<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 1)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
ESAT, INC.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
---------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
---------------------------------------------------------------------
(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
ESAT, INC.
10 UNIVERSAL CITY PLAZA, SUITE 1130
UNIVERSAL CITY, CA 91608
August __, 2000
Dear Fellow Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
eSat, Inc. scheduled for Friday, September 1, 2000, at The Sheraton Universal
Hotel, 333 Universal Terrace Parkway, Universal City, California, 91608, at 2:00
p.m. PDT.
Please review the enclosed Notice of Meeting and Proxy Statement, which
describe the matters to be acted upon at the meeting. To ensure that your shares
are represented at the meeting, we strongly encourage you to sign, date and mail
the proxy card in the enclosed envelope. The proxy card should be completed and
mailed even if you plan to attend the meeting.
On behalf of the board of directors, thank you for your continued support.
We look forward to your participation.
Sincerely,
Michael C. Palmer
Chief Executive Officer
<PAGE> 3
ESAT, INC.
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
------------------------
Date: Friday, September 1, 2000
Time: 2:00 p.m. PDT
Place: The Sheraton Universal Hotel
333 Universal Terrace Parkway
Universal City, California 91608
Matters to be voted on:
- Election of six directors for one-year terms.
- Amendment to our articles of incorporation to increase the number of
authorized shares of common stock from 50,000,000 to 100,000,000.
- Amendment to our 1997 Stock Option and Stock Bonus Plan to increase the
number of shares of common stock reserved for issuance upon exercise of
options from 1,200,000 shares to 7,850,000 shares.
- Approval of 2000 Stock Option Plan.
- Ratification of the appointment of Carpenter, Kuhen & Sprayberry as
independent auditors for 2000.
You have the right to receive this notice and vote at the Annual Meeting if
you were a shareholder of record at the close of business on July 28, 2000.
Please remember that your shares cannot be voted unless you sign and return the
enclosed proxy card, vote in person at the Annual Meeting, or make other
arrangement to vote your shares.
For the board of directors,
Michael C. Palmer
Chief Executive Officer and Secretary
August __, 2000
<PAGE> 4
2000 PROXY STATEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
General Information......................................... 1
Solicitation of Proxies..................................... 1
Voting...................................................... 1
Election of Directors (Item No. 1).......................... 2
Information About the Nominees............................ 2
The Board of Directors.................................... 3
Security Ownership.......................................... 5
Executive Compensation...................................... 6
Board of Directors Report................................. 6
Comparison of Cumulative Total Shareholder Return......... 9
Executive Compensation Tables............................. 10
Certain Transactions........................................ 13
Section 16(a) Beneficial Ownership Reporting Compliance..... 15
Proposed Amendment of Articles of Incorporation (Item No.
2)........................................................ 15
Proposed Amendment of 1997 Stock Option Plan (Item No. 3)... 16
Proposed 2000 Stock Option Plan (Item No. 4)................ 16
Independent Auditors (Item No. 5)........................... 19
Other Business.............................................. 19
Appendix A -- Certificate of Amendment...................... A-1
Appendix B -- 2000 Stock Option Plan........................ B-1
</TABLE>
Copies of this proxy statement and eSat's Annual Report to Shareholders,
which includes its Annual Report on Form 10-K, are available to shareholders at
no charge upon request directed to:
eSat, Inc.
Corporate Relations
10 Universal City Plaza, Suite 1130
Universal City, CA 91608
Telephone: 818-464-2670
Internet: www.esatinc.com
818-464-2799
i
<PAGE> 5
GENERAL INFORMATION
PROXY STATEMENT
The board of directors of eSat is soliciting proxies to obtain support for
the proposals to be voted on at the annual meeting of our shareholders scheduled
for September 1, 2000. The matters to be voted upon are the following: election
of the directors for one-year terms; amendment to our articles of incorporation
to increase the authorized common stock to 100,000,000; amendment of our 1997
Stock Option and Stock Bonus Plan (the "Stock Option Plan") to increase the
number of shares of our common stock reserved for issuance under the plan to
7,850,000; approval of our 2000 Stock Option Plan; and ratification of the
appointment of Carpenter, Kuhen & Sprayberry as independent auditors for 2000
and any other business that may properly come before the meeting.
Whenever we refer in this Proxy Statement to the Annual Meeting, we are
also referring to any meeting that results from an adjournment of the Annual
Meeting. We are first mailing this Proxy Statement and related proxy card to our
shareholders on or about August 14, 2000.
We encourage you to vote your shares, either by voting in person at the
Annual Meeting or by granting a proxy. To assist you in deciding how to vote,
this Proxy Statement includes information about eSat Inc., its officers,
nominees for directors, and other matters related to the proposals to be voted
on at the Annual Meeting. In addition, a performance graph showing eSat's
performance over an eight month period is included on page 11.
SOLICITATION OF PROXIES
THE PROXY CARD
If you execute the attached proxy card, the individuals designated on the
card (Michael C. Palmer and Chester L. Noblett, Jr.) will vote your shares
according to your instructions. With respect to Item 1 (the election of
directors), you may vote in favor of the director nominees or, if you desire,
indicate on the proxy card that you are not authorizing the designated
individuals to vote your shares for one or more particular nominees. With
respect to Items 2 through 5, you may vote in favor of, against, or abstain from
voting on the proposal.
If a proxy card is signed without choices specified, those shares will be
voted for the election of the director nominees and in favor of Items 2, 3, 4
and 5. If you sign a proxy card and deliver it to us, but then want to change
your vote, you may revoke your proxy at any time prior to the Annual Meeting by
sending us a written revocation or a new proxy, or by attending the Annual
Meeting and voting your shares in person.
COSTS OF SOLICITING PROXIES
We will pay the cost of soliciting proxies. Proxies are being solicited by
mail and may be solicited by telephone, telegram, facsimile, or in person by
employees of the company, who will not receive additional compensation for any
such solicitation. The company will reimburse brokerage houses and other
custodians, nominees, and fiduciaries for their reasonable expenses in sending
proxy material to the beneficial owners of voting securities.
VOTING
SHAREHOLDERS ENTITLED TO VOTE
Holders of record of common stock, Series C 6% Convertible Preferred Stock
and Series D 6% Convertible Preferred Stock at the close of business on July 28,
2000, will be entitled to vote at the Annual Meeting. As of such date,
approximately 22 million shares of common stock were issued and outstanding.
Each shareholder is entitled to one vote for each share of common stock held by
such shareholder. In addition,
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<PAGE> 6
holders of our Series C Preferred Stock and Series D Preferred Stock are
entitled to a total of approximately 5 million votes based on the conversion
ratio in effect on July 28, 2000 (the record date).
All of our Series A 12% Convertible Preferred Stock has been converted to
common stock. All of our Series B 12% Convertible Preferred Stock has been
cancelled by mutual agreement.
QUORUM AND VOTE NECESSARY TO ADOPT PROPOSALS
In order to transact business at the Annual Meeting, a quorum consisting of
a majority of all outstanding shares entitled to vote must be present.
Abstentions and proxies returned by brokerage firms for which no voting
instructions have been received from their principals will be counted for the
purpose of determining whether a quorum is present. Once a share is represented
for any purpose at the Annual Meeting, it will be deemed present for quorum
purposes for the entirety of the meeting. [THE AFFIRMATIVE VOTE OF AT LEAST A
PLURALITY OF THE AGGREGATE NUMBER OF VOTES REPRESENTED AT THE ANNUAL MEETING IN
PERSON OR BY PROXY IS REQUIRED TO ELECT DIRECTORS. THAT MEANS THAT THE FIVE
INDIVIDUALS RECEIVING THE LARGEST NUMBER OF VOTES CAST WILL BE ELECTED AS
DIRECTORS, WHETHER OR NOT THEY RECEIVE A MAJORITY OF THE VOTES CAST.] The
affirmative vote of a majority of the votes entitled to be cast which are
represented at the Annual Meeting is required for the election of directors, for
approval of Items 3, 4 and 5 and any matters that are presented at the meeting
other than Item 2. The affirmative vote of an absolute majority of the votes
entitled to be cast at the Annual Meeting is required for the approval of Item
2. Holders of common stock, Series C Preferred Stock and Series D preferred
Stock will vote together on all matters as a single class.
ELECTION OF DIRECTORS
(ITEM 1 ON PROXY CARD)
The number of directors of eSat has been expanded to six as of the record
date. To be elected, each director must receive the affirmative vote of a
majority of the shares represented at the meeting.
All directors who were elected in 1999 were elected for one-year terms or
until their successors were qualified and appointed. All 2000 nominees have been
nominated for one-year terms ending at the annual meeting in 2001.
Although the management of eSat has no reason to believe that any of the
nominees will be unable to serve, if such situation should arise prior to the
meeting, replacement(s) will be named.
Information regarding each nominee, including principal occupation during
the past five years and other directorships, is provided on the succeeding
pages.
INFORMATION ABOUT THE NOMINEES
Michael C. Palmer (age 50). Mr. Palmer has been the Chief Executive
Officer, President and Secretary and a director of the company since April 1999.
Mr. Palmer held the position of Chief Financial Officer from November 1998 to
March 1999 and has been affiliated with the company since December 1997. From
1978 through March 2000, Mr. Palmer was a partner of Parks, Palmer, Turner and
Yemenidjian, 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 L. Noblett, Jr. (age 55). Mr. Noblett has been 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
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.
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<PAGE> 7
Salvator Piraino (age 71). Mr. 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
Aircraft Company. Mr. Piraino received a B.E. degree in Engineering from Loyola
University in 1950.
Edward Raymund (age 71). Mr. Raymund was appointed a director to the
company in May 2000. Mr. Raymund is founder and chairman emeritus of Tech Data
Corp., a Fortune 500 company and leading global provider of IT products,
logistics management and other value-added services. Mr. Raymund serves as a
director on Tech Data's Board. He is also chairman of the University of Southern
California supply chain management board of directors and is a member of the
advisory boards for the Mission Hospital Regional Medical Center and the
University of Southern California Business School. In 1997, Mr. Raymund was
named an initial inductee in Computer Reseller News's Industry Hall of Fame.
Prior to incorporating Tech Data in 1973, Mr. Raymund worked as a contract
representative for several leading electronics manufacturers. Mr. Raymund holds
a Bachelor's Degree in Business Administration with an emphasis in Finance from
the University of Southern California.
Esther Rodriguez (age 58). Ms. Rodriguez has been a director of the company
since July 2000. From 1996 to the present. Ms. Rodriguez has served as chief
executive officer of Rodriguez Consulting Group, a consulting firm advising
client companies in the cable and satellite technologies industry. From 1987 to
1996, Ms. Rodriguez served in various positions at General Instrument (GI),
including vice president of worldwide business development for commercial,
educational and private networks; vice president of DBS services; and vice
president and general manager of GI's Satellite Video Center, a subsidiary which
was the first to offer satellite pay-per-view television. Ms. Rodriguez is a
member of the board of directors of both NTN Communications, Inc. and Quorum,
Ltd. Ms. Rodriguez was educated in Cuba.
James E. Fuchs (age 72). Mr. Fuchs has been a director of the company since
July 2000. Mr. Fuchs is chairman and co-chief executive officer of the Consumer
Group, Inc., a corporation structured to utilize its marketing, sales, finance
and consulting expertise for various ventures. Mr. Fuchs is also chairman and
chief executive officer of Grenfox Group, Inc., a company involved in the
development and production of environmentally friendly inks and related coating
products. Prior to these posts, Mr. Fuchs was chairman and chief executive
officer of Integrated Human Solutions, an international human resources and
consulting firm, and held executive positions with the National Broadcasting
Company, Curtis Publishing Company, the Mutual Broadcasting Systems, Mutual
Sports, Inc. and Culligan Communications, Inc. Mr. Fuchs is a member of the
board of directors of Fountain Pharmaceuticals, Inc. and Alternate Care, Inc.
