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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 26, 2000
Commission File No. 333-_____
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
(Amendment No. ___)
ESAT, INC.
(Name of small business issuer in its charter)
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Nevada 7370 95-0344604
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<S> <C> <C>
(State or Jurisdiction of (Primary Standard Industrial (IRS Employer
Organization or Incorporation) Classification Code Number) Identification Number)
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16520 Harbor Boulevard, Building G
Fountain Valley, California 92708
714-418-3200
(Address and telephone number of principal executive
offices and principal place of business)
Michael Palmer, President
eSat, Inc.
16520 Harbor Boulevard, Building G
Fountain Valley, California 92708
714-418-3200
(Name, address and telephone number of agent for service)
Copy to:
David R. Decker, Esq.
Arter & Hadden LLP
725 South Figueroa Street, 34th Floor
Los Angeles, California 90017
Approximate date of proposed sale to the public: AS SOON AS PRACTICAL AFTER THE
EFFECTIVE DATE OF THE REGISTRATION STATEMENT.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box: [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]_______________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]_______________________
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]_______________________
If delivery of the prospectus is expected to be made pursuant to rule 434, check
the following box. [ ]
CALCULATION OF REGISTRATION FEE
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Proposed
Title of Each Class Proposed Maximum Maximum Amount of
of Securities to be Amount Offering Price Aggregate Registration
Registered to be Registered Per Share Offering Price Fee
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Common Stock, par value $.001
per share, Underlying Series A
12% Convertible Preferred Stock 1,000,000 $2.00 $2,000,000 $528.00(1)
Common Stock, par value $.001
per share, Underlying Series B
12% Convertible Preferred Stock 2,500,000 $2.00 $5,000,000 $1,320.00(1)
Common Stock, par value $.001
per share, Underlying Series C
6% Convertible Preferred Stock 2,457,143 $4.375 $10,750,000.00 $2,838.00(1)
Future Issuances of Common Stock,
par value $.001 per share, upon
Conversion of Preferred Stock
issuable pursuant to Equity Line
of Credit with Holder of Series C
Preferred Stock 6,303,980 $5.00 $31,519,900.00 $8,321.25(1)
Common Stock, par value $.001
per share, issuable upon
exercise of Warrants issued in
connection with the issuance
of Series C 6% Convertible
Preferred Stock 238,877 $4.617 $1,102,895.10 $291.16(1)
Common Stock, par value $.001
per share, for Selling
Shareholder 159,286 $ 6.00 $ 955,716.00 $252.31(2)
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(1) Fee determined pursuant to Rule 457(g).
(2) Fee determined pursuant to Rule 457(c).
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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Subject to Completion, Dated January __, 2000
Prospectus
_______________ Shares
eSAT, INC.
Common Stock
______________________
Selling stockholders are offering up to _______________ shares of our
common stock. We will not receive any proceeds from the sale of this common
stock. No shares are being sold by the company at this time.
The selling stockholders may sell these shares from time to time in the
over-the-counter market or otherwise.
Our common stock is traded on the OTC Electronic Bulletin Board under
the symbol "ASAT," and on the Deutsche Borse AG Xetra(TM) (Frankfurt, Germany)
under the symbol "ES8." On January 21, 2000, the last reported bid price of the
common stock on the OTC Electronic Bulletin Board was $5.25 per share.
INVESTING IN OUR SECURITIES INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 4.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED ON THE
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
_______________, 2000
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You may rely only on the information contained in this prospectus. We
have not authorized anyone to provide information different from that contained
in this prospectus. Neither the delivery of this prospectus nor sale of shares
means that information contained in this prospectus is correct after the date of
this prospectus. This prospectus is not an offer to sell or solicitation of an
offer to buy these securities in any circumstances under which the offer or
solicitation is unlawful.
TABLE OF CONTENTS
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Page
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Prospectus summary...........................................................................1
Risk factors.................................................................................4
Use of proceeds.............................................................................12
Forward-looking statements..................................................................12
Price range of common stock.................................................................12
Dividend policy.............................................................................13
Capitalization..............................................................................13
Selected consolidated financial data........................................................14
Management's discussion and analysis of financial condition and results of operations.......16
Business....................................................................................18
Management..................................................................................27
Certain transactions........................................................................31
Principal stockholders......................................................................34
Selling stockholders........................................................................37
Description of securities...................................................................38
Shares eligible for future sale.............................................................43
Plan of distribution........................................................................44
Legal matters...............................................................................45
Experts ....................................................................................45
Additional information......................................................................46
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Until _______________, 2000 (40 days after the date of this prospectus),
all dealers effecting transactions in the common stock may be required to
deliver a prospectus. This is in addition to the obligations of dealers to
deliver a prospectus when acting as underwriters.
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PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company, the risks of investing in our common stock,
and our financial statements and notes to those statements appearing elsewhere
in this prospectus.
OUR BUSINESS
We were incorporated in the State of Nevada on June 23, 1995 under the
name U.S. Connect 1995, Inc. On October 8, 1998, we became the surviving
corporation in a merger with Technology Guardian, Inc., a California
corporation. As a part of that merger, we changed our name to Technology
Guardian, Inc. We changed our name to eSAT, Inc. on January 26, 1999. Our
principal executive offices are located at 16520 Harbor Boulevard, Building G,
Fountain Valley, California 92708, and our telephone and fax numbers are
714-418-3200 and 714-418-3220, respectively. Our Web site address is
www.esatinc.com. Information accessed on or through our Web site does NOT
constitute a part of this prospectus.
Our principal line of business consists of providing products and
services for satellite Internet access and data delivery. Our customers are
businesses, educational institutions and governmental agencies. In the future,
we may expand our services to the consumer market. Our Internet access product
line is based on our Global Satellite Internet ("GSI(TM)") gateway, our
Nexstream(TM) gateway and our ChannelCasting(TM) service all of which provide
existing single workplace computer networks (commonly known as local area
networks or LANs) with Internet access via a satellite based network. A
"gateway" is a specially designated computer which contains software that allows
LAN users to share an Internet access connection.
Our GSI(TM) product line utilizes our satellite network for
communications from the Internet to our customers and a telephone line for
outbound communications from our customers to the Internet. We expect to
actively commence sales of the Nexstream product line in the first half of 2000.
This product uses our satellite network for customer communications to and from
Internet web sites. The ChannelCasting(TM) service is currently being marketed.
This service is designed to provide the simultaneous broadcast of video and data
files to multiple destinations through use of our existing technology, as well
as technology which is under development. We plan to be a geographically diverse
provider of Internet services by establishing joint venture relationships in
several countries throughout the world.
In addition to our core business described above, we are in the process
of developing three other lines of business through our subsidiaries, Global
Media Technologies, SkyFrames, inc. (dba SkySP(TM)) and i-xposure, Inc. Global
Media Technologies, Inc. is focusing on the development of satellite-based
products which take advantage of our high-speed, high-quality video and data
delivery capabilities. SkySP(TM) is focusing on use of our satellite and
networking technology to provide cost-effective, uniform Internet delivery
platform through school systems without geographic limitations. Through
i.xposure, we are engaged in the development and marketing of a personal
interactive desktop organizer which includes a variety of personal productivity
programs, as well as serving as an Internet access portal when users are
on-line.
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THE OFFERING
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Shares offered.............................. _______________ shares of common stock
Proceeds to us.............................. None. All sales will be for the benefit of
the selling stockholders
Common stock to be outstanding after the
offering.................................. _______________ shares
OTC Electronic Bulletin Board symbol........ ASAT
Deutsche Borse AG Xetra(TM) (Frankfurt,
Germany).................................. ES8
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In addition to _______________ shares of common stock outstanding after
the offering, we may issue _______________ shares of common stock on the
conversion of outstanding convertible securities, _______________ shares of
common stock on exercise of outstanding warrants, and _______________ shares of
common stock on exercise of outstanding options.
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SUMMARY CONSOLIDATED FINANCIAL DATA
CONSOLIDATED STATEMENTS OF OPERATIONS DATA
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Unaudited
Year Ended nine months ended
December 31, September 30,
------------------------- -------------------------
1997 1998 1998 1999
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(in thousands except per share data)
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Net revenue ................................ $ 1,201 $ 341 $ 238 $ 1,188
Gross profit ............................... 856 (344) (213) 421
Loss from operations ....................... (316) (2,696) (1,640) (6,363)
Net loss ................................... $ (454) $(2,727) $(1,408) $(6,323)
Basic and fully-diluted loss per share...... $ (0.04) $ (0.17) $ (0.12) $ (0.37)
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The following table indicates a summary of our balance sheet as of
December 31, 1998 and September 30, 1999. The column labeled "as adjusted"
reflects our receipt of net proceeds from the sale of 50,000 shares of Series C
6% Convertible Preferred Stock at $100 per share in December 1999.
CONSOLIDATED BALANCE SHEET DATA
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Unaudited
September 30, 1999
December 31, --------------------------
1998 Actual As adjusted
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(in thousands)
<S> <C> <C> <C>
Cash and cash equivalents .................. $ 2,568 $ 12 $ 4,461
Working capital ............................ 2,382 (1,154) 3,295
Total assets ............................... 3,261 1,450 5,899
Total stockholders' equity (deficit)........ 2,722 (149) 4,300
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RISK FACTORS
WE HAVE REPORTED LOSSES FOR OUR LAST TWO YEARS AND FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999, AND, IF WE DO NOT BECOME PROFITABLE, OUR BUSINESS COULD BE
ADVERSELY AFFECTED AND THE VALUE OF YOUR INVESTMENT COULD DECLINE.
