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As filed with the Securities and Exchange Commission on May 5, 2000
Registration No. 333-95451
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
(Amendment No. 1 to Form SB-2 on Form S-1)
ESAT, INC.
(Name of registrant as specified in its charter)
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<S> <C> <C>
Nevada 7370 95-0344604
(State or Jurisdiction of (Primary Standard Industrial (IRS Employer
Organization or Incorporation) Classification Code Number) Identification Number)
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10 Universal City Plaza, Suite 1130
Universal City, CA 91608
818-464-2600
(Address and telephone number of principal
executive offices and principal place of business)
Michael C. Palmer, President
eSat, Inc.
10 Universal City Plaza, Suite 1130
Universal City, CA 91608
818-464-2600
(Name, address and telephone number of agent for service)
Copy to:
David R. Decker
Freya L. Christian
Arter & Hadden LLP
725 South Figueroa Street, 34th Floor
Los Angeles, California 90017
Approximate date of commencement of proposed sale to the public: AS SOON AS
PRACTICAL AFTER THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: [ ]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to rule 434, check
the following box. [ ]
CALCULATION OF REGISTRATION FEE
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Title of Each Class of Proposed Maximum Proposed Maximum Amount of
Securities to Amount Offering Price Aggregate Registration
be Registered to be Registered Per Share Offering Price Fee
------------------------ ---------------- ---------------- ---------------- ------------
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Common Stock, par value $.001 per
share, Underlying Series C 6%
Convertible Preferred Stock....... 2,000,000 2.9531 $ 5,906,200 $ 1,559(1)
--------- ------------ --------------- ------------
Common Stock, par value $.001 per
share, Issuable upon Exercise of
Warrants Issued in Connection with
the Issuance of Series C 6%
Convertible Preferred Stock....... 477,754 $ 4.617 $ 2,205,790 $ 582(2)
--------- ------------ -------------- ------------
Common Stock, par value $.001 per
share, Underlying Series D 6%
Convertible Preferred Stock....... 3,000,000 $ 2.9531 $ 8,859,300 $ 2,339(2)
--------- ------------ -------------- ------------
Common Stock, par value $.001 per
share, Issuable upon Exercise of
Warrants Issued in Connection with
the Issuance of Series D 6%
Convertible Preferred Stock....... 2,566,844 $ 3.9844 $ 10,227,333 $ 2,700(2)
--------- ------------ -------------- ------------
Common Stock, par value $.001 per
share, for Selling Shareholder.... 159,286 $ 3.139 $ 499,999 $ 132(2)
Common Stock, par value $.001 per
share, for Selling Shareholder.. 255,824 $ 2.9317 $ 749,999 $ 198(2)
--------- ------------ -------------- ------------
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(1) Fee determined pursuant to Rule 457(c).
(2) Fee determined pursuant to Rule 457(g).
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 89a),
may determine.
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ESAT, INC.
CROSS-REFERENCE SHEET
SHOWING LOCATION IN PROSPECTUS
OF INFORMATION REQUIRED BY ITEMS OF FORM S-1
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Form S-1 Item Number
and Heading Caption in Prospectus
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1 Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus....... Outside Front Cover Page
2 Inside Front and Outside Back Cover Pages of
Prospectus................................... Inside Front and Outside Back Cover Pages
of Prospectus
3 Summary of Information, Risk Factors and
Ratio of Earnings to Fixed Charges........... Prospectus summary; Risk factors
4 Use of Proceeds.............................. Use of proceeds
5 Determination of Offering price.............. Not applicable
6 Dilution..................................... Not applicable
7 Selling Security Holders..................... Selling stockholders
8 Plan of Distribution......................... Plan of distribution
9 Description of Securities to Be Registered... Description of securities
10 Interest of Named Experts and Counsel........ Legal matters; Experts
11 Information with Respect to the Registrant
(a) Description of Business................. Business -- Overview
(b) Description of Property................. Business -- Description of property
(c) Legal Proceedings....................... Business -- Legal proceedings
(d) Market Price of and Dividends on the
Registrant's Common Equity and
Related Stockholder Matters............. Price range of common stock; Dividend
policy
(e) Financial Statements.................... Consolidated financial statements
(f) Selected Financial Data................. Selected consolidated financial data
(g) Supplementary Financial Information..... Not applicable
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Form S-1 Item Number
and Heading Caption in Prospectus
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(h) Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. Management's discussion and analysis of
financial condition and results of
operations
(i) Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure.................... Management's discussion and analysis of
financial condition and results of
operations -- Change in accountants
(j) Quantitative and Qualitative
Disclosures about Market Risk........... Not applicable
(k) Directors and Executive Officers........ Management -- Directors and executive
officers
(l) Executive Compensation.................. Management -- Executive compensation
(m) Security Ownership of Certain
Beneficial Owners and Management........ Principal stockholders
(n) Certain Relationships and Related
Transactions............................ Certain transactions
12 Disclosure of Commission Position on Description of securities -- Director and
Indemnification for Securities Act officer liability and indemnification
Liabilities..................................
13 Other Expenses of Issuance and Part II -- Item 13 -- Other Expenses of
Distribution................................. Issuance and Distribution
14 Indemnification of Directors and Officers.... Part II -- Item 14 -- Indemnification of
Directors and Officers
15 Recent Sales of Unregistered Securities...... Part II -- Item 15 -- Recent Sales of
Unregistered Securities
16 Exhibits and Financial Statement Schedules... Part II -- Item 16 -- Exhibits and
Financial Statement Schedules
17 Undertakings................................. Part II -- Item 17 -- Undertakings
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SUBJECT TO COMPLETION, DATED MAY 5, 2000
Prospectus
_______________ Shares
eSAT, INC.
Common Stock
Selling stockholders are offering up to _______________ shares of common
stock. We will not receive any proceeds from the sale of this common stock. No
shares are being sold by the company at this time.
The selling stockholders may sell these shares from time to time in the
over-the-counter market or otherwise.
Our common stock is traded on the OTC Electronic Bulletin Board under
the symbol "ASAT," and on the Deutsche Borse AG Xetra(TM) (Frankfurt, Germany)
under the symbol "ES8." ON __________, 2000, the last reported bid price of the
common stock on the OTC Electronic Bulletin Board was $____ per share.
INVESTING IN OUR SECURITIES INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 6.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED ON THE
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
_______________, 2000
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You may rely only on the information contained in this prospectus. We
have not authorized anyone to provide information different from that contained
in this prospectus. Neither the delivery of this prospectus nor sale of shares
means that information contained in this prospectus is correct after the date of
this prospectus. This prospectus is not an offer to sell or solicitation of an
offer to buy these securities in any circumstances under which the offer or
solicitation is unlawful.
TABLE OF CONTENTS
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Page
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Prospectus summary......................................................................... 3
Risk factors............................................................................... 6
Forward-looking statements................................................................. 14
Use of proceeds............................................................................ 14
Price range of common stock................................................................ 14
Dividend policy............................................................................ 15
Capitalization............................................................................. 15
Selected consolidated financial data....................................................... 16
Management's discussion and analysis of financial condition and results of operations...... 18
Business................................................................................... 21
Management................................................................................. 31
Certain transactions....................................................................... 37
Principal stockholders..................................................................... 39
Selling stockholders....................................................................... 42
Description of securities.................................................................. 44
Shares eligible for future sale............................................................ 50
Plan of distribution....................................................................... 51
Legal matters.............................................................................. 52
Experts ................................................................................... 52
Additional information..................................................................... 52
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Until _______________, 2000 (40 days after the date of this prospectus),
all dealers effecting transactions in the common stock may be required to
deliver a prospectus. This is in addition to the obligations of dealers to
deliver a prospectus when acting as underwriters.
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PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company, the risks of investing in our common stock,
and our financial statements and notes to those statements appearing elsewhere
in this prospectus.
OUR BUSINESS
We were incorporated in the State of Nevada on June 23, 1995 under the
name U.S. Connect 1995, Inc. On October 8, 1998, we became the surviving
corporation in a merger with Technology Guardian, Inc., a California
corporation. As a part of that merger, we changed our name to Technology
Guardian, Inc. We changed our name to eSAT, Inc. on January 26, 1999. In April
2000, we acquired the businesses of PacificNet Technologies, Inc. and
InterWireless, Inc.
Our principal executive offices are located at 10 Universal City Plaza,
Suite 1130, Universal City, California 91608. Our telephone number is
818-464-2600 and our fax number is 818-464-2799. Our Web site address is
www.esatinc.com. Information accessed on or through our Web site does NOT
constitute a part of this prospectus.
Our principal line of business consists of providing products and
services for long haul, or satellite, Internet access and data delivery. With
the recent acquisition of PacificNet and InterWireless, we are able to provide
last mile, or wireless and traditional cable, Internet service to our customers.
When combined with satellite delivery, wireless or traditional cable delivery
permits us to broadcast to a distant satellite reception dish and then
re-broadcast from that dish to customers without satellite reception capability.
Additionally, our i-Xposure desktop product provides customers with a desktop
management product which can be tailored to the needs of each customer. Our
customers are local, national and international businesses, educational
institutions and governmental agencies. In the future, we may expand our
services to the consumer market.
Our long haul, or satellite, Internet access product line is based on
our Nexstream(TM) gateway and our ChannelCasting(TM) services, which provide
existing single workplace computer networks (commonly known as local area
networks or LANs) with Internet access via a satellite based network. A
"gateway" is a specially designated computer which contains software that allows
LAN users to share an Internet access connection.
We commenced sales of the Nexstream product line in December 1999. This
product uses our satellite network for customer communications to and from
Internet web sites. The ChannelCasting(TM) service takes data from a single
source and distributes it to a prescribed user list. It is currently being
marketed although no sales have been completed. This service is designed to
provide the simultaneous broadcast of video and data files to multiple
destinations through use of our existing technology, as well as technology which
is under development. We plan to be a geographically diverse provider of
Internet services by establishing joint venture relationships in several
countries throughout the world.
Our last mile (wireless and conventional cable) Internet access products
and software solutions are delivered through our recently acquired subsidiaries,
PacificNet and InterWireless. PacificNet provides software support and managed
Internet access to individuals and businesses. InterWireless is a wireless
Internet service provider that provides both traditional and broadband wireless
Internet access services. We currently are able to provide wireless Internet
services only in Southern California, but plan to market the capability on a
national and international basis. Through these two subsidiaries, we will focus
on using technology to provide cost-effective, uniform Internet delivery without
geographic limitations.
Through i-Xposure, we are engaged in the development and marketing of a
personal interactive desktop management system which includes a variety of
personal productivity programs, as well as serving as an Internet access portal
when users are on-line.
In addition to our businesses described above, we are in the process of
developing another line of business through our subsidiary, Global Media
Technologies, Inc. which is focusing on the development of satellite-based
products which take advantage of our high-speed, high-quality video and data
delivery capabilities.
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THE OFFERING
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Shares offered.............................. _______________ shares of common stock
Proceeds to us.............................. None. All sales will be for the benefit of
the selling stockholders
Common stock to be outstanding after the
offering.................................... _______________ shares
OTC Electronic Bulletin Board symbol........ ASAT
Deutsche Borse AG Xetra(TM) (Frankfurt, ES8
Germany)
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In addition to _______________ shares of common stock outstanding after
the offering, we may issue _______________ shares of common stock on the
conversion of outstanding convertible securities, _______________ shares of
common stock on exercise of outstanding warrants, and _______________ shares of
common stock on exercise of outstanding options.
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SUMMARY CONSOLIDATED FINANCIAL DATA
CONSOLIDATED STATEMENTS OF OPERATIONS DATA
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Year Ended Unaudited
December 31, three
months ended
Restated March 31,
-------------------------------------- --------------
1997 1998 1999 2000
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(in thousands except per share data)
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Net revenue........................... $1,201 $ 341 $ 423 $
Gross profit.......................... 856 (345) (1,009)
Loss from operations.................. (434) (2,958) (8,926)
Net income (loss)..................... (454) (93,481) 73,199 $
Basic earnings (loss) per share ...... (0.04) (5.81) 4.02 $
Diluted earnings (loss) per share..... (0.04) (5.81) 3.43
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The following table indicates a summary of our balance sheet as of
December 31, 1999. The column labeled "as adjusted" reflects, as of March 31,
2000, our receipt of net proceeds from the sale of 75,000 shares of Series D 6%
Convertible Preferred Stock at $100 per share in April 2000.
CONSOLIDATED BALANCE SHEET DATA
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Unaudited
March 31, 2000
December 31, ---------------------------
1999 Actual As adjusted
------------- ------------- -------------
(in thousands)
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Cash and cash equivalents................... $3,459 $ $
Working capital............................ 2,572
Total assets............................... 5,156
Total stockholders' equity ................. 3,613
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RISK FACTORS
WE HAVE REPORTED LOSSES FROM OPERATIONS FOR OUR LAST THREE YEARS AND FOR THE
THREE MONTHS ENDED MARCH 31, 2000, AND, IF WE DO NOT BECOME PROFITABLE, OUR
BUSINESS WILL BE ADVERSELY AFFECTED AND THE VALUE OF YOUR INVESTMENT WILL
DECLINE.
For the three months ended March 31, 2000, we incurred a loss of
$_______________, including all research and development costs. For the fiscal
year ended December 31, 1999, we incurred a loss from operations of
approximately $8,925,900 as compared to a loss from operations of $2,957,991 for
the fiscal year ended December 31, 1998. The losses were primarily due to: (i)
employee compensation, which increased because of additional sales and
operations staff hired in 1998 in anticipation of future growth of our
operations; (ii) expenses related to marketing; and (iii) lack of product sales.
In addition, we incurred significant research and development costs associated
with new products. There can be no assurance that we will be able to generate
sufficient revenues to operate profitably in the future or to pay our debts as
they become due. The company is dependent upon successful completion of future
capital infusions to continue operations.
WE DEPEND ON SATELLITE TRANSMISSION. SATELLITE FAILURE COULD HAVE A SUBSTANTIAL
NEGATIVE EFFECT ON OUR BUSINESS OPERATIONS.
We currently use a single satellite to provide satellite Internet
services. There is risk associated with this dependence. There are two types of
possible failures to the satellite: a failure of the individual transponder that
is used and a failure of the entire satellite. If there is a failure of a
transponder, the satellite operator is contractually obligated to move us to
another transponder. This would create a minimum interruption to customers,
likely less than 24 hours. If the satellite itself completely fails, we will
have to move our services to another satellite. Our transmissions conform to
industry standards so there are several possible alternative satellites. Our
current satellite provider engages in quarterly reviews of available
like-satellite space and is ready to contract for that space if needed. If the
entire satellite were to fail, a one to five day outage of services might occur
depending on the availability of other satellites. Additionally, a repointing of
the receiving dishes on the ground would likely be required. The repointing of
the receiving dishes on the ground would cost us approximately $300 per
customer. In the event of any service disruption due to satellite failure, our
customers would be credited for the dollar value of the amount of time they are
without the satellite Internet service. Based on a standard contract paying $495
per month for the use of our GSI(TM) equipment and related satellite Internet
service, this would be equal to $16.50 per day per customer. We intend to
install a second U.S. Network Operating Center ("NOC") in the first half of
fiscal 2000. This second NOC will be located in Orange County, California, and
will utilize a different satellite than the existing NOC. This second NOC and
satellite provides certain redundancies in the event of a failure. In the event
of a satellite failure, we could also be subject to loss-of-business claims, due
to the reliance by business customers on the satellite Internet services we
provide. A sustained disruption in satellite service could materially impact our
ability to continue operations.
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WE MIGHT NOT BE SUCCESSFUL IN IMPLEMENTING OUR DOMESTIC AND WORLDWIDE PROPOSED
EXPANSION WHICH WILL RESULT IN OUR BEING A SMALLER AND LESS COMPETITIVE COMPANY.
Over the next two years, we intend to expand our operations domestically
and internationally, and will seek to expand the range of our services and
penetrate new geographic markets.
However, we have no experience in effectuating rapid expansion or in
managing operations which are geographically dispersed. There can be no
assurance that our current management, personnel and other corporate
infrastructure will be adequate to manage our growth. Expansion internationally
will require joint venture partners outside the United States which will provide
capital and personnel to fund the operations internationally. As a company, we
have very limited experience in international joint venture transactions. We
have no joint venture partners at this time. There can be no assurance that we
will be able to successfully joint venture with 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 we will not be able to meet our goal
of substantial domestic and international expansion within the next two years.
Failure to complete our intended expansion will result in our being a smaller
and less competitive company
WE HAVE A LIMITED OPERATING HISTORY.
We were incorporated in 1995, but did not commence operations until
1997. Since then, our business has been substantially refocused. Thus, we have a
limited operating history upon which an evaluation of us can be based. Our
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, we 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 market acceptance of new products and services. There can be no assurance
that unanticipated expenses, problems or technical difficulties will not occur
which would result in material delays in market acceptance of our products and
services or that our efforts will result in such market acceptance.
TIMING OF ORDERS FOR AND CONTINUED DEVELOPMENT OF OUR SERVICES AND PRODUCTS WILL
CAUSE OUR QUARTERLY RESULTS TO FLUCTUATE AND CONSEQUENTLY YOU SHOULD NOT RELY ON
THE RESULTS OF ANY PERIOD AS AN INDICATION OF FUTURE PERFORMANCE.
We have experienced material period-to-period fluctuations in revenue
and operating results. We anticipate that these periodic fluctuations in revenue
and operating results will occur in the future. We attribute these fluctuations
to a variety of business conditions that include:
- the volume and timing of orders we receive from quarter to
quarter;
- the introduction and acceptance of our new services and products
and product enhancements by us;
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- purchasing patterns of our customers and distributors; and
- market acceptance of services and products sold by our
distributors.
As a result, we believe that quarterly revenue and operating results are
likely to vary significantly in the future and that quarter-to-quarter
comparisons of our operating results may not be meaningful. You should therefore
not rely on the results of one quarter as an indication of future performance.
OUR INTELLECTUAL PROPERTY MAY BE CHALLENGED.
As is the case with many technology companies, the rapid pace of change
in technology could cause our intellectual property to be challenged. These
challenges could come from stronger companies who believe that the use of our
technology interferes with their use or that they own all of the technology and
related rights. If any of these challenges were successful, our ability to sell
products based on our technology or intellectual property could be severely
impaired.
WE MUST DO BUSINESS IN A DEVELOPING MARKET AND FACE NEW ENTRANTS. FAILURE TO
MEET THE CHALLENGES OF NEW PRODUCTS AND COMPETITORS WILL REDUCE OUR MARKET SHARE
AND THE VALUE OF YOUR INVESTMENT.
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. The diverse segments of the
Internet market may not provide opportunities for more than one dominant
supplier of products and services similar to ours. If a single supplier other
than us dominates one or more market segments, our revenue is likely to decline
and we will become a less valuable company.
BECAUSE WE LACK THE NAME RECOGNITION, CUSTOMER BASE AND RESOURCES OF OTHER
COMPANIES PROVIDING INTERNET ACCESS AND OTHER INTERNET RELATED PRODUCTS AND
SERVICES, WE MAY BE UNABLE TO COMPETE SUCCESSFULLY WHICH WOULD REDUCE OUR
REVENUE AND THE VALUE OF YOUR INVESTMENT.
The markets for our products are intensely competitive and are likely to
become even more competitive. Increased competition could result in:
- pricing pressures, resulting in reduced margins;
- decreased volume, resulting in reduced revenue; or
- the failure of our products to achieve or maintain market
acceptance.
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Any of these occurrences could have a material adverse effect on our
business, financial condition and operating results. Each of our products faces
intense competition from multiple competing vendors. Our principal competitors
include Loral, Inc., Hughes Network Systems and Spacenet. Many of our current
and potential competitors have:
- longer operating histories,
- greater name recognition,
- access to larger customer bases, or
- substantially greater resources than we have.
As a result, our principal competitors may respond more quickly than we
can to new or changing opportunities and technologies. For all of the reasons
stated above, we may be unable to compete successfully against our current and
future competitors.
WE MAY HAVE INSUFFICIENT CAPITAL FOR FUTURE OPERATIONS WHICH WOULD DIMINISH THE
VALUE OF YOUR INVESTMENT.
Based on current proposed plans and assumptions relating to our
operations, we anticipate that current cash reserves, together with projected
cash flow from operations and the sale of additional securities, will be
sufficient to satisfy our contemplated cash requirements through fiscal 2000.
Thereafter, we will require substantial additional financial resources to fund
our operations. The expansion into new product areas will also require
substantial funding. The failure to acquire additional funding when required
will have a material adverse effect on our business prospects. Without the
proper financing of customer contracts by a finance company or additional
equity, we are likely to have difficulty in sustaining on-going operations.
OUR FINANCIAL STATEMENTS CONTAIN A "GOING CONCERN" QUALIFICATION.
The audit report accompanying our Financial Statements for the years
ended December 31, 1998 and 1999 contains a qualification that certain
conditions indicate that we may not be able to continue as a going concern. The
financial statements do not contain any adjustments that might be necessary in
such a case. Note 2 to the financial statements indicates that substantial
operating losses account for this uncertainty. Many investment bankers and
investors view companies with a "going concern" qualification as less desirable
for investment. Accordingly, we may have a more difficult time raising equity
capital or borrowing capital at all on favorable terms. Our suppliers might be
less willing to extend credit. Our potential customers might be less willing to
purchase our products and services if they believe that we will not be viable
enough to provide service, support, back-up, and follow-on products when needed.
Furthermore, we might be disadvantaged in recruiting employees who might be
concerned about the stability of employment with us. Therefore, the "going
concern" qualification can have severe adverse consequences on us.
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WE ARE DEPENDENT ON SUCCESSFUL NEW PRODUCTS AND PRODUCT ENHANCEMENT
INTRODUCTIONS AND MAY SUFFER PRODUCT DELAYS.
Our 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 older, less efficient
products. 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, our business, operating results and financial condition
could be materially adversely affected. The process of developing Internet
access products such as ours 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 our business, operating results and financial condition.
WE HAVE NO ASSURANCE OF MARKET ACCEPTANCE OF OUR PRODUCTS AND SERVICES. IF WE
ARE UNABLE TO RAISE MARKET AWARENESS OF OUR PRODUCTS AND SERVICES, WE MAY
EXPERIENCE DECLINING OPERATING RESULTS WHICH WOULD DIMINISH THE VALUE OF YOUR
INVESTMENT.
We are at an early stage of development and our earnings growth depends
primarily upon market acceptance of our products and services. There can be no
assurance that our 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 our potential new
products will be capable of being produced in commercial quantities at
reasonable costs or that they will achieve customer acceptance.
There can be no assurance that our products and services will be
successfully marketed. In addition to our own direct sales force, we are
dependent on value-added resellers and distributors to market our products.
There is no assurance that any distributor or other reseller will be successful
in marketing our products.
Our success is dependent in part on our ability to sell our products and
services 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.
In sales to governmental agencies, nonbusiness factors often enter into
the purchase decision. Such factors 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.
We do not have sufficient experience in marketing our products to
determine the optimum distribution methods. It is unclear whether marketing
through distributors or value-added resellers or mass retailers will result in
acceptable sales levels. Accordingly, as we learn
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more, we may have to revise our sales, distribution, and marketing strategies
and implementation.
WE MIGHT BECOME SUBJECT TO FURTHER GOVERNMENT REGULATION WHICH COULD HARM OUR
PROSPECTS.
Except for a license from the Federal Communications Commission, we are
not currently subject to direct regulation by any government agency in the
United States, other than regulations applicable to businesses generally. There
are currently few laws or regulations directly applicable to access to or
commerce on the Internet. However, 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. Such laws or regulations
could limit the growth of the Internet, which could in turn decrease the demand
for our proposed products and services or increase our cost of doing business.
Any new legislation or regulation or the application of existing laws and
regulations to the Internet in unexpected ways could have an adverse effect on
our business and prospects.
WE MIGHT FACE LIABILITY FOR INFORMATION OBTAINED OR DISTRIBUTED THROUGH THE
PRODUCTS AND SERVICES WE PROVIDE.
Because materials may be downloaded by the Internet services which we
operate or facilitate and may be subsequently distributed to others, there is a
potential that claims will be made against us for defamation, negligence,
copyright or trademark infringement, personal injury or other theories based on
the nature and content of such materials. Such claims have sometimes been
successful against Internet service providers. Our general liability insurance
might not cover potential claims of this type or might not be adequate to
indemnify us for all liability that may be imposed. Any imposition of liability
or legal defense expenses that are not covered by insurance or that are in
excess of insurance coverage could have a material adverse effect on our
business, operating results and financial condition.
LOSS OF KEY MEMBERS OF OUR SENIOR MANAGEMENT COULD ADVERSELY AFFECT OUR BUSINESS
AND PROSPECTS.
Our success will be dependent largely upon the personal efforts of our
Chief Executive Officer, Michael C. Palmer, and our Chief Operating Officer,
Chester L. Noblett, as well as other senior managers. The loss of their services
could have a material adverse effect on our business and prospects. We have no
life insurance on any of our officers. Mr. Palmer's and Mr. Noblett's services
are governed by agreements. Our success is also dependent upon our 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 we 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 us.
11
<PAGE> 15
IF OUR COMMON STOCK IS SUBJECT TO PENNY STOCK RULES, YOU MAY HAVE GREATER
DIFFICULTY SELLING YOUR SHARES.
The Securities Enforcement and Penny Stock Reform Act of 1990 applies to
stock characterized as "penny stocks," and requires additional disclosure
relating to the market for penny stocks in connection with trades in any stock
defined as a penny stock. The Securities and Exchange Commission has adopted
regulations that generally define a penny stock to be any equity security that
has a market price of less than $5.00 per share, subject to certain exceptions.
The exceptions include exchange-listed equity securities and any equity security
issued by an issuer that has
- net tangible assets of at least $2,000,000, if the issuer has
been in continuous operation for at least three years;
- net tangible assets of at least $5,000,000, if the issuer has
been in continuous operation for less than three years; or
- average annual revenue of at least $6,000,000 for the last three
years.
Unless an exception is available, the regulations require the delivery,
prior to any transaction involving a penny stock, of a disclosure schedule
explaining the penny stock market and the associated risks.
If our financial condition does not meet the above tests, then trading
in the common stock will be covered by Rules 15g-1 through 15g-6 and 15g-9
promulgated under the Securities Exchange Act. Under those rules, broker-dealers
who recommend such securities to persons other than their established customers
and institutional accredited investors must make a special written suitability
determination for the purchaser and must have received the purchaser's written
agreement to a transaction prior to sale. These regulations would likely limit
the ability of broker-dealers to trade in our common stock and thus would make
it more difficult for purchasers of common stock to sell their securities in the
secondary market. The market liquidity for the common stock could be severely
affected.
YOU COULD SUFFER DILUTION OF YOUR INVESTMENT IF CERTAIN WARRANTS ARE EXERCISED,
PREFERRED STOCK IS CONVERTED INTO COMMON STOCK, OR STOCK OPTIONS ARE EXERCISED.
As of April 21, 2000, we have a total of 22,423,725 shares of common
stock outstanding. We have issued warrants to purchase 7,585,962 shares of
common stock at a weighted average price of $4.86 per share, as well as options
to purchase 6,016,931 shares of commons stock at a weighted average price of
$3.74 per share. We have issued $5,000,000 of Series C Convertible Preferred
Stock that, based on a minimum conversion price of $2.50 per share, will convert
into 2,000,000 shares of our common stock. We have issued $7,500,000 of Series D
Convertible Preferred Stock that, based on a minimum conversion price of $2.50
per share, will convert into 3,000,000 shares of our common stock. Issuance of
any of these shares will dilute your interest in our company.
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<PAGE> 16
In November 1998, we entered into a subscription agreement with a
private investor wherein he was to purchase 2,092,000 shares of common stock for
$1.30 per share which we determined was a reasonable price at that time. He was
not able to raise the funds to purchase the stock and we canceled the
subscription agreement. He has now sued to compel us to issue those shares to
him, alleging that we breached the agreement. If his lawsuit is successful, we
will be required to issue up to an additional 2,092,000 shares of common stock
at a price substantially below the current market price, which would dilute the
interest of our other common stockholders.
ISSUANCE OF OUR AUTHORIZED PREFERRED STOCK COULD DISCOURAGE A CHANGE IN CONTROL,
COULD REDUCE THE MARKET PRICE OF OUR COMMON STOCK AND COULD RESULT IN THE
HOLDERS OF PREFERRED STOCK BEING GRANTED VOTING RIGHTS THAT ARE SUPERIOR TO
THOSE OF THE HOLDERS OF COMMON STOCK.
We have issued 125,000 shares of preferred stock. All have voting
rights on all matters decided by shareholders. Each outstanding preferred share
has the right to cast the number of votes that the share would convert into
(_________ or a total of 5,000,000 as of this date) on all matters on which
stockholders may vote. We are authorized to issue an additional 9,875,000 shares
of preferred stock without obtaining the consent or approval of our
stockholders. The issuance of preferred stock could have the effect of delaying,
deferring, or preventing a change in control. We may also grant superior voting
rights to the holders of preferred stock. Any issuance of preferred stock could
materially and adversely affect the market price of the commons stock and the
voting rights of the holders of commons stock. The issuance of preferred stock
may also result in the loss of the voting control of holders of common stock to
the holders of preferred stock.
WE WILL PAY NO DIVIDENDS TO YOU.
We have not paid, and do not expect to pay, any dividends on common
stock in the foreseeable future.
MANY SHARES WILL BECOME ELIGIBLE FOR FUTURE SALE, WHICH MIGHT ADVERSELY AFFECT
THE MARKET PRICE FOR THE SHARES.
As of April 21, 2000, there are __________ shares of our common stock
outstanding which cannot be sold on the public market. Of these shares,
_______________ shares are held by directors, officers, or stockholders who have
beneficial ownership of 10% or more of the outstanding shares, including shares
subject to options held by them. _______________ shares are held by other
stockholders. These shares will become eligible for trading at various dates in
2000. In addition, shares of common stock which may be acquired pursuant to
outstanding convertible preferred stock or warrants will be eligible for trading
at various dates after they are acquired. We are 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 our common stock.
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<PAGE> 17
FORWARD-LOOKING STATEMENTS
YOU SHOULD NOT RELY ON OUR FORWARD-LOOKING STATEMENTS.
This prospectus contains forward-looking statements that involve risks
and uncertainties. Discussions containing forward-looking statements may be
found in the material set forth under "Prospectus summary," "Management's
discussion and analysis of financial condition and results of operations," and
"Business," as well as within this prospectus generally. In addition, when used
in this prospectus, the words "believes," "intends," "plans," "anticipates,"
"expects," and similar expressions are intended to identify forward-looking
statements. Forward-looking statements are subject to a number of risks and
uncertainties. Actual results could differ materially from those described in
the forward-looking statements as a result of the risk factors set forth and the
information provided in this prospectus generally. We do not intend to update
any forward-looking statements.
USE OF PROCEEDS
All of the shares of common stock offered by this prospectus are being
offered by the selling stockholders. We received money from the sale of shares
of convertible preferred stock that were converted, or are convertible, into the
shares of common stock offered in this prospectus. We also received, or will
receive, money from the exercise of warrants to purchase common stock which is
offered by this prospectus. This money was, or will be, used for working capital
and general corporate purposes. We will not receive any additional proceeds from
the sale of shares by the selling stockholders. For information about the
selling stockholders, see "Selling stockholders."
PRICE RANGE OF COMMON STOCK
Our common stock is traded on the OTC Electronic Bulletin Board under
the trading symbol " ASAT." The following table sets forth the high and low bid
prices for our common stock since the beginning of the fiscal year 1997. 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>
<CAPTION>
1997 Fiscal year High Bid Low Bid
---------------- -------- -------
<S> <C> <C>
First quarter 25.00 6.25
</TABLE>
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<PAGE> 18
<TABLE>
<S> <C> <C>
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 5.50 .625
Fourth quarter 16.00 5.00
1999 Fiscal year
----------------
First quarter 22.6875 10.50
Second quarter 14.25 7.876
Third quarter 9.3750 4.375
Fourth quarter 6.0625 1.1875
2000 Fiscal year
----------------
First Quarter 7.375 3.0625
Second Quarter through 4/28/00 2.9375 2.25
</TABLE>
On ________, 2000, the last reported trade for our common stock was
$_____.