Mr. Fuchs is a graduate of Yale University.
THE BOARD OF DIRECTORS
Composition of the Board of Directors
eSat is governed by a board of directors and one committee of the board
that meet throughout the year. The only standing committee of the board is the
Audit Committee on which Mr. Piraino is presently the sole member. All other
matters (including nominating and executive compensation) are approved by the
board acting as a committee of the whole. eSat's by-laws call for a board of
directors consisting of from one to nine members. The board presently consists
of six members. Consideration is being given to expanding the size of the board
to at least seven members later in 2000. Whether or not the size of the board is
expanded, we expect that the composition of the Audit Committee will be expanded
in 2000.
Attendance At Meetings
During 1999, the board of directors held four meetings and acted pursuant
to 14 actions by unanimous written consent without a meeting. In addition, the
Audit Committee met twice. The directors (as a group) attended 100% of the
meetings of the board and board committees on which they served.
3
<PAGE> 8
Compensation of Directors
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.
4
<PAGE> 9
SECURITY OWNERSHIP
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS AND EXECUTIVE
OFFICERS
Common Stock. The following table sets forth, as of July 28, 2000, the
ownership of our common stock by
- each director and named executive officer of the company,
- all named executive officers and directors of the company as a group, and
- all persons known by us to beneficially own more than 5% of our common
stock.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT OF
BENEFICIAL TOTAL SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP(1) AND OPTIONS
------------------------------------ ------------ ------------
<S> <C> <C>
David B. Coulter(2)......................................... 2,500,000 10.69%
15555 Huntington Village Lane, #239
Building 9
Huntington Beach, CA 92647
Chester (Chet) L. Noblett Jr.(3)............................ 2,737,097 11.83%
16520 Harbor Boulevard, Bldg. G
Fountain Valley, California 92708
Salvator Piraino(4)......................................... 161,103 *
16520 Harbor Boulevard, Bldg. G
Fountain Valley, California 92708
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 5.95%
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
Steven A. Tulk.............................................. 400 *
10 Universal City Plaza, Suite 1130
Universal City, California 91608
Directors and Named Executive Officers as a group........... 8,938,411 34.56%
</TABLE>
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* 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 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 1,500,000 shares of the company's common stock
at $3.00 per share for a period of five years from August 22, 1998.
(3) Includes options to purchase: (i) 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); (ii) 333,000 shares of the company's common stock at $3.00
per share for a period of five years from date of grant (October 7, 1998);
(iii) 300,000 shares of the company's common stock at $3.00 per share for a
period of five years from date of grant (September 15, 1998); and (iv)
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).
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<PAGE> 10
(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); (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 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: (i) 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 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 record date:
<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 Corporate Center 50,000 100%
6% Convertible Preferred(1) West Bay Road Grand Cayman
Series D........................ Wentworth, LLC Corporate Center 75,000 100%
6% Convertible Preferred(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.
EXECUTIVE COMPENSATION
BOARD OF DIRECTORS REPORT
The board of directors of eSat acts as the compensation committee and has
issued the following report for the fiscal year ended December 31, 1999.
Responsibilities of the Board
The board is responsible for developing and administering the compensation
policies and practices for eSat and determining the compensation for the Chief
Executive Officer and approving or ratifying the compensation of the other
executive officers as recommended by the Chief Executive Officer.
Compensation Philosophy and Guiding Principles
Our executive compensation policies and practices are designed to provide a
competitive compensation program that effectively aligns executive compensation
with our mission, business strategy, and values. The board believes that
implementing these policies and practices will allow us to attract, motivate,
retain, and reward key executives who have the skills, experience and talents
required to promote our short- and long-term performance and growth.
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<PAGE> 11
The executive compensation program is based on the following
pay-for-performance guiding principles:
- attract, retain, reward and motivate highly talented employees;
- provide incentives for achieving specific corporate earnings and return
goals, as well as market-related goals necessary to build shareholder
value over time; and
- align the interests of executives with the interests of our shareholders
by basing a significant portion of compensation upon the company's
performance.
To achieve these objectives, our compensation philosophy and programs:
- reward executives based on the achievement of financial and other
performance measures;
- place a significant portion of total compensation "at-risk" through
incentive awards that are directly linked to company performance and
shareholder returns; and
- encourage significant employee ownership of the company's common stock.
The board considers each of these principles as it administers and
implements the program.
Compensation Components
eSat compensation programs reflect its commitment to fostering a "pay for
performance" culture by aligning the interests of employees with those of the
shareholders. As a result, the company has emphasized long-term, incentive-based
variable compensation. The basic elements of eSat's executive compensation
package are base salary, cash bonuses and long-term incentives. The board's
policies with respect to each of these elements are discussed below.
Base Salary
It is the company's compensation policy to set base salaries at competitive
market rates to ensure that the company attracts and retains the superior
executive talent necessary for successful operation of the company's business.
Individual base compensation decisions take into consideration the factors
described above.
The base salary of the Chief Executive Officer is established through
negotiations between the board and Mr. Palmer. See "Executive Compensation
Table." Base salaries for each of the other named executive officers were
established through negotiations between Mr. Palmer and each named executive
officer and approved or ratified by the board.
In setting Mr. Palmer's annual salary and target incentive compensation for
1999, the board considered numerous factors, including Mr. Palmer's management
and financial skills and his unique role in reorienting the company's focus
toward the satellite and wireless Internet service business.
Cash Bonuses
Bonus compensation for executive officers is subject to award on a
discretionary basis by the board. Historically, the company has not paid cash
bonuses.
Long-Term Incentives
Our executives are encouraged to own shares of our common stock, thereby
aligning the interests of management with those of shareholders and tying a
significant portion of executive compensation to long-term market performance.
The vesting schedules for stock options are set by the board. All options
granted to executive officers have had an exercise price greater than or equal
to the fair market value at the time of grant. The board has granted stock
options to Mr. Palmer in order to provide him with an additional incentive to
promote the success of the company. The board believes that the use of stock
options to provide incentive compensation to Mr. Palmer is appropriate and
advisable since stock options further align his compensation with public
shareholders' interests while minimizing the use of cash resources.
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<PAGE> 12
In order to preserve the effectiveness of the Stock Option Plan as an
incentive for executive performance, the board is seeking shareholder approval
of an increase in the aggregate number of shares which may be issued upon
exercise of all options under the Stock Option Plan. The proposed amendment to
the Stock Option Plan is further described in Item 3.
Tax Issues
For 1999 and later years, the board intends to seek to structure executive
compensation arrangements to preserve the deductibility of named executive
officer compensation under applicable federal and state income tax laws while
also taking into account the need to provide appropriate incentives to our key
executives. Where practicable, it is the policy of the board to establish
compensation practices that are both cost-efficient from a tax standpoint and
effective as a compensation program. The board also considers it important to be
able to utilize the full range of incentive compensation, even though some
compensation may not be fully deductible.
By the board of directors:
Chester L. Noblett, Jr. (Chair)
Michael C. Palmer
Salvator Piraino
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<PAGE> 13
COMPARISON OF CUMULATIVE TOTAL SHAREHOLDER RETURN
The performance graph below shows eSat's total return on common stock
compared to the PSE High Technology Index and the Inter@ctive Week Internet
Index over the approximately eight month period beginning December 1, 1999 and
ending July 28, 2000. The results are based on an assumed $100 invested on
December 1, 1999.
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
INTER@CTIVE WEEK INTERNET PSE HIGH TECHNOLOGY
ESAT, INC. INDEX INDEX
---------- ------------------------- -------------------
<S> <C> <C> <C>
12/1/99 100.0000 100.0000 100.0000
12/31/99 125.0000 128.5840 126.1680
1/31/00 156.2500 119.7130 123.4330
2/29/00 128.1250 140.9120 151.5860
3/31/00 101.5630 139.3730 150.8220
4/30/00 62.5000 114.8820 141.2210
5/31/00 54.6875 94.4854 129.0960
6/30/00 50.7800 111.0810 142.9590
7/28/00 42.9700 105.9250 130.2950
</TABLE>
<TABLE>
<CAPTION>
DATE 12/1/99 12/31/99 1/31/00 2/29/00 3/31/00 4/30/00 5/31/00 6/30/00
---- ------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
eSat, Inc. ..................... $100.00 $ 125 $ 156.25 $ 128.125 $101.5625 $ 62.5 $ 54.6875 $ 50.78
Inter@ctive Week Internet
Index.......................... 100.00 128.5842 119.7125 140.9118 139.3734 114.8819 94.48543 111.0807
PSE High Technology Index....... 100.00 126.1675 123.4328 151.5861 150.8216 141.2208 129.0956 142.9588
<CAPTION>
8-MONTH
ANNUALIZED
DATE 7/28/00 TOTAL RETURN
---- --------- ------------
<S> <C> <C>
eSat, Inc. ..................... $ 42.97 (98.4)%
Inter@ctive Week Internet
Index.......................... 105.925 8.9%
PSE High Technology Index....... 130.2949 45.5%
</TABLE>
---------------
Source: Yahoo Finance
There can be no assurance that the company's stock performance will
continue into the future with the same or similar trends depicted in the graph.
eSat does not make or endorse any predictions as to future performance of its
stock. The performance graph above shall not be deemed incorporated by reference
into any other public filing, unless the company specifically incorporates such
graph by reference.
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<PAGE> 14
EXECUTIVE COMPENSATION TABLES
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>
LONG TERM
COMPENSATION
-----------------------
AWARDS
ANNUAL COMPENSATION -----------------------
----------------------------------------- RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND 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 1,625,000
President, Chief Executive 1998 10,780 100,000
Officer and Secretary 1997
Chester L. Noblett, Jr. .... 1999 178,936(2) 300,000
Chief Operating Officer 1998 114,750 48,750 1,095,802
1997
Mark McMillan(3)............ 1999 87,500 500,000(4)
1998
1997
James Mack(5)............... 1999 120,625
1998 18,750 35,000 300,000(6)
1997
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.............. 2000 (9) 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 (in the Form 10-K, which accompanies this proxy statement)
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
Vantage Capital, Inc. ("VCI") $25,000 per month for Mr. Palmer's services
pursuant to a consulting agreement. Mr. Palmer is the sole owner of VCI. 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.
(2) Includes back pay of $55,417 earned in 1999 and paid in January 2000.
(3) 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.
(4) All of these options were canceled in 2000 pursuant to their terms.
(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 $170,000 in 1999 and $90,000 in 2000. See "Certain transactions."
(8) All of these options were subsequently canceled in 1999 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 April 2000, with a base salary of $180,000.
10
<PAGE> 15
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 receives a base salary of $180,000 per year, and is 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 is
entitled to 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, receives
a base salary of $150,000 per year, and is 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 is
entitled to 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. 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.
