Document:

EXHIBIT 10

EXHIBIT 10.1

STOCK REDEMPTION AGREEMENT

THIS AGREEMENT, made and entered into this 4th day of December, 2002, is by and between Clinton J. Sallee and Frederick T. Manlunas (collectively, the “Seller”), and Sitestar Corporation, a Nevada corporation (the “Company”).  Company and Seller shall sometimes be referred to individually as the “Party” and collectively as the “Parties.”

W I T N E S S E T H

WHEREAS, the Seller is the owner and holder of record of 32,483,346 shares of the issued and outstanding shares of the capital stock of the Company (the “Shares”); and 

WHEREAS, the Company desires to repurchase the Shares, and the Seller desires to sell, or cause to be sold, the Shares upon the terms and subject to the conditions hereinafter set forth. 

NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements contained in this Agreement, and in order to consummate the purchase and sale of the Shares aforementioned, it is hereby agreed as follows: 

ARTICLE 1

PURCHASE AND SALE; CLOSING

1.1 

Purchase and Sale of the Shares.  Subject to the terms and conditions hereinafter set forth, at the closing of the transaction contemplated hereby, the Seller shall sell, convey and transfer the Shares and deliver to the Company certificates representing such stock, and the Company shall purchase from the Seller the Shares in consideration of the purchase price set forth in Section 1.2 of this Agreement. The certificates representing the Shares shall be duly endorsed for transfer or accompanied by appropriate stock transfer powers duly executed in blank, in either case with signatures guaranteed in the customary fashion. 

1.2

Consideration.  At the Closing (as hereinafter defined), the Company shall redeem the Shares for the sum of $766,659 (the “Redemption Price”).  

1.3 

Procedure for Closing. The closing of the transactions contemplated by this Agreement (the “Closing”), shall be held at such place as is agreed upon by the Parties on or before the 4th day of December, 2002, (the “Closing Date”). 

1.4 

Payment of Redemption Price.  Payment of the Redemption Price shall be made by the Company on the Closing Date:

a. 

by delivery of a Promissory Note (the “Note”) to the Seller in the amount of $766,659 substantially in the form attached hereto as Exhibit 1.4.a including the following material terms:

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i.

The Note shall be secured by all of the Shares as evidenced by a Pledge and Irrevocable Proxy Security Agreement containing customary terms and conditions.  In the event of a default on the Note, the Shareholder shall be permitted to exercise all rights under the Pledge and Irrevocable Proxy Security Agreement.  

ii.

The Note will be fully amortized over 23 months, with no interest, paid in equal monthly installments of $33,333, with the first payment to be made on the Closing Date and each consecutive payment to be made on the 15th day of each month for 22 consecutive months thereafter. 

iii.

The Note shall bear a penalty of $100 per day for any late payment. 

iv.

The Note shall be deemed in default in the event the monthly payment is more than ten days late, provided, however, that the Company shall have ten days following the receipt of written notice to cure such default. 

v.

Seller shall have anti-dilution protection on any unredeemed Shares during the term of the Note which shall only be effective if there is a non-cured default under the Note.

b.

by delivery of a Pledge and Irrevocable Proxy Security Agreement substantially in the form attached hereto as Exhibit 1.4.b including the following material terms:  

i.

Seller shall retain possession of the Shares until payment is received for such Shares provided that the Parties will agree on a schedule pursuant to which the Shares shall be turned over to the Company. 

ii.

To provide additional security to the Seller for the Note, Company shall provide the Seller with a UCC-1 Financing Statement on the Shares. 

1.5

Shareholder Rights of Review and Inspection.  For the duration of the Note, Seller shall have the right to review timely internal financial statements and request any reasonable reports they deem necessary. Seller reserves the right to visit and/or inspect any Company facility during the life of the Note during reasonable business hours and upon reasonable notice.

1.6

Deliveries by Company.  At the Closing, Company shall deliver the following:

a. 

To the Seller, the Note;

b. 

To the Seller, Resolutions of the Board of Directors authorizing the Company to redeem the Shares in accordance with this Agreement; and

c. 