As of ________, 2000, there were ___ holders of record of our common
stock.
DIVIDEND POLICY
We plan to retain all of our earnings, if any, to finance the expansion
of our business and for general corporate purposes. We have not declared or paid
any cash dividends on our common stock. We do not anticipate paying cash
dividends in the foreseeable future except possibly on preferred stock. The
terms of our outstanding preferred stock prohibit the payment of dividends on
our common stock unless all dividends accrued on the preferred stock have been
paid.
CAPITALIZATION
The following table sets forth our capitalization as of December 31,
1999 and our unaudited capitalization as of March 31, 2000:
- on a historical basis, and
- on an as adjusted basis, giving effect to the sale of $7,500,000
of preferred stock in April 2000 (after deducting selling commissions and
estimated offering expenses), the cancellation of the Series B 12% Convertible
Preferred Stock in March 2000, and the
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<PAGE> 19
conversion of the Series A 12% Convertible Preferred Stock into common stock in
April 2000.
You should read this table together with "Management's discussion and
analysis of financial condition and result of operations," consolidated
financial statements and notes to consolidated financial statements appearing
elsewhere in this prospectus.
<TABLE>
<CAPTION>
December 31,
1999
------------
<S> <C>
Stockholders' equity:
Preferred stock - Series C- cumulative,
fully participating convertible, $0.01
par value Authorized-50,000 shares
Issued and outstanding - 50,000 shares
(Aggregate liquidation preference
$4,999,500 in 1999) 500
Preferred stock - Series A, cumulative,
fully participating, convertible, $0.01
par value Authorized - 2,000,000 shares
Issued and outstanding - 1,000,000 shares
(Aggregate liquidation preference $1,990,000
in 1999) 10,000
Common Stock - $0.001 par value Authorized -
$50,000,000 shares Issued and outstanding -
18,345,214 shares 18,345
Additional paid-in capital 25,764,947
Retained deficit (20,899,587)
----------
4,894,205
Less: Subscriptions receivable (1,558,510)
Minority interest in equity
of subsidiary 277,500
---------
Total stockholder's equity 3,613,195
---------
</TABLE>
The information provided above excludes:
- [7,585,962] shares of common stock issuable upon exercise of
warrants,
- [6,016,931] shares of common stock issuable upon exercise of
outstanding options, and
- [5,000,000] shares issuable on conversion of outstanding
preferred stock.
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data is qualified by
reference to and should be read in conjunction with the consolidated financial
statements and notes to consolidated financial statements and the "Management's
discussion and analysis of financial condition and
16
<PAGE> 20
results of operations" and other financial information included elsewhere in
this prospectus. The consolidated statements of operations data for the years
ended December 31, 1997, 1998 and 1999 and the consolidated balance sheet data
at December 31, 1998 and 1999 are derived from and qualified by reference to the
audited consolidated financial statements included elsewhere in this prospectus.
The consolidated statements of operations data for the three months
ended March 31, 1999 and the consolidated balance sheet data at March 31, 2000
have been derived from our unaudited consolidated financial statements but have
been prepared on the same basis as our audited consolidated financial statements
which are included in this prospectus. In our opinion, these unaudited
consolidated financial statements include all adjustments, consisting of
normally recurring adjustments, considered necessary for a fair presentation of
our consolidated financial position and results of operations for that period.
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
<TABLE>
<CAPTION>
Year Ended Unaudited
December 31, three
months ended
March 31,
-------------------------------------- --------------
1997 1998 1999 2000
------------ ----------- ------------ --------------
RESTATED
(in thousands except per share data)
<S> <C> <C> <C> <C>
Net revenue............................. 1,201 $ 341 424 $
Gross profit............................ 856 (345) (1,009)
Loss from operations.................... (434) (2,958) (8,926)
Net income (loss)....................... (454) (93,481) 73,199 $
Basic earnings (loss) per share......... (0.04) (5.81) 4.02 $
Diluted earnings (loss) per share....... (0.04) (5.81) 3.43
</TABLE>
CONSOLIDATED BALANCE SHEET DATA:
<TABLE>
<CAPTION>
Unaudited
December 31, March 31,
1998 1999 2000
----------- -------------- -----------
RESTATED (in thousands)
<S> <C> <C> <C>
Cash and cash equivalents................... $2,568 $3,459 $
Working capital............................ 2,382 2,572
Total assets............................... 3,261 5,156
Total stockholders' equity.................. 2,722 3,613
</TABLE>
See note 1(m) of notes to consolidated financial statements for a
discussion regarding the computation and presentation of basic and diluted net
loss per share.
17
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND NOTES THERETO
INCLUDED ELSEWHERE IN THIS REPORT, AS WELL AS "RISK FACTORS."
RESULTS OF OPERATIONS
MARCH 31, 2000 AS COMPARED TO MARCH 31, 1999
[To be included in the Final Prospectus]
1999 AS COMPARED TO 1998
During fiscal years 1998 and 1999, we experienced difficulties selling
our products and collecting our accounts receivable. Our first product offering,
the unidirectional GSI(TM) product line, experienced technical difficulties due
to its reliance on outbound telephone lines and other Internet service providers
for its upstream connection to the Internet. During fiscal 1999, we worked on a
solution to this technical problem with the GSI(TM) product line, as well as the
development and market launch of service with our bi-directional Nexstream
product that utilizes a satellite connection for both upstream and downstream
connections to the Internet.
Revenues totaled $423,640 and $341,047 for the years ended December 31,
1999 and 1998, respectively. The 1999 revenue reflects primarily fourth quarter
shipments of our Nexstream product, whereas our first generation satellite
products are represented in the 1998 balance.
For the years ended December 31, 1999 and 1998, cost of sales were
$1,432,717 and $685,570, respectively. Cost of sales includes the cost of
hardware and software shipped to customers, satellite access time purchased from
a third party and inventory write-offs.
For the years ended December 31, 1999 and 1998, operating expenses were
$7,916,819 and $2,613,468, respectively. The increase in operating expenses for
fiscal 1999 is due to higher levels of staffing and compensation, increased
marketing expenditures, increased research and development expenditures and
higher levels of professional fees paid to outside accountants and attorneys.
Other income in 1999 and 1998 reflects primarily a compensation
adjustment recognized under APB 25.
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<PAGE> 22
1998 as compared to 1997
In fiscal 1998, revenue decreased by $860,000 or 72%, in comparison to
fiscal 1997. This revenue decline is directly attributable to our shift to
high-speed satellite Internet products and services and away from the sale of
networking and computing products and services. In the first quarter of 1998,
the company stopped selling networking and computing products and services. In
the fourth quarter of 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 AND CAPITAL RESOURCES
Our operations have been financed primarily from the sale of preferred
and common stock in 1999 and 1998. At December 31, 1999, the company had cash
and cash equivalents on hand of $3,458,561 and working capital of $2,572,374,
compared to cash and cash equivalents of $2,567,697 and working capital of
$2,366,879 at December 31, 1998.
Net cash used in operating activities of $6,729,011 and $2,799,628 for
the years ended December 31, 1999 and 1998, respectively, was primarily
attributable to operating losses as adjusted for compensation expense recognized
under APB 25.
Net cash used in investing activities was $806,917 and $293,980 for the
years ended December 31, 1999 and 1998, respectively. These expenditures were
primarily for the purchase of fixed assets.
Net cash provided by financing activities of $8,426,792 and $5,673,132,
for the years ended December 31, 1999 and 1998, respectively, resulted primarily
from the net proceeds of the sale of preferred and common stock.
To the extent our revenues increase in the coming twelve months, we
anticipate significant increases in operating expenses, working capital and
capital expenditures. The cost to purchase additional fixed assets, primarily
satellite transmission and receiving equipment, and to finance working capital
requirements is approximately $20,000,000. We also anticipate the need to
construct our own network of Network Operations Centers (NOCs). An NOC is the
location of the operations equipment, which receives and transmits data from and
to a satellite. The construction of an NOC costs approximately $2,000,000 per
location.
In the fourth quarter of 1999, we entered into an agreement with
Vantage Capital, Inc. ("VCI") for the purpose of raising capital. Pursuant to
that agreement, a total of $2,000,000 of Series A 12% Convertible Preferred
Stock was subscribed to VCI, and $5,000,000 of Series B 12% Convertible
Preferred Stock was subscribed to Corporate Financial Enterprises, Inc. ("CFE").
In addition, $5,000,000 of Series C 6% Convertible Preferred Stock was issued to
a third-party investor. Through December 31, 1999, we had received a total of
$1,100,000 on the Series
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<PAGE> 23
A Preferred Stock subscription, $1,000,000 on the Series B Preferred Stock
Subscription and the Series C Preferred Stock was fully paid.
In March 2000, we entered into a private placement agreement with an
investor for the sale of $12,000,000 of restricted common stock; however, the
investor failed to fund the agreement and it was terminated. We also entered
into an agreement with CFE which canceled the Series B Preferred Stock and
settled a dispute with CFE regarding payment for certain common stock previously
issued to CFE and its clients. As a part of that settlement, we received
$558,510 from CFE.
In April 2000, all of the outstanding Series A Preferred Stock was
converted into 550,000 shares of common stock.
In April 2000, we entered into an agreement with the holder of the
Series C Preferred Stock for the purpose of raising additional capital. Pursuant
to that agreement, a total of $7,500,000 of Series D 6% Convertible Preferred
Stock was sold. In addition to the shares purchased, the agreement calls for the
issuance of warrants to purchase 1,283,422 shares of common stock at an initial
exercise price of $3.9844 per share.
We believe that the receipt of the net proceeds from the preferred stock
described above plus cash generated internally from sales and externally from
other financing arrangements will be sufficient to satisfy our future operating,
working capital and other cash requirements for at least the next twelve months.
We believe that we have sufficient internal and external resources to fund
current operations, develop new or enhanced products and/or services, and to
respond to competitive pressures and acquire complementary products, businesses
or technologies.
YEAR 2000 COMPLIANCE
We experienced no interruptions in our operations when the calendar year
changed to the year 2000. We believe that our products and services, and
products which we purchase from third party vendors, are designed to operate
continuously regardless of date changes.
CHANGE IN ACCOUNTANTS
We dismissed Lichter and Associates as our independent accountant,
effective November 30, 1999. Lichter and Associates' report on the financial
statements for 1998 and 1997 did not contain an adverse opinion or a disclaimer
of opinion, nor was it qualified or modified, with one exception. The auditor's
report accompanying the financial statements in Amendment No. 1 to Form 10 filed
with the SEC on October 29, 1999 included the following qualification: "As
discussed in Note Q to the financial statements, the Company has suffered
recurring losses, a decline in revenue and cash shortages. These issues raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note Q. The financial
statements do not include an adjustment that might result from the outcome of
this
20
<PAGE> 24
uncertainty." The decision to change accountants was approved by the board of
directors, including the audit committee. During the period preceding the
dismissal, there were no disagreements with Lichter and Associates on any matter
of accounting principals or practices, financial statement disclosure, or
auditing scope or procedure.
BUSINESS
OVERVIEW
We provide a single source for long haul, or satellite, last mile, or
wireless and traditional cable, broadband delivery and turnkey Internet products
and services. We also develop satellite Internet access equipment, software and
services. Through our subsidiary, i-Xposure, we provide a desktop management
system which can be tailored to the specifications of a particular customer. We
provide global business, schools, government agencies and healthcare facilities,
with an efficient method of Internet access, data delivery and infrastructure,
using the latest developments in satellite, wireless, traditional cable and
integrated desktop management technology.
We plan to be a geographically diverse satellite Internet service
provider through the establishment of joint ventures in various countries. We
expect to finance the expansion either through financing provided by the parties
wishing to provide the service internationally, or through capital generated by
operations and/or issuing additional securities.
From inception, we have incurred significant losses totaling
approximately $__________. Furthermore, we anticipate incurring additional
losses in the foreseeable future as we grow and complete the development of our
products. We operate in a highly competitive market and our success will depend
on our ability to compete in this marketplace. We have no assurance of market
acceptance of our products and we have no assurance that our marketing and
distribution methods will be successful.
OUR STRATEGY
We expect growth in demand for Internet access on a worldwide basis. Our
strategy is based on the development and marketing of our products and services
in six areas.
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<PAGE> 25
First, we plan to build a worldwide satellite network by installing
three or more network operation centers (NOC) placed in strategic locations
throughout the world. Each of these NOCs will serve as a means of connecting to
each other, as well as a connection to a different satellite supporting a
specific region. When completed, this worldwide satellite network will allow us
to provide Internet access to a much larger market in countries where there is
little or no telecommunications infrastructure. We have started to implement
this strategy by acquiring PacificNet and InterWireless. These acquisitions
provide us with a network operations center capable of managing our global
network presence along with sufficient Internet capacity to service our
worldwide network business strategy and corresponding bandwidth requirements. In
conjunction with our present NOC in Raleigh, North Carolina, these acquisitions
provide the security of redundant operation centers. The PacificNet facility has
the capability to reach Pacific Rim and Asia customers while our East Coast
facility will service the United States and Europe.
Second, we plan to market, on a worldwide basis, our long haul
(satellite), last mile (wireless and traditional cable connections) and desktop
management products and services to rural and urban markets which currently
cannot receive high-speed Internet and network connectivity due to limited
telecommunications infrastructure.
Third, we plan to market our long haul (satellite), last mile (wireless
and traditional cable connections) and desktop management products and services
as a single source vendor to national and multi-national businesses interested
in a uniform platform for connectivity and Internet access.
Fourth, we plan to utilize our subsidiaries to identify new uses and
markets based on the company's core technology to support the company business
objectives.
Fifth, through i-Xposure, we plan to strengthen our personal interactive
desktop, or Pid, technology into a full-scale customer specific desktop
management product designed to take advantage of our long haul and last mile
products and services.
Sixth, we plan to market our products and services to the business
continuity market worldwide. Our products and services can provide an effective
means of back-up to any business which relies on Internet access or remote
Internet connections for mission critical applications.
Our international strategy is to form joint ventures with strategically
positioned partners in Asia, Europe, Latin America, the Middle East and Africa.
At this time, we are in negotiation with a number of these partners, but have
signed no definitive agreements.
HISTORICAL SUMMARY OF THE COMPANY
We were incorporated on June 23, 1995, under Nevada laws, 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, we made a public
offering of our common stock from which we derived gross proceeds of
approximately $100,000. Prior to October 1998, we had not commenced operations
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<PAGE> 26
and were seeking to establish a new business. On October 8, 1998, we became the
surviving company of a merger with Technology Guardian, Inc., a California
corporation ("TGI"). All the issued and outstanding shares of TGI were exchanged
for shares of our common stock. In connection with the merger, we changed our
name to Technology Guardian, Inc., and succeeded to the business of TGI which
was providing computer network installation services and the related sale of
personal computers and telecommunications equipment necessary for the
configuration of local area networks, and in research and development of the
products we currently offer. We changed our name to "eSAT, Inc." on January 26,
1999.
Research and development began in late 1996 for the satellite Internet
access products and services. The development of the satellite Internet products
and services continued during 1997 and into the first quarter of 1998. In the
first quarter of 1998, we terminated our sales of network computer related
products and concentrated entirely on the completion of our satellite Internet
access products and services. In the second quarter of 1998, we started beta
sales and installation of our initial (first generation) satellite Internet
access products. Beta sales involve the sales of products and services which
have been developed in a laboratory setting but have not been tested in actual
use. Beta installation means the first installations in a commercial setting,
often at a discount or at no cost in order for us to obtain additional
information for improving and completing the products and services. Through the
end of 1998, we beta tested our first generation satellite Internet product and
services. Beta testing on the first generation of products was terminated in
December 1998, such testing having been completed to our satisfaction.
In the fourth quarter of 1998, we initiated development of a second
generation satellite Internet product and related satellite Internet service.
Development of the second generation of satellite Internet products and services
and beta testing of them was completed to our satisfaction in January 1999. They
were incorporated into our products known as the GSI(TM), and a number of them
have since been upgraded.
Finally, in the fourth quarter of 1998, we completed installation of our
equipment at our network operations center ("NOC") in Durham, North Carolina.
The NOC houses our computer equipment and software, and functions as a junction
point for all the Internet related data traffic from our customers and acts as
the uplink to the satellites. We contract with third parties for segments of
satellite time that we then resell to our customers. During the second quarter
of 1999, we launched our ChannelCasting(TM) technology followed by the initial
beta testing of the bi-directional Nexstream product in the third quarter of
1999.
On April 13, 2000, we acquired all of the outstanding common stock of
PacificNet, a provider of software support and managed Internet access to
individuals and businesses, in a merger transaction. At the same time, we also
purchased all of the outstanding common stock of PacificNet's sister company,
InterWireless, a wireless Internet service provider that provides both
traditional and broadband wireless Internet access. We continue to operate the
businesses of PacificNet and InterWireless as separate subsidiaries from their
offices in Universal City, California.
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<PAGE> 27
PRODUCTS AND SERVICES
Our products and services fall into four general categories: long haul,
or satellite, delivery of Internet content; last mile, or wireless and
traditional cable, delivery of Internet content; specialized software for other
Internet service providers; and customer-specific desktop management systems.
LONG HAUL DELIVERY. Our long haul, or satellite, delivery is offered, or
will be offered, through our Nexstream(TM) and to-be-released Sibone product
platforms.
NEXSTREAM. Nexstream uses specially configured satellite dishes to
permit the user to receive data and transmit data through our satellite system.
The result is a secure, transportable, cost-effective and high-speed
communications system which provides significant benefits for organizations with
offices and facilities in remote geographic areas. The technology is especially
effective where privacy and security are a concern, or where mission-critical
applications dictate having a non-ground based system. Nexstream may also be
employed as an effective back up for ground based communication lines in case of
a potential disaster, or as the primary link to remote areas before and after a
disaster.
SATELLITE INTERNET BACKBONE ("SIBONE"). Sibone is a patent pending
satellite network architecture currently under development. We believe that
Sibone will be our primary long haul delivery platform. The core element of this
network is a proprietary technology known as Virtual On-board Switching (VOS).
VOS involves the introduction of intelligent routing/switching algorithms to the
ground terminal equipment of a given satellite network. Designed for satellites
in geosynchronous earth orbit, VOS adds a new dimension to existing satellites
without requiring any modifications by the satellite operator. The overall
effect is the creation of an advanced communication system, using readily
available satellite capacity, which offers a cost-effective alternative to
expensive "smart" broadband satellites with on-board switching capability. This
product is uniquely suited for customers such as telephone and cable companies,
Internet service providers and local data exchanges.
CHANNELCASTING(TM). In addition to these core products, we offer our
ChannelCasting(TM) service, which can be provided utilizing any of our product
platforms. ChannelCasting(TM) takes data from a single source and economically
distributes it to a prescribed user list. This is particularly suited for large
data and video files. The data is distributed at the same time to all parties,
or may be staged for scheduled delivery as required by the supplier. Viewing of
the materials can be regulated as to time, and the materials can be left
resident on the recipients LAN connected resources or personal computer for
reference at a later date.
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NEXSTREAM. Nexstream uses specially configured satellite dishes to
permit the user to receive data and transmit data through our satellite system.
The result is a secure, transportable, cost-effective and high-speed
communications system which provides significant benefits for organizations with
offices and facilities in remote geographic areas. The technology is especially
effective where privacy and security are a concern, or where mission-critical
applications dictate having a non-ground based system. Nexstream may also be
employed as an effective back up for ground based communication lines in case of
a potential disaster, or as the primary link to remote areas before and after a
disaster.
CUSTOMER-SPECIFIC DESKTOP MANAGEMENT SYSTEMS. Our i-Xposure subsidiary
has developed a personal interactive desktop manager and organizer (the "Pid").
The Pid includes a variety of personal productivity programs as well as serving
as an Internet access portal when users are online. We currently have agreements
in place that provide us with exclusive rights to content from several premier
providers in film, television, sports and other entertainment categories.
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<PAGE> 29
MARKETING AND SALES
We currently sell our products as a delivery tool for our services to
businesses in a wide variety of vertical markets and customers in: education,
hospitality, government, Fortune 500 companies, law enforcement, manufacturing,
entertainment and Internet service organizations through our own sales staff,
value added resellers and other independent sales organizations. Approximately
50% of our sales are currently from providing network management services to
Internet service providers.
We employ a sales staff of __ people (___ are located in our home
office, ___ are located in our offices in the Universal City section of Los
Angeles, California) and ___ sales representative is in Texas. They focus their
sales activity on the generation of leads, the establishment of contacts, and
the closure of sales to a variety of small, medium and large businesses.
Additionally, we distribute our products through value-added resellers
("VARs") and independent sales organizations. These organizations allow us to
increase our visibility and sales of products and services by entering into
contracts for these organizations to undertake sales activities for a percentage
commission of any sale realized. Approximately half of our sales to date have
originated and been completed using these organizations. Currently, we have
approximately ____________
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<PAGE> 30
VAR and independent sales relationships, no single one of which is material to
our operations. Sales through the VAR channel have been modest, with the
majority of our sales having been realized on a direct sale basis. We have
re-focused on enhancing this distribution channel with traditional wide area
network VARs and systems integrators. The result of this effort has been a
significant increase in both quantity and size of contracts under negotiation.
We intend to enter into relationships with between one hundred to two hundred
VARs within the next twelve months. We expect to realize the majority of North
American revenues through this channel.
We anticipate establishing a relationship with a public relations firm
in the near future to complement our direct marketing and advertising programs,
increase exposure, capture editorial coverage and further develop our brand
awareness. We will continue to market our services through tradeshows, events,
print, the media, and Internet direct marketing.
GOVERNMENT AGENCY MARKET
We are actively marketing our products to the Federal Government. The
contracting and sales cycle with government agencies can often require a year to
complete. We have completed an installation with the San Bernardino County,
California, Sheriff's Department and with the U.S. Department of Forestry in
Dubois, Idaho. The performance and reliability of these systems are currently
under evaluation. The sales of units to these agencies depends on their
favorable evaluation. There is no assurance that the company will make any
significant sales to government agencies.
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 Federal Government allocates E-RATE
funds to the states in block grants, which must use the funds in a "fair and
equitable" format. The requirement means that educational sites throughout a
state must have uniform speeds and pricing. Once states receive funding, the
E-RATE Program has an anticipated duration of 18 months. We believe we meet all
government guidelines for providing Internet access to schools in the manner
required by the E-RATE program.
THE INTERNATIONAL MARKET
We plan for joint ventures with one or more parties headquartered in
various countries to be our international partners. We expect these joint
ventures to contribute significant revenue in the future. We have identified
major areas of the world capable of receiving transmissions from a
geo-stationary satellite. The planned joint ventures would establish our
satellite service in 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
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<PAGE> 31
venture is expected to be provided by the partner in the headquartered country.
We plan to focus on Asia first so that we can be in a position to provide
products and services to the rapidly growing markets in the Pacific Rim basin
including Hong Kong, mainland China, Taiwan, Australia, New Zealand, Singapore,
Malaysia, Thailand, Philippines, Indonesia and others. We have entered into an
agreement with ____________________ to provide services in Indonesia.
DIVERSIFICATION OF BUSINESS
We are not dependent on any one customer or group of customers. However,
our business plan calls for significant orders from governmental agencies and
large corporations.
BACKLOG OF ORDERS
We currently do not have a backlog of orders.
INTELLECTUAL PROPERTY
We believe that our intellectual property is an important factor in
maintaining our competitive position in our core eSat businesses, as well as the
businesses of PacificNet, InterWireless and i-Xposure. To protect our
proprietary rights, we rely generally on patent, copyright, trademark and trade
secret laws, as well as confidentiality agreements with our employees,
consultants, vendors and corporate business partners. Despite these protections,
a third party could, without authorization, copy or otherwise obtain and use our
products or technology to develop similar technology. Moreover, our agreements
with employees, consultants and other who participate in product and service
development activities may be breached, we may not have adequate remedies for
any breach, and our trade secrets may become known or independently developed by
competitors.
Patents. We currently have filed two pending patent applications. In
addition, we are aggressively pursuing additional patent applications for
devices and processes directly and indirectly related to the initial two
filings. Any patent applications may not be granted, future patents may be
challenged, invalidated or circumvented, and the rights granted under a patent
that may be issued may not provide competitive advantages to us. Many of our
current and potential competitors dedicate substantially greater resources to
protection and enforcement of intellectual property rights, especially patents.
If a blocking patent has been issued or is issued in the future, we would need
either to obtain a license or to design around the patent. We may not be able to
obtain a required license on acceptable terms, if at all, or to design around
the patent.
Trademarks. We have applied for registration of all of our primary
trademarks in the United States, including "eSat," "SatBone," "S-Bone,"
"SiBone," "VOS," "Virtual Onboard Switching," "i-Xposure" and "pid." We intend
to continue to pursue the registration of these and certain of our other
trademarks in the United States and in other countries; however, we cannot be
sure that we can prevent all third party use of our trademarks. We have obtained
the Internet domain name "esatinc.com" but we are aware that an Irish
telecommunications company has the same name ("ESAT") and the Internet domain
name "esat.com." We have not been asked to cease using the name "eSat."
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<PAGE> 32
Copyrights. Software has been developed for eSat, i-Xposure, PacificNet,
InterWireless, and Global Media Technologies that is protected by copyright law.
There is no assurance that the steps we take will be adequate to protect these
rights or that we will be successful in preventing the illegal duplication,
distribution or other use of our software. Our failure to adequately limit the
unauthorized redistribution of our software could result in litigation or
liability, which could harm our business.
The laws of some foreign countries do not protect our proprietary rights
to the same extent as do the laws of the United States, and effective patent,
copyright, trademark and trade secret protection may not be available in these
jurisdictions.
We rely on technology and other proprietary matter that we license from
third parties, including software and images that are integrated with internally
developed software and used in our products and services. Third party licenses
may not continue to be available to us on commercially reasonable terms.
The loss of any of these rights could harm our business.
Third parties may assert infringement claims against us. From time to
time we may be subject to claims in the ordinary course of our business,
including claims of alleged infringement of the trademarks, patents and other
intellectual property rights of third parties by us or our users. Any such
claims, or any resultant litigation, should it occur, could subject us to
significant liability for damages and could result in the invalidation of our
proprietary rights. In addition, even if we were to win any such litigation,
such litigation could be time consuming and expensive to defend, and could
result in the diversion of our time and attention, any of which could materially
and adversely affect our result in limitations on our ability to use such
trademarks, patents and other intellectual property unless we enter into
arrangements with such third parties, which may be unavailable on commercially
reasonable terms.
COMPETITION
We compete in the market for providing Internet access services to the
business, government, school, and nonprofit sectors.
We anticipate competition from Internet service providers which provide
satellite downlink data transmission in the commercial/business, government and
education sectors. Our competitors also include the established Internet service
providers, which offer a variety of connection features and speeds of access.
Some use telephone lines, some use television cable systems, and others offer
satellite focused services. There are numerous providers of these services and
no one provider dominates the market. Many service providers are affiliated with
telephone or cable television companies which provides capital resources and
customer marketing opportunities unavailable to us. At this time, we believe no
competitor has a dominant position in the worldwide ISP market segment.
We have not established a competitive position in the market place,
since we have only recently commenced the marketing and sales of our products.
As a result, potential customers are unable to evaluate other customer's
experiences in using our products. This lack of track
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<PAGE> 33
record might dissuade some customers from purchasing our products until there is
a greater customer base and a broader evaluation of the quality and
effectiveness of our products and services.
We compete principally on price, performance, and availability of
service. The service is available in any location, particularly remote
locations, due to the wide satellite broadcast footprint. We offer an easy to
use 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. Our pricing of products and services is subject to change in
accordance with market changes and competitive conditions.
The positive factors pertaining to our competitive position include
our pricing, widespread availability, and an easy to use format. The negative
factors pertaining to our competitive position are lack of product awareness and
of brand recognition among potential customers, lack of widespread user-base,
and, in some instances, a lack of customer track record.
RESEARCH AND DEVELOPMENT
We plan to devote significant resources to continued research and
development of various Internet related products and services.
EMPLOYEES
We currently have __ employees. __ employees are located at the
Company's headquarters in Fountain Valley, California, ___ are located at our
i-Xposure facility in Irvine, California, and __ employees are located in our
PacificNet/InterWireless offices in Universal City, California. One sales
representative is located in Texas.
Description of property
The company does not own any material physical properties. We lease our
headquarters in Fountain Valley, California, as well as the other facilities in
Irvine, California, and Universal City, California, pursuant to commercial
leases which expire September 30, 2003, October 30, 2001 and September 30, 2004,
respectively. We also lease space in Durham, North Carolina, which houses our
computer equipment related to our uplink to the satellite network. The company
believes it has adequate space to conduct its business for the foreseeable
future.
LEGAL PROCEEDINGS
The only material legal proceeding involves an action brought in the
United States District Court, Central District of California, on July 23, 1999,
by a private investor who entered into a subscription agreement in November 1998
to purchase 2,092,000 shares of our common stock for $1.30 per share. He did not
raise the funds to honor his subscription and we canceled
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<PAGE> 34
the subscription agreement. The investor has sued to compel us to issue those
shares to him alleging that we breached the agreement. We believe his assertion
is without merit and are defending the case.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names and positions of our directors
and executive officers:
<TABLE>
<CAPTION>
Officer Name Age Position Since
------------ --- -------- -----
<S> <C> <C> <C>
Michael C. Palmer 50 CEO, President, Secretary and Director 1999
Chester (Chet) L. Noblett, Jr. 55 Chairman of the Board 1997
Richard Elliot 40 Senior Vice President 2000
David Pennells 43 Senior Vice President 2000
Steven A. Tulk 33 Senior Vice President Business Development 2000
Mark S. Basile 38 Chief Financial Officer 2000
Jeffrey Hecht 48 Vice President of Operations 1998
Michael S. Massey 26 Chief Technology Officer 2000
Salvator A. Piraino 72 Director 1997
Gary Pan 53 Director 1998
</TABLE>
The directors are elected to hold office until the next annual meeting
of stockholders and until their respective successors have been elected and
qualified. Officers 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 our
directors and executive officers for at least the past five years.
MICHAEL C. PALMER has been the Chief Executive Officer, President and
Secretary and a director of the company since April 1999. Mr. Palmer has held
the position of Chief Financial Officer from November 1998 to March 1999 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 served as a director of Western Waste Industries
(NYSE: WW) from July 1995 to May 1996. He received a B.S. degree in Business
Administration in 1972 and an M.S. degree in Business Taxation in 1975 from the
University of Southern California.
CHESTER (CHET) L. NOBLETT, JR. is Chairman of the Board since April 1999
and a Director since June 1997. He was Chief Operating Officer from June 1997
until December 1999. He served briefly as interim Chief Financial Officer in
January and February 2000. From 1990 to 1996, Mr. Noblett was employed as the
chief executive officer for Tradom International, a
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<PAGE> 35
subsidiary of 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.
RICHARD ELLIOT became Senior Vice President of the company on May 1,
2000. From 1995 to 1999, he was President and co-founder of PacificNet, LLC, the
predecessor of PacificNet Technologies, Inc., which we acquired in April 2000.
Mr. Elliot remains the President of PacificNet Technologies, Inc. In 1998, Mr.
Elliot co-founded, and became President of, InterWireless, Inc., which we also
acquired in April 2000. He remains the President of InterWireless as well.
DAVID PENNELLS became Senior Vice President of the company on May 1,
2000. From 1995 to 1999, he was Vice President and co-founder (along with Mr.
Elliot) of PacificNet, LLC, the predecessor of PacificNet Technologies, Inc. He
remains the Vice President of PacificNet. In 1998, Mr. Pennells co-founded
(along with Mr. Elliot), and became Vice President of, InterWireless, Inc. He
remains in that position.
STEVEN A. TULK was appointed as the company's Senior Vice President of
Business Development in January 2000. Mr. Tulk served as chief information
officer of Vivendi Water's consumer and commercial division from December 1998
to January 2000. From 1994 to 1998, Mr. Tulk operated Tulk Consulting Inc., a
software development and network engineering consulting firm. From 1992 to 1994
Mr. Tulk was director of management information systems for Pharmacia's
ophthalmic division. Mr. Tulk served as senior technical specialist for the J.