We have entered into an employment agreement with Leon Shpilsky for a
period of three years, commencing May 8, 2000. The agreement will automatically
renew for successive one year periods, provided neither party chooses not to
renew the contract. Mr. Shpilsky, by the terms of the agreement, receives a base
salary of $125,000 per year, and is eligible to receive performance-based
compensation. Under the agreement, Mr. Shpilsky may also receive a salary
adjustment under certain conditions while he is based in Western Europe. The
employment agreement includes company health insurance coverage and
reimbursement of normal business-related expenses. In addition, Mr. Shpilsky is
entitled to receive paid vacation and sick time, as well as paid time during
which he may attend professional conferences or seminars. The agreement also
provides a monthly automobile expense allowance that includes payment of
automobile insurance and associated expenses. Further, Mr. Shpilsky is entitled
to receive compensation for relocation expenses. The employment agreement also
grants to Mr. Shpilsky 300,000 stock options for shares of our company's common
stock.
11
<PAGE> 16
OPTION GRANTS IN FISCAL YEAR 1999
<TABLE>
<CAPTION>
INDIVIDUAL
GRANTS
PERCENT OF POTENTIAL REALIZABLE
TOTAL VALUE AT ASSUMED
OPTIONS ANNUAL RATES OF STOCK
NUMBER OF GRANTED TO MARKET PRICE APPRECIATION FOR
SHARES EMPLOYEES EXERCISE OF PRICE ON OPTION TERM
UNDERLYING IN FISCAL BASE PRICE DATE OF EXPIRATION -----------------------
NAME OPTIONS YEAR ($/SH) GRANT DATE 5%($) 10%($)
---- ---------- ------------ ----------- -------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Michael C. Palmer(1)......... 25,000 0.6% $ 4.00 $4.00 2/9/04 $ 27,750 $ 61,000
Michael C. Palmer(1)......... 1,000,000 23.5 3.00 3.00 10/30/04 830,000 1,800,000
Chester L. Noblett, Jr....... 300,000 7.1 3.00 3.00 2/9/04 249,000 540,000
Mark McMillan(2)............. 500,000 11.8 13.125 5/17/04
David Coulter(2)............. 1,500,000(3) 35.3 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.
(3) Issued in the form of a warrant.
OPTIONS EXERCISED IN FISCAL YEAR 1999
<TABLE>
<CAPTION>
NUMBER OF SHARES DOLLAR VALUE
SHARES VALUE ----------------------- ------------------------
NAME 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 --
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.
DESCRIPTION OF 1997 STOCK OPTION AND STOCK BONUS PLAN
The company's 1997 Stock Option and Stock Bonus Plan ("1997 Plan") was
adopted by the board of directors and approved by the shareholders in December
1997. It authorized and reserved an aggregate of 1,200,000 shares of common
stock for issuance upon exercise of grants under the 1997 Plan. In July 2000,
subject to the approval of the shareholders, the board of directors increased
the number of authorized shares to be reserved under the 1997 Plan to 7,850,000
in order to cover grants that had been made. The board does not plan to make any
further grants under the 1997 Plan and all future grants will be made under the
company's 2000 Stock Option Plan described in Item 4 below.
The 1997 Plan is administered by the board of directors. Persons eligible
to participate in the 1997 Plan include employees, officers, directors of and
consultants to the company. In determining persons to whom grants are to be made
and the number of shares to be covered, the board takes into account the duties
of the respective persons, their present and potential contributions to the
success of the company, and such other factors as it deems relevant to
accomplish the purposes of the 1997 Plan. With respect to persons subject to
Section 16 of the Securities Exchange Act of 1934, as amended ("Exchange Act"),
transactions under the 1997 Plan are intended to comply with all applicable
conditions of Rule 16b-3 or any successor regulation under the Exchange Act.
Options granted which would subject a recipient to liability under Section 16(b)
of the Exchange Act are void ab initio as if never granted.
The types of grants available under the 1997 Plan include Incentive Stock
Options intended to qualify as such under Section 422 of the Internal Revenue
Code of 1986, as amended ("Code"), Nonqualified Stock Options and Stock Bonuses.
Grants of options or bonuses under the 1997 Plan may include such vesting
schedules and other restrictions as the board of directors deems appropriate.
The exercise price for any Incentive Stock Option
12
<PAGE> 17
shall be not less than 100% of the fair market value of the company's stock on
the date of grant. The exercise price for Nonqualified Stock Options shall be
not less than 85% of the fair market value on the date of grant. Options granted
under the 1997 Plan are not transferable other than by will or the laws of
descent or distribution or pursuant to a qualified domestic relations order.
Options and bonuses may be granted under the 1997 Plan from time to time
until December 9, 2007. Except as described above, the board does not intend to
use the 1997 Plan after approval by the shareholders of the 2000 Stock Option
Plan.
1997 Plan Benefits. After approval of the 2000 Stock Plan, the board of
directors does not expect that there will be any benefits granted under, or
received pursuant to, the 1997 Plan by eligible individuals or groups. The
options that were awarded under the 1997 Plan during 1999 are summarized in the
executive compensation tables on page 12. See, also, the table on page 14 for
information about grants of options during 1999 to certain named persons.
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
13
<PAGE> 18
ten stockholders of the 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 1,500,000 shares exercisable at $3.00 per share and options
on 1,910,885 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.
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.
14
<PAGE> 19
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16 of the Securities Exchange Act of 1934, as amended, requires
certain persons to report their holdings and transactions in eSat's equity
securities to the Securities and Exchange Commission on a timely basis. To our
knowledge, no beneficial owners, directors or officers holding company common
stock have filed late reports.
PROPOSED AMENDMENT OF ARTICLES OF INCORPORATION
(ITEM 2 ON PROXY CARD)
The board of directors has determined that it is in the best interests of
the company and its stockholders to amend the company's Articles of
Incorporation to increase the number of authorized shares of the common stock of
the company from 50,000,000 to 100,000,000 shares. Accordingly, the board of
directors has unanimously approved the proposed Certificate of Amendment to our
Articles of Incorporation, in substantially the form attached hereto as Appendix
A (the "Certificate of Amendment"), and hereby solicits the approval of the
Certificate of Amendment by the company's stockholders.
If the stockholders approve the Certificate of Amendment, the board of
directors currently intends to file the Certificate of Amendment with the
Secretary of State of the State of Nevada promptly following such stockholder
approval.
PURPOSE OF THE PROPOSED AMENDMENT
The objectives of the increase in the authorized number of shares of common
stock from 50,000,000 to 100,000,000 shares are to ensure that there is a
sufficient number of authorized shares available for future issuances.
The board of directors believes that it is prudent to increase the
authorized number of shares of common stock to the proposed level in order to
provide a reserve of shares available for issuance to meet business needs as
they arise. Such future activities may include, without limitation, financings,
establishing strategic relationships with corporate partners, providing equity
incentives to employees, officers or directors, or effecting future stock splits
or dividends. As we continually evaluate and conduct discussions with third
parties with respect to potential acquisitions or investments, the additional
shares of common stock authorized may also be used to acquire or invest in
complementary companies, businesses or products or to obtain the right to use
complementary technologies. The probability that we will enter into any such
transaction is presently uncertain.
Adoption of the proposed Certificate of Amendment would not affect the
rights of the holders of currently outstanding common stock of the company,
except for effects incidental to increasing the number of shares of the
company's common stock outstanding.
POSSIBLE EFFECT OF THE PROPOSED AMENDMENT
If the stockholders approve the proposed Certificate of Amendment, the
board of directors may cause the issuance of additional shares of common stock
without further vote of the stockholders of the company, except as provided
under Nevada corporate law or under the rules of any national securities
exchange or automatic quotation system on which shares of common stock of the
company are then listed. Current holders of common stock have no preemptive or
like rights, which means that current stockholders do not have a prior right to
purchase any new issue of capital stock of the company in order to maintain
their relative ownership thereof. The issuance of additional shares of common
stock would decrease the proportionate equity interest of the company's current
stockholders and, depending upon the price paid for such additional shares,
could result in dilution to the company's current stockholders.
In addition, the board of directors could use authorized but unissued
shares to create impediments to a takeover or a transfer of control of the
company. Accordingly, the increase in the number of authorized shares of common
stock may deter a future takeover attempt which holders of common stock may deem
to be in their
15
<PAGE> 20
best interest or in which holders of common stock may be offered a premium for
their shares over the market price. The board of directors is not currently
aware of any attempt to take over or acquire the company. While it may be deemed
to have potential anti-takeover effects, the proposed amendment to increase the
authorized common stock is not prompted by any specific effort or takeover
threat currently perceived by management.
REQUIRED VOTE; RECOMMENDATION OF BOARD OF DIRECTORS
The affirmative vote of a majority of the votes entitled to be cast at the
Annual Meeting by holders of common stock, Series C Preferred Stock and Series D
Preferred Stock, voting as a single class, will be required to approve the
Certificate of Amendment. Both abstentions and broker non-votes will have the
same effects as votes against this proposal.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE
CERTIFICATE OF AMENDMENT.
PROPOSED AMENDMENT OF 1997 STOCK OPTION AND STOCK BONUS PLAN
(ITEM 3 ON PROXY CARD)
BACKGROUND
As of July 28, 2000, 6,890,211 shares were subject to issuance upon
exercise of options granted pursuant to the 1997 Stock Option and Stock Bonus
Plan (the "1997 Plan"). The board of directors has approved an increase in the
number of shares available under the 1997 Plan to 7,850,000 and seeks
ratification of that increase. To provide for future grants, the board is
proposing to establish a new plan. See Item 4 below.
DESCRIPTION OF OPTION PLAN AMENDMENTS
The terms of the 1997 Plan are described above under "Executive
Compensation -- Description of 1997 Stock Option and Stock Bonus Plan." That
description is subject to the full extent of the 1997 Plan, which is available
upon request.
The proposed amendment to the 1997 Plan would increase the number of shares
of common stock that may be issued under the 1997 Plan to 7,850,000. The effect
of the proposed amendment is to preserve the benefits of the 1997 Plan by
ensuring that employees, consultants and directors who are eligible to receive
options to purchase shares of common stock pursuant to the 1997 Plan may
exercise such options to purchase shares covered by the 1997 Plan.
VOTE REQUIRED
Approval of the board of directors' action in amending the 1997 Stock
Option Plan requires the affirmative vote of the holders of at least a majority
of the votes entitled to be cast represented and voting at the meeting. Broker
abstentions and non-votes will have the effect of a vote against this Item 3.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL OF
THE PROPOSED AMENDMENT TO THE 1997 PLAN AND, UNLESS DIRECTED OTHERWISE, IT IS
THE INTENTION OF THE PROXIES NAMED IN THE FORM OF PROXY THAT ACCOMPANIES THIS
PROXY STATEMENT TO VOTE FOR THE APPROVAL OF SUCH ADOPTION.
PROPOSED 2000 STOCK OPTION PLAN
(ITEM 4 ON PROXY CARD)
General. Subject to shareholder approval at this meeting, the Board of
Directors has adopted the 2000 Stock Option Plan for eSat (the "2000 Plan"). The
2000 Plan gives the Board the ability to provide incentives through the issuance
of restricted stock awards and stock options ("Grants"). Present and future
employees of the Company and any of its Subsidiaries, outside directors, and
certain independent contractors are eligible to receive Grants under the 2000
Plan, attached hereto as Appendix B.
16
<PAGE> 21
The Board has reserved 3,000,000 shares of common stock, plus any shares of
common stock that represent awards granted that are forfeited, expire or are
cancelled, for issuance under the 2000 Plan. If a Grant expires or terminates
unexercised or is forfeited, or if any shares are surrendered to the Company in
connection with a Grant, the shares subject to such Grant and the surrendered
shares will be available for further Grants under the 2000 Plan. The number of
shares subject to the 2000 Plan (and the number of shares and terms of any
Grant) may be adjusted in the event of any change in the outstanding common
stock of the Company by reason of any stock dividend, spin-off, split-up,
reverse stock split, recapitalization, reclassification, merger, consolidation,
exchange of shares or similar transaction.