All other documents, instruments and writings required by this Agreement to be delivered by Company at the Closing.

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1.7

Insurance.  On or before closing, the Company shall take out a term life insurance policy on the life of Frank Erhartic, Jr. immediately after Closing with a face value of $750,000 for the term of the Note at the Company’s expense.  The Company shall assign to Seller the proceeds of such policy in an amount sufficient to satisfy all amounts due under the Note to the Seller.

1.8

Representation.  Company is a corporation duly organized, validly existing and in good standing under the laws of the state of Nevada.  This Agreement constitutes a valid and binding obligation of the Company, enforceable against it in accordance with its terms.  The Company is authorized to enter into the transactions contemplated by this Agreement.

1.9

Capitalization.  The authorized capital stock of the Company consists of 310,000,000 authorized shares of stock, par value $.001, of which 300,000,000 are common shares and 10,000,000 are preferred shares, of which 99,892,229 common shares and no preferred shares are presently issued and outstanding.  As of the Closing Date, there will not be outstanding any warrants, options or other agreements on the part of the Company obligating the Company to issue any additional shares of equity securities or any of its securities of any kind.

ARTICLE 2

REPRESENTATIONS AND WARRANTIES OF SELLER

Seller warrants and represents: 

a. 

The Seller is not a party to any agreement, written or oral, creating rights in respect of any of the Shares in any third person or relating to the voting of the Shares. 

b. 

Seller is the lawful owner of the Shares, free and clear of all security interest, liens, encumbrances, equities and other charges. 

c. 

There are no existing warrants, options, stock purchase agreements, or restrictions of any nature, relating to the Shares. 

ARTICLE 3

GENERAL

3.1 

Survival. Each of the Parties to this Agreement covenants and agrees that the representations, warranties, covenants and statements and agreements contained in this Agreement shall survive the Closing Date. 

3.2 

Entire Agreement.  This Agreement, together with the Exhibits referred to herein, which are incorporated herein by this reference, and the agreements referred to herein, shall constitute the entire agreement between the Parties hereto with respect to the transactions contemplated hereby.

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3.3 

Choice of Law.  This Agreement and the rights of the Parties hereunder shall be governed by and construed in accordance with the laws of the State of California including all matters of construction, validity, performance, and enforcement and without giving effect to the principles of conflict of laws.

3.4

Jurisdiction.  The Parties submit to the jurisdiction of the Courts of the County of Orange, State of California or a Federal Court empaneled in the State of California for the resolution of all legal disputes arising under the terms of this Agreement, including, but not limited to, enforcement of any arbitration award.

3.5

Expenses.  Each Party hereto shall bear their own expenses incurred pursuant to this Agreement except as otherwise specifically set forth herein.

3.6

Invalid Provisions.  If any provision hereof is held to be illegal, invalid or unenforceable under present or future laws effective during the term hereof, such provision shall be fully severable.  This Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part hereof, and the remaining provisions hereof shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance wherefrom.  Furthermore, in lieu of such illegal, invalid or unenforceable provision there shall be added automatically by the Company as a part hereof a provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible and legal, valid and enforceable.

3.7 

Number and Gender of Words.  When the context so requires in this Agreement, words of gender shall include either or both of the other genders and the singular number shall include the plural.

3.8

Assignment. This Agreement shall be binding upon the Parties, their successors and assigns, and prior to the Closing Date shall not be assignable without the express written consent of all Parties.

3.9

Amendments.

This Agreement may be amended only by a written agreement executed by all of the Parties.

3.10

Notices.  Any notice, request, instruction, or other document required by the terms of this Agreement, or deemed by any of the Parties to be desirable, to be given to any other party hereto shall be in writing and shall be given by personal delivery, overnight delivery, or mailed by registered or certified mail, postage prepaid, with return receipt requested, to the addresses of the Parties as follows:

a.

To:

 “Seller” 

Clinton J. Sallee

15303 Ventura Boulevard, Suite 1510

Sherman Oaks, CA 91403

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Frederick T. Manlunas

15303 Ventura Boulevard, Suite 1510

Sherman Oaks, CA 91403

b.