For the nine months ended September 30, 1999, we incurred a loss of
$6,323,336, including all research and development costs. For the fiscal year
ended December 31, 1998, we incurred a loss of $3,290,336 as compared to a loss
of $453,798 for the fiscal year ended December 31, 1997. The losses were
primarily due to: (i) employee compensation which increased because of
additional sales and operations staff hired in 1998 in anticipation of future
growth of our operations; (ii) expenses related to marketing; and (iii) lack of
product sales. In addition, we incurred significant research and development
costs associated with new products. There can be no assurance that we will be
able to generate sufficient revenues to operate profitably in the future or to
pay our debts as they become due. The Company is dependent upon successful
completion of future capital infusions to continue operations.
WE DEPEND ON SATELLITE TRANSMISSION. SATELLITE FAILURE COULD HAVE A SUBSTANTIAL
NEGATIVE AFFECT ON OUR BUSINESS OPERATIONS.
We currently use a single satellite to provide satellite Internet
services. There is risk associated with this dependence. There are two types of
possible failures to the satellite: a failure of the individual transponder that
is used and a failure of the entire satellite. If there is a failure of a
transponder, the satellite operator contractually obligated to move us to
another transponder. This would create a minimum interruption to customers,
likely less than 24 hours. If the satellite itself completely fails, we will
have to move our services to another satellite. Our transmissions conform to
industry standards so there are several possible alternative satellites. Our
current satellite provider engages in quarterly reviews of available
like-satellite space and is ready to contract for that space if needed. If the
entire satellite were to fail, a one to five day outage of services might occur
depending on the availability of other satellites. Additionally, a repointing of
the receiving dishes on the ground would likely be required. The repointing of
the receiving dishes on the ground would cost us approximately $300 per
customer. In the event of any service disruption due to satellite failure, our
customers would be credited for the dollar value of the amount of time they are
without the satellite Internet service. Based on a standard contract paying $495
per month for the use of our GSI(TM) equipment and related satellite Internet
service, this would be equal to $16.50 per day per customer. We intend to
install a second U.S. Network Operating Center ("NOC") in the first half of
fiscal 2000. This second NOC will be located in Orange County, California, and
will utilize a different satellite than the existing NOC. This second NOC and
satellite provides certain redundancies in the event of a failure. In the event
of a satellite failure, we could also be subject to loss-of-business claims, due
to the reliance by business customers on the satellite Internet services we
provide. A sustained disruption in satellite service could materially impact our
ability to continue operations.
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WE MIGHT NOT BE SUCCESSFUL IN IMPLEMENTING OUR DOMESTIC AND WORLDWIDE PROPOSED
EXPANSION WHICH WILL RESULT IN OUR BEING A SMALLER AND LESS COMPETITIVE COMPANY.
Over the next two years, we intend to expand our operations domestically
and internationally, and will seek to expand the range of our services and
penetrate new geographic markets.
However, we have no experience in effectuating rapid expansion or in
managing operations which are geographically dispersed. There can be no
assurance that our current management, personnel and other corporate
infrastructure will be adequate to manage our growth. Expansion internationally
will require joint venture partners outside the United States which will provide
capital and personnel to fund the operations internationally. As a company, we
have very limited experience in international joint venture transactions. We
have no joint venture partners at this time. There can be no assurance that we
will be able to successfully joint venture with entities in other parts of the
world, or that joint venture partners will be able to raise the capital and
employ the personnel required to successfully implement worldwide operations.
Accordingly, there is significant risk that we will not be able to meet our goal
of substantial domestic and international expansion within the next two years.
Failure to complete our intended expansion will result in our being a smaller
and less competitive company.
WE HAVE A LIMITED OPERATING HISTORY.
We were incorporated in 1995, but did not commence operations until
1997. Since then, our business has been substantially refocused. Thus, we have a
limited operating history upon which an evaluation of us can be based. Our
prospects are subject to the risks, expenses and uncertainties frequently
encountered by companies in the new and rapidly evolving markets for Internet
and interactive media products and services. In addition, we will be subject to
all of the risks, uncertainties, expenses, delays, problems and difficulties
typically encountered in the growth of an emerging business and the development
and market acceptance of new products and services. There can be no assurance
that unanticipated expenses, problems or technical difficulties will not occur
which would result in material delays in market acceptance of our products and
services or that our efforts will result in such market acceptance.
TIMING OF ORDERS FOR AND CONTINUED DEVELOPMENT OF OUR SERVICES AND PRODUCTS WILL
CAUSE OUR QUARTERLY RESULTS TO FLUCTUATE AND CONSEQUENTLY YOU SHOULD NOT RELY ON
THE RESULTS OF ANY PERIOD AS AN INDICATION OF FUTURE PERFORMANCE.
We have experienced material period-to-period fluctuations in revenue
and operating results. We anticipate that these periodic fluctuations in revenue
and operating results will occur in the future. We attribute these fluctuations
to a variety of business conditions that include:
- the volume and timing of orders we receive from quarter to
quarter;
- the introduction and acceptance of our new services and products
and product enhancements by us;
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- purchasing patterns of our customers and distributors; and
- market acceptance of services and products sold by our
distributors.
As a result, we believe that quarterly revenue and operating results are
likely to vary significantly in the future and that quarter-to-quarter
comparisons of our operating results may not be meaningful. You should therefore
not rely on the results of one quarter as an indication of future performance.
OUR INTELLECTUAL PROPERTY MAY BE CHALLENGED
As is the case with many technology companies, the rapid pace of change
in technology could cause our intellectual property to be challenged. These
challenges could come from stronger companies who believe that the use of our
technology interferes with their use or that they own all of the technology and
related rights. If any of these challenges were successful, our ability to sell
product based on our technology or intellectual property could be severely
impaired.
WE MUST DO BUSINESS IN A DEVELOPING MARKET AND FACE NEW ENTRANTS. FAILURE TO
MEET THE CHALLENGES OF NEW PRODUCTS AND COMPETITORS WILL REDUCE OUR MARKET SHARE
AND THE VALUE OF YOUR INVESTMENT.
The market for Internet products and computer software is rapidly
evolving and is characterized by an increasing number of market entrants who
have introduced or developed products and services. The diverse segments of the
Internet market might not provide opportunities for more than one dominant
supplier of products and services similar to ours. If a single supplier other
than us dominates one or more market segments, our revenue is likely to decline
and we will become a less valuable company.
BECAUSE WE LACK THE NAME RECOGNITION, CUSTOMER BASE AND RESOURCES OF OTHER
COMPANIES PROVIDING INTERNET ACCESS AND OTHER INTERNET RELATED PRODUCTS AND
SERVICES MARKET, WE MAY BE UNABLE TO COMPETE SUCCESSFULLY WHICH WOULD REDUCE OUR
REVENUE AND THE VALUE OF YOUR INVESTMENT.
The markets for our products are intensely competitive and are likely to
become even more competitive. Increased competition could result in:
- pricing pressures, resulting in reduced margins;
- decreased volume, resulting in reduced revenue; or
- the failure of our products to achieve or maintain market
acceptance.
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Any of these occurrences could have a material adverse effect on our
business, financial condition and operating results. Each of our products faces
intense competition from multiple competing vendors. Our principal competitors
include Loral, Inc., Hughes Network System and Spacenet. Many of our current and
potential competitors have:
- longer operating histories,
- greater name recognition,
- access to larger customer basis, or
- substantially greater resources than we have.
As a result, our principal competitors may respond more quickly than we
can to new or changing opportunities and technologies. For all of the reasons
stated above, we may be unable to compete successfully against our current and
future competitors.
WE MAY HAVE INSUFFICIENT CAPITAL FOR FUTURE OPERATIONS WHICH WOULD DIMINISH THE
VALUE OF YOUR INVESTMENT.
Based on current proposed plans and assumptions relating to our
operations, we anticipate that current cash reserves, together with projected
cash flow from operations and the sale of additional securities, will be
sufficient to satisfy our contemplated cash requirements through fiscal 2000.
Thereafter, we will require substantial additional financial resources to fund
its operations. The expansion into new product areas will also require
substantial financial funding. The failure to acquire additional funding when
required will have a material adverse effect on our business prospects. Without
the proper financing of customer contracts by a finance company or additional
equity, we are likely to have difficulty in sustaining on-going operations.
OUR FINANCIAL STATEMENTS CONTAIN A "GOING CONCERN" QUALIFICATION.
The audit report accompanying our Financial Statements for the year
ended December 31, 1998 contains a qualification that certain conditions
indicate that we might not be able to continue as a going concern. The financial
statements do not contain any adjustments that might be necessary in such a
case. Note O to the financial statements indicates that recurring operating
losses, working capital deficiencies and significant bad debts from accounts
receivable account for this uncertainty. Many investment bankers and investors
view companies with a "going concern" qualification as less desirable for
investment. Accordingly, we might have a more difficult time raising equity
capital or borrowing capital at all or on favorable terms. Our suppliers might
be less willing to extend credit. Our potential customers might be less willing
to purchase our products and services if they believe that we will not be viable
enough to provide service, support, back-up, and follow-on products when needed.
Furthermore, we might be disadvantaged in recruiting employees who might be
concerned about the stability of
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employment with us. Therefore, the "going concern" qualification can have severe
adverse consequences on us.
WE ARE DEPENDENT ON SUCCESSFUL NEW PRODUCTS AND PRODUCT ENHANCEMENT
INTRODUCTIONS AND MAY SUFFER PRODUCT DELAYS.