Paul Getty Trust from 1990 to 1992. Mr. Tulk received a B.S. in Business
Administration from the University of California at Riverside in 1990.
MARK S. BASILE was appointed as the company's Chief Financial Officer in
March, 2000. From March 1999 to March 2000, Mr. Basile was chief financial
officer of Superior Galleries, Inc., an auction services firm in Beverly Hills,
California. From 1996 through March 1999, Mr. Basile served as director of
management accounting and controller of the Hawaii division of Young's Market
Company. From 1989 to 1996, Mr. Basile was director of internal audit at K2
Inc., a manufacturer of sporting goods and recreational products. Prior to that,
Mr. Basile was a certified public accountant at Ernst & Young LLP, an
international auditing and consulting firm. Mr. Basile received a B.S. in
Accounting from the University of Florida in 1983.
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.
MICHAEL S. MASSEY was appointed as the company's Chief Technology
Officer in March of 2000. Since joining us in February of 1999, Mr. Massey held
the position of Director of Product Development, where he authored two patents
on satellite communication technology. From April 1998 to February 1999, Mr.
Massey was the founder and chief technical officer of Unex.Net, a satellite
communication consulting firm specializing in broadband deployment strategies in
Asia. From April 1997 to March 1998, Mr. Massey held managerial positions at
several Internet service providers, where he specialized in wide area network
(WAN) design for corporate clientele. From July 1993 to September 1996, Mr.
Massey served in the U.S. Navy, including three years in the Navy's Nuclear
Engineering Program. Mr. Massey was inducted into the Mensa Society in 1993, and
graduated cum laude from the Rose-Hulman Institute of Technology in 1995 with a
B.S. in Mechanical Engineering.
SALVATOR A. PIRAINO has been a director of the company since December
1997. From September 1992 to the present, Mr. Piraino has operated Management
and 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
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<PAGE> 36
Aircraft Company. Mr. Piraino received a B.E. degree in Engineering from Loyola
University in 1950.
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 received a B.S. degree in Electrical Engineering from National Taiwan
University, an M.S. degree in Electrical Engineering from University of
Waterloo, and his Ph.D. in Management from the University of California at Los
Angeles.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation
we paid to our Chief Executive Officer, each of the four most highly compensated
executive officers that earned more than $100,000 during 1999, and two
additional executive officers who would have been included in the four had they
been serving as executive officers in 1999.
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
-------------------------------------------------- ----------------------------------------
Awards
-------------------------
Other Restricted Securities
Name and Annual Stock Underlying All Other
Principal Position Year Salary Bonus Compensation Awards Options Compensation
- -------------------- ---- ---------- ------- ------------ ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Michael C. Palmer(1) 1999 $ 455,913 $ $ 87,500
President, Chief Executive 1998 10,780 100,000
Officer and Secretary 1997
Chester L. Noblett, Jr. 1999 178,936(2)
Chief Operating Officer 1998 114,750 48,750 1,095,802(3)
1997
Mark McMillan(4) 1999 87,500 500,000
1998
1997
James Mack(5) 1999 120,625
1998 18,750 35,000 300,000(6)
1997
</TABLE>
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<PAGE> 37
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
David Coulter*(7) 1999 51,854 50,000 1,500,000
Former President 1998 166,407 56,250 3,535,890(8)
1997
Steven A Tulk(9) 2000 50,000 50,000 350,000
Senior Vice President,
Business Development
Richard Elliot 2000 (10)
Senior Vice President
</TABLE>
* Please see Certain transactions, below, and Note 8(e) to the Financial
Statements regarding the cancellation of Mr. Coulter's options in March,
1999.
(1) In 1999, Mr. Palmer was an employee of Parks Palmer Turner &
Yemenidjian, a firm of certified public accountants and was paid for his
services through that firm through October 1999. Effective November
1999, the company paid VCI $25,000 per month for Mr. Palmer's services.
Mr. Palmer is an owner of VCI. In addition to the compensation reflected
in the table, VCI was paid a monthly consulting fee of $2,500 for
assistance in finding and negotiating acquisitions and financing
opportunities for the company. These payments ceased with the
cancellation of the VCI Consulting Agreement in March 2000. Pursuant to
that consulting arrangement, in 1999, VCI was paid $80,000 in connection
with the issuance of the Series C Preferred Stock and $_______________
in connection with arranging for the issuance of the Series A Preferred
Stock and Series B Preferred Stock. In addition, VCI received warrants
to purchase 600,000 shares of common stock as part of the consulting
arrangement. Those warrants are not exercisable until after December 31,
2000. See "Certain transactions" for additional information. Since the
cancellation of the VCI Consulting Agreement, Mr. Palmer's compensation
has been paid by ____________.
(2) Includes back pay of $55,417 earned in 1999 and paid in January 2000.
(3) 333,000 of these options were subsequently canceled pursuant to
their terms.
(4) Mr. McMillan joined us in May 1999, with a base salary of $150,000 per
year. Additionally, he received a $250,000 mortgage loan from the
company. Mr. McMillan left the company in April 2000.
(5) Mr. Mack joined us in September 1998 and subsequently left in February
2000.
(6) 225,000 of these options were subsequently canceled pursuant to
their terms.
(7) Mr. Coulter left the company in May 1999. After leaving the company he
was paid $50,000. See "Certain transactions."
(8) ________ of these options were canceled pursuant to a settlement
agreement as described in "Certain transactions."
(9) Mr. Tulk joined us in January 2000, with a base salary of $150,000.
(10) Mr. Elliot joined us in May 2000, with a base salary of $180,000.
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<PAGE> 38
The company has entered into an employment agreement with Mr. Noblett
for a period of five years commencing September 25, 1997. Under the agreement,
Mr. Noblett receives a salary of $130,000 per year plus health insurance
benefits of $200 per month. The employment agreement includes a cost-of-living
increase, plus any other increase which may be determined from time to time in
the discretion of the company's board of directors. In addition, 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.
We have entered into an employment agreement with Mr. Tulk for a period
of five years, commencing January 1, 2000. Under the terms of this agreement,
Mr. Tulk receives a minimum base salary of $150,000 per year, and is eligible to
earn a performance bonus of up to 100% of his base salary. In addition to
receiving a signing bonus of $50,000, Mr. Tulk is also entitled to reimbursement
of his relocation expenses, as well as his business-related expenses, under the
employment agreement. Further, Mr. Tulk received stock options for 350,000
shares of our stock by the terms of his stock option agreement.
The company has entered into an employment agreement with Richard Elliot
for a period of three years, commencing May 1, 2000. At the end of such term,
the agreement will automatically renew for successive one year terms unless
either party chooses not to renew the contract. By the terms of the agreement,
Mr. Elliot will receive a base salary of $180,000 per year, and will be eligible
to receive performance-based bonus compensation. Under the agreement, Mr.
Elliot's salary will be reviewed annually (or more frequently) by our Board of
Directors. The employment agreement includes company health insurance coverage
and reimbursement of normal business-related expenses. In addition, Mr. Elliot
will receive paid vacation and sick time, as well as paid time during which he
may attend professional conferences or seminars. The agreement also provides an
automobile allowance of $1400 per month that includes payment of associated
automobile insurance. Further, Mr. Elliot's employment agreement allows him to
be eligible to receive, together with David Pennells (see below), an aggregate
of 1,000,000 options to purchase shares of our stock for allocation to a pool of
PacificNet and InterWireless employees. 850,000 of these options have already
been allocated to certain employees of those two subsidiaries.
The company has entered into an employment agreement with David Pennells
for a period of three years, commencing May 1, 2000. The agreement will
automatically renew for successive one year periods unless either party chooses
not to renew the contract. Mr. Pennells, by the terms of the agreement, will
receive a base salary of $150,000 per year, and will be eligible to receive
performance-based bonus compensation. Under the agreement, Mr. Pennells' salary
will be reviewed on an annual basis (or more frequently) by our Board of
Directors. The employment agreement includes company health insurance coverage
and reimbursement of normal business-related expenses. In addition, Mr. Pennells
will receive paid vacation and sick time, as well as paid time during which he
may attend professional conferences or seminars. The agreement also provides an
automobile allowance of $1400 per month that includes payment of associated
automobile insurance. Further, Mr.
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<PAGE> 39
Pennells' employment agreement allows him to be eligible to receive, together
with Richard Elliot (see above), an aggregate of 1,000,000 options to purchase
shares of our stock for allocation to a pool of PacificNet and InterWireless
employees. 850,000 of these options have already been allocated to certain
employees of those two subsidiaries.
OPTION GRANTS IN FISCAL YEAR 1999
<TABLE>
<CAPTION>
Individual
Grants
Percent
of Total
Options Market
Number of Granted to Exercise
Shares Employees of Base Price on Potential Realizable Value at
Underlying in Fiscal Price Date of Expiration Assumed Annual Rates of Stock
Name Options Year ($/Sh) Grant Date Price Appreciation for Option Term
- ---- ---------- ---------- --------- -------- ---------- ----------------------------------
5%($) 10%($)
---------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Michael C. Palmer(1) 25,000 .6% $ 4.00 $4.00 2/9/04 $ 27,750 $ 61,000
Michael C. Palmer(1) 1,000,000 24.1 3.00 3.00 10/30/04 830,000 1,800,000
Chester L. Noblett, Jr. 300,000 7.2 3.00 3.00 2/9/04 249,000 540,000
Mark McMillan(2) 500,000 20.4 13.125 5/17/04
David Coulter(2) 1,500,000 36.1 3.00 8/22/03
</TABLE>
(1) Excludes an aggregate of 600,000 warrants granted to VCI in 1999. VCI is
controlled by Mr. Palmer.
(2) Messrs. Coulter and McMillan have left the company.
OPTIONS EXERCISED IN FISCAL YEAR 1999
<TABLE>
<CAPTION>
Number of Shares Dollar Value
Shares Value -------------------------- --------------------------
Acquired Realized Exercisable Unex Exercisable Unex
-------- -------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Michael C. Palmer - - 725,000 1,000,000 $ 137,500 $ 2,000,000
Chester L. Noblett, Jr. 159,547 $757,848 1,245,802 - 3,301,634 -
Jeffrey Hecht - - 252,912 - 569,553 -
Mark McMillan(1) - - - 500,000 - -
James Mack(1) - - 100,000 200,000 200,000 400,000
</TABLE>
(1) Messrs. McMillan and Mack have left the company.
DIRECTOR COMPENSATION
Each non-employee director receives a payment of $500 for each board
meeting attended and an annual option grant to purchase 20,000 shares at market
value. All directors are entitled to reimbursement for expenses of traveling to
and from board meetings, and any other out-of-pocket expenses incurred on behalf
of the company.
Mr. 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 with Technology Guardian, Inc. ("TGI"), Mr. Piraino
was granted 25,000 shares of common stock as compensation for serving on the
board of directors.
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CERTAIN TRANSACTIONS
In April 1997, in exchange for the issuance of 849,750 shares of TGI
common stock which were converted into company shares in the merger, TGI entered
into a settlement agreement among TGI, Cyber Village Network, Inc. ("CVN") and
Mr. Noblett in which CVN and Mr. Noblett agreed to release TGI from all
potential claims arising from: (i) an Option Agreement, dated August 6, 1997;
and, (ii) an agreement entered into among TGI, David Coulter, as TGI's then
President, CVN and Mr. Noblett as agent for CVN ("Commission Agreement").
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 fee in the
amount of $100,000 for services provided in assisting TGI with obtaining
additional capital.
In May 1998 Mr. Coulter transferred 379,250 shares of his stock to CVN.
Mr. Coulter then canceled 5,414,172 shares of common stock of TGI in 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
with U.S. Connect 1995.
The cancellation of the Option Agreement was part of the overall
consideration given in settling the disputes between Mr. Noblett and Mr.
Coulter. A dispute arose between Messrs. Noblett and Coulter with regard to Mr.
Noblett's right to purchase 30% of the outstanding stock of TGI. Due to what Mr.
Coulter perceived to be the increasing potential of TGI, he did not want TGI to
honor TGI's prior commitment to Mr. Noblett. The transactions had no impact on
the operations of the company. These transactions only resolved disputed issues
between Mr. Noblett and Mr. Coulter. At that point in time, there were fewer
than ten stockholders of the
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<PAGE> 41
company, all of whom were closely associated with the company. Accordingly,
there were no public stockholders affected in any way by these transactions.
In connection with the merger with U.S. Connect 1995, we 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 stockholders as of August 30, 1998, at an
exercise price of $0.7168 per share, exercisable for five 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 years from date of grant. In October 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 years
from date of grant subject to the company achieving $30,000,000 in sales in
1999. We did not achieve this level of sales in 1999, and therefore the
additional options issued to Mr. Coulter (1,000,000) and Mr. Noblett (333,333)
lapsed.
On March 22, 1999, Mr. 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. By contract, 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. The canceled options
included options on 1,400,000 shares exercisable at $3.00 per share and options
on 2,010,885 shares at $0.7168 per share. Mr. Coulter agreed to 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. We 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
us at the rate of $10,000 per month for a total of 36 months, commencing upon
his resignation. We have entered into a general mutual release of claims with
Mr. Coulter. As a result of an alleged breach of the resignation agreement by
Mr. Coulter, we suspended the payment of $10,000 per month to Mr. Coulter. On
February 23, 2000, we entered into a settlement agreement and general release
with Mr. Coulter, pursuant to which Mr. Coulter released all claims for
compensation under the Resignation Agreement of March 22, 1999, and agreed to
transfer certain domain names to us. In return, we agreed to pay Mr. Coulter
$90,000 and to grant him piggy back registration rights with respect to shares
he acquires in the exercise of his stock options.
CFE and VCI (the "Consultant") worked together as equal joint venture
partners pursuant to an exclusive Consulting Agreement entered into between the
Consultant and the company, dated September 15, 1999, which was to terminate no
earlier than September 15, 2002. Mr. Palmer, CEO of the company, is also the
owner and President of the Consultant.
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<PAGE> 42
Pursuant to the Consulting Agreement, we agreed to issue 2,500,000
shares of Series B 12% Convertible Preferred Stock to CFE for $2.00 per share,
and 1,000,000 shares of Series A 12% Convertible Preferred Stock to VCI for
$2.00 per share.
The Consulting Agreement and the issued and outstanding Series B
Preferred Stock was canceled by mutual agreement of the parties in March 2000.
As part of the settlement, we agreed with CFE to settle a dispute about the
number of common shares issued to CFE and its clients and the amount we received
in payment for those shares. CFE paid us $558,510 and we entered into a mutual
release with CFE for all claims. In addition, CFE agreed to put the shares of
common stock which CFE would receive upon conversion of its warrants into a
voting trust if requested by NASDAQ in order to facilitate a listing on NASDAQ.
Furthermore, all of the outstanding Series A Preferred Stock was converted into
550,000 shares of common stock in April 2000. The warrants issued to the former
holders of Series A Preferred Stock and Series B Preferred Stock remain
outstanding.
PRINCIPAL STOCKHOLDERS
COMMON STOCK
The following table sets forth, as of April 21, 2000, the ownership of
the company's common stock by
- each director and named executive officer of the company,
- all executive officers and directors of the Company as a group,
and
- all persons known by the company to beneficially own more than 5%
of the company's common stock.
<TABLE>
<CAPTION>
Amount and Percent
Nature of of Total
Beneficial Shares and
Beneficial Owner Ownership(1) Options
------------------------------------ ------------ --------------
<S> <C> <C>
David B. Coulter(2)
15555 Huntington Village Lane, #239 2,710,000 11.33%
Building 9
Huntington Beach, CA 92647
Chester (Chet) L. Noblett Jr.(3) 2,458,986 10.67%
16520 Harbor Boulevard, Bldg. G
Fountain Valley, California 92708
Salvator Piraino(4) 161,103 *
16520 Harbor Boulevard, Bldg. G
Fountain Valley, California 92708
</TABLE>
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<PAGE> 43
<TABLE>
<S> <C> <C>
Gary Pan(5) 45,000 *
16520 Harbor Boulevard, Bldg. G
Fountain Valley, California 92708
Jim Mack(6) 62,311 *
16520 Harbor Boulevard, Bldg. G
Fountain Valley, California 92708
Michael C. Palmer(7) 1,370,000 5.82%
10 Universal City Plaza, Suite 1130
Universal City, California 91608
Richard Elliot 2,062,500 9.20%
10 Universal City Plaza, Suite 1130
Universal City, California 91608
David Pennells 687,500 3.07%
10 Universal City Plaza, Suite 1130
Universal City, California 91608
Directors and Executive Officers as a group 9,557,400 37.08%
</TABLE>
* Less than one percent.
(1) 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
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<PAGE> 44
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 262,802 shares of the company's common
stock at $0.7168 per share for a period of five years from date of grant
(August 8, 1998) and warrants to purchase 350,000 shares of the
company's common stock at $2.40 per share for a period of five years
from date of grant (June 9, 1998).
(4) Includes options to purchase (i) 16,103 shares of the company's common
stock at $0.7168 per share for a period of five years from date of grant
(August 31, 1998); and, (ii) 20,000 shares of the company's common stock
at $5.50 per share for a period of five years from date of grant
(September 30, 1999); and (iii) 25,000 shares of the company's common
stock at $4.00 per share for a period of five years from date of grant
(February 9, 1999).
(5) Includes options to purchase (i) 20,000 shares of the company's common
stock at $17.41 per share for a period of five years from date of grant
(September 30, 1999), and (ii) 25,000 shares of the company's common
stock at $4.00 per share for a period of five years from the date of
grant (February 9, 1999).
(6) Includes options to purchase 4,294 shares of the company's common
stock at $0.7168 per share for a period of five years from date of grant
(August 31, 1998).
(7) Includes options to purchase: 1,000,000 shares of the company's common
stock at $3.00 per share for a period of five years from date of grant
(November 1, 1999); (ii) 100,000
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<PAGE> 45
shares of the company's common stock at $9.25 per share for a period of
five years from date of grant (November 28, 1998); and (iii) 25,000
shares of the company's common stock at $4.00 per share for a period of
five years from date of grant (February 9, 1999).
PREFERRED STOCK
The following table sets forth information regarding the beneficial
ownership of our voting preferred stock as of the date of this prospectus:
<TABLE>
<CAPTION>
Name and Address Number of Shares Percent
Class of Beneficial Owner Beneficially Owned of Class
----- ------------------- ------------------ --------
<S> <C> <C> <C>
Series C Wentworth, LLC 50,000 100%
6% Convertible Corporate Center
Preferred Stock(1) West Bay Road
Grand Cayman
Series D Wentworth, LLC 75,000 100%
6% Convertible Preferred Corporate Center
Stock(1) West Bay Road
Grand Cayman
</TABLE>
(1) All of the above preferred stock is convertible into common stock
immediately; provided however, that no conversion may occur if,
after conversion, the holder would be deemed beneficial owner of
more than 4.99% of the company's then outstanding common stock.
See "Description of securities" for details on the conversion
prices.
SELLING STOCKHOLDERS
All of the shares offered by this prospectus are being registered for
sale for the accounts of selling stockholders. As noted in the following table,
the selling stockholders have obtained or will obtain the common stock offered
under this prospectus by converting or exercising certain of our convertible
securities that they now hold or have the right to acquire. These selling
stockholders hold shares of Series C 6% Convertible Preferred Stock ("Series C
Preferred"), Series D 6% Convertible Preferred Stock ("Series D Preferred"),
warrants to purchase
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<PAGE> 46
common stock that we issued to holders of the Series C Preferred and Series D
Preferred in connection with the issuance of the Series C Preferred and Series D
Preferred, or common stock acquired upon the exercise of certain warrants.
The table below includes, in the total number of shares offered, shares
of common stock that have been issued or are issuable upon conversion of shares
of Series C Preferred and Series D Preferred.
The table below also includes shares of common stock issuable upon
exercise of warrants issued to holders of Series C Preferred and Series D
Preferred, who are selling stockholders, and shares of common stock acquired,
or to be acquired, by a selling stockholder pursuant to exercise of certain
warrants.
We will not receive any portion of the proceeds from the sale of shares
of common stock by the selling stockholders.
Based on the information supplied to us by each selling stockholder, the
following table sets forth certain information regarding the approximate number
of shares of common stock which each selling stockholder owns or has the right
to immediately acquire as of the date hereof, and as adjusted to reflect the
sale by the selling stockholders of the shares of common stock offered by this
prospectus. No selling stockholder has held any office or maintained any
material relationship with us, or any of our predecessors or affiliates, over
the past three years.
<TABLE>
<CAPTION>
Common Shares Common Shares
Beneficially Owned Number of Beneficially Owned
Prior to Offering(1) Common After Offering(1)(2)
---------------------- Shares --------------------
Name and Address Number Percent(3) Offered(4) Number Percent
---------- ---------- --------- ------- ----------
<S> <C> <C> <C> <C> <C>
Wentworth, LLC
Corporate Center
West Bay Road
Grand Cayman -0- 8,044,398 6,522,199
---------- ---------- --------- --------- ----------
Grayson & Associates
One Tabor Center
1200 17th Street, 16th Floor
Golden, Colorado 80202 -0- * 415,110 415,110
</TABLE>
* Less than one percent.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Except as indicated, each
person possesses sole voting and investment power with respect to all of
the shares of common stock owned by such person, subject to community
property laws where applicable. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of common stock subject to options and convertible securities held
by that person that are currently exercisable, or become exercisable within
60 days of the date of this prospectus, are deemed outstanding. Such
shares, however, are not deemed outstanding for the purpose of computing
the percentage ownership of any other person. The information as to each
person has been furnished by such person.
(2) Assumes that all shares of common stock offered in this prospectus will be
sold.
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<PAGE> 47
(3) Based on approximately _______________ shares of common stock issued and
outstanding as of _______________, 2000 which assumes that the shares
offered for sale are outstanding.
(4) Navigator Management Ltd., the Manager of Wentworth LLC, has voting and
investment decision authority over this investment.
(5) Gerald Grayson, President of Grayson & Associates, is the individual who
has voting and investment decision authority over this investment.
(6) The actual number of shares to be offered will depend on the number of
shares acquired by Wentworth, LLC, upon conversion of the Series C
Preferred Stock, Series D Preferred Stock and warrants it holds.
DESCRIPTION OF SECURITIES
The following summary description of our capital stock is not intended
to be complete and is subject to and qualified in its entirety by reference to
our Amended and Restated Articles of Incorporation, copies of each of which are
filed as exhibits to the registration statement of which this prospectus forms a
part.
GENERAL
We have authorized capital stock consisting of 50,000,000 shares of
common stock, $0.001 par value, of which __________ common shares are issued and
outstanding, and 10,000,000 shares of preferred stock, $0.01 par value, of which
125,000 shares are issued and outstanding. There are _____ holders of record of
our common stock as of the date of this prospectus.
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<PAGE> 48
We have reserved _______________ shares of common stock for issuance
pursuant to options; _______________ shares for issuance pursuant to outstanding
warrants; and _______________ shares for issuance pursuant to outstanding
convertible securities.
COMMON STOCK
The principal terms of our common stock are set forth below:
- number authorized: 50,000,000*
- number outstanding: [22,423,725] exclusive of shares reflected in
this prospectus as being held for sale by the selling
stockholders
- dividend rate: see "Dividend policy"
- vote per share: one
- no preemptive rights or other rights to subscribe for unissued or
treasury shares or securities convertible into or exercisable or
exchangeable for shares of our common stock
- shares of common stock are duly authorized and validly issued,
fully paid and nonassessable
* At the next annual meeting of shareholders, we plan to request that
shareholders authorize an increase in the authorized common stock to
[100,000,000] shares
PREFERRED STOCK
Our board of directors has the authority to issue up to 10,000,000
shares of preferred stock in one or more series and to fix the powers,
designations, rights, preferences and restrictions thereof, including dividend
rights, conversion rights, voting rights, redemption terms, liquidation
preferences and the number of shares constituting each such series, without any
further vote or action by our stockholders. The issuance of preferred stock in
certain circumstances may delay, deter or prevent a change in control of the
company, may discourage bids for our common stock at a premium over the market
price of the common stock, and may adversely affect the market price of, and the
voting and other rights of the holders of, our common stock. The principal terms
of our preferred stock are set forth below:
Series C 6% Convertible Preferred
- number authorized: 50,000 shares
- number outstanding: 50,000 shares
- dividend rate: 6% payable in either cash or common stock
- per share liquidation preference: $100 (aggregate preference of
$5,000,000)
- vote per share: one vote for each share of common stock into
which the preferred stock could be converted as of the record
date for the vote
- right to appoint directors: none
- when convertible: all shares are convertible as of the date of
this prospectus, provided that not more than 20% of the shares
may be converted in any
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<PAGE> 49
period of five consecutive trading days. Further, no holder may
convert into common stock if, as a result of such conversion,
that holder would own more than 19.9% of the issued and
outstanding shares of our common stock (we are required to redeem
any excess). In addition, no holder may convert Series C
Preferred Stock if, after such conversion, the holder would be
deemed a beneficial owner of more than 4.99% of the then
outstanding shares of common stock of the company
- conversion price: the lesser of 125% of the closing bid price of
the common stock on December 28, 1999 ($4.617), or 85% of the
five date average quoted price for the five trading days
immediately preceding the conversion notice date, subject to a
$2.50 floor per share for a 15 month period ending in July 2001
- contains standard anti-dilution provisions to protect against
stock splits and below market stock issuances
- redemption rights: holders have no redemption rights. We may
redeem at our election for cash at a price equal to the greater
of a) an amount sufficient to yield to holders a 17.5% annualized
rate of return or b) the economic benefit a holder would realize
(before taxes and brokerage commissions) from converting the
stock to common stock and selling it
- registration rights: the common stock into which the Series C
Preferred may be converted is required to be registered with the
Securities and Exchange Commission
Series D 6% Convertible Preferred
- number authorized: 75,000 shares
- number outstanding: 75,000 shares
- dividend rate: 6% payable in either cash or common stock
- per share liquidation preference: $100 (aggregate preference of
$7,500,000)
- vote per share: one vote for each share of common stock into
which the preferred stock could be converted as of the record
date for the vote
- right to appoint directors: none
- when convertible: 25,000 shares are convertible 30 days after the
effective date of this prospectus; 25,000 shares are convertible
60 days after the date of this prospectus; and the balance are
convertible 90 days after the date of this prospectus; provided
that not more than 20% of the shares may be converted in any
period of five consecutive trading days. Further, no holder may
convert into common stock if, as a result of such conversion,
that holder would own more than 19.9% of the issued and
outstanding shares of our common stock (we are required to redeem
any excess). In addition, no holder may convert Series D
Preferred Stock if, after such conversion, the holder would be
deemed a beneficial owner of more than 4.99% of the then
outstanding shares of common stock of the company
- conversion price: the lesser of 125% of the closing bid price of
the common stock on April 12, 2000 ($3.9844), or 85% of the
average price for the five trading days
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<PAGE> 50
prior to the conversion notice date, subject to a $2.50 floor per
share for a 15 month period ending in July 2001
- contains standard anti-dilution provisions to protect against
stock splits and below market stock issuances
- redemption rights: holders have no redemption rights. We may
redeem at our election for cash at a price equal to the greater
of a) an amount sufficient to yield to holders a 17.5% annualized
rate of return or b) the economic benefit a holder would realize
(before taxes and brokerage commissions) from converting the
stock to common stock and selling it
- registration rights: the common stock into which the Series D
Preferred may be converted is required to be registered with the
Securities and Exchange Commission
WARRANTS
Warrants to VCI and CFE
- number of warrants (VCI): 600,000
- number of warrants (CFE): 600,000
- when exercisable: anytime after December 31, 2000 and before the
close of business on September 15, 2009
- exercise price: for each of VCI and CFE, (a) as to 150,000
warrants, $4.25; (b) as to 150,000 warrants, $5.25; (c) as to
100,000 warrants, $6.25; and (d) as to 200,000 warrants, $8.50
- contains standard anti-dilution provisions to protect against
stock splits and below market stock issuances
- registration rights: the common stock into which the Series C
Preferred may be converted is required to be registered with the
Securities and Exchange Commission
Warrants to Wentworth LLC pursuant to Series C and Series D Preferred
Stock
- number of warrants: 1,522,299
- when exercisable: at any time and from time to time; provided,
however, that in no event shall the holder be entitled to
exercise the warrant or shall the company have the obligation to
issue shares upon such exercise of all or any portion of the
warrant to the extent that, after such conversion, the sum of (i)
the number of shares of common stock beneficially owned by the
holder and its affiliates (other than shares of common stock,
which may be deemed beneficially owned through the ownership of
the unconverted portion of the preferred stock or unexercised
portion of the warrants), and (ii) the number of shares of common
stock issuable upon the conversion of the preferred stock or
exercise of the warrants with respect to which the determination
of this proviso is being made, would result in beneficial
ownership by the holder and its affiliates of more than 9.99% of
the
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<PAGE> 51
outstanding shares of common stock (after taking into account the
shares to be issued to the holder upon such conversion or
exercise)
- exercise price: $4.617 for warrants issued with the Series C
Preferred Stock and $3.9844 for warrants issued with the Series D
Preferred Stock
- contains standard anti-dilution provisions to protect against
stock splits and below market stock issuances
- registration rights: the common stock into which the Series C and
Series D Preferred may be converted is required to be registered
with the Securities and Exchange Commission
ANTI-TAKEOVER LAW
Acquisition of controlling interests. A corporation is subject to
Nevada's control share law if it has more than 200 stockholders, at least 100 of
whom are stockholders of record and residents of Nevada, and it does business in
Nevada or through an affiliated corporation.
The law focuses on the acquisition of a "controlling interest" which
means the ownership of outstanding voting shares sufficient, but for the control
share law, to enable the acquiring person to exercise the following proportions
of the voting power of the corporation in the election of directors: (i)
one-fifth or more but less than one-third, (ii) one-third or more but less than
a majority, or (iii) a majority or more. The ability to exercise such voting
power may be direct or indirect, as well as individual or in association with
others.
The effect of the control share law is that the acquiring person, and
those acting in association with it, obtains only such voting rights in the
control shares as are conferred by a resolution of the stockholders of the
corporation, approved at a special or annual meeting of stockholders. The
control share law contemplates that voting rights will be considered only once
by the other stockholders. Thus, there is no authority to strip voting rights
from the control shares of an acquiring person once those rights have been
approved. If the stockholders do not grant voting rights to the control shares
acquired by an acquiring person, those shares do not become permanent non-voting
shares. The acquiring person is free to sell its shares to others. If the buyers
of those shares themselves do not acquire a controlling interest, their shares
do not become governed by the control share law.
If control shares are accorded full voting rights and the acquiring
person has acquired control shares with a majority or more of the voting power,
any stockholder of record, other than an acquiring person, who has not voted in
favor of approval of voting rights is entitled to demand fair value for such
stockholder's shares.
Nevada's control share law may have the effect of discouraging takeovers
of the corporation.
Business combination law. In addition to the above control share law,
Nevada has a business combination law which prohibits certain business
combinations between Nevada corporations and "interested stockholders" for three
years after the "interested stockholder" first
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<PAGE> 52
becomes an "interested stockholder" unless the corporation's board of directors
approves the combination in advance. For purposes of Nevada law, an "interested
stockholder" is any person who is (i) the beneficial owner, directly or
indirectly, of ten percent or more of the voting power of the outstanding voting
shares of the corporation, or (ii) an affiliate or associate of the corporation
and at any time within the three previous years was the beneficial owner,
directly or indirectly, of ten percent or more of the voting power of the then
outstanding shares of the corporation. The definition of the term "business
combination" is sufficiently broad to cover virtually any kind of transaction
that would allow a potential acquiror to use the corporation's assets to finance
the acquisition or otherwise to benefit its own interests rather than the
interests of the corporation and its other shareholders.
The effect of Nevada's business combination law is to potentially
discourage parties interested in taking control of the company from doing so if
it cannot obtain the approval of our board of directors.