No more than 500,000 of the authorized shares may be allocated to Grants to
any individual participant during any year.
Administration. Pursuant to the 2000 Plan, the Board is authorized to
establish a committee or committees to administer the 2000 Plan. Each committee
has a minimum of two members. As necessary, each committee member must meet the
standards of independence necessary to be classified as an "outside director"
for purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code") and a non-employee director for purposes of Rule 16b-3 under the
Securities Exchange Act of 1934, as amended. The applicable committee will have
authority to determine the terms of the Grants.
Stock Options. The 2000 Plan authorizes the grant of Incentive Stock
Options and Nonqualified Stock Options. Incentive Stock Options are stock
options that satisfy the requirements of Section 422 of the Code. Nonqualified
Stock Options are options that do not satisfy the requirements of Section 422 of
the Code. Options granted under the 2000 Plan entitle the grantee, upon
exercise, to purchase a specified number of shares from the Company at a
specified exercise price per share. The applicable committee determines the
period of time during which an option may be exercised, as well as any vesting
schedule, except that no option may be exercised more than ten years after the
date of grant. The exercise price for shares of common stock covered by an
option cannot be less than 100% of the fair market value of the common stock on
the date of grant for Incentive Stock Options and not less than 85% of the fair
market value for Nonqualified Stock Options.
Outside directors may only receive Nonqualified Stock Options. At the time
an outside director joins the Board, such director will automatically receive an
award of Nonqualified Stock Options to purchase 20,000 shares. Thereafter, after
each annual meeting, other than an annual meeting which occurs within a year of
such director's joining the Board, outside directors automatically receive a
grant of an additional 20,000 Nonqualified Stock Options.
Restricted Stock Awards. The 2000 Plan authorizes the making of restricted
stock awards. The applicable committee will establish the number of shares of
common stock to be awarded and the terms applicable to each award, including
performance restrictions, if any. If the conditions of the award are not met,
the Company may repurchase the stock at a stated price.
Duration, Amendment and Termination. The board may suspend or terminate the
2000 Plan without shareholder approval at any time or from time to time. Unless
terminated, the 2000 Plan has no fixed termination date but Incentive Stock
Options may not be granted (under the 2000 Plan) more than ten years after
approval by the Board of the 2000 Plan.
The board may also amend the 2000 Plan at any time or from time to time. No
change may be made that increases the total number of shares of common stock
reserved for issuance pursuant to the 2000 Plan, or reduces the minimum exercise
price for options unless such change is authorized by the shareholders of the
company. A termination of or amendment to the 2000 Plan will not, without the
consent of the applicable participants, adversely affect a participant's rights
under a Grant which he or she previously received.
Restrictions on Transfer. Except as otherwise permitted by the applicable
committee and provided in the Grant, Grants may not be transferred or exercised
by another person except by will or by laws of dissent and distribution.
17
<PAGE> 22
FEDERAL INCOME TAX INFORMATION
The following is a general summary of the current federal income tax
treatment of Grants which would be authorized to be granted under the 2000 Plan,
based upon the current provisions of the Code and regulations promulgated
thereunder. The rules governing the tax treatment of such awards are quite
technical, so the following discussion of tax consequences is necessarily
general in nature and does not purport to be complete. In addition, statutory
provisions are subject to change, as are their interpretations, and their
application may vary in individual circumstances. Finally, this discussion does
not address the tax consequences under applicable state and local law.
Incentive Stock Options. A participant will not recognize income on the
receipt or exercise of an Incentive Stock Option. However, the difference
between the exercise price and fair market value of the stock on the date of
exercise is an adjustment item for purposes of the alternative minimum tax. If a
participant does not exercise an Incentive Stock Option within certain specified
periods after termination of employment, the participant will recognize ordinary
income on the exercise of an Incentive Stock Option in the same manner as on the
exercise of a Nonqualified Stock Option, as described below.
The general rule is that gain or loss from the sale or exchange of shares
acquired on the exercise of an Incentive Stock Option will be treated as capital
gain or loss. If certain holding period requirements are not satisfied, however,
the participant generally will recognize ordinary income at the time of
disposition. Gain recognized on the disposition in excess of the ordinary income
resulting therefrom will be capital gain, and any loss recognized will be a
capital loss.
Nonqualified Stock Options. A participant generally is not required to
recognize income on the grant of a Nonqualified Stock Option. Instead, ordinary
income generally is required to be recognized on the date the Nonqualified Stock
Option is exercised. In general, the amount of ordinary income required to be
recognized in the case of a Nonqualified Stock Option is an amount equal to the
excess, if any, of the fair market value of the shares on the exercise date over
the exercise price.
Restricted Stock. Unless a participant who receives an award of Restricted
Stock makes an election under Section 83(b) of the Code as described below, the
participant generally is not required to recognize ordinary income on the award
of restricted stock. Instead, on the date the shares vest (i.e., become
transferable and no longer subject to forfeiture), the participant will be
required to recognize ordinary income in an amount equal to the excess, if any,
of the fair market value of the shares on such date over the amount, if any,
paid for such shares. If a participant makes a Section 83(b) election to
recognize ordinary income on the date the shares are awarded, the amount of
ordinary income required to be recognized is an amount equal to the excess, if
any, of the fair market value of the shares on the date of award over the
amount, if any, paid for such shares. In such case, the participant will not be
required to recognize additional ordinary income when the shares vest.
Gain or Loss on Sale or Exchange of Shares. In general, gain or loss from
the sale or exchange of shares granted or awarded under the 2000 Plan will be
treated as capital gain or loss, provided that the shares are held as capital
assets at the time of the sale or exchange. However, if certain holding period
requirements are not satisfied at the time of a sale or exchange of shares
acquired upon exercise of an Incentive Stock Option (a "disqualifying
disposition"), a participant generally will be required to recognize ordinary
income upon such disposition.
Deductibility by Company. The company generally is not allowed a deduction
in connection with the grant or exercise of an Incentive Stock Option. If a
participant is required to recognize income as a result of a disqualifying
disposition, the Company will be entitled to a deduction equal to the amount of
ordinary income so recognized. In general, in the case of a Nonqualified Stock
Option (including an Incentive Stock Option that is treated as a Nonqualified
Stock Option, as described above), and restricted stock awards, the Company will
be allowed a deduction in an amount equal to the amount of ordinary income
recognized by a participant, provided that certain income tax reporting
requirements are satisfied.
Performance-Based Compensation. Subject to certain exceptions, Section
162(m) of the Code disallows federal income tax deduction for compensation paid
by a publicly-held corporation to certain executives to the
18
<PAGE> 23
extent the amount paid to an executive exceeds $1,000,000 for the taxable year.
The 2000 Plan has been designed to allow the committee to grant Stock Options
that qualify under an exception to the deduction limit of Section 162(m) for
"performance-based compensation."
Plan Benefits. Except for the automatic annual grants of 20,000
Nonqualified Stock Options to members of the board, the benefits that will be
received in the future under the 2000 Plan by particular individuals or groups
are not determinable at this time.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE
2000 PLAN.
INDEPENDENT AUDITORS
(ITEM 5 ON PROXY CARD)
The board of directors, adopting the recommendation of the Audit Committee,
has appointed the firm of Carpenter, Kuhen & Sprayberry as eSat's independent
auditors to audit the accounts of the company for 2000 and recommends
ratification of the appointment by the shareholders at the Annual Meeting. One
or more representatives of Carpenter, Kuhen & Sprayberry are expected to be
present at the meeting where they will be given the opportunity to make a
statement and will be available to respond to appropriate questions. Carpenter,
Kuhen & Sprayberry served as eSat's independent auditors for 1999.
If the appointment of Carpenter, Kuhen & Sprayberry is not ratified by a
majority of the votes entitled to be cast by stockholders represented at the
meeting, or if, prior to the meeting, Carpenter, Kuhen & Sprayberry declines to
act or otherwise becomes incapable of acting, or its engagement is otherwise
discontinued by the board of directors at any time, then, in any such case, the
board of directors will appoint other independent auditors whose employment will
then be subject to ratification by shareholders at the annual meeting following
such appointment.
SHAREHOLDER VOTE
Ratification of the appointment of Carpenter, Kuhen & Sprayberry as
independent auditors for 2000 will require the affirmative vote of a majority of
the votes entitled to be cast by stockholders represented at the meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE
APPOINTMENT OF CARPENTER, KUHEN & SPRAYBERRY AS INDEPENDENT AUDITORS.
OTHER BUSINESS
2000 ANNUAL MEETING
At the date of this proxy statement, we know of no other matter to be
presented for action at the meeting. However, if any other matters do properly
come before the meeting, it is intended that the persons named on the
accompanying proxy card will vote on such matters in accordance with their best
judgment.
19
<PAGE> 24
SHAREHOLDER PROPOSALS AND NOMINATIONS
Shareholders may propose matters to be presented at shareholders' meetings
and also may nominate directors. Shareholder proposals must conform to the
standards set out by the Securities and Exchange Commission and must be received
at eSat's principal offices on or before February 15, 2001 in order to be
included in the proxy materials for presentation at eSat's annual meeting of
shareholders in 2001.
By order of the board of directors,
Michael C. Palmer
Chief Executive Officer and Secretary
August __, 2000
20
<PAGE> 25
APPENDIX A
CERTIFICATE OF AMENDMENT
OF ARTICLES OF INCORPORATION
OF ESAT, INC.
(AFTER ISSUANCE OF STOCK)
We, the undersigned, Michael C. Palmer, President, and Mark S. Basile,
Assistant Secretary, of eSat, Inc., do hereby certify:
1. The Board of Directors of said corporation, pursuant to unanimous
written consent on July 28, 2000, adopted a resolution to amend the Articles of
Incorporation as follows:
"Article VI, the first full paragraph thereof, is amended in its entirety
to read as follows:
"The total number of shares of capital stock which the Corporation shall
have authority to issue is 110,000,000 shares, of which 100,000,000 shares
shall be common stock with a par value of $.001 per share ("Common Stock"),
and 10,000,000 shares shall be preferred stock with a par value of $.001
("Preferred Stock")."
2. The number of shares of Common Stock and Preferred Stock (as if fully
converted) the corporation entitled to vote on an amendment to the Articles of
Incorporation is 26,882,021.
3. The amendment to the Articles of Incorporation has been consented to and
approved by stockholders holding shares in the corporation entitling them to
exercise at least a majority of the voting power.
--------------------------------------
Michael C. Palmer
President
--------------------------------------
Mark S. Basile
Assistant Secretary
A-1
<PAGE> 26
CALIFORNIA ALL-PURPOSE ACKNOWLEDGMENT
State of California
County of
On ____________ before me,
DATE NAME, TITLE OF OFFICER -- E.G., "JANE DOE, NOTARY PUBLIC"
personally appeared Michael C. Palmer and Mark S. Basile
NAME(S) OF SIGNER(S)
[ ] personally known to me -- OR --
[ ] proved to me on the basis of satisfactory evidence to be the person(s)
whose name(s) is/are subscribed to the within instrument and acknowledged
to me that he/she/they executed the same in his/her/their authorized
capacity(ies), and that by his/her/their signature(s) on the instrument the
person(s), or the entity upon behalf of which the person(s) acted, executed
the instrument
WITNESS my hand and official seal.
--------------------------------------
Signature of Notary
OPTIONAL
Though the data below is not required by law, it may prove valuable to
persons relying on the document and prevent fraudulent reattachment of this
form.