Our success in the Internet access business depends on, among other
things, the timely introduction of successful new products or enhancements of
existing products to replace declining revenues from older, less efficient
products. Consumer preferences for software products are difficult to predict,
and few consumer software products achieve sustained market acceptance. If
revenues from new products or enhancements do not replace declining revenues
from existing products, our business, operating results and financial condition
could be materially adversely affected. The process of developing Internet
access products such as ours is extremely complex and is expected to become more
complex. A significant delay in the introduction of one or more new products or
enhancements could have a material adverse effect on the ultimate success of
such products and on our business, operating results and financial condition.
WE HAVE NO ASSURANCE OF MARKET ACCEPTANCE OF OUR PRODUCTS AND SERVICES. IF WE
ARE UNABLE TO RAISE MARKET AWARENESS OF OUR PRODUCTS AND SERVICES, WE MAY
EXPERIENCE DECLINING OPERATING RESULTS WHICH WOULD DIMINISH THE VALUE OF YOUR
INVESTMENT.
We are at an early stage of development and our earnings growth depends
primarily upon market acceptance of our products and services. There can be no
assurance that our product development efforts will progress further with
respect to any potential new products or that they will be successfully
completed. In addition, there can be no assurance that our potential new
products will be capable of being produced in commercial quantities at
reasonable costs or that they will achieve customer acceptance.
There can be no assurance that our products and services will be
successfully marketed. In addition to our own direct sales force, we are
dependent on value-added resellers and distributors to market its products.
There is no assurance that any distributor or other reseller will be successful
in marketing our products.
Our success is dependent in part on our ability to sell our products and
services to governmental agencies, including public school districts, and large
business organizations. Selling to governmental agencies and larger companies
generally requires a long sales process, with multiple layers of review and
approval.
In sales to governmental agencies, nonbusiness factors often enter into
the purchase decision. Such factors include the residence and origin of the
supplier of the products, the nature of the supplier and the distributor, the
ethnic and gender characteristics of personnel and owners of the company selling
or distributing the products, political and other contacts, and other peculiar
factors. Accordingly, the success of selling to these potential customers is
uncertain.
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We do not have sufficient experience in marketing our products to
determine the optimum distribution methods. It is unclear whether marketing
through distributors or value-added resellers or mass retailers will result in
acceptable sales levels. Accordingly, as we learn more, we might have to revise
our sales, distribution, and marketing strategies and implementation.
WE MIGHT BECOME SUBJECT TO FURTHER GOVERNMENT REGULATION WHICH COULD HARM OUR
PROSPECTS.
Except for a license from the Federal Communications Commission, we are
not currently subject to direct regulation by any government agency in the
United States, other than regulations applicable to businesses generally, There
are currently few laws or regulations directly applicable to access to or
commerce on the Internet. However, due to the increasing popularity and use of
the Internet, it is possible that laws and regulations may be adopted with
respect to the Internet, covering issues such as user privacy, pricing and
characteristics and quality of products and services. Such laws or regulations
could limit the growth of the Internet, which could in turn decrease the demand
for our proposed products and services or increase our cost of doing business.
Any new legislation or regulation or the application of existing laws and
regulations to the Internet in unexpected ways could have an adverse effect on
the Company's business and prospects.
WE MIGHT FACE LIABILITY FOR INFORMATION OBTAINED OR DISTRIBUTED THROUGH THE
PRODUCTS AND SERVICES WE PROVIDE.
Because materials may be downloaded by the Internet services which we
operate or facilitate and may be subsequently distributed to others, there is a
potential that claims will be made against us for defamation, negligence,
copyright or trademark infringement, personal injury or other theories based on
the nature and content of such materials. Sometimes, such claims have been
successful against Internet service providers in the past. Our general liability
insurance might not cover potential claims of this type or might not be adequate
to indemnify us for all liability that may be imposed. Any imposition of
liability or legal defense expenses that are not covered by insurance or in
excess of insurance coverage could have a material adverse effect on our
business, operating results and financial condition.
LOSS OF KEY MEMBERS OF OUR SENIOR MANAGEMENT COULD ADVERSELY AFFECT OUR BUSINESS
AND PROSPECTS.
Our success will be dependent largely upon the personal efforts of our
Chief Executive Officer, Michael C. Palmer, and our Chairman of the Board,
Chester L. Noblett, Jr., as well as other senior managers. The loss of their
services could have a material adverse effect on our business and prospects. We
have no life insurance on any of our officers. Mr. Palmer's and Mr. Noblett's
services are governed by agreements. Our success is also dependent upon our
ability to hire and retain additional qualified management, marketing,
technical, financial and other personnel. Competition for qualified personnel is
intense and there can be no assurance that we
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will be able to hire or retain qualified personnel. Any inability to attract and
retain qualified management and other personnel could have a material adverse
effect on us.
IF OUR COMMON STOCK IS SUBJECT TO PENNY STOCK RULES, YOU MAY HAVE GREATER
DIFFICULTY SELLING YOUR SHARES
The Securities Enforcement and Penny Stock Reform Act of 1990 applies to
stock characterized as "penny stocks," and requires additional disclosure
relating to the market for penny stocks in connection with trades in any stock
defined as a penny stock. The Securities and Exchange Commission has adopted
regulations that generally define a penny stock to be any equity security that
has a market price of less than $5.00 per share, subject to certain exceptions.
The exceptions include exchange-listed equity securities and any equity security
issued by an issuer that has:
- net tangible assets of at least $2,000,000, if the issuer has
been in continuous operation for at least three years;
- net tangible assets of at least $5,000,000, if the issuer has
been in continuous operation for less than three years; or
- average annual revenue of at least $6,000,000 for the last three
years.
Unless an exception is available, the regulations require the delivery,
prior to any transaction involving a penny stock, of a disclosure schedule
explaining the penny stock market and the associated risks.
If our financial condition does not meet the above tests, then trading
in the common stock will be covered by Rules 15g-1 through 15g-6 and 15g-9
promulgated under the Securities Exchange Act. Under those rules, broker-dealers
who recommend such securities to persons other than their established customers
and institutional accredited investors must make a special written suitability
determination for the purchaser and must have received the purchaser's written
agreement to a transaction prior to sale. These regulations would likely limit
the ability of broker-dealers to trade in our common stock and thus would make
it more difficult for purchasers of common stock to sell their securities in the
secondary market. The market liquidity for the common stock could be severely
affected.
YOU COULD SUFFER DILUTION OF YOUR INVESTMENT IF CERTAIN WARRANTS ARE EXERCISED,
PREFERRED STOCK IS CONVERTED INTO COMMON STOCK, OR STOCK OPTIONS ARE EXERCISED
As of January 17, 2000, we have a total of 18,263,632 shares of common
stock outstanding. We have issued warrants to purchase 2,071,715 shares of
common stock at a weighted average price of $6.71 per share, as well as options
to purchase 7,578,528 shares of commons stock at a weighted average price of
$3.55 per share. Under a subscription agreement, we have sold but not issued
$7,000,000 of Series A and Series B Convertible Preferred Stock that, based on a
maximum conversion price of $2 per share, will convert into at least 3,500,000
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shares of common stock. We have issued $5,000,000 of Series C Convertible
Preferred Stock that, based on a maximum conversion price of $4.375 per share,
will convert into at least 1,142,857 shares of common stock. Issuance of any of
these shares will dilute your interest in our company.
In November 1998, we entered into a subscription agreement with a
private investor wherein he was to purchase 2,092,000 shares of common stock for
$1.30 per share which we determined was a reasonable price at that time. He was
not able to raise the funds to purchase the stock and we cancelled the
subscription agreement. He has now sued us to compel us to issue those shares to
him alleging that we breached the agreement. If his lawsuit is successful, we
will be required to issue up to an additional 2,092,000 shares of common stock
at a price substantially below the current market price which would dilute the
interest of our other common stockholders.
ISSUANCE OF OUR AUTHORIZED PREFERRED STOCK COULD DISCOURAGE A CHANGE IN CONTROL,
COULD REDUCE THE MARKET PRICE OF OUR COMMON STOCK AND COULD RESULT IN THE
HOLDERS OF PREFERRED STOCK BEING GRANTED VOTING RIGHTS THAT ARE SUPERIOR TO
THOSE OF THE HOLDERS OF COMMON STOCK
We have already committed to issue 3,550,000 shares of preferred stock
of which 50,000 shares have been issued. All have voting rights on all matters
decided by shareholders. The other 50,000 shares have the right to cast the
number of votes that those shares would convert into (1,142,857 as of this date)
on all matters on which stockholders may vote. We are authorized to issue an
additional 6,450,000 shares of preferred stock without obtaining the consent or
approval of our stockholders. The issuance of preferred stock could have the
effect of delaying, deferring, or preventing a change in control. We may also
grant superior voting rights to the holders of preferred stock. Any issuance of
preferred stock could materially and adversely affect the market price of the
commons stock and the voting rights of the holders of commons stock. The
issuance of preferred stock may also result in the loss of the voting control of
holders of common stock to the holders of preferred stock.
WE WILL PAY NO DIVIDENDS TO YOU
We have not paid, and do not expect to pay, any dividends on common
stock in the foreseeable future.