DIRECTOR AND OFFICER LIABILITY AND INDEMNIFICATION
Pursuant to the company's articles of incorporation, the personal
liability of a director or officer of the company to the company or a
stockholder for monetary damages for breach of a fiduciary duty is limited to
situations in which a director's or officer's acts or omissions involve
intentional misconduct, fraud or knowing violations of law.
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 documents,
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 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 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.
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<PAGE> 53
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers or controlling persons, pursuant
to the foregoing provisions, or otherwise, we have been advised that, in the
opinion of the SEC, such indemnification is against public policy as expressed
in the Securities Act, and is, therefore, unenforceable.
SHARES ELIGIBLE FOR FUTURE SALE
As of the date of this offering, assuming full conversion of our Series
C and Series D Preferred Stock at the current conversion price, we will have
_______________ shares of common stock outstanding. Of the outstanding shares of
common stock, _______________ are freely tradable by persons other than
executive officers, directors and ten percent stockholders of the company as
that term is defined under the Securities Act, without restriction or further
registration, and _______________ would be deemed "restricted securities" within
the meaning of Rule 144 under the Securities Act. If presently unexercised
warrants or options were exercised to purchase common stock, or presently
convertible preferred stock (other than Series C and Series D Preferred Stock)
was converted into common stock, we would have an additional _______________
shares of "restricted securities" outstanding for a total of _______________
shares. "Restricted securities" may not be sold in the absence of registration
unless an exemption from registration is available, including the exemption
contained in Rule 144. The presently outstanding "restricted securities" become
eligible for resale under Rule 144 at various dates commencing on
_______________, 2000, and all will be eligible for resale under Rule 144 by
_______________, 200_.
In general, under Rule 144, a stockholder who has beneficially owned
shares of common stock for at least one year is entitled to sell, within any
three-month period, a number of "restricted" shares that does not exceed the
greater of one percent of the then outstanding shares of common stock or the
average weekly trading volume during the four calendar weeks preceding such
sale. Sales under Rule 144 are also subject to sale limitations, notice
requirements and the availability of current public information about us. Rule
144(k) provides that a stockholder who is not deemed to be an "affiliate" and
who has beneficially owned shares of common stock for at least two years is
entitled to sell those shares at any time under Rule 144(k) without regard to
the limitations described above. In addition to the shares of common stock that
are currently outstanding, a total of _______________ shares of common stock are
reserved for issuance upon exercise of options granted to our directors,
executive officers and employees; _______________ shares are issuable upon
exercise of outstanding warrants; and, at current conversion prices,
_______________ shares are issuable upon conversion of Series C and Series D
Preferred Stock.
We are unable to estimate the number of shares that may be sold in the
future by existing holders of shares of our common stock or holders of options
or warrants or convertible securities that are outstanding or the effect, if
any, that sales of shares of common stock by these persons will have on the
market price of the common stock prevailing from time to time. Sales of
50
<PAGE> 54
substantial amounts of common stock by these persons could adversely affect the
then prevailing market prices of the common stock and warrants.
PLAN OF DISTRIBUTION
The shares offered by this prospectus may be sold from time to time by
selling stockholders, who consist of the persons named under "Selling
stockholders" above and those persons' pledgees, donees, transferees or other
successors in interest. The selling stockholders may sell the shares on the OTC
Bulletin Board or otherwise, at market prices or at negotiated prices. They may
sell shares by one or a combination of the following:
- a block trade in which a broker or dealer so engaged will attempt
to sell the shares as agent, but may position and resell a portion of the block
as principal to facilitate the transaction;
- purchases by a broker or dealer as principal and resale by the
broker or dealer for its account pursuant to this prospectus;
- ordinary brokerage transactions and transactions in which a
broker solicits purchasers;
- privately negotiated transactions;
- short sales;
- if such a sale qualifies, in accordance with Rule 144 promulgated
under the Securities Act rather than pursuant to this prospectus; and
- any other method permitted pursuant to applicable law.
In making sales, brokers or dealers engaged by the selling stockholders
may arrange for other brokers or dealers to participate. Brokers or dealers will
receive commissions or discounts from selling stockholders in amounts to be
negotiated prior to the sale. The selling stockholders and any broker-dealers
that participate in the distribution may be deemed to be "underwriters" within
the meaning of Section 2(11) of the Securities Act of 1933, and any proceeds or
commissions received by them, and any profits on the resale of shares sold by
broker-dealers, may be deemed to be underwriting discounts and commissions.
If any selling stockholder notifies us that a material arrangement has
been entered into with a broker-dealer for the sale of shares through a block
trade, special offering, exchange distribution or secondary distribution or a
purchase by a broker or dealer, we will file a prospectus supplement, if
required pursuant to Rule 424(c) under the Securities Act of 1933, setting
forth:
51
<PAGE> 55
- the name of each of the participating broker-dealers,
- the number of shares involved,
- the price at which the shares were sold,
- the commissions paid or discounts or concessions allowed to the
broker-dealers, where applicable,
- a statement to the effect that the broker-dealers did not conduct
any investigation to verify the information set out or incorporated by reference
in this prospectus, and
- any other facts material to the transaction.
We are paying the expenses incurred in connection with preparing and
filing this prospectus and the registration statement to which it relates, other
than selling commissions. In addition, in the event the selling stockholders
sell short shares of common stock, this prospectus may be delivered in
connection with such short sales and the shares offered by this prospectus may
be used to cover such short sales. To the extent, if any, that the selling
stockholders may be considered "underwriters" within the meaning of the
Securities Act, the sale of the shares by them shall be covered by this
prospectus.
LEGAL MATTERS
Arter & Hadden LLP, Los Angeles, California, has advised us with respect
to the validity of the shares of common stock offered by this prospectus.
EXPERTS
Carpenter, Kuhen & Sprayberry, independent auditors, have audited the
consolidated financial statements of the company for the year ended December 31,
1999. Lichter and Associates, independent auditors, audited our consolidated
financial statements for the years ended December 31, 1997 and 1998. Their
reports are included in this prospectus. Our consolidated financial statements
are included in this prospectus in reliance on their reports, given their
authority as experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
The company has filed with the Securities and Exchange Commission, 450
Fifth Street, N.W., Washington, D.C. 20549, a registration statement on Form S-1
under the Securities Act
52
<PAGE> 56
with respect to the securities offered. As permitted by SEC rules, this
prospectus does not contain all of the information set forth in the registration
statement and the exhibits and schedules to the registration statement. For
further information concerning the company and the securities offered, we refer
you to the registration statement and the exhibits and schedules filed as a part
of the registration statement.
Statements contained in this prospectus concerning the contents of any
contract or any other document are not necessarily complete. In each instance
where a copy of that contract or document has been filed as an exhibit to the
registration statement, we refer you to the copy of the contract or document
that has been filed. Each statement is qualified in all respects by reference to
that exhibit. The registration statement, including its exhibits and schedules,
may be inspected without charge at the SEC's Public Reference Room, at 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, and at the SEC's regional
offices at Northwest Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511, and 7 World Trade Center, New York New York 10048.
Copies of all or any part of those documents may be obtained from the SEC's
office after payment of the SEC's prescribed fees. You may call the SEC at
1-800-SEC-0330 for further information on the operation of the SEC's public
reference rooms. The SEC maintains a Web site at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding companies that file electronically with the SEC.
We intend to provide our stockholders with annual reports containing
consolidated financial statements by an independent public accounting firm and
will make available to stockholders quarterly reports containing unaudited
consolidated financial data for the first three quarters of each year. We are
subject to the information and reporting requirements of the Securities Exchange
Act of 1934, as amended, and file periodic reports, proxy statements and other
information with the SEC.
53
<PAGE> 57
ESAT, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Carpenter Kuhen & Sprayberry, Independent Auditors.......................... F-2
Report of Lichter and Associates, Independent Auditors................................ F-3
Consolidated Balance Sheets as of December 31, 1999 and 1998.......................... F-4
Consolidated Statements of Operations for the years ended December 31, 1999,
1998 and 1997..................................................................... F-6
Consolidated Statements of Stockholders' Equity for the years ended December
31, 1999 and 1998................................................................. F-7
Consolidated Statements of Cash Flows for the years ended December 31, 1999,
1998 and 1997,.................................................................... F-11
Notes to Consolidated Financial Statements for the years ended December 31, 1999,
1998 and 1997 .................................................................... F-12
</TABLE>
F-1
<PAGE> 58
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
eSat, Inc.
Fountain Valley, California
We have audited the accompanying consolidated balance sheet of eSat, Inc., and
subsidiaries, as of December 31, 1999, and the related consolidated statements
of operations, stockholders' equity, and cash flows for the year then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, based on our audit, the financial statements referred to above
present fairly, in all material respects, the financial position of eSat, Inc.
as of December 31, 1999 in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles, which contemplate
continuation of the Company as a going concern; however, the Company has
experienced losses from operations since inception, except for the reversal in
1999 of employee stock option compensation expense that was recognized in 1998
in accordance with APB 25, and substantial doubt exists as to its continuation
as a going concern. Continuation is dependent upon the success of future
operations. Management's plans in regard to those matters are described in Note
2. The consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Certain errors in applying APB 25 resulted in an understatement of previously
reported compensation expense for the year ended December 31, 1998 and was
discovered during the current year. Accordingly, the 1998 financial statements
have been restated and an adjustment has been made to compensation expense and
retained earnings to correct the error.
Carpenter, Kuhen & Sprayberry
Oxnard, California
March 29, 2000
F-2
<PAGE> 59
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
eSat, Inc. (Formerly Technology Guardian, Inc.)
Fountain Valley, California
Members of the Board:
We have audited the accompanying balance sheets of eSat, Inc. (formerly
Technology Guardian, Inc.) (the "Company") as of December 31, 1998 and 1997, and
the related consolidated statements of operations, changes in stockholders'
equity, and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of eSat, Inc. (formerly Technology
Guardian, Inc.) as of December 31, 1998 and 1997, and the result of their
operations and their cash flows for each of the years in the period ended
December 31, 1998 and 1997 in conformity with generally accepted accounting
principles.
As discussed in Note Q to the financial statements, the Company has suffered
recurring losses, a decline in revenue and cash shortages. These issues raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note Q. The financial
statements do not include any adjustment that might result from the outcome of
this uncertainty.
As discussed in Note P to the financial statements, the Company's 1998
Additional paid in Capital previously reported as $6,614,398 should have been
$6,051,234. This discovery was made subsequent to the issuance of the financial
statements. The financial statements have been restated to reflect this
correction.
Also, certain errors in applying APB 25 resulted in an understatement of
previously reported compensation expense for the year ended December 31, 1998
and was discovered during the current year. Accordingly the 1998 financial
statements have been restated and an adjustment has been made to compensation
expenses and retained earnings to correct the error.
Lichter and Associates
February 23, 1999, except for Note P, as to which the date is June 14, 1999,
Notes J, K and Q as to which the date is October 22, 1999 and above correction
as to which the date is March 29, 2000 Los Angeles, California
F-3
<PAGE> 60
eSAT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
ASSETS
<TABLE>
<CAPTION>
Restated
1999 1998
---------- ----------
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $3,458,561 $2,567,697
Accounts receivable, net 18,669 48,964
Inventory 135,189 289,260
Deposits 420,747 --
Other current assets 23,066 --
---------- ----------
Total current assets 4,056,232 2,905,921
---------- ----------
PROPERTY AND EQUIPMENT, NET 749,744 293,251
---------- ----------
OTHER ASSETS:
Note receivable 250,000 15,000
Other assets 100,493 47,215
---------- ----------
350,493 62,215
---------- ----------
$5,156,469 $3,261,387
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements
F-4
<PAGE> 61
eSAT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Restated
1999 1998
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 791,467 $ 235,866
Accrued expenses 161,713 179,692
Unearned revenue 78,161 117,070
Current portion of obligations under capital lease 28,401 --
Other current liabilities -- 6,414
Commission payable 160,000 --
Note payable related party 90,250 --
Severance pay payable 90,000 --
Settlement payable 83,866 --
------------ ------------
Total current liabilities 1,483,858 539,042
------------ ------------
OBLIGATIONS UNDER CAPITAL LEASE 59,416 --
------------ ------------
COMMITMENTS AND CONTINGENCIES -- --
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred stock - Series C - cumulative, fully participating
convertible, $0.01 par value Authorized-50,000 shares
Issued and outstanding - 50,000 shares
(Aggregate liquidation preference $4,999,500 in 1999) 500 --
Preferred stock - Series A, cumulative, fully participating,
convertible, $0.01 par value Authorized - 2,000,000 shares
Issued and outstanding - 1,000,000 shares
(Aggregate liquidation preference $1,990,000 in 1999) 10,000
Common stock - $0.001 par value Authorized-50,000,000 shares
Issued and outstanding - 18,345,214 shares 18,345 16,086
Additional paid-in capital 25,764,947 96,805,249
Retained deficit (20,899,587) (94,098,990)
------------ ------------
4,894,205 2,722,345
Less: Subscriptions receivable (1,558,510) --
Minority interest in equity of subsidiary 277,500 --
------------ ------------
Total stockholders' equity 3,613,195 2,722,345
------------ ------------
$ 5,156,469 $ 3,261,387
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements
F-5
<PAGE> 62
eSAT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, AND 1998
<TABLE>
<CAPTION>
Restated
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
SALES $ 423,640 $ 341,047 $ 1,201,044
COST OF SALES 1,432,717 685,570 345,491
------------ ------------ ------------
Gross margin (1,009,077) (344,523) 855,553
GENERAL AND ADMINISTRATIVE EXPENSES 7,916,819 2,613,468 1,289,406
------------ ------------ ------------
Loss from operations (8,925,896) (2,957,991) (433,853)
------------ ------------ ------------
OTHER INCOME (EXPENSE)
Compensation adjustment recognized under APB 25 81,945,112 (90,754,014) --
Other income 149,684 -- --
Interest income 57,158 -- --
Gain on sale of assets 675 -- --
Interest expense (25,730) (11,371) (19,145)
------------ ------------ ------------
82,126,899 (90,765,385) (19,145)
------------ ------------ ------------
Income (loss) before income taxes and
extraordinary income 73,201,003 (93,723,376) (452,998)
PROVISION FOR INCOME TAXES 1,600 800 800
------------ ------------ ------------
Income (loss) before extraordinary income 73,199,403 (93,724,176) (453,798)
EXTRAORDINARY INCOME -- 242,990 --
------------ ------------ ------------
Net income (loss) $ 73,199,403 $(93,481,186) $ (453,798)
============ ============ ============
EARNINGS PER COMMON SHARE:
Income (loss) before extraordinary income $ 4.02 $ (5.83) $ (0.04)
============ ============ ============
Net income $ 4.02 $ (5.81) $ (0.04)
============ ============ ============
EARNINGS PER COMMON SHARE:--ASSUMING DILUTION:
Income (loss) before extraordinary income $ 3.43 $ (5.83) $ (0.04)
============ ============ ============
Net income $ 3.43 $ (5.81) $ (0.04)
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE> 63
eSAT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, AND 1998
<TABLE>
<CAPTION>
Preferred Series A Preferred Series C
------------------------ ------------------------
Shares Amount Shares Amount
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Balance, December 31, 1997 -- $-- -- $--
Net loss -- -- -- --
Common stock issued in reverse acquisition -- -- -- --
Sale of common stock -- -- -- --
Compensation adjustment recognized under APB 25 -- -- -- --
--------- --------- --------- ---------
Balance, December 31, 1998, as restated -- -- -- --
Net income -- -- -- --
Compensation adjustment recognized under APB 25 -- -- -- --
Sale of common stock -- -- -- --
Issuance of common stock for services -- -- -- --
Sale of preferred stock series A 1,000,000 10,000 -- --
Sale of preferred stock series C -- -- 50,000 500
Minority interest in equity of subsidiary -- -- -- --
Cancellation of common stock in settlement -- -- -- --
--------- --------- --------- ---------
Balance, December 31, 1999 1,000,000 $ 10,000 50,000 $ 500
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the statements.
F-7
<PAGE> 64
eSAT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, AND 1998
<TABLE>
<CAPTION>
Common Stock Additional
------------------------------- Paid-In
Shares Amount Capital
------------ ------------ ------------
<S> <C> <C> <C>
Balance, December 31, 1997 11,407,507 $ 11,408 $ 278,643
Net loss -- -- --
Common stock issued in reverse acquisition 1,050,400 1,050 103,089
Sale of common stock 3,628,029 3,628 5,669,503
Compensation adjustment recognized under APB 25 -- -- 90,754,014
------------ ------------ ------------
Balance, December 31, 1998, as restated 16,085,936 16,086 96,805,249
Net income -- -- --
Compensation adjustment recognized under APB 25 -- -- (81,945,112)
Sale of common stock 3,848,577 3,848 3,278,365
Issuance of common stock for services 178,470 179 1,161,945
Sale of preferred stock series A -- -- 1,990,000
Sale of preferred stock series C -- -- 4,474,500
Minority interest in equity of subsidiary -- -- --
Cancellation of common stock in settlement (1,767,769) (1,768) --
------------ ------------ ------------
Balance, December 31, 1999 18,345,214 $ 18,345 $ 25,764,947
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-8
<PAGE> 65
eSAT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, AND 1998
<TABLE>
<CAPTION>
Minority
Retained Subscription Interest in
Deficit Receivable Subsidiary
------------ ------------ ------------
<S> <C> <C> <C>
Balance, December 31, 1997 $ (617,804) $-- $--
Net loss (93,481,186) -- --
Common stock issued in reverse acquisition -- -- --
Sale of common stock -- -- --
Compensation adjustment recognized under APB 25 -- -- --
------------ ------------ ------------
Balance, December 31, 1998, as restated (94,098,990) -- --
Net income 73,199,403 -- --
Compensation adjustment recognized under APB 25 -- -- --
Sale of common stock -- (558,510) --
Issuance of common stock for services -- -- --
Sale of preferred stock series A -- (1,000,000) --
Sale of preferred stock series C -- -- --
Minority interest in equity of subsidiary -- -- 277,500
Cancellation of common stock in settlement -- -- --
------------ ------------ ------------
Balance, December 31, 1999 $(20,899,587) $ (1,558,510) $ 277,500
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-9
<PAGE> 66
eSAT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, AND 1998
<TABLE>
<CAPTION>
Total
Stockholders'
Equity
------------
<S> <C>
Balance, December 31, 1997 $ (327,753)
Net loss (93,481,186)
Common stock issued in reverse acquisition 104,139
Sale of common stock 5,673,131
Compensation adjustment recognized under APB 25 90,754,014
------------
Balance, December 31, 1998, as restated 2,722,345
Net income 73,199,403
Compensation adjustment recognized under APB 25 (81,945,112)
Sale of common stock 2,723,703
Issuance of common stock for services 1,162,124
Sale of preferred stock series A 1,000,000
Sale of preferred stock series C 4,475,000
Minority interest in equity of subsidiary 277,500
Cancellation of common stock in settlement (1,768)
------------
Balance, December 31, 1999 $ 3,613,195
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-10
<PAGE> 67
eSAT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
Restated
1999 1998 1997
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 73,199,403 $(93,481,186) $ (453,798)
Adjustments to reconcile net loss to net cash used
in operating activities-
Noncash items included in net income:
Depreciation and amortization 251,199 24,659 12,546
Gain on sale of assets (675) -- --
Compensation - stock issued for services 1,162,477 -- --
Compensation adjustment recognized under APB 25 (81,945,112) 90,754,013 --
Net change in operating assets and liabilities 603,697 (97,114) 203,535
------------ ------------ ------------
Net cash used in operating activities (6,729,011) (2,799,628) (237,717)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchase of fixed assets (585,497) (293,980) (6,539)
Proceeds from sale of fixed assets 13,580 -- --
Increase in notes receivable (235,000) -- --
Purchase of stock -- -- (12,000)
------------ ------------ ------------
Net cash used in investing activities (806,917) (293,980) (18,539)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in notes payable (47,283) -- --
Proceeds from issuance of preferred stock 5,475,000 -- --
Proceeds from issuance of common stock 2,999,075 5,673,132 253,363
------------ ------------ ------------
Net cash provided by financing activities 8,426,792 5,673,132 253,363
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 890,864 2,579,524 (2,893)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 2,567,697 (11,827) (8,934)
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 3,458,561 $ 2,567,697 $ (11,827)
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-11
<PAGE> 68
eSAT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of accounting policies of eSat, Inc., is presented to
assist in understanding the Company's financial statements. These
accounting policies conform to generally accepted accounting principles.
eSat, Inc. ("the Company"), was originally incorporated under the laws
of the State of California on February 22, 1996 as Technology Guardian,
Inc. On October 8, 1998, the Company merged with U.S. Connect 1995,
Inc., and on January 26, 1999, changed its name to eSat, Inc.
a) Nature of Operations
The Company's primary line of business is providing high-speed
satellite Internet access services and products to businesses,
educational institutions, and government agencies, both
domestically and internationally. The Company's satellite network
enables it to provide high-speed data delivery services without
geographical constraints. The Company is also developing a
personal interactive desktop organizer, which includes a variety
of personal productivity programs.
b) Revenue Recognition
The Company reports on the accrual basis for both financial
statement and income tax purposes. Revenue from product sales is
recognized as products are shipped. Revenue from services is
recognized as the service is provided using the straight-line
method over the life of the contract. A related liability is
recorded for the unearned portion of service revenue received.
c) Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
d) Cash and Cash Equivalents
The Company considers all investment instruments purchased with a
maturity of three months or less to be cash equivalents.
F-12
<PAGE> 69
eSAT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
e) Concentration of Credit Risk
The Company maintains its cash balances in various financial
institutions. The balances are insured by the Federal Deposit
Insurance Corporation up to $100,000. At various times throughout
the year ended December 31, 1999, the Company has maintained
balances in excess of federally insured limits. The Company's
uninsured balances totaled $3,260,611 and $185,239 at December
31, 1999 and 1998, respectively.
The Company purchases transponder time from one supplier.
f) Accounts Receivable
The allowance for doubtful accounts is established through a
provision for bad debt charged to expense. Receivables are
charged off against the allowance when management believes that
the collectibility of the account is unlikely. Recoveries of
amounts previously charged off are credited to revenues. At
December 31, 1999 and 1998, the allowance for doubtful accounts
was $26,804 and $0, respectively.
g) Inventory
Inventory consists of satellite dishes and related equipment and
is stated at the lower of cost or market. Cost is determined
using the weighted average method.
h) Property, Equipment and Depreciation
Property and equipment are recorded at cost. Depreciation of
property and equipment is provided using the straight-line method
over the following estimated useful lives:
<TABLE>
<CAPTION>
Estimated
Asset Classification Useful Life
<S> <C>
Machinery and Equipment 3 Years
Furniture 5 Years
Leasehold improvements 3 Years
Office equipment 3 Years
</TABLE>
Expenditures for maintenance and repairs are charged to expense
as incurred.
F-13
<PAGE> 70
eSAT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
h) Property, Equipment and Depreciation (Continued)
Property and equipment consist of:
<TABLE>
<CAPTION>
Restated
1999 1998
<S> <C> <C>
Machinery and equipment $ 434,131 $ 106,281
Office equipment 304,942 86,419
Furniture 113,269 99,173
Leasehold improvement 45,720 24,018
Automobiles -- 19,325
--------- ---------
898,062 335,216
Less - Accumulated depreciation (246,472) (41,965)
--------- ---------
651,590 293,251
Leased property under capital lease, net 98,154 --
--------- ---------
$ 749,744 $ 293,251
========= =========
</TABLE>
i) Principles of Consolidation
The consolidated financial statements include the accounts of
eSat, Inc., and its wholly owned subsidiaries. Significant
inter-company transactions and amounts have been eliminated in
consolidation.
j) Research and Development
Research and development costs are charged to operations when
incurred and are included in operating expenses. The amounts
charged to operations for the year ended December 31, 1999 were
$500,134. For the years ended December 31, 1998 and 1997 there
were no expenditures for research and development.
F-14
<PAGE> 71
eSAT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
j) Research and Development (Continued)
The Company accounts for the creation of its computer software
products in accordance with SFAS 86, Accounting for the Costs of
Computer Software to Be Sold, Leased, or Otherwise Marketed.
Accordingly, where technological feasibility has been established
but the software product has not yet been made available for
general release to customers, production costs incurred have been
capitalized in the financial statement. The unamortized portion
of the capitalized costs at December 31, 1999 was $96,451.
k) Income Taxes
The Company files a consolidated federal income tax return. The
subsidiaries pay to or receive from eSat, Inc., the parent
company, the amount of federal income taxes they would have paid
or received had the subsidiaries filed separate federal income
tax returns.
Deferred tax assets and liabilities are reflected at currently
enacted income tax rates applicable to the period in which the
deferred tax assets or liabilities are expected to be realized or
settled. As changes in tax laws or rates are enacted, deferred
tax assets and liabilities are adjusted through the provision for
income taxes. The Company has a deferred tax asset due to net
operating loss carryforwards for income tax purposes and the
non-tax deductible recognition of compensation expense for
financial statement purposes. The deferred tax asset is
$2,754,236 and $808,290 at December 31, 1999 and 1998,
respectively; however, due to the ongoing nature of the losses
and the potential inability of the Company to ever realize the
benefit, a valuation allowance has been established for 100% of
the deferred tax asset. At December 31, 1999 and 1998, the
Company's available federal net operating loss carry forwards
totaled $12,233,782 and $3,589,974, respectively, and California
net operating loss carry forwards totaled $12,232,752 and
$3,590,544, respectively. The loss carry forwards will expire at
various dates through the year 2019.
F-15
<PAGE> 72
eSAT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
l) Stock-Based Compensation
The Company accounts for stock-based employee compensation
arrangements in accordance with the provisions of APB 25,
Accounting for Stock Issued to Employees, and complies with the
disclosure provisions of SFAS 123, Accounting for Stock-Based
Compensation. Under APB 25, compensation cost is recognized on
fixed plans over the vesting period based on the difference, if
any, on the date of grant between the fair value of the Company's
stock and the amount an employee must pay to acquire the stock.
For variable plans, APB 25 requires recognition of compensation
cost over the vesting period based on the difference, if any, on
the period-end date between the fair value of the Company's stock
and the amount an employee must pay to acquire the stock.
Forfeitures of variable plan options result in a reversal of
previously recognized compensation cost.
Due to the large number of variable plan options granted by the
Company in 1998 and the significant difference between the
exercise price of those options and the fair value of the
Company's stock at December 31, 1998, the Company recognized a
substantial amount of non-cash compensation cost in 1998.
Subsequently, a large number of forfeitures and the re-pricing to
market of those options in 1999 caused a considerable reversal of
the previously recognized non-cash compensation cost. The
resulting net income for the year ended December 31, 1999, should
not be construed as profitable operations during that year (See
Note 2 for Going Concern disclosure).
F-16
<PAGE> 73
eSAT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
m) Net Earnings or Loss Per Share
The following data show the amounts used in computing earnings
per share and the effect on income and the weighted average
number of shares of dilutive potential common stock for the year
ended December 31, 1999:
<TABLE>
<CAPTION>
<S> <C>
Income available to common stockholders before adjustments $ 73,199,403
Adjustments --
------------
Income available to common stockholders used in basic EPS $ 73,199,403
============
Weighted average number of common shares used in basic EPS 18,206,553
Effect of dilutive securities:
Common stock dividend on preferred stock Series A (479)
Stock options 1,762,798
Warrants 1,270,949
Convertible preferred stock Series A 97,691
Convertible preferred stock Series C 11,022
------------
Weighted average number of common shares and dilutive potential common 21,348,534
stock used in dilutive EPS
============
</TABLE>
The following transactions occurred after December 31, 1999,
which, had they taken place during 1999, would have changed the
number of shares used in the computations of earnings per share:
(1) options to purchase 680,000 common shares were issued to
employees; (2) warrants to purchase 2 million common shares were
awarded to non-employees; and (3) a third party investor agreed
to purchase 6 million common shares and warrants to purchase an
additional 6 million shares on March 16, 2000 (See Note 11).
Basic net loss per share is based on the weighted average number
of common shares outstanding of 16,085,936 and 11,407,507 for
1998 and 1997, respectively. The basic and diluted earnings per
share calculations are the same for 1998 and 1997 because
potential dilutive securities would have had an antidilutive
effect for all periods presented. Securities that were not
included in the 1998 and 1997 earnings per share calculation
because they were antidilutive consist of the convertible
preferred stock, warrants and stock options.
F-17
<PAGE> 74
eSAT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
n) Advertising
The Company expenses advertising costs as they are incurred.
Advertising expenses for the years ended December 31, 1999, 1998,
and 1997 were $479,387, $175,647, and $125,934, respectively.
(2) GOING CONCERN
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles, which
contemplate continuation of the Company as a going concern; however, the
Company has sustained substantial operating losses in recent years. In
view of this matter, realization of a major portion of the assets in the
accompanying balance sheet is dependent upon continued operations of the
Company, which in turn is dependent upon the Company's ability to meet
its financing requirements, and the success of its future operations.
Management believes that actions presently being taken to revise the
Company's operating and financial requirements provide the opportunity
for the Company to continue as a going concern. In March 2000, the
Company entered into a private placement agreement for the sale of
$12,000,000 of common stock. The Company feels that this and subsequent
financing arrangements coupled with product and services market
introductions will provide sufficient cash to meet its operating and
business expansion requirements in 2000.
(3) NOTE RECEIVABLE - EMPLOYEE
Note receivable - employee at December 31, 1999 consists of a note
receivable from an employee dated June 9, 2000, due in monthly payments
of $1,580, including interest at 6.5%, secured by personal property of
the employee, matures June 9, 2030.
F-18
<PAGE> 75
eSAT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(4) LEASED PROPERTY UNDER CAPITAL LEASE
The Company leases office equipment under capital leases. The economic
substance of these lease agreements is that the Company is financing the
acquisition of the leased assets through the leases and, accordingly,
they are recorded in the Company's assets and liabilities. The following
is an analysis of the leased property under capital lease:
<TABLE>
<CAPTION>
Restated
1999 1998
<S> <C> <C>
Office equipment $ 137,081 $--
Less accumulated depreciation (38,927) --
--------- ----
$ 98,154 $--
========= ====
Net minimum lease payments $ 104,653 $--
Less - amount representing interest (16,836) --
--------- ----
Present value of net minimum lease payments $ 87,817 $--
========= ====
</TABLE>
The following is a schedule by years of future minimum lease payments required
under the leases:
<TABLE>
<CAPTION>
<S> <C> <C>
Years ending December 31, 2000 $28,401
2001 32,183
2002 18,674
2003 8,559
--------
$87,817
========
</TABLE>
F-19
<PAGE> 76
eSAT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(5) COMMITMENTS AND CONTINGENCIES
a) Non-Cancelable Operating Lease
The Company leases its office facilities under a non-cancelable
operating lease. The lease has a five-year term, which expires
September 30, 2003. At December 31, 1999, base rent under the
lease was $7,332 per month. The lease requires the Company to
provide for common area maintenance expenditures. Base rent and
CAM charges are subject to escalation every year. The Company has
the option to renew the lease for an additional period of five
years. Rent expense under the lease for the years ended December
31, 1999, 1998, and 1997 were $86,013, $45,500, and $25,900,
respectively.
The following is a schedule by years of future minimum lease
payments required under the lease:
<TABLE>
<CAPTION>
<S> <C> <C>
Years ending December 31, 2000 $88,968
2001 92,577
2002 95,532
2003 73,863
--------
$350,940
========
</TABLE>
b) Pending and Threatened Litigation
On July 23,1999 a case was filed in which the plaintiff alleges
the Company breached a Subscription Agreement to sell him
2,092,500 shares of Company stock. Plaintiff requested that the
case be dismissed without prejudice, but the Company demanded
that the case be dismissed with prejudice without any
compensation to Plaintiff. This case has been scheduled for trial
and the Company believes it will prevail.
On December 11,1999 a case was filed against the Company and an
Officer by a Plaintiff who had been terminated for poor work
performance. In the original action the Plaintiff named eight
causes of action for unspecified amounts. The Plaintiff
subsequently filed an amended complaint reducing the causes of
action to five and naming the Company only. The Company has
denied all allegations.
