not apply to a
merger or consolidation in which the Corporation is the
surviving corporation and shares of Common Stock are not
converted into or exchanged for stock, securities of any
other corporation, cash or any other thing of value.
Notwithstanding the preceding sentence, in case of any
consolidation or merger of another corporation into the
Corporation in which the Corporation is the surviving
corporation and in which there is a reclassification or
change (including a change which results in the right to
receive cash or other property) of the shares of Common
Stock (other than a change in par value, or from no par
value to par value, or as a result of a subdivision or
combination, but including any change in such shares
into two or more classes or series of shares), the Board
may provide that the Recipient shall have the right to
exercise such Option solely for the kind and
-4-
<PAGE> 5
amount of shares of stock and other securities
(including those of any direct or indirect Parent of the
Corporation), property, cash or any combination thereof
receivable upon such reclassification, change
consolidation or merger by the Recipient of the number
of shares of Common Stock for which Option might have
been exercised.
(d) If there is a change in the Common Stock of the
Corporation as presently constituted, which is limited
to a change of all of its authorized shares with par
value into the same number of shares with a different
par value or without par value, the shares resulting
from any such change shall be deemed to be the Common
Stock within the meaning of this Stock Option Agreement.
(e) To the extent that the foregoing adjustments relate to
stock or securities of the Corporation, such adjustments
shall be made by the Board.
(f) Except as expressly provided in this Section 11, the
Recipient shall have no rights by reason of any
subdivision or consolidation of shares of stock of any
class or the payment of any stock dividend or any other
increase in the number of shares of stock of any class
or by reason of any dissolution, liquidation, merger, or
consolidation or split-up, split-off, or spin-off of
assets or stock of another corporation; and any issue by
the Corporation of shares of stock of any class, or
securities convertible into shares of stock of any
class, shall not effect, and no adjustment by reason
thereof shall be made with respect to, the number or
price of shares of Common Stock subject to this Option.
The grant of this Option shall not affect in any way the
right or power of the Corporation to make adjustments,
reclassifications, reorganizations or changes of its
capital or business structures or to merge or
consolidate or to dissolve, liquidate or sell or
transfer all or any part of its business or assets.
12. Notices. Each notice relating to this Agreement will be in
writing and delivered in person or by certified mail to the
proper address. Notices to the Corporation shall be addressed to
the Corporation c/o President, Technology Guardian, Inc., 16520
Harbor Blvd., Bldg G, Fountain, Valley, CA 92708. Notices to the
Recipient or other person or persons then entitled to exercise
the Option shall be addressed to the Recipient or such other
person or persons at the Recipient's address specified below.
Anyone to whom a notice may be given under this Agreement may
designate a new address by notice to that effect given pursuant
to this Paragraph 12.
13. Approval of Consent. The exercise of the Option and the issuance
and delivery of shares of Common Stock pursuant thereto shall be
subject to approval by the Corporation's counsel of all legal
matters in connection therewith, including compliance with the
requirements of the Securities Act, the Securities Exchange Act
of 1934, as amended, applicable state securities laws, the rules
and regulations thereunder, and the requirements of any national
securities exchange or association upon which the Common Stock
than may be listed.
14. Benefits of Agreement. This Agreement will inure to the benefit
of and be binding upon each successor and assign of the
Corporation. All obligations imposed upon the Recipient and all
rights granted to the Corporation under this Agreement will be
binding upon the Recipient's heirs, legal representatives and
successors.
15. Governmental and Other Regulations. The exercise of the Option
and the Corporation's obligation to sell and deliver shares upon
the exercise of rights to purchase shares is subject to all
applicable federal and state laws, rules and regulations, and to
such approvals by the regulatory or governmental agency which,
in the opinion of counsel for the Corporation, may be required.
16. Conditions to Exercise. The shares of stock deliverable upon the
exercise of the Option, or any portion thereof, may be either
previously authorized but unissued shares or issued shares which
have then been reacquired by the Company. Such shares shall be
fully paid and non-assessable. The Company shall not be required
to issue or deliver any certificate or certificates for shares
of stock purchased upon the exercise of the Option or portion
thereof prior to fulfillment of all of the following conditions:
(i) The admission of such shares to listing on all stock
exchanges, if any, on which such class of stock is then
listed;
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<PAGE> 6
(ii) The completion of any registration or other
qualification of such shares under any state or federal
law or under the rulings or regulations of the
Securities and Exchange Commission or any other
governmental regulatory body, which the Corporation
shall, in its absolute discretion, deem necessary or
advisable;
(iii) The obtaining of any approval or other clearance from
any state or federal governmental agency which the
Corporation shall, in its absolute discretion, determine
to be necessary or advisable;
(iv) The payment to the Company of all amounts which it is
required to withhold under federal, state or local law
in connection with the exercise of the Option; and
(v) The lapse of such reasonable period of time following
the exercise of the Option as the Corporation may from
time to time establish for reasons of administrative
convenience.
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<PAGE> 7
This Stock Option Agreement is executed in the name and on behalf of the
Corporation by one of its duly authorized officers and by the Recipient all as
of the date first above written.
TECHNOLOGY GUARDIAN, INC.
By ____________________________
The undersigned Recipient understands the terms of this Option
Agreement. The undersigned agrees to comply with the terms and conditions of
this Option Agreement.
Date , 1999 Signature:
----------- --------------------------
Printed Name: Advantage Associates
Tax ID # (SSN):
----------------------
Address:
---------------------------
---------------------------
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<PAGE> 8
No.4-012
THE OPTION TO PURCHASE SHARES OF THE COMMON STOCK OF TECHNOLOGY GUARDIAN, INC.,
REPRESENTED BY THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT"), AND ARE "RESTRICTED SECURITIES" AS THAT TERM IS DEFINED IN
RULE 144 UNDER THE ACT. NEITHER THE OPTIONS NOR THE UNDERLYING SHARES MAY BE
OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT, THE AVAILABILITY OF WHICH IS TO BE
ESTABLISHED TO THE SATISFACTION OF SAID CORPORATION AND SUCH FURTHER
RESTRICTIONS AS THE BOARD OF DIRECTORS MAY DETERMINE.
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT effective as of this 1st day of October, 1998,
between Technology Guardian, Inc., a California corporation (the "Corporation"),
and Advantage Associates (the "Recipient").
WHEREAS, the Corporation, by action of the Board of Directors on July
28, 1998, has authorized the granting of stock options to purchase 150,000
shares of this Corporation's common stock, $.001 par value ("Common Stock"), to
Advantage Associates at an exercise price of $2.00 per share.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy whereof is hereby acknowledged, the Corporation and the Optionee agree
as follows:
1. Grant of Option. The Corporation hereby grants to Advantage
Associates an option to purchase (the "Option") an aggregate of
150,000 shares of the Corporation's common stock for a purchase
price of $ 2.00 per share (the "Option Price").
2. Vesting of Option. This option shall be immediately fully vested
from the Date of Grant.
3. Exercise of Option. This Option may be exercised in whole or in
part at any time during the term of the Option, provided,
however, no portion of this Option shall be exercisable after
the expiration of the term thereof.
The Option may be exercised, as provided in this Paragraph 3, by
notice and payment to the Corporation as provided in Paragraph 5
hereof.
4. Conversion. In lieu of exercising this Option as specified in
Paragraph 3, the Recipient may from time to time convert this
Option, in whole or in part, into a number of shares determined
by dividing (a) the aggregate Fair Market Value (determined on
the date of exercise) of the shares of the Corporation's Common
Stock issuable upon exercise of this Option (less the number of
shares as to which this Option has been previously exercised)
minus the aggregate Option Price of such shares minus all
amounts which it is required to withhold under federal, state or
local law in connection with the exercise of the Option, by (b)
the Fair Market Value (determined on the date of exercise) of
one share. This is represented mathematically as: {{(FMV per
share) X [(number of share issuable under the Option) - (share
previously issued and converted under the Option)]} - (amount
required to be withheld)} / (FMV per share). For purpose of this
Paragraph 4, "Fair Market Value" shall be the value determined
in accordance with the following provisions:
(a) If the Common Stock is not at the time listed or
admitted to trading on any stock exchange but is traded
on the Nasdaq National Market System or the Nasdaq
SmallCap Market, the Fair Market Value shall be the
closing selling price per share of Common Stock on the
date in question, as such price is reported by the
National Association of Securities Dealers through the
Nasdaq National Market System or any successor system or
the Nasdaq SmallCap Market or any successor market. If
there is no closing selling price for the common stock
on the date in question, then the FMV shall be the
closing selling price on the last preceding date for
which such quotation exists.
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<PAGE> 9
(b) If the Common Stock is at the time listed or admitted to
trading on any stock exchange, the Fair Market Value
shall be the closing selling price per share of Common
Stock on the date in question on the stock exchange
determined by the Board of Directors of the Corporation
to be the primary market for the Common Stock, as such
price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing
selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the
closing selling price on the last preceding date for
which such quotation exists.
(c) If the Common Stock is at the time neither listed nor
admitted to trading on any stock exchange, not traded on
the Nasdaq National Market System nor on the Nasdaq
SmallCap Market, then such Fair Market Value shall be
determined by the Board of Directors of the Corporation
after taking into account such factors as the Board of
Directors of the Corporation shall deem appropriate.
5. Manner of Exercise.
(a) During the lifetime of the Recipient, only he may
exercise the Option or any portion thereof. After the
death of the Recipient, any exercisable portion of the
Option may, prior to the time when the Option becomes
unexercisable under Section 3.3, be exercised by the
Recipient's personal representative or by any person
empowered to do so under the Recipient's will or under
the then applicable laws of descent and distribution.
(b) The Option, or any exercisable portion thereof, may be
exercised solely by delivery to the Secretary or the
Secretary's office of all of the following prior to the
time when such exercisable Option or portion thereof
becomes unexercisable:
(i) Notice in writing signed by the Recipient, or such other
person then entitled to exercise the Option or portion thereof,
stating that the Option or portion thereof is thereby exercised,
such notice complying with all applicable rules established by
the Corporation; and
(ii) (a) Full payment (in cash or by check) for the shares with
respect to which such Option or portion thereof is
exercised; or
(b) With the consent of the Corporation, shares of the
Company's Common Stock owned by the Recipient duly
endorsed for transfer to the Company with a Fair Market
Value on the date of delivery equal to the aggregate
purchase price of the shares with respect to which such
Option or portion thereof is exercised.
6. Term of Option. The term of the Option will be through August
24, 2003, subject to Paragraphs 8 and 9 as provided in this
Agreement.
The Recipient of the Option will not have any rights to
dividends or any other rights of a shareholder with respect to
any shares of Common Stock subject to the Option until such
shares shall have been purchased through the exercise of the
Option and has been evidenced on the stock transfer records of
the Corporation maintained by the Corporation's transfer agent.
7. Performance Restrictions. The Recipient of this Option will not
have the right to exercise this Option until confirmation by the
Board of Directors that the following performance goals have
been completed:
NET SALES OF 2,000 UNITS SOLD BY THE EAST COAST OFFICE IN THE 12
MONTH PERIOD BEGINNING MARCH 1, 1999. HOWEVER, IF NET SALES OF
2,000 UNITS HAVE BEEN ACHIEVED BY AUGUST 31, 1999, THEN THE
NUMBER OF SHARES SUBJECT TO THIS OPTION SHALL BE INCREASED BY
50,000 SHARES. AFTER SUCH 2,000 UNITS IN NET SALES HAVE BEEN
ACHIEVED, THEN THE RECIPIENT SHALL BE ENTITLED TO THE RIGHTS
DESCRIBED IN SECTION 11(b), SUBJECT TO THE REQUIREMENTS AND
LIMITATIONS OF SECTION 11. ANY PARTY WHICH ACQUIRES CONTROL OF
THE CORPORATION SHALL BE REQUIRED TO HONOR THE RIGHTS OF
ADVANTAGE SET FORTH IN THIS AGREEMENT SUBSEQUENT TO THE
ACQUISITION OF CONTROL.
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<PAGE> 10
For purposes of this paragraph, the East Coast Office shall mean
the people working out of the office of the Corporation located
in the Washington, D.C., metropolitan area as of the date of
this Agreement, and those who subsequently work in at such
office as approved by the Corporation as part of the East Coast
Office. The East Coast Office shall also include those VARs
recruited by and working under the direction of the East Coast
Office.
For purposes of this paragraph, a "unit" shall consist of a
server and associated hardware and the Corporation's software
that allows high-speed access to the Internet, together with a
service contract of at least two years duration. For purposes of
definition of "unit" in this paragraph, a server and/or
associated hardware may be furnished by the customer in lieu of
a server and associated hardware furnished by the Corporation.
A sale of a unit shall be deemed to occur or at such time as a
sale is recognized by the Corporation in accordance with
generally accepted accounting principles. Units which are
returned to the Corporation shall be deducted from the number of
Units sold. The number of Units sold less the number of Units
returned shall be the net Units sold.
8. Transferability Restriction. The Option may not be assigned,
transferred or otherwise disposed of, or pledged or hypothecated
in any way (whether by operation of law or otherwise) (1)
without the consent of the Corporation, and (2) such transfer is
not in violation of the Securities Act of 1933, the Corporate
Securities Laws of the State of California, or the securities
laws of any state. Any assignment, transfer, pledge,
hypothecation or other disposition of the Option or any attempt
to make any such levy of execution, attachment or other process
not in accordance with the foregoing sentence shall cause the
Option to terminate immediately upon the happening of any such
event, and the Recipient shall lose all rights under this
agreement, provided, however, that any such termination of the
Option under the foregoing provisions of this Paragraph 6, will
not prejudice any rights or remedies which the Corporation may
have under this Agreement or otherwise.
9. Death, Disability or Retirement of Recipient. The Recipient's
rights to exercise this Option upon the death, disability or
retirement of the Recipient are set forth as follows:
(a) If the Recipient ceases to be in Service to the
Corporation for a reason other than permanent disability
or death, the Recipient must, within (2) months after
the date of termination of such Service, but in no event
after the Option's stated expiration date, exercise some
or all of the Options that the Recipient was entitled to
exercise on the date the Recipient's Service terminated.
All options which have not vested in accordance with
Paragraph 2 will thereafter be void for all purposes. If
the Recipient ceases to be in Service to the Corporation
by reason of permanent disability within the meaning of
section 22(e)(3) of the Internal Revenue Code (as
determined by the Board of Directors), the Recipient
will have two (2) months after the date of termination
of Service, but in no event after the stated expiration
date of the Recipient's Options, to exercise Options
that the Recipient was entitled to exercise on the date
the Recipient's Service terminated as a result of the
disability.
(b) If a Recipient dies while in the Corporation's Service,
any Options that the Recipient was entitled to exercise
on the date of death will be exercisable within the
six-month period following the date of issuance of
letters testamentary or letters of administration of a
deceased Recipient, in the case of the Recipient's death
during his Service to the Corporation's Board, but not
later than one year after the Recipient's death or until
the stated expiration date of the Recipient's Option,
whichever occurs first, by the person or persons
("successors") to whom the Recipient's rights pass under
a will or by the laws of descent and distribution. As
soon as practicable after receipt by the Corporation of
such notice and of payment in full of the Option Price,
a certificate or certificates representing the Optioned
Shares shall be registered in the name or names
specified by the successors in the written notice of
exercise and shall be delivered to the successors.
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<PAGE> 11
(c) The term "Service" means service as an employee, as an
independent contractor, or an employee of an independent
contractor.
10. No Registration Obligation. The Recipient understands that the
Option is not registered under the Securities Act of 1933, as
amended (the "Securities Act") and the Corporation has no
obligation to register under the Securities Act the Option or
any of the shares of Common Stock subject to and issuable upon
the exercise of the Option. The Recipient represents that the
Option is being acquired by him for investment and acknowledges
that all certificates for the shares issued upon exercise of the
Option will bear the following legend unless such shares are
registered under the Securities Act prior to their issuance:
The shares of Common Stock evidenced by this
certificate have been issued to the registered
owner in reliance upon written representations
that these shares have been purchased solely for
investment. These shares may not be sold,
transferred or assigned unless in the opinion of
the Corporation and its legal counsel such
sales, transfer or assignment will not be in
violation of the Securities Act of 1933, as
amended, and the rules and regulations
thereunder.
The Recipient further understands and agrees that the Option may be
exercised only if at the time of such exercise the Recipient and the Corporation
are able to establish the existence of an exemption from registration under the
Securities Act and applicable state laws.
11. Effect of Certain Changes.
(a) If there is any change in the number of shares of
outstanding Common Stock through the declaration of
stock dividends, or through a recapitalization resulting
in stock splits or combinations or exchanges of such
shares, the number of shares of Common Stock available
for Options and the number of such shares covered by
outstanding Options, and the exercise price per share of
the outstanding Options, shall be proportionately
adjusted by the Board to reflect any increase or
decrease in the number of issued shares of Common Stock:
provided, however, that any fractional shares resulting
from such adjustment shall be eliminated.
(b) In the event of the proposed dissolution or liquidation
of the Corporation, or any corporate separation or
division, including, but not limited to, split-up,
split-off or spin-off, or a merger or consolidation of
the Corporation with another corporation, or any sale or
transfer by the Corporation of all or substantially all
its assets or any tender offer or exchange offer for or
the acquisition, directly or indirectly, by any person
or group for more than 50% of the then outstanding
voting securities of the Corporation, the board may
provide that the Recipient shall have the right to
exercise such Option (at its then current Option Price)
solely for the kind and amount of shares of stock and
other securities, property, cash or any combination
thereof receivable upon such dissolution, liquidation,
corporate separation or division, merger or
consolidation, sale or transfer of assets or tender
offer or exchange offer, by a Recipient of the number of
shares of Common Stock for which such Option might have
been exercised immediately prior to such dissolution,
liquidation, corporate separation or division, or merger
or consolidation: sales or transfer of assets or tender
offer or exchange offer, or in the alternative the Board
may provide that each Option granted herein shall
terminate as of a date fixed by the Board: provided,
however, that not less than 30 day's written notice of
the date so fixed shall be given to the Recipient, who
shall have the right, during the period of 30 days
preceding such termination, to exercise the Option.
(c) Paragraph (b) of this Section 11 shall not apply to a
merger or consolidation in which the Corporation is the
surviving corporation and shares of Common Stock are not
converted into or exchanged for stock, securities of any
other corporation, cash or any other thing of value.
Notwithstanding the preceding sentence, in case of any
consolidation or merger of another corporation into the
Corporation in which the Corporation is the surviving
corporation and in which there is a reclassification or
change (including a change which results in the right to
receive cash or other property) of the shares of Common
Stock (other than a change in par value, or from no par
value to par value, or as a result of a subdivision or
combination, but including any change in such shares
into two or more classes or series of shares), the Board
may provide that the Recipient shall have the right to
exercise such Option solely for the kind and amount of
shares of stock and other securities (including those of
any direct or indirect Parent of the
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<PAGE> 12
Corporation), property, cash or any combination thereof
receivable upon such reclassification, change
consolidation or merger by the Recipient of the number
of shares of Common Stock for which Option might have
been exercised.
(d) If there is a change in the Common Stock of the
Corporation as presently constituted, which is limited
to a change of all of its authorized shares with par
value into the same number of shares with a different
par value or without par value, the shares resulting
from any such change shall be deemed to be the Common
Stock within the meaning of this Stock Option Agreement.
(e) To the extent that the foregoing adjustments relate to
stock or securities of the Corporation, such adjustments
shall be made by the Board.
(f) Except as expressly provided in this Section 11, the
Recipient shall have no rights by reason of any
subdivision or consolidation of shares of stock of any
class or the payment of any stock dividend or any other
increase in the number of shares of stock of any class
or by reason of any dissolution, liquidation, merger, or
consolidation or split-up, split-off, or spin-off of
assets or stock of another corporation; and any issue by
the Corporation of shares of stock of any class, or
securities convertible into shares of stock of any
class, shall not effect, and no adjustment by reason
thereof shall be made with respect to, the number or
price of shares of Common Stock subject to this Option.
The grant of this Option shall not affect in any way the
right or power of the Corporation to make adjustments,
reclassifications, reorganizations or changes of its
capital or business structures or to merge or
consolidate or to dissolve, liquidate or sell or
transfer all or any part of its business or assets.
12. Notices. Each notice relating to this Agreement will be in
writing and delivered in person or by certified mail to the
proper address. Notices to the Corporation shall be addressed to
the Corporation c/o President, Technology Guardian, Inc., 16520
Harbor Blvd., Bldg G, Fountain, Valley, CA 92708. Notices to the
Recipient or other person or persons then entitled to exercise
the Option shall be addressed to the Recipient or such other
person or persons at the Recipient's address specified below.
Anyone to whom a notice may be given under this Agreement may
designate a new address by notice to that effect given pursuant
to this Paragraph 12.
13. Approval of Consent. The exercise of the Option and the issuance
and delivery of shares of Common Stock pursuant thereto shall be
subject to approval by the Corporation's counsel of all legal
matters in connection therewith, including compliance with the
requirements of the Securities Act, the Securities Exchange Act
of 1934, as amended, applicable state securities laws, the rules
and regulations thereunder, and the requirements of any national
securities exchange or association upon which the Common Stock
than may be listed.
14. Benefits of Agreement. This Agreement will inure to the benefit
of and be binding upon each successor and assign of the
Corporation. All obligations imposed upon the Recipient and all
rights granted to the Corporation under this Agreement will be
binding upon the Recipient's heirs, legal representatives and
successors.
15. Governmental and Other Regulations. The exercise of the Option
and the Corporation's obligation to sell and deliver shares upon
the exercise of rights to purchase shares is subject to all
applicable federal and state laws, rules and regulations, and to
such approvals by the regulatory or governmental agency which,
in the opinion of counsel for the Corporation, may be required.
16. Conditions to Exercise. The shares of stock deliverable upon the
exercise of the Option, or any portion thereof, may be either
previously authorized but unissued shares or issued shares which
have then been reacquired by the Company. Such shares shall be
fully paid and non-assessable. The Company shall not be required
to issue or deliver any certificate or certificates for shares
of stock purchased upon the exercise of the Option or portion
thereof prior to fulfillment of all of the following conditions:
(i) The admission of such shares to listing on all stock
exchanges, if any, on which such class of stock is then
listed;
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<PAGE> 13
(ii) The completion of any registration or other
qualification of such shares under any state or federal
law or under the rulings or regulations of the
Securities and Exchange Commission or any other
governmental regulatory body, which the Corporation
shall, in its absolute discretion, deem necessary or
advisable;
(iii) The obtaining of any approval or other clearance from
any state or federal governmental agency which the
Corporation shall, in its absolute discretion, determine
to be necessary or advisable;
(iv) The payment to the Company of all amounts which it is
required to withhold under federal, state or local law
in connection with the exercise of the Option; and
(v) The lapse of such reasonable period of time following
the exercise of the Option as the Corporation may from
time to time establish for reasons of administrative
convenience.
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<PAGE> 14
This Stock Option Agreement is executed in the name and on behalf of the
Corporation by one of its duly authorized officers and by the Recipient all as
of the date first above written.
TECHNOLOGY GUARDIAN, INC.
By
--------------------------
The undersigned Recipient understands the terms of this Option
Agreement. The undersigned agrees to comply with the terms and conditions of
this Option Agreement.
Date , 1999 Signature:
----------- --------------------------
Printed Name: Advantage Associates
Tax ID # (SSN):
----------------------
Address:
---------------------------
---------------------------
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<PAGE> 15
No.4-013
THE OPTION TO PURCHASE SHARES OF THE COMMON STOCK OF TECHNOLOGY GUARDIAN, INC.,
REPRESENTED BY THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT"), AND ARE "RESTRICTED SECURITIES" AS THAT TERM IS DEFINED IN
RULE 144 UNDER THE ACT. NEITHER THE OPTIONS NOR THE UNDERLYING SHARES MAY BE
OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT, THE AVAILABILITY OF WHICH IS TO BE
ESTABLISHED TO THE SATISFACTION OF SAID CORPORATION AND SUCH FURTHER
RESTRICTIONS AS THE BOARD OF DIRECTORS MAY DETERMINE.
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT effective as of this 1st day of October, 1998,
between Technology Guardian, Inc., a California corporation (the "Corporation"),
and Advantage Associates (the "Recipient").