To: 

“Buyer” 

Sitestar Corporation

7109 Timberlake Road

Lynchburg, VA  24502

Attn: Frank Erhartic, Jr., President

c. 

With Copy To: 

Oswald & Yap

16148 Sand Canyon Avenue

Irvine, CA 92618

Fax: 

(949) 788-8980

Attn: 

Lynne Bolduc, Esq. 

The persons and addresses set forth above may be changed from time to time by a notice sent as aforesaid.  If notice is given by personal delivery or overnight delivery in accordance with the provisions of this Section, said notice shall be conclusively deemed given at the time of such delivery provided a receipt is obtained from the recipient.  If notice is given by mail in accordance with the provisions of this Section, such notice shall be conclusively deemed given upon receipt and delivery or refusal. 

3.11

Authority.

Each Party executing this Agreement warrants his authority to execute this Agreement.

3.12

Attorneys’ Fees.  In the event any Party hereto shall commence legal proceedings against the other to enforce the terms hereof, or to declare rights hereunder, as the result of a breach of any covenant or condition of this Agreement, the prevailing party in any such proceeding shall be entitled to recover from the losing party its costs of suit, including reasonable attorneys' fees, as may be fixed by the court.

3.13

Counterparts.

This Agreement may be executed in several counterparts and it shall not be necessary for each party to execute each of such counterparts, but when all of the Parties have executed and delivered one of such counterparts, the counterparts, when taken together, shall be deemed to constitute one and the same instrument, enforceable against each party in accordance with its terms.

3.14

Facsimile Signatures.

The Parties hereto agree that this Agreement may be executed by facsimile signatures and such signatures shall be deemed originals.  The Parties further agree that within ten days following the execution of this Agreement, they shall exchange original signature pages.    

[SIGNATURE PAGE FOLLOWS]

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IN WITNESS WHEREOF, this Agreement has been executed by each of the individual Parties hereto, all on the date first above written. 

“SELLER” 

  /s/ Clinton J. Sallee

  /s/ Frederick T. Manlunas

By:

Clinton J. Sallee 

By:

Frederick T. Manlunas

“PURCHASER” 

SITESTAR CORPORATION

  /s/ Frank Erhartic, Jr.

By:

Frank Erhartic Jr.

Its:

President

9EXHIBIT 10

EXHIBIT 10.2

SECURED NOTE

BETWEEN

SITESTAR CORPORATION

AND

CLINTON J. SALLEE AND FREDERICK T. MANLUNAS

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE OFFERED, SOLD TRANSFERRED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE LAWS, (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER THE ACT (OR ANY SIMILAR RULE UNDER THE ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL TO THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER THE ACT AND APPLICABLE STATE LAW IS AVAILABLE.

SITESTAR CORPORATION

SECURED NOTE

$766,659

December 4, 2002

        

FOR VALUE RECEIVED, the undersigned, Sitestar Corporation, a Nevada corporation (the “Company”), hereby promises to pay to the order of Clinton J. Sallee and Frederick T. Manlunas, or their assigns (collectively the “Noteholder”), in lawful money of the United States of America, and in immediately payable funds, the principal sum of $766,659. The principal hereof, with no accrued interest thereon, shall be due and payable in equal monthly installments of $33,333 each, beginning on the day after the Closing, as defined in the Redemption Agreement by and among the Noteholder and the Company of even date herewith (the “Redemption Agreement”), and continuing for 22 consecutive months thereafter. Payment of all amounts due hereunder shall be made at the address of the Noteholder provided for in Section 4 of this Agreement. 

        

This Note is part of the redemption of shares of common stock of the Company pursuant to the Redemption Agreement.  Noteholder has agreed to accept this Note from the Company for the redemption of 32,483,346 shares of common stock of the Company (the “Redeemed Shares”).  Noteholder’s agreement to accept the Note is conditioned upon Noteholder’s receiving a pledge and security interest from the Company in the Redeemed Shares (the “Pledge and Irrevocable Proxy Security Agreement”).  Capitalized terms not otherwise defined herein shall have the meaning set forth in the Redemption Agreement. 