<TABLE>
<S> <C>
CAPACITY CLAIMED BY SIGNER DESCRIPTION OF ATTACHED DOCUMENT
[ ] INDIVIDUAL Certificate of Amendment
[X] CORPORATE --------------------------------------------
President and Assistant Secretary TITLE OR TYPE OF DOCUMENT
---------------------------------------
TITLE(S) 2 including this page
--------------------------------------------
[ ] PARTNERS [ ] LIMITED NUMBER OF PAGES
[ ] GENERAL
[ ] ATTORNEY-IN-FACT
[ ] TRUSTEE(S) DATE OF DOCUMENT
[ ] GUARDIAN/CONSERVATOR
[ ] OTHER None
--------------------------------------------
SIGNER IS REPRESENTING: SIGNER(S) OTHER THAN NAMED ABOVE
Name of Person(s) or Entity(ies)
ESAT, INC
</TABLE>
A-2
<PAGE> 27
APPENDIX B
ESAT, INC.
2000 STOCK OPTION PLAN
SECTION 1. Purpose
The purpose of the eSat, Inc. Stock Option Plan (the "Plan") is to enhance
the long-term stockholder value of eSat, Inc., a Delaware corporation (the
"Company"), by offering opportunities to employees, directors, officers,
consultants, agents, advisors and independent contractors of the Company and its
Subsidiaries (as defined in Section 2) to participate in the Company's growth
and success, and to encourage them to remain in the service of the Company and
its Subsidiaries and to acquire and maintain stock ownership in the Company.
SECTION 2. Definitions
For purposes of the Plan, the following terms shall be defined as set forth
below:
2.1 Board
"Board" means the Board of Directors of the Company.
2.2 Cause
"Cause" means dishonesty, fraud, misconduct, unauthorized use or disclosure
of confidential information or trade secrets, or conviction or confession of a
crime punishable by law (except minor violations), in each case as determined by
the Plan Administrator, and its determination shall be conclusive and binding.
2.3 Code
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
2.4 Common Stock
"Common Stock" means the common stock, par value $0.001 per share, of the
Company.
2.5 Corporate Transaction
"Corporate Transaction" means any of the following events:
(a) Consummation of any merger or consolidation of the Company in
which (i) the Company is not the continuing or surviving corporation, or
pursuant to which shares of the Common Stock are converted into cash,
securities or other property (other than a merger of the Company in which
the holders of Common Stock immediately prior to the merger have the same
proportionate ownership of capital stock of the surviving corporation
immediately after the merger) and (ii) the Optionee's employment is
terminated without cause within one year of the consummation of such merger
or consolidation;
(b) Consummation of any sale, lease, exchange or other transfer in one
transaction or a series of related transactions of all or substantially all
of the Company's assets other than a transfer of the Company's assets to a
majority-owned subsidiary corporation (as the term "subsidiary corporation"
is defined in Section 9.3) of the Company in which the Optionee's
employment is terminated without cause within one year of the consummation
of such sale, lease, exchange or other transfer; or
(c) Approval by the holders of the Common Stock of any plan or
proposal for the liquidation or dissolution of the Company.
B-1
<PAGE> 28
Ownership of voting securities shall take into account and shall include
ownership as determined by applying Rule 13d-3(d)(1)(i) (as in effect on the
date of adoption of the Plan) under the Exchange Act.
2.6 Disability
"Disability" means "disability" as that term is defined for purposes of
Section 22(e)(3) of the Code.
2.7 Early Retirement
"Early Retirement" means early retirement as that term is defined by the
Plan Administrator from time to time for purposes of the Plan.
2.8 Employee
"Employee" shall mean (i) any individual who is a common-law employee of
the Company or of a Subsidiary, (ii) an Outside Director and (iii) an
independent contractor who performs services for the Company or a Subsidiary and
who is not a member of the Board of Directors. Service as an Outside Director or
independent contractor shall be considered employment for all purposes of the
Plan, except as provided in Subsections (a) and (b) of Section 5.
2.9 Exchange Act
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
2.10 Fair Market Value
"Fair Market Value" shall mean the market price of Stock, determined by the
Plan Administrator as follows:
(i) If Stock was traded on a stock exchange on the date in question,
then the Fair Market Value shall be equal to the closing price reported for
such date by the applicable composite transactions report;
(ii) If Stock was traded over-the-counter on the date in question and
was traded on the NASDAQ system or the NASDAQ National Market, then the
Fair Market Value shall be equal to the last transaction price quoted for
such date by the NASDAQ system or the NASDAQ National Market;
(iii) If Stock was traded over-the-counter on the date in question but
was not traded on the NASDAQ system or the NASDAQ National Market, then the
Fair Market Value shall be equal to the mean between the last reported
representative bid and asked prices quoted for such date by the principal
automated inter-dealer quotation system on which Stock is quoted or, if the
Stock is not quoted on any such system, by the "Pink Sheets" published by
the National Quotation Bureau, Inc.; and
(iv) If none of the foregoing provisions is applicable, then the Fair
Market Value shall be determined by the Plan Administrator in good faith on
such basis as it deems appropriate.
In all cases, the determination of Fair Market Value by the Plan Administrator
shall be conclusive and binding on all persons.
2.11 Grant Date
"Grant Date" means the date the Plan Administrator adopted the granting
resolution. If, however, the Plan Administrator designates in a resolution a
later date as the date an Option is to be granted, then such later date shall be
the "Grant Date."
2.12 Incentive Stock Option
"Incentive Stock Option" means an Option to purchase Common Stock granted
under Section 8 with the intention that it qualify as an "incentive stock
option" as that term is defined in Section 422 of the Code.
B-2
<PAGE> 29
2.13 Nonqualified Stock Option
"Nonqualified Stock Option" means an Option to purchase Common Stock
granted under Section 8 other than an Incentive Stock Option.
2.14 Option
"Option" means the right to purchase Common Stock granted under Section 8.
2.15 Optionee
"Optionee" means (i) the person to whom an Option is granted; (ii) for an
Optionee who has died, the personal representative of the Optionee's estate, the
person(s) to whom the Optionee's rights under the Option have passed by will or
by the applicable laws of descent and distribution, or the beneficiary
designated in accordance with Section 10; or (iii) person(s) to whom an Option
has been transferred in accordance with Section 10.
2.16 Outside Director
"Outside Director" shall mean a member of the Board of Directors who is not
a common law employee of the Company or of a Subsidiary.
2.17 Plan Administrator
"Plan Administrator" means the Board or any committee of the Board
designated to administer the Plan under Section 3.1.
2.18 Retirement
"Retirement" means retirement as of the individual's normal retirement date
as that term is defined by the Plan Administrator from time to time for purposes
of the Plan.
2.19 Securities Act
"Securities Act" means the Securities Act of 1933, as amended.
2.20 Subsidiary
"Subsidiary," except as provided in Section 9.3 in connection with
Incentive Stock Options, means any entity that is directly or indirectly
controlled by the Company or in which the Company has a significant ownership
interest, as determined by the Plan Administrator, and any entity that may
become a direct or indirect parent of the Company.
SECTION 3. Administration
3.1 Plan Administrator
The Plan shall be administered by the Board or a committee or committees
(which term includes subcommittees) appointed by, and consisting of two or more
members of, the Board. If and so long as the Common Stock is registered under
Section 12(b) or 12(g) of the Exchange Act, the Board shall consider in
selecting the Plan Administrator and the membership of any committee acting as
Plan Administrator, with respect to any persons subject or likely to become
subject to Section 16 of the Exchange Act, the provisions regarding (a) "outside
directors" as contemplated by Section 162(m) of the Code and (b) "nonemployee
directors" as contemplated by Rule 16b-3 under the Exchange Act. The Board may
delegate the responsibility for administering the Plan with respect to
designated classes of eligible persons to different committees consisting of one
or more members of the Board, subject to such limitations as the Board deems
appropriate. Committee members shall serve for such term as the Board may
determine, subject to removal by the Board at any time.
B-3
<PAGE> 30
3.2 Administration and Interpretation By the Plan Administrator
Except for the terms and conditions explicitly set forth in the Plan, the
Plan Administrator shall have exclusive authority, in its discretion, to
determine all matters relating to Options under the Plan, including the
selection of individuals to be granted Options, the type of Options, the number
of shares of Common Stock subject to an Option, all terms, conditions,
restrictions and limitations, if any, of an Option and the terms of any
instrument that evidences the Option. The Plan Administrator shall also have
exclusive authority to interpret the Plan and may from time to time adopt, and
change, rules and regulations of general application for the Plan's
administration. The Plan Administrator's interpretation of the Plan and its
rules and regulations, and all actions taken and determinations made by the Plan
Administrator pursuant to the Plan, shall be conclusive and binding on all
parties involved or affected. The Plan Administrator may delegate administrative
duties to such of the Company's officers as it so determines.
SECTION 4. Stock Subject to the Plan
4.1 Authorized Number of Shares
Subject to adjustment from time to time as provided in Section 11.1, a
maximum of 3,000,000 shares of Common Stock shall be available for issuance
under the Plan. Shares issued under the Plan shall be drawn from authorized and
unissued shares or shares now held or subsequently acquired by the Company as
treasury shares.
4.2 Limitations
Subject to adjustment from time to time as provided in Section 11.1, not
more than 300,000 shares of Common Stock may be made subject to Options under
the Plan to any individual in the aggregate in any one fiscal year of the
Company, except that the Company may make additional one-time grants of up to
500,000 shares to newly hired individuals, such limitation to be applied in a
manner consistent with the requirements of, and only to the extent required for
compliance with, the exclusion from the limitation on deductibility of
compensation under Section 162(m) of the Code.
4.3 Reuse of Shares
Any shares of Common Stock that have been made subject to an Option that
cease to be subject to the Option (other than by reason of exercise of the
Option to the extent it is exercised for shares) and/or shares of Common Stock
subject to repurchase which are subsequently repurchased by the Company, shall
again be available for issuance in connection with future grants of Options
under the Plan; provided, however, that for purposes of Section 4.2, any such
shares shall be counted in accordance with the requirements of Section 162(m) of
the Code.
SECTION 5. Eligibility
(a) General Rules. Only Employees (including, without limitation,
independent contractors who are not members of the Board of Directors) shall be
eligible for designation as Optionees or Offerees by the Plan Administrator. In
addition, only Employees who are common law employees of the Company or a
Subsidiary shall be eligible for the grant of ISOs. Employees who are Outside
Directors shall only be eligible for the grant of the Nonstatutory Options
described in Subsection (b) below.
(b) Outside Directors. Any other provision of the Plan notwithstanding,
the participation of Outside Directors in the Plan shall be subject to the
following restrictions:
(i) Outside Directors shall receive no grants other than the
Nonstatutory Options described in this subsection (b).
(ii) Each Outside Director who first becomes a member of the Board of
Directors after the effective date of the Company's registration statement
under the Exchange Act shall receive a one-time grant of a Nonstatutory
Option covering 2,000 Shares (subject to adjustment under Article 9). Such
Nonstatutory
B-4
<PAGE> 31
Option shall be granted on the date when such Outside Director first joins
the Board of Directors and shall become exercisable ratably over a four
year period.
(iii) Upon the conclusion of each regular annual meeting of the
Company's stockholders, each Outside Director who will continue serving as
a member of the Board of Directors thereafter shall receive a Nonstatutory
Option covering 2,000 Shares (subject to adjustment under Section 11),
except that such Nonstatutory Option shall not be granted in the calendar
year in which the same Outside Director received the Nonstatutory Option
described in (ii) above. Nonstatutory Options granted under this Paragraph
(iii) shall become exercisable in full on the first anniversary of the date
of grant.