F-20
<PAGE> 77
eSAT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(5) COMMITMENTS AND CONTINGENCIES (Continued)
b) Pending and Threatened Litigation (Continued)
The Company has received a claim from two individuals that allege
that the Company and a former Officer defrauded them when they
purchased Company Stock. They have demanded $160,000 to resolve
all claims. Although a lawsuit has been threatened, one has not
been filed. The Company will deny all allegations.
c) Employment Agreements
The Company has entered into agreements with certain of its
officers. The agreements provide for a minimum annual salary and
options to purchase stock of the Company.
d) Purchase Obligations
In order to assure its supply of satellite transmission time when
needed, the Company has entered into Transponder Lease Agreements
with suppliers with available transponder capacity. The
agreements expire at various dates through November, 2002. The
Company may terminate the agreements only if there is a period of
interruption of service greater than 14 days or in the event the
satellite the agreement pertains to is taken out of service. The
Company is required to make minimum monthly payments as follows,
whether or not it makes use of the time under the agreements:
<TABLE>
<CAPTION>
<S> <C> <C>
Years ending December 31, 2000 $753,960
2001 753,960
2002 72,000
----------
$1,579,920
==========
</TABLE>
F-21
<PAGE> 78
eSAT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(5) COMMITMENTS AND CONTINGENCIES (Continued)
d) Purchase Obligations (Continued)
In addition, at the Company's option, for additional monthly
fees, the Company may upgrade service if additional capacity is
needed. The Company is responsible for the payment of all taxes,
duties, user fees, and privilege or excise taxes pertaining to
the use of the suppliers' equipment. Fees paid under these
agreements totaled $601,960, $37,230, and $0 for the years ended
December 31, 1999, 1998, and 1997, respectively.
(6) NOTE PAYABLE - RELATED PARTY
<TABLE>
<CAPTION>
Restated
1999 1998
<S> <C> <C>
Note payable - Vantage Capital, Inc., due on demand, with interest at the
Applicable Federal Rates, unsecured. Michael Palmer, CEO of eSat, Inc.,
is the 100% shareholder of Vantage Capital, Inc. AFR at December 31,
1999 was 5.59% $ 90,250 $ --
======== ========
</TABLE>
(7) STOCK PURCHASE AGREEMENT
During the one year period beginning December 29, 1999, the purchasers
of the outstanding Class C Preferred Stock committed to purchase up to
$20,000,000 of Common Stock at a price equal to 90% of the average of
the five lowest closing bid prices for the 10 days prior to each notice
of sale. The agreement requires sales in certain minimum amounts and
requires warrants of 15% with an exercise price of 125% of the purchase
price. The Company must register the shares delivered under this
agreement and the registration must be effective. As of the report date
the shares were not registered.
F-22
<PAGE> 79
eSAT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(8) STOCKHOLDERS' EQUITY
a) Common Stock and Warrants
At December 31, 1999, the Company has 50 million shares
authorized and 18,345,214 issued and outstanding. In addition,
the Company had outstanding at December 31, 1999, 5,039,163
warrants convertible into common shares at various prices ranging
from $0.72 to $14.70, with expiration dates through December,
2004.
A summary of the warrants outstanding at December 31, 1999 is as
follows:
<TABLE>
<CAPTION>
Weighted Average
Exercise Remaining Weighted Average
Price Range Number Contractual Life Exercise Price
------------- ---------- ----------------- ----------------
<S> <C> <C> <C> <C>
$0.72 - $1.37 225,000 50 months $0.86
$2.40 - $3.14 3,009,286 49 months $2.94
$4.25 - $6.25 1,038,877 58 months $5.02
$8.50 400,000 58 months $8.50
$14.00 - $14.70 366,000 45 months $14.13
</TABLE>
b) Common Stock Reserved
At December 31, 1999, common stock was reserved for the following
reasons:
<TABLE>
<CAPTION>
<S> <C>
Exercise of common stock warrants 5,039,163
Conversion of preferred stock 847,037
Common stock dividends on preferred stock 5,129
Exercise of employee stock options 2,704,873
---------
8,596,202
=========
</TABLE>
F-23
<PAGE> 80
eSAT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(8) STOCKHOLDERS' EQUITY (Continued)
c) Preferred Stock
Preferred stock consists of the following:
Series A - $.01 par value, 2 million shares authorized, 1 million
shares issued and outstanding, pays dividends quarterly in the
form of common stock at an annual rate of 12%, cumulative and
fully participating, convertible to common stock at a rate of one
share of preferred stock for $2 of common stock, rounded to the
nearest whole common share. The Company is required to maintain a
reserve of common stock sufficient to effect conversion. Holders
of Series A Preferred Stock are entitled to one vote per share.
In addition, the Company must obtain the consent of the holders
of not less than 50% of the shares of outstanding Series A
preferred stock on matters involving declaration and payment of
dividends on common stock, sale or issuance of capital stock of
the Company or options to acquire capital stock of the Company
other than Series A Preferred Stock, or changes in the general
character of the Company's business. All outstanding shares of
Series A preferred stock are held by Vantage Capital, Inc., a
related party.
Series C - $.001 par value, 50,000 shares authorized, issued and
outstanding, pays dividends quarterly in the form of cash or
common stock at an annual rate of 6 percent, cumulative and fully
participating, redeemable and convertible to common stock. The
number of common shares to be issued upon conversion is
determined by multiplying the number of preferred shares to be
converted by a fraction. The numerator of the fraction is the
purchase price of the preferred shares. The denominator of the
fraction is the conversion price, calculated as the lesser of 125
percent of the closing bid price of the common stock on the
trading day immediately preceding the issue date, or 85 percent
of the five day average quoted price for the five trading days
immediately preceding the conversion notice date.
F-24
<PAGE> 81
eSAT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(8) STOCKHOLDERS' EQUITY (Continued)
d) Stock Option Agreements
The Company has granted fixed employee stock-based compensation
options and variable employee stock-based compensation options.
The variable option agreements provide for exercise of options
into a number of shares of Common Stock, which is dependent on
the market value of the stock at the date of exercise. The fixed
and variable option agreements typically have a maximum term of 5
years and are typically fully vested at the date of grant.
The fair value of each option granted is estimated on the grant
date using the Black-Scholes Model. The following assumptions
were made in estimating fair value:
<TABLE>
<CAPTION>
Fixed Variable
Options Options
------------- -------------
<S> <C> <C>
Dividend yield 0.00% 0.00%
Risk-free interest rate 6.55% 6.55%
Expected life 2.50 years 2.50 years
Expected volatility 62.32% 62.32%
</TABLE>
Had compensation cost been determined on the basis of fair value
pursuant to FASB Statement No. 123, net income and earnings per
share for the year ended December 31, 1999 would have been
reduced as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Net income:
As reported $ 73,199,403
==============
Pro forma $ (11,953,659)
==============
Basic earnings per share:
As reported $ 4.02
==============
Pro forma $ (0.66)
==============
Diluted earnings per share:
As reported $ 3.43
==============
Pro forma $ (0.56)
==============
</TABLE>
F-25
<PAGE> 82
eSAT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(8) STOCKHOLDERS' EQUITY (Continued)
d) Stock Option Agreements
The following is a schedule of the weighted average exercise
price and weighted average fair value in accordance with SFAS
123:
<TABLE>
<CAPTION>
Weighted Average Weighted Average
Exercise Price Fair Value
----------------- ----------------
<S> <C> <C>
Exercise price:
Equals market price $10.25 $0.60
Exceeds market price $3.26 $1.25
Less than market price $6.23 $1.03
</TABLE>
The Company applies APB Opinion 25 in accounting for its fixed
and variable stock compensation plans. Compensation cost charged
to operations in 1999 was $2,522,340 and $(84,467,452) for the
fixed and variable plans, respectively. Compensation cost charged
to operations in 1998 was $0 and $90,754,014 for the fixed and
variable plans, respectively.
Following is a summary of the status of the variable plan during
1999:
<TABLE>
<CAPTION>
Number of Weighted Avg.
Shares Exercise Price
---------- --------------
<S> <C> <C>
Outstanding at January 1, 1999 6,752,236 $1.98
Granted -- --
Exercised (598,941) 0.95
Forfeited (4,564,422) 1.92
Outstanding at December 31, 1999 1,588,873 2.56
Options exercisable at December 31, 1999 1,588,873 2.56
</TABLE>
F-26
<PAGE> 83
eSAT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(8) STOCKHOLDERS' EQUITY (Continued)
d) Stock Option Agreements
Following is a summary of the status of the variable plan during
1998:
<TABLE>
<CAPTION>
Number of Weighted Avg.
Shares Exercise Price
--------- --------------
<S> <C> <C>
Outstanding at January 1, 1998 -- $--
Granted 6,752,236 1.98
Exercised -- --
Forfeited -- --
----
Outstanding at December 31, 1998 6,752,236 1.98
====
Options exercisable at December 31, 1999 6,752,236 1.98
====
</TABLE>
Following is a summary of the status of the fixed plan during
1999:
<TABLE>
<CAPTION>
Number of Weighted Avg.
Shares Exercise Price
--------- --------------
<S> <C> <C>
Outstanding at January 1, 1999 -- $--
Granted 1,366,000 7.32
Exercised -- --
Forfeited -- --
----
Outstanding at December 31, 1999 1,366,000 7.32
----
Options exercisable at December 31, 1999 1,116,000 8.15
====
</TABLE>
F-27
<PAGE> 84
eSAT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(8) STOCKHOLDERS' EQUITY (Continued)
d) Stock Option Agreement (Continued)
Following is a summary of the status of variable options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Weighted Average
Exercise Remaining Weighted Average
Price Range Number Contractual Life Exercise Price
----------------- ------------ ---------------------- ---------------------
<S> <C> <C> <C> <C>
$0.72 580,873 45 months $0.72
$3.00 908,000 45 months $3.00
$9.25 100,000 48 months $9.25
</TABLE>
Following is a summary of the status of fixed options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
Weighted Average
Exercise Remaining Weighted Average
Price Range Number Contractual Life Exercise Price
----------------- ------------ ---------------------- ---------------------
<S> <C> <C> <C> <C>
$3.00 - $3.50 335,000 60 months $3.45
$4.00 460,000 55 months $4.00
$5.50 60,000 58 months $5.50
$10.25 11,000 54 months $10.25
$13.13 500,000 53 months $13.13
</TABLE>
e) Common Stock Issuance Settlement
During the years ended December 31, 1998 and 1999, Corporate
Financial Enterprises (CFE) was engaged to complete a private
placement of approximately 2 million shares. This private
placement was to yield proceeds of $1.5 million to the Company. A
former officer of the Company authorized the issuance of over 3.3
million shares under this agreement. The Company received $1.5
million, but received no consideration for the excess shares
issued.
F-28
<PAGE> 85
eSAT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(8) STOCKHOLDERS' EQUITY (Continued)
e) Common Stock Issuance Settlement (Continued)
In settlement of the discrepancy, the Company entered into a
Stock Reconciliation Settlement Agreement with CFE effective
December 31, 1999. Under the terms of the agreement the Company
received $558,310 in cash as settlement for the unpaid stock, net
of unpaid fees owed CFE. The CFE agreement for future fees will
be canceled. Also, the Company will keep a $1 million deposit
made by CFE in anticipation of purchasing certain preferred
shares. CFE waives all rights to receive any preferred shares.
Additionally, approximately 1.8 million shares owned by the
former officer were forfeited and canceled under a resignation
agreement.
(9) BUSINESS COMBINATION
In October, 1998, the Company completed a reverse acquisition with U.S.
Connect 1995, Inc. A total of 11,407,507 common shares were exchanged in
a 1:1 ratio. The transaction was a merger of a private operating company
into a non-operating public shell corporation with nominal assets.
(10) RELATED PARTY TRANSACTIONS
On September 17, 1999, the Company entered into a consulting agreement
(the "Agreement") with Vantage Capital, Inc., which is wholly owned by
Michael Palmer, Chief Executive Officer of eSat, Inc. The Agreement
states that the duties of the consultant include: (1) identifying,
analyzing, structuring, negotiating and financing business sales and/or
acquisitions, including without limitation, merger agreements, stock
purchase agreements, and any agreements relating to financing and/or the
placement of debt or equity securities of the Company; (2) assist the
Company in its corporate strategies; and (3) assist the Company in the
implementation of its business plan, in each case as requested by the
Company. The Agreement provides for compensation in the form of a
monthly retainer of $5,000 in cash or stock, the issuance of 1.2 million
in warrants exercisable at prices ranging from $4.25 to $8.50, a fee of
10% of the total aggregate consideration paid for any acquisition or
sale by the Company of any business, corporation, or division, a fee
equal to 10% of any private or public placement of debt or equity
securities of the Company, and a share in any fees or commissions
payable by third parties on any transaction contemplated by the
Agreement. In accordance with this agreement, a $160,000 liability was
accrued at December 31, 1999.
F-29
<PAGE> 86
eSAT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(10) RELATED PARTY TRANSACTIONS (Continued)
During the year ended December 31, 1999, the Company paid $575,526 to
Parks, Palmer, Turner and Yemenidjian, LLP, a public accounting firm in
which Michael Palmer, the Company's current CEO, was previously the
managing partner. The payments were compensation for the services of
Michael Palmer and associates of the firm.
(11) STATEMENTS OF CASH FLOWS
The net changes in operating assets and liabilities shown on the
statements of cash flows consist of the following:
<TABLE>
<CAPTION>
Restated
1999 1998 1997
<S> <C> <C> <C>
(Increase) Decrease:
Accounts receivable, net $ 30,295 $ 208,022 $(241,405)
Inventory 154,071 (92,820) (139,651)
Other current assets (443,813) -- --
Other assets (53,272) (37,688) 52,500
Increase (Decrease):
Accounts payable 385,639 (105,906) 127,989
Accrued expenses (17,979) (32,345) 138,146
Unearned revenue (38,909) 117,070 --
Other liabilities 587,665 (153,447) 265,956
--------- --------- ---------
$ 603,697 $ (97,114) $ 203,535
========= ========= =========
Operating activities reflect:
Interest paid $ 25,730 $ 11,371 $ 19,145
========= ========= =========
=========
Income taxes paid $ 800 $ 800 $ 800
========= ========= =========
</TABLE>
Non-cash financing transactions consisted of subscription receivables
for stock issuance in the amount of $1,558,510, $0, and $0, and
financing of capitalized leases of $135,100, $0, and $0 at December 31,
1999, 1998, and 1997 respectively.
F-30
<PAGE> 87
eSAT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(12) SUBSEQUENT EVENTS
January 1, 2000, i-Xposure, a subsidiary of eSat, Inc., acquired the
assets of Blackhawk Graphics in exchange for 200,000 i-Xposure shares.
The assets consisted primarily of intellectual property rights and will
be accounted for as a purchase by the subsidiary resulting in
approximately $400,000 of goodwill which will be amortized over seven
years. In addition, the owner of Blackhawk was hired under an employment
agreement that provides for the issuance of 350,000 i-Xposure stock
options after certain milestones are met.
On March 16, 2000, the Company entered into an agreement with a third
party investor to sell 6 million shares of common stock and 6 million
warrants convertible into common stock within 3 years at $3.3125 per
share for a total consideration of $12 million. The proceeds will be
used to retire preferred stock and for acquisitions and general
corporate purposes.
On March 29, 2000, the Company notified the holder of Preferred Stock
Series C of the intent to redeem all 50,000 outstanding shares for
$5,311,824 plus accrued dividends of $60,822.
The Company has signed a letter of intent to acquire InterWireless,
Inc., a wireless Internet service provider, and PacificNet Technologies,
Inc., an Internet service provider.
(13) PRIOR PERIOD ADJUSTMENT
The accompanying financial statements for 1998 have been restated to
correct an error in the application of APB 25, Accounting for Stock
Issued to Employees, made in 1998. The effect of the restatement was to
decrease net income for 1998 by $90,754,014 ($4.98 per share), net of
income tax.
(14) EXTRAORDINARY INCOME
During the year ended December 31, 1998, the Company was released from a
liability to a factoring company. In accordance with SFAS 4 the Company
recorded extraordinary income in the amount of $242,990.
F-31
<PAGE> 88
eSAT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(15) EXTRAORDINARY INCOME (Continued)
The agreement with the factoring organization called for factor to
purchase receivables at a price equal to 80% of the face value of
acceptable accounts from the Company. The Company therefore would
appropriately record the transaction as a sale of receivables with
proceeds of the sale reduced by the fair value of the recourse
obligation. Under the terms of the Agreement, factor earned a fee equal
to 14% of the face amount of the accounts purchased and such fee shall
be taken at the time of collection of an invoice. Factor shall reserve
and hold 2.5% of the face value of purchased accounts for bad debts.
Factor shall be entitled to immediate and full recourse against the
Company to demand payment with respect to a purchase account in the
event that the purchase account is not paid in full within 75 days.
During the course of the relationship with the factor, the Company's
largest client filed a Chapter 7 bankruptcy liquidation resulting in
more than $100,000 in purchased accounts going unpaid. In accordance
with the terms of the Agreement factor made demand upon the Company for
immediate payment plus accrued unpaid fees and interest through the date
of Company's payment.
The Company was released from its liability to the factoring
organization because during the year 1998 it was unable to make payment
under the terms of the agreement, which had been entered into. Upon
breach of the agreement, the liability was transferred to the individual
who had provided a personal guarantee, Mr. David Coulter. This
individual subsequently settled all outstanding obligations with the
factoring organization through the transfer of 25,000 shares of
restricted Rule 144 stock from his name into the name of the factoring
organization and the payment of $89,000 out of his personal account.
F-32
<PAGE> 89
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
<TABLE>
<CAPTION>
Description Amount
<S> <C>
Registration Fee $ 7,510 (1)
----------------
NASD Filing Fee N/A
Legal Fees and Expenses (including Blue Sky) *
Accounting Fees and Expenses *
Transfer Agent Fees and Expenses *
Printing Expenses *
Miscellaneous *
----------------
$ *(2)
</TABLE>
(1) $13,550.72 was paid with the original filing.
(2) While all shares registered for sale are being sold by selling
shareholders, all expenses of issuance and distribution are being
paid by registrant per contractual agreements.
* To be included by amendment.
Item 14. Indemnification of Directors and Officers
Pursuant to the company's articles of incorporation, the personal
liability of a director or officer of the company to the company or a
shareholder for monetary damages for breach of a fiduciary duty is limited to
situations in which a director's or officer's acts or omissions involve
intentional misconduct, fraud or knowing violations of law.
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 documents,
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 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 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
II-1
<PAGE> 90
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 15. Recent Sales of Unregistered Securities
Technology Guardian, Inc., a California corporation, which was merged
into the company, entered into an Agreement with Pacific Capital Group Ltd.
("Pacific Capital"), to sell shares pursuant to the terms of a Confidential
Offering Memorandum dated July 2, 1998 ("Pacific Capital Offering"). Pacific
Capital arranged the sale of 2,092,500 shares at $0.7168 per share for a total
of $1,500,000, of which 754,045 shares were sold under Rule 504 of Regulation D,
and the remaining 1,338,455 under Regulation S.
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.
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 Corporate Financial
Enterprises, Inc. ("CFE") at $0.7168 per share. These shares were issued to
investors in Europe.
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 (the
"October '98 Offering"). 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
II-2
<PAGE> 91
$144,000 nonaccountable expense allowance, warrants to purchase 500,000 shares
of common stock at $2.64 per share exercisable through January, 2004.
Pursuant to the October '98 Offering, we have agreed to issue Loyalty
Options to acquire up to 500,000 shares of our common stock to be granted to
those shareholders who retain ownership of the shares purchased in the October
'98 Offering, 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 CFE, 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 July 22, 1999, seven holders of
warrants exercised their warrants in a cashless exercise with respect to 754,683
shares of common stock. These warrant holders included Tim Shulburn as to 8,033
shares, Chuck Wolf as to 7,949 shares, Tom Jandt as to 10,350 shares, Andrew
Glashow as to 6,143 shares, Lawrence C. Early as to 28,837 shares, and CFE as to
339,093 shares. These shares were issued pursuant to Section 4(2) of the
Securities Act of 1933, as amended. Mr. Early is a former CFO of the company.
On February 8, 1999, a shareholder, Claude E. Lamb, 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, we 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, we issued 205,000 shares under Regulation S to 16
investors residing in Asia.
On January 4, 1999, we issued one share to an investor, Andrea Marti,
for $15.50. This share was issued pursuant to Section 4(2) of the Securities Act
of 1933, as amended.
In December 1998 as partial compensation for work installing and
configuring telephone systems for the company, we issued 1,000 shares to Mr.
David Gallie at a discount to the market. We issued these 1,000 shares at $0.85
per share for total proceeds of $850 on December 18, 1998. These shares were
issued pursuant to Section 4(2) of the Securities Act of 1933, as amended.
In January and February, 1999, we issued 18,487 shares of common stock
to 15 Asian investors pursuant to Regulation S. The shares were sold for $2.45
per share, with the company retaining net proceeds of $1.55 per share, and
paying a commission of $0.90 per share to CFE, pursuant to an agreement executed
by David B. Coulter, a former CEO of the company, and CFE 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.
II-3
<PAGE> 92
Pursuant to the Consulting Agreement, we agreed to issue 2,500,000
shares of Series B 12% Convertible Preferred Stock to CFE for $2.00 per share,
and 1,000,000 shares of Series A 12% Convertible Preferred Stock to VCI for
$2.00 per share.
The Consulting Agreement and the issued and outstanding Series B
Preferred Stock was canceled by mutual agreement of the parties in March 2000.
As part of the settlement, we agreed with CFE to settle a dispute about the
number of common shares issued to CFE and its clients and the amount we received
in payment for those shares. CFE paid us $558,510 and we entered into a mutual
release with CFE for all claims. In addition, CFE agreed to put the shares of
common stock which CFE would receive upon conversion of its warrants into a
voting trust if requested by NASDAQ in order to facilitate a listing on NASDAQ.
Furthermore, all of the outstanding Series A Preferred Stock was
converted into 550,000 shares of common stock in April 2000. The warrants issued
to the former holders of Series A Preferred Stock and Series B Preferred Stock
remain outstanding.
In October 1999, we issued 5,800 shares of common stock to Richard
Singer in connection with a services contract entered into between Richard
Singer and the company. The shares were issued pursuant to Rule 504 of
Regulation D.
In December 1999, we issued 50,000 shares of Series C 6% Convertible
Preferred Stock to Wentworth, LLC for a total of $5,000,000. The Preferred Stock
has a liquidation preference of $100 per share, bears cumulative dividends at 6%
per annum payable in cash or common stock, and is convertible into common stock
at a minimum of $2.50 per share. The shares were issued to an accredited
investor pursuant to Section 4(2) of the Securities Act of 1933, as amended.
In April 2000, we issued 75,000 shares of Series D 6% Convertible
Preferred Stock to Wentworth, LLC for a total of $7,500,000. The Preferred Stock
has a liquidation preference of $100 per share, bears cumulative dividends at 6%
per annum payable in cash or common stock, and is convertible into common stock
at the lesser of $4.30 or 85% of the average closing price for the five trading
days immediately prior to the conversion. The shares were issued to accredited
investors pursuant to Section 4(2) of the Securities Act of 1933, as amended.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Number Description
------ -----------
<S> <C>
2.1 Agreement and Plan of Merger between Technology Guardian, Inc.
and U.S. Connect 1995, Inc., dated September 15, 1998, filed
September 15, 1998 with the Nevada Secretary of State(1)
</TABLE>
II-4
<PAGE> 93
<TABLE>
<S> <C>
2.2 Articles of Merger of Technology Guardian, Inc. and Technology
Guardian, Inc. (formerly U.S. Connect 1995, Inc.), filed October
8, 1998 with the Nevada Secretary of State(1)
2.3 Agreement and Plan of Merger and Reorganization by and among
Registrant, PN Acquisition Co. and PacificNet Technologies, Inc.,
dated as of April 13, 2000(4)
3.1 Certificate of Amended and Restated Articles of Incorporation of
Technology Guardian, Inc., filed September 28, 1995 with the
Nevada Secretary of State(1)
3.2 Certificate of Amendment to Articles of Incorporation of
Technology Guardian, Inc., filed February 4, 1999 with the Nevada
Secretary of State(1)
3.3 Bylaws of U.S. Connect 1995, Inc.(1)
3.4 Certificate of Designations of Series A 12% Convertible Preferred
Stock of Registrant, filed January 26, 2000 with the Nevada
Secretary of State(6)
3.5 Certificate of Designations of Series B 12% Convertible Preferred
Stock of Registrant, filed January 26, 2000 with the Nevada
Secretary of State(6)
3.6 Certificate of Designations of Series C 6% Convertible Preferred
Stock of Registrant, filed December 29, 1999 with the Nevada
Secretary of State(6)
3.7 Certificate of Designations of Series D 6% Convertible Preferred
Stock of Registrant, filed April 19, 2000 with the Nevada
Secretary of State(4)
3.8 Amended and Restated Certificate of Designations of Series C 6%
Convertible Preferred Stock of Registrant(4)
5 Arter & Hadden LLP Opinion re legality(6)
10.1 Stock Option Agreement between Registrant and William Sarpalius,
dated September 1, 1999(1)
10.2 Stock Option Agreements between Registrant and Lori Walker, dated
September 1, 1999(1)
10.3 Stock Option Agreements between Registrant and Carol Sarpalius,
dated September 1, 1999(1)
10.4 Employment Agreement between Registrant and Chester Noblett, Jr.,
dated June 15, 1998(1)
10.5 Stock Option Agreement between Registrant and Chet Noblett, dated
September 15, 1999(1)
10.6 Warrant Agreement between Registrant and Corporate Financial
Enterprises, Inc., dated as of September 17, 1999(6)
</TABLE>
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<PAGE> 94
<TABLE>
<S> <C>
10.7 Warrant Agreement between Registrant and Vantage Capital, Inc.,
dated as of September 17, 1999(6)
10.8 Common Stock Purchase Warrant by and between Registrant and
Wentworth LLC, dated as of December 29, 1999(6)
10.9 Registration Rights Agreement by and among Registrant, Vantage
Capital, Inc., Corporate Financial Enterprises, Inc., and
American Equities, LLC, dated as of November 22, 1999(6)
10.10 Stock Purchase Agreement by and among Registrant and Vantage
Capital, Inc., dated as of November 22, 1999(6)
10.11 Stock Purchase Agreement by and among Registrant, Corporate
Financial Enterprises, Inc. and American Equities, LLC, dated as
of November 22, 1999(6)
10.12 Securities Purchase Agreement by and between Registrant and
Wentworth LLC, dated December 29, 1999(6)
10.13 Registration Rights Agreement by and between Registrant and
Wentworth LLC, dated December 29, 1999(6)
10.14 Side Letter Agreement, dated December 29, 1999, between
Registrant and Wentworth LLC(6)
10.15 Resignation Agreement between Registrant and David Coulter, dated
March 22, 1999(3)
10.16 Master Services Agreement between Registrant and Exodus
Communications, Inc., dated December 30, 1999(6)
10.17 Letter Agreement between Registrant and Parks, Palmer, Turner and
Yemenidjian, LLP for the services of Michael Palmer, dated
November 10, 1998(6)
10.18 Settlement Agreement and Mutual Release by and between Cyber
Village Network, Inc., Chet Noblett, and Technology Guardian,
Inc. and David Coulter, dated October 17, 1997(6)
10.19 Consulting Agreement between Registrant and Vantage Capital,
Inc., dated September 17, 1999(2)
10.20 Loan Out Agreement between Registrant and Vantage Capital Corp.
for the services of Michael Palmer, dated November 1, 1999(6)
</TABLE>
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<PAGE> 95
<TABLE>
<S> <C>
10.21 Employment Agreement between Global Media Technology, Inc. and
Barry B. Sandrew, dated October 7, 1999(6)
10.22 Co-Employment Agreement between Registrant and Employers Resource
Management Company, Inc., for the services of executive officers,
dated September 29, 1998(6)
10.23 Consulting Agreement between Registrant and Herbeck Consulting
Group, Inc., dated December 6, 1999(6)
10.24 Stock Purchase Agreement by and among Registrant, InterWireless,
Inc. and the shareholders of InterWireless, Inc., dated April 13,
2000(4)
10.25 Securities Purchase Agreement by and between Registrant and
Wentworth, LLC, dated April 13, 2000(4)
10.26 Registration Rights Agreement by and between Registrant and
Wentworth, LLC, dated April 13, 2000(4)
10.27 Employment Agreement between Registrant and Steve Tulk, dated
March 15, 2000
10.28 Stock Option Agreement between Registrant and Mark Basile, dated
March 15, 2000
10.29 Stock Option Agreement between Registrant and Steven A. Tulk,
dated January 1, 2000
10.30 Stock Reconciliation Settlement Agreement between Registrant and
Corporate Financial Enterprises, Inc., dated March 28, 2000(5)
10.31 Registrant's 1997 Stock Option and Stock Bonus Plan
10.32 Employment Agreement between Registrant and Richard Elliot, dated
April 13, 2000
</TABLE>
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<PAGE> 96
<TABLE>
<S> <C>
10.33 Employment Agreement between Registrant and David Pennells, dated
April 13, 2000
21 List of Subsidiaries
23.1 Consent of Independent Auditors(6)
23.2 Consent of Counsel (See Exhibit 5)(6)
23.3 Consent of Lichter and Associates, Independent Auditors
23.4 Consent of Carpenter Kuhen & Sprayberry, Independent Auditors
24 Power of Attorney (see signature page of Registration Statement)
27 Financial Data Schedule(5)
99 Federal Communications Commission Radio Station Authorization,
dated August 25, 1999(6)
</TABLE>
(1) Filed as part of Registrant's Form 10 dated March 16, 1999, and
incorporated herein by reference.
(2) Filed as part of Registrant's Form 10 dated November 1, 1999, and
incorporated herein by reference.
(3) Filed as a part of Registrant's Form 10 dated May 11, 1999, and
incorporated herein by reference.
(4) Filed as part of Registrant's Form 8-K dated April 19, 2000, and
incorporated herein by reference.
(5) Filed as part of Registrant's Form 10-K dated March 31, 2000, and
incorporated herein by reference.
(6) Filed as part of Registrant's Form SB-2 (File No. 333-95451) dated
January 26, 2000, and incorporated herein by reference.
Item 17. Undertakings
(a) Rule 415 Offering. Registrant hereby undertakes:
(1) To file, during any period in which it offers securities or
sales are being made, a post-effective amendment to this Registration
Statement:
(i) To include any prospectus required by section 10(a)(3)
of the Securities Act;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the most
recent post-effective
II-8
<PAGE> 97
amendment thereof) which, individually or together, represent a fundamental
change in the information in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) (ss.230.424(b) of this chapter) if, in the
aggregate, the changes in volume and price represent no more than a 20% change
in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement.
(2) That, for determining liability under the Securities Act,
each post-effective amendment shall be deemed to be a new registration statement
of the securities offered herein, and the offering of the securities at that
time shall be deemed to be the initial bona fide offering.
(3) To file a post-effective amendment to remove from
registration any of the securities being registered that remain unsold at the
end of the offering.
(h) Request for acceleration of effective date. Insofar as
indemnification for liabilities arising under the Securities Act of 1933 (the
"Act") may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of competent
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
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<PAGE> 98
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Fountain
Valley, State of California, on May 5, 2000.
ESAT, INC.
By /s/ Michael C. Palmer
------------------------------
Michael C. Palmer,
Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears appoints each of Michael Palmer and
Chester L. Noblett, Jr., his agent and attorney-in-fact, with full power of
substitution to execute for him and in his name, in any and all capacities, all
amendments (including post-effective amendments) to the Registration Statement
to which this power of attorney is attached.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Michael C. Palmer Chief Executive Officer, May 5, 2000
- ----------------------------------- President, Secretary and Director
Michael C. Palmer
/s/ Chester L. Noblett, Jr. Chairman of the Board and May 5, 2000
- ----------------------------------- Assistant Secretary
Chester L. Noblett, Jr.