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THE PROVISIONS OF THE REDEMPTION AGREEMENT ARE INCORPORATED HEREIN BY REFERENCE.

To secure payment of the Notes, the Company has executed and delivered a UCC-1 Financing Statement and a Pledge and Irrevocable Proxy Security Agreement encumbering all of the Redeemed Shares of the Company (the “Pledged Securities”). Such security is pursuant to the Pledge and Irrevocable Proxy Security Agreement of even date herewith among the Company, and the holders of the Note. THE PROVISIONS OF THE PLEDGE AND IRREVOCABLE PROXY SECURITY AGREEMENT ARE INCORPORATED HEREIN BY REFERENCE.

        

1. 

EXERCISE OF RIGHTS UNDER THE PLEDGE AND IRREVOCABLE PROXY SECURITY AGREEMENT.  In the event a Noteholder declares a default pursuant to Section 4 hereof and exercises its rights under the Pledge and Irrevocable Proxy Security Agreement with respect to any of the Pledged Securities secured thereby, the assets shall be valued at 50% of the appraised fair market value on the date of the applicable foreclosure. In the event a Noteholder declares a default pursuant to Section 4 hereof, such Noteholder shall, in addition to all rights and remedies set forth herein, have all rights and remedies set forth in the Security Agreement.

        

2. 

LIFE INSURANCE. The Company shall take out a term life insurance on the life of Frank Erhartic, Jr. immediately after Closing with a face value of $750,000 for the term of the Note at the Company’s expense.  The Company shall assign to Noteholder the proceeds of such policy in an amount sufficient to satisfy all amounts due under the Note to the Shareholder.

        

3. 

DEFAULT. The occurrence of any one of the following events shall constitute an Event of Default:

               

(a) 

The non-payment, when due, of any principal or interest pursuant to this Note;

               

(b) 

The material breach of any representation or warranty in this Note or in the Pledge and Irrevocable Proxy Security Agreement.  In the event the Noteholder becomes aware of a breach of this Section 3(b), the Noteholder shall notify the Company in writing of such breach and the Company shall have 10 days notice to effect a cure of such breach;

               

(c) 

The material breach of any covenant or undertaking in this Note or in the Pledge and Irrevocable Proxy Security Agreement, not otherwise provided for in this Section 3. In the event the Noteholder becomes aware of a breach of this Section 3(c), the Noteholder shall notify the Company in writing of such breach and the Company shall have 10 days notice to effect a cure of such breach;

               

(d) 

A default shall occur in the payment when due (subject to any applicable grace period), whether by acceleration or otherwise, of any indebtedness of the Company or an event of default or similar event shall occur with respect to such indebtedness, if the effect of such default or event (subject to any required notice and any applicable grace period) would be to accelerate the maturity of any such indebtedness or to permit the holder or holders of such indebtedness to cause such indebtedness to become due and payable prior to its express maturity;

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(e) 

The commencement by the Company of any voluntary proceeding under any bankruptcy, reorganization, arrangement, insolvency, readjustment or debt, receivership, dissolution, or liquidation law or statute or any jurisdiction, whether now or hereafter in effect; or the adjudication of the Company as insolvent or bankrupt by a decree of a court of competent jurisdiction; or the petition or application by the Company for, acquiescence in, or consent by the Company to, the appointment of any receiver or trustee for the Company or for all or a substantial part of the property of the Company; or the assignment by the Company for the benefit of creditors; or the written admission of the Company of its inability to pay its debts as they mature; or

               

(f) 

The commencement against the Company of any proceeding relating to the Company under any bankruptcy, reorganization, arrangement, insolvency, adjustment of debt, receivership, dissolution or liquidation law or statute or any jurisdiction, whether now or hereafter in effect, provided, however, that the commencement of such a proceeding shall not constitute an Event of Default unless the Company consents to the same or admits in writing the material allegations of same, or said proceeding shall remain undismissed for 30 days; or the issuance of any order, judgment or decree for the appointment of a receiver or trustee for the Company or for all or a substantial part of the property of the Company, which order, judgment or decree remains undismissed for 30 days; or a warrant of attachment, execution, or similar process shall be issued against any substantial part of the property of the Company.