MANY SHARES WILL BECOME ELIGIBLE FOR FUTURE SALE, WHICH MIGHT ADVERSELY AFFECT
THE MARKET PRICE FOR THE SHARES
As of January 21, 2000, there are 18,263,632 shares of our common stock
outstanding which cannot be sold on the public market. Of these shares,
4,940,865 shares are held by directors, officers, or stockholders who have
beneficial ownership of 10% or more of the outstanding shares, including shares
subject to an option held by them. 13,574,620 shares are held by other
stockholders. These shares will become eligible for trading at various dates
commencing on February 12, 2000. In addition, shares of common stock which may
be acquired pursuant to outstanding convertible preferred stock or warrants will
be eligible for trading at
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<PAGE> 15
various dates after they are acquired. We are unable to predict the effect that
sales of such shares may have on the then prevailing market price of the common
stock. Nonetheless, the possibility exists that the sale of these shares may
have a depressive effect on the price of our common stock.
USE OF PROCEEDS
All of the shares of common stock offered by this prospectus are being
offered by the selling stockholders. We received money from the sale of shares
of convertible preferred stock that were converted, or are convertible, into the
shares of common stock offered in this prospectus. We also received, or will
receive, money from the exercise of warrants to purchase common stock which is
offered by this prospectus. This money was, or will be, used for working capital
and general corporate purposes. We will not receive any additional proceeds from
the sale of shares by the selling stockholders. For information about the
selling stockholders, see "Selling stockholders."
FORWARD-LOOKING STATEMENTS
YOU SHOULD NOT RELY ON OUR FORWARD-LOOKING STATEMENTS.
This prospectus contains forward-looking statements that involve risks
and uncertainties. Discussions containing forward-looking statements may be
found in the material set forth under "Prospectus summary," "Management's
discussion and analysis of financial condition and results of operations," and
"Business," as well as within this prospectus generally. In addition, when used
in this prospectus, the words "believes," "intends," "plans," "anticipates,"
"expects," and similar expressions are intended to identify forward-looking
statements. Forward-looking statements are subject to a number of risks and
uncertainties. Actual results could differ materially from those described in
the forward-looking statements as a result of the risk factors set forth and the
information provided in this prospectus generally. We do not intend to update
any forward-looking statements.
PRICE RANGE OF COMMON STOCK
Our common stock is traded on the OTC Electronic Bulletin Board under
the trading symbol "ASAT" and on the Deutsche Borse AGXetra(TM) (Frankfurt,
Germany) under the trading symbol "ES8". The following table sets forth the high
and low bid prices for our common stock since the beginning of the fiscal year
1997 on the OTC Bulletin Board only. The quotations reflect inter-dealer prices,
with no retail mark-up, mark-down or commissions, and may not represent actual
transactions. The information presented has been derived from National Quotation
Bureau, Inc.
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<PAGE> 16
<TABLE>
<CAPTION>
1997 Fiscal year High Bid Low Bid
---------------- -------- -------
<S> <C> <C>
First quarter 25.00 6.25
Second quarter 12.50 1.56
Third quarter 12.50 1.56
Fourth quarter 12.50 1.00
1998 Fiscal year
----------------
First quarter 1.00 .05
Second quarter .05 .05
Third quarter 5.50 .625
Fourth quarter 16.00 5.00
1999 Fiscal year
----------------
First quarter 22.6875 10.50
Second quarter 14.25 7.876
Third quarter 9.3750 4.375
Fourth quarter 6.0625 1.1875
2000 Fiscal year
----------------
First Quarter through 1/24/00 7.375 3.50
</TABLE>
On January 25, 2000, the last reported trade for our common stock was
$6.00.
As of January 17, 2000, there were 624 holders of record of our common
stock.
DIVIDEND POLICY
We plan to retain all of our earnings, if any, to finance the expansion
of our business and for general corporate purposes. We have not declared or paid
any cash dividends on our common stock. We do not anticipate paying cash
dividends in the foreseeable future except possibly on preferred stock. The
terms of our outstanding preferred stock prohibit the payment of dividends on
our common stock unless all dividends accrued on the preferred stock have been
paid.
CAPITALIZATION
The following table sets forth our capitalization as of December 31,
1998 and our unaudited capitalization as of September 30, 1999:
- on a historical basis, and
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<PAGE> 17
- on an as adjusted basis, giving effect to the sale of $5,000,000
of preferred stock on December 29, 1999, after deducting selling commissions and
estimated offering expenses.
You should read this table together with "Management's discussion and
analysis of financial condition and result of operations," consolidated
financial statements and notes to consolidated financial statements appearing
elsewhere in this prospectus.
<TABLE>
<CAPTION>
September 30, 1999
December 31, ----------------------------
1998 Actual As adjusted
------------ ------- -----------
(in thousands)
<S> <C> <C> <C>
Stockholders' equity:
Preferred stock $0.001 par value;
10,000,000 shares authorized;
2,000,000 subscribed and
unissued at September 30, 1999;
as adjusted 2,000,000 shares
subscribed and unissued and
50,000 shares issued $ -- $ 4,000 $ 7,355
Common stock, $0.001 par value;
40,000,000 shares authorized;
18,234,566 shares issued and outstanding at
September 30, 1999 and 16,085,936 at
December 31, 1998 16 18 18
Additional paid-in capital 6,051 9,115 10,209
Treasury stock -- (364) (364)
Subscription receivable -- (3,250) (3,250)
Accumulated earnings (deficit) (3,345) (9,668) (9,668)
------- ------- -------
Total capitalization $(2,722) $ (149) $ 4,300
======= ======= =======
</TABLE>
The information provided above excludes:
- 2,071,715 shares of common stock issuable upon exercise of
warrants,
- 7,578,528 shares of common stock issuable upon exercise of
outstanding options, and
- 4,642,857 shares issuable on conversion of outstanding preferred
stock.
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data is qualified by
reference to and should be read in conjunction with the consolidated financial
statements and notes to consolidated financial statements and the "Management's
discussion and analysis of financial condition and results of operations" and
other financial information included elsewhere in this prospectus. The
consolidated statements of operations data for the years ended December 31, 1997
and 1998 and the consolidated balance sheet data at December 31, 1997 and 1998
are derived from and
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<PAGE> 18
qualified by reference to the audited consolidated financial statements included
elsewhere in this prospectus.
The consolidated statements of operations data for the nine months ended
September 30, 1998 and 1999 and the consolidated balance sheet data at September
30, 1999 have been derived from our unaudited consolidated financial statements
but have been prepared on the same basis as our audited consolidated financial
statements which are included in this prospectus. In our opinion, these
unaudited consolidated financial statements include all adjustments, consisting
of normally recurring adjustments, considered necessary for a fair presentation
of our consolidated financial position and result of operations for that period.
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
<TABLE>
<CAPTION>
Unaudited
Year Ended nine months ended
December 31, September 30,
------------------------- -------------------------
1997 1998 1998 1999
------- ------- ------- -------
(in thousands except per share data)
<S> <C> <C> <C> <C>
Net revenue $ 1,201 $ 341 $ 238 $ 1,188
Gross profit 856 (344) (213) 421
Loss from operations (316) (316) (1,640) (6,363)
Net loss (454) (2,727) (1,408) (6,323)
Basic and fully-diluted loss per share (0.04) (0.17) (0.12) (0.37)
</TABLE>
CONSOLIDATED BALANCE SHEET DATA:
<TABLE>
<CAPTION>
Unaudited
December 31, September 30,
1997 1998 1999
------------ ------- -------------
(in thousands)
<S> <C> <C> <C>
Cash and cash equivalents .......... $ (12) $ 2,568 $ 12
Working capital .................... (234) 2,382 (1,154)
Total assets ....................... 454 3,261 1,450
Total stockholders' equity ......... (238) 2,722 (149)
</TABLE>
See note B of notes to consolidated financial statements for a
discussion regarding the computation and presentation of basic and diluted net
loss per share.
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<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND NOTES THERETO
INCLUDED ELSEWHERE IN THIS REPORT, AS WELL AS "RISK FACTORS."
RESULTS OF OPERATIONS
1998 AS COMPARED TO 1997
In fiscal 1998, revenue decreased by $860,000 or 72%, in comparison to
fiscal 1997. This revenue decline is directly attributable to our shift to
high-speed satellite Internet products and services and away from the sale of
networking and computing product and services. In the first quarter 1998, the
company stopped selling networking and computing products and services. In the
fourth quarter 1998, the company stopped selling its initial satellite Internet
products and services altogether, pending the completion of its GSI(TM)
products. During 1998, the company engaged in capital raising efforts and the
development of its GSI(TM) Internet related products and services along with
beta marketing and testing.
1999 AS COMPARED TO 1998
During fiscal years 1998 and 1999, we experienced difficulties selling
its products and collecting our accounts receivable. Our first product offering,
the unidirectional GSI(TM) product line, experienced technical difficulties due
to its reliance on outbound telephone lines and other Internet service providers
for its upstream connection to the Internet. During fiscal 1999, the we worked
on a solution to this technical problem with the GSI(TM) product line, as well
as working to develop and launch our bi-directional Nexstream product that
utilizes a satellite connection for both upstream and downstream connections to
the Internet.
For the first nine months of fiscal 1998, the we recorded revenue of
$237,758, however, we wrote off accounts receivable of $236,666. For the first
nine months of fiscal 1999, we recorded revenue of $1,187,770 and wrote off
accounts receivable totaling $1,064,986. We expect that shipments of new systems
will increase as a result of a solution for its GSI(TM) product line outbound
ISP difficulties and the launch the bi-directional Nexstream product.
For the nine-month periods ended September 30, 1999 and 1998, cost of
sales were $767,167 and $450,544, respectively. Cost of sales includes the cost
of hardware and software shipped to customers, satellite access time purchased
from a third party and inventory write-offs.