/s/ Mark S. Basile Chief Financial Officer and May 5, 2000
- ----------------------------------- Principal Accounting Officer
Mark S. Basile
/s/ Gary Pan Director May 5, 2000
- -----------------------------------
Gary Pan
/s/ Salvator A. Piraino Director May 5, 2000
- -----------------------------------
Salvator A. Piraino
</TABLE>
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<PAGE> 99
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Description
------ -----------
<S> <C>
2.2 Articles of Merger of Technology Guardian, Inc. and Technology
Guardian, Inc. (formerly U.S. Connect 1995, Inc.), filed October
8, 1998 with the Nevada Secretary of State(1)
2.3 Agreement and Plan of Merger and Reorganization by and among
Registrant, PN Acquisition Co. and PacificNet Technologies, Inc.,
dated as of April 13, 2000(4)
3.1 Certificate of Amended and Restated Articles of Incorporation of
Technology Guardian, Inc., filed September 28, 1995 with the
Nevada Secretary of State(1)
3.2 Certificate of Amendment to Articles of Incorporation of
Technology Guardian, Inc., filed February 4, 1999 with the Nevada
Secretary of State(1)
3.3 Bylaws of U.S. Connect 1995, Inc.(1)
3.4 Certificate of Designations of Series A 12% Convertible Preferred
Stock of Registrant, filed January 26, 2000 with the Nevada
Secretary of State(6)
3.5 Certificate of Designations of Series B 12% Convertible Preferred
Stock of Registrant, filed January 26, 2000 with the Nevada
Secretary of State(6)
3.6 Certificate of Designations of Series C 6% Convertible Preferred
Stock of Registrant, filed December 29, 1999 with the Nevada
Secretary of State(6)
3.7 Certificate of Designations of Series D 6% Convertible Preferred
Stock of Registrant, filed April 19, 2000 with the Nevada
Secretary of State(4)
3.8 Amended and Restated Certificate of Designations of Series C 6%
Convertible Preferred Stock of Registrant(4)
5 Arter & Hadden LLP Opinion re legality(6)
10.1 Stock Option Agreement between Registrant and William Sarpalius,
dated September 1, 1999(1)
10.2 Stock Option Agreements between Registrant and Lori Walker, dated
September 1, 1999(1)
10.3 Stock Option Agreements between Registrant and Carol Sarpalius,
dated September 1, 1999(1)
10.4 Employment Agreement between Registrant and Chester Noblett, Jr.,
dated June 15, 1998(1)
10.5 Stock Option Agreement between Registrant and Chet Noblett, dated
September 15, 1999(1)
10.6 Warrant Agreement between Registrant and Corporate Financial
Enterprises, Inc., dated as of September 17, 1999(6)
</TABLE>
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<PAGE> 100
<TABLE>
<S> <C>
10.7 Warrant Agreement between Registrant and Vantage Capital, Inc.,
dated as of September 17, 1999(6)
10.8 Common Stock Purchase Warrant by and between Registrant and
Wentworth LLC, dated as of December 29, 1999(6)
10.9 Registration Rights Agreement by and among Registrant, Vantage
Capital, Inc., Corporate Financial Enterprises, Inc., and
American Equities, LLC, dated as of November 22, 1999(6)
10.10 Stock Purchase Agreement by and among Registrant and Vantage
Capital, Inc., dated as of November 22, 1999(6)
10.11 Stock Purchase Agreement by and among Registrant, Corporate
Financial Enterprises, Inc. and American Equities, LLC, dated as
of November 22, 1999(6)
10.12 Securities Purchase Agreement by and between Registrant and
Wentworth LLC, dated December 29, 1999(6)
10.13 Registration Rights Agreement by and between Registrant and
Wentworth LLC, dated December 29, 1999(6)
10.14 Side Letter Agreement, dated December 29, 1999, between
Registrant and Wentworth LLC(6)
10.15 Resignation Agreement between Registrant and David Coulter, dated
March 22, 1999(3)
10.16 Master Services Agreement between Registrant and Exodus
Communications, Inc., dated December 30, 1999(6)
10.17 Letter Agreement between Registrant and Parks, Palmer, Turner and
Yemenidjian, LLP for the services of Michael Palmer, dated
November 10, 1998(6)
10.18 Settlement Agreement and Mutual Release by and between Cyber
Village Network, Inc., Chet Noblett, and Technology Guardian,
Inc. and David Coulter, dated October 17, 1997(6)
10.19 Consulting Agreement between Registrant and Vantage Capital,
Inc., dated September 17, 1999(2)
10.20 Loan Out Agreement between Registrant and Vantage Capital Corp.
for the services of Michael Palmer, dated November 1, 1999(6)
</TABLE>
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<PAGE> 101
<TABLE>
<S> <C>
10.21 Employment Agreement between Global Media Technology, Inc. and
Barry B. Sandrew, dated October 7, 1999(6)
10.22 Co-Employment Agreement between Registrant and Employers Resource
Management Company, Inc., for the services of executive officers,
dated September 29, 1998(6)
10.23 Consulting Agreement between Registrant and Herbeck Consulting
Group, Inc., dated December 6, 1999(6)
10.24 Stock Purchase Agreement by and among Registrant, InterWireless,
Inc. and the shareholders of InterWireless, Inc., dated April 13,
2000(4)
10.25 Securities Purchase Agreement by and between Registrant and
Wentworth, LLC, dated April 13, 2000(4)
10.26 Registration Rights Agreement by and between Registrant and
Wentworth, LLC, dated April 13, 2000(4)
10.27 Employment Agreement between Registrant and Steve Tulk, dated
March 15, 2000
10.28 Stock Option Agreement between Registrant and Mark Basile, dated
March 15, 2000
10.29 Stock Option Agreement between Registrant and Steven A. Tulk,
dated January 1, 2000
10.30 Stock Reconciliation Settlement Agreement between Registrant and
Corporate Financial Enterprises, Inc., dated March 28, 2000(5)
10.31 Registrant's 1997 Stock Option and Stock Bonus Plan
10.32 Employment Agreement between Registrant and Richard Elliot, dated
April 13, 2000
</TABLE>
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<PAGE> 102
<TABLE>
<S> <C>
10.33 Employment Agreement between Registrant and David Pennells, dated
April 13, 2000
21 List of Subsidiaries
23.1 Consent of Independent Auditors(6)
23.2 Consent of Counsel (See Exhibit 5)(6)
23.3 Consent of Lichter and Associates, Independent Auditors
23.4 Consent of Carpenter Kuhen & Sprayberry, Independent Auditors
24 Power of Attorney (see signature page of Registration Statement)
27 Financial Data Schedule(5)
99 Federal Communications Commission Radio Station Authorization,
dated August 25, 1999(6)
</TABLE>
(1) Filed as part of Registrant's Form 10 dated March 16, 1999, and
incorporated herein by reference.
(2) Filed as part of Registrant's Form 10 dated November 1, 1999, and
incorporated herein by reference.
(3) Filed as a part of Registrant's Form 10 dated May 11, 1999, and
incorporated herein by reference.
(4) Filed as part of Registrant's Form 8-K dated April 19, 2000, and
incorporated herein by reference.
(5) Filed as part of Registrant's Form 10-K dated March 31, 2000, and
incorporated herein by reference.
(6) Filed as part of Registrant's Form SB-2 (File No. 333-95451) dated
January 26, 2000, and incorporated herein by reference.
II-14
<PAGE> 1
EXHIBIT 10.27
eSAT, Inc.
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "AGREEMENT") is entered into effective
as of MARCH 15TH, 2000 between eSAT, INC., a Nevada corporation (the "COMPANY")
and Steve Tulk (the "EMPLOYEE").
RECITAL:
A. The Company and Employee desire to enter into this Agreement to assure the
company of the continuing and exclusive services of Employee and to set
forth the rights and duties of the parties.
AGREEMENT:
NOW, THEREFORE, the parties, intending to be legally bound, agree as
follows:
1. EMPLOYMENT.
During the term of this Agreement, the Company shall employ Employee, and
Employee accepts employment, as SENIOR VP BUSINESS DEVELOPMENT AND SENIOR VP
NETWORK SOLUTIONS REPORTING DIRECTLY TO MICHAEL C. PALMER, CHIEF EXECUTIVE
OFFICER OF ESAT INC. Employee's primary duties will be to provide technical
guidance, strategic direction and business development as necessary to eSAT
and in subsidiary companies and interests. Employee will faithfully perform
his duties to the best of his ability in accordance with the reasonable
directions of the Company as given through the Board of Directors and the
Chief Executive Officer and the President. Employee will devote his full
business time, ability, attention and loyalty to the business of the Company
during the term of this Agreement, and will not, directly or indirectly,
render any services of a business, commercial or professional nature to any
other person, firm, corporation or organization for compensation without the
prior written consent of the Company.
2. TERM.
The term of Employee's employment by the Company pursuant to this Agreement
shall be for a period of five (5) years, commencing January 1st, 2000 and
ending December 31st, 2004. The term of Employee's employment is subject to
earlier termination as provided in Section 7.
3. COMPENSATION; FRINGE BENEFITS
3.1 Base Salary. The company shall pay Employee a monthly salary during
the term of this Agreement. This salary shall be a minimum of $12,500
per month and paid on a biweekly basis. Employee's salary shall not
be reduced at any time during the term of this Agreement, but the
foregoing shall not limit the Company's rights under Section 7.
3.2 Bonus. Employee shall be entitled to a yearly bonus, payable in
January of each Calendar year, based on performance up to 100% of
Base Salary as described in Section 3.1. The bonus entitlement will
be determined in accordance with the policies and practices of eSat.
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<PAGE> 2
3.3 Stock Options. Employee and or its nominee shall be awarded stock
options to purchase a total 350,000 shares of the Company's common
stock pursuant to the Company's Stock Option and Stock Bonus Plan at
a value of $4.00 per share vesting 116,667 shares per year over a
three (3) year period beginning January 1st, 2000 (for example,
116,667 vest 1/1/00, 116,667 vest 1/1/01, 116,666 vest 1/1/02). In
the event of the consummation of a Sale Transaction (as defined
below) relating to the Company, the stock options awarded as part of
this agreement and issued pursuant to the Company's Stock Option and
Bonus Plan will automatically vest. A "Sale Transaction" shall mean
the acquisition by a single entity or group of affiliated entries
(other than existing shareholders of the Company or their affiliates)
of more than seventy-five percent (75%) of each class of voting
securities of the Company pursuant to a tender offer or exchange
offer approved in advance by the Board of Directors.
3.4 Relocation. Employee will be reimbursed for the expenses associated
with relocating from Illinois to California as described in Exhibit A
of this Agreement. If the Employee voluntarily leaves the Company
within eighteen (18) months of the transfer date, Employee will be
required to repay all relocation expenses.
3.5 Bridge Loan. For the purpose of purchasing a home in California,
Company will provide Employee with an interest free bridge loan equal
to $150,000 within two (2) weeks of Employee entering into escrow on
the California home. Employee will repay this bridge loan within
three (3) business days following the close of the Illinois escrow.
Employee expects the close of the Illinois escrow to occur no later
than ninety (90) days from the date of this Agreement.
3.6 Taxes. Compensation paid to Employee under Sections 3.1 through 3.3
inclusive, shall be subject to withholding for federal and state
income tax purposes. All payments received by Employee shall be
reported on his federal and state tax returns as compensation for
employment in a manner consistent with this Agreement.
3.7 Expenses. During the employment term, the Company shall reimburse
Employee for reasonable out-of-pocket expenses incurred in performing
direct service for the Company upon submission of receipts to the
Company each month. Any expense of $500 or more must be approved in
advance by the Company. All reimbursements required by this Section
3.8 shall be subject to such reasonable policies and record keeping
as the Company from time to time establish for its employees.
4. CONFIDENTIAL INFORMATION.
Employee shall, during the term of this Agreement and thereafter, hold in
confidence and not disclose to any person or entity without the express
prior authorization of the Company, and all trade secrets of the Company
(including, without limitation, all customer lists and lists of customer
sources), and any and all other secret or confidential information relating
to the services, customers, sales or business affairs of the Company or its
affiliates. Employee agrees that he will not make use of any of the above at
any time after termination of his employment. Upon termination of his
employment, Employee shall deliver to company all documents, records,
notebooks, work papers and similar repositories containing any information
concerning the Company, whether prepared by Employee, the Company, or anyone
else. This Agreement will further incorporate any and all provisions with
respect to confidentiality, trade secrets, secret processes and data to
which Company may be required to cause its employees to agree under the
terms and provisions of any contract entered into by Company with any
customer or client thereof, or under the terms of any subcontract to which
company may be a party, whether the same be in any contract to which the
Company
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<PAGE> 3
is presently a party or may, during the course of this Agreement, become a
party, or under the provisions of any other contract with customer of
Company.
5. NO SOLICITATION OF EMPLOYEES.
Employee agrees that during the term of this Agreement and for a period of
twelve (12) months thereafter, he will not, directly or indirectly, for
himself, or as agent, or on behalf of or in conjunction with any other
person, firm, partnership, corporation or other entity, hire or induce or
entice any employee of the Company or its affiliates to leave such
employment or cause anyone else to do so.
6. ASSIGNMENT.
Employee shall not have any right to delegate or transfer any duty or
obligation to be performed by him to any third party, nor to assign or
transfer the right, if any, to perceive payments under this agreement.
7. TERMINATION
7.1 Methods of Termination. This Agreement and the employment of Employee
may terminate on 30 days written notice with or without cause:
A. By mutual agreement of the parties.
B. By the Company if Employee dies or becomes physically or
mentally disabled (the term "disabled" shall mean any mental
or physical illness or disability that renders the Employee
unable to perform the essential functions of this position,
after reasonable accommodation of such disability by the
Company).
C. By the Company, for cause, if Employee (a) has committed any
material act of dishonesty, fraud or misrepresentation or any
act of moral turpitude; (b) is in default of the performance
of Employee's material obligations, services or duties under
this Agreement; or (c) has failed to execute specific
instructions from the Company's Board of Directors or
executive officers, which failure is not corrected by Employee
after reasonable notice from the Company.
D. By the Company, without cause, at any time during the term of
this Agreement.
E. By the Employee if the Company is in default of its material
obligations or duties under this Agreement.
7.2 Severance. In the event Employee is terminated as described in this
Section 7, upon the termination date, Company shall cease all ongoing
payments as described in this Agreement and pay Employee twelve (12)
months salary as severance.
8. REPRESENTATIONS AND WARRANTIES OF EMPLOYEE.
Employee represents and warrants that there are no agreements or
arrangements, whether written or oral, that would be breached by Employee
upon execution of this Agreement or that would impair or prevent Employee
from rendering exclusive services to the Company during
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<PAGE> 4
the term of this Agreement, and that Employee has not made and will not make
any commitment or do any act in conflict with this Agreement.
9. MISCELLANEOUS.
This Agreement, and the legal relations between the parties, shall be
governed by and construed in accordance with the laws of the State of
California. This Agreement may be modified only with a written instrument
duly executed by each of the parties. No waiver by any party of any breach
of this Agreement shall be deemed to be a waiver of any proceeding or
succeeding breach. The headings and titles to the Sections of this Agreement
may be executed in counterparts, each of which shall be deemed to be an
original, and all such counterparts together shall constitute but one and
the same instrument.
IN WITNESS WHEREOF, the parties have duly executed this Agreement effective
as of the date above written.
ESAT, INC.
By: /s/ MICHAEL PALMER
--------------------------------
Michael Palmer, CEO
EMPLOYEE:
By: /s/ STEVE TULK
--------------------------------
Steve Tulk
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<PAGE> 5
EXHIBIT A
RELOCATION EXPENSES TO BE REIMBURSED BY COMPANY TO EMPLOYEE
1. Transporting Household and Personal Property
This category covers transportation of household and personal
property including:
/ / furniture
/ / personal effects
/ / non-perishable supplies
/ / the cost of disconnecting major appliances
2. Moving of Family
The Employee will be reimbursed for the cost of moving their
family from their former residence to their new one. Meals,
lodging, tolls and mileage as well as tolls and mileage (at the
standard expense account rate) for a second car are included.
3. Additional Moving Costs
As is 1 above from storage, if permanent quarters were not
available in the first instance.
4. Temporary Living Expenses
If the employee experiences a delay in gaining access to their
new home, the company will reimburse the employee for the cost of
meals and lodging for their family at the new location for up to
60 days.
5. House Hunting
The employee and their spouse may make a maximum or two trips
(for no more than a total of four days and three nights). They
are reimbursed for:
a. transportation - car tolls and mileage or airline
tickets, car rental at new location during house
hunting
b. food and lodging
6. Incidental Allowance Related to Relocation
In addition to the above, transferred employees will be paid on
month's salary on the day of transfer, to cover various items
including but not limited to the following:
a. Removal and installation of telephone lines.
b. Cost of altering and installing carpets and draperies.
c. Loss incurred on sale of car.
d. Cost of new drivers' and auto licenses.
e. Losses on club memberships, tuition fees, etc.
f. Nurse or baby sitter expenses.
g. Loss of security deposit.
h. Tax Liabilities for reimbursed items that are not tax
deductible.
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<PAGE> 6
7. Purchase and Sale of Home
A. General
While the primary responsibility for the Employees' home resides
with the Employee, the Company recognizes the expense and
disruption potential that surrounds a real estate transaction and
will make every reasonable effort to make the transaction as
smooth as possible.
B. Sale of Home
The Company:
a. will pay for the standard real estate commission.
b. will pay for the following other customary selling
expenses:
- Appraisal Fees
- Copy Charges
- Credit Report Fee
- Infestation Report
- Inspection(s) Fee
- Lenders Funding/Review Fee
- Mechanics Lien Insurance
- Notary Fees
- Permits
- Realty Transfer Taxes
- Recording Fees
- Settlement Fee
- Survey
- Tax Service Fee
- Title Search and Insurance
- Transfer Stamps
C. Purchase of a New Home - Acquisition Expenses
Employee will be reimbursed for the following costs of purchasing
their new home:
a. Reasonable attorney's fees for preparation or examination
of purchase agreement or deed.
b. Recording mortgage or deed.
c. Title search, attorney's fee for opinion of title and
title insurance.
d. Survey
e. Credit Report
f. State and local transfer tax
g. Escrow agent closing or settlement fee
h. Termite certificate (excluding treatment for infestation)
i. One-time mortgage service charge except when this is
normally the seller's expense in accordance with local law
or custom.
j. Loan origination fee
k. Company will pay, on a monthly basis for a period of five
(5) years or Employees' termination, whichever is shorter,
the difference in interest expense between Employees'
existing mortgage payment in Illinois and Employees' new
mortgage payment in California.
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<PAGE> 7
D. Tax Liabilities
Federal and state tax authorities may consider some of the
reimbursements Employee receives to be taxable income. To offset
the tax effect, the employee will receive a reimbursement for the
additional tax liability associated with the relocation.
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<PAGE> 1
EXHIBIT 10.28
No. 8-032
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 March, 2000, between
eSat, Inc., a Nevada corporation (the "Corporation"), and MARK BASILE (the
"Recipient").
WHEREAS, the Corporation, by action of the Board of Directors on December
2000, has authorized the granting of stock options to purchase 150,000 shares of
this Corporation's common stock, $.001 par value ("Common Stock"), to MARK
BASILE at an exercise price of $ 4.187 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 MARK BASILE an option to
purchase (the "Option") an aggregate of 150,000 shares of the
Corporation's common stock for a purchase price of $ 4.187 per share (the
"Option Price").
2. Vesting of Option. This option shall vest as to 50,000 of the shares
covered hereby on the one year anniversary and 50,000 of the shares
covered hereby on the second year anniversary of the date of Grant and
50,000 of the shares covered herby on the third year anniversary of the
date of Grant.
3. Exercise of Option. Except as otherwise provided in Sections 3, 4, & 6 of
this Agreement, 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.
4. Manner of Exercise.
(a) During the lifetime of the Recipient, only he/she 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
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<PAGE> 2
the date of delivery equal to the aggregate
purchase price of the shares with respect to which such
Option or portion thereof is exercised.
5. Term of Option. The term of the Option will be through March 15, 2004,
subject to Paragraphs 7 and 8 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.
6. 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:
NONE.
7. 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.
8. 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 Section 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> 3
9. 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.
10. 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 10 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
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<PAGE> 4
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 10, 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.
11. 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 11
12. 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.
13. 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.
14. 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.
15. 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
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<PAGE> 5
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.
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___________, 2000 Signature:_______________________________
Printed Name:____________________________
Tax ID # (SSN):__________________________
Address:_________________________________
_________________________________
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<PAGE> 1
EXHIBIT 10.29
No. 8-030
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 1st day of January, 2000,
between eSat, Inc., a Nevada corporation (the "Corporation"), and STEVEN A. TULK
(the "Recipient").
WHEREAS, the Corporation, by action of the Board of Directors on January
2000, has authorized the granting of stock options to purchase 350,000 shares of
this Corporation's common stock, $.001 par value ("Common Stock"), to RECIPIENT
at an exercise price of $ 4.00 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 RECIPIENT an option to
purchase (the "Option") an aggregate of 350,000 shares of the
Corporation's common stock for a purchase price of $ 4.00 per share (the
"Option Price").
2. Vesting of Option. This option shall vest as to 116,667 of the shares
covered hereby immediately and 116,667 of the shares covered hereby on the
one year anniversary of the date of Grant and 116,666 of the shares
covered herby on the second year anniversary of the date of Grant.
3. Exercise of Option. Except as otherwise provided in Sections 3, 4, & 6 of
this Agreement, 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.
4. Manner of Exercise.
(a) During the lifetime of the Recipient, only he/she 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
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<PAGE> 2
the date of delivery equal to the aggregate
purchase price of the shares with respect to which such
Option or portion thereof is exercised.
5. Term of Option. The term of the Option will be through January 1, 2004,
subject to Paragraphs 7 and 8 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.
6. 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:
NONE.
7. 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.
8. 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 Section 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> 3
9. 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.
10. 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 10 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
-3-
<PAGE> 4
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 10, 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.
11. 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 11
12. 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.
13. 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.
14. 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.
15. 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
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<PAGE> 5
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.
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 /s/ [Signature Illegible]
---------------------------
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 3/24/ , 2000 Signature: /s/ STEVEN A. TULK
---------- --------------------------------
Printed Name: STEVEN A. TULK
-----------------------------
Tax ID # (SSN): 568 19 5189
---------------------------
Address: 1127 WINDBROOKE DR., #201
---------------------------------
BUFFALO GROVE, IL 60089
---------------------------------
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<PAGE> 1
EXHIBIT 10.31
TECHNOLOGY GUARDIAN, INC.
1997 STOCK OPTION AND STOCK BONUS PLAN
Purposes of and Benefits Under the Plan. This 1997 Stock Option and
Stock Bonus Plan (the "Plan") is intended to encourage stock ownership by
employees, officers, directors of and consultants to Technology Guardian, Inc.
and its controlled, affiliated subsidiary corporations (collectively, the
"Corporation"), so that they may acquire or increase their proprietary interest
in the Corporation, and is intended to facilitate the Corporation's efforts to
(i) induce qualified persons to become employees or officers of or consultants
to the Corporation; (ii) compensate employees, officers, directors and
consultants for services to the Corporation; and (iii) encourage such persons to
remain in the employ of or associated with the Corporation and to put forth
maximum efforts, for the success of the Corporation.
It is intended that options granted by the Committee pursuant to Section
5(a) of this Plan shall constitute "incentive stock options" ("Incentive Stock
Options") within the meaning of Section 422 of the Internal Revenue Code, and
the regulations issued thereunder, and options granted by the Committee pursuant
to Sections 5(b) of this Plan shall constitute "non-qualified stock options"
("Non-qualified Stock Options").
1. Definitions. As used in this Plan, the following words and
phrases shall have the meanings indicated:
(a) "Board" shall mean the Board of Directors of the Corporation.
(b) "Code" means Internal Revenue Code of 1986, as amended.
(c) "Committee" shall mean the Compensation Committee appointed
by the Board, if one has been appointed. If no Committee has been appointed, the
term "Committee" shall mean the Board.
(d) "Common Stock" shall mean the Corporation's $.001 par value
common stock.
(e) "Exchange Act" means Securities Exchange Act of 1934, as
amended from time to time.
(f) "Disability" means a Recipient's inability to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment that can be expected to result in death or that has lasted or
can be expected to last for a continuous period of not less than 12 months, or
such other meaning ascribed in Section 22(e)(3) or any successor provision of
the Code. If the Recipient has a disability insurance policy, the term
"Disability" shall be as defined therein; provided that said definition is not
inconsistent with the meaning ascribed in Section 22(e)(3) of the Code.
<PAGE> 2
(g) "Fair Market Value" per share as of a particular date means
the last sale price of the Common Stock as reported on a national securities
exchange or on the NASDAQ National Market System or, if the quotation for the
last sale reported is not available for the Common Stock, the average of the
closing bid and asked prices of the Common Stock as reported by NASDAQ or on the
electronic bulletin board or, if none, the National Quotation Bureau, Inc.'s
"Pink Sheets" or, if such quotations are unavailable, the value determined by
the Committee in accordance with its discretion in making a bona fide, good
faith determination of fair market value. Fair Market Value shall be determined
without regard to any restriction other than a restriction which, by its terms,
will never lapse. In the case of Bonuses granted at a time when the Corporation
does not have a registration statement in effect relating to the shares issuable
hereunder, the value at which the Bonus shares are issued may be determined by
the Committee at a reasonable discount from Fair Market Value to reflect the
restricted nature of the shares to be issued and the inability of the Recipient
to sell those shares promptly.
(h) "Option" means either an Incentive Stock Option or a
Non-qualified Stock Option, or both of them.
(i) "Option Price" means the purchase price of the shares of
Common Stock covered by an Option determined in accordance with Section 6(c)
hereunder.
(j) "Parent" means any corporation which is a "parent
corporation" as defined in Section 424(e) of the Code, with respect to the
Corporation.
(k) "Plan" means this Stock Option and Stock Bonus Plan.
(l) "Recipient" means any person granted an Option or awarded a
Bonus hereunder.
(m) "Securities Act" means the Securities Act of 1933 ), as
amended from time to time.
(n) "Subsidiary" means any corporation which is a "subsidiary
corporation" as defined in Section 424(o of the Code, with respect to the
Corporation.
2. Administration.
(a) The Plan shall be administered by the Committee. The
Committee shall have the authority in its discretion, subject to and not
inconsistent with the express provisions of the Plan, to administer the Plan and
to exercise all the powers and authorities either specifically conferred under
the Plan or necessary or advisable in the administration of the Plan, including
the authority to grant Options and Bonuses; to determine the vesting schedule
and other restrictions, if any, relating to Options and Bonuses; to determine
the Option Price; to determine the persons to whom, and the time or times at
which, Options and Bonuses shall be granted; to determine the number of shares
to be covered by each Option or Bonus; to determine Fair Market Value per share;
to interpret the Plan; to prescribe, amend and rescind rules and regulations
relating to the Plan; to determine the terms and provisions of the Option
agreements (which need not be identical) entered into in connection with Options
granted under the Plan; and to make all other
2.
<PAGE> 3
determinations deemed necessary or advisable for the administration of the Plan.
The Committee may delegate to one or more of its members or to one or more
agents such administrative duties as it may deem advisable, and the Committee or
any person to whom it has delegated duties as aforesaid may employ one or more
persons to render advice with respect to any responsibility the Committee or
such person may have under the Plan.
(b) Options and Bonuses granted under the Plan shall be evidenced
by duly adopted resolutions of the Committee included in the minutes of the
meeting at which they are adopted or in a unanimous written consent.
(c) With respect to persons subject to Section 16 of the Exchange
Act, transactions under this Plan are intended to comply with all applicable
conditions of Rule 16b-3 or any successor regulation under the Exchange Act. To
the extent any provision of this Plan or action by the Committee fails to so
comply, it shall be deemed null and void, to the extent permitted by law and
deemed advisable by the Committee. Any Option granted hereunder which would
subject or subjects the Recipient to liability under Section 16(b) of the
Exchange Act is void ab initio as if it had never been granted.
(d) No member of the Committee or the Board shall be liable for
any action taken or determination made in good faith with respect to the Plan or
any Option or Bonus granted hereunder.
3. Eligibility.
(a) Subject to certain limitations hereinafter set forth, Options
and Bonuses may be granted to employees, officers, directors of and consultants
to the Corporation. In determining the persons to whom Options or Bonuses shall
be granted and the number of shares to be covered by each Option or Bonus, the
Committee shall take into account the duties of the respective persons, their
present and potential contributions to the success of the Corporation, and such
other factors as the Committee shall deem relevant to accomplish the purposes of
the Plan.
(b) A Recipient shall be eligible to receive more than one grant
of an Option or Bonus during the term of the Plan, on the terms and subject to
the restrictions herein set forth.
4. Stock Reserved.
(a) The stock subject to Options or Bonuses hereunder shall be
shares of Common Stock. Such shares, in whole or in part, may be authorized but
unissued shares or shares that shall have been or that may be reacquired by the
Corporation. The aggregate number of shares of Common Stock as to which Options
and Bonuses may be granted from time to time under the Plan shall not exceed
1,200,000 shares, subject to adjustment as provided in Section 6(i) hereof.
(b) If any Option outstanding under the Plan for any reason
expires or is terminated without having been exercised in full, or if any Bonus
granted is forfeited because of vesting or other restrictions imposed at the
time of grant, the shares of Common Stock allocable
3.
<PAGE> 4
to the unexercised portion of such Option or the forfeited portion of the Bonus
shall become available for subsequent grants of Options and Bonuses under the
Plan, unless the Plan shall have been terminated..
5. Stock Options.
(a) Incentive Stock Options.
(1) Options granted pursuant to this Section 5(a) are
intended to constitute Incentive Stock Options and shall be subject to the
following special terms and conditions, in addition to the general terms and
conditions specified in Section 6 hereof. Only employees of the Corporation (as
the term "employees" is defined for the purposes of the Internal Revenue Code)
shall be entitled to receive Incentive Stock Options.
(2) The aggregate Fair Market Value (determined as of the
date the Incentive Stock Option is granted) of the shares of Common Stock with
respect to which Incentive Stock Options granted under this and any other plan
of the Corporation or any Parent corporation or Subsidiary corporation are
exercisable for the first time by an Recipient during any calendar year may not
exceed the amount set forth in Section 422(d) of the Code, as amended from time
to time.
(3) Incentive Stock Options granted under this Plan are
intended to satisfy all requirements for incentive stock options under Section
422 of the Code and the Treasury Regulations thereunder and, notwithstanding any
other provision of this Plan, the Plan and all Incentive Stock Options granted
under it shall be so construed, and all contrary provisions shall be so limited
in scope and effect and, to the extent they cannot be so limited they shall be
void, except as otherwise provided in Section 9 hereof.
(b) Non-Qualified Stock Options. Options granted pursuant to this
Section 5(b) are intended to constitute Non-qualified Stock Options and shall be
subject only to the general terms and conditions specified in Section 6 hereof,
and as determined by resolutions of the Committee.
6. Terms and Conditions of Option. Each Option granted pursuant to the
Plan shall be evidenced by a written Option agreement between the Corporation
and the Recipient, which agreement shall be substantially in the form of Exhibit
A hereto as modified from time to time by the Committee in its discretion, and
which shall comply with and be subject to the following terms and conditions:
(a) Number of Shares. Each Option agreement shall state the
number of shares of Common Stock covered by the Option.
(b) Type of Option. Each Option agreement shall specifically
identify the portion, if any, of the Option which constitutes an Incentive Stock
Option and the portion, if any, which constitutes a Non-qualified Stock Option.
4.
<PAGE> 5
(c) Option Price. Each Option agreement shall state the Option
Price, which shall be determined by the Committee subject only to the following
restrictions:
(4) The Option Price of any Incentive Stock Option shall
be not less than 100% of the Fair Market Value per share on the date of grant of
the Option; provided, however, that any Incentive Stock Option granted under the
Plan to a person owning more than ten percent of the total combined voting power
of the Common Stock shall have an Option Price of not less than 110% of the Fair
Market Value per share on the date of grant of the Incentive Stock Option.
(5) Any Non-qualified Stock Option granted under the Plan
shall be at a price not less than 85% of the Fair Market Value per share on the
date of grant.
(3) The Option Price shall be subject to adjustment as
provided in Section 6(i) hereof.