WHEREAS, the Corporation, by action of the Board of Directors on July
28, 1998, has authorized the granting of stock options to purchase 100,000
shares of this Corporation's common stock, $.001 par value ("Common Stock"), to
Advantage Associates at an exercise price of $2.00 per share.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy whereof is hereby acknowledged, the Corporation and the Optionee agree
as follows:
1. Grant of Option. The Corporation hereby grants to Advantage
Associates an option to purchase (the "Option") an aggregate of
100,000 shares of the Corporation's common stock for a purchase
price of $ 2.00 per share (the "Option Price").
2. Vesting of Option. This option shall be immediately fully vested
from the Date of Grant.
3. Exercise of Option. This Option may be exercised in whole or in
part at any time during the term of the Option, provided,
however, no portion of this Option shall be exercisable after
the expiration of the term thereof.
The Option may be exercised, as provided in this Paragraph 3, by
notice and payment to the Corporation as provided in Paragraph 5
hereof.
4. Conversion. In lieu of exercising this Option as specified in
Paragraph 3, the Recipient may from time to time convert this
Option, in whole or in part, into a number of shares determined
by dividing (a) the aggregate Fair Market Value (determined on
the date of exercise) of the shares of the Corporation's Common
Stock issuable upon exercise of this Option (less the number of
shares as to which this Option has been previously exercised)
minus the aggregate Option Price of such shares minus all
amounts which it is required to withhold under federal, state or
local law in connection with the exercise of the Option, by (b)
the Fair Market Value (determined on the date of exercise) of
one share. This is represented mathematically as: {{(FMV per
share) X [(number of share issuable under the Option) - (share
previously issued and converted under the Option)]} - (amount
required to be withheld)} / (FMV per share). For purpose of this
Paragraph 4, "Fair Market Value" shall be the value determined
in accordance with the following provisions:
(a) If the Common Stock is not at the time listed or
admitted to trading on any stock exchange but is traded
on the Nasdaq National Market System or the Nasdaq
SmallCap Market, the Fair Market Value shall be the
closing selling price per share of Common Stock on the
date in question, as such price is reported by the
National Association of Securities Dealers through the
Nasdaq National Market System or any successor system or
the Nasdaq SmallCap Market or any successor market. If
there is no closing selling price for the common stock
on the date in question, then the FMV shall be the
closing selling price on the last preceding date for
which such quotation exists.
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<PAGE> 16
(b) If the Common Stock is at the time listed or admitted to
trading on any stock exchange, the Fair Market Value
shall be the closing selling price per share of Common
Stock on the date in question on the stock exchange
determined by the Board of Directors of the Corporation
to be the primary market for the Common Stock, as such
price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing
selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the
closing selling price on the last preceding date for
which such quotation exists.
(c) If the Common Stock is at the time neither listed nor
admitted to trading on any stock exchange, not traded on
the Nasdaq National Market System nor on the Nasdaq
SmallCap Market, then such Fair Market Value shall be
determined by the Board of Directors of the Corporation
after taking into account such factors as the Board of
Directors of the Corporation shall deem appropriate.
5. Manner of Exercise.
(a) During the lifetime of the Recipient, only he may
exercise the Option or any portion thereof. After the
death of the Recipient, any exercisable portion of the
Option may, prior to the time when the Option becomes
unexercisable under Section 3.3, be exercised by the
Recipient's personal representative or by any person
empowered to do so under the Recipient's will or under
the then applicable laws of descent and distribution.
(b) The Option, or any exercisable portion thereof, may be
exercised solely by delivery to the Secretary or the
Secretary's office of all of the following prior to the
time when such exercisable Option or portion thereof
becomes unexercisable:
(i) Notice in writing signed by the Recipient, or such
other person then entitled to exercise the Option or
portion thereof, stating that the Option or portion
thereof is thereby exercised, such notice complying with
all applicable rules established by the Corporation; and
(ii) (a) Full payment (in cash or by check) for the
shares with respect to which such Option or
portion thereof is exercised; or
(b) With the consent of the Corporation, shares
of the Company's Common Stock owned by the
Recipient duly endorsed for transfer to the
Company with a Fair Market Value on the date of
delivery equal to the aggregate purchase price
of the shares with respect to which such Option
or portion thereof is exercised.
6. Term of Option. The term of the Option will be through August
24, 2003, subject to Paragraphs 8 and 9 as provided in this
Agreement.
The Recipient of the Option will not have any rights to
dividends or any other rights of a shareholder with respect to
any shares of Common Stock subject to the Option until such
shares shall have been purchased through the exercise of the
Option and has been evidenced on the stock transfer records of
the Corporation maintained by the Corporation's transfer agent.
7. Performance Restrictions. The Recipient of this Option will not
have the right to exercise this Option until confirmation by the
Board of Directors that the following performance goals have
been completed:
NET SALES OF 3,000 UNITS SOLD BY THE EAST COAST OFFICE PRIOR TO
MARCH 1, 2001. AFTER SUCH 3000 UNITS IN NET SALES HAVE BEEN
ACHIEVED, THEN THE RECIPIENT SHALL BE ENTITLED TO THE RIGHTS
DESCRIBED IN SECTION 11(b), SUBJECT TO THE REQUIREMENTS AND
LIMITATIONS OF SECTION 11. ANY PARTY WHICH ACQUIRES CONTROL OF
THE CORPORATION SHALL BE REQUIRED TO HONOR THE RIGHTS OF
ADVANTAGE SET FORTH IN THIS AGREEMENT SUBSEQUENT TO THE
ACQUISITION OF CONTROL.
For purposes of this paragraph, the East Coast Office shall mean
the people working out of the office of the Corporation located
in the Washington, D.C., metropolitan area as of the date of
this Agreement, and those
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<PAGE> 17
who subsequently work in at such office as approved by the
Corporation as part of the East Coast Office. The East Coast
Office shall also include those VARs recruited by and working
under the direction of the East Coast Office.
For purposes of this paragraph, a "unit" shall consist of a
server and associated hardware and the Corporation's software
that allows high-speed access to the Internet, together with a
service contract of at least two years duration. For purposes of
definition of "unit" in this paragraph, a server and/or
associated hardware may be furnished by the customer in lieu of
a server and associated hardware furnished by the Corporation.
A sale of a unit shall be deemed to occur or at such time as a
sale is recognized by the Corporation in accordance with
generally accepted accounting principles. Units which are
returned to the Corporation shall be deducted from the number of
Units sold. The number of Units sold less the number of Units
returned shall be the net Units sold.
8. Transferability Restriction. The Option may not be assigned,
transferred or otherwise disposed of, or pledged or hypothecated
in any way (whether by operation of law or otherwise) (1)
without the consent of the Corporation, and (2) such transfer is
not in violation of the Securities Act of 1933, the Corporate
Securities Laws of the State of California, or the securities
laws of any state. Any assignment, transfer, pledge,
hypothecation or other disposition of the Option or any attempt
to make any such levy of execution, attachment or other process
not in accordance with the foregoing sentence shall cause the
Option to terminate immediately upon the happening of any such
event, and the Recipient shall lose all rights under this
agreement, provided, however, that any such termination of the
Option under the foregoing provisions of this Paragraph 6, will
not prejudice any rights or remedies which the Corporation may
have under this Agreement or otherwise.
9. Death, Disability or Retirement of Recipient. The Recipient's
rights to exercise this Option upon the death, disability or
retirement of the Recipient are set forth as follows:
(a) If the Recipient ceases to be in Service to the
Corporation for a reason other than permanent disability
or death, the Recipient must, within (2) months after
the date of termination of such Service, but in no event
after the Option's stated expiration date, exercise some
or all of the Options that the Recipient was entitled to
exercise on the date the Recipient's Service terminated.
All options which have not vested in accordance with
Paragraph 2 will thereafter be void for all purposes. If
the Recipient ceases to be in Service to the Corporation
by reason of permanent disability within the meaning of
section 22(e)(3) of the Internal Revenue Code (as
determined by the Board of Directors), the Recipient
will have two (2) months after the date of termination
of Service, but in no event after the stated expiration
date of the Recipient's Options, to exercise Options
that the Recipient was entitled to exercise on the date
the Recipient's Service terminated as a result of the
disability.
(b) If a Recipient dies while in the Corporation's Service,
any Options that the Recipient was entitled to exercise
on the date of death will be exercisable within the
six-month period following the date of issuance of
letters testamentary or letters of administration of a
deceased Recipient, in the case of the Recipient's death
during his Service to the Corporation's Board, but not
later than one year after the Recipient's death or until
the stated expiration date of the Recipient's Option,
whichever occurs first, by the person or persons
("successors") to whom the Recipient's rights pass under
a will or by the laws of descent and distribution. As
soon as practicable after receipt by the Corporation of
such notice and of payment in full of the Option Price,
a certificate or certificates representing the Optioned
Shares shall be registered in the name or names
specified by the successors in the written notice of
exercise and shall be delivered to the successors.
(c) The term "Service" means service as an employee, as an
independent contractor, or an employee of an independent
contractor.
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<PAGE> 18
10. No Registration Obligation. The Recipient understands that the
Option is not registered under the Securities Act of 1933, as
amended (the "Securities Act") and the Corporation has no
obligation to register under the Securities Act the Option or
any of the shares of Common Stock subject to and issuable upon
the exercise of the Option. The Recipient represents that the
Option is being acquired by him for investment and acknowledges
that all certificates for the shares issued upon exercise of the
Option will bear the following legend unless such shares are
registered under the Securities Act prior to their issuance:
The shares of Common Stock evidenced by this
certificate have been issued to the registered
owner in reliance upon written representations
that these shares have been purchased solely for
investment. These shares may not be sold,
transferred or assigned unless in the opinion of
the Corporation and its legal counsel such
sales, transfer or assignment will not be in
violation of the Securities Act of 1933, as
amended, and the rules and regulations
thereunder.
The Recipient further understands and agrees that the Option may be
exercised only if at the time of such exercise the Recipient and the Corporation
are able to establish the existence of an exemption from registration under the
Securities Act and applicable state laws.
11. Effect of Certain Changes.
(a) If there is any change in the number of shares of
outstanding Common Stock through the declaration of
stock dividends, or through a recapitalization resulting
in stock splits or combinations or exchanges of such
shares, the number of shares of Common Stock available
for Options and the number of such shares covered by
outstanding Options, and the exercise price per share of
the outstanding Options, shall be proportionately
adjusted by the Board to reflect any increase or
decrease in the number of issued shares of Common Stock:
provided, however, that any fractional shares resulting
from such adjustment shall be eliminated.
(b) In the event of the proposed dissolution or liquidation
of the Corporation, or any corporate separation or
division, including, but not limited to, split-up,
split-off or spin-off, or a merger or consolidation of
the Corporation with another corporation, or any sale or
transfer by the Corporation of all or substantially all
its assets or any tender offer or exchange offer for or
the acquisition, directly or indirectly, by any person
or group for more than 50% of the then outstanding
voting securities of the Corporation, the board may
provide that the Recipient shall have the right to
exercise such Option (at its then current Option Price)
solely for the kind and amount of shares of stock and
other securities, property, cash or any combination
thereof receivable upon such dissolution, liquidation,
corporate separation or division, merger or
consolidation, sale or transfer of assets or tender
offer or exchange offer, by a Recipient of the number of
shares of Common Stock for which such Option might have
been exercised immediately prior to such dissolution,
liquidation, corporate separation or division, or merger
or consolidation: sales or transfer of assets or tender
offer or exchange offer, or in the alternative the Board
may provide that each Option granted herein shall
terminate as of a date fixed by the Board: provided,
however, that not less than 30 day's written notice of
the date so fixed shall be given to the Recipient, who
shall have the right, during the period of 30 days
preceding such termination, to exercise the Option.
(c) Paragraph (b) of this Section 11 shall not apply to a
merger or consolidation in which the Corporation is the
surviving corporation and shares of Common Stock are not
converted into or exchanged for stock, securities of any
other corporation, cash or any other thing of value.
Notwithstanding the preceding sentence, in case of any
consolidation or merger of another corporation into the
Corporation in which the Corporation is the surviving
corporation and in which there is a reclassification or
change (including a change which results in the right to
receive cash or other property) of the shares of Common
Stock (other than a change in par value, or from no par
value to par value, or as a result of a subdivision or
combination, but including any change in such shares
into two or more classes or series of shares), the Board
may provide that the Recipient shall have the right to
exercise such Option solely for the kind and amount of
shares of stock and other securities (including those of
any direct or indirect Parent of the Corporation),
property, cash or any combination thereof receivable
upon such reclassification, change consolidation or
merger by the Recipient of the number of shares of
Common Stock for which Option might have been exercised.
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<PAGE> 19
(d) If there is a change in the Common Stock of the
Corporation as presently constituted, which is limited
to a change of all of its authorized shares with par
value into the same number of shares with a different
par value or without par value, the shares resulting
from any such change shall be deemed to be the Common
Stock within the meaning of this Stock Option Agreement.
(e) To the extent that the foregoing adjustments relate to
stock or securities of the Corporation, such adjustments
shall be made by the Board.
(f) Except as expressly provided in this Section 11, the
Recipient shall have no rights by reason of any
subdivision or consolidation of shares of stock of any
class or the payment of any stock dividend or any other
increase in the number of shares of stock of any class
or by reason of any dissolution, liquidation, merger, or
consolidation or split-up, split-off, or spin-off of
assets or stock of another corporation; and any issue by
the Corporation of shares of stock of any class, or
securities convertible into shares of stock of any
class, shall not effect, and no adjustment by reason
thereof shall be made with respect to, the number or
price of shares of Common Stock subject to this Option.
The grant of this Option shall not affect in any way the
right or power of the Corporation to make adjustments,
reclassifications, reorganizations or changes of its
capital or business structures or to merge or
consolidate or to dissolve, liquidate or sell or
transfer all or any part of its business or assets.
12. Notices. Each notice relating to this Agreement will be in
writing and delivered in person or by certified mail to the
proper address. Notices to the Corporation shall be addressed to
the Corporation c/o President, Technology Guardian, Inc., 16520
Harbor Blvd., Bldg G, Fountain, Valley, CA 92708. Notices to the
Recipient or other person or persons then entitled to exercise
the Option shall be addressed to the Recipient or such other
person or persons at the Recipient's address specified below.
Anyone to whom a notice may be given under this Agreement may
designate a new address by notice to that effect given pursuant
to this Paragraph 12.
13. Approval of Consent. The exercise of the Option and the issuance
and delivery of shares of Common Stock pursuant thereto shall be
subject to approval by the Corporation's counsel of all legal
matters in connection therewith, including compliance with the
requirements of the Securities Act, the Securities Exchange Act
of 1934, as amended, applicable state securities laws, the rules
and regulations thereunder, and the requirements of any national
securities exchange or association upon which the Common Stock
than may be listed.
14. Benefits of Agreement. This Agreement will inure to the benefit
of and be binding upon each successor and assign of the
Corporation. All obligations imposed upon the Recipient and all
rights granted to the Corporation under this Agreement will be
binding upon the Recipient's heirs, legal representatives and
successors.
15. Governmental and Other Regulations. The exercise of the Option
and the Corporation's obligation to sell and deliver shares upon
the exercise of rights to purchase shares is subject to all
applicable federal and state laws, rules and regulations, and to
such approvals by the regulatory or governmental agency which,
in the opinion of counsel for the Corporation, may be required.
16. Conditions to Exercise. The shares of stock deliverable upon the
exercise of the Option, or any portion thereof, may be either
previously authorized but unissued shares or issued shares which
have then been reacquired by the Company. Such shares shall be
fully paid and non-assessable. The Company shall not be required
to issue or deliver any certificate or certificates for shares
of stock purchased upon the exercise of the Option or portion
thereof prior to fulfillment of all of the following conditions:
(i) The admission of such shares to listing on all stock
exchanges, if any, on which such class of stock is then
listed;
(ii) The completion of any registration or other
qualification of such shares under any state or federal
law or under the rulings or regulations of the
Securities and Exchange Commission or any other
governmental regulatory body, which the Corporation
shall, in its absolute discretion, deem necessary or
advisable;
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<PAGE> 20
(iii) The obtaining of any approval or other clearance from any state
or federal governmental agency which the Corporation shall, in
its absolute discretion, determine to be necessary or advisable;
(iv) The payment to the Company of all amounts which it is required to
withhold under federal, state or local law in connection with the
exercise of the Option; and
(v) The lapse of such reasonable period of time following the
exercise of the Option as the Corporation may from time to time
establish for reasons of administrative convenience.
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<PAGE> 21
This Stock Option Agreement is executed in the name and on behalf of the
Corporation by one of its duly authorized officers and by the Recipient all as
of the date first above written.
TECHNOLOGY GUARDIAN, INC.
By
-----------------------------
The undersigned Recipient understands the terms of this Option
Agreement. The undersigned agrees to comply with the terms and conditions of
this Option Agreement.
Date , 1999 Signature:
----------- --------------------------
Printed Name: Advantage Associates
Tax ID # (SSN):
----------------------
Address:
---------------------------
---------------------------
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<PAGE> 22
No.4-014
THE OPTION TO PURCHASE SHARES OF THE COMMON STOCK OF TECHNOLOGY GUARDIAN, INC.,
REPRESENTED BY THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT"), AND ARE "RESTRICTED SECURITIES" AS THAT TERM IS DEFINED IN
RULE 144 UNDER THE ACT. NEITHER THE OPTIONS NOR THE UNDERLYING SHARES MAY BE
OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT, THE AVAILABILITY OF WHICH IS TO BE
ESTABLISHED TO THE SATISFACTION OF SAID CORPORATION AND SUCH FURTHER
RESTRICTIONS AS THE BOARD OF DIRECTORS MAY DETERMINE.
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT effective as of this 1st day of October, 1998,
between Technology Guardian, Inc., a California corporation (the "Corporation"),
and Advantage Associates (the "Recipient").
WHEREAS, the Corporation, by action of the Board of Directors on July
28, 1998, has authorized the granting of stock options to purchase 100,000
shares of this Corporation's common stock, $.001 par value ("Common Stock"), to
Advantage Associates at an exercise price of $2.00 per share.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy whereof is hereby acknowledged, the Corporation and the Optionee agree
as follows:
1. Grant of Option. The Corporation hereby grants to Advantage
Associates an option to purchase (the "Option") an aggregate of
100,000 shares of the Corporation's common stock for a purchase
price of $ 2.00 per share (the "Option Price").
2. Vesting of Option. This option shall be immediately fully vested
from the Date of Grant.
3. Exercise of Option. This Option may be exercised in whole or in
part at any time during the term of the Option, provided,
however, no portion of this Option shall be exercisable after
the expiration of the term thereof.
The Option may be exercised, as provided in this Paragraph 3, by
notice and payment to the Corporation as provided in Paragraph 5
hereof.
4. Conversion. In lieu of exercising this Option as specified in
Paragraph 3, the Recipient may from time to time convert this
Option, in whole or in part, into a number of shares determined
by dividing (a) the aggregate Fair Market Value (determined on
the date of exercise) of the shares of the Corporation's Common
Stock issuable upon exercise of this Option (less the number of
shares as to which this Option has been previously exercised)
minus the aggregate Option Price of such shares minus all
amounts which it is required to withhold under federal, state or
local law in connection with the exercise of the Option, by (b)
the Fair Market Value (determined on the date of exercise) of
one share. This is represented mathematically as: {{(FMV per
share) X [(number of share issuable under the Option) - (share
previously issued and converted under the Option)]} - (amount
required to be withheld)} / (FMV per share). For purpose of this
Paragraph 4, "Fair Market Value" shall be the value determined
in accordance with the following provisions:
(a) If the Common Stock is not at the time listed or
admitted to trading on any stock exchange but is traded
on the Nasdaq National Market System or the Nasdaq
SmallCap Market, the Fair Market Value shall be the
closing selling price per share of Common Stock on the
date in question, as such price is reported by the
National Association of Securities Dealers through the
Nasdaq National Market System or any successor system or
the Nasdaq SmallCap Market or any successor market. If
there is no closing selling price for the common stock
on the date in question, then the FMV shall be the
closing selling price on the last preceding date for
which such quotation exists.
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<PAGE> 23
(b) If the Common Stock is at the time listed or admitted to
trading on any stock exchange, the Fair Market Value
shall be the closing selling price per share of Common
Stock on the date in question on the stock exchange
determined by the Board of Directors of the Corporation
to be the primary market for the Common Stock, as such
price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing
selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the
closing selling price on the last preceding date for
which such quotation exists.
(c) If the Common Stock is at the time neither listed nor
admitted to trading on any stock exchange, not traded on
the Nasdaq National Market System nor on the Nasdaq
SmallCap Market, then such Fair Market Value shall be
determined by the Board of Directors of the Corporation
after taking into account such factors as the Board of
Directors of the Corporation shall deem appropriate.
5. Manner of Exercise.
(a) During the lifetime of the Recipient, only he may
exercise the Option or any portion thereof. After the
death of the Recipient, any exercisable portion of the
Option may, prior to the time when the Option becomes
unexercisable under Section 3.3, be exercised by the
Recipient's personal representative or by any person
empowered to do so under the Recipient's will or under
the then applicable laws of descent and distribution.
(b) The Option, or any exercisable portion thereof, may be
exercised solely by delivery to the Secretary or the
Secretary's office of all of the following prior to the
time when such exercisable Option or portion thereof
becomes unexercisable:
(i) Notice in writing signed by the Recipient, or such
other person then entitled to exercise the Option or
portion thereof, stating that the Option or portion
thereof is thereby exercised, such notice complying with
all applicable rules established by the Corporation; and
(ii) (a) Full payment (in cash or by check) for the
shares with respect to which such Option or
portion thereof is exercised; or
(b) With the consent of the Corporation, shares
of the Company's Common Stock owned by the
Recipient duly endorsed for transfer to the
Company with a Fair Market Value on the date of
delivery equal to the aggregate purchase price
of the shares with respect to which such Option
or portion thereof is exercised.
6. Term of Option. The term of the Option will be through August
24, 2003, subject to Paragraphs 8 and 9 as provided in this
Agreement.
The Recipient of the Option will not have any rights to
dividends or any other rights of a shareholder with respect to
any shares of Common Stock subject to the Option until such
shares shall have been purchased through the exercise of the
Option and has been evidenced on the stock transfer records of
the Corporation maintained by the Corporation's transfer agent.
7. Performance Restrictions. The Recipient of this Option will not
have the right to exercise this Option until confirmation by the
Board of Directors that the following performance goals have
been completed:
NET SALES OF 4,000 UNITS SOLD BY THE EAST COAST OFFICE PRIOR TO
MARCH 1, 2001. AFTER SUCH 4,000 UNITS IN NET SALES HAVE BEEN
ACHIEVED, THEN THE RECIPIENT SHALL BE ENTITLED TO THE RIGHTS
DESCRIBED IN SECTION 11(b), SUBJECT TO THE REQUIREMENTS AND
LIMITATIONS OF SECTION 11. ANY PARTY WHICH ACQUIRES CONTROL OF
THE CORPORATION SHALL BE REQUIRED TO HONOR THE RIGHTS OF
ADVANTAGE SET FORTH IN THIS AGREEMENT SUBSEQUENT TO THE
ACQUISITION OF CONTROL.
For purposes of this paragraph, the East Coast Office shall mean
the people working out of the office of the Corporation located
in the Washington, D.C., metropolitan area as of the date of
this Agreement, and those
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<PAGE> 24
who subsequently work in at such office as approved by the
Corporation as part of the East Coast Office. The East Coast
Office shall also include those VARs recruited by and working
under the direction of the East Coast Office.
For purposes of this paragraph, a "unit" shall consist of a
server and associated hardware and the Corporation's software
that allows high-speed access to the Internet, together with a
service contract of at least two years duration. For purposes of
definition of "unit" in this paragraph, a server and/or
associated hardware may be furnished by the customer in lieu of
a server and associated hardware furnished by the Corporation.
A sale of a unit shall be deemed to occur or at such time as a
sale is recognized by the Corporation in accordance with
generally accepted accounting principles. Units which are
returned to the Corporation shall be deducted from the number of
Units sold. The number of Units sold less the number of Units
returned shall be the net Units sold.