For the nine-month periods ended September 30, 1999 and 1998, operating
expenses were $5,718,146 and $1,190,420, respectively. The increase in operating
expenses for fiscal 1999 is due to higher levels of staffing and compensation,
increased marketing expenditures,
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<PAGE> 20
increased research and development expenditures and higher levels of
professional fees paid to outside accountants and attorneys.
LIQUIDITY AND CAPITAL RESOURCES
Our operations have been financed primarily from the sale of preferred
and common stock in 1999 and 1998 and, to a lesser extent, capital equipment
lease arrangements. At September 30, 1999, the company had cash on hand of
$12,365 and negative working capital of $1,153,626, compared to cash of
$2,567,697 and positive working capital of $2,381,879 at December 31, 1998. As
discussed more fully below in this section, during the third and fourth quarters
of 1999, we entered into agreements to sell a total of $12.0 million of
convertible preferred stock and arranged for an equity credit line of $20.0
million.
Net cash used in operating activities of $4,260,519 and $1,630,350 for
the nine months ended September 30, 1999, and 1998, respectively, was primarily
attributable to operating losses.
Net cash used in investing activities was $543,971 and $96,339 for the
nine months ended September 30, 1999 and 1998, respectively. These expenditures
were for the purchase of fixed assets.
Net cash provided by financing activities of $2,249,069 and $1,826,329,
for the nine months ended September 30, 1999 and 1998, respectively, resulted
primarily from the net proceeds of the sale of preferred and common stock.
To the extent our revenues increase in the coming twelve months, we
anticipate significant increases in operating expenses, working capital and
capital expenditures. The cost to purchase additional fixed assets, primarily
satellite transmission and receiving equipment and to finance working capital
requirements is approximately $15,000,000. We also anticipate the need to
construct our own network of Network Operations Centers (NOCs). A NOC is the
location of the operations equipment, which receives and transmits data from and
to a satellite. The construction of a NOC costs approximately $2,000,000 per
location.
We have entered into an agreement with Vantage Capital, Inc. ("VCI") for
the purpose of raising capital. Pursuant to that agreement, a total of
$7,000,000 of preferred stock has been subscribed for with CFE subscribing for a
total of $5,000,000 of Series B 12% Convertible Preferred Stock and VCI
subscribing for $2,000,000 of Series A 12% Convertible Preferred Stock. Through
December 31,1999, we had received a total of $2,000,000.
The Series A and B Preferred Stock has a liquidation preference of $2.00
per share and accrues interest at a 12% annual rate, payable in common stock of
the company. The Series A and B Preferred Stock may be converted into shares of
common stock at the lower of $2.00 per share or 70% of the bid price of the
common stock on the date of a notice to convert as reported by the exchange or
the market on which the shares of Common Stock are traded. The Series A and B
Preferred Stock contains standard anti-dilution and price protection provisions
and standard registration rights. There is no firm written agreement in place
requiring the balance of
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<PAGE> 21
the anticipated investment to be made; however the company expects that the full
amount of the anticipated investment will be made. Michael C. Palmer, our Chief
executive Officer, owns VCI.
On December 29, 1999, we entered into an agreement with a private
third-party investor that provides for the immediate purchase by the investor of
$5,000,000 of Series C Convertible Preferred Stock ("Series C Preferred") and
the establishment of a $20,000,000 equity line of credit ("Equity Line"). The
Series C Preferred is convertible into Common Stock at a price based on the
market price of the Common Stock at the time of conversion, subject to a maximum
price of $4.375 per share, and bears interest at 6 percent per annum. The Series
C Preferred is convertible at the investor's option, and becomes convertible in
three equal installments, commencing on the date of this prospectus and ending
90 days thereafter.
Under the terms of the $20,000,000 Equity Line, we have the right to
sell to the investor, and the investor has an obligation to buy from us, up to
an additional $20,000,000 of convertible preferred stock. The maximum amount of
each such individual sale of preferred stock will be determined by a formula
based on the dollar-volume of trading of the our common stock in the fifteen day
period immediately prior to each sale, subject to an overall maximum of
$2,500,000 per transaction. Furthermore, there must be at least 15 days between
sales and no sales are allowed while our common stock is trading below $3.00 per
share.
The company believes that the receipt of the net proceeds from the
preferred stock described above plus cash generated internally from sales will
be sufficient to satisfy its future operating, working capital and other cash
requirements for at least the next twelve months. The company believes that it
has sufficient resources to fund current operations, develop new or enhanced
products and/or services, to respond to competitive pressures and acquire
complementary products, businesses or technologies.
YEAR 2000 COMPLIANCE
We experienced no interruptions in our operations when the calendar year
changed to the year 2000. We believe that our products and services, and
products which we purchase from third party vendors, are designed to operate
continuously regardless of date changes.
BUSINESS
OVERVIEW
We provide a satellite Internet services and we develop satellite
Internet access equipment and services. Our customers are businesses,
educational institutions and governmental agencies. Our product line is based on
our Global Satellite Internet ("GSI(TM)") gateway, Nexstream gateway and
ChannelCasting(TM) services which all provide existing local area networks with
Internet access. A gateway is a specially designated computer which contains
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<PAGE> 22
software that allows local area network ("LAN") users to shares an Internet
access connection. Nexstream uses very small aperture terminals, which allows
for data transfer to and from remote locations needing Internet access or a
private network. Our ChannelCasting(TM) services provides the simultaneous
broadcast of large video and data files to multiple destinations through the use
of our GSI(TM).
We plan to be a geographically diverse satellite Internet service
provider through the establishment of joint ventures in various countries. We
expect to finance the expansion either through financing provided by the parties
wishing to provide the service internationally, or through capital generated by
operations and/or issuing additional securities.
Through September 30, 1999, we have incurred significant losses totaling
over $9,6000,000. Furthermore, we anticipate incurring additional losses in the
foreseeable future as we grow and complete the development of our products. We
operate in a highly competitive market and our success of the business will
depend on our ability to compete in this marketplace. We have no assurance of
market acceptance of our products. and we have no assurance that our marketing
and distribution methods will be successful.
OUR STRATEGY
We expect growth in demand for Internet access on a worldwide basis. We
are positioning the company to help satisfy this market need for Internet access
through the use of our GSI(TM) and Nexstream products as a method of
communication and the ChannelCasting(TM) service as a means of broadcasting
data. Currently we provide products and services for satellite Internet access
and data delivery to include businesses, educational institutions, and
government agencies. At this time, we do not offer services to home users and we
have no immediate plans to do so. We developed our GSI(TM), and Nexstream
products, along with, ChannelCasting(TM) to help satisfy voids in the Internet
access and data delivery market.
Our strategy is based on the development and marketing our products and
services in five areas.
First, we plan to build a worldwide satellite network by installing
three or more network operation centers (NOC) placed in strategic locations
throughout the world. Each of these NOCs will serve as a means of connecting to
each other and each a different satellite supporting a specific region. When
completed, this worldwide satellite network will allow us to provide Internet
access to a much larger market in countries where there is little or no
telecommunications infrastructure. We have already begun to implement this
strategy by entering into a service agreement with Exodus Communications, Inc.
(EXDS). This service agreement allows us to establish a satellite uplink
facility at an Exodus Internet Data Center(TM) in Southern California. This
agreement will provide us with sufficient Internet capacity to service our
worldwide network business strategy and corresponding bandwidth requirements. In
conjunction with our present NOC in Raleigh, North Carolina, the completion of
the new satellite uplink facility will provide the security of redundant
operation centers. Once in place,
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this new facility will have the capability to reach Pacific Rim and Asia
customers via trans-Pacific satellites while our East Coast facility will
service the United States and Europe.
Second, we plan on marketing our products and services to the business
continuity market worldwide. Our products and services can provide an effective
means of back-up to any business which relies on Internet access or remote
Internet connections for mission critical applications.
Third, we plan on marketing our products and services to rural and urban
markets on a worldwide basis which currently cannot receive high-speed Internet
and network connectivity due to limited telecommunications infrastructure.
Additionally we plan on marketing our products and services as a single
source vendor to national and multi-national businesses interested in a uniform
platform for connectivity and Internet access.
Finally, we plan on utilizing our subsidiaries to identify new uses and
markets based on the company's core technology to support the company business
objectives.
Our international strategy is to form joint ventures with strategically
positioned partners in Asia, Europe, Latin America, the Middle East and Africa.
At this time, we are in negotiation with a number of these partners but have not
signed any definitive agreements for these joint ventures.
Our subsidiary i.xposure has entered into several additional marketing
and selling agreements for its products and services.
HISTORICAL SUMMARY OF THE COMPANY
We were incorporated on June 23, 1995, under Nevada laws, as "U. S.
Connect 1995, Inc.," for the purposes of marketing and servicing transaction
processing services, prepaid long distance cards, ATM machines and payment
systems to small-to-medium sized merchants. In October 1995, we made a public
offering of our common stock from which we derived gross proceeds of
approximately $100,000. Prior to October 1998, we had not commenced operations
and were seeking to establish a new business. On October 8, 1998, we were the
surviving company of a merger with Technology Guardian, Inc., a California
corporation ("TGI"). All the issued and outstanding shares of TGI were exchanged
for shares of our common stock. In connection with the merger, we changed our
name to Technology Guardian, Inc., and succeeded to the business of TGI which
was providing computer network installation services and the related sale of
personal computers and telecommunications equipment necessary for the
configuration of local area networks, and in research and development of the
products we currently offer. We changed our name to "eSAT, Inc." on January 26,
1999.