(iv) All Nonstatutory Options granted to an Outside Director under
this subsection (b) shall also become exercisable in full in the event of
the termination of such Outside Director's service because of death, total
and permanent disability or voluntary retirement at or after age 65.
(v) The Exercise Price under all Nonstatutory Options granted to an
Outside Director under this subsection (b) shall be equal to 100% of the
Fair Market Value of a Share on the date of grant, payable in one of the
forms described elsewhere herein.
(vi) All Nonstatutory Options granted to an Outside Director under
this subsection (b) shall terminate on the earliest of (A) the tenth
anniversary of the date of grant, (B) the date three months after the
termination of such Outside Director's service for any reason other than
death or total and permanent disability or (C) the date 12 months after the
termination of such Outside Director's service because of death or total
and permanent disability.
The Plan Administrator may provide that the Nonstatutory Options that
otherwise would be granted to an Outside Director under this subsection (b)
shall instead be granted to an affiliate of such Outside Director. Such
affiliate shall then be deemed to be an Outside Director for purposes of
the Plan, provided that the service-related vesting and termination
provisions pertaining to the Nonstatutory Options shall be applied with
regard to the service of the Outside Director.
(c) Ten Percent Stockholders. An Employee who owns more than ten percent
of the total combined voting power of all classes of outstanding stock of the
Company or any of its Subsidiaries shall not be eligible for the grant of an ISO
unless (i) the Exercise Price is at least 110% of the Fair Market Value of a
Share on the date of grant and (ii) such ISO by its terms is not exercisable
after the expiration of five years from the date of grant.
SECTION 6. Restricted Stock
6.1 Grants
In lieu of, or in addition to, Options, the Board may grant awards
entitling recipients to acquire shares of Common Stock, subject to (i) delivery
to the Company by the Optionee of a check in an amount at least equal to the par
value of the shares purchased, and (ii) the right of the Company to repurchase
all or part of such shares at their issue price or other stated or formula price
from the Optionee in the event that conditions specified by the Board in the
applicable Award are not satisfied prior to the end of the applicable
restriction period or periods established by the Board for such Award (each, a
"RESTRICTED STOCK AWARD").
6.2 Terms and Conditions
The Board shall determine the terms and conditions of any such Restricted
Stock Award. Any stock certificates issued in respect of a Restricted Stock
Award shall be registered in the name of the Optionee and, unless otherwise
determined by the Board, deposited by the Optionee, together with a stock power
endorsed in blank, with the Company (or its designee). After the expiration of
the applicable restriction periods, the Company (or such designee) shall deliver
the certificates no longer subject to such restrictions to the Optionee or, if
the Optionee has died, to the beneficiary designated by a Optionee, in a manner
determined by the Board, to receive amounts due or exercise rights of the
Optionee in the event of the Optionee's death (the "DESIGNATED BENEFICIARY"). In
the absence of an effective designation by a Optionee, Designated
B-5
<PAGE> 32
Beneficiary shall mean the Optionee's estate. Restricted Stock Awards shall be
subject to the terms of this Plan, with the exception of Sections 8 and 9, in
which case "Option" shall be read as "Restricted Stock Award."
SECTION 7. Awards
7.1 Form and Grant of Options
Except as otherwise provided herein, the Plan Administrator shall have the
authority, in its sole discretion, to determine the type or types of awards to
be made under the Plan. Such awards may consist of Incentive Stock Options
and/or Nonqualified Stock Options. Options may be granted singly or in
combination.
7.2 Acquired Company Option Awards
Notwithstanding anything in the Plan to the contrary, the Plan
Administrator may grant Options under the Plan in substitution for awards issued
under other plans, or assume under the Plan awards issued under other plans, if
the other plans are or were plans of other acquired entities ("Acquired
Entities") (or the parent of an Acquired Entity) and the new Option is
substituted, or the old award is assumed, by reason of a merger, consolidation,
acquisition of property or of stock, reorganization or liquidation (the
"Acquisition Transaction"). In the event that a written agreement pursuant to
which the Acquisition Transaction is completed is approved by the Board and said
agreement sets forth the terms and conditions of the substitution for or
assumption of outstanding awards of the Acquired Entity, said terms and
conditions shall be deemed to be the action of the Plan Administrator without
any further action by the Plan Administrator, except as may be required for
compliance with Rule 16b-3 under the Exchange Act, and the persons holding such
awards shall be deemed to be Optionees.
SECTION 8. Terms and Conditions of Options
8.1 Grant of Options
The Plan Administrator is authorized under the Plan, in its sole
discretion, to issue Options as Incentive Stock Options or as Nonqualified Stock
Options, which shall be appropriately designated.
8.2 Option Exercise Price
The exercise price for shares purchased under an Option shall be as
determined by the Plan Administrator, but shall not be less than 100% of the
Fair Market Value of the Common Stock on the Grant Date with respect to
Incentive Stock Options, and not less than 85% of the Fair Market Value of the
Common Stock on the Grant Date with respect to Nonqualified Stock Options.
8.3 Term of Options
The term of each Option shall be as established by the Plan Administrator
or, if not so established, shall be ten years from the Grant Date.
8.4 Exercise and Vesting of Options
The Plan Administrator shall establish and set forth in each instrument
that evidences an Option the time at which or the installments in which the
Option shall vest and become exercisable, which provisions may be waived or
modified by the Plan Administrator at any time. If not so established in the
instrument evidencing
B-6
<PAGE> 33
the Option, the Option will be immediately exercisable. Otherwise the shares
subject to the Option will vest according to the following schedule, which may
be waived or modified by the Plan Administrator at any time:
<TABLE>
<CAPTION>
PERIOD OF OPTIONEE'S PERCENT OF
CONTINUOUS EMPLOYMENT OR TOTAL OPTION FROM
SERVICE WITH THE COMPANY THE GRANT DATE
OR ITS SUBSIDIARIES THAT IS VESTED
------------------------ -----------------
<S> <C>
After 1 year 25%
After 2 years An additional 25%
Each 3 years An additional 25%
After 4 years 100%
</TABLE>
Any unvested shares acquired upon exercise of an Option shall be subject to
repurchase by the Company upon termination of the Optionee's employment or
services in accordance with the provisions of Section 14.1.
To the extent that the right to purchase shares has accrued thereunder, an
Option may be exercised from time to time by written notice to the Company, in
accordance with procedures established by the Plan Administrator, setting forth
the number of shares with respect to which the Option is being exercised and
accompanied by payment in full as described in Section 8.5. The Plan
Administrator may determine at any time that an Option may not be exercised as
to less than 100 shares at any one time for vested shares and any number in its
discretion for unvested shares (or the lesser number of remaining shares covered
by the Option).
8.5 Payment of Exercise Price
The exercise price for shares purchased under an Option shall be paid in
full to the Company by delivery of consideration equal to the product of the
option exercise price and the number of shares purchased. Such consideration
must be paid in cash or by check or, unless the Plan Administrator in its sole
discretion determines otherwise, either at the time the Option is granted or at
any time before it is exercised, a combination of cash and/or check (if any) and
one or both of the following alternative forms: (a) tendering (either actually
or, if and so long as the Common Stock is registered under Section 12(b) or
12(g) of the Exchange Act, by attestation) Common Stock already owned by the
Optionee for at least six months (or any shorter period necessary to avoid a
charge to the Company's earnings for financial reporting purposes) having a Fair
Market Value on the day prior to the exercise date equal to the aggregate Option
exercise price or (b) if and so long as the Common Stock is registered under
Section 12(b) or 12(g) of the Exchange Act, delivery of a properly executed
exercise notice, together with irrevocable instructions, to (i) a brokerage firm
designated by the Company to deliver promptly to the Company the aggregate
amount of sale or loan proceeds to pay the Option exercise price and any
withholding tax obligations that may arise in connection with the exercise and
(ii) the Company to deliver the certificates for such purchased shares directly
to such brokerage firm, all in accordance with the regulations of the Federal
Reserve Board. In addition, the exercise price for shares purchased under an
Option may be paid, either singly or in combination with one or more of the
alternative forms of payment authorized by this Section 8.5, by (y) a promissory
note delivered pursuant to Section 13 or (z) such other consideration as the
Plan Administrator may permit.
8.6 Post-Termination Exercises
The Plan Administrator shall establish and set forth in each instrument
that evidences an Option whether the Option will continue to be exercisable, and
the terms and conditions of such exercise, if an Optionee ceases to be employed
by, or to provide services to, the Company or its Subsidiaries, which provisions
may be waived or modified by the Plan Administrator at any time. If not so
established in the instrument evidencing the Option, the Option will be
exercisable according to the following terms and conditions, which may be waived
or modified by the Plan Administrator at any time.
In case of termination of the Optionee's employment or services other than
by reason of death or Cause, the Option shall be exercisable, to the extent of
the number of shares vested at the date of such termination, only (a) within one
year if the termination of the Optionee's employment or services is coincident
with Retirement, Early Retirement at the Company's request or Disability or (b)
within three months after the
B-7
<PAGE> 34
date the Optionee ceases to be an employee, director, officer, consultant,
agent, advisor or independent contractor of the Company or a Subsidiary if
termination of the Optionee's employment or services is for any reason other
than Retirement, Early Retirement at the Company's request or Disability, but in
no event later than the remaining term of the Option. Any Option exercisable at
the time of the Optionee's death may be exercised, to the extent of the number
of shares vested at the date of the Optionee's death, by the personal
representative of the Optionee's estate, the person(s) to whom the Optionee's
rights under the Option have passed by will or the applicable laws of descent
and distribution or the beneficiary designated pursuant to Section 10 at any
time or from time to time within one year after the date of death, but in no
event later than the remaining term of the Option. Any portion of an Option that
is not vested on the date of termination of the Optionee's employment or
services shall terminate on such date, unless the Plan Administrator determines
otherwise. In case of termination of the Optionee's employment or services for
Cause, the Option shall automatically terminate upon first notification to the
Optionee of such termination, unless the Plan Administrator determines
otherwise. If an Optionee's employment or services with the Company are
suspended pending an investigation of whether the Optionee shall be terminated
for Cause, all the Optionee's rights under any Option likewise shall be
suspended during the period of investigation.
With respect to employees, unless the Plan Administrator at any time
determines otherwise, "termination of the Optionee's employment or services" for
purposes of the Plan (including without limitation this Section 8 and Section
14) shall mean any reduction in the Optionee's regular hours of employment to
less than 30 hours per week. A transfer of employment or services between or
among the Company and its Subsidiaries shall not be considered a termination of
employment or services. The effect of a Company-approved leave of absence on the
terms and conditions of an Option shall be determined by the Plan Administrator,
in its sole discretion.
SECTION 9. Incentive Stock Option Limitations
To the extent required by Section 422 of the Code, Incentive Stock Options
shall be subject to the following additional terms and conditions:
9.1 Dollar Limitation
To the extent the aggregate Fair Market Value (determined as of the Grant
Date) of Common Stock with respect to which Incentive Stock Options are
exercisable for the first time during any calendar year (under the Plan and all
other stock option plans of the Company) exceeds $100,000, such portion in
excess of $100,000 shall be subject to delayed exercisability or treated as a
Nonqualified Stock Option as set forth by the Plan Administrator in the
agreement(s) evidencing the Option. In the event the Optionee holds two or more
such Options that become exercisable for the first time in the same calendar
year, such limitation shall be applied on the basis of the order in which such
Options are granted.