8. Transferability Restriction. The Option may not be assigned,
transferred or otherwise disposed of, or pledged or hypothecated
in any way (whether by operation of law or otherwise) (1)
without the consent of the Corporation, and (2) such transfer is
not in violation of the Securities Act of 1933, the Corporate
Securities Laws of the State of California, or the securities
laws of any state. Any assignment, transfer, pledge,
hypothecation or other disposition of the Option or any attempt
to make any such levy of execution, attachment or other process
not in accordance with the foregoing sentence shall cause the
Option to terminate immediately upon the happening of any such
event, and the Recipient shall lose all rights under this
agreement, provided, however, that any such termination of the
Option under the foregoing provisions of this Paragraph 6, will
not prejudice any rights or remedies which the Corporation may
have under this Agreement or otherwise.
9. Death, Disability or Retirement of Recipient. The Recipient's
rights to exercise this Option upon the death, disability or
retirement of the Recipient are set forth as follows:
(a) If the Recipient ceases to be in Service to the
Corporation for a reason other than permanent disability
or death, the Recipient must, within (2) months after
the date of termination of such Service, but in no event
after the Option's stated expiration date, exercise some
or all of the Options that the Recipient was entitled to
exercise on the date the Recipient's Service terminated.
All options which have not vested in accordance with
Paragraph 2 will thereafter be void for all purposes. If
the Recipient ceases to be in Service to the Corporation
by reason of permanent disability within the meaning of
section 22(e)(3) of the Internal Revenue Code (as
determined by the Board of Directors), the Recipient
will have two (2) months after the date of termination
of Service, but in no event after the stated expiration
date of the Recipient's Options, to exercise Options
that the Recipient was entitled to exercise on the date
the Recipient's Service terminated as a result of the
disability.
(b) If a Recipient dies while in the Corporation's Service,
any Options that the Recipient was entitled to exercise
on the date of death will be exercisable within the
six-month period following the date of issuance of
letters testamentary or letters of administration of a
deceased Recipient, in the case of the Recipient's death
during his Service to the Corporation's Board, but not
later than one year after the Recipient's death or until
the stated expiration date of the Recipient's Option,
whichever occurs first, by the person or persons
("successors") to whom the Recipient's rights pass under
a will or by the laws of descent and distribution. As
soon as practicable after receipt by the Corporation of
such notice and of payment in full of the Option Price,
a certificate or certificates representing the Optioned
Shares shall be registered in the name or names
specified by the successors in the written notice of
exercise and shall be delivered to the successors.
(c) The term "Service" means service as an employee, as an
independent contractor, or an employee of an independent
contractor.
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<PAGE> 25
10. No Registration Obligation. The Recipient understands that the
Option is not registered under the Securities Act of 1933, as
amended (the "Securities Act") and the Corporation has no
obligation to register under the Securities Act the Option or
any of the shares of Common Stock subject to and issuable upon
the exercise of the Option. The Recipient represents that the
Option is being acquired by him for investment and acknowledges
that all certificates for the shares issued upon exercise of the
Option will bear the following legend unless such shares are
registered under the Securities Act prior to their issuance:
The shares of Common Stock evidenced by this
certificate have been issued to the registered
owner in reliance upon written representations
that these shares have been purchased solely for
investment. These shares may not be sold,
transferred or assigned unless in the opinion of
the Corporation and its legal counsel such
sales, transfer or assignment will not be in
violation of the Securities Act of 1933, as
amended, and the rules and regulations
thereunder.
The Recipient further understands and agrees that the Option may be
exercised only if at the time of such exercise the Recipient and the Corporation
are able to establish the existence of an exemption from registration under the
Securities Act and applicable state laws.
11. Effect of Certain Changes.
(a) If there is any change in the number of shares of outstanding
Common Stock through the declaration of stock dividends, or
through a recapitalization resulting in stock splits or
combinations or exchanges of such shares, the number of shares
of Common Stock available for Options and the number of such
shares covered by outstanding Options, and the exercise price
per share of the outstanding Options, shall be proportionately
adjusted by the Board to reflect any increase or decrease in the
number of issued shares of Common Stock: provided, however, that
any fractional shares resulting from such adjustment shall be
eliminated.
(b) In the event of the proposed dissolution or liquidation of the
Corporation, or any corporate separation or division, including,
but not limited to, split-up, split-off or spin-off, or a merger
or consolidation of the Corporation with another corporation, or
any sale or transfer by the Corporation of all or substantially
all its assets or any tender offer or exchange offer for or the
acquisition, directly or indirectly, by any person or group for
more than 50% of the then outstanding voting securities of the
Corporation, the board may provide that the Recipient shall have
the right to exercise such Option (at its then current Option
Price) solely for the kind and amount of shares of stock and
other securities, property, cash or any combination thereof
receivable upon such dissolution, liquidation, corporate
separation or division, merger or consolidation, sale or
transfer of assets or tender offer or exchange offer, by a
Recipient of the number of shares of Common Stock for which such
Option might have been exercised immediately prior to such
dissolution, liquidation, corporate separation or division, or
merger or consolidation: sales or transfer of assets or tender
offer or exchange offer, or in the alternative the Board may
provide that each Option granted herein shall terminate as of a
date fixed by the Board: provided, however, that not less than
30 day's written notice of the date so fixed shall be given to
the Recipient, who shall have the right, during the period of 30
days preceding such termination, to exercise the Option.
(c) Paragraph (b) of this Section 11 shall not apply to a merger or
consolidation in which the Corporation is the surviving
corporation and shares of Common Stock are not converted into or
exchanged for stock, securities of any other corporation, cash
or any other thing of value. Notwithstanding the preceding
sentence, in case of any consolidation or merger of another
corporation into the Corporation in which the Corporation is the
surviving corporation and in which there is a reclassification
or change (including a change which results in the right to
receive cash or other property) of the shares of Common Stock
(other than a change in par value, or from no par value to par
value, or as a result of a subdivision or combination, but
including any change in such shares into two or more classes or
series of shares), the Board may provide that the Recipient
shall have the right to exercise such Option solely for the kind
and amount of shares of stock and other securities (including
those of any direct or indirect Parent of the Corporation),
property, cash or any combination thereof receivable upon such
reclassification, change consolidation or merger by the
Recipient of the number of shares of Common Stock for which
Option might have been exercised.
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<PAGE> 26
(d) If there is a change in the Common Stock of the Corporation as
presently constituted, which is limited to a change of all of
its authorized shares with par value into the same number of
shares with a different par value or without par value, the
shares resulting from any such change shall be deemed to be the
Common Stock within the meaning of this Stock Option Agreement.
(e) To the extent that the foregoing adjustments relate to stock or
securities of the Corporation, such adjustments shall be made by
the Board.
(f) Except as expressly provided in this Section 11, the Recipient
shall have no rights by reason of any subdivision or
consolidation of shares of stock of any class or the payment of
any stock dividend or any other increase in the number of shares
of stock of any class or by reason of any dissolution,
liquidation, merger, or consolidation or split-up, split-off, or
spin-off of assets or stock of another corporation; and any
issue by the Corporation of shares of stock of any class, or
securities convertible into shares of stock of any class, shall
not effect, and no adjustment by reason thereof shall be made
with respect to, the number or price of shares of Common Stock
subject to this Option. The grant of this Option shall not
affect in any way the right or power of the Corporation to make
adjustments, reclassifications, reorganizations or changes of
its capital or business structures or to merge or consolidate or
to dissolve, liquidate or sell or transfer all or any part of
its business or assets.
12. Notices. Each notice relating to this Agreement will be in
writing and delivered in person or by certified mail to the
proper address. Notices to the Corporation shall be addressed to
the Corporation c/o President, Technology Guardian, Inc., 16520
Harbor Blvd., Bldg G, Fountain, Valley, CA 92708. Notices to the
Recipient or other person or persons then entitled to exercise
the Option shall be addressed to the Recipient or such other
person or persons at the Recipient's address specified below.
Anyone to whom a notice may be given under this Agreement may
designate a new address by notice to that effect given pursuant
to this Paragraph 12.
13. Approval of Consent. The exercise of the Option and the issuance
and delivery of shares of Common Stock pursuant thereto shall be
subject to approval by the Corporation's counsel of all legal
matters in connection therewith, including compliance with the
requirements of the Securities Act, the Securities Exchange Act
of 1934, as amended, applicable state securities laws, the rules
and regulations thereunder, and the requirements of any national
securities exchange or association upon which the Common Stock
than may be listed.
14. Benefits of Agreement. This Agreement will inure to the benefit
of and be binding upon each successor and assign of the
Corporation. All obligations imposed upon the Recipient and all
rights granted to the Corporation under this Agreement will be
binding upon the Recipient's heirs, legal representatives and
successors.
15. Governmental and Other Regulations. The exercise of the Option
and the Corporation's obligation to sell and deliver shares upon
the exercise of rights to purchase shares is subject to all
applicable federal and state laws, rules and regulations, and to
such approvals by the regulatory or governmental agency which,
in the opinion of counsel for the Corporation, may be required.
16. Conditions to Exercise. The shares of stock deliverable upon the
exercise of the Option, or any portion thereof, may be either
previously authorized but unissued shares or issued shares which
have then been reacquired by the Company. Such shares shall be
fully paid and non-assessable. The Company shall not be required
to issue or deliver any certificate or certificates for shares
of stock purchased upon the exercise of the Option or portion
thereof prior to fulfillment of all of the following conditions:
(i) The admission of such shares to listing on all stock
exchanges, if any, on which such class of stock is then
listed;
(ii) The completion of any registration or other
qualification of such shares under any state or federal
law or under the rulings or regulations of the
Securities and Exchange Commission or any other
governmental regulatory body, which the Corporation
shall, in its absolute discretion, deem necessary or
advisable;
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<PAGE> 27
(iii) The obtaining of any approval or other clearance from
any state or federal governmental agency which the
Corporation shall, in its absolute discretion, determine
to be necessary or advisable;
(iv) The payment to the Company of all amounts which it is
required to withhold under federal, state or local law
in connection with the exercise of the Option; and
(v) The lapse of such reasonable period of time following
the exercise of the Option as the Corporation may from
time to time establish for reasons of administrative
convenience.
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<PAGE> 28
This Stock Option Agreement is executed in the name and on behalf of the
Corporation by one of its duly authorized officers and by the Recipient all as
of the date first above written.
TECHNOLOGY GUARDIAN, INC.
By ----------------------------------
The undersigned Recipient understands the terms of this Option
Agreement. The undersigned agrees to comply with the terms and conditions of
this Option Agreement.
Date , 1999 Signature:
------------- --------------------------
Printed Name: Advantage Associates
Tax ID # (SSN):
---------------------
Address:
----------------------------
----------------------------
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<PAGE> 1
EXHIBIT 10(c)
No.4-015
THE OPTION TO PURCHASE SHARES OF THE COMMON STOCK OF TECHNOLOGY GUARDIAN, INC.,
REPRESENTED BY THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT"), AND ARE "RESTRICTED SECURITIES" AS THAT TERM IS DEFINED IN
RULE 144 UNDER THE ACT. NEITHER THE OPTIONS NOR THE UNDERLYING SHARES MAY BE
OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT, THE AVAILABILITY OF WHICH IS TO BE
ESTABLISHED TO THE SATISFACTION OF SAID CORPORATION AND SUCH FURTHER
RESTRICTIONS AS THE BOARD OF DIRECTORS MAY DETERMINE.
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT effective as of this 1st day of September, 1998,
between Technology Guardian, Inc., a California corporation (the "Corporation"),
and William Sarpalius (the "Recipient").
WHEREAS, the Corporation, by action of the Board of Directors on July
28, 1998, has authorized the granting of stock options to purchase 150,000
shares of this Corporation's common stock, $.001 par value ("Common Stock"), to
William Sarpaliusat an exercise price of $ 2.00 per share.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy whereof is hereby acknowledged, the Corporation and the Optionee agree
as follows:
1. Grant of Option. The Corporation hereby grants to William
Sarpalius an option to purchase (the "Option") an aggregate of
150,000 shares of the Corporation's common stock for a purchase
price of $ 2.00 per share (the "Option Price").
2. Vesting of Option. This option shall be immediately fully vested
from the Date of Grant.
3. Exercise of Option. This Option may be exercised in whole or in
part at any time during the term of the Option, provided,
however, no portion of this Option shall be exercisable after
the expiration of the term thereof.
The Option may be exercised, as provided in this Paragraph 3, by
notice and payment to the Corporation as provided in Paragraph 5
hereof.
4. Conversion. In lieu of exercising this Option as specified in
Paragraph 3, the Recipient may from time to time convert this
Option, in whole or in part, into a number of shares determined
by dividing (a) the aggregate Fair Market Value (determined on
the date of exercise) of the shares of the Corporation's Common
Stock issuable upon exercise of this Option (less the number of
shares as to which this Option has been previously exercised)
minus the aggregate Option Price of such shares minus all
amounts which it is required to withhold under federal, state or
local law in connection with the exercise of the Option, by (b)
the Fair Market Value (determined on the date of exercise) of
one share. This is represented mathematically as: {{(FMV per
share) X [(number of share issuable under the Option) - (share
previously issued and converted under the Option)]} - (amount
required to be withheld)} / (FMV per share). For purpose of this
Paragraph 4, "Fair Market Value" shall be the value determined
in accordance with the following provisions:
(a) If the Common Stock is not at the time listed or
admitted to trading on any stock exchange but is traded
on the Nasdaq National Market System or the Nasdaq
SmallCap Market, the Fair Market Value shall be the
closing selling price per share of Common Stock on the
date in question, as such price is reported by the
National Association of Securities Dealers through the
Nasdaq National Market System or any successor system or
the Nasdaq SmallCap Market or any successor market. If
there is no closing selling price for the common stock
on the date in question, then the FMV shall be the
closing selling price on the last preceding date for
which such quotation exists.
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<PAGE> 2
(b) If the Common Stock is at the time listed or admitted to
trading on any stock exchange, the Fair Market Value
shall be the closing selling price per share of Common
Stock on the date in question on the stock exchange
determined by the Board of Directors of the Corporation
to be the primary market for the Common Stock, as such
price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing
selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the
closing selling price on the last preceding date for
which such quotation exists.
(c) If the Common Stock is at the time neither listed nor
admitted to trading on any stock exchange, not traded on
the Nasdaq National Market System nor on the Nasdaq
SmallCap Market, then such Fair Market Value shall be
determined by the Board of Directors of the Corporation
after taking into account such factors as the Board of
Directors of the Corporation shall deem appropriate.
5. Manner of Exercise.
(a) During the lifetime of the Recipient, only he may
exercise the Option or any portion thereof. After the
death of the Recipient, any exercisable portion of the
Option may, prior to the time when the Option becomes
unexercisable under Section 3.3, be exercised by the
Recipient's personal representative or by any person
empowered to do so under the Recipient's will or under
the then applicable laws of descent and distribution.
(b) The Option, or any exercisable portion thereof, may be
exercised solely by delivery to the Secretary or the
Secretary's office of all of the following prior to the
time when such exercisable Option or portion thereof
becomes unexercisable:
(i) Notice in writing signed by the Recipient, or such
other person then entitled to exercise the Option or
portion thereof, stating that the Option or portion
thereof is thereby exercised, such notice complying with
all applicable rules established by the Corporation; and
(ii) (a) Full payment (in cash or by check) for the
shares with respect to which such Option or
portion thereof is exercised; or
(b) With the consent of the Corporation, shares
of the Company's Common Stock owned by the
Recipient duly endorsed for transfer to the
Company with a Fair Market Value on the date of
delivery equal to the aggregate purchase price
of the shares with respect to which such Option
or portion thereof is exercised.
6. Term of Option. The term of the Option will be through August
24, 2003, subject to Paragraphs 8 and 9 as provided in this
Agreement.
The Recipient of the Option will not have any rights to
dividends or any other rights of a shareholder with respect to
any shares of Common Stock subject to the Option until such
shares shall have been purchased through the exercise of the
Option and has been evidenced on the stock transfer records of
the Corporation maintained by the Corporation's transfer agent.
7. Performance Restrictions. The Recipient of this Option will not
have the right to exercise this Option until confirmation by the
Board of Directors that the following performance goals have
been completed:
NET SALES OF 1,000 UNITS SOLD BY THE EAST COAST OFFICE IN THE 12
MONTH PERIOD BEGINNING MARCH 1, 1999. HOWEVER, IF NET SALES OF
1,000 UNITS HAVE BEEN ACHIEVED BY AUGUST 31, 1999, THEN THE
NUMBER OF SHARES SUBJECT TO THIS OPTION SHALL BE INCREASED BY
50,000 SHARES. SALES SHALL BE DEEMED COMPLETED DURING THE
FOREGOING PERIODS IF A CONTACT LEADING TO A SALE HAS BEEN MADE
WITH A CUSTOMER DURING THE RELEVANT TIME PERIOD, AND THE SALE IS
COMPLETED WITHIN SIX MONTHS AFTER THE END OF THE RELEVANT TIME
PERIOD. THE RECIPIENT SHALL BE ENTITLED TO THE RIGHTS DESCRIBED
IN SECTION 11(b), SUBJECT TO THE REQUIREMENTS AND LIMITATIONS
OF SECTION 11.
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<PAGE> 3
For purposes of this paragraph, the East Coast Office shall mean
the people working out of the office of the Corporation located
in the Washington, D.C., metropolitan area as of the date of
this Agreement, and those who subsequently work in at such
office as approved by the Corporation as part of the East Coast
Office. The East Coast Office shall also include those VARs
recruited by and working under the direction of the East Coast
Office.
For purposes of this paragraph, a "unit" shall consist of a
server and associated hardware and the Corporation's software
that allows high-speed access to the Internet, together with a
service contract of at least two years duration. For purposes of
definition of "unit" in this paragraph, a server and/or
associated hardware may be furnished by the customer in lieu of
a server and associated hardware furnished by the Corporation.
A sale of a unit shall be deemed to occur or at such time as a
sale is recognized by the Corporation in accordance with
generally accepted accounting principles. Units which are
returned to the Corporation shall be deducted from the number of
Units sold. The number of Units sold less the number of Units
returned shall be the net Units sold.
8. Transferability Restriction. The Option may not be assigned,
transferred or otherwise disposed of, or pledged or hypothecated
in any way (whether by operation of law or otherwise) (1)
without the consent of the Corporation, and (2) such transfer is
not in violation of the Securities Act of 1933, the Corporate
Securities Laws of the State of California, or the securities
laws of any state. Any assignment, transfer, pledge,
hypothecation or other disposition of the Option or any attempt
to make any such levy of execution, attachment or other process
not in accordance with the foregoing sentence shall cause the
Option to terminate immediately upon the happening of any such
event, and the Recipient shall lose all rights under this
agreement, provided, however, that any such termination of the
Option under the foregoing provisions of this Paragraph 6, will
not prejudice any rights or remedies which the Corporation may
have under this Agreement or otherwise.
9. Death, Disability or Retirement of Recipient. The Recipient's
rights to exercise this Option upon the death, disability or
retirement of the Recipient are set forth as follows:
(a) If the Recipient ceases to be in Service to the
Corporation for a reason other than permanent disability
or death, the Recipient must, within (2) months after
the date of termination of such Service, but in no event
after the Option's stated expiration date, exercise some
or all of the Options that the Recipient was entitled to
exercise on the date the Recipient's Service terminated.
All options which have not vested in accordance with
Paragraph 2 will thereafter be void for all purposes. If
the Recipient ceases to be in Service to the Corporation
by reason of permanent disability within the meaning of
section 22(e)(3) of the Internal Revenue Code (as
determined by the Board of Directors), the Recipient
will have two (2) months after the date of termination
of Service, but in no event after the stated expiration
date of the Recipient's Options, to exercise Options
that the Recipient was entitled to exercise on the date
the Recipient's Service terminated as a result of the
disability.
(b) If a Recipient dies while in the Corporation's Service,
any Options that the Recipient was entitled to exercise
on the date of death will be exercisable within the
six-month period following the date of issuance of
letters testamentary or letters of administration of a
deceased Recipient, in the case of the Recipient's death
during his Service to the Corporation's Board, but not
later than one year after the Recipient's death or until
the stated expiration date of the Recipient's Option,
whichever occurs first, by the person or persons
("successors") to whom the Recipient's rights pass under
a will or by the laws of descent and distribution. As
soon as practicable after receipt by the Corporation of
such notice and of payment in full of the Option Price,
a certificate or certificates representing the Optioned
Shares shall be registered in the name or names
specified by the successors in the written notice of
exercise and shall be delivered to the successors.
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<PAGE> 4
(c) The term "Service" means service as an employee, as an
independent contractor, or an employee of an independent
contractor.
10. No Registration Obligation. The Recipient understands that the
Option is not registered under the Securities Act of 1933, as
amended (the "Securities Act") and the Corporation has no
obligation to register under the Securities Act the Option or
any of the shares of Common Stock subject to and issuable upon
the exercise of the Option. The Recipient represents that the
Option is being acquired by him for investment and acknowledges
that all certificates for the shares issued upon exercise of the
Option will bear the following legend unless such shares are
registered under the Securities Act prior to their issuance:
The shares of Common Stock evidenced by this
certificate have been issued to the registered
owner in reliance upon written representations
that these shares have been purchased solely for
investment. These shares may not be sold,
transferred or assigned unless in the opinion of
the Corporation and its legal counsel such
sales, transfer or assignment will not be in
violation of the Securities Act of 1933, as
amended, and the rules and regulations
thereunder.
The Recipient further understands and agrees that the Option may be
exercised only if at the time of such exercise the Recipient and the Corporation
are able to establish the existence of an exemption from registration under the
Securities Act and applicable state laws.
11. Effect of Certain Changes.
(a) If there is any change in the number of shares of
outstanding Common Stock through the declaration of
stock dividends, or through a recapitalization resulting
in stock splits or combinations or exchanges of such
shares, the number of shares of Common Stock available
for Options and the number of such shares covered by
outstanding Options, and the exercise price per share of
the outstanding Options, shall be proportionately
adjusted by the Board to reflect any increase or
decrease in the number of issued shares of Common Stock:
provided, however, that any fractional shares resulting
from such adjustment shall be eliminated.
(b) In the event of the proposed dissolution or liquidation
of the Corporation, or any corporate separation or
division, including, but not limited to, split-up,
split-off or spin-off, or a merger or consolidation of
the Corporation with another corporation, or any sale or
transfer by the Corporation of all or substantially all
its assets or any tender offer or exchange offer for or
the acquisition, directly or indirectly, by any person
or group for more than 50% of the then outstanding
voting securities of the Corporation, the Recipient
shall have the right to exercise such Option (at its
then current Option Price) solely for the kind and
amount of shares of stock and other securities,
property, cash or any combination thereof receivable
upon such dissolution, liquidation, corporate separation
or division, merger or consolidation, sale or transfer
of assets or tender offer or exchange offer, by a
Recipient of the number of shares of Common Stock for
which such Option might have been exercised immediately
prior to such dissolution, liquidation, corporate
separation or division, or merger or consolidation:
sales or transfer of assets or tender offer or exchange
offer, or in the alternative the Board may provide that
each Option granted herein shall terminate as of a date
fixed by the Board: provided, however, that not less
than 30 day's written notice of the date so fixed shall
be given to the Recipient, who shall have the right,
during the period of 30 days preceding such termination,
to exercise the Option.
(c) Paragraph (b) of this Section 11 shall not apply to a
merger or consolidation in which the Corporation is the
surviving corporation and shares of Common Stock are not
converted into or exchanged for stock, securities of any
other corporation, cash or any other thing of value.
Notwithstanding the preceding sentence, in case of any
consolidation or merger of another corporation into the
Corporation in which the Corporation is the surviving
corporation and in which there is a reclassification or
change (including a change which results in the right to
receive cash or other property) of the shares of Common
Stock (other than a change in par value, or from no par
value to par value, or as a result of a subdivision or
combination, but including any change in such shares
into two or more classes or series of shares), the Board
may provide that the Recipient shall have the right to
exercise such Option solely for the kind and amount of
shares of stock and other securities (including those of
any direct or indirect Parent of the
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<PAGE> 5
Corporation), property, cash or any combination thereof
receivable upon such reclassification, change
consolidation or merger by the Recipient of the number
of shares of Common Stock for which Option might have
been exercised.
(d) If there is a change in the Common Stock of the
Corporation as presently constituted, which is limited
to a change of all of its authorized shares with par
value into the same number of shares with a different
par value or without par value, the shares resulting
from any such change shall be deemed to be the Common
Stock within the meaning of this Stock Option Agreement.