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Research and development began in late 1996 for the satellite Internet
access products and services. The development of the satellite Internet products
and services continued during 1997 and into the first quarter of 1998. In the
first quarter of 1998, we terminated our sales of network computer related
products and concentrated entirely on the completion of our satellite Internet
access products and services. In the second quarter of 1998, we started beta
sales and installation of our initial (first generation) satellite Internet
access products. Beta sales involves the sales of products and services which
have been developed in a laboratory setting but have not been tested in actual
use. Beta installation means the first installations in a commercial setting,
often at a discount or at no cost in order for us to obtain additional
information for improving and completing the products and services. Through the
end of 1998, we beta tested our first generation satellite Internet product and
services. Beta testing on the first generation of products was terminated in
December 1998, such testing having been completed to our satisfaction.
In the fourth quarter of 1998, we initiated development of a second
generation satellite Internet product and related satellite Internet service.
Development of the second generation of satellite Internet products and services
and beta testing of them was completed to our satisfaction in January 1999. They
were incorporated into our products known as the GSI(TM), and a number of them
have since been upgraded.
Finally, in the fourth quarter of 1998, we completed installation of our
equipment at our network operations center ("NOC") in Durham, North Carolina.
The NOC houses our computer equipment and software, and functions as a junction
point for all the Internet related data traffic from our customers and acts as
the uplink to the satellites. We contract with third parties for segments of
satellite time that we then resell to our customers. During the second quarter
of 1999, we launched our ChannelCasting(TM) technology followed by the initial
beta testing of the bi-directional Nexstream product in the third quarter of
1999.
PRODUCTS AND SERVICES
GLOBAL SATELLITE INTERNET ("GSI(TM)") INTERNET GATEWAY. Our flagship
products, the Global Satellite Internet ("GSI(TM)") gateway and Nexstream, uses
satellite technology to provide Internet access services at speeds that compete
with the fastest available from any other provider.
The GSI(TM) gateway system consists of a computer configured with
hardware and software, a satellite dish, and appropriate satellite dish mounting
equipment. We capitalize on the imbalance between the small amount of data sent
to access the Internet and the large amount returned. For example, a typical
request to an Internet server might require 25 characters, but the response
could include an entire web page, including text and graphics. For example, a
person accessing our web site asks his Internet service provider to connect him
to "www.esatinc.com." This requires 15 characters and the click of a mouse. The
connection delivers him to our web page which contains thousands of characters
of information plus some pictures. We can couple any type of computerized
information request method for the small amount of request data with our small
satellite dish for sending large amounts of response data and can provide
high-speed Internet access for an entire local area network. The user is still
required to pay the cost of an
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Internet connection for the request data. This cost should be factored in when
comparing the costs of our products and services with the cost of competing
services. The delivery system for all of our products, the GSI(TM), connects to
an existing local area network to provide Internet access to each workstation.
The GSI(TM) is delivered completely pre-configured as a plug and play module for
local area networks and is compatible with Microsoft Windows operating systems,
Apple's Macintosh operating systems and UNIX operating systems. The GSI(TM) is
designed to incorporate ease of installation and use with a plug and play
format, and quality high-speed Internet access. "Plug and play format" is a
format based on hardware and software standards designed to allow computers and
peripheral computer equipment peripheral to be plugged together with
standardized cables and the computer that is compatible with a variety of
networking hardware or software, with little effort by the user to configure the
computer peripheral to operate properly.
We currently offer a GSI(TM) gateway for local area networks with
contracts of up to a three year duration. The current standard price per month
for this service is $495 per installation. This price may change from time to
time depending on a number of market factors.
CHANNELCASTING(TM). Our ChannelCasting(TM) service permits the broadcast
of large data and video files to multiple locations simultaneously using our
GSI(TM) products. With standard delivery of data and video files over the
Internet, each destination point requires its own stream of data.
ChannelCasting(TM) uses the broadcast properties of satellite transmission to
send a single stream of files which is received at many locations, a multi-cast.
For example, if a large video file needs to be delivered to many schools, the
file would be transmitted to our ChannelCasting(TM) servers through the Internet
or a private network connection and then, at our NOC in North Carolina, it would
be sent as a single stream to a satellite, and then transmitted to the specified
multiple destinations simultaneously. Presently, we only lease broadcast
capacity on one satellite, but the satellite is capable of broadcasting the data
for reception to numerous locations from one location.
ChannelCasting(TM) is being designed to permit large corporations,
government agencies and learning centers to broadcast information to multiple
locations at the same time. We provide a conditioned satellite receiver computer
card and additional software installed in the GSI(TM) gateway. The conditioned
satellite computer card processes digital data to be sent over our system.
Customers may use the ChannelCasting(TM) service as a stand-alone feature or use
it as an additional enhancement with the satellite Internet access. We have
developed and tested ChannelCasting(TM) and released its beta version on April
30, 1999.
NEXSTREAM. Nexstream uses specially configured satellite dishes to
permit the user to receive data and transmit data through our satellite system.
The result is a secure, transportable, cost-effective and high-speed
communications system which provides significant benefits for organizations with
offices and facilities in remote geographic areas. The technology is especially
effective where privacy and security are a concern, or where mission-critical
applications dictate having a non-ground based system. Nexstream may also be
employed as an effective back up for
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ground based communication lines in case of a potential disaster, or as the
primary link to remote areas before and after a disaster.
NEW PRODUCT DEVELOPMENTS. In addition to our core business described
above, we are in the process of developing three other complimentary lines of
business through our subsidiaries, Global Media Technologies, Inc. (GMT),
SkyFrame, Inc. (dba SkySP(TM)), and i.xposure, Inc. GMT is focusing on the
development of satellite-based products which take advantage of our high-speed,
high-quality video and data delivery capabilities. We plan to partner with
companies that provide programs and other information in the education,
entertainment and business-to-business markets with the goal of becoming a major
provider of such materials via satellite. GMT has plans to offer a variety of
exciting and innovative products and services to educational, consumer and
business markets using our core satellite technologies.
SkySP(TM) was formed in July 1999 as a response to the needs expressed
by under-served rural Internet users and especially rural school districts.
SkySP(TM) utilizes our GSI(TM) and Nextream technology to provide low cost
Internet services to rural Internet service providers and school districts that
otherwise do not have the means to efficiently offer Internet services.
According to Yankee Group, a research firm, it estimates that approximately 40%
of the United States will not be able to get any high-speed service to the
Internet. Using our core technologies, we are able to provide rural and urban
locations with high-speed Internet access with minimal capital investment at the
local level. Users can access the SkySP(TM) network through a local telephone
number which connects the user with our GSI(TM) gateway which in turn connects
them to our satellite uplink center. Information on the Internet is then relayed
back to the GSI(TM) gateway from the satellite and transmit it to the client
over telephone lines.
CORE TECHNOLOGY
Our technology relies on the monitoring and managing large segments of
satellite bandwidth and the ability to optimize these services for use in
business applications. Our current products and services consist of a
configuration of software and a satellite receiver card for a computer allowing
a user to obtain satellite access to the Internet or other remote locations by
splitting the messages sent out by the user over any conventional method, from
the information received buy the user via satellite. This hybrid technology
allows a user access to the Internet or network from local workstations. The
GSI(TM) connects to the Internet via any conventional method such as modem or
cable lines. High-speed retrieval of information from the Internet is achieved
via satellite and the GSI(TM) connected to a local network, which connects to
the desktop user. One portion of our technology manages the returning data by
directing it to be sent through a satellite uplink facility to an orbiting
satellite, which transmits the returning data from the satellite to the user.
The user receives this data through a small satellite dish which is linked to
the GSI(TM). Nexstream uses specialized satellite dishes to enable
bi-directional data communications from the satellite.
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<PAGE> 27
Our GSI(TM) and Nexstream gateway systems includes a computer which is
pre-loaded with the software and preconfigured for use, a satellite receiver
card installed in the computer, and the satellite dish. The customer may
contract with a local installer for the installation of the satellite dish, or
we will deliver the GSI(TM) gateway in plug and play condition, requiring only
that the customer change its routing of data flows on the its workstations to
utilize our Internet gateway. Installation of the GSI(TM) gateway does not
require us to provide on-site personnel. Nexstream is currently being installed
by our personnel, since the installation requires greater technical know-how
than does installation of GSI(TM) gateway systems.
MARKETING AND SALES
We sell our products and services to: businesses, schools, libraries,
hotels, tract home developers, hospitals, medical facilities and government
agencies through our own sales persons, value-added resellers and other
independent sales organizations. Approximately 60% of our sales are to
businesses and governmental agencies and 40% to schools. There are no
consumer/home products or services at this time.
The company employs sales staff of __ people (__ located in the home
office and __ located in Washington, D.C.). They focus their sales activity on
the generation of leads, the establishment of contacts, and the closure of sales
to a variety of small, medium and large businesses. The Washington, D.C. sales
force also attempts to develop leads, contacts, and sales to Federal
governmental agencies and concentrate their sales activities businesses to the
Eastern and Midwest sections of the United States.
Additionally, we distribute our products through value-added resellers
("VARs") and independent sales organizations. These organizations allow us to
increase our visibility and sales of products and services by entering into
contracts for these organizations to undertake sales activities for a percentage
commission of any sale realized. Approximately half of our sales to date have
originated and been completed using these organizations. Currently, we have
approximately __ VAR and independent sales relationships, no single one of which
is material to our operations. Sales through the VAR channel have been modest,
with the majority of our sales having been realized on a direct sale basis. We
have re-focused on enhancing this distribution channel with traditional wide
area network VARs and systems integrators. The result of this effort has been a
significant increase in both quantity and size of contracts under negotiation.