(d) Term of Option. Each Option agreement shall state the period
during and times at which the Option shall be exercisable; provided, however:
(1) The date on which the Committee adopts a resolution
expressly granting an Option shall be considered the day on which such Option is
granted, unless a future date is specified in the resolution; provided, however,
the Recipient shall have no rights under the grant until the Recipient has
executed an Option agreement with respect to such Option.
(2) Except as further restricted in paragraph 6(d)(3), the
exercise period shall not exceed ten years from the date of grant of the Option.
(6) Incentive Stock Options granted to a person owning
more than ten percent of the total combined voting power of the Common Stock of
the Corporation shall be for no more than five (5) years.
(4) The Committee shall have the authority to accelerate
or extend the exercisability of any outstanding Option at such time and under
such circumstances as it, in its sole discretion, deems appropriate. No exercise
period may be so extended to increase the term of the Option beyond ten years
from the date of the grant, or five years in the case of Incentive Stock Options
granted to any person owning more than ten percent of the total combined voting
power of the Common Stock of the Corporation.
(5) The exercise period shall be subject to earlier
termination as provided in Sections 6(f) and 6(g) hereof, and, furthermore,
shall be terminated upon surrender of the Option by the holder thereof if such
surrender has been authorized in advance by the Committee.
(e) Method of Exercise and Medium and Time of Payment.
(1) An Option may be exercised as to any or all whole
shares of Common Stock as to which it then is exercisable.
5.
<PAGE> 6
(2) Each exercise of an Option granted hereunder, whether
in whole or in part, shall be effected by written notice to the Secretary of the
Corporation designating the number of shares as to which the Option is being
exercised, and shall be accompanied by payment in full of the Option Price for
the number of shares so designated, together with any written statements
required by, or deemed by the Corporation's counsel to be advisable pursuant to,
any applicable securities laws.
(3) The Option Price shall be paid in cash, or in shares
of Common Stock having a Fair Market Value equal to such Option Price or in
property or a combination of cash, shares and property and subject to approval
of the Committee, may be effected in whole or in part (A) with monies received
from the Corporation at the time of exercise as a compensatory cash payment, or
(B) with monies borrowed from the Corporation pursuant to repayment terms and
conditions as shall be determined from time to time by the Committee, in its
discretion, separately with respect to each exercise of an Option and each
Recipient; provided, however, that each such method and time for payment and
each such borrowing and the terms and conditions of repayment shall be permitted
by and be in compliance with applicable law.
(7) The Committee shall have the sole and absolute
discretion to determine whether or not property other than cash or Common Stock
may be used to purchase the shares of Common Stock hereunder and, if so, to
determine the value of the property received.
(8) The Recipient shall make provision for the withholding
of taxes as required by Paragraph 8 hereof.
(f) Termination. Except as provided herein or in the Option
Agreement by and between the Corporation and the Recipient, an Option may not be
exercised unless the Recipient then is an employee, officer, director or
consultant to the Corporation or a Subsidiary or Parent of the Corporation, and
unless the Recipient has remained continuously as an employee, officer, director
or consultant to the Corporation since the date of grant of the Option.
(1) If the Recipient ceases to be an employee, officer,
director or consultant of the Corporation or a Subsidiary or Parent of the
Corporation (other than by reason of death, Disability or retirement), other
than for cause, all Options theretofore granted to such Recipient but not
theretofore exercised shall terminate on the ninetieth day following the date
the Recipient ceased to be an employee, officer, director or consultant to, the
Corporation.
(2) If the Recipient ceases to be an employee, officer,
director or consultant of the Corporation or a Subsidiary or Parent of the
Corporation by reason of termination for cause, all Options theretofore granted
to such Recipient but not theretofore exercised shall terminate thirty days
after the date the Recipient ceases to be an employee, officer, director or
consultant of the Corporation
(3) Nothing in the Plan or in any Option or Bonus granted
hereunder shall confer upon an individual any right to continue in the employ of
or other relationship with
6.
<PAGE> 7
the Corporation or interfere in any way with the
right of the Corporation to terminate such employment or other relationship
between the individual and the Corporation.
(g) Death, Disability or Retirement of Recipient. Unless
otherwise provided in the Option Agreement by and between the Corporation and
the Recipient, if a Recipient shall die while an employee, officer, director or
a consultant to the Corporation, or if the Recipient's employment, officer
status or consulting relationship shall terminate by reason of Disability or
retirement, all Options theretofore granted to such Recipient, whether or not
otherwise exercisable, unless earlier terminated in accordance with their terms,
may be exercised by the Recipient or by the Recipient's estate or by a person
who acquired the right to exercise such Options by bequest or inheritance or
otherwise by reason of the death or Disability of the Recipient, at any time
within one year after the date of death, Disability or retirement of the
Recipient; provided, however, that in the case of Incentive Stock Options such
one-year period shall be limited to three months in the case of retirement.
(h) Transferability Restriction.
(1) Options granted under the Plan shall not be
transferable other than by will or by the laws of descent and distribution or
pursuant to a qualified domestic relations order as defined by the Code or Title
I of the Employee Retirement Income Security Act of 1974, or the rules
thereunder. Options may be exercised during the lifetime of the Recipient only
by the Recipient and thereafter only by his legal representative or permitted
assignee.
(2) Any attempted sale, pledge, assignment, hypothecation
or other transfer of an Option contrary to the provisions hereof and/or the levy
of any execution, attachment or similar process upon an Option, shall be null
and void and without force or effect and shall result in a termination of the
Option.
(3)(A) As a condition to the transfer of any shares of
Common Stock issued upon exercise of an Option granted under this Plan, the
Corporation may require an opinion of counsel, satisfactory to the Corporation,
to the effect that such transfer will not be in violation of the Securities Act
or any other applicable securities law or that such transfer has been registered
under federal and all applicable state securities laws. (B) Further, the
Corporation shall be authorized to refrain from delivering or transferring
shares of Common Stock issued under this Plan until the Committee determines
that such delivery or transfer will not violate applicable securities laws and
the Recipient has tendered to the Corporation any federal, state or local tax
owed by the Recipient as a result of exercising the Option or disposing of any
Common Stock when the Corporation has a legal liability to satisfy such tax. (C)
The Corporation shall not be liable for damages due to delay in the delivery or
issuance of any stock certificate for any reason whatsoever, including, but not
limited to, a delay caused by listing requirements of any securities exchange or
the National Association of Securities Dealers, or any registration requirements
under the Securities Act, the Exchange Act, or under any other state or federal
law, rule or regulation. (D) The Corporation is under no obligation to take any
action or incur any expense in order to register or qualify the delivery or
transfer of shares of Common Stock under applicable securities laws or to
perfect any exemption from such registration or qualification. (E) Furthermore,
the Corporation will not be liable to any Recipient for failure to
7.
<PAGE> 8
deliver or transfer shares of Common Stock if such failure is based upon the
provisions of this paragraph.
(i) Effect of Certain Changes.
(1) 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
Committee 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.
(2) 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 Committee may provide that the holder of each Option then
exercisable 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 holder 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; sale or transfer
of assets or tender offer or exchange offer, or, in the alternative the
Committee may provide that each Option granted under the Plan shall terminate as
of a date fixed by the Committee; provided, however, that not less than 30 days'
written notice of the date so fixed shall be given to each Recipient, who shall
have the right, during the period of 30 days preceding such termination, to
exercise the Option to the extent then exercisable. To the extent that Section
422(d) of the Code would not permit the provisions of this paragraph (2) to
apply to any outstanding Incentive Stock Options, such Incentive Stock Options
shall immediately upon the occurrence of the event described in this paragraph
(2), be treated for all purposes of the Plan as Non-qualified Stock Options and
shall be immediately exercisable as such as provided in this paragraph (2).
(3) Paragraph (2) of this Section 6(i) 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 Committee may provide that the holder of each Option then
exercisable shall have the fight to exercise such
8.
<PAGE> 9
Option solely for the kind and amount of shares of stock and other securities
(including those of any new direct or indirect Parent of the Corporation),
property, cash or any combination thereof receivable upon such reclassification,
change, consolidation or merger by the holder of the number of shares of Common
Stock for which such Option might have been exercised.
(4) 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 the Plan.
(5) To the extent that the foregoing adjustments relate to
stock or securities of the Corporation, such adjustments shall be made by the
Committee, whose determination in that respect shall be final, binding and
conclusive, provided that each Incentive Stock Option granted pursuant to this
Plan shall not be adjusted in a manner that causes such option to fail to
continue to qualify as an Incentive Stock Option within the meaning of Section
422 of the Code, except as otherwise provided in Section 6(i)(2) hereof.
(6) Except as expressly provided in this Section 6(i) 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 or decrease 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 affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of shares of Common
Stock subject to an Option. The grant of an Option under the Plan 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.
(j) Rights as Shareholder - Non-Distributive Intent.
(1) Neither a Recipient of an Option nor such Recipient's
legal representative, heir, legatee or distributee, shall be deemed to be the
holder of, or to have any rights of a holder with respect to, any shares subject
to such Option until after the Option is exercised and the shares are issued to
the person exercising such Option.
(2) No adjustment shall be made for dividends (ordinary or
extraordinary, whether in cash, securities or other property) or distributions
or other rights for which the record date is prior to the date such stock
certificate is issued, except as provided in Section 6(i) hereof.
(3) Upon exercise of an Option at a time when there is no
registration statement in effect under the Securities Act relating to the shares
issuable upon exercise, shares may be issued to the Recipient only if the
Recipient represents and warrants in writing to the Corporation that the shares
purchased are being acquired for investment and not with a view to
9.
<PAGE> 10
the distribution thereof and provides the Corporation with sufficient
information to establish an exemption from the registration requirements of the
Securities Act. A form of subscription agreement is attached hereto as Exhibit
B.
(4) No shares shall be issued upon the exercise of an
Option unless and until there shall have been compliance with any then
applicable requirements of the U.S. Securities and Exchange Commission or any
other regulatory agencies having jurisdiction over the Corporation.
(k) Other Provisions. Option Agreements authorized under the Plan
may contain such other provisions as the Committee shall deem advisable,
including, without limitation, (i) the imposition of restrictions upon the
vesting and exercise of an Option; and (ii) in the case of an Incentive Stock
Option, the inclusion of any condition not inconsistent with such Option
qualifying as an Incentive Stock Option, as the Committee shall deem advisable.
7. Grant of Stock Bonuses. In addition to, or in lieu of, the grant
of an Option, the Committee may grant Bonuses.
(a) At the time of grant of a Bonus, the Committee may impose a
vesting period of up to five years, and such other restrictions which it deems
appropriate. Unless otherwise directed by the Committee at the time of grant of
a Bonus, the Recipient shall be considered a shareholder of the Corporation as
to the Bonus shares which have vested in the grantee at any time regardless of
any forfeiture provisions which have not yet arisen.
(b) The grant of a Bonus 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 and the 1934 Act, other
applicable securities laws, rules and regulations, and the requirements of any
stock exchanges upon which the Common Stock then may be listed. Any certificates
prepared to evidence Common Stock issued pursuant to a Bonus grant shall bear
legends as the Corporation's counsel may seem necessary or advisable. Included
among the foregoing requirements, but without limitation, any Recipient of a
Bonus at a time when a registration statement relating thereto is not effective
under the Securities Act shall execute a Subscription Agreement substantially in
the form of Exhibit B.
8. Agreement by Recipient Regarding Withholding Taxes. Each
Recipient agrees that the Corporation, to the extent permitted or required by
law, shall deduct a sufficient number of shares due to the Recipient upon
exercise of the Option or the grant of a Bonus to allow the Corporation to pay
federal, state and local taxes of any kind required by law to be withheld upon
the exercise of such Option or payment of such Bonus from any payment of any
kind otherwise due to the Recipient. The Corporation shall not be obligated to
advise any Recipient of the existence of any tax or the amount which the
Corporation will be so required to withhold.
9. Term of Plan. Options and Bonuses may be granted under this Plan
from time to time until December 9, 2007, which is ten years from the date the
Plan was originally adopted by the Board.
10.
<PAGE> 11
10. Amendment and Termination of the Plan. The Committee at any time and
from time to time may suspend, terminate, modify or amend the Plan. Except as
provided in Section 6 hereof, no suspension, termination, modification or
amendment of the, Plan may adversely affect any Option or Bonus previously
granted, unless the written consent of the Recipient is obtained.
11. Assumption. Subject to Section 6, the terms and conditions of any
outstanding Options granted pursuant to this Plan shall be assumed by, be
binding upon and shall inure to the benefit of any successor corporation to the
Corporation and shall continue to be governed by, to the extent applicable, the
terms and conditions of this Plan. Such successor corporation may, but shall not
be obligated to assume this Plan.
12. Termination of Right of Action. Every right of action arising out of
or in connection with the Plan by or on behalf of the Corporation, or by any
shareholder of the Corporation against any past, present or future member of the
Board or the Committee, or against any employee, or by an employee (past,
present or future) against the Corporation, irrespective of the place where an
action may be brought and of the place of residence of any such shareholder,
director or employee, will cease and be barred by the expiration of three years
from the date of the act or omission in respect of which such fight of action is
alleged to have risen or such shorter period as may be provided by law.
13. Tax Litigation. The Corporation shall have the right, but not the
obligation, to contest, at its expense, any tax ruling or decision,
administrative or judicial, on any issue which is related to the Plan and which
the Committee believes to be important to holders of Options or Common Stock
issued pursuant to Bonuses granted under the Plan and to conduct any such
contest or any litigation arising therefrom to a final decision.
14. Adoption.
(a) This Plan was approved by the Board of Directors of the
Corporation effective December 10, 1997.
(b) This Plan was approved by the shareholders of the Corporation
on December 10, 1997.
TECHNOLOGY GUARDIAN, INC.
By
---------------------------------
David B. Coulter, President
11.
<PAGE> 12
Exhibit A
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT effective as of this __th day of ______, 199__
between TECHNOLOGY GUARDIAN, INC., a California corporation (the "Corporation"),
and ___________________ (the "Recipient").
In accordance with its Stock Option and Bonus Plan (the "Plan"), a copy
of which has been provided to the Recipient and is incorporated herein by
reference, the Corporation desires, in connection with the services of the
Recipient, to provide the Recipient with an opportunity to acquire $0.001 par
value common stock ("Common Stock") of the Corporation on favorable terms and
thereby increase the Recipient's proprietary interest in the Corporation and as
incentive to put forth maximum efforts for the success of the business of the
Corporation. All capitalized terms not otherwise defined herein shall be as
defined in the Plan.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein set forth and other good and valuable consideration, the Corporation and
the Recipient agree as follows:
1. Confirmation of Grant of Option. Pursuant to a determination of the
Committee (as defined in the Plan) made on __________ 199__ (the "Date of
Grant"), the Corporation subject to the terms of the Plan and of this Agreement,
confirms that the Recipient irrevocably has been granted on the Date of Grant,
as a matter of separate inducement and agreement, and in addition to and not in
lieu of salary or other compensation for services, an [INCENTIVE/NON-QUALIFIED]
Stock Option pursuant to Section [5(a) FOR INCENTIVE STOCK OPTIONS OR 5(b) FOR
NON-QUALIFIED] of the Plan (the "Option") to purchase an aggregate of __________
shares of Common Stock on the terms and conditions herein set forth, subject to
adjustment as provided in Paragraph 9 hereof.
2. Option Price. The Option Price per share of Common Stock covered by
the Option will be $__________ (the "Option Price") subject to adjustment as
provided in Paragraph 9 hereof.
3. Vesting of Option. This option shall vest as to [20%?] of the shares
covered hereby on the one year anniversary of the date of Grant. Thereafter,
this Option shall vest as to an additional [20%?l of the shares covered hereby,
cumulatively, on the [SECOND, THIRD, FOURTH AND FIFTH ANNIVERSARY] dates of the
Date of Grant.
4. Exercise of Option. Except as otherwise provided in Paragraph 3
above, 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 (i) after the expiration of the term thereof, and (ii) unless the
holder shall at the time of exercise have been an employee, officer or director
of or a consultant to the corporation for a period of at least six months.
The Option may be exercised, as provided in this Paragraph 4, by notice
and payment to the Corporation as provided in Paragraph 9 hereof and Section
6(e) of the Plan.
A-1
<PAGE> 13
5. Term of Option. The term of the Option will be through __[NOT MORE
THAN 10 YEARS FROM DATE OF GRANT]__ subject to earlier termination or
cancellation as provided in this Agreement. Except as otherwise provided in
Paragraphs 8 and 9 hereof, the Option will not be exercisable unless the
Recipient shall, at the time of exercise, be an employee, officer, director of
or consultant to the Corporation.
The holder 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.
6. Transferabili1y 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) except in strict compliance with
Section 6(h) of the Plan. 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 will cause the Option to terminate
immediately upon the happening of any such event, 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.
7. Exercise Upon Termination. The Recipient's rights to exercise this
Option upon termination of employment or cessation as an officer, director or
consultant shall be as set forth in Section 6(0 of the Plan.
8. Death, Disability or Retirement of Recipient. The Recipient's rights
to exercise this Option upon the death, disability or retirement of the
Recipient shall be as set forth in Section 6(g) of the Plan.
9. Adjustments. The Option shall be subject to adjustment upon the
occurrence of certain events as set forth in Section 6(i) of the Plan.
10. 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 David B. Coulter,
Chairman of the Board of Directors, at 14600 Goldenwest Street, Suite 203,
Westminster, California 92683. 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 10.
11. 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 Corporations 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 then may be listed.
A-2
<PAGE> 14
12. 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.
13. 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 any regulatory or governmental
agency which, in the opinion of counsel for the Corporation, may be required.
14. Conflicts with the Plan. If any provision in this Agreement
conflicts with a provision in the Plan, the Plan shall govern.
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
----------------------------------------------------
David B. Coulter, Chairman of the Board of Directors
A-3
<PAGE> 15
The undersigned Recipient understands the terms of this Option
Agreement. The undersigned acknowledges that he or she can receive a copy of the
Plan by request to the Corporation. The undersigned agrees to comply with the
terms and conditions of the Plan.
Date __________, 1997
-----------------------------------------
Recipient:
-------------------------------
Tax ID Number:
---------------------------
Address:
---------------------------------
-----------------------------------------
-----------------------------------------
A-4
<PAGE> 16
Exhibit B
SUBSCRIPTION AGREEMENT
THE SECURITIES BEING ACQUIRED BY THE UNDERSIGNED HAVE NOT BEEN REGISTERED UNDER
THE U.S. SECURITIES ACT OF 1933 OR ANY OTHER LAWS AND ARE OFFERED UNDER
EXEMPTIONS FROM THE REGISTRATION PROVISIONS OF SUCH LAWS. THESE SECURITIES
CANNOT BE SOLD, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF EXCEPT IN
COMPLIANCE WITH THE RESTRICTIONS ON TRANSFER CONTAINED IN THIS STOCK
SUBSCRIPTION AGREEMENT AND APPLICABLE SECURITIES LAWS.
This Subscription Agreement is entered for the purpose of the
undersigned acquiring __________ shares of the $0.001 par value common stock
(the "Securities") of Technology Guardian, Inc., a California corporation (the
"Corporation") from the Corporation as a Bonus or pursuant to exercise of an
Option granted pursuant to the Technology Guardian, Inc. 1997 Stock Option and
Stock Bonus Plan (the "Plan"). All capitalized terms not otherwise defined
herein shall be as defined in the Plan.
It is understood that no grant of any Bonus or exercise of any Option at
a time when no registration statement relating thereto is effective under the
Securities Act can be completed until the undersigned executes this Subscription
Agreement and delivers it to the Corporation, and that such grant or exercise is
effective only in accordance with the terms of the Plan and this Subscription
Agreement.
In connection with the undersigned's acquisition of the Securities, the
undersigned represents and warrants to the Corporation as follows:
1. The undersigned has been provided with, and has reviewed the
following reports of the Company: Tax Returns for years ending 1995, 1996 and
its unaudited financial statements through August 30, 1997; the Company's
business plan and any subsequent financial forecasts, and, in the event that the
Company has filed reports pursuant to the Securities Exchange Act of 1934,
including (without limitation) the Corporation's most recent annual report on
Form 10-K, all Forms 10-Q for the quarters subsequent to the date of such Form
10-K, all Forms 8-K filed subsequent to the date of such Form 10-K, and all
other reports filed by the Corporation pursuant to such Act subsequent to the
date of the most recent Form 10-K. The undersigned has also reviewed the Plan,
and such other information as the undersigned may have requested of the
Corporation regarding its business, operations, management, and financial
condition (all of which is referred to herein as the "Available Information").
2. The Corporation has given the undersigned the opportunity to ask
questions of and to receive answers from persons acting on the Corporation's
behalf concerning the terms and conditions of this transaction and the
opportunity to obtain any additional information regarding the Corporation, its
business and financial condition or to verify the accuracy of the Available
Information which the Corporation possesses or can acquire without unreasonable
effort or expense.
B-1
<PAGE> 17
3. The Securities are being acquired by the undersigned for the
undersigned's own account and not on behalf of any other person or entity.
4. The undersigned understands that the Securities being acquired hereby
have not been registered under the Securities Act or any state or foreign
securities laws, and are, and unless registered will continue to be, restricted
securities under the Securities Act and within the meaning of Rule 144 of the
General Rules and Regulations under the Securities Act and other statutes, and
the undersigned consents to the placement of appropriate restrictive legends on
any certificates evidencing the Securities and any certificates issued in
replacement or exchange therefor and acknowledges that the Corporation will
cause its stock transfer records to note such restrictions.
5. By the undersigned's execution below, it is acknowledged and
understood that the Corporation is relying upon the accuracy and completeness
hereof in complying with certain obligations under applicable securities laws.
6. This Agreement binds and inures to the benefit of the
representatives, successors and permitted assigns of the respective parties
hereto.
7. The undersigned acknowledges that the grant of any Bonus or Option
and the issuance and delivery of shares of Common Stock pursuant thereto shall
be subject to prior 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, other
applicable securities laws, the rules and regulations thereunder, and the
requirements of any national securities exchange(s) upon which the Common Stock
then may be listed.
8. The undersigned acknowledges and agrees that the Corporation has
withheld shares for the payment of taxes as a result of the grant of the Bonus
or the exercise of an Option.
9. The undersigned has reviewed and has executed the Acknowledgement of
Resale Restrictions attached as Schedule 1 hereto and agrees to comply with the
representations and warranties set forth therein.
10. The Plan is attached hereto and incorporated herein by reference. In
the event that any provision in this Agreement conflicts with ANY provision in
the Plan, the provisions of the Plan shall govern.
Date: __________, 19__ ___________________________
Signature of Recipient
Tax ID Number:___________________ Address:
___________________________
___________________________
B-2
<PAGE> 1
EXHIBIT 10.32
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into this 13th day of
April, 2000 by and between eSat, Inc., a Nevada corporation ("eSat"), and
Richard Elliot ("Executive"), to be effective as of May 1, 2000 (the "Effective
Date"), and is based in part on the existence of the following facts:
RECITALS
A. eSat has been formed to, among other things, provide technology
to internet businesses, and, in that regard, eSat has acquired
all of the outstanding common stock of InterWireless, Inc.
("InterWireless") and PacificNet Technologies, Inc.
("PacificNet"); and
B. The Executive has certain expertise in technology and management
issues concerning entities such as InterWireless and PacificNet;
C. eSat desires to employ Executive in the capacity of Senior Vice
President and Executive desires to accept employment with eSat
pursuant to the provisions of this Agreement.
TERMS OF EMPLOYMENT
In consideration of the mutual promises, covenants, terms and conditions
set forth below, eSat and the Executive agree as follows:
1. Employment. eSat hereby employs Executive as a Senior Vice
President of eSat for and during the term hereof subject to the reasonable
discretion of eSat's Board of Directors and Executive hereby accepts such
employment.
2. Duties of Executive. The Executive shall have the duties,
responsibilities and authorities set forth in the position description, attached
hereto as Exhibit "A," and as may be reasonably assigned to the Executive from
time to time by the Chief Executive Officer or the Board of Directors. The
Executive agrees to devote the Executive's full time, best efforts, abilities,
knowledge and experience to the faithful performance of the duties,
responsibilities and authorities which reasonably may be assigned to the
Executive and which are consistent with the Executive's position; provided,
however, Executive may devote such time to his career as a professional musician
as Executive desires as long as such time does not unreasonably interfere with
the performance of his duties as an employee of eSat. In addition, Executive may
perform his duties hereunder from his place of residence or other location, as
determined by Executive, by telephone, internet, facsimile and other similar
methods.
3. Term. This Agreement shall be effective as of the Effective Date
and shall continue in force and effect for a period of thirty-six (36) months
thereafter (the "Term") unless terminated as provided in Section 6 hereof. At
the end of the Term, this Agreement will automatically renew for successive one
year terms (each a "Renewal Term"), unless either party
<PAGE> 2
provides written notice no less than one hundred twenty (120) days prior to the
end of any subsequent Renewal Term of such party's intention not to renew the
Agreement.
4. Compensation. eSat shall pay the Executive, as full compensation
for services rendered by the Executive under this Agreement, as follows:
(a) Base Salary. eSat initially shall pay the Executive a base salary
(the "Base Salary") at the rate of $180,000 per year. Such Base
Salary for each year shall be paid by eSat to the Executive in
equal biweekly installments in accordance with the regular
payroll policies of eSat. The Executive's salary shall be
reviewed for increase by the Board of Directors no less than
annually thereafter.
(b) Bonus Compensation. Each year during the Term (and any subsequent
Renewal Term), Executive shall be eligible to earn an annual
bonus ("Bonus Compensation") based upon the performance of
InterWireless, PacificNet and the Executive and determined by
eSat's Board of Directors. Such Bonus Compensation, if any, shall
be determined by eSat and paid to the Executive within thirty
(30) days after completion of eSat's annual audited financial
statements.
5. Employment Benefits. In addition to the Compensation payable to
the Executive hereunder, the Executive shall be entitled to the following
benefits commencing on the Effective Date:
(a) Employment Benefits. As an employee of eSat, the Executive shall
participate in and receive such fringe benefits as may be in
effect from time to time for regular, full-time employees in
similar positions with eSat, including, but not limited to, an
expense account to be used solely for business purposes and
health insurance coverage of the Executive upon satisfaction by
the Executive of the eligibility requirements therefor.
(b) Vacation Time. The Executive shall be entitled to twenty (20)
paid vacation business days per year. Such vacation may not be
cumulated from year to year.
(c) Sick Time. Executive will receive five (5) paid sick days per
year, which will be available to Executive for actual days off
for illness. Unused sick days will not accrue from year to year.
(d) Professional Meetings. The Executive also shall be entitled to
five (5) paid days per year in which to attend conferences or
seminars. The costs of the Executive's attendance at such
conferences or seminars shall be borne by eSat. This provision
shall not be construed to limit Executive's ability to travel for
business purposes or eSat's reimbursement for expenses incurred
in such business travel.
(e) Stock Options. Executive will be eligible to receive options to
purchase shares of eSat stock as awarded to Executive by the
Board of Directors under eSat's Stock Option Plan. Executive,
together with David Pennells, shall be entitled to receive an
aggregate of no less than 1,000,000 options to purchase eSat
Common Stock.
2.
<PAGE> 3
Such options shall comprise a pool of options to be allocated to
employees of InterWireless and PacificNet as set forth in that
certain Consent To Action By Board Of Directors of eSat, Inc. In
Lieu Of Special Meeting, dated April 13, 2000.
(f) Automobile Allowance. eSat will provide Executive with $1,400 per
month, as an automobile expense allowance, which amount shall
include an allowance for automobile insurance. The parties hereby
understand and agree that gasoline expenses, to the extent used
for business purposes shall be subject to separate expense
reimbursement, upon the submission of receipts evidencing such
gasoline purchases.
6. Termination. This Agreement and the Executive's employment
hereunder may be terminated without any breach of this Agreement at any time
only by reason of and in accordance with the following provisions:
(a) Death. The Executive's death.
(b) Total Disability. The Executive shall be prevented from
performing the Executive's duties hereunder by reason of becoming
totally disabled as hereinafter defined. For purposes of this
Agreement, the Executive shall be deemed to have become totally
disabled when (i) the Executive either receives "total disability
benefits" under (a) Social Security, or (b) eSat's disability
plan, if any (whether funded with insurance or self-funded by
eSat), or (ii) the Board of Directors of eSat, upon the written
report of a qualified physician designated by the Board of
Directors of eSat or its insurers, shall have determined that the
Executive has become physically and/or mentally incapable of
performing the Executive's duties under this Agreement on a
permanent basis. The foregoing notwithstanding, if Executive
suffers an illness or injury which prevents executive from
attending to Executive's duties hereunder for a period of six (6)
consecutive months during any twelve (12) month period during the
Term, or any subsequent Renewal Term, Executive will be
considered "totally disabled".
(c) Termination by eSat for Cause. eSat may discharge the Executive
for cause and terminate this Agreement immediately upon written
notice to the Executive. For purposes of this Agreement, a
"discharge for cause" shall mean termination of the Executive for
one or more of the following reasons:
(1) Persistent mismanagement or neglect of the Executive's
duties as determined by eSat's Board of Directors after
notice to the Executive of the particular details thereof
and a period of thirty (30) days thereafter within which
to cure each such act or acts of mismanagement or neglect,
and the failure of the Executive to cure such act or acts
within such thirty (30) day periods;
(2) Conviction of the Executive by a court of competent
jurisdiction of a felony or a crime involving moral
turpitude; or
3.
<PAGE> 4
(3) The Executive's failure to comply with any material
provision of this Agreement that has not been cured within
ten (10) days after notice of such noncompliance has been
given by eSat to the Executive.
(d) Termination by eSat with Notice. eSat may terminate this
Agreement, for a reason other than as set forth herein or without
reason at any time upon ninety (90) days written notice to the
Executive.
(e) Termination by the Executive for Cause. The Executive may
terminate this Agreement at any time for Cause. For purposes of
this Agreement, the term "Cause" shall mean, without the
Executive's express written consent, the occurrence of any of the
following circumstances:
(1) The assignment to the Executive of duties that are
materially inconsistent with the Executive's position with
eSat immediately prior to such change or a material
adverse alteration or diminution in the nature or status
of the Executive's authority, duties or responsibilities
from those in effect immediately prior thereto;
(2) eSat's requiring the Executive on a permanent basis to be
based anywhere outside of the greater Los Angeles area
except for travel reasonably required of the Executive in
the performance of the Executive's duties on behalf of
eSat to an extent substantially consistent with the
Executive's present business travel obligations;
(3) Any failure by eSat to comply with any material provision
of this Agreement (including the failure by eSat to
materially comply with any of the provisions of Sections 4
or 5) that has not been cured within thirty (30) days
after notice of such noncompliance has been given by the
Executive to eSat.
7. Change of Control. In the event eSat merges into, combines or
consolidates with, is acquired by, sells its assets to, or engages in any other
transaction or series of related transactions with one or more third parties
(the "Acquirer") through which, directly or indirectly, the Acquirer and its
Affiliates (as defined in the Rules promulgated under the Securities Act of
1933, as amended) obtain beneficial ownership of more than 50% of eSat's
outstanding voting equity securities (including pre-transaction shares or
interests owned by the Acquirer and its Affiliates), a Change in Control shall
have occurred. In the event this Agreement is terminated without cause following
a Change in Control, Executive will receive the compensation set forth in
Section 8(b).
8. Compensation on Termination.
(a) In the event this Agreement is terminated pursuant to Section 6,
sub-sections (a), (b) or (c), the Executive shall be entitled
only to that compensation which is accrued through the effective
date of termination. Such compensation includes Base Salary,
accrued vacation and accrued earned bonus, if any.
4.
<PAGE> 5
(b) In the event this Agreement is terminated pursuant to Section 6,
sub-sections (d) or (e) or Section 7 (in the event the
Executive's employment is not continued by the successor entity)
the Executive shall be entitled to the greater of all
Compensation and benefits for the then remaining Term of the
Agreement or Executive's then-current compensation and benefits
for twelve (12) months following the effective date of
termination. Such compensation and benefits shall be paid in
monthly installments over the remainder of the Term.