(e) To the extent that the foregoing adjustments relate to
stock or securities of the Corporation, such adjustments
shall be made by the Board.
(f) Except as expressly provided in this Section 11, the
Recipient shall have no rights by reason of any
subdivision or consolidation of shares of stock of any
class or the payment of any stock dividend or any other
increase in the number of shares of stock of any class
or by reason of any dissolution, liquidation, merger, or
consolidation or split-up, split-off, or spin-off of
assets or stock of another corporation; and any issue by
the Corporation of shares of stock of any class, or
securities convertible into shares of stock of any
class, shall not effect, and no adjustment by reason
thereof shall be made with respect to, the number or
price of shares of Common Stock subject to this Option.
The grant of this Option shall not affect in any way the
right or power of the Corporation to make adjustments,
reclassifications, reorganizations or changes of its
capital or business structures or to merge or
consolidate or to dissolve, liquidate or sell or
transfer all or any part of its business or assets.
12. Notices. Each notice relating to this Agreement will be
in writing and delivered in person or by certified mail
to the proper address. Notices to the Corporation shall
be addressed to the Corporation c/o President,
Technology Guardian, Inc., 16520 Harbor Blvd., Bldg G,
Fountain, Valley, CA 92708. Notices to the Recipient or
other person or persons then entitled to exercise the
Option shall be addressed to the Recipient or such other
person or persons at the Recipient's address specified
below. Anyone to whom a notice may be given under this
Agreement may designate a new address by notice to that
effect given pursuant to this Paragraph 12.
13. Approval of Consent. The exercise of the Option and the
issuance and delivery of shares of Common Stock pursuant
thereto shall be subject to approval by the
Corporation's counsel of all legal matters in connection
therewith, including compliance with the requirements of
the Securities Act, the Securities Exchange Act of 1934,
as amended, applicable state securities laws, the rules
and regulations thereunder, and the requirements of any
national securities exchange or association upon which
the Common Stock than may be listed.
14. Benefits of Agreement. This Agreement will inure to the
benefit of and be binding upon each successor and assign
of the Corporation. All obligations imposed upon the
Recipient and all rights granted to the Corporation
under this Agreement will be binding upon the
Recipient's heirs, legal representatives and successors.
15. Governmental and Other Regulations. The exercise of the
Option and the Corporation's obligation to sell and
deliver shares upon the exercise of rights to purchase
shares is subject to all applicable federal and state
laws, rules and regulations, and to such approvals by
the regulatory or governmental agency which, in the
opinion of counsel for the Corporation, may be required.
16. Conditions to Exercise. The shares of stock deliverable
upon the exercise of the Option, or any portion thereof,
may be either previously authorized but unissued shares
or issued shares which have then been reacquired by the
Company. Such shares shall be fully paid and
non-assessable. The Company shall not be required to
issue or deliver any certificate or certificates for
shares of stock purchased upon the exercise of the
Option or portion thereof prior to fulfillment of all of
the following conditions:
(i) The admission of such shares to listing on all
stock exchanges, if any, on which such class of
stock is then listed;
-5-
<PAGE> 6
(ii) The completion of any registration or other
qualification of such shares under any state or
federal law or under the rulings or regulations
of the Securities and Exchange Commission or any
other governmental regulatory body, which the
Corporation shall, in its absolute discretion,
deem necessary or advisable;
(iii) The obtaining of any approval or other clearance
from any state or federal governmental agency
which the Corporation shall, in its absolute
discretion, determine to be necessary or
advisable;
(iv) The payment to the Company of all amounts which
it is required to withhold under federal, state
or local law in connection with the exercise of
the Option; and
(v) The lapse of such reasonable period of time
following the exercise of the Option as the
Corporation may from time to time establish for
reasons of administrative convenience.
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<PAGE> 7
This Stock Option Agreement is executed in the name and on behalf of the
Corporation by one of its duly authorized officers and by the Recipient all as
of the date first above written.
TECHNOLOGY GUARDIAN, INC.
By
----------------------------
The undersigned Recipient understands the terms of this Option
Agreement. The undersigned agrees to comply with the terms and conditions of
this Option Agreement.
Date , 1999 Signature:
------------ ------------------------------
Printed Name: William Sarpalius
Tax ID # (SSN):
---------------------------
Address:
---------------------------------
---------------------------------
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<PAGE> 1
EXHIBIT 10(d)
No.4-019
THE OPTION TO PURCHASE SHARES OF THE COMMON STOCK OF TECHNOLOGY GUARDIAN, INC.,
REPRESENTED BY THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT"), AND ARE "RESTRICTED SECURITIES" AS THAT TERM IS DEFINED IN
RULE 144 UNDER THE ACT. NEITHER THE OPTIONS NOR THE UNDERLYING SHARES MAY BE
OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT, THE AVAILABILITY OF WHICH IS TO BE
ESTABLISHED TO THE SATISFACTION OF SAID CORPORATION AND SUCH FURTHER
RESTRICTIONS AS THE BOARD OF DIRECTORS MAY DETERMINE.
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT effective as of this 1st day of September, 1998,
between Technology Guardian, Inc., a California corporation (the "Corporation"),
and Lori Walker (the "Recipient").
WHEREAS, the Corporation, by action of the Board of Directors on July
28, 1998, has authorized the granting of stock options to purchase 50,000 shares
of this Corporation's common stock, $.001 par value ("Common Stock"), to Laurie
Walker at an exercise price of $2.00 per share.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy whereof is hereby acknowledged, the Corporation and the Optionee agree
as follows:
1. Grant of Option. The Corporation hereby grants to Lori Walker an
option to purchase (the "Option") an aggregate of 50,000 shares
of the Corporation's common stock for a purchase price of $ 2.00
per share (the "Option Price").
2. Vesting of Option. This option shall be immediately fully vested
from the Date of Grant.
3. Exercise of Option. This Option may be exercised in whole or in
part at any time during the term of the Option, provided,
however, no portion of this Option shall be exercisable after
the expiration of the term thereof.
The Option may be exercised, as provided in this Paragraph 3, by
notice and payment to the Corporation as provided in Paragraph 5
hereof.
4. Conversion. In lieu of exercising this Option as specified in
Paragraph 3, the Recipient may from time to time convert this
Option, in whole or in part, into a number of shares determined
by dividing (a) the aggregate Fair Market Value (determined on
the date of exercise) of the shares of the Corporation's Common
Stock issuable upon exercise of this Option (less the number of
shares as to which this Option has been previously exercised)
minus the aggregate Option Price of such shares minus all
amounts which it is required to withhold under federal, state or
local law in connection with the exercise of the Option, by (b)
the Fair Market Value (determined on the date of exercise) of
one share. This is represented mathematically as: {{(FMV per
share) X [(number of share issuable under the Option) - (share
previously issued and converted under the Option)]} - (amount
required to be withheld)} / (FMV per share). For purpose of this
Paragraph 4, "Fair Market Value" shall be the value determined
in accordance with the following provisions:
(a) If the Common Stock is not at the time listed or
admitted to trading on any stock exchange but is traded
on the Nasdaq National Market System or the Nasdaq
SmallCap Market, the Fair Market Value shall be the
closing selling price per share of Common Stock on the
date in question, as such price is reported by the
National Association of Securities Dealers through the
Nasdaq National Market System or any successor system or
the Nasdaq SmallCap Market or any successor market. If
there is no closing selling price for the common stock
on the date in question, then the FMV shall be the
closing selling price on the last preceding date for
which such quotation exists.
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<PAGE> 2
(b) If the Common Stock is at the time listed or admitted to
trading on any stock exchange, the Fair Market Value
shall be the closing selling price per share of Common
Stock on the date in question on the stock exchange
determined by the Board of Directors of the Corporation
to be the primary market for the Common Stock, as such
price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing
selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the
closing selling price on the last preceding date for
which such quotation exists.
(c) If the Common Stock is at the time neither listed nor
admitted to trading on any stock exchange, not traded on
the Nasdaq National Market System nor on the Nasdaq
SmallCap Market, then such Fair Market Value shall be
determined by the Board of Directors of the Corporation
after taking into account such factors as the Board of
Directors of the Corporation shall deem appropriate.
5. Manner of Exercise.
(a) During the lifetime of the Recipient, only he may
exercise the Option or any portion thereof. After the
death of the Recipient, any exercisable portion of the
Option may, prior to the time when the Option becomes
unexercisable under Section 3.3, be exercised by the
Recipient's personal representative or by any person
empowered to do so under the Recipient's will or under
the then applicable laws of descent and distribution.
(b) The Option, or any exercisable portion thereof, may be
exercised solely by delivery to the Secretary or the
Secretary's office of all of the following prior to the
time when such exercisable Option or portion thereof
becomes unexercisable:
(i) Notice in writing signed by the Recipient, or
such other person then entitled to exercise the
Option or portion thereof, stating that the
Option or portion thereof is thereby exercised,
such notice complying with all applicable rules
established by the Corporation; and
(ii) (a) Full payment (in cash or by check) for the
shares with respect to which such Option or
portion thereof is exercised; or
(b) With the consent of the Corporation, shares
of the Company's Common Stock owned by the
Recipient duly endorsed for transfer to the
Company with a Fair Market Value on the date of
delivery equal to the aggregate purchase price
of the shares with respect to which such Option
or portion thereof is exercised.
6. Term of Option. The term of the Option will be through August
24, 2003, subject to Paragraphs 8 and 9 as provided in this
Agreement.
The Recipient of the Option will not have any rights to
dividends or any other rights of a shareholder with respect to
any shares of Common Stock subject to the Option until such
shares shall have been purchased through the exercise of the
Option and has been evidenced on the stock transfer records of
the Corporation maintained by the Corporation's transfer agent.
7. Performance Restrictions. The Recipient of this Option will not
have the right to exercise this Option until confirmation by the
Board of Directors that the following performance goals have
been completed:
NET SALES OF 500 UNITS SOLD BY THE EAST COAST OFFICE BY DECEMBER
31, 1999. SALES SHALL BE DEEMED COMPLETED DURING THE FOREGOING
PERIODS IF A CONTACT LEADING TO A SALE HAS BEEN MADE WITH A
CUSTOMER DURING THE RELEVANT TIME PERIOD, AND THE SALE IS
COMPLETED WITHIN SIX MONTHS AFTER THE END OF THE RELEVANT TIME
PERIOD. THE RECIPIENT SHALL BE ENTITLED TO THE RIGHTS DESCRIBED
IN SECTION 11(b), SUBJECT TO THE REQUIREMENTS AND LIMITATIONS OF
SECTION 11.
For purposes of this paragraph, the East Coast Office shall mean
the people working out of the office of the Corporation located
in the Washington, D.C., metropolitan area as of the date of
this Agreement, and those who subsequently work in at such
office as approved by the Corporation as part of the East Coast
Office.
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<PAGE> 3
The East Coast Office shall also include those VARs recruited by
and working under the direction of the East Coast Office.
For purposes of this paragraph, a "unit" shall consist of a
server and associated hardware and the Corporation's software
that allows high-speed access to the Internet, together with a
service contract of at least two years duration. For purposes of
definition of "unit" in this paragraph, a server and/or
associated hardware may be furnished by the customer in lieu of
a server and associated hardware furnished by the Corporation.
A sale of a unit shall be deemed to occur or at such time as a
sale is recognized by the Corporation in accordance with
generally accepted accounting principles. Units which are
returned to the Corporation shall be deducted from the number of
Units sold. The number of Units sold less the number of Units
returned shall be the net Units sold.
8. Transferability Restriction. The Option may not be assigned,
transferred or otherwise disposed of, or pledged or hypothecated
in any way (whether by operation of law or otherwise) (1)
without the consent of the Corporation, and (2) such transfer is
not in violation of the Securities Act of 1933, the Corporate
Securities Laws of the State of California, or the securities
laws of any state. Any assignment, transfer, pledge,
hypothecation or other disposition of the Option or any attempt
to make any such levy of execution, attachment or other process
not in accordance with the foregoing sentence shall cause the
Option to terminate immediately upon the happening of any such
event, and the Recipient shall lose all rights under this
agreement, provided, however, that any such termination of the
Option under the foregoing provisions of this Paragraph 6, will
not prejudice any rights or remedies which the Corporation may
have under this Agreement or otherwise.
9. Death, Disability or Retirement of Recipient. The Recipient's
rights to exercise this Option upon the death, disability or
retirement of the Recipient are set forth as follows:
(a) If the Recipient ceases to be in Service to the
Corporation for a reason other than permanent disability
or death, the Recipient must, within (2) months after
the date of termination of such Service, but in no event
after the Option's stated expiration date, exercise some
or all of the Options that the Recipient was entitled to
exercise on the date the Recipient's Service terminated.
All options which have not vested in accordance with
Paragraph 2 will thereafter be void for all purposes. If
the Recipient ceases to be in Service to the Corporation
by reason of permanent disability within the meaning of
section 22(e)(3) of the Internal Revenue Code (as
determined by the Board of Directors), the Recipient
will have two (2) months after the date of termination
of Service, but in no event after the stated expiration
date of the Recipient's Options, to exercise Options
that the Recipient was entitled to exercise on the date
the Recipient's Service terminated as a result of the
disability.
(b) If a Recipient dies while in the Corporation's Service,
any Options that the Recipient was entitled to exercise
on the date of death will be exercisable within the
six-month period following the date of issuance of
letters testamentary or letters of administration of a
deceased Recipient, in the case of the Recipient's death
during his Service to the Corporation's Board, but not
later than one year after the Recipient's death or until
the stated expiration date of the Recipient's Option,
whichever occurs first, by the person or persons
("successors") to whom the Recipient's rights pass under
a will or by the laws of descent and distribution. As
soon as practicable after receipt by the Corporation of
such notice and of payment in full of the Option Price,
a certificate or certificates representing the Optioned
Shares shall be registered in the name or names
specified by the successors in the written notice of
exercise and shall be delivered to the successors.
(c) The term "Service" means service as an employee, as an
independent contractor, or an employee of an independent
contractor.
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<PAGE> 4
10. No Registration Obligation. The Recipient understands that the
Option is not registered under the Securities Act of 1933, as
amended (the "Securities Act") and the Corporation has no
obligation to register under the Securities Act the Option or
any of the shares of Common Stock subject to and issuable upon
the exercise of the Option. The Recipient represents that the
Option is being acquired by him for investment and acknowledges
that all certificates for the shares issued upon exercise of the
Option will bear the following legend unless such shares are
registered under the Securities Act prior to their issuance:
The shares of Common Stock evidenced by this
certificate have been issued to the registered
owner in reliance upon written representations
that these shares have been purchased solely for
investment. These shares may not be sold,
transferred or assigned unless in the opinion of
the Corporation and its legal counsel such
sales, transfer or assignment will not be in
violation of the Securities Act of 1933, as
amended, and the rules and regulations
thereunder.
The Recipient further understands and agrees that the Option may be
exercised only if at the time of such exercise the Recipient and the Corporation
are able to establish the existence of an exemption from registration under the
Securities Act and applicable state laws.
11. Effect of Certain Changes.
(a) If there is any change in the number of shares of
outstanding Common Stock through the declaration of
stock dividends, or through a recapitalization resulting
in stock splits or combinations or exchanges of such
shares, the number of shares of Common Stock available
for Options and the number of such shares covered by
outstanding Options, and the exercise price per share of
the outstanding Options, shall be proportionately
adjusted by the Board to reflect any increase or
decrease in the number of issued shares of Common Stock:
provided, however, that any fractional shares resulting
from such adjustment shall be eliminated.
(b) In the event of the proposed dissolution or liquidation
of the Corporation, or any corporate separation or
division, including, but not limited to, split-up,
split-off or spin-off, or a merger or consolidation of
the Corporation with another corporation, or any sale or
transfer by the Corporation of all or substantially all
its assets or any tender offer or exchange offer for or
the acquisition, directly or indirectly, by any person
or group for more than 50% of the then outstanding
voting securities of the Corporation, the Recipient
shall have the right to exercise such Option (at its
then current Option Price) solely for the kind and
amount of shares of stock and other securities,
property, cash or any combination thereof receivable
upon such dissolution, liquidation, corporate separation
or division, merger or consolidation, sale or transfer
of assets or tender offer or exchange offer, by a
Recipient of the number of shares of Common Stock for
which such Option might have been exercised immediately
prior to such dissolution, liquidation, corporate
separation or division, or merger or consolidation:
sales or transfer of assets or tender offer or exchange
offer, or in the alternative the Board may provide that
each Option granted herein shall terminate as of a date
fixed by the Board: provided, however, that not less
than 30 day's written notice of the date so fixed shall
be given to the Recipient, who shall have the right,
during the period of 30 days preceding such termination,
to exercise the Option.
(c) Paragraph (b) of this Section 11 shall not apply to a
merger or consolidation in which the Corporation is the
surviving corporation and shares of Common Stock are not
converted into or exchanged for stock, securities of any
other corporation, cash or any other thing of value.
Notwithstanding the preceding sentence, in case of any
consolidation or merger of another corporation into the
Corporation in which the Corporation is the surviving
corporation and in which there is a reclassification or
change (including a change which results in the right to
receive cash or other property) of the shares of Common
Stock (other than a change in par value, or from no par
value to par value, or as a result of a subdivision or
combination, but including any change in such shares
into two or more classes or series of shares), the Board
may provide that the Recipient shall have the right to
exercise such Option solely for the kind and amount of
shares of stock and other securities (including those of
any direct or indirect Parent of the Corporation),
property, cash or any combination thereof receivable
upon such reclassification, change consolidation or
merger by the Recipient of the number of shares of
Common Stock for which Option might have been exercised.
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<PAGE> 5
(d) If there is a change in the Common Stock of the
Corporation as presently constituted, which is limited
to a change of all of its authorized shares with par
value into the same number of shares with a different
par value or without par value, the shares resulting
from any such change shall be deemed to be the Common
Stock within the meaning of this Stock Option Agreement.
(e) To the extent that the foregoing adjustments relate to
stock or securities of the Corporation, such adjustments
shall be made by the Board.
(f) Except as expressly provided in this Section 11, the
Recipient shall have no rights by reason of any
subdivision or consolidation of shares of stock of any
class or the payment of any stock dividend or any other
increase in the number of shares of stock of any class
or by reason of any dissolution, liquidation, merger, or
consolidation or split-up, split-off, or spin-off of
assets or stock of another corporation; and any issue by
the Corporation of shares of stock of any class, or
securities convertible into shares of stock of any
class, shall not effect, and no adjustment by reason
thereof shall be made with respect to, the number or
price of shares of Common Stock subject to this Option.
The grant of this Option shall not affect in any way the
right or power of the Corporation to make adjustments,
reclassifications, reorganizations or changes of its
capital or business structures or to merge or
consolidate or to dissolve, liquidate or sell or
transfer all or any part of its business or assets.
12. Notices. Each notice relating to this Agreement will be in
writing and delivered in person or by certified mail to the
proper address. Notices to the Corporation shall be addressed to
the Corporation c/o President, Technology Guardian, Inc., 16520
Harbor Blvd., Bldg G, Fountain, Valley, CA 92708. Notices to the
Recipient or other person or persons then entitled to exercise
the Option shall be addressed to the Recipient or such other
person or persons at the Recipient's address specified below.
Anyone to whom a notice may be given under this Agreement may
designate a new address by notice to that effect given pursuant
to this Paragraph 12.
13. Approval of Consent. The exercise of the Option and the issuance
and delivery of shares of Common Stock pursuant thereto shall be
subject to approval by the Corporation's counsel of all legal
matters in connection therewith, including compliance with the
requirements of the Securities Act, the Securities Exchange Act
of 1934, as amended, applicable state securities laws, the rules
and regulations thereunder, and the requirements of any national
securities exchange or association upon which the Common Stock
than may be listed.
14. Benefits of Agreement. This Agreement will inure to the benefit
of and be binding upon each successor and assign of the
Corporation. All obligations imposed upon the Recipient and all
rights granted to the Corporation under this Agreement will be
binding upon the Recipient's heirs, legal representatives and
successors.
15. Governmental and Other Regulations. The exercise of the Option
and the Corporation's obligation to sell and deliver shares upon
the exercise of rights to purchase shares is subject to all
applicable federal and state laws, rules and regulations, and to
such approvals by the regulatory or governmental agency which,
in the opinion of counsel for the Corporation, may be required.
16. Conditions to Exercise. The shares of stock deliverable upon the
exercise of the Option, or any portion thereof, may be either
previously authorized but unissued shares or issued shares which
have then been reacquired by the Company. Such shares shall be
fully paid and non-assessable. The Company shall not be required
to issue or deliver any certificate or certificates for shares
of stock purchased upon the exercise of the Option or portion
thereof prior to fulfillment of all of the following conditions:
(i) The admission of such shares to listing on all stock
exchanges, if any, on which such class of stock is then
listed;
(ii) The completion of any registration or other
qualification of such shares under any state or federal
law or under the rulings or regulations of the
Securities and Exchange Commission or any other
governmental regulatory body, which the Corporation
shall, in its absolute discretion, deem necessary or
advisable;
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<PAGE> 6
(iii) The obtaining of any approval or other clearance from
any state or federal governmental agency which the
Corporation shall, in its absolute discretion, determine
to be necessary or advisable;
(iv) The payment to the Company of all amounts which it is
required to withhold under federal, state or local law
in connection with the exercise of the Option; and
(v) The lapse of such reasonable period of time following
the exercise of the Option as the Corporation may from
time to time establish for reasons of administrative
convenience.
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<PAGE> 7
This Stock Option Agreement is executed in the name and on behalf of the
Corporation by one of its duly authorized officers and by the Recipient all as
of the date first above written.
TECHNOLOGY GUARDIAN, INC.
By
----------------------------------
The undersigned Recipient understands the terms of this Option
Agreement. The undersigned agrees to comply with the terms and conditions of
this Option Agreement.
Date , 1999 Signature:
------------- --------------------------
Printed Name: Laurie Walker
Tax ID # (SSN):
---------------------
Address:
----------------------------
----------------------------
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<PAGE> 8
No.4-020
THE OPTION TO PURCHASE SHARES OF THE COMMON STOCK OF TECHNOLOGY GUARDIAN, INC.,
REPRESENTED BY THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT"), AND ARE "RESTRICTED SECURITIES" AS THAT TERM IS DEFINED IN
RULE 144 UNDER THE ACT. NEITHER THE OPTIONS NOR THE UNDERLYING SHARES MAY BE
OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT, THE AVAILABILITY OF WHICH IS TO BE
ESTABLISHED TO THE SATISFACTION OF SAID CORPORATION AND SUCH FURTHER
RESTRICTIONS AS THE BOARD OF DIRECTORS MAY DETERMINE.
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT effective as of this 1st day of September, 1998,
between Technology Guardian, Inc., a California corporation (the "Corporation"),
and Lori Walker (the "Recipient").
WHEREAS, the Corporation, by action of the Board of Directors on July
28, 1998, has authorized the granting of stock options to purchase 25,000 shares
of this Corporation's common stock, $.001 par value ("Common Stock"), to Laurie
Walker at an exercise price of $2.00 per share.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy whereof is hereby acknowledged, the Corporation and the Optionee agree
as follows:
1. Grant of Option. The Corporation hereby grants to Lori Walker an
option to purchase (the "Option") an aggregate of 25,000 shares
of the Corporation's common stock for a purchase price of $ 2.00
per share (the "Option Price").
2. Vesting of Option. This option shall be immediately fully vested
from the Date of Grant.
3. Exercise of Option. This Option may be exercised in whole or in
part at any time during the term of the Option, provided,
however, no portion of this Option shall be exercisable after
the expiration of the term thereof.
The Option may be exercised, as provided in this Paragraph 3, by
notice and payment to the Corporation as provided in Paragraph 5
hereof.