We intend to enter into relationships with between one hundred to two hundred
VARs within the next twelve months. We expect to realize the majority of North
American revenues through this channel.
From time to time we employ a telemarketing team to initially identify
institutions that could potentially benefit from the company's products and
services. Telemarketing means unsolicited telephone calls are made to
institutions for purposes of business development. We also use public relations
activities as well as Internet and traditional advertising, including radio,
in-flight advertisements and print media.
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<PAGE> 28
GOVERNMENT AGENCY MARKET
We are actively marketing our products to the Federal Government. The
contracting and sales cycle with government agencies can often require a year to
complete. We have completed an installation with the San Bernardino County,
California, Sheriff's Department and with the U.S. Department of Forestry in
Dubois, Idaho. The performance and reliability of these systems are currently
under evaluation. The sales of units to these agencies depends on their
favorable evaluation. There is no assurance that the company will make any
significant sales to government agencies.
THE EDUCATIONAL MARKET
The Federal Government's "E-RATE" program provides $1.8 billion of
federal funding for schools and libraries to be used exclusively for providing
Internet access to schools. Our marketing efforts are geared toward taking
advantage of the Federal E-RATE Program. The Federal Government allocates E-RATE
funds to the states in block grants, which must use the funds in a "fair and
equitable" format. The requirement means that educational sites throughout a
state must have uniform speeds and pricing. Once states receive funding, the
E-RATE Program has an anticipated duration of 18 months. We believe we meet all
government guidelines for providing Internet access to schools in the manner
required by the E-RATE program.
THE INTERNATIONAL MARKET
We plan for joint ventures with one or more parties headquartered in
various countries to be our international partners. We expect these joint
ventures to contribute significant revenue in the future. We have identified
major areas of the world capable of receiving transmissions from a
geo-stationary satellite. The planned joint ventures would establish our
satellite service in the international regions as follows: Asia North, Asia
South, Europe, Eastern Europe/Russia, India, Central America, Latin America, the
Middle East, and Africa. The initial funding for a joint venture is expected to
be provided by the partner in the headquartered country. We plan to focus on
Asia first so that we can be in a position to provide products and services to
the rapidly growing markets in the Pacific Rim basin including Hong Kong,
mainland China, Taiwan, Australia, New Zealand, Singapore, Malaysia, Thailand,
Philippines, Indonesia and others. At the present time, the Company does not
have any existing joint venture in the international market and has not entered
into any written agreement for international satellite service.
DIVERSIFICATION OF BUSINESS
We are not dependent on any one customer or group of customers. However,
our business plan calls for significant orders from governmental agencies and
large corporations.
BACKLOG OF ORDERS
We currently do not have a backlog of orders.
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<PAGE> 29
INTELLECTUAL PROPERTY
We believe that our intellectual property is an important factor in
maintaining our competitive position in our core eSAT businesses, as well as
the businesses of Global Media Technologies and i-xposure. To protect our
proprietary rights, we rely generally on patent, copyright, trademark and trade
secret laws, as well as confidentiality agreements with our employees,
consultants, vendors and corporate business partners. Despite these protections,
a third party could, without authorization, copy or otherwise obtain and use our
products or technology to develop similar technology. Moreover, our agreements
with employees, consultants and others who participate in product and service
development activities may be breached, we may not have adequate remedies for
any breach, and our trade secrets may become known or independently developed by
competitors.
Patents. At this time, we have no patents or pending patent
applications. However, we have identified a number of inventions for which we
anticipate filing patent applications. In addition, we are working to identify
additional potentially patentable inventions. Any patent applications may not be
granted, future patents may be challenged, invalidated or circumvented, and the
rights granted under a patent that may be issued may not provide competitive
advantages to us. Many of our current and potential competitors dedicate
substantially greater resources to protection and enforcement of intellectual
property rights, especially patents. If a blocking patent has been issued or is
issued in the future, we would need either to obtain a license or to design
around the patent. We may not be able to obtain a required license on acceptable
terms, if at all, or to design around the patent.
Trademarks. We have applied for registration of all of our primary
trademarks in the United States, including "eSAT", "SatBone," "S-Bone,"
"i-Xposure" and "pid". We intend to continue to pursue the registration of
these and certain of our other trademarks in the United States and in other
countries; however, we cannot be sure that we can prevent all third-party use
of our trademarks. We have obtained the Internet domain name "esatinc.com" but
we are aware that an Irish telecom company has the same name ("ESAT") and the
Internet domain name "esat.com." We have not been asked to cease using the
name"eSAT."
Copyrights. We have developed software for our eSAT business, i-xposure
business and Global Media Technology business which is protected by copyright
law. There is no assurance that the steps we take will be adequate to protect
these rights or that we will be successful in preventing the illegal
duplication, distribution or other use of our software. Our failure to
adequately limit the unauthorized redistribution of our software could result
in litigation or liability, which could harm our business.
The laws of some foreign countries do not protect our proprietary
rights to the same extent as do the laws of the United States, and effective
patent, copyright, trademark and trade secret protection may not be available
in these jurisdictions.
We rely on technology and other proprietary matter that we license from
third parties, including software and images that are integrated with
internally developed software and used in our products and services.
Third-party licenses may not continue to be available to us on commercially
reasonable terms. The loss of any of these rights could harm our business.
Third parties may assert infringement claims against us. From time to
time we may be subject to claims in the ordinary course of our business,
including claims of alleged infringement of the trademarks, patents and other
intellectual property rights of third parties by us or our users. Any such
claims, or any resultant litigation, should it occur, could subject us to
significant liability for damages and could result in the invalidation of our
proprietary rights. In addition, even if we were to win any such litigation,
such litigation could be time-consuming and expensive to defend, and could
result in the diversion of our time and attention, any of which could
materially and adversely affect our business, results of operations and
financial condition. Any claims or litigation may also result in limitations on
our ability to use such trademarks, patents and other intellectual property
unless we enter into arrangement with such third parties, which may be
unavailable on commercially reasonable terms.
COMPETITION
We compete in the market for providing Internet access services to the
business, government, school, and nonprofit sectors. Our major competitors are
Loral Inc., Hughes Network Systems, and Spacenet.
We anticipate competition from Internet service providers which provide
satellite downlink data transmission in the commercial/business, government and
education sectors. Our competitors also include the established Internet service
providers offer a variety of connection features and speeds of access. Some use
telephone lines, some use television cable systems, and others offer satellite
focused services. There are numerous providers of these services and no one
provider dominates the market. Many service providers are affiliated with
telephone or cable television companies which provides capital resources and
customer marketing opportunities unavailable to us. At this time, we believe no
competitor has a dominant position.
We have not established a competitive position in the market place,
since we have only recently commenced the marketing and sales of our products.
As a result, potential customers are unable to evaluate other customer's
experiences in using our products. This lack of track record might dissuade some
customers from purchasing our products until there is a greater customer base
and a broader evaluation of the quality and effectiveness of our products and
services.
We compete principally on price, performance, and availability of
service. The service is available in any location, particularly remote
locations, due to the wide satellite broadcast footprint. We offer an easy to
use format, with each gateway delivered pre-configured for the customer's
geographic location, local connection to the Internet, and connection to a local
area network. Our pricing of products and services is subject to change in
accordance with market changes and competitive conditions.
The positive factors pertaining to our competitive position include
offering a product for a price of $495 per month, subject to change to meet
competitive circumstances, widespread availability, and an easy to use format.
The negative factors pertaining to our competitive position are lack of product
awareness and of brand recognition among potential customers, lack of widespread
user-base, and lack of customer track record.
RESEARCH AND DEVELOPMENT
We plan to devote significant resources to continued research and
development of various Internet related products and services.
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<PAGE> 30
EMPLOYEES
We currently have __ employees. __ employees are located at the
Company's headquarters in Fountain Valley, California, and __ employees are
located in our Washington, D.C., office, and __ sales representatives are
located in Texas.
LEGAL PROCEEDINGS
The only material legal proceedings involve an action brought in the
United States District Court, Central District of California, on July 23, 1999,
by a private investor who entered into a subscription agreement in November
1998 to purchase 2,092,000 shares of our common stock for $1.30 per share. He
did not raise the funds to honor his subscription and we cancelled the
subscription agreement. The investor has sued to compel us to issue those
shares to him alleging that we breached the agreement. We believe his assertion
is without merit and are defending the case.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names and positions of our directors
and executive officers:
<TABLE>
<CAPTION>
Officer Name Age Position Since
------------ --- -------- -----
<S> <C> <C> <C>
Michael C. Palmer 50 CEO, President, Secretary and Director 1999
Chester (Chet) L. Noblett, Jr. 55 COO, Chief Financial Officer and Director 1997
Salvatore A. Piraino 72 Director 1997
William C. Sarpalius 50 Director 1997
Gary Pan 53 Director 1998
Jeffrey Hecht 48 Vice President of Operations 1998
James Mack 27 Chief Technology Officer 1998
Terry F. Herbeck 52 Chief Operating Officer 1999
</TABLE>
The directors are elected to hold office until the next annual meeting
of stockholders and until their respective successors have been elected and
qualified. Officers are elected annually by the board of directors and hold
office until their successors are elected and qualified.
The following sets forth biographical information concerning our
directors and executive officers for at least the past five years.