9.2 10% Stockholders
If an individual owns more than 10% of the total voting power of all
classes of the Company's stock, then the exercise price per share of an
Incentive Stock Option shall not be less than 110% of the Fair Market Value of
the Common Stock on the Grant Date and the Option term shall not exceed five
years. The determination of 10% ownership shall be made in accordance with
Section 422 of the Code.
9.3 Eligible Employees
Individuals who are not employees of the Company or one of its parent
corporations or subsidiary corporations may not be granted Incentive Stock
Options. For purposes of this Section 9.3, "parent corporation" and "subsidiary
corporation" shall have the meanings attributed to those terms for purposes of
Section 422 of the Code.
9.4 Term
The term of an Incentive Stock Option shall not exceed 10 years.
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9.5 Exercisability
To qualify for Incentive Stock Option tax treatment, an Option designated
as an Incentive Stock Option must be exercised within three months after
termination of employment for reasons other than death, except that, in the case
of termination of employment due to total disability, such Option must be
exercised within one year after such termination. Employment shall not be deemed
to continue beyond the first 90 days of a leave of absence unless the Optionee's
reemployment rights are guaranteed by statute or contract.
For purposes of this Section 9.5, "total disability" shall mean a mental or
physical impairment of the Optionee that is expected to result in death or that
has lasted or is expected to last for a continuous period of 12 months or more
and that causes the Optionee to be unable, in the opinion of the Company, to
perform his or her duties for the Company and to be engaged in any substantial
gainful activity. Total disability shall be deemed to have occurred on the first
day after the Company has furnished its opinion of total disability to the Plan
Administrator.
9.6 Taxation of Incentive Stock Options
In order to obtain certain tax benefits afforded to Incentive Stock Options
under Section 422 of the Code, the Optionee must hold the shares issued upon the
exercise of an Incentive Stock Option for two years after the Grant Date of the
Incentive Stock Option and one year from the date of exercise. An Optionee may
be subject to the alternative minimum tax at the time of exercise of an
Incentive Stock Option. The Plan Administrator may require an Optionee to give
the Company prompt notice of any disposition of shares acquired by the exercise
of an Incentive Stock Option prior to the expiration of such holding periods.
9.7 Promissory Notes
The amount of any promissory note delivered pursuant to Section 13 in
connection with an Incentive Stock Option shall bear interest at a rate
specified by the Plan Administrator but in no case less than the rate required
to avoid imputation of interest (taking into account any exceptions to the
imputed interest rules) for federal income tax purposes.
SECTION 10. Assignability
No Option granted under the Plan may be assigned, pledged or transferred by
the Optionee other than by will or by the applicable laws of descent and
distribution, and, during the Optionee's lifetime, such Option may be exercised
only by the Optionee or a permitted assignee or transferee of the Optionee (as
provided below).
Notwithstanding the foregoing, and to the extent permitted by Section 422
of the Code, the Plan Administrator, in its sole discretion, may permit such
assignment, transfer and exercisability and may permit an Optionee to designate
a beneficiary who may exercise the Option after the Optionee's death; provided,
however, that any Option so assigned or transferred shall be subject to all the
same terms and conditions contained in the instrument evidencing the Option.
SECTION 11. Adjustments
11.1 Adjustment of Shares
In the event that, at any time or from time to time, a stock dividend,
stock split, spin-off, combination or exchange of shares, recapitalization,
merger, consolidation, distribution to stockholders other than a normal cash
dividend, or other change in the Company's corporate or capital structure
results in (a) the outstanding shares, or any securities exchanged therefor or
received in their place, being exchanged for a different number or class of
securities of the Company or of any other corporation or (b) new, different or
additional securities of the Company or of any other corporation being received
by the holders of shares of Common Stock of the Company, then the Plan
Administrator shall make proportional adjustments in (i) the maximum number and
kind of securities subject to the Plan as set forth in Section 4.1, (ii) the
maximum number and kind of securities that may be made subject to Options to any
individual as set forth in Section 4.2, and (iii) the number and kind of
securities that are subject to any outstanding Option and the per share price of
such
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<PAGE> 36
securities, without any change in the aggregate price to be paid therefor. The
determination by the Plan Administrator as to the terms of any of the foregoing
adjustments shall be conclusive and binding.
11.2 Corporate Transaction
Except as otherwise provided in the instrument that evidences the Option,
in the event of a Corporate Transaction, the Plan Administrator shall determine
whether provision will be made in connection with the Corporate Transaction for
an appropriate assumption of the Options theretofore granted under the Plan
(which assumption may be effected by means of a payment to each Optionee (by the
Company or any other person or entity involved in the Corporate Transaction), in
exchange for the cancellation of the Options held by such Optionee, of the
difference between the then Fair Market Value of the aggregate number of shares
of Common Stock then subject to such Options and the aggregate exercise price
that would have to be paid to acquire such shares) or for substitution of
appropriate new options covering stock of a successor corporation to the Company
or stock of an affiliate of such successor corporation. If the Plan
Administrator determines that such an assumption or substitution will be made,
the Plan Administrator shall give notice of such determination to the Optionees,
and the provisions of such assumption or substitution, and any adjustments made
(i) to the number and kind of shares subject to the outstanding Options (or to
the options in substitution therefor), (ii) to the exercise prices, and/or (iii)
to the terms and conditions of the stock options, shall be binding on the
Optionees. Any such determination shall be made in the sole discretion of the
Plan Administrator and shall be final, conclusive and binding on all Optionees.
If the Plan Administrator, in its sole discretion, determines that no such
assumption or substitution will be made, the Plan Administrator shall give
notice of such determination to the Optionees, and each Option that is at the
time outstanding shall automatically accelerate so that each such Option shall,
immediately prior to the specified effective date for the Corporate Transaction,
become 100% vested and exercisable, except that such acceleration will not occur
if, in the opinion of the Company's outside accountants, it would render
unavailable "pooling of interest" accounting for a Corporate Transaction that
would otherwise qualify for such accounting treatment. All such Options shall
terminate and cease to remain outstanding immediately following the consummation
of the Corporate Transaction, except to the extent assumed by the successor
corporation or an affiliate thereof.
11.3 Further Adjustment of Options
Subject to Section 11.2, the Plan Administrator shall have the discretion,
exercisable at any time before a sale, merger, consolidation, reorganization,
liquidation or change in control of the Company, as defined by the Plan
Administrator, to take such further action as it determines to be necessary or
advisable, and fair and equitable to Optionees, with respect to Options. Such
authorized action may include (but shall not be limited to) establishing,
amending or waiving the type, terms, conditions or duration of, or restrictions
on, Options so as to provide for earlier, later, extended or additional time for
exercise and other modifications, and the Plan Administrator may take such
actions with respect to all Optionees, to certain categories of Optionees or
only to individual Optionees. The Plan Administrator may take such action before
or after granting Options to which the action relates and before or after any
public announcement with respect to such sale, merger, consolidation,
reorganization, liquidation or change in control that is the reason for such
action.
If, in connection with a sale, merger, consolidation, reorganization,
liquidation or change in control of the Company, as defined by the Plan
Administrator, a tax under Section 4999 of the Code would be imposed on the
Optionee (after taking into account the exceptions set forth in Sections
280G(b)(4) and 280G(b)(5) of the Code), then the number of Awards which shall
become exercisable, realizable or vested as provided in such section shall be
reduced (or delayed), to the minimum extent necessary, so that no such tax would
be imposed on the Optionee (the Awards not becoming so accelerated, realizable
or vested, the "PARACHUTE AWARDS"); PROVIDED, HOWEVER, that if the "AGGREGATE
PRESENT VALUE" of the Parachute Awards would exceed the tax that, but for this
sentence, would be imposed on the Optionee under Section 4999 of the Code in
connection with the Acquisition, then the Awards shall become immediately
exercisable, realizable and vested without regard to the provisions of this
sentence. For purposes of the preceding sentence, the "AGGREGATE PRESENT VALUE"
of an Award shall be calculated on an after-tax basis (other than taxes imposed
by Section 4999 of the Code) and shall be based on economic principles
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<PAGE> 37
rather than the principles set forth under Section 280G of the Code and the
regulations promulgated thereunder. All determinations required to be made under
this section shall be made by the Company.
11.4 Limitations
The grant of Options will in no way affect the Company's right to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
SECTION 12. Withholding
The Company may require the Optionee to pay to the Company the amount of
any withholding taxes that the Company is required to withhold with respect to
the grant or exercise of any Option. Subject to the Plan and applicable law, the
Plan Administrator may, in its sole discretion, permit the Optionee to satisfy
withholding obligations, in whole or in part, by paying cash, by electing to
have the Company withhold shares of Common Stock, or by transferring shares of
Common Stock to the Company, in such amounts as are equivalent to the Fair
Market Value of the withholding obligation. The Company shall have the right to
withhold from any shares of Common Stock issuable pursuant to an Option or from
any cash amounts otherwise due or to become due from the Company to the Optionee
an amount equal to such taxes. The Company may also deduct from any Option any
other amounts due from the Optionee to the Company or a Subsidiary.
SECTION 13. Loans, Installment Payments and Loan Guarantees
To assist an Optionee (including an Optionee who is an officer or a
director of the Company) in acquiring shares of Common Stock pursuant to an
Option granted under the Plan, the Plan Administrator, in its sole discretion,
may authorize, either at the Grant Date or at any time before the acquisition of
Common Stock pursuant to the Option, (a) the extension of a loan to the Optionee
by the Company, (b) the payment by the Optionee of the purchase price, if any,
of the Common Stock in installments, or (c) the guarantee by the Company of a
loan obtained by the Optionee from a third party. The terms of any loans,
installment payments or loan guarantees, including the interest rate and terms
of repayment, will be subject to the Plan Administrator's discretion.
Loans, installment payments and loan guarantees may be granted with or
without security. The maximum credit available is the purchase price, if any, of
the Common Stock acquired, plus the maximum federal and state income and
employment tax liability that may be incurred in connection with the
acquisition.
SECTION 14. Repurchase Rights; Escrow
14.1 Repurchase Rights
The Plan Administrator shall have the discretion to authorize the issuance
of unvested shares of Common Stock pursuant to the exercise of an Option. In the
event of termination of the Optionee's employment or services, all shares of
Common Stock issued upon exercise of an Option which are unvested at the time of
cessation of employment or services shall be subject to repurchase at the
exercise price paid for such shares. The terms and conditions upon which such
repurchase right shall be exercisable (including the period and procedure for
exercise) shall be established by the Plan Administrator and set forth in the
agreement evidencing such right.
All of the Company's outstanding repurchase rights under this Section 14.1
are assignable by the Company at any time and shall remain in full force and
effect in the event of a Corporate Transaction; provided that if the vesting of
Options is accelerated pursuant to Section 11.2, the repurchase rights under
this Section 14.1 shall terminate and all shares subject to such terminated
rights shall immediately vest in full. The Plan Administrator shall have the
discretionary authority, exercisable either before or after the Optionee's
cessation of employment or services, to cancel the Company's outstanding
repurchase rights with respect to
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<PAGE> 38
one or more shares purchased or purchasable by the Optionee under an Option and
thereby accelerate the vesting of such shares in whole or in part at any time.
14.2 Escrow
To ensure that shares of Common Stock acquired upon exercise of an Option
that are subject to any repurchase right, stockholders agreement and/or security
for any promissory note will be available for repurchase, the Plan Administrator
may require the Optionee to deposit the certificate or certificates evidencing
such shares with an agent designated by the Plan Administrator under the terms
and conditions of escrow and security agreements approved by the Plan
Administrator. If the Plan Administrator does not require such deposit as a
condition of exercise of an Option, the Plan Administrator reserves the right at
any time to require the Optionee to so deposit the certificate or certificates
in escrow. The Company shall bear the expenses of the escrow.