4. Conversion. In lieu of exercising this Option as specified in
Paragraph 3, the Recipient may from time to time convert this
Option, in whole or in part, into a number of shares determined
by dividing (a) the aggregate Fair Market Value (determined on
the date of exercise) of the shares of the Corporation's Common
Stock issuable upon exercise of this Option (less the number of
shares as to which this Option has been previously exercised)
minus the aggregate Option Price of such shares minus all
amounts which it is required to withhold under federal, state or
local law in connection with the exercise of the Option, by (b)
the Fair Market Value (determined on the date of exercise) of
one share. This is represented mathematically as: {{(FMV per
share) X [(number of share issuable under the Option) - (share
previously issued and converted under the Option)]} - (amount
required to be withheld)} / (FMV per share). For purpose of this
Paragraph 4, "Fair Market Value" shall be the value determined
in accordance with the following provisions:
(a) If the Common Stock is not at the time listed or
admitted to trading on any stock exchange but is traded
on the Nasdaq National Market System or the Nasdaq
SmallCap Market, the Fair Market Value shall be the
closing selling price per share of Common Stock on the
date in question, as such price is reported by the
National Association of Securities Dealers through the
Nasdaq National Market System or any successor system or
the Nasdaq SmallCap Market or any successor market. If
there is no closing selling price for the common stock
on the date in question, then the FMV shall be the
closing selling price on the last preceding date for
which such quotation exists.
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<PAGE> 9
(b) If the Common Stock is at the time listed or admitted to
trading on any stock exchange, the Fair Market Value
shall be the closing selling price per share of Common
Stock on the date in question on the stock exchange
determined by the Board of Directors of the Corporation
to be the primary market for the Common Stock, as such
price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing
selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the
closing selling price on the last preceding date for
which such quotation exists.
(c) If the Common Stock is at the time neither listed nor
admitted to trading on any stock exchange, not traded on
the Nasdaq National Market System nor on the Nasdaq
SmallCap Market, then such Fair Market Value shall be
determined by the Board of Directors of the Corporation
after taking into account such factors as the Board of
Directors of the Corporation shall deem appropriate.
5. Manner of Exercise.
(a) During the lifetime of the Recipient, only he may
exercise the Option or any portion thereof. After the
death of the Recipient, any exercisable portion of the
Option may, prior to the time when the Option becomes
unexercisable under Section 3.3, be exercised by the
Recipient's personal representative or by any person
empowered to do so under the Recipient's will or under
the then applicable laws of descent and distribution.
(b) The Option, or any exercisable portion thereof, may be
exercised solely by delivery to the Secretary or the
Secretary's office of all of the following prior to the
time when such exercisable Option or portion thereof
becomes unexercisable:
(i) Notice in writing signed by the Recipient, or
such other person then entitled to exercise the
Option or portion thereof, stating that the
Option or portion thereof is thereby exercised,
such notice complying with all applicable rules
established by the Corporation; and
(ii) (a) Full payment (in cash or by check) for the
shares with respect to which such Option or
portion thereof is exercised; or
(b) With the consent of the Corporation, shares
of the Company's Common Stock owned by the
Recipient duly endorsed for transfer to the
Company with a Fair Market Value on the date of
delivery equal to the aggregate purchase price
of the shares with respect to which such Option
or portion thereof is exercised.
6. Term of Option. The term of the Option will be through August
24, 2003, subject to Paragraphs 8 and 9 as provided in this
Agreement.
The Recipient of the Option will not have any rights to
dividends or any other rights of a shareholder with respect to
any shares of Common Stock subject to the Option until such
shares shall have been purchased through the exercise of the
Option and has been evidenced on the stock transfer records of
the Corporation maintained by the Corporation's transfer agent.
7. Performance Restrictions. The Recipient of this Option will not
have the right to exercise this Option until confirmation by the
Board of Directors that the following performance goals have
been completed:
NET SALES OF 1,000 UNITS SOLD BY THE EAST COAST OFFICE BY
DECEMBER 31, 1999. SALES SHALL BE DEEMED COMPLETED DURING THE
FOREGOING PERIODS IF A CONTACT LEADING TO A SALE HAS BEEN MADE
WITH A CUSTOMER DURING THE RELEVANT TIME PERIOD, AND THE SALE IS
COMPLETED WITHIN SIX MONTHS AFTER THE END OF THE RELEVANT TIME
PERIOD. THE RECIPIENT SHALL BE ENTITLED TO THE RIGHTS DESCRIBED
IN SECTION 11(b), SUBJECT TO THE REQUIREMENTS AND LIMITATIONS OF
SECTION 11.
For purposes of this paragraph, the East Coast Office shall mean
the people working out of the office of the Corporation located
in the Washington, D.C., metropolitan area as of the date of
this Agreement, and those who subsequently work in at such
office as approved by the Corporation as part of the East Coast
Office.
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<PAGE> 10
The East Coast Office shall also include those VARs recruited by
and working under the direction of the East Coast Office.
For purposes of this paragraph, a "unit" shall consist of a
server and associated hardware and the Corporation's software
that allows high-speed access to the Internet, together with a
service contract of at least two years duration. For purposes of
definition of "unit" in this paragraph, a server and/or
associated hardware may be furnished by the customer in lieu of
a server and associated hardware furnished by the Corporation.
A sale of a unit shall be deemed to occur or at such time as a
sale is recognized by the Corporation in accordance with
generally accepted accounting principles. Units which are
returned to the Corporation shall be deducted from the number of
Units sold. The number of Units sold less the number of Units
returned shall be the net Units sold.
8. Transferability Restriction. The Option may not be assigned,
transferred or otherwise disposed of, or pledged or hypothecated
in any way (whether by operation of law or otherwise) (1)
without the consent of the Corporation, and (2) such transfer is
not in violation of the Securities Act of 1933, the Corporate
Securities Laws of the State of California, or the securities
laws of any state. Any assignment, transfer, pledge,
hypothecation or other disposition of the Option or any attempt
to make any such levy of execution, attachment or other process
not in accordance with the foregoing sentence shall cause the
Option to terminate immediately upon the happening of any such
event, and the Recipient shall lose all rights under this
agreement, provided, however, that any such termination of the
Option under the foregoing provisions of this Paragraph 6, will
not prejudice any rights or remedies which the Corporation may
have under this Agreement or otherwise.
9. Death, Disability or Retirement of Recipient. The Recipient's
rights to exercise this Option upon the death, disability or
retirement of the Recipient are set forth as follows:
(a) If the Recipient ceases to be in Service to the
Corporation for a reason other than permanent disability
or death, the Recipient must, within (2) months after
the date of termination of such Service, but in no event
after the Option's stated expiration date, exercise some
or all of the Options that the Recipient was entitled to
exercise on the date the Recipient's Service terminated.
All options which have not vested in accordance with
Paragraph 2 will thereafter be void for all purposes. If
the Recipient ceases to be in Service to the Corporation
by reason of permanent disability within the meaning of
section 22(e)(3) of the Internal Revenue Code (as
determined by the Board of Directors), the Recipient
will have two (2) months after the date of termination
of Service, but in no event after the stated expiration
date of the Recipient's Options, to exercise Options
that the Recipient was entitled to exercise on the date
the Recipient's Service terminated as a result of the
disability.
(b) If a Recipient dies while in the Corporation's Service,
any Options that the Recipient was entitled to exercise
on the date of death will be exercisable within the
six-month period following the date of issuance of
letters testamentary or letters of administration of a
deceased Recipient, in the case of the Recipient's death
during his Service to the Corporation's Board, but not
later than one year after the Recipient's death or until
the stated expiration date of the Recipient's Option,
whichever occurs first, by the person or persons
("successors") to whom the Recipient's rights pass under
a will or by the laws of descent and distribution. As
soon as practicable after receipt by the Corporation of
such notice and of payment in full of the Option Price,
a certificate or certificates representing the Optioned
Shares shall be registered in the name or names
specified by the successors in the written notice of
exercise and shall be delivered to the successors.
(c) The term "Service" means service as an employee, as an
independent contractor, or an employee of an independent
contractor.
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<PAGE> 11
10. No Registration Obligation. The Recipient understands that the
Option is not registered under the Securities Act of 1933, as
amended (the "Securities Act") and the Corporation has no
obligation to register under the Securities Act the Option or
any of the shares of Common Stock subject to and issuable upon
the exercise of the Option. The Recipient represents that the
Option is being acquired by him for investment and acknowledges
that all certificates for the shares issued upon exercise of the
Option will bear the following legend unless such shares are
registered under the Securities Act prior to their issuance:
The shares of Common Stock evidenced by this
certificate have been issued to the registered
owner in reliance upon written representations
that these shares have been purchased solely for
investment. These shares may not be sold,
transferred or assigned unless in the opinion of
the Corporation and its legal counsel such
sales, transfer or assignment will not be in
violation of the Securities Act of 1933, as
amended, and the rules and regulations
thereunder.
The Recipient further understands and agrees that the Option may be
exercised only if at the time of such exercise the Recipient and the Corporation
are able to establish the existence of an exemption from registration under the
Securities Act and applicable state laws.
11. Effect of Certain Changes.
(a) If there is any change in the number of shares of
outstanding Common Stock through the declaration of
stock dividends, or through a recapitalization resulting
in stock splits or combinations or exchanges of such
shares, the number of shares of Common Stock available
for Options and the number of such shares covered by
outstanding Options, and the exercise price per share of
the outstanding Options, shall be proportionately
adjusted by the Board to reflect any increase or
decrease in the number of issued shares of Common Stock:
provided, however, that any fractional shares resulting
from such adjustment shall be eliminated.
(b) In the event of the proposed dissolution or liquidation
of the Corporation, or any corporate separation or
division, including, but not limited to, split-up,
split-off or spin-off, or a merger or consolidation of
the Corporation with another corporation, or any sale or
transfer by the Corporation of all or substantially all
its assets or any tender offer or exchange offer for or
the acquisition, directly or indirectly, by any person
or group for more than 50% of the then outstanding
voting securities of the Corporation, the Recipient
shall have the right to exercise such Option (at its
then current Option Price) solely for the kind and
amount of shares of stock and other securities,
property, cash or any combination thereof receivable
upon such dissolution, liquidation, corporate separation
or division, merger or consolidation, sale or transfer
of assets or tender offer or exchange offer, by a
Recipient of the number of shares of Common Stock for
which such Option might have been exercised immediately
prior to such dissolution, liquidation, corporate
separation or division, or merger or consolidation:
sales or transfer of assets or tender offer or exchange
offer, or in the alternative the Board may provide that
each Option granted herein shall terminate as of a date
fixed by the Board: provided, however, that not less
than 30 day's written notice of the date so fixed shall
be given to the Recipient, who shall have the right,
during the period of 30 days preceding such termination,
to exercise the Option.
(c) Paragraph (b) of this Section 11 shall not apply to a
merger or consolidation in which the Corporation is the
surviving corporation and shares of Common Stock are not
converted into or exchanged for stock, securities of any
other corporation, cash or any other thing of value.
Notwithstanding the preceding sentence, in case of any
consolidation or merger of another corporation into the
Corporation in which the Corporation is the surviving
corporation and in which there is a reclassification or
change (including a change which results in the right to
receive cash or other property) of the shares of Common
Stock (other than a change in par value, or from no par
value to par value, or as a result of a subdivision or
combination, but including any change in such shares
into two or more classes or series of shares), the Board
may provide that the Recipient shall have the right to
exercise such Option solely for the kind and amount of
shares of stock and other securities (including those of
any direct or indirect Parent of the Corporation),
property, cash or any combination thereof receivable
upon such reclassification, change consolidation or
merger by the Recipient of the number of shares of
Common Stock for which Option might have been exercised.
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<PAGE> 12
(d) If there is a change in the Common Stock of the
Corporation as presently constituted, which is limited
to a change of all of its authorized shares with par
value into the same number of shares with a different
par value or without par value, the shares resulting
from any such change shall be deemed to be the Common
Stock within the meaning of this Stock Option Agreement.
(e) To the extent that the foregoing adjustments relate to
stock or securities of the Corporation, such adjustments
shall be made by the Board.
(f) Except as expressly provided in this Section 11, the
Recipient shall have no rights by reason of any
subdivision or consolidation of shares of stock of any
class or the payment of any stock dividend or any other
increase in the number of shares of stock of any class
or by reason of any dissolution, liquidation, merger, or
consolidation or split-up, split-off, or spin-off of
assets or stock of another corporation; and any issue by
the Corporation of shares of stock of any class, or
securities convertible into shares of stock of any
class, shall not effect, and no adjustment by reason
thereof shall be made with respect to, the number or
price of shares of Common Stock subject to this Option.
The grant of this Option shall not affect in any way the
right or power of the Corporation to make adjustments,
reclassifications, reorganizations or changes of its
capital or business structures or to merge or
consolidate or to dissolve, liquidate or sell or
transfer all or any part of its business or assets.
12. Notices. Each notice relating to this Agreement will be in
writing and delivered in person or by certified mail to the
proper address. Notices to the Corporation shall be addressed to
the Corporation c/o President, Technology Guardian, Inc., 16520
Harbor Blvd., Bldg G, Fountain, Valley, CA 92708. Notices to the
Recipient or other person or persons then entitled to exercise
the Option shall be addressed to the Recipient or such other
person or persons at the Recipient's address specified below.
Anyone to whom a notice may be given under this Agreement may
designate a new address by notice to that effect given pursuant
to this Paragraph 12.
13. Approval of Consent. The exercise of the Option and the issuance
and delivery of shares of Common Stock pursuant thereto shall be
subject to approval by the Corporation's counsel of all legal
matters in connection therewith, including compliance with the
requirements of the Securities Act, the Securities Exchange Act
of 1934, as amended, applicable state securities laws, the rules
and regulations thereunder, and the requirements of any national
securities exchange or association upon which the Common Stock
than may be listed.
14. Benefits of Agreement. This Agreement will inure to the benefit
of and be binding upon each successor and assign of the
Corporation. All obligations imposed upon the Recipient and all
rights granted to the Corporation under this Agreement will be
binding upon the Recipient" heirs, legal representatives and
successors.
15. Governmental and Other Regulations. The exercise of the Option
and the Corporation's obligation to sell and deliver shares upon
the exercise of rights to purchase shares is subject to all
applicable federal and state laws, rules and regulations, and to
such approvals by the regulatory or governmental agency which,
in the opinion of counsel for the Corporation, may be required.
16. Conditions to Exercise. The shares of stock deliverable upon the
exercise of the Option, or any portion thereof, may be either
previously authorized but unissued shares or issued shares which
have then been reacquired by the Company. Such shares shall be
fully paid and non-assessable. The Company shall not be required
to issue or deliver any certificate or certificates for shares
of stock purchased upon the exercise of the Option or portion
thereof prior to fulfillment of all of the following conditions:
(i) The admission of such shares to listing on all stock
exchanges, if any, on which such class of stock is then
listed;
(ii) The completion of any registration or other
qualification of such shares under any state or federal
law or under the rulings or regulations of the
Securities and Exchange Commission or any other
governmental regulatory body, which the Corporation
shall, in its absolute discretion, deem necessary or
advisable;
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<PAGE> 13
(iii) The obtaining of any approval or other clearance from
any state or federal governmental agency which the
Corporation shall, in its absolute discretion, determine
to be necessary or advisable;
(iv) The payment to the Company of all amounts which it is
required to withhold under federal, state or local law
in connection with the exercise of the Option; and
(v) The lapse of such reasonable period of time following
the exercise of the Option as the Corporation may from
time to time establish for reasons of administrative
convenience.
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<PAGE> 14
This Stock Option Agreement is executed in the name and on behalf of the
Corporation by one of its duly authorized officers and by the Recipient all as
of the date first above written.
TECHNOLOGY GUARDIAN, INC.
----------------------------------
The undersigned Recipient understands the terms of this Option
Agreement. The undersigned agrees to comply with the terms and conditions of
this Option Agreement.
Date , 1999 Signature:
------------- --------------------------
Printed Name: Laurie Walker
Tax ID # (SSN):
---------------------
Address:
----------------------------
----------------------------
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<PAGE> 1
EXHIBIT 10(e)
No.4-018
THE OPTION TO PURCHASE SHARES OF THE COMMON STOCK OF TECHNOLOGY GUARDIAN, INC.,
REPRESENTED BY THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT"), AND ARE "RESTRICTED SECURITIES" AS THAT TERM IS DEFINED IN
RULE 144 UNDER THE ACT. NEITHER THE OPTIONS NOR THE UNDERLYING SHARES MAY BE
OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT, THE AVAILABILITY OF WHICH IS TO BE
ESTABLISHED TO THE SATISFACTION OF SAID CORPORATION AND SUCH FURTHER
RESTRICTIONS AS THE BOARD OF DIRECTORS MAY DETERMINE.
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT effective as of this 1st day of September, 1998,
between Technology Guardian, Inc., a California corporation (the "Corporation"),
and Carol Sarpalius (the "Recipient").
WHEREAS, the Corporation, by action of the Board of Directors on July
28, 1998, has authorized the granting of stock options to purchase 50,000 shares
of this Corporation's common stock, $.001 par value ("Common Stock"), to Carol
Sarpaliusat an exercise price of $2.00 per share.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy whereof is hereby acknowledged, the Corporation and the Optionee agree
as follows:
1. Grant of Option. The Corporation hereby grants to Carol
Sarpalius an option to purchase (the "Option") an aggregate of
50,000 shares of the Corporation's common stock for a purchase
price of $ 2.00 per share (the "Option Price").
2. Vesting of Option. This option shall be immediately fully vested
from the Date of Grant.
3. Exercise of Option. This Option may be exercised in whole or in
part at any time during the term of the Option, provided,
however, no portion of this Option shall be exercisable after
the expiration of the term thereof.
The Option may be exercised, as provided in this Paragraph 3, by
notice and payment to the Corporation as provided in Paragraph 5
hereof.
4. Conversion. In lieu of exercising this Option as specified in
Paragraph 3, the Recipient may from time to time convert this
Option, in whole or in part, into a number of shares determined
by dividing (a) the aggregate Fair Market Value (determined on
the date of exercise) of the shares of the Corporation's Common
Stock issuable upon exercise of this Option (less the number of
shares as to which this Option has been previously exercised)
minus the aggregate Option Price of such shares minus all
amounts which it is required to withhold under federal, state or
local law in connection with the exercise of the Option, by (b)
the Fair Market Value (determined on the date of exercise) of
one share. This is represented mathematically as: {{(FMV per
share) X [(number of share issuable under the Option) - (share
previously issued and converted under the Option)]} - (amount
required to be withheld)} / (FMV per share). For purpose of this
Paragraph 4, "Fair Market Value" shall be the value determined
in accordance with the following provisions:
(a) If the Common Stock is not at the time listed or
admitted to trading on any stock exchange but is traded
on the Nasdaq National Market System or the Nasdaq
SmallCap Market, the Fair Market Value shall be the
closing selling price per share of Common Stock on the
date in question, as such price is reported by the
National Association of Securities Dealers through the
Nasdaq National Market System or any successor system or
the Nasdaq SmallCap Market or any successor market. If
there is no closing selling price for the common stock
on the date in question, then the FMV shall be the
closing selling price on the last preceding date for
which such quotation exists.
-1-
<PAGE> 2
(b) If the Common Stock is at the time listed or admitted to
trading on any stock exchange, the Fair Market Value
shall be the closing selling price per share of Common
Stock on the date in question on the stock exchange
determined by the Board of Directors of the Corporation
to be the primary market for the Common Stock, as such
price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing
selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the
closing selling price on the last preceding date for
which such quotation exists.
(c) If the Common Stock is at the time neither listed nor
admitted to trading on any stock exchange, not traded on
the Nasdaq National Market System nor on the Nasdaq
SmallCap Market, then such Fair Market Value shall be
determined by the Board of Directors of the Corporation
after taking into account such factors as the Board of
Directors of the Corporation shall deem appropriate.
5. Manner of Exercise.
(a) During the lifetime of the Recipient, only he may
exercise the Option or any portion thereof. After the
death of the Recipient, any exercisable portion of the
Option may, prior to the time when the Option becomes
unexercisable under Section 3.3, be exercised by the
Recipient's personal representative or by any person
empowered to do so under the Recipient's will or under
the then applicable laws of descent and distribution.
(b) The Option, or any exercisable portion thereof, may be
exercised solely by delivery to the Secretary or the
Secretary's office of all of the following prior to the
time when such exercisable Option or portion thereof
becomes unexercisable:
(i) Notice in writing signed by the Recipient, or
such other person then entitled to exercise the
Option or portion thereof, stating that the
Option or portion thereof is thereby exercised,
such notice complying with all applicable rules
established by the Corporation; and
(ii) (a) Full payment (in cash or by check) for the
shares with respect to which such Option or
portion thereof is exercised; or
(b) With the consent of the Corporation, shares
of the Company's Common Stock owned by the
Recipient duly endorsed for transfer to the
Company with a Fair Market Value on the date of
delivery equal to the aggregate purchase price
of the shares with respect to which such Option
or portion thereof is exercised.
6. Term of Option. The term of the Option will be through August
24, 2003, subject to Paragraphs 8 and 9 as provided in this
Agreement.
The Recipient of the Option will not have any rights to
dividends or any other rights of a shareholder with respect to
any shares of Common Stock subject to the Option until such
shares shall have been purchased through the exercise of the
Option and has been evidenced on the stock transfer records of
the Corporation maintained by the Corporation's transfer agent.
7. Performance Restrictions. The Recipient of this Option will not
have the right to exercise this Option until confirmation by the
Board of Directors that the following performance goals have
been completed:
NET SALES OF 1,000 UNITS SOLD BY THE EAST COAST OFFICE BY
DECEMBER 31, 1999. SALES SHALL BE DEEMED COMPLETED DURING THE
FOREGOING PERIODS IF A CONTACT LEADING TO A SALE HAS BEEN MADE
WITH A CUSTOMER DURING THE RELEVANT TIME PERIOD, AND THE SALE IS
COMPLETED WITHIN SIX MONTHS AFTER THE END OF THE RELEVANT TIME
PERIOD. THE RECIPIENT SHALL BE ENTITLED TO THE RIGHTS DESCRIBED
IN SECTION 11(b), SUBJECT TO THE REQUIREMENTS AND LIMITATIONS OF
SECTION 11.
For purposes of this paragraph, the East Coast Office shall mean
the people working out of the office of the Corporation located
in the Washington, D.C., metropolitan area as of the date of
this Agreement, and those who subsequently work in at such
office as approved by the Corporation as part of the East Coast
Office.
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<PAGE> 3
The East Coast Office shall also include those VARs recruited by
and working under the direction of the East Coast Office.
For purposes of this paragraph, a "Unit" shall consist of a
server and associated hardware and the Corporation's software
that allows high-speed access to the Internet, together with a
service contract of at least two years duration. For purposes of
definition of "Unit" in this paragraph, a server and/or
associated hardware may be furnished by the customer in lieu of
a server and associated hardware furnished by the Corporation.
A sale of a Unit shall be deemed to occur or at such time as a
sale is recognized by the Corporation in accordance with
generally accepted accounting principles. Units which are
returned to the Corporation shall be deducted from the number of
Units sold. The number of Units sold less the number of Units
returned shall be the net Units sold.
8. Transferability Restriction. The Option may not be assigned,
transferred or otherwise disposed of, or pledged or hypothecated
in any way (whether by operation of law or otherwise) (1)
without the consent of the Corporation, and (2) such transfer is
not in violation of the Securities Act of 1933, the Corporate
Securities Laws of the State of California, or the securities
laws of any state. Any assignment, transfer, pledge,
hypothecation or other disposition of the Option or any attempt
to make any such levy of execution, attachment or other process
not in accordance with the foregoing sentence shall cause the
Option to terminate immediately upon the happening of any such
event, and the Recipient shall lose all rights under this
agreement, provided, however, that any such termination of the
Option under the foregoing provisions of this Paragraph 6, will
not prejudice any rights or remedies which the Corporation may
have under this Agreement or otherwise.
9. Death, Disability or Retirement of Recipient. The Recipient's
rights to exercise this Option upon the death, disability or
retirement of the Recipient are set forth as follows:
(a) If the Recipient ceases to be in Service to the
Corporation for a reason other than permanent disability
or death, the Recipient must, within (2) months after
the date of termination of such Service, but in no event
after the Option's stated expiration date, exercise some
or all of the Options that the Recipient was entitled to
exercise on the date the Recipient's Service terminated.
All options which have not vested in accordance with
Paragraph 2 will thereafter be void for all purposes. If
the Recipient ceases to be in Service to the Corporation
by reason of permanent disability within the meaning of
section 22(e)(3) of the Internal Revenue Code (as
determined by the Board of Directors), the Recipient
will have two (2) months after the date of termination
of Service, but in no event after the stated expiration
date of the Recipient's Options, to exercise Options
that the Recipient was entitled to exercise on the date
the Recipient's Service terminated as a result of the
disability.