        

Upon the occurrence of any Event of Default, the Noteholder shall have all the rights and remedies as outlined in the Pledge and Irrevocable Proxy Security Agreement and may, by written notice to the Company, (a) declare all or any portion of the unpaid principal amount due to Noteholder immediately due and payable, and (b) foreclose upon the UCC-1 financing statement in accordance with the Pledge and Irrevocable Proxy Security Agreement. In addition, Noteholder shall retain possession of the Redeemed Shares until payment is received for such shares, but Noteholder shall turn the Redeemed Shares over to the Company provided that the Parties agree on a schedule for return.  The Note shall bear a penalty of $100 per day for any late payment.

        

4. 

NOTICES. Any notice, request, instruction, or other document required by the terms of this Note, or deemed by any of the Parties hereto to be desirable, to be given to any other party hereto shall be in writing and shall be given by personal delivery, overnight delivery, or mailed by registered or certified mail, postage prepaid, with return receipt requested, to the addresses of the Parties as follows:

(i) 

To:

“Company”

Sitestar Corporation

7109 Timberlake Road

Lynchburg, VA  24502

(ii) 

To:

“Noteholder”

Clinton J. Sallee and Frederick Manlunas

15303 Ventura Boulevard, Suite 1510

Sherman Oaks, CA  91403

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(iii) 

With Copy To:

Oswald & Yap

16148 Sand Canyon Avenue

Irvine, CA  92618

Fax: (949) 788-8980

Attn: Lynne Bolduc, Esq. 

The persons and addresses set forth above may be changed from time to time by a notice sent as aforesaid.  If notice is given by personal delivery or overnight delivery in accordance with the provisions of this Section, said notice shall be conclusively deemed given at the time of such delivery provided a receipt is obtained from the recipient.  If notice is given by mail in accordance with the provisions of this Section, such notice shall be conclusively deemed given upon receipt and delivery or refusal.

        

5. 

CONSENT TO JURISDICTION AND SERVICE OF PROCESS. The Company consents to the jurisdiction of any court of the State of California and of any federal court located in California. The Company waives personal service of any summons, complaint or other process in connection with any such action or proceeding and agrees that service thereof may be made, as the Noteholder may elect, by certified mail directed to the Company, or, in the alternative, in any other form or manner permitted by law. Orange County, California shall be proper venue.

        

6. 

GOVERNING LAW. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED ENTIRELY THEREIN, WITHOUT GIVING EFFECT TO THE RULES AND CONFLICTS OF LAW.

         

7. 

ATTORNEYS’ FEES. In the event the Noteholder or any assignee thereof shall refer this Note to an attorney for collection, the Company agrees to pay all the costs and expenses incurred in attempting or effecting collection hereunder, including reasonable attorney’s fees, whether or not suit is instituted.

        

8. 

CONFORMITY WITH LAW. It is the intention of the Company and of the Noteholder to conform strictly to applicable usury and similar laws. Accordingly, notwithstanding anything to the contrary in this Note, it is agreed that the aggregate of all charges which constitute interest under applicable usuary and similar laws that are contract for, chargeable or receivable under or in respect of this Note, shall under no circumstances exceed the maximum amount of interest permitted by such laws, and any excess, whether occasioned by acceleration or maturity of this Note or otherwise, shall be canceled automatically, and if theretofore paid, shall be either refunded to the Company or credited on the principal amount of this Note.

[SIGNATURE PAGE FOLLOWS]

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IN WITNESS WHEREOF, the Parties hereto have caused this Note to be executed and entered into as of the date first above written.

“Company”

SITESTAR CORPORATION,

a Nevada corporation

  /s/ Frank Erhartic, Jr.

BY:

Frank Erhartic, Jr.

ITS:

President

“Noteholder”

  /s/ Clinton J. Sallee.

  /s/ Frederick T. Manlunas

Clinton J. Sallee, an individual

Frederick T. Manlunas, an individual

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