As soon as practicable after the expiration of any repurchase rights or
stockholders agreement, and after full repayment of any promissory note secured
by the shares in escrow, the agent shall deliver to the Optionee the shares no
longer subject to such restrictions and no longer security for any promissory
note.
In the event shares held in escrow are subject to the Company's exercise of
a repurchase option or stockholders agreement, the notices required to be given
to the Optionee shall be given to the agent and any payment required to be given
to the Optionee shall be given to the agent. Within 30 days after payment by the
Company, the agent shall deliver the shares which the Company has purchased to
the Company and shall deliver the payment received from the Company to the
Optionee.
In the event of any stock dividend, stock split or consolidation of shares
or any like capital adjustment of any of the outstanding securities of the
Company, any and all new, substituted or additional securities or other property
to which the Optionee is entitled by reason of ownership of shares acquired upon
exercise of an Option shall be subject to any repurchase rights, stockholders
agreement, and/or security for any promissory note with the same force and
effect as the shares subject to such repurchase rights, stockholders agreement
and/or security interest immediately before such event.
SECTION 15. Market Standoff
In connection with any underwritten public offering by the Company of its
equity securities pursuant to an effective registration statement filed under
the Securities Act, including the Company's initial public offering, a person
shall not sell, or make any short sale of, loan, hypothecate, pledge, grant any
option for the purchase of, or otherwise dispose or transfer for value or
otherwise agree to engage in any of the foregoing transactions with respect to,
any shares issued pursuant to an Option granted under the Plan without the prior
written consent of the Company or its underwriters. Such limitations shall be in
effect only if and to the extent and for such period of time as may be requested
by the Company or such underwriters and agreed to by the Company's officers and
directors; provided, however, that in no event shall the weighted average number
of days in such period exceed 180 days. The limitations of this paragraph shall
in all events terminate two years after the effective date of the Company's
initial public offering.
In the event of any stock split, stock dividend, recapitalization,
combination of shares, exchange of shares or other change affecting the
Company's outstanding Common Stock effected as a class without the Company's
receipt of consideration, then any new, substituted or additional securities
distributed with respect to the purchased shares shall be immediately subject to
the provisions of this Section 15, to the same extent the purchased shares are
at such time covered by such provisions.
In order to enforce the limitations of this Section 15, the Company may
impose stop-transfer instructions with respect to the purchased shares and any
new, substituted or additional securities distributed with respect to the
purchased shares until the end of the applicable standoff period.
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SECTION 16. Amendment and Termination of Plan
16.1 Amendment of Plan
The Plan may be amended only by the Board in such respects as it shall deem
advisable; however, to the extent required for compliance with Section 422 of
the Code or any applicable law or regulation, stockholder approval will be
required for any amendment that will (a) increase the total number of shares as
to which Options may be granted under the Plan, (b) modify the class of persons
eligible to receive Options, or (c) otherwise require stockholder approval under
any applicable law or regulation.
16.2 Termination of Plan
The Board may suspend or terminate the Plan at any time. The Plan will have
no fixed expiration date; provided, however, that no Incentive Stock Options may
be granted more than 10 years after the earlier of the Plan's adoption by the
Board and approval by the stockholders.
16.3 Consent of Optionee
The amendment or termination of the Plan shall not, without the consent of
the Optionee, impair or diminish any rights or obligations under any Option
theretofore granted under the Plan.
Any change or adjustment to an outstanding Incentive Stock Option shall
not, without the consent of the Optionee, be made in a manner so as to
constitute a "modification" that would cause such Incentive Stock Option to fail
to continue to qualify as an Incentive Stock Option.
SECTION 17. General
17.1 Option Agreements
Options granted under the Plan shall be evidenced by a written agreement
that shall contain such terms, conditions, limitations and restrictions as the
Plan Administrator shall deem advisable and that are not inconsistent with the
Plan.
17.2 Continued Employment or Services; Rights in Options
None of the Plan, participation in the Plan or any action of the Plan
Administrator taken under the Plan shall be construed as giving any person any
right to be retained in the employ of the Company or limit the Company's right
to terminate the employment or services of any person.
17.3 Registration
The Company shall be under no obligation to any Optionee to register for
offering or resale or to qualify for exemption under the Securities Act, or to
register or qualify under state securities laws, any shares of Common Stock,
security or interest in a security paid or issued under, or created by, the
Plan, or to continue in effect any such registrations or qualifications if made.
The Company may issue certificates for shares with such legends and subject to
such restrictions on transfer and stop-transfer instructions as counsel for the
Company deems necessary or desirable for compliance by the Company with federal
and state securities laws.
Inability of the Company to obtain, from any regulatory body having
jurisdiction, the authority deemed by the Company's counsel to be necessary for
the lawful issuance and sale of any shares hereunder or the unavailability of an
exemption from registration for the issuance and sale of any shares hereunder
shall relieve the Company of any liability in respect of the nonissuance or sale
of such shares as to which such requisite authority shall not have been
obtained.
As a condition to the exercise of an Option, the Company may require the
Optionee to represent and warrant at the time of any such exercise or receipt
that such shares are being purchased or received only for the Optionee's own
account and without any present intention to sell or distribute such shares if,
in the opinion of counsel for the Company, such a representation is required by
any relevant provision of the aforementioned laws. At the option of the Company,
a stop-transfer order against any such shares may be placed on the official
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<PAGE> 40
stock books and records of the Company, and a legend indicating that such shares
may not be pledged, sold or otherwise transferred, unless an opinion of counsel
is provided (concurred in by counsel for the Company) stating that such transfer
is not in violation of any applicable law or regulation, may be stamped on stock
certificates to ensure exemption from registration. The Plan Administrator may
also require such other action or agreement by the Optionee as may from time to
time be necessary to comply with the federal and state securities laws.
17.4 No Rights as a Stockholder
No Option shall entitle the Optionee to any dividend, voting or other right
of a stockholder unless and until the date of issuance under the Plan of the
shares that are the subject of such Option, free of all applicable restrictions.
17.5 Compliance With Laws and Regulations
Notwithstanding anything in the Plan to the contrary, the Board, in its
sole discretion, may bifurcate the Plan so as to restrict, limit or condition
the use of any provision of the Plan to Optionees who are officers or directors
subject to Section 16 of the Exchange Act without so restricting, limiting or
conditioning the Plan with respect to other Optionees. Additionally, in
interpreting and applying the provisions of the Plan, any Option granted as an
Incentive Stock Option pursuant to the Plan shall, to the extent permitted by
law, be construed as an "incentive stock option" within the meaning of Section
422 of the Code.
17.6 No Trust or Fund
The Plan is intended to constitute an "unfunded" plan. Nothing contained
herein shall require the Company to segregate any monies or other property, or
shares of Common Stock, or to create any trusts, or to make any special deposits
for any immediate or deferred amounts payable to any Optionee, and no Optionee
shall have any rights that are greater than those of a general unsecured
creditor of the Company.
17.7 Severability
If any provision of the Plan or any Option is determined to be invalid,
illegal or unenforceable in any jurisdiction, or as to any person, or would
disqualify the Plan or any Option under any law deemed applicable by the Plan
Administrator, such provision shall be construed or deemed amended to conform to
applicable laws, or, if it cannot be so construed or deemed amended without, in
the Plan Administrator's determination, materially altering the intent of the
Plan or the Option, such provision shall be stricken as to such jurisdiction,
person or Option, and the remainder of the Plan and any such Option shall remain
in full force and effect.
SECTION 18. Effective Date
The Plan's effective date is the date on which it is adopted by the Board,
so long as it is approved by the Company's stockholders at any time within 12
months of such adoption.
Adopted by the Board on July 28, 2000 and approved by the Company's
stockholders on __________.
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PROXY
eSAT, INC.
PROXY FOR 2000 ANNUAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF eSAT, INC.
The undersigned stockholder of eSat, Inc., a Nevada corporation (the
"Company"), hereby appoints Michael C. Palmer and Chester L. Noblett, Jr. as
the undersigned's proxies, each with full power of substitution to attend and
act for the undersigned at the Annual Meeting of Shareholders of the Company to
be held on September 1, 2000, at 2 o'clock p.m., Pacific Time, at the Sheraton
Universal Hotel, 333 Universal Terrace Parkway, Universal City, California
91608, and any adjournments thereof, and to represent and vote as designated on
the reverse side all of the shares of voting stock of the Company that the
undersigned would be entitled to vote.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.)
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FOLD AND DETACH HERE
<PAGE> 42
PLEASE MARK
YOUR VOTES AS
INDICATED IN [X]
THIS EXAMPLE.
Item 1. Election of Directors
(INSTRUCTION: TO WITHHOLD AUTHORITY TO
VOTE FOR A SPECIFIC NOMINEE, DRAW A LINE
THROUGH THAT NOMINEE'S NAME BELOW.)
<TABLE>
<S> <C> <C>
WITHHOLD
FOR AUTHORITY WITHHOLD
all nominees to vote for all AUTHORITY
listed below of the nominees to vote for
nominees listed below specific nominees
[ ] [ ] [ ]
</TABLE>
Nominees: Michael C. Palmer Edward Raymund
Chester L. Noblett, Jr. Esther Rodriguez
Salvator Piraino James E. Fuchs
Item 2. Approval of amendment to the Company's articles of incorporation to
increase the number of shares of authorized Common Stock to 100,000,000 shares.
<TABLE>
<S> <C> <C>
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
</TABLE>
Item 3. Approval of amendment to the Company's 1997 Stock Plan to increase the
number of shares reserved for issuance under the 1997 Plan to 7,850,000 shares.
<TABLE>
<S> <C> <C>
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
</TABLE>
Item 4. Approval of the Company's 2000 Stock Plan and the Reservation of
3,000,000 shares of Common Stock for issuance pursuant to the 2000 Plan.
<TABLE>
<S> <C> <C>
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
</TABLE>
Item 5. Ratification of selection of Carpenter, Kuhen & Sprayberry as the
independent accountants of the Company for the fiscal year ending December 31,
2000.
<TABLE>
<S> <C> <C>
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
</TABLE>
Management recommends a vote FOR all items.
The proxies, and each of them, shall have all the powers that the undersigned
would have if acting in person. The undersigned hereby revokes any other proxy
to vote at the Annual Meeting and hereby ratifies and confirms all that the
proxies, and each of them, may lawfully do by virtue hereof. With respect to
matters not known at the time of the solicitation of this proxy, the proxies
are authorized to vote in accordance with their respective best judgment.
The proxies present at the Annual Meeting, either in person or by substitute
(or if only one shall be present and act, then that one), shall vote the shares
represented by this proxy in the manner indicated by the shareholder. IF NO
INSTRUMENTS TO THE CONTRARY ARE INDICATED ON THIS PROXY, IT WILL BE VOTED FOR
ITEMS 1 THROUGH 5 SHOWN ABOVE.
Signature(s) Dated: , 2000
------------------------------------------------ -----------
IMPORTANT: In signing this proxy, sign your name or names on the signature line
in the same way as printed on this proxy. When signing as an attorney-in-fact,
executor, administrator, trustee or guardian, please give your full title as
such. EACH JOINT OWNER MUST SIGN. PLEASE DATE, SIGN AND RETURN YOUR PROXY
PROMPTLY IN THE POSTAGE-PAID ENVELOPE PROVIDED.
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FOLD AND DETACH HERE