(b) If a Recipient dies while in the Corporation's Service,
any Options that the Recipient was entitled to exercise
on the date of death will be exercisable within the
six-month period following the date of issuance of
letters testamentary or letters of administration of a
deceased Recipient, in the case of the Recipient's death
during his Service to the Corporation's Board, but not
later than one year after the Recipient's death or until
the stated expiration date of the Recipient's Option,
whichever occurs first, by the person or persons
("successors") to whom the Recipient's rights pass under
a will or by the laws of descent and distribution. As
soon as practicable after receipt by the Corporation of
such notice and of payment in full of the Option Price,
a certificate or certificates representing the Optioned
Shares shall be registered in the name or names
specified by the successors in the written notice of
exercise and shall be delivered to the successors.
(c) The term "Service" means service as an employee, as an
independent contractor, or an employee of an independent
contractor.
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<PAGE> 4
10. No Registration Obligation. The Recipient understands that the
Option is not registered under the Securities Act of 1933, as
amended (the "Securities Act") and the Corporation has no
obligation to register under the Securities Act the Option or
any of the shares of Common Stock subject to and issuable upon
the exercise of the Option. The Recipient represents that the
Option is being acquired by him for investment and acknowledges
that all certificates for the shares issued upon exercise of the
Option will bear the following legend unless such shares are
registered under the Securities Act prior to their issuance:
The shares of Common Stock evidenced by this
certificate have been issued to the registered
owner in reliance upon written representations
that these shares have been purchased solely for
investment. These shares may not be sold,
transferred or assigned unless in the opinion of
the Corporation and its legal counsel such
sales, transfer or assignment will not be in
violation of the Securities Act of 1933, as
amended, and the rules and regulations
thereunder.
The Recipient further understands and agrees that the Option may be
exercised only if at the time of such exercise the Recipient and the Corporation
are able to establish the existence of an exemption from registration under the
Securities Act and applicable state laws.
11. Effect of Certain Changes.
(a) If there is any change in the number of shares of
outstanding Common Stock through the declaration of
stock dividends, or through a recapitalization resulting
in stock splits or combinations or exchanges of such
shares, the number of shares of Common Stock available
for Options and the number of such shares covered by
outstanding Options, and the exercise price per share of
the outstanding Options, shall be proportionately
adjusted by the Board to reflect any increase or
decrease in the number of issued shares of Common Stock:
provided, however, that any fractional shares resulting
from such adjustment shall be eliminated.
(b) In the event of the proposed dissolution or liquidation
of the Corporation, or any corporate separation or
division, including, but not limited to, split-up,
split-off or spin-off, or a merger or consolidation of
the Corporation with another corporation, or any sale or
transfer by the Corporation of all or substantially all
its assets or any tender offer or exchange offer for or
the acquisition, directly or indirectly, by any person
or group for more than 50% of the then outstanding
voting securities of the Corporation, the Recipient
shall have the right to exercise such Option (at its
then current Option Price) solely for the kind and
amount of shares of stock and other securities,
property, cash or any combination thereof receivable
upon such dissolution, liquidation, corporate separation
or division, merger or consolidation, sale or transfer
of assets or tender offer or exchange offer, by a
Recipient of the number of shares of Common Stock for
which such Option might have been exercised immediately
prior to such dissolution, liquidation, corporate
separation or division, or merger or consolidation:
sales or transfer of assets or tender offer or exchange
offer, or in the alternative the Board may provide that
each Option granted herein shall terminate as of a date
fixed by the Board: provided, however, that not less
than 30 day's written notice of the date so fixed shall
be given to the Recipient, who shall have the right,
during the period of 30 days preceding such termination,
to exercise the Option.
(c) Paragraph (b) of this Section 11 shall not apply to a
merger or consolidation in which the Corporation is the
surviving corporation and shares of Common Stock are not
converted into or exchanged for stock, securities of any
other corporation, cash or any other thing of value.
Notwithstanding the preceding sentence, in case of any
consolidation or merger of another corporation into the
Corporation in which the Corporation is the surviving
corporation and in which there is a reclassification or
change (including a change which results in the right to
receive cash or other property) of the shares of Common
Stock (other than a change in par value, or from no par
value to par value, or as a result of a subdivision or
combination, but including any change in such shares
into two or more classes or series of shares), the Board
may provide that the Recipient shall have the right to
exercise such Option solely for the kind and amount of
shares of stock and other securities (including those of
any direct or indirect Parent of the Corporation),
property, cash or any combination thereof receivable
upon such reclassification, change consolidation or
merger by the Recipient of the number of shares of
Common Stock for which Option might have been exercised.
-4-
<PAGE> 5
(d) If there is a change in the Common Stock of the
Corporation as presently constituted, which is limited
to a change of all of its authorized shares with par
value into the same number of shares with a different
par value or without par value, the shares resulting
from any such change shall be deemed to be the Common
Stock within the meaning of this Stock Option Agreement.
(e) To the extent that the foregoing adjustments relate to
stock or securities of the Corporation, such adjustments
shall be made by the Board.
(f) Except as expressly provided in this Section 11, the
Recipient shall have no rights by reason of any
subdivision or consolidation of shares of stock of any
class or the payment of any stock dividend or any other
increase in the number of shares of stock of any class
or by reason of any dissolution, liquidation, merger, or
consolidation or split-up, split-off, or spin-off of
assets or stock of another corporation; and any issue by
the Corporation of shares of stock of any class, or
securities convertible into shares of stock of any
class, shall not effect, and no adjustment by reason
thereof shall be made with respect to, the number or
price of shares of Common Stock subject to this Option.
The grant of this Option shall not affect in any way the
right or power of the Corporation to make adjustments,
reclassifications, reorganizations or changes of its
capital or business structures or to merge or
consolidate or to dissolve, liquidate or sell or
transfer all or any part of its business or assets.
12. Notices. Each notice relating to this Agreement will be in
writing and delivered in person or by certified mail to the
proper address. Notices to the Corporation shall be addressed to
the Corporation c/o President, Technology Guardian, Inc., 16520
Harbor Blvd., Bldg G, Fountain, Valley, CA 92708. Notices to the
Recipient or other person or persons then entitled to exercise
the Option shall be addressed to the Recipient or such other
person or persons at the Recipient's address specified below.
Anyone to whom a notice may be given under this Agreement may
designate a new address by notice to that effect given pursuant
to this Paragraph 12.
13. Approval of Consent. The exercise of the Option and the issuance
and delivery of shares of Common Stock pursuant thereto shall be
subject to approval by the Corporation's counsel of all legal
matters in connection therewith, including compliance with the
requirements of the Securities Act, the Securities Exchange Act
of 1934, as amended, applicable state securities laws, the rules
and regulations thereunder, and the requirements of any national
securities exchange or association upon which the Common Stock
than may be listed.
14. Benefits of Agreement. This Agreement will inure to the benefit
of and be binding upon each successor and assign of the
Corporation. All obligations imposed upon the Recipient and all
rights granted to the Corporation under this Agreement will be
binding upon the Recipient" heirs, legal representatives and
successors.
15. Governmental and Other Regulations. The exercise of the Option
and the Corporation's obligation to sell and deliver shares upon
the exercise of rights to purchase shares is subject to all
applicable federal and state laws, rules and regulations, and to
such approvals by the regulatory or governmental agency which,
in the opinion of counsel for the Corporation, may be required.
16. Conditions to Exercise. The shares of stock deliverable upon the
exercise of the Option, or any portion thereof, may be either
previously authorized but unissued shares or issued shares which
have then been reacquired by the Company. Such shares shall be
fully paid and non-assessable. The Company shall not be required
to issue or deliver any certificate or certificates for shares
of stock purchased upon the exercise of the Option or portion
thereof prior to fulfillment of all of the following conditions:
(i) The admission of such shares to listing on all stock
exchanges, if any, on which such class of stock is then
listed;
(ii) The completion of any registration or other
qualification of such shares under any state or federal
law or under the rulings or regulations of the
Securities and Exchange Commission or any other
governmental regulatory body, which the Corporation
shall, in its absolute discretion, deem necessary or
advisable;
-5-
<PAGE> 6
(iii) The obtaining of any approval or other clearance from
any state or federal governmental agency which the
Corporation shall, in its absolute discretion, determine
to be necessary or advisable;
(iv) The payment to the Company of all amounts which it is
required to withhold under federal, state or local law
in connection with the exercise of the Option; and
(v) The lapse of such reasonable period of time following
the exercise of the Option as the Corporation may from
time to time establish for reasons of administrative
convenience.
-6-
<PAGE> 7
This Stock Option Agreement is executed in the name and on behalf of the
Corporation by one of its duly authorized officers and by the Recipient all as
of the date first above written.
TECHNOLOGY GUARDIAN, INC.
The undersigned Recipient understands the terms of this Option
Agreement. The undersigned agrees to comply with the terms and conditions of
this Option Agreement.
Date , 1999 Signature:
---------------- -------------------------
Printed Name: Carol Sarpalius
Tax ID # (SSN):
---------------------
Address:
--------------------------
--------------------------
<PAGE> 8
No.4-017
THE OPTION TO PURCHASE SHARES OF THE COMMON STOCK OF TECHNOLOGY GUARDIAN, INC.,
REPRESENTED BY THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 (THE "ACT"), AND ARE "RESTRICTED SECURITIES" AS THAT TERM IS DEFINED IN
RULE 144 UNDER THE ACT. NEITHER THE OPTIONS NOR THE UNDERLYING SHARES MAY BE
OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT, THE AVAILABILITY OF WHICH IS TO BE
ESTABLISHED TO THE SATISFACTION OF SAID CORPORATION AND SUCH FURTHER
RESTRICTIONS AS THE BOARD OF DIRECTORS MAY DETERMINE.
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT effective as of this 1st day of September, 1998,
between Technology Guardian, Inc., a California corporation (the "Corporation"),
and Carol Sarpalius (the "Recipient").
WHEREAS, the Corporation, by action of the Board of Directors on July
28, 1998, has authorized the granting of stock options to purchase 250,000
shares of this Corporation's common stock, $.001 par value ("Common Stock"), to
Carol Sarpaliusat an exercise price of $ 2.00 per share.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy whereof is hereby acknowledged, the Corporation and the Optionee agree
as follows:
1. Grant of Option. The Corporation hereby grants to Carol
Sarpalius an option to purchase (the "Option") an aggregate of
250,000 shares of the Corporation's common stock for a purchase
price of $ 2.00 per share (the "Option Price").
2. Vesting of Option. This option shall be immediately fully vested
from the Date of Grant.
3. Exercise of Option. This Option may be exercised in whole or in
part at any time during the term of the Option, provided,
however, no portion of this Option shall be exercisable after
the expiration of the term thereof.
The Option may be exercised, as provided in this Paragraph 3, by
notice and payment to the Corporation as provided in Paragraph 5
hereof.
4. Conversion. In lieu of exercising this Option as specified in
Paragraph 3, the Recipient may from time to time convert this
Option, in whole or in part, into a number of shares determined
by dividing (a) the aggregate Fair Market Value (determined on
the date of exercise) of the shares of the Corporation's Common
Stock issuable upon exercise of this Option (less the number of
shares as to which this Option has been previously exercised)
minus the aggregate Option Price of such shares minus all
amounts which it is required to withhold under federal, state or
local law in connection with the exercise of the Option, by (b)
the Fair Market Value (determined on the date of exercise) of
one share. This is represented mathematically as: {{(FMV per
share) X [(number of share issuable under the Option) - (share
previously issued and converted under the Option)]} - (amount
required to be withheld)} / (FMV per share). For purpose of this
Paragraph 4, "Fair Market Value" shall be the value determined
in accordance with the following provisions:
(a) If the Common Stock is not at the time listed or
admitted to trading on any stock exchange but is traded
on the Nasdaq National Market System or the Nasdaq
SmallCap Market, the Fair Market Value shall be the
closing selling price per share of Common Stock on the
date in question, as such price is reported by the
National Association of Securities Dealers through the
Nasdaq National Market System or any successor system or
the Nasdaq SmallCap Market or any successor market. If
there is no closing selling price for the common stock
on the date in question, then the FMV shall be the
closing selling price on the last preceding date for
which such quotation exists.
-1-
<PAGE> 9
(b) If the Common Stock is at the time listed or admitted to
trading on any stock exchange, the Fair Market Value
shall be the closing selling price per share of Common
Stock on the date in question on the stock exchange
determined by the Board of Directors of the Corporation
to be the primary market for the Common Stock, as such
price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing
selling price for the Common Stock on the date in
question, then the Fair Market Value shall be the
closing selling price on the last preceding date for
which such quotation exists.
(c) If the Common Stock is at the time neither listed nor
admitted to trading on any stock exchange, not traded on
the Nasdaq National Market System nor on the Nasdaq
SmallCap Market, then such Fair Market Value shall be
determined by the Board of Directors of the Corporation
after taking into account such factors as the Board of
Directors of the Corporation shall deem appropriate.
5. Manner of Exercise.
(a) During the lifetime of the Recipient, only he may
exercise the Option or any portion thereof. After the
death of the Recipient, any exercisable portion of the
Option may, prior to the time when the Option becomes
unexercisable under Section 3.3, be exercised by the
Recipient's personal representative or by any person
empowered to do so under the Recipient's will or under
the then applicable laws of descent and distribution.
(b) The Option, or any exercisable portion thereof, may be
exercised solely by delivery to the Secretary or the
Secretary's office of all of the following prior to the
time when such exercisable Option or portion thereof
becomes unexercisable:
(i) Notice in writing signed by the Recipient, or
such other person then entitled to exercise the
Option or portion thereof, stating that the
Option or portion thereof is thereby exercised,
such notice complying with all applicable rules
established by the Corporation; and
(ii) (a) Full payment (in cash or by check) for the
shares with respect to which such Option or
portion thereof is exercised; or
(b) With the consent of the Corporation, shares
of the Company's Common Stock owned by the
Recipient duly endorsed for transfer to the
Company with a Fair Market Value on the date of
delivery equal to the aggregate purchase price
of the shares with respect to which such Option
or portion thereof is exercised.
6. Term of Option. The term of the Option will be through August
24, 2003, subject to Paragraphs 8 and 9 as provided in this
Agreement.
The Recipient of the Option will not have any rights to
dividends or any other rights of a shareholder with respect to
any shares of Common Stock subject to the Option until such
shares shall have been purchased through the exercise of the
Option and has been evidenced on the stock transfer records of
the Corporation maintained by the Corporation's transfer agent.
7. Performance Restrictions. The Recipient of this Option will not
have the right to exercise this Option until confirmation by the
Board of Directors that the following performance goals have
been completed:
NET SALES OF 500 UNITS SOLD BY THE EAST COAST OFFICE BY DECEMBER
31, 1999. SALES SHALL BE DEEMED COMPLETED DURING THE FOREGOING
PERIODS IF A CONTACT LEADING TO A SALE HAS BEEN MADE WITH A
CUSTOMER DURING THE RELEVANT TIME PERIOD, AND THE SALE IS
COMPLETED WITHIN SIX MONTHS AFTER THE END OF THE RELEVANT TIME
PERIOD. THE RECIPIENT SHALL BE ENTITLED TO THE RIGHTS DESCRIBED
IN SECTION 11(b), SUBJECT TO THE REQUIREMENTS AND LIMITATIONS OF
SECTION 11.
For purposes of this paragraph, the East Coast Office shall mean
the people working out of the office of the Corporation located
in the Washington, D.C., metropolitan area as of the date of
this Agreement, and those who subsequently work in at such
office as approved by the Corporation as part of the East Coast
Office.
-2-
<PAGE> 10
The East Coast Office shall also include those VARs recruited by
and working under the direction of the East Coast Office.
For purposes of this paragraph, a "Unit" shall consist of a
server and associated hardware and the Corporation's software
that allows high-speed access to the Internet, together with a
service contract of at least two years duration. For purposes of
definition of "Unit" in this paragraph, a server and/or
associated hardware may be furnished by the customer in lieu of
a server and associated hardware furnished by the Corporation.
A sale of a Unit shall be deemed to occur or at such time as a
sale is recognized by the Corporation in accordance with
generally accepted accounting principles. Units which are
returned to the Corporation shall be deducted from the number of
Units sold. The number of Units sold less the number of Units
returned shall be the net Units sold.
8. Transferability Restriction. The Option may not be assigned,
transferred or otherwise disposed of, or pledged or hypothecated
in any way (whether by operation of law or otherwise) (1)
without the consent of the Corporation, and (2) such transfer is
not in violation of the Securities Act of 1933, the Corporate
Securities Laws of the State of California, or the securities
laws of any state. Any assignment, transfer, pledge,
hypothecation or other disposition of the Option or any attempt
to make any such levy of execution, attachment or other process
not in accordance with the foregoing sentence shall cause the
Option to terminate immediately upon the happening of any such
event, and the Recipient shall lose all rights under this
agreement, provided, however, that any such termination of the
Option under the foregoing provisions of this Paragraph 6, will
not prejudice any rights or remedies which the Corporation may
have under this Agreement or otherwise.
9. Death, Disability or Retirement of Recipient. The Recipient's
rights to exercise this Option upon the death, disability or
retirement of the Recipient are set forth as follows:
(a) If the Recipient ceases to be in Service to the
Corporation for a reason other than permanent disability
or death, the Recipient must, within (2) months after
the date of termination of such Service, but in no event
after the Option's stated expiration date, exercise some
or all of the Options that the Recipient was entitled to
exercise on the date the Recipient's Service terminated.
All options which have not vested in accordance with
Paragraph 2 will thereafter be void for all purposes. If
the Recipient ceases to be in Service to the Corporation
by reason of permanent disability within the meaning of
section 22(e)(3) of the Internal Revenue Code (as
determined by the Board of Directors), the Recipient
will have two (2) months after the date of termination
of Service, but in no event after the stated expiration
date of the Recipient's Options, to exercise Options
that the Recipient was entitled to exercise on the date
the Recipient's Service terminated as a result of the
disability.
(b) If a Recipient dies while in the Corporation's Service,
any Options that the Recipient was entitled to exercise
on the date of death will be exercisable within the
six-month period following the date of issuance of
letters testamentary or letters of administration of a
deceased Recipient, in the case of the Recipient's death
during his Service to the Corporation's Board, but not
later than one year after the Recipient's death or until
the stated expiration date of the Recipient's Option,
whichever occurs first, by the person or persons
("successors") to whom the Recipient's rights pass under
a will or by the laws of descent and distribution. As
soon as practicable after receipt by the Corporation of
such notice and of payment in full of the Option Price,
a certificate or certificates representing the Optioned
Shares shall be registered in the name or names
specified by the successors in the written notice of
exercise and shall be delivered to the successors.
(c) The term "Service" means service as an employee, as an
independent contractor, or an employee of an independent
contractor.
-3-
<PAGE> 11
10. No Registration Obligation. The Recipient understands that the
Option is not registered under the Securities Act of 1933, as
amended (the "Securities Act") and the Corporation has no
obligation to register under the Securities Act the Option or
any of the shares of Common Stock subject to and issuable upon
the exercise of the Option. The Recipient represents that the
Option is being acquired by him for investment and acknowledges
that all certificates for the shares issued upon exercise of the
Option will bear the following legend unless such shares are
registered under the Securities Act prior to their issuance:
The shares of Common Stock evidenced by this
certificate have been issued to the registered
owner in reliance upon written representations
that these shares have been purchased solely for
investment. These shares may not be sold,
transferred or assigned unless in the opinion of
the Corporation and its legal counsel such
sales, transfer or assignment will not be in
violation of the Securities Act of 1933, as
amended, and the rules and regulations
thereunder.
The Recipient further understands and agrees that the Option may be
exercised only if at the time of such exercise the Recipient and the Corporation
are able to establish the existence of an exemption from registration under the
Securities Act and applicable state laws.
11. Effect of Certain Changes.
(a) If there is any change in the number of shares of
outstanding Common Stock through the declaration of
stock dividends, or through a recapitalization resulting
in stock splits or combinations or exchanges of such
shares, the number of shares of Common Stock available
for Options and the number of such shares covered by
outstanding Options, and the exercise price per share of
the outstanding Options, shall be proportionately
adjusted by the Board to reflect any increase or
decrease in the number of issued shares of Common Stock:
provided, however, that any fractional shares resulting
from such adjustment shall be eliminated.
(b) In the event of the proposed dissolution or liquidation
of the Corporation, or any corporate separation or
division, including, but not limited to, split-up,
split-off or spin-off, or a merger or consolidation of
the Corporation with another corporation, or any sale or
transfer by the Corporation of all or substantially all
its assets or any tender offer or exchange offer for or
the acquisition, directly or indirectly, by any person
or group for more than 50% of the then outstanding
voting securities of the Corporation, the Recipient
shall have the right to exercise such Option (at its
then current Option Price) solely for the kind and
amount of shares of stock and other securities,
property, cash or any combination thereof receivable
upon such dissolution, liquidation, corporate separation
or division, merger or consolidation, sale or transfer
of assets or tender offer or exchange offer, by a
Recipient of the number of shares of Common Stock for
which such Option might have been exercised immediately
prior to such dissolution, liquidation, corporate
separation or division, or merger or consolidation:
sales or transfer of assets or tender offer or exchange
offer, or in the alternative the Board may provide that
each Option granted herein shall terminate as of a date
fixed by the Board: provided, however, that not less
than 30 day's written notice of the date so fixed shall
be given to the Recipient, who shall have the right,
during the period of 30 days preceding such termination,
to exercise the Option.
(c) Paragraph (b) of this Section 11 shall not apply to a
merger or consolidation in which the Corporation is the
surviving corporation and shares of Common Stock are not
converted into or exchanged for stock, securities of any
other corporation, cash or any other thing of value.
Notwithstanding the preceding sentence, in case of any
consolidation or merger of another corporation into the
Corporation in which the Corporation is the surviving
corporation and in which there is a reclassification or
change (including a change which results in the right to
receive cash or other property) of the shares of Common
Stock (other than a change in par value, or from no par
value to par value, or as a result of a subdivision or
combination, but including any change in such shares
into two or more classes or series of shares), the Board
may provide that the Recipient shall have the right to
exercise such Option solely for the kind and amount of
shares of stock and other securities (including those of
any direct or indirect Parent of the Corporation),
property, cash or any combination thereof receivable
upon such reclassification, change consolidation or
merger by the Recipient of the number of shares of
Common Stock for which Option might have been exercised.
-4-
<PAGE> 12
(d) If there is a change in the Common Stock of the
Corporation as presently constituted, which is limited
to a change of all of its authorized shares with par
value into the same number of shares with a different
par value or without par value, the shares resulting
from any such change shall be deemed to be the Common
Stock within the meaning of this Stock Option Agreement.
(e) To the extent that the foregoing adjustments relate to
stock or securities of the Corporation, such adjustments
shall be made by the Board.
(f) Except as expressly provided in this Section 11, the
Recipient shall have no rights by reason of any
subdivision or consolidation of shares of stock of any
class or the payment of any stock dividend or any other
increase in the number of shares of stock of any class
or by reason of any dissolution, liquidation, merger, or
consolidation or split-up, split-off, or spin-off of
assets or stock of another corporation; and any issue by
the Corporation of shares of stock of any class, or
securities convertible into shares of stock of any
class, shall not effect, and no adjustment by reason
thereof shall be made with respect to, the number or
price of shares of Common Stock subject to this Option.
The grant of this Option shall not affect in any way the
right or power of the Corporation to make adjustments,
reclassifications, reorganizations or changes of its
capital or business structures or to merge or
consolidate or to dissolve, liquidate or sell or
transfer all or any part of its business or assets.
12. Notices. Each notice relating to this Agreement will be in
writing and delivered in person or by certified mail to the
proper address. Notices to the Corporation shall be addressed to
the Corporation c/o President, Technology Guardian, Inc., 16520
Harbor Blvd., Bldg G, Fountain, Valley, CA 92708. Notices to the
Recipient or other person or persons then entitled to exercise
the Option shall be addressed to the Recipient or such other
person or persons at the Recipient's address specified below.
Anyone to whom a notice may be given under this Agreement may
designate a new address by notice to that effect given pursuant
to this Paragraph 12.