9. Confidentiality, Intellectual Property And Non-Competition.
(a) As used herein "Confidential Information" shall mean all
information concerning eSat and its subsidiaries, and their
business of providing various forms of technology to internet and
communications companies (collectively the "eSat Business") which
information is not generally available to the public and is
valuable to the eSat Business, as the eSat Business may evolve in
the future, including, but not limited to, customer lists,
customer information, business relationships, trade secrets,
technical know-how, processes, methods, techniques, procedures,
expertise, software programs, data bases, documentation,
financial data, personnel information, marketing strategies and
programs, and pricing information, and all other data and
information treated by eSat and its subsidiaries, as Confidential
Information. Confidential Information shall not include any
information or data which (1) is available to the public, (2)
becomes public information or widely known through no fault of
Executive.
(b) Executive acknowledges that during the course of Executive's
employment with eSat and its subsidiaries, Executive will have
learned or developed in trust and confidence Confidential
Information owned by eSat and its subsidiaries. At all times
during Executive's employment with eSat and its subsidiaries and
after the termination thereof, Executive shall maintain the
Confidential Information in strict confidence and shall not
divulge the Confidential Information to any person, corporation
or other entity, or use in any manner, or knowingly allow another
to have access to the Confidential Information.
(c) Executive agrees that, except as required in the performance of
Executive's duties, Executive will not, at any time during
Executive's employment or any time after the termination of
Executive's employment, use, publish, or otherwise disclose in
any way to any person, firm or corporation any Confidential
Information of eSat or its subsidiaries, or of any other party to
which eSat or its subsidiaries, owes an obligation of confidence,
and which has not become a part of the public domain through no
fault of Executive.
(d) All notes, reports, studies, data, computer printouts, financial
information, business plans, analysis, or other documents created
by or given to Executive during employment concerning or related
to the eSat Business in all media forms, and whether or not
containing or relating to Confidential Information, are the
property of eSat and will be promptly delivered to eSat upon the
termination of Executive's employment.
5.
<PAGE> 6
(e) Executive agrees that, at all times during Executive's employment
with eSat and for a period of two (2) years thereafter, Executive
shall not hire any employee of eSat or its subsidiaries or to
induce any employee of eSat or its subsidiaries to terminate his
or her employment with eSat or its subsidiaries.
(f) Executive recognizes and affirms that in the event of breach by
Executive of any of the provisions of this Section 9, money
damages would be inadequate and eSat would have no adequate
remedy at law. Accordingly, Executive agrees that eSat shall have
the right, in addition to any other rights and remedies existing
in its favor, to enforce its rights and Executive's obligations
under this Section 9 not only by an action or actions for
damages, but also by an action or actions for specific
performance, injunction and/or other equitable relief to enforce
or prevent any violations, whether anticipatory, continuing or
future, of the provisions of this Section 9.
(g) If any of the provisions of this Section 9 are determined by
arbitration or adjudicated to be excessively broad as to: (1)
geographic area, (2) the nature of the business activity
involved, (3) duration in time, or (4) any other attribute, the
parties authorize the court construing the same to modify the
excessively broad provisions to such limited extent as is
reasonable, given the original express of intent of the parties,
and to enforce the restriction as modified or to eliminate the
restriction if it cannot be reasonably modified. Any provisions
of this Agreement not so modified or eliminated shall remain in
full force and effect.
(h) Executive agrees that, except as otherwise required by law and
excluding proceedings under Section 10 hereof in which eSat and
the Executive are adverse to one another, Executive will not at
any time without the prior consent of eSat discuss or otherwise
divulge to any person or entity other than Executive's legal
counsel any opinion, information, evidence or testimony which
Executive is to offer in any litigation, arbitration, or other
adversarial proceeding in which eSat, its interests or the
interests of its subsidiaries or shareholders are directly or
indirectly involved. If Executive is contacted by or approached
by any person or entity to discuss or disclose any such matters,
Executive will immediately report the occurrence to eSat. If
Executive is served with legal process of any kind which requires
Executive to disclose any such matters, Executive will
immediately report such service to eSat, provide eSat with copies
of the process, and decline to respond to the process until: (1)
the last date permitted for response to the process, or (2)
eSat's counsel shall have determined how to proceed in eSat's
best interest, whichever event shall first occur. The covenants
given by Executive under this Section 9 will survive the
termination of Executive's employment.
10. Arbitration of Disputes.
(a) Arbitration. All Arbitration Claims (defined below) between the
parties shall be resolved by submission to final and binding
arbitration under the rules of the American Arbitration
Association ("AAA"). The parties may agree on a retired
6.
<PAGE> 7
judge from the AAA panel. If they are unable to agree, AAA will
provide a list of three available judges and each party shall
strike one. The remaining judge shall serve as the arbitrator for
purposes of resolving such dispute. The parties agree that
arbitration must be initiated within 60 days after a party
delivers a notice of intention to arbitrate pursuant this Section
10.
(b) Initiation of Arbitration; Submission Agreement. Any party to
this Agreement may initiate arbitration of a dispute subject to
this Paragraph, by sending written notice of an intention to
arbitrate by registered or certified mail to all other parties
and to AAA. The notice shall contain a description of the
Arbitration Claim(s) asserted by the party, the amount involved
and the remedy sought. In the event a demand for arbitration is
made by any party to this Agreement, the parties agree to execute
a Submission Agreement provided by AAA, in a form customarily
used by AAA, setting forth (i) the rights of the parties if the
matter is arbitrated and (ii) the rules and procedures to be
followed at the arbitration hearing. Notwithstanding anything to
the contrary contained in this Agreement, each party shall bear
its own legal, consulting and expert witness fees in connection
with any arbitration proceeding under this Section 10.
(c) One-Year To Initiate Arbitration Claim. The parties agree that
arbitration must be initiated within one year after the
occurrence of the events on which any Arbitration Claim is based,
and a party's failure to initiate arbitration within such
one-year period constitutes an absolute bar to the institution of
any new proceedings.
(d) "Arbitration Claim" Defined. For purposes of this Agreement,
"Arbitration Claims" shall mean any contract, tort, statutory or
other claim, demand, cause of action or dispute asserted by any
party to this Agreement against any other party to this
Agreement, arising out of or related to (i) this Agreement or any
modification, amendment or supplement thereof, or (ii) the
employment relationship between the parties.
(e) Intent of the Parties - Adequate Consideration. By this
provision, it is the intent of the parties to establish
procedures to accomplish the informal and inexpensive resolution
of any Arbitration Claim between the parties without resort to
litigation. The parties agree that their mutual, binding promises
to arbitrate any Arbitration Claim between them represent
valuable and adequate consideration for the enforceability of
this provision.
(f) Attorneys Fees. The prevailing party in any such arbitration
shall be entitled to recover all costs incurred and reasonable
attorneys fees from the other party in addition to any other
relief granted or awarded.
7.
<PAGE> 8
NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY
DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION OF DISPUTES"
PROVISION DECIDED BY NEUTRAL ARBITRATION AND YOU ARE GIVING UP ANY RIGHTS YOU
MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR JURY TRIAL. BY
INITIALING IN THE SPACE BELOW YOU ARE GIVING UP YOUR JUDICIAL RIGHTS TO
DISCOVERY AND APPEAL, UNLESS THOSE RIGHTS ARE SPECIFICALLY INCLUDED OR PROVIDED
FOR IN THE "ARBITRATION OF DISPUTES" PROVISION. IF YOU REFUSE TO SUBMIT TO
ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE
UNDER CALIFORNIA LAW. YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY.
WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES
ARISING OUT OF THE MATTERS INCLUDED IN THIS "ARBITRATION OF DISPUTES" PROVISION
TO NEUTRAL ARBITRATION.
eSat's Initials Executive's Initials
11. General Provisions.
(a) Notices. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall
be deemed to have been delivered on the date personally delivered
or via telecopier or on the date deposited in a receptacle
maintained by the United States Postal Service for such purpose,
postage prepaid, by certified mail, return receipt requested,
addressed to the respective parties as follows:
If to the Executive: Richard Elliot
c/o PacificNet Technologies, Inc.
10 Universal City Plaza, No. 1130
Los Angeles, California 91680
Fax: (818) 464-2799
If to eSat: eSat, Inc.
16520 Harbor Boulevard, Building G
Fountain Valley, California 92708
Attention; Michael C. Palmer
Fax: (714) 418-3200
8.
<PAGE> 9
Either party hereto may designate a different address by providing
written notice of such new address to the other party hereto.
(b) Severability. If any provision contained in this Agreement is
determined by a court of competent jurisdiction to be void,
illegal or, subject to Section 9(g) hereof, unenforceable, in
whole or in part, then the other provisions contained herein
shall remain in full force and effect as if the provision which
was determined to be void, illegal, or unenforceable had not been
contained herein.
(c) Waiver, Modification, and Integration. The waiver by any party
hereto of a breach of any provision of this Agreement shall not
operate or be construed as a waiver of any subsequent breach by
any party. This instrument contains the entire agreement of the
parties concerning employment and supersedes all prior and
contemporaneous representations, understandings and agreements,
either oral or in writing, between the parties hereto with
respect to the employment of the Executive by eSat and all such
prior or contemporaneous representations, understandings and
agreements, both oral and written, are hereby terminated. This
Agreement may not be modified, altered or amended except by
written agreement of all the parties hereto.
(d) Binding Effect. This Agreement shall be binding and effective
upon eSat and its successors and permitted assigns, and upon the
Executive and the Executive's heirs and representatives;
provided, however, that eSat shall not assign this Agreement
without the written consent of the Executive.
(e) Governing Law. The parties intend that the laws of the State of
California should govern the validity of this Agreement, the
construction of its terms, and the interpretation of the rights
and duties of the parties hereto.
(f) Counterpart Execution. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but
all of which together shall constitute but one and the same
instrument.
(g) Entire Agreement. This Agreement contains the entire
understanding of the parties and supersedes any prior written or
oral expressions of the subject matter hereof.
(h) Assignment. This Agreement is not assignable by either party and
neither party may delegate its duties hereunder without securing
the prior written consent of the other party; provided, however,
that eSat may assign this Agreement to a successor entity in the
course of any transaction or series of related transactions in
which eSat sells or disposes of its assets or is not a surviving
entity and a Change in Control occurs, if and only if, the
successor entity upon consummation of the Change in Control
transactions assumes eSat's obligations hereunder in writing.
9.
<PAGE> 10
The parties have executed this Agreement as of the Effective Date.
ESAT, INC.
By:
------------------------------
Name: Michael C. Palmer
Title: President
----------------------------------
RICHARD ELLIOT
10.
<PAGE> 11
EXHIBIT A
Position Description
Executive shall have the title of Senior Vice President with eSat, and shall be
primarily responsible for overseeing the day-to-day operations of InterWireless
and PacificNet. Executive will also be the President of both InterWireless and
PacificNet, and shall perform such duties as are directed by, and shall report
directly to, the Board of Directors of eSat.
11.
<PAGE> 1
EXHIBIT 10.33
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into this 13th day of
April, 2000 by and between eSat, Inc., a Nevada corporation ("eSat"), and David
Pennells ("Executive"), to be effective as of May 1, 2000 (the "Effective
Date"), and is based in part on the existence of the following facts:
RECITALS
A. eSat has been formed to, among other things, provide technology
to internet businesses, and, in that regard, eSat has acquired
all of the outstanding common stock of InterWireless, Inc.
("InterWireless") and PacificNet Technologies, Inc.
("PacificNet"); and
B. The Executive has certain expertise in technology and management
issues concerning entities such as InterWireless and PacificNet;
C. eSat desires to employ Executive in the capacity of Senior Vice
President and Executive desires to accept employment with eSat
pursuant to the provisions of this Agreement.
TERMS OF EMPLOYMENT
In consideration of the mutual promises, covenants, terms and conditions
set forth below, eSat and the Executive agree as follows:
1. Employment. eSat hereby employs Executive as a Senior Vice
President of eSat for and during the term hereof subject to the reasonable
discretion of eSat's Board of Directors and Executive hereby accepts such
employment.
2. Duties of Executive. The Executive shall have the duties,
responsibilities and authorities set forth in the position description, attached
hereto as Exhibit "A," and as may be reasonably assigned to the Executive from
time to time by the Chief Executive Officer or the Board of Directors. The
Executive agrees to devote the Executive's full time, best efforts, abilities,
knowledge and experience to the faithful performance of the duties,
responsibilities and authorities which reasonably may be assigned to the
Executive and which are consistent with the Executive's position. In addition,
Executive may perform his duties hereunder from his place of residence or other
location, as determined by Executive, by telephone, internet, facsimile or other
similar method.
3. Term. This Agreement shall be effective as of the Effective Date
and shall continue in force and effect for a period of thirty-six (36) months
thereafter (the "Term") unless terminated as provided in Section 6 hereof. At
the end of the Term, this Agreement will automatically renew for successive one
year terms (each a "Renewal Term"), unless either party provides written notice
no less than one hundred twenty (120) days prior to the end of any subsequent
Renewal Term of such party's intention not to renew the Agreement.
<PAGE> 2
4. Compensation. eSat shall pay the Executive, as full compensation
for services rendered by the Executive under this Agreement, as follows:
(a) Base Salary. eSat initially shall pay the Executive a base salary
(the "Base Salary") at the rate of $150,000 per year. Such Base
Salary for each year shall be paid by eSat to the Executive in
equal biweekly installments in accordance with the regular
payroll policies of eSat. The Executive's salary shall be
reviewed for increase by the Board of Directors no less than
annually thereafter.
(b) Bonus Compensation. Each year during the Term (and any subsequent
Renewal Term), Executive shall be eligible to earn an annual
bonus ("Bonus Compensation") based upon the performance of
InterWireless, PacificNet and the Executive and determined by
eSat's Board of Directors. Such Bonus Compensation, if any, shall
be determined by eSat and paid to the Executive within thirty
(30) days after completion of eSat's annual audited financial
statements.
5. Employment Benefits. In addition to the Compensation payable to
the Executive hereunder, the Executive shall be entitled to the following
benefits commencing on the Effective Date:
(a) Employment Benefits. As an employee of eSat, the Executive shall
participate in and receive such fringe benefits as may be in
effect from time to time for regular, full-time employees in
similar positions with eSat, including, but not limited to, an
expense account to be used solely for business purposes and
health insurance coverage of the Executive upon satisfaction by
the Executive of the eligibility requirements therefor.
(b) Vacation Time. The Executive shall be entitled to twenty (20)
paid vacation business days per year. Such vacation may not be
cumulated from year to year.
(c) Sick Time. Executive will receive five (5) paid sick days per
year, which will be available to Executive for actual days off
for illness. Unused sick days will not accrue from year to year.
(d) Professional Meetings. The Executive also shall be entitled to
five (5) paid days per year in which to attend conferences or
seminars. The costs of the Executive's attendance at such
conferences or seminars shall be borne by eSat. This provision
shall not be construed to limit Executive's ability to travel for
business purposes or eSat's reimbursement for expenses incurred
in such business travel.
(e) Stock Options. Executive will be eligible to receive options to
purchase shares of eSat stock as awarded to Executive by the
Board of Directors under eSat's Stock Option Plan. Executive,
together with Richard Elliot, shall be entitled to receive an
aggregate of no less than 1,000,000 options to purchase eSat
Common Stock. Such options shall comprise a pool of options to be
allocated to employees of InterWireless and PacificNet as set
forth in that certain Consent To Action By
2.
<PAGE> 3
Board Of Directors of eSat, Inc. In Lieu Of Special Meeting,
dated April 13, 2000.
(f) Automobile Allowance. eSat will provide Executive with $1,400 per
month, as an automobile expense allowance, which amount shall include an
allowance for automobile insurance. The parties hereby understand and agree that
gasoline expenses, to the extent used for business purposes shall be subject to
separate expense reimbursement, upon the submission of receipts evidencing such
gasoline purchases.
6. Termination. This Agreement and the Executive's employment
hereunder may be terminated without any breach of this Agreement at any time
only by reason of and in accordance with the following provisions:
(a) Death. The Executive's death.
(b) Total Disability. The Executive shall be prevented from
performing the Executive's duties hereunder by reason of becoming
totally disabled as hereinafter defined. For purposes of this
Agreement, the Executive shall be deemed to have become totally
disabled when (i) the Executive either receives "total disability
benefits" under (a) Social Security, or (b) eSat's disability
plan, if any (whether funded with insurance or self-funded by
eSat), or (ii) the Board of Directors of eSat, upon the written
report of a qualified physician designated by the Board of
Directors of eSat or its insurers, shall have determined that the
Executive has become physically and/or mentally incapable of
performing the Executive's duties under this Agreement on a
permanent basis. The foregoing notwithstanding, if Executive
suffers an illness or injury which prevents executive from
attending to Executive's duties hereunder for a period of six (6)
consecutive months during any twelve (12) month period during the
Term, or any subsequent Renewal Term, Executive will be
considered "totally disabled".
(c) Termination by eSat for Cause. eSat may discharge the Executive
for cause and terminate this Agreement immediately upon written
notice to the Executive. For purposes of this Agreement, a
"discharge for cause" shall mean termination of the Executive for
one or more of the following reasons:
(1) Persistent mismanagement or neglect of the Executive's
duties as determined by eSat's Board of Directors after
notice to the Executive of the particular details thereof
and a period of thirty (30) days thereafter within which
to cure each such act or acts of mismanagement or neglect,
and the failure of the Executive to cure such act or acts
within such thirty (30) day periods;
(2) Conviction of the Executive by a court of competent
jurisdiction of a felony or a crime involving moral
turpitude; or
3.
<PAGE> 4
(3) The Executive's failure to comply with any material
provision of this Agreement that has not been cured within
ten (10) days after notice of such noncompliance has been
given by eSat to the Executive.
(d) Termination by eSat with Notice. eSat may terminate this
Agreement, for a reason other than as set forth herein or without
reason at any time upon ninety (90) days written notice to the
Executive.
(e) Termination by the Executive for Cause. The Executive may
terminate this Agreement at any time for Cause. For purposes of
this Agreement, the term "Cause" shall mean, without the
Executive's express written consent, the occurrence of any of the
following circumstances:
(1) The assignment to the Executive of duties that are
materially inconsistent with the Executive's position with
eSat immediately prior to such change or a material
adverse alteration or diminution in the nature or status
of the Executive's authority, duties or responsibilities
from those in effect immediately prior thereto;
(2) eSat's requiring the Executive on a permanent basis to be
based anywhere outside of the greater Los Angeles area
except for travel reasonably required of the Executive in
the performance of the Executive's duties on behalf of
eSat to an extent substantially consistent with the
Executive's present business travel obligations;
(3) Any failure by eSat to comply with any material provision
of this Agreement (including the failure by eSat to
materially comply with any of the provisions of Sections 4
or 5) that has not been cured within thirty (30) days
after notice of such noncompliance has been given by the
Executive to eSat.
7. Change of Control. In the event eSat merges into, combines or
consolidates with, is acquired by, sells its assets to, or engages in any other
transaction or series of related transactions with one or more third parties
(the "Acquirer") through which, directly or indirectly, the Acquirer and its
Affiliates (as defined in the Rules promulgated under the Securities Act of
1933, as amended) obtain beneficial ownership of more than 50% of eSat's
outstanding voting equity securities (including pre-transaction shares or
interests owned by the Acquirer and its Affiliates), a Change in Control shall
have occurred. In the event this Agreement is terminated without cause following
a Change in Control, Executive will receive the compensation set forth in
Section 8(b).
8. Compensation on Termination.
(a) In the event this Agreement is terminated pursuant to Section 6,
sub-sections (a), (b) or (c), the Executive shall be entitled
only to that compensation which is accrued through the effective
date of termination. Such compensation includes Base Salary,
accrued vacation and accrued earned bonus, if any.
4.
<PAGE> 5
(b) In the event this Agreement is terminated pursuant to Section 6,
sub-sections (d) or (e) or Section 7 (in the event the
Executive's employment is not continued by the successor entity)
the Executive shall be entitled to the greater of all
Compensation and benefits for the then remaining Term of the
Agreement or Executive's then-current compensation and benefits
for twelve (12) months following the effective date of
termination. Such compensation and benefits shall be paid in
monthly installments over the remainder of the Term.
9. Confidentiality, Intellectual Property And Non-Competition.
(a) As used herein "Confidential Information" shall mean all
information concerning eSat and its subsidiaries, and their
business of providing various forms of technology to internet and
communications companies (collectively the "eSat Business") which
information is not generally available to the public and is
valuable to the eSat Business, as the eSat Business may evolve in
the future, including, but not limited to, customer lists,
customer information, business relationships, trade secrets,
technical know-how, processes, methods, techniques, procedures,
expertise, software programs, data bases, documentation,
financial data, personnel information, marketing strategies and
programs, and pricing information, and all other data and
information treated by eSat and its subsidiaries, as Confidential
Information. Confidential Information shall not include any
information or data which (1) is available to the public, (2)
becomes public information or widely known through no fault of
Executive.
(b) Executive acknowledges that during the course of Executive's
employment with eSat and its subsidiaries, Executive will have
learned or developed in trust and confidence Confidential
Information owned by eSat and its subsidiaries. At all times
during Executive's employment with eSat and its subsidiaries and
after the termination thereof, Executive shall maintain the
Confidential Information in strict confidence and shall not
divulge the Confidential Information to any person, corporation
or other entity, or use in any manner, or knowingly allow another
to have access to the Confidential Information.
(c) Executive agrees that, except as required in the performance of
Executive's duties, Executive will not, at any time during
Executive's employment or any time after the termination of
Executive's employment, use, publish, or otherwise disclose in
any way to any person, firm or corporation any Confidential
Information of eSat or its subsidiaries, or of any other party to
which eSat or its subsidiaries, owes an obligation of confidence,
and which has not become a part of the public domain through no
fault of Executive.
(d) All notes, reports, studies, data, computer printouts, financial
information, business plans, analysis, or other documents created
by or given to Executive during employment concerning or related
to the eSat Business in all media forms, and whether or not
containing or relating to Confidential Information, are the
property of eSat and will be promptly delivered to eSat upon the
termination of Executive's employment.
5.
<PAGE> 6
(e) Executive agrees that, at all times during Executive's employment
with eSat and for a period of two (2) years thereafter, Executive
shall not hire any employee of eSat or its subsidiaries or to
induce any employee of eSat or its subsidiaries to terminate his
or her employment with eSat or its subsidiaries.
(f) Executive recognizes and affirms that in the event of breach by
Executive of any of the provisions of this Section 9, money
damages would be inadequate and eSat would have no adequate
remedy at law. Accordingly, Executive agrees that eSat shall have
the right, in addition to any other rights and remedies existing
in its favor, to enforce its rights and Executive's obligations
under this Section 9 not only by an action or actions for
damages, but also by an action or actions for specific
performance, injunction and/or other equitable relief to enforce
or prevent any violations, whether anticipatory, continuing or
future, of the provisions of this Section 9.
(g) If any of the provisions of this Section 9 are determined by
arbitration or adjudicated to be excessively broad as to: (1)
geographic area, (2) the nature of the business activity
involved, (3) duration in time, or (4) any other attribute, the
parties authorize the court construing the same to modify the
excessively broad provisions to such limited extent as is
reasonable, given the original express of intent of the parties,
and to enforce the restriction as modified or to eliminate the
restriction if it cannot be reasonably modified. Any provisions
of this Agreement not so modified or eliminated shall remain in
full force and effect.
(h) Executive agrees that, except as otherwise required by law and
excluding proceedings under Section 10 hereof in which eSat and
the Executive are adverse to one another, Executive will not at
any time without the prior consent of eSat discuss or otherwise
divulge to any person or entity other than Executive's legal
counsel any opinion, information, evidence or testimony which
Executive is to offer in any litigation, arbitration, or other
adversarial proceeding in which eSat, its interests or the
interests of its subsidiaries or shareholders are directly or
indirectly involved. If Executive is contacted by or approached
by any person or entity to discuss or disclose any such matters,
Executive will immediately report the occurrence to eSat. If
Executive is served with legal process of any kind which requires
Executive to disclose any such matters, Executive will
immediately report such service to eSat, provide eSat with copies
of the process, and decline to respond to the process until: (1)
the last date permitted for response to the process, or (2)
eSat's counsel shall have determined how to proceed in eSat's
best interest, whichever event shall first occur. The covenants
given by Executive under this Section 9 will survive the
termination of Executive's employment.
10. Arbitration of Disputes.
(a) Arbitration. All Arbitration Claims (defined below) between the
parties shall be resolved by submission to final and binding
arbitration under the rules of the American Arbitration
Association ("AAA"). The parties may agree on a retired
6.
<PAGE> 7
judge from the AAA panel. If they are unable to agree, AAA will
provide a list of three available judges and each party shall
strike one. The remaining judge shall serve as the arbitrator for
purposes of resolving such dispute. The parties agree that
arbitration must be initiated within 60 days after a party
delivers a notice of intention to arbitrate pursuant this Section
10.
(b) Initiation of Arbitration; Submission Agreement. Any party to
this Agreement may initiate arbitration of a dispute subject to
this Paragraph, by sending written notice of an intention to
arbitrate by registered or certified mail to all other parties
and to AAA. The notice shall contain a description of the
Arbitration Claim(s) asserted by the party, the amount involved
and the remedy sought. In the event a demand for arbitration is
made by any party to this Agreement, the parties agree to execute
a Submission Agreement provided by AAA, in a form customarily
used by AAA, setting forth (i) the rights of the parties if the
matter is arbitrated and (ii) the rules and procedures to be
followed at the arbitration hearing. Notwithstanding anything to
the contrary contained in this Agreement, each party shall bear
its own legal, consulting and expert witness fees in connection
with any arbitration proceeding under this Section 10.
(c) One-Year To Initiate Arbitration Claim. The parties agree that
arbitration must be initiated within one year after the
occurrence of the events on which any Arbitration Claim is based,
and a party's failure to initiate arbitration within such
one-year period constitutes an absolute bar to the institution of
any new proceedings.
(d) "Arbitration Claim" Defined. For purposes of this Agreement,
"Arbitration Claims" shall mean any contract, tort, statutory or
other claim, demand, cause of action or dispute asserted by any
party to this Agreement against any other party to this
Agreement, arising out of or related to (i) this Agreement or any
modification, amendment or supplement thereof, or (ii) the
employment relationship between the parties.
(e) Intent of the Parties - Adequate Consideration. By this
provision, it is the intent of the parties to establish
procedures to accomplish the informal and inexpensive resolution
of any Arbitration Claim between the parties without resort to
litigation. The parties agree that their mutual, binding promises
to arbitrate any Arbitration Claim between them represent
valuable and adequate consideration for the enforceability of
this provision.
(f) Attorneys Fees. The prevailing party in any such arbitration
shall be entitled to recover all costs incurred and reasonable
attorneys fees from the other party in addition to any other
relief granted or awarded.
7.
<PAGE> 8
NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY
DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION OF DISPUTES"
PROVISION DECIDED BY NEUTRAL ARBITRATION AND YOU ARE GIVING UP ANY RIGHTS YOU
MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR JURY TRIAL. BY
INITIALING IN THE SPACE BELOW YOU ARE GIVING UP YOUR JUDICIAL RIGHTS TO
DISCOVERY AND APPEAL, UNLESS THOSE RIGHTS ARE SPECIFICALLY INCLUDED OR PROVIDED
FOR IN THE "ARBITRATION OF DISPUTES" PROVISION. IF YOU REFUSE TO SUBMIT TO
ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE
UNDER CALIFORNIA LAW. YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY.
WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES
ARISING OUT OF THE MATTERS INCLUDED IN THIS "ARBITRATION OF DISPUTES" PROVISION
TO NEUTRAL ARBITRATION.
eSat's Initials Executive's Initials
11. General Provisions.
(a) Notices. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall
be deemed to have been delivered on the date personally delivered
or via telecopier or on the date deposited in a receptacle
maintained by the United States Postal Service for such purpose,
postage prepaid, by certified mail, return receipt requested,
addressed to the respective parties as follows:
If to the Executive: David Pennells
c/o PacificNet Technologies, Inc.
10 Universal City Plaza, No. 1130
Los Angeles, California 91680
Fax: (818) 464-2799
If to eSat: eSat, Inc.
16520 Harbor Boulevard, Building G
Fountain Valley, California 92708
Attention; Michael C. Palmer
Fax: (714) 418-3200
8.
<PAGE> 9
Either party hereto may designate a different address by providing
written notice of such new address to the other party hereto.
(b) Severability. If any provision contained in this Agreement is
determined by a court of competent jurisdiction to be void,
illegal or, subject to Section 9(g) hereof, unenforceable, in
whole or in part, then the other provisions contained herein
shall remain in full force and effect as if the provision which
was determined to be void, illegal, or unenforceable had not been
contained herein.
(c) Waiver, Modification, and Integration. The waiver by any party
hereto of a breach of any provision of this Agreement shall not
operate or be construed as a waiver of any subsequent breach by
any party. This instrument contains the entire agreement of the
parties concerning employment and supersedes all prior and
contemporaneous representations, understandings and agreements,
either oral or in writing, between the parties hereto with
respect to the employment of the Executive by eSat and all such
prior or contemporaneous representations, understandings and
agreements, both oral and written, are hereby terminated. This
Agreement may not be modified, altered or amended except by
written agreement of all the parties hereto.
(d) Binding Effect. This Agreement shall be binding and effective
upon eSat and its successors and permitted assigns, and upon the
Executive and the Executive's heirs and representatives;
provided, however, that eSat shall not assign this Agreement
without the written consent of the Executive.
(e) Governing Law. The parties intend that the laws of the State of
California should govern the validity of this Agreement, the
construction of its terms, and the interpretation of the rights
and duties of the parties hereto.
(f) Counterpart Execution. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but
all of which together shall constitute but one and the same
instrument.
(g) Entire Agreement. This Agreement contains the entire
understanding of the parties and supersedes any prior written or
oral expressions of the subject matter hereof.
(h) Assignment. This Agreement is not assignable by either party and
neither party may delegate its duties hereunder without securing
the prior written consent of the other party; provided, however,
that eSat may assign this Agreement to a successor entity in the
course of any transaction or series of related transactions in
which eSat sells or disposes of its assets or is not a surviving
entity and a Change in Control occurs, if and only if, the
successor entity upon consummation of the Change in Control
transactions assumes eSat's obligations hereunder in writing.
9.
<PAGE> 10
The parties have executed this Agreement as of the Effective Date.
ESAT, INC.
By:
--------------------------------
Name: Michael C. Palmer
Title: President
-----------------------------------
DAVID PENNELLS
10.
<PAGE> 11
EXHIBIT A
Position Description
Executive shall have the title of Senior Vice President with eSat, and shall be
primarily responsible for overseeing the day-to-day operations of InterWireless
and PacificNet. Executive will also be the Vice President of both InterWireless
and PacificNet, and shall perform such duties as are directed by, and shall
report directly to, the Board of Directors of eSat.
11.
<PAGE> 1
EXHIBIT 21
ESAT INC. SUBSIDIARIES
Global Media Technologies, Inc. Incorporated in the State of Nevada
August 11, 1999
SkyFrame, Inc. Incorporated in the State of Texas
February 19, 1999 as Cyber Village
Networks
Name changed to "SkyFrames"
April 19, 1999
d/b/a SkySP
i-Xposure, Inc. Incorporated in the State of Delaware
November 1, 1999
PacificNet Technologies, Inc. Incorporated in the State of Nevada
December 29, 1999
InterWireless, Inc. Incorporated in the State of California
February 20, 1998
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
To the Stockholders and Directors of eSat, Inc.
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement on Form S-1 of our report dated August 12, 1999, revised
October 22, 1999, relating to the financial statements of eSat, Inc., for the
years ended December 31, 1997 and 1998.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
Lichter and Associates
/s/ Lichter and Associates
Los Angeles, California
May 5, 2000
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT AUDITORS
To the Stockholders and Directors of eSat, Inc.
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement on Form S-1 of our report dated March 29, 2000, relating
to the financial statements of eSat, Inc., for the year ended December 31, 1999.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
Carpenter Kuhen & Sprayberry
/s/ Carpenter Kuhen & Sprayberry
Los Angeles, California
May 5, 2000