13. Approval of Consent. The exercise of the Option and the issuance
and delivery of shares of Common Stock pursuant thereto shall be
subject to approval by the Corporation's counsel of all legal
matters in connection therewith, including compliance with the
requirements of the Securities Act, the Securities Exchange Act
of 1934, as amended, applicable state securities laws, the rules
and regulations thereunder, and the requirements of any national
securities exchange or association upon which the Common Stock
than may be listed.
14. Benefits of Agreement. This Agreement will inure to the benefit
of and be binding upon each successor and assign of the
Corporation. All obligations imposed upon the Recipient and all
rights granted to the Corporation under this Agreement will be
binding upon the Recipient's heirs, legal representatives and
successors.
15. Governmental and Other Regulations. The exercise of the Option
and the Corporation's obligation to sell and deliver shares upon
the exercise of rights to purchase shares is subject to all
applicable federal and state laws, rules and regulations, and to
such approvals by the regulatory or governmental agency which,
in the opinion of counsel for the Corporation, may be required.
16. Conditions to Exercise. The shares of stock deliverable upon the
exercise of the Option, or any portion thereof, may be either
previously authorized but unissued shares or issued shares which
have then been reacquired by the Company. Such shares shall be
fully paid and non-assessable. The Company shall not be required
to issue or deliver any certificate or certificates for shares
of stock purchased upon the exercise of the Option or portion
thereof prior to fulfillment of all of the following conditions:
(i) The admission of such shares to listing on all stock
exchanges, if any, on which such class of stock is then
listed;
(ii) The completion of any registration or other
qualification of such shares under any state or federal
law or under the rulings or regulations of the
Securities and Exchange Commission or any other
governmental regulatory body, which the Corporation
shall, in its absolute discretion, deem necessary or
advisable;
-5-
<PAGE> 13
(iii) The obtaining of any approval or other clearance from
any state or federal governmental agency which the
Corporation shall, in its absolute discretion, determine
to be necessary or advisable;
(iv) The payment to the Company of all amounts which it is
required to withhold under federal, state or local law
in connection with the exercise of the Option; and
(v) The lapse of such reasonable period of time following
the exercise of the Option as the Corporation may from
time to time establish for reasons of administrative
convenience.
-6-
<PAGE> 14
This Stock Option Agreement is executed in the name and on behalf of the
Corporation by one of its duly authorized officers and by the Recipient all as
of the date first above written.
TECHNOLOGY GUARDIAN, INC.
By
------------------------------
The undersigned Recipient understands the terms of this Option
Agreement. The undersigned agrees to comply with the terms and conditions of
this Option Agreement.
Date , 1999 Signature:
---------------- -------------------------
Printed Name: Carol Sarpalius
Tax ID # (SSN):
---------------------
Address:
--------------------------
--------------------------
-7-
<PAGE> 1
EXHIBIT 10.F
RESIGNATION AGREEMENT
This Resignation Agreement is made between eSat, Inc. (the "Company")
and David B. Coulter ("Coulter") on March 22, 1999.
1. Coulter hereby resigns as a director and as an officer of the
Company.
2. Coulter shall serve as a consultant to the Company for 36 months.
The consulting agreement may be terminated only for cause, and if
terminated earlier, Coulter shall be entitled to be paid for the
entire term. Coulter shall be paid at the rate of $10,000 per month.
If the Company is sold prior to the expiration of the 36 months,
then Coulter shall be paid the difference between $360,000 and the
cumulative amount of the consulting fees paid to Coulter. The
Company shall be deemed sold if there is a tender offer that results
in the acquisition of 51% of the outstanding stock or more, or the
acquisition of the majority of the assets of the Company. As a
consultant, Coulter shall be under the direction of the board of
directors and shall only do that which the board of directors has
authorized.
3. Coulter shall retain 3,000,000 shares of common stock. The shares
shall be nonvoting and Coulter shall not be entitled to vote the
shares on any matter. After the expiration of one year, if Coulter
sells the shares (and the shares may be sold only in accordance with
applicable law), then the purchaser shall have the right to vote the
shares. All other shares above 3,000,000 shall be canceled. Coulter
warrants that he has not sold any amount of shares to any other
person.
4. Coulter shall retain warrants to purchase 1,500,000 at $3.00 per
share. The terms of the warrant shall be similar to the warrants
previously issued to Coulter.
5. Coulter shall be paid $150,000, in five equal monthly installments
of $30,000, the first payment to be made upon the execution of this
agreement.
6. Coulter shall be entitled to the use of an office at the Company's
headquarters for a period up to 12 months. Coulter shall be entitled
to a business card with the designation of "Founder".
7. Coulter and the Company shall prepare and execute a formal general
mutual release.
<PAGE> 2
8. The board of directors acknowledges that Coulter sold warrants for
$500,000.
The parties acknowledge their agreement by affixing their signatures
below.
/s/ David B. Coulter
-----------------------------------
David B. Coulter
eSat, Inc.
By /s/ Chet Noblett
--------------------------------
Chet Noblett
By /s/ Sal Piraino
--------------------------------
Sal Piraino
By /s/ Gary Pan
--------------------------------
Gary Pan
By /s/ William Sarpalius
--------------------------------
William Sarpalius
<PAGE> 1
EXHIBIT 10(g)
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the _15th ___ day of ___June___, 1998,
between Technology Guardian, Inc., a California corporation (the "Employer") and
Chester (Chet) Noblett, Jr. (the "Employee").
WHEREAS, Employee presently is employed by Employer;
WHEREAS, Employer wishes to enter into an Employment Agreement with
Employee;
WHEREAS, Employee and Employer agree that this Employment Agreement
Supersedes all other Employment Agreements between the Employee and Employer
written, implied or otherwise.
NOW, THEREFORE, in consideration of the mutual covenants contained in
this Agreement, the Employer and Employee hereby agree as follows:
ARTICLE I
TERM OF EMPLOYMENT
1.1 Employment. The Employer agrees to employ the Employee and the
Employee agrees to be employed by the Employer upon the terms and conditions
hereinafter set forth.
1.2 Term. The employment of the Employee by the Employer as provided
herein shall commence on September 25, 1997 and shall end five years from such
date, unless sooner terminated by mutual agreement or in accordance with the
provisions of Article IV.
1.3 Office and Support. Employee shall be provided an office and
reasonable support staff, including but not limited to access to secretarial
services, at Employer's principal place of business. Such office and services
shall be comparable to the office and support services provided at the time of
commencement of this Agreement.
1.4 Place of Performance. In connection with Employee's employment by
Employer, Employee shall be based at Employer's office in Westminster,
California, except for required travel on Employer's business to an extent
substantially consistent with Employee's customary business travel obligations.
ARTICLE II
DUTIES OF THE EMPLOYEE
2.1 Duties. The Employee shall be employed with the title of Senior Vice
President, Chief Operating Officer, Secretary/Treasurer of the Corporation, with
responsibilities and authority as are customarily performed by such an officer
including, but not limited to those duties described in Schedule 2.1 and as may
from time to time be assigned to Employee by the Board of Directors of Employer.
Employee will continue to have for the term of this Agreement all authority and
responsibility that Employee had at the time this Agreement commenced.
<PAGE> 2
2.2 Extent of Duties. Employee shall devote substantially his full time,
attention and energies to the business of the Employer.
2.3 Disclosure of Information.
2.3.1 The Employee recognizes and acknowledges that the
information, processes, developments, experimental work, work in progress,
business, list of the Employer's customers and any other trade secret or other
secret or confidential information relating to Employer's business as they may
exist from time to time are valuable, special and unique assets of Employer's
business. Therefore, Employee agrees that:
(i) Employee will hold in strictest confidence and not
disclose, reproduce, publish or use in any manner, whether during or subsequent
to his employment, without the express authorization of the Board of Directors
of the Employer, any information, process, development or experimental work,
work in process, business, customer lists, trade secret or any other secret or
confidential matter relating to any aspect of the Employer's business, except as
such disclosure or use may be required in connection with Employee's work for
the Employer.
(ii) Upon request or at the time of leaving the employ
of the Employer, the Employee will deliver to the Employer, and not keep or
deliver to anyone else, any and all notes, memoranda, documents and, in general,
any and all material relating to the Employer's business.
2.3.2 In the event of a breach or threatened breach by the Employee
of the provisions of this section 2.3, the Employer shall be entitled to an
injunction (i) restraining the Employee from disclosing, in whole or in part,
any information as described above or from rendering any services to any person,
firm, corporation, association or other entity to whom such information, in
whole or in part, has been disclosed or is threatened to be disclosed; and/or
(ii) requiring that Employee deliver to Employer all information, documents,
notes, memoranda and any and all other material as described above upon
Employee's leave of the employ of the Employer. Nothing herein shall be
construed as prohibiting the Employer from pursuing other remedies available to
the Employer for such breach or threatened breach, including the recovery of
damages from the Employee.
<PAGE> 3
ARTICLE III
COMPENSATION OF THE EMPLOYEE
3.1 Compensation. As compensation for services rendered under this
Agreement, the Employee shall receive a salary at the rate of $130,000 per annum
to be paid in accordance with Employer's normal practices. This salary shall be
increased for cost-of-living at the rate of 2 1/2% per annum, plus any other
increase which may be determined from time to time in the discretion of the
Employer's Board of Directors. If increased, this salary shall not be decreased
thereafter during the term of this Agreement without the consent of the
Employee. The salary provided in this subsection shall in no way be deemed
exclusive and shall not prevent Employee from participating in any other
compensation or benefit plan of Employer.
3.1.a Bonus. As additional performance based compensation a Bonus equal
to 10% of the after tax, net profits of the company, on a annual basis will be
paid within 30 days of the Independent Auditors Annual Report.
3.2 Benefits. Employee shall be entitled to the benefits as set forth in
Schedule 3.2. Employee shall be entitled to participate in all of Employer's
employee benefit plans and employee benefits, including any retirement, pension,
profit-sharing, stock option, insurance, hospital or other plans and benefits
which now may be in effect or which may hereafter be adopted, it being
understood that Employee shall have the same rights and privileges to
participate in such plans and benefits as any other executive employee during
the term of this Agreement. Participation in any benefit plans shall be in
addition to the compensation provided for in Section 3.1. Employee shall be
provided with a car by Employer on such lease terms to be determined by
Employer, provided that the monthly operating costs (including the lease
payment) to be paid by Employer shall not exceed $_750.00___. [The total
operating costs on the vehicle shall be paid 80% by Employer and 20% by
Employee.]
3.3 Expenses. Employee shall be entitled to prompt reimbursement for all
reasonable expenses incurred by Employee in the performance of his duties
hereunder. Employer shall advance reasonable estimates of such expenses upon
request of the Employee. Employee shall not incur more than $30,000 per year in
total expenses without prior approval by Employer's Board of Directors.
ARTICLE IV
TERMINATION OF EMPLOYMENT
4.1 Termination. The Employee's employment hereunder may be terminated
without any breach of this Agreement only under the following circumstances:
4.1.1 By Employee. Upon the occurrence of any of the following
events this Agreement may be terminated by the Employee by written notice to
Employer:
(i) the sale by Employer of substantially all of its
assets;
<PAGE> 4
(ii) the sale, exchange or other disposition, in one
transaction or a series of related transactions, of at least 40% percent of the
outstanding voting shares of Employer;
(iii) a decision by Employer to terminate its business
and liquidate its assets;
(iv) the merger or consolidation of Employer with
another entity or an agreement to such a merger or consolidation or any other
type of reorganization;
(v) Employer makes a general assignment for the benefit
of creditors, files a voluntary bankruptcy petition, files a petition or answer
seeking a reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any law, there shall have been filed any
petition or application for the involuntary bankruptcy of Employer, or other
similar proceeding, in which an order for relief is entered or which remains
undismissed for a period of thirty days or more, or Employer seeks, consents to,
or acquiesces in the appointment of a trustee, receiver, or liquidator of
Employer or any material party of its assets; or
(vi) there are material changes in Employee's duties and
responsibilities without his written consent.
4.1.2 Death. This Agreement shall terminate upon the death of
Employee.
4.1.3 Disability. This Agreement shall not terminate upon the
temporary disability of the Employee, but the Employer may terminate this
Agreement upon the permanent disability of the Employee. Employee shall be
considered permanently disabled if: (1) he is disabled as defined in a
disability insurance policy purchased by or for the benefit of the Employee; or
(2) if no such policy is in effect, he is incapacitated to such an extent due to
a medically determinable physical or mental condition that he is unable to
perform substantially all of his duties for 9 consecutive months for Employer
that he performed prior to such incapacitation.
4.1.4 Cause. The Employer may terminate the Employee's employment
hereunder for Cause. For purposes of this Agreement, the Employer shall have
"Cause" to terminate the Employee's employment hereunder upon the following: (1)
the willful and continued failure by the Employee substantially to perform his
duties hereunder (other than any such failure resulting from the Employee's
incapacity due to physical or mental illness), after demand for substantial
performance is delivered by the Employer that specifically identifies the manner
in which the Employer believes the Employee has not substantially performed his
duties; or (2) the willful engaging by the Employee in misconduct which is
materially injurious to the Employer, monetarily or otherwise; or (3) the
willful violation by the Employee of the provisions of this Agreement. For
purposes of this paragraph, no act, or failure to act, on the part of the
Employee shall be considered "willful" unless done, or omitted to be done, not
in good faith and without reasonable belief by him that his action or omission
was in the best interest of the Employer.
<PAGE> 5
Notwithstanding the foregoing, the Employee shall not be deemed to have
been terminated for Cause without (i) reasonable notice to the Employee setting
forth the reasons for the Employer's intention to terminate for Cause and
granting Employee 90 days to cure or remedy (if possible) the reasons for
termination; (ii) an opportunity for the Employee, together with his counsel, to
be heard before the Board, and (iii) delivery to the Employee of a Notice of
Termination as defined in section 4.2 hereof from the Board finding that in the
good faith opinion of the Board the Employee was guilty of conduct set forth
above in clause (1), (2) or (3) of the preceding paragraph and was unable to
cure or remedy the reasons for termination, and specifying the particulars
thereof in detail.
4.2 Notice of Termination. Any termination of the Employee's employment
by the Employer or by the Employee (other than termination pursuant to
subsection 4.1.2 above) shall be communicated by written Notice of Termination
to the other party. For purposes of this Agreement, a "Notice of Termination"
shall mean a notice which shall indicate the specific termination provision in
this Agreement relied upon and shall set forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of employment under
the provision so indicated.
4.3 Date of Termination. "Date of Termination" shall mean (i) if the
Employee's employment is terminated by his death, the date of his death; and
(ii) if the Employee's employment is terminated for any other reason, the date
on which a Notice of Termination is received by Employer or Employee.
4.4 Payment of Salary/Severance Pay Following Termination.
4.4.1 In the event of temporary or permanent disability of the
Employee as described in subsection 4.1.3 hereof Employee shall be entitled to
receive all compensation payable up to the Date of Termination notwithstanding
his temporary or permanent disability; any such payment, however, shall be
reduced by disability insurance benefits, if any, paid to Employee under
policies (other than group policies) for which Employer pays all premiums and
Employee is the beneficiary.
4.4.2 Following the termination of this Agreement by the Employer
for Cause as provided in subsection 4.1.4 hereof, the Employee shall be entitled
only to compensation through the Date of Termination.
4.4.3 Following the termination of this Agreement by Employer for
any reason other than Cause or permanent disability, Employer shall pay Employee
a lump sum severance payment equal to two times the Employee's annual salary at
the date of termination, which amount shall be paid within five business days of
the date the Notice of Termination is delivered to Employee.
4.5 Remedies. Any termination of this Agreement shall not prejudice any
other remedy to which the Employer or Employee may be entitled, either at law,
equity, or under this Agreement.
ARTICLE V
<PAGE> 6
INDEMNIFICATION
5.1 Indemnification. To the fullest extent permitted by applicable law,
Employer agrees to indemnify, defend and hold Employee harmless from any and all
claims, actions, costs, expenses, damages and liabilities, including, without
limitation, reasonable attorneys' fees, hereafter or heretofore arising out of
or in connection with activities of Employer or its employees, including
Employee, or other agents in connection with and within the scope of this
Agreement or by reason of the fact that he is or was a director or officer of
Employer or any affiliate of Employer. To the fullest extent permitted by
applicable law, Employer shall advance to Employee expenses of defending any
such action, claim or proceeding. However, Employer shall not indemnify Employee
or defend Employee against, or hold him harmless from any claims, damages,
expenses or liabilities, including attorneys' fees, resulting from the gross
negligence or willful misconduct of Employee. The duty to indemnify shall
survive the expiration or early termination of this Agreement as to any claims
based on facts or conditions which occurred or are alleged to have occurred
prior to expiration or termination.
ARTICLE VI
GENERAL PROVISIONS
6.1 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
6.2 Arbitration. Any controversy or claim arising out of or relating to
this Agreement or the breach thereof shall be settled by arbitration in the
County of Orange , California in accordance with the rules then existing of the
American Arbitration Association and judgment upon the award may be entered in
any court having jurisdiction thereof.
6.3 Entire Agreement. This Agreement supersedes any and all other
Agreements, whether oral or in writing, between the parties with respect to the
employment of the Employee by the Employer.
6.4 Successors and Assigns. This Agreement, all terms and conditions
hereunder, and all remedies arising herefrom, shall inure to the benefit of and
be binding upon Employer, any successor in interest to all or substantially all
of the business and/or assets of Employer, and the heirs, administrators,
successors and assigns of Employee. Except as provided in the preceding
sentence, the rights and obligations of the parties hereto may not be assigned
or transferred by either party without the prior written consent of the other
party.
6.5 Notices. For purposes of this Agreement, notices, demands and all
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid, addressed as
follows:
<PAGE> 7
If to Employee: Chester (Chet) Noblett, Jr.
12961 Marcy Ranch
Cown Heights, California
If to Employer: Technology Guardian, Inc.
14600 Goldenwest Street #203
Westminister, CA 92683
Attn: David B. Coulter, President & C.E.O.
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
6.6 Severability. If any provision of this Agreement is prohibited by or
is unlawful or unenforceable under any applicable law of any jurisdiction as to
such jurisdiction, such provision shall be ineffective to the extent of such
prohibition without invalidating the remaining provisions hereof.
6.7 Section Headings. The section headings used in this Agreement are
for convenience only and shall not affect the construction of any terms of this
Agreement.
6.8 Survival of Obligations. Termination of this Agreement for any
reason shall not relieve Employer or Employee of any obligation accruing or
arising prior to such termination.
6.9 Amendments. This Agreement may be amended only by written agreement
of both Employer and Employee.
6.10 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original but all of which, when
taken together, shall constitute only one legal instrument. This Agreement shall
become effective when copies hereof, when taken together, shall bear the
signatures of both parties hereto. It shall not be necessary in making proof of
this Agreement to produce or account for more than one such counterpart.
<PAGE> 8
6.11 Fees and Costs. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys fees, costs and necessary disbursements in
addition to any other relief to which that party may be entitled.
"EMPLOYER"
Technology Guardian, Inc.
By
------------------------------------
David B. Coulter, President & C.E.O.
"EMPLOYEE"
- --------------------------------
Chester (Chet) Noblett, Jr.
<PAGE> 9
SCHEDULE 2.1
DUTIES OF EMPLOYEE
Employee shall be responsible for policy making decisions with respect
to Employer, provided that such policy making decisions may be subject to
approval by Employer's Board of Directors. Employee shall also be responsible
for the day to day operations of Employer as well as the overall leadership and
management of Employer.
<PAGE> 10
SCHEDULE 3.2
Employer shall pay 100% of the cost of health insurance and dental
insurance for Employee, Employee's spouse and Employee's two dependents.
Employee also will be entitled to all paid holidays as customarily are extended
to executive employees. Employee will accrue vacation time and sick leave in
accordance with the provisions contained in the Employee Handbook, and any
supplement thereto.
<PAGE> 1
EXHIBIT 10.H
No. 8-001
THE OPTION TO PURCHASE SHARES OF THE COMMON STOCK OF ESAT, INC., REPRESENTED BY
THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE
"ACT"), AND ARE "RESTRICTED SECURITIES" AS THAT TERM IS DEFINED IN RULE 144
UNDER THE ACT. NEITHER THE OPTIONS NOR THE UNDERLYING SHARES MAY BE OFFERED FOR
SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT, THE AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO THE
SATISFACTION OF SAID CORPORATION AND SUCH FURTHER RESTRICTIONS AS THE BOARD OF
DIRECTORS MAY DETERMINE.
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT effective as of this 22 day of August, 1998, between
eSat, Inc., a Nevada corporation (the "Corporation"), and DAVID B. COULTER (the
"Recipient").
WHEREAS, the Corporation, by action of the Board of Directors on March 22,
1999, has authorized the granting of stock options to purchase 1,500,000 shares
of this Corporation's common stock, $.001 par value ("Common Stock"), to DAVID
B. COULTER at an exercise price of $ 3.00 per share.
NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy
whereof is hereby acknowledged, the Corporation and the Optionee agree as
follows:
1. Grant of Option. The Corporation hereby grants to DAVID B. COULTER an
option to purchase (the "Option") an aggregate of 1,500,000 shares of the
Corporation's common stock for a purchase price of $ 3.00 per share (the
"Option Price").
2. Vesting of Option. This option shall be immediately fully vested from the
Date of Grant.
3. Exercise of Option. This Option may be exercised in whole or in part at
any time during the term of the Option, provided, however, no portion of
this Option shall be exercisable after the expiration of the term thereof.
The Option may be exercised, as provided in this Paragraph 3, by notice
and payment to the Corporation as provided in Paragraph 5 hereof.
(a) Conversion. [Deleted.]
4. Manner of Exercise.
(a) During the lifetime of the Recipient, only he may exercise the
Option or any portion thereof. After the death of the Recipient, any
exercisable portion of the Option may, prior to the time when the
Option becomes unexercisable under Section 3.3, be exercised by the
Recipient's personal representative or by any person empowered to do
so under the Recipient's will or under the then applicable laws of
descent and distribution.
(b) The Option, or any exercisable portion thereof, may be exercised
solely by delivery to the Secretary or the Secretary's office of all
of the following prior to the time when such exercisable Option or
portion thereof becomes unexercisable:
(i) Notice in writing signed by the Recipient, or such other person
then entitled to exercise the Option or portion thereof, stating
that the Option or portion thereof is thereby exercised, such notice
complying with all applicable rules established by the Corporation;
and
(ii) (a) Full payment (in cash or by check) for the shares with
respect to which such Option or portion thereof is exercised; or
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<PAGE> 2
5. Term of Option. The term of the Option will be through August 24, 2003,
subject to Paragraphs 8 and 9 as provided in this Agreement.
The Recipient of the Option will not have any rights to dividends or any
other rights of a shareholder with respect to any shares of Common Stock
subject to the Option until such shares shall have been purchased through
the exercise of the Option and has been evidenced on the stock transfer
records of the Corporation maintained by the Corporation's transfer agent.
Performance Restrictions. [Deleted.]
6. Transferability Restriction. The Option may not be assigned, transferred
or otherwise disposed of, or pledged or hypothecated in any way (whether
by operation of law or otherwise) unless such transfer is not in violation
of the Securities Act of 1933, the Corporate Securities Laws of the State
of Nevada, or the securities laws of any state. Any assignment, transfer,
pledge, hypothecation or other disposition of the Option or any attempt to
make any such levy of execution, attachment or other process not in
accordance with the foregoing sentence shall cause the Option to terminate
immediately upon the happening of any such event, and the Recipient shall
lose all rights under this agreement, provided, however, that any such
termination of the Option under the foregoing provisions of this Paragraph
6, will not prejudice any rights or remedies which the Corporation may
have under this Agreement or otherwise.
(a) Death, Disability or Retirement of Recipient. [Deleted.]
7. No Registration Obligation. The Recipient understands that the Option is
not registered under the Securities Act of 1933, as amended (the
"Securities Act") and the Corporation has no obligation to register under
the Securities Act the Option or any of the shares of Common Stock subject
to and issuable upon the exercise of the Option. The Recipient represents
that the Option is being acquired by him for investment and acknowledges
that all certificates for the shares issued upon exercise of the Option
will bear the following legend unless such shares are registered under the
Securities Act prior to their issuance:
The shares of Common Stock evidenced by this certificate have been
issued to the registered owner in reliance upon written
representations that these shares have been purchased solely for
investment. These shares may not be sold, transferred or assigned
unless in the opinion of the Corporation and its legal counsel such
sales, transfer or assignment will not be in violation of the
Securities Act of 1933, as amended, and the rules and regulations
thereunder.
The Recipient further understands and agrees that the Option may be
exercised only if at the time of such exercise the Recipient and the Corporation
are able to establish the existence of an exemption from registration under the
Securities Act and applicable state laws.
8. Effect of Certain Changes.
(a) If there is any change in the number of shares of outstanding Common
Stock through the declaration of stock dividends, or through a
recapitalization resulting in stock splits or combinations or
exchanges of such shares, the number of shares of Common Stock
available for Options and the number of such shares covered by
outstanding Options, and the exercise price per share of the
outstanding Options, shall be proportionately adjusted by the Board
to reflect any increase or decrease in the number of issued shares
of Common Stock: provided, however, that any fractional shares
resulting from such adjustment shall be eliminated.
(b) In the event of the proposed dissolution or liquidation of the
Corporation, or any corporate separation or division, including, but
not limited to, split-up, split-off or spin-off, or a merger or
consolidation of the Corporation with another corporation, or any
sale or transfer by the Corporation of all or substantially all its
assets or any tender offer or exchange offer for or the acquisition,
directly or indirectly, by any person or group for more than 50% of
the then outstanding voting securities of the Corporation, the Board
may provide that the Recipient shall have the right to exercise such
Option (at its then current Option Price) solely for the kind and
amount of shares of stock and other securities, property, cash or
any combination
- 2 -
<PAGE> 3
thereof receivable upon such dissolution, liquidation, corporate
separation or division, merger or consolidation, sale or transfer of
assets or tender offer or exchange offer, by a Recipient of the
number of shares of Common Stock for which such Option might have
been exercised immediately prior to such dissolution, liquidation,
corporate separation or division, or merger or consolidation: sales
or transfer of assets or tender offer or exchange offer, or in the
alternative the Board may provide that each Option granted herein
shall terminate as of a date fixed by the Board: provided, however,
that not less than 30 day's written notice of the date so fixed
shall be given to the Recipient, who shall have the right, during
the period of 30 days preceding such termination, to exercise the
Option.
(c) Paragraph (b) of this Section 11 shall not apply to a merger or
consolidation in which the Corporation is the surviving corporation
and shares of Common Stock are not converted into or exchanged for
stock, securities of any other corporation, cash or any other thing
of value. Notwithstanding the preceding sentence, in case of any
consolidation or merger of another corporation into the Corporation
in which the Corporation is the surviving corporation and in which
there is a reclassification or change (including a change which
results in the right to receive cash or other property) of the
shares of Common Stock (other than a change in par value, or from no
par value to par value, or as a result of a subdivision or
combination, but including any change in such shares into two or
more classes or series of shares), the Board may provide that the
Recipient shall have the right to exercise such Option solely for
the kind and amount of shares of stock and other securities
(including those of any direct or indirect Parent of the
Corporation), property, cash or any combination thereof receivable
upon such reclassification, change consolidation or merger by the
Recipient of the number of shares of Common Stock for which Option
might have been exercised.
(d) If there is a change in the Common Stock of the Corporation as
presently constituted, which is limited to a change of all of its
authorized shares with par value into the same number of shares with
a different par value or without par value, the shares resulting
from any such change shall be deemed to be the Common Stock within
the meaning of this Stock Option Agreement.
(e) To the extent that the foregoing adjustments relate to stock or
securities of the Corporation, such adjustments shall be made by the
Board.
(f) Except as expressly provided in this Section 11, the Recipient shall
have no rights by reason of any subdivision or consolidation of
shares of stock of any class or the payment of any stock dividend or
any other increase in the number of shares of stock of any class or
by reason of any dissolution, liquidation, merger, or consolidation
or split-up, split-off, or spin-off of assets or stock of another
corporation; and any issue by the Corporation of shares of stock of
any class, or securities convertible into shares of stock of any
class, shall not effect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common
Stock subject to this Option. The grant of this Option shall not
affect in any way the right or power of the Corporation to make
adjustments, reclassifications, reorganizations or changes of its
capital or business structures or to merge or consolidate or to
dissolve, liquidate or sell or transfer all or any part of its
business or assets.
9. Notices. Each notice relating to this Agreement will be in writing and
delivered in person or by certified mail to the proper address. Notices to
the Corporation shall be addressed to the Corporation c/o President, eSat,
Inc., 16520 Harbor Blvd., Bldg, G, Fountain, Valley, CA 92708. Notices to
the Recipient or other person or persons then entitled to exercise the
Option shall be addressed to the Recipient or such other person or persons
at the Recipient's address specified below. Anyone to whom a notice may be
given under this Agreement may designate a new address by notice to that
effect given pursuant to this Paragraph 12.
10. Approval of Consent. The exercise of the Option and the issuance and
delivery of shares of Common Stock pursuant thereto shall be subject to
approval by the Corporation's counsel of all legal matters in connection
therewith, including compliance with the requirements of the Securities
Act, the Securities Exchange Act of 1934, as amended, applicable state
securities laws, the rules and regulations thereunder, and the
requirements of any national securities exchange or association upon which
the Common Stock than may be listed.
- 3 -
<PAGE> 4
11. Benefits of Agreement. This Agreement will inure to the benefit of and be
binding upon each successor and assign of the Corporation. All obligations
imposed upon the Recipient and all rights granted to the Corporation under
this Agreement will be binding upon the Recipient" heirs, legal
representatives and successors.
12. Governmental and Other Regulations. The exercise of the Option and the
Corporation's obligation to sell and deliver shares upon the exercise of
rights to purchase shares is subject to all applicable federal and state
laws, rules and regulations, and to such approvals by the regulatory or
governmental agency which, in the opinion of counsel for the Corporation,
may be required.
13. Conditions to Exercise. The shares of stock deliverable upon the exercise
of the Option, or any portion thereof, may be either previously authorized
but unissued shares or issued shares which have then been reacquired by
the Company. Such shares shall be fully paid and non-assessable. The
Company shall not be required to issue or deliver any certificate or
certificates for shares of stock purchased upon the exercise of the Option
or portion thereof prior to fulfillment of all of the following
conditions:
(i) The admission of such shares to listing on all stock exchanges, if
any, on which such class of stock is then listed;
(ii) The completion of any registration or other qualification of such
shares under any state or federal law or under the rulings or
regulations of the Securities and Exchange Commission or any other
governmental regulatory body, which the Corporation shall, in its
absolute discretion, deem necessary or advisable;
(iii) The obtaining of any approval or other clearance from any state or
federal governmental agency which the Corporation shall, in its
absolute discretion, determine to be necessary or advisable;
(iv) The payment to the Company of all amounts which it is required to
withhold under federal, state or local law in connection with the
exercise of the Option; and
(v) The lapse of such reasonable period of time following the exercise
of the Option as the Corporation may from time to time establish for
reasons of administrative convenience.
- 4 -
<PAGE> 5
This Stock Option Agreement is executed in the name and on behalf of the
Corporation by one of its duly authorized officers and by the Recipient all as
of the date first above written.
ESAT, INC.
By ____________________________
The undersigned Recipient understands the terms of this Option
Agreement. The undersigned agrees to comply with the terms and conditions of
this Option Agreement.
Date ________________, 1999 Signature:______________________________
Printed Name: Coulter
Tax ID # (SSN):_________________________
Address:________________________________
________________________________
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<PAGE> 1
EXHIBIT 10(i)
No. 4-006
THE OPTION TO PURCHASE SHARES OF THE COMMON STOCK OF eSAT, INC., REPRESENTED BY
THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE
"ACT"), AND ARE "RESTRICTED SECURITIES" AS THAT TERM IS DEFINED IN RULE 144
UNDER THE ACT. NEITHER THE OPTIONS NOR THE UNDERLYING SHARES MAY BE OFFERED FOR
SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT, THE AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO THE
SATISFACTION OF SAID CORPORATION AND SUCH FURTHER RESTRICTIONS AS THE BOARD OF
DIRECTORS MAY DETERMINE.
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT effective as of this 15 day of September , 1999,
between eSat, Inc., a Nevada corporation (the "Corporation"), and CHET NOBLETT
(the "Recipient").
WHEREAS, the Corporation, by action of the Board of Directors on July 28,
1998, has authorized the granting of stock options to purchase 300,000 shares of
this Corporation's common stock, $.001 par value ("Common Stock"), to CHET
NOBLETT at an exercise price of $ 3.00 per share.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy whereof is hereby acknowledged, the Corporation and the Optionee agree
as follows:
1. Grant of Option. The Corporation hereby grants to CHET NOBLETT an
option to purchase (the "Option") an aggregate of 300,000 shares of
the Corporation's common stock for a purchase price of $ 3.00 per
share (the "Option Price").
2. Vesting of Option. This option shall be immediately fully vested
from the Date of Grant.
3. Exercise of Option. This Option may be exercised in whole or in part
at any time during the term of the Option, provided, however, no
portion of this Option shall be exercisable after the expiration of
the term thereof.
The Option may be exercised, as provided in this Paragraph 3, by
notice and payment to the Corporation as provided in Paragraph 5
hereof.
4. Conversion. In lieu of exercising this Option as specified in
Paragraph 3, the Recipient may from time to time convert this
Option, in whole or in part, into a number of shares determined by
dividing (a) the aggregate Fair Market Value (determined on the date
of exercise) of the shares of the Corporation's Common Stock
issuable upon exercise of this Option (less the number of shares as
to which this Option has been previously exercised) minus the
aggregate Option Price of such shares minus all amounts which it is
required to withhold under federal, state or local law in connection
with the exercise of the Option, by (b) the Fair Market Value
(determined on the date of exercise) of one share. This is
represented mathematically as: {{(FMV per share) X [(number of share
issuable under the Option) - (share previously issued and converted
under the Option)]} - (amount required to be withheld)} / (FMV per
share). For purpose of this Paragraph 4, "Fair Market Value" shall
be the value determined in accordance with the following provisions:
(a) If the Common Stock is not at the time listed or admitted to
trading on any stock exchange but is traded on the Nasdaq
National Market System or the Nasdaq SmallCap Market, the Fair
Market Value shall be the closing selling price per share of
Common Stock on the date in question, as such price is
reported by the National Association of Securities Dealers
through the Nasdaq National Market System or any successor
system or the Nasdaq SmallCap Market or any successor market.
If there is no closing selling price for the common stock on
the date in question, then the FMV shall be the closing
selling price on the last preceding date for which such
quotation exists.
(b) If the Common Stock is at the time listed or admitted to
trading on any stock exchange, the Fair Market Value shall be
the closing selling price per share of Common Stock on the
date in question on
-1-
<PAGE> 2
the stock exchange determined by the Board of Directors of the
Corporation to be the primary market for the Common Stock, as
such price is officially quoted in the composite tape of
transactions on such exchange. If there is no closing selling
price for the Common Stock on the date in question, then the
Fair Market Value shall be the closing selling price on the
last preceding date for which such quotation exists.
(c) If the Common Stock is at the time neither listed nor admitted
to trading on any stock exchange, not traded on the Nasdaq
National Market System nor on the Nasdaq SmallCap Market, then
such Fair Market Value shall be determined by the Board of
Directors of the Corporation after taking into account such
factors as the Board of Directors of the Corporation shall
deem appropriate.
5. Manner of Exercise.
(a) During the lifetime of the Recipient, only he may exercise the
Option or any portion thereof. After the death of the
Recipient, any exercisable portion of the Option may, prior to
the time when the Option becomes unexercisable under Section
3.3, be exercised by the Recipient's personal representative
or by any person empowered to do so under the Recipient's will
or under the then applicable laws of descent and distribution.
(b) The Option, or any exercisable portion thereof, may be
exercised solely by delivery to the Secretary or the
Secretary's office of all of the following prior to the time
when such exercisable Option or portion thereof becomes
unexercisable:
(i) Notice in writing signed by the Recipient, or such other
person then entitled to exercise the Option or portion
thereof, stating that the Option or portion thereof is
thereby exercised, such notice complying with all
applicable rules established by the Corporation; and
(ii) (a) Full payment (in cash or by check) for the shares
with respect to which such Option or portion thereof is
exercised; or
(b) With the consent of the Corporation, shares of the
Company's Common Stock owned by the Recipient duly
endorsed for transfer to the Company with a Fair Market
Value on the date of delivery equal to the aggregate
purchase price of the shares with respect to which such
Option or portion thereof is exercised.
6. Term of Option. The term of the Option will be through August 24,
2003, subject to Paragraphs 8 and 9 as provided in this Agreement.
The Recipient of the Option will not have any rights to dividends or
any other rights of a shareholder with respect to any shares of
Common Stock subject to the Option until such shares shall have been
purchased through the exercise of the Option and has been evidenced
on the stock transfer records of the Corporation maintained by the
Corporation's transfer agent.
7. Performance Restrictions. The Recipient of this Option will not have
the right to exercise this Option until confirmation by the Board of
Directors that the following performance goals have been completed:
2000 UNITS SOLD '99 BY THE COMPANY.
For purposes of this paragraph, the East Coast Office shall mean the
people working out of the office the Corporation located in the
Washington, D.C., metropolitan area as of the date of this
Agreement, and those who subsequently work in at such office as
approved by the Corporation as part of the East Coast Office.
For purposes of this paragraph, a "unit" shall consist of a server
and associated hardware and software that allows access to the
Internet.
A sale of a unit shall be deemed to occur or at such time as a sale
is recognized the Company in accordance with generally accepted
accounting principles. Units which are returned to the Company shall
be deducted
-2-
<PAGE> 3
from the number of units sold. The number of units sold less the
number of units returned shall be the net units sold.
8. Transferability Restriction. The Option may not be assigned,
transferred or otherwise disposed of, or pledged or hypothecated in
any way (whether by operation of law or otherwise) (1) without the
consent of the Corporation, and (2) such transfer is not in
violation of the Securities Act of 1933, the Corporate Securities
Laws of the State of Nevada, or the securities laws of any state.
Any assignment, transfer, pledge, hypothecation or other disposition
of the Option or any attempt to make any such levy of execution,
attachment or other process not in accordance with the foregoing
sentence shall cause the Option to terminate immediately upon the
happening of any such event, and the Recipient shall lose all rights
under this agreement, provided, however, that any such termination
of the Option under the foregoing provisions of this Paragraph 6,
will not prejudice any rights or remedies which the Corporation may
have under this Agreement or otherwise.
9. Death, Disability or Retirement of Recipient. The Recipient's rights
to exercise this Option upon the death, disability or retirement of
the Recipient are set forth as follows:
(a) If the Recipient ceases to be in Service to the Corporation
for a reason other than permanent disability or death, the
Recipient must, within (2) months after the date of
termination of such Service, but in no event after the
Option's stated expiration date, exercise some or all of the
Options that the Recipient was entitled to exercise on the
date the Recipient's Service terminated. All options which
have not vested in accordance with Paragraph 2 will thereafter
be void for all purposes. If the Recipient ceases to be in
Service to the Corporation by reason of permanent disability
within the meaning of section 22(e)(3) of the Internal Revenue
Code (as determined by the Board of Directors), the Recipient
will have two (2) months after the date of termination of
Service, but in no event after the stated expiration date of
the Recipient's Options, to exercise Options that the
Recipient was entitled to exercise on the date the Recipient's
Service terminated as a result of the disability.
(b) If a Recipient dies while in the Corporation's Service, any
Options that the Recipient was entitled to exercise on the
date of death will be exercisable within the six-month period
following the date of issuance of letters testamentary or
letters of administration of a deceased Recipient, in the case
of the Recipient's death during his Service to the
Corporation's Board, but not later than one year after the
Recipient's death or until the stated expiration date of the
Recipient's Option, whichever occurs first, by the person or
persons ("successors") to whom the Recipient's rights pass
under a will or by the laws of descent and distribution. As
soon as practicable after receipt by the Corporation of such
notice and of payment in full of the Option Price, a
certificate or certificates representing the Optioned Shares
shall be registered in the name or names specified by the
successors in the written notice of exercise and shall be
delivered to the successors.
(c) The term "Service" means service as an employee, as an
independent contractor, or an employee of an independent
contractor.
10. No Registration Obligation. The Recipient understands that the
Option is not registered under the Securities Act of 1933, as
amended (the "Securities Act") and the Corporation has no obligation
to register under the Securities Act the Option or any of the shares
of Common Stock subject to and issuable upon the exercise of the
Option. The Recipient represents that the Option is being acquired
by him for investment and acknowledges that all certificates for the
shares issued upon exercise of the Option will bear the following
legend unless such shares are registered under the Securities Act
prior to their issuance:
The shares of Common Stock evidenced by this
certificate have been issued to the registered
owner in reliance upon written representations
that these shares have been purchased solely for
investment. These shares may not be sold,
transferred or assigned unless in the opinion of
the Corporation and its legal counsel such sales,
transfer or assignment will not be in violation of
the Securities Act of 1933, as amended, and the
rules and regulations thereunder.
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<PAGE> 4
The Recipient further understands and agrees that the Option may be
exercised only if at the time of such exercise the Recipient and the Corporation
are able to establish the existence of an exemption from registration under the
Securities Act and applicable state laws.
11. Effect of Certain Changes.
(a) If there is any change in the number of shares of outstanding
Common Stock through the declaration of stock dividends, or
through a recapitalization resulting in stock splits or
combinations or exchanges of such shares, the number of shares
of Common Stock available for Options and the number of such
shares covered by outstanding Options, and the exercise price
per share of the outstanding Options, shall be proportionately
adjusted by the Board to reflect any increase or decrease in
the number of issued shares of Common Stock: provided,
however, that any fractional shares resulting from such
adjustment shall be eliminated.
(b) In the event of the proposed dissolution or liquidation of the
Corporation, or any corporate separation or division,
including, but not limited to, split-up, split-off or
spin-off, or a merger or consolidation of the Corporation with
another corporation, or any sale or transfer by the
Corporation of all or substantially all its assets or any
tender offer or exchange offer for or the acquisition,
directly or indirectly, by any person or group for more than
50% of the then outstanding voting securities of the
Corporation, the Board may provide that the Recipient shall
have the right to exercise such Option (at its then current
Option Price) solely for the kind and amount of shares of
stock and other securities, property, cash or any combination
thereof receivable upon such dissolution, liquidation,
corporate separation or division, merger or consolidation,
sale or transfer of assets or tender offer or exchange offer,
by a Recipient of the number of shares of Common Stock for
which such Option might have been exercised immediately prior
to such dissolution, liquidation, corporate separation or
division, or merger or consolidation: sales or transfer of
assets or tender offer or exchange offer, or in the
alternative the Board may provide that each Option granted
herein shall terminate as of a date fixed by the Board:
provided, however, that not less than 30 day's written notice
of the date so fixed shall be given to the Recipient, who
shall have the right, during the period of 30 days preceding
such termination, to exercise the Option.
(c) Paragraph (b) of this Section 11 shall not apply to a merger
or consolidation in which the Corporation is the surviving
corporation and shares of Common Stock are not converted into
or exchanged for stock, securities of any other corporation,
cash or any other thing of value. Notwithstanding the
preceding sentence, in case of any consolidation or merger of
another corporation into the Corporation in which the
Corporation is the surviving corporation and in which there is
a reclassification or change (including a change which results
in the right to receive cash or other property) of the shares
of Common Stock (other than a change in par value, or from no
par value to par value, or as a result of a subdivision or
combination, but including any change in such shares into two
or more classes or series of shares), the Board may provide
that the Recipient shall have the right to exercise such
Option solely for the kind and amount of shares of stock and
other securities (including those of any direct or indirect
Parent of the Corporation), property, cash or any combination
thereof receivable upon such reclassification, change
consolidation or merger by the Recipient of the number of
shares of Common Stock for which Option might have been
exercised.
(d) If there is a change in the Common Stock of the Corporation as
presently constituted, which is limited to a change of all of
its authorized shares with par value into the same number of
shares with a different par value or without par value, the
shares resulting from any such change shall be deemed to be
the Common Stock within the meaning of this Stock Option
Agreement.
(e) To the extent that the foregoing adjustments relate to stock
or securities of the Corporation, such adjustments shall be
made by the Board.
(f) Except as expressly provided in this Section 11, the Recipient
shall have no rights by reason of any subdivision or
consolidation of shares of stock of any class or the payment
of any stock dividend or any other increase in the number of
shares of stock of any class or by reason of any dissolution,
liquidation, merger, or consolidation or split-up, split-off,
or spin-off of assets or stock of another corporation; and
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<PAGE> 5
any issue by the Corporation of shares of stock of any class,
or securities convertible into shares of stock of any class,
shall not effect, and no adjustment by reason thereof shall be
made with respect to, the number or price of shares of Common
Stock subject to this Option. The grant of this Option shall
not affect in any way the right or power of the Corporation to
make adjustments, reclassifications, reorganizations or
changes of its capital or business structures or to merge or
consolidate or to dissolve, liquidate or sell or transfer all
or any part of its business or assets.
12. Notices. Each notice relating to this Agreement will be in writing
and delivered in person or by certified mail to the proper address.
Notices to the Corporation shall be addressed to the Corporation c/o
President, eSat, Inc., 16520 Harbor Blvd., Bldg, G, Fountain,
Valley, CA 92708. Notices to the Recipient or other person or
persons then entitled to exercise the Option shall be addressed to
the Recipient or such other person or persons at the Recipient's
address specified below. Anyone to whom a notice may be given under
this Agreement may designate a new address by notice to that effect
given pursuant to this Paragraph 12.
13. Approval of Consent. The exercise of the Option and the issuance and
delivery of shares of Common Stock pursuant thereto shall be subject
to approval by the Corporation's counsel of all legal matters in
connection therewith, including compliance with the requirements of
the Securities Act, the Securities Exchange Act of 1934, as amended,
applicable state securities laws, the rules and regulations
thereunder, and the requirements of any national securities exchange
or association upon which the Common Stock than may be listed.
14. Benefits of Agreement. This Agreement will inure to the benefit of
and be binding upon each successor and assign of the Corporation.
All obligations imposed upon the Recipient and all rights granted to
the Corporation under this Agreement will be binding upon the
Recipient" heirs, legal representatives and successors.
15. Governmental and Other Regulations. The exercise of the Option and
the Corporation's obligation to sell and deliver shares upon the
exercise of rights to purchase shares is subject to all applicable
federal and state laws, rules and regulations, and to such approvals
by the regulatory or governmental agency which, in the opinion of
counsel for the Corporation, may be required.
16. Conditions to Exercise. The shares of stock deliverable upon the
exercise of the Option, or any portion thereof, may be either
previously authorized but unissued shares or issued shares which
have then been reacquired by the Company. Such shares shall be fully
paid and non-assessable. The Company shall not be required to issue
or deliver any certificate or certificates for shares of stock
purchased upon the exercise of the Option or portion thereof prior
to fulfillment of all of the following conditions:
(i) The admission of such shares to listing on all stock
exchanges, if any, on which such class of stock is then
listed;
(ii) The completion of any registration or other qualification of
such shares under any state or federal law or under the
rulings or regulations of the Securities and Exchange
Commission or any other governmental regulatory body, which
the Corporation shall, in its absolute discretion, deem
necessary or advisable;
(iii) The obtaining of any approval or other clearance from any
state or federal governmental agency which the Corporation
shall, in its absolute discretion, determine to be necessary
or advisable;
(iv) The payment to the Company of all amounts which it is required
to withhold under federal, state or local law in connection
with the exercise of the Option; and
(v) The lapse of such reasonable period of time following the
exercise of the Option as the Corporation may from time to
time establish for reasons of administrative convenience.
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<PAGE> 6
This Stock Option Agreement is executed in the name and on behalf of the
Corporation by one of its duly authorized officers and by the Recipient all as
of the date first above written.
ESAT, INC.
By
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The undersigned Recipient understands the terms of this Option
Agreement. The undersigned agrees to comply with the terms and conditions of
this Option Agreement.
Date , 1999 Signature:
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Printed Name:
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Tax ID # (SSN):
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Address:
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EXHIBIT 23
[LICHTER AND ASSOCIATES LETTERHEAD]
INDEPENDENT AUDITOR'S LETTER OF CONSENT
We authorize the use of the audited financial statements prepared by this firm
for Technology Guardian, Inc. for the years ended December 31, 1998 and 1997
for the purpose of enclosure in the registration statement Form 10.
/s/ LICHTER AND ASSOCIATES
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Lichter and Associates
March 15, 1999