MICHAEL C. PALMER has been the Chief Executive Officer, President and
Secretary and a director of the company since April 1999. Mr. Palmer has held
the position of Chief Financial Officer from November 1998 to March 1999 and has
been affiliated with the company since December 1997. Since 1978, Mr. Palmer has
been a partner of Parks, Palmer, Turner and Yemenedjian, a firm of certified
public accountants. Mr. Palmer served as a director of Western Waste Industries
(NYSE: WW) from July 1995 to May 1996. He received a B.S. degree in Business
Administration in 1972 and an M.S. degree in Business Taxation in 1975 from the
University of Southern California.
CHESTER (CHET) L. NOBLETT, JR. is Chairman of the Board since April 1999
and a Director since June 1997. He was Chief Operating Officer from June 1997
until December 1999. He served briefly as interim Chief Financial Officer in
January 2000. From 1990 to 1996, Mr. Noblett was employed as the chief executive
officer for Tradom International, a subsidiary of an
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<PAGE> 31
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.
SALVATOR A. PIRAINO has been a director of the company since December
1997. From September 1992 to the present, Mr. Piraino has operated Management
and Technical Services, a management consultant firm providing management,
engineering and manufacturing expertise to a number of small companies. From
1974 to 1992, Mr. Piraino was employed as a director, program manager, product
line manager and assistant division manager for Hughes Aircraft Company. Mr.
Piraino received a B.E. degree in Engineering from Loyola University in 1950.
WILLIAM C. SARPALIUS has been a director of the company since December
1997. From 1995 to present, Mr. Sarpalius has served as president and chief
executive officer of Advantage Associates, Inc., a lobbying firm located in
Washington, D.C. Previously, Mr. Sarpalius served as a U.S. Congressman from
the State of Texas from 1989 to 1995. In 1995, Mr. Sarpalius received a
presidential appointment to the United States Department of Agriculture as
Western Regional Director. Mr. Sarpalius received a bachelors degree in
Agriculture Science from Texas Tech University in 1972 and a masters degree in
Agriculture Science from West Texas State in 1978.
GARY (GUO AN) PAN has been a director of the company since September
1998. From 1997 to present, Mr. Pan has served as the managing director for
United Asia Capital Partners, an investment management and financial services
firm. From 1993 to 1997, Mr. Pan served as president of Sunridge International,
Inc., and from 1992 to 1993, as senior vice president of the Great Wall Group.
Mr. Pan received a B.S. degree in Electrical Engineering from National Taiwan
University, a M.S. degree in Electrical Engineering from University of Waterloo,
and his Ph.D. in Management from the University of California at Los Angeles.
JEFFREY HECHT was appointed as the company's Vice President of
Operations in March 1998. From March 1997 to March 1998, Mr. Hecht was vice
president of operations for ACOM Computer Inc., a software development company
in Long Beach, California. From December 1993 to February 1997, Mr. Hecht served
as the vice president and chief information officer for Strategic Mortgage
Services, a financial services company. Mr. Hecht received a B.S. in Business
Administration from Arizona State University in 1976.
JAMES MACK was appointed as the company's Chief Technology Officer in
September 1998. From May 1997 to September 1998, Mr. Mack was the Senior Systems
Engineer for Versant, Inc., a manufacturer of object-oriented database
technologies. From February 1995 to May 1997, Mr. Mack was Object Technology
Specialist with IBM, working with such firms as Kodak and MCI. Mr. Mack studied
Computer Science and Aerospace Engineering at the University of Missouri-Rolla
in 1994.
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<PAGE> 32
TERRY F. HERBECK has been the Chief Operating Officer since December
1999. From 1992 to 1999, he was the President of Herbeck Consulting Group, a
consulting firm advising on the development of new markets for existing and
future product lines in the medical and Internet fields. From 1984 to 1992, Mr.
Herbeck served as President of United Surgical Corporation. He received an A.A.
degree in business Administration from El Camino College in 1970 and attended
California State University Long Beach from 1970 to 1972.
EXECUTIVE COMPENSATION
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------------------------------------------- -----------------------------------------
Awards
------------------------
Other Restricted Securities
Name and Annual Stock Underlying All Other
Principal Position Year Salary Bonus Compensation Awards Options Compensation
- ------------------ ---- -------- ------- ------------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Michael C. Palmer(1) 1999 $455,913 $ $187,500 1,625,000
President, Chief 1998 10,780 100,000
Executive Officer 1997
and Secretary
Chester L. Noblett, Jr.(2) 1999 178,936 300,000
Chief Operating 1998 114,750 48,750 595,802
Officer 1997
Mark McMillan(3) 1999 87,500 500,000
1998
1997
James Mack(4) 1999 120,625
1998 18,750 35,000 300,000
1997
David Coulter(5) 1999 51,854 50,000 1,500,000
Former President 1998 166,407 56,250 3,535,890
1997
</TABLE>
* Please see Certain transactions, below, and Note [K] to the Financial
Statements regarding the cancellation of Mr. Coulter's options in March,
1999.
(1) Mr. Palmer is an employee of Parks Palmer Turner & Yemenidjian, a firm
of certified public accountants. Effective November 1999, the company
pays VCI $25,000 per month for Mr. Palmer's services. Mr. Palmer is an
owner of VCI. In addition to the compensation reflected in the table,
VCI is paid a monthly consulting fee of $2,500 for assistance in finding
and negotiating acquisitions and financing opportunities for the
company. Pursuant to that consulting arrangement, VCI earned $80,000 in
connection with the issuance of the Series C Preferred Stock and
$100,000 in connection with arranging for the issuance of the Series A
and Series B Preferred Stock. In addition, VCI received warrants to
purchase 600,000 shares of common stock as part of the consulting
arrangement. Those warrants are not exercisable until after December 31,
2000. See "Certain transactions" for additional information.
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<PAGE> 33
(2) Includes back pay of $55,417 earned in 1999 and paid in January 2000.
(3) Mr. McMillan joined us in May 1999. He earns a base salary of $150,000
per year. Additionally, he received a __ year mortgage loan of $250,000
from the company, bearing interest at __% per annum.
(4) Mr. Mack joined us in September 1998.
(5) Mr. Coulter left the company in May 1999. After leaving the company he
was paid $50,000. See "Certain transactions."
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 $750.
OPTION GRANTS IN FISCAL YEAR 1999
<TABLE>
<CAPTION>
Individual
Grants
Percent of
Total Potential Realizable Value
Options at Assumed Annual Rates of
Number of Granted to Market Stock Price Appreciation
Shares Employees Exercise of Price on for Option Term
Underlying in Fiscal Base Price Date of Expiration ---------------------------
Name Options Year ($/Sh) Grant Date 5%($) 10%($)
- ---- ---------- ---------- ----------- -------- ------------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Michael C. Palmer 25,000 1.0% 4.00 4.00 Feb. 9, 2004 27,750 61,000
Michael C. Palmer 1,000,000 40.9% 3.00 3.00 Oct. 30, 2004 830,000 1,800,000
Chester L. Noblett, Jr. 300,000 12.3% 3.00 3.00 Feb. 9, 2004 249,000 540,000
Terry F. Herbeck 300,000 12.3% 3.50 3.50 Dec. 10, 2005 357,000 810,000
</TABLE>
OPTIONS EXERCISED IN FISCAL YEAR 1999
<TABLE>
<CAPTION>
Number of Value of unexercised
Shares unexercised options/SARs in-the-money options/SARs
acquired on Value at December 31, 1999(#) at December 31, 1999($)
Name exercise(#) Realized Exercisable/unexercisable Exercisable/unexercisable
- ---- ------------ -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Michael C. Palmer -- -- 725,000/1,000,000 137,500/2,000,000
Chester L. Noblett, Jr. 159,547 757,848 1,245,802/ -- 3,301,634/ --
Jeffrey Hecht -- -- 252,912/ -- 569,553/ --
Mark McMillan -- -- / 500,000 --/ --
Terry F. Herbeck -- -- --/ 300,000 --/ 450,000
James Mack -- -- 100,000/ 200,000 200,000/ 400,000
</TABLE>
DIRECTOR COMPENSATION
Each non-employee director receives a payment of $500 for each board
meeting attended and an annual option grant to purchase 20,000 shares at market
value. All directors are entitled to reimbursement for expenses of traveling to
and from board meetings, and any other out-of-pocket expenses incurred on behalf
of the company.
Mr. Piraino, who serves as the audit committee, receives a payment of
$500 per month for his services. This compensation commenced in September, 1998.
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<PAGE> 34
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.
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 certain 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.
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<PAGE> 35
The cancellation of the Option Agreement was part of the over-all
consideration given in settling the disputes between Mr. Noblett and Mr.
Coulter. A dispute arose between Messrs. Noblett and Coulter with regard to Mr.
Noblett's right to purchase 30% of the outstanding stock of TGI. Due to what Mr.
Coulter perceived to be the increasing potential of TGI, he did not want TGI to
honor TGI's prior commitment to Mr. Noblett. The transactions had no impact on
the operations of the company. These transactions only resolved disputed issues
between Mr. Noblett and Mr. Coulter. At that point in time, there were fewer
than ten stockholders of the 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, the company
assumed the obligations of TGI to issue options to purchase 2,000,000 shares of
TGI common stock on a pro rata basis to all TGI 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 of the company authorized the issuance of additional
options to purchase 1,000,000 shares of common stock to Mr. Coulter, and 333,333
shares of common stock to Mr. Noblett, at an exercise price of $3.00 per share,
exercisable for five years from date of grant subject to the company achieving
$30,000,000 in sales in 1999.
On March 22, 1999, Mr. Coulter resigned as a director and officer of the
company. Pursuant to a resignation agreement, Mr. Coulter agreed to cancel
1,767,769 shares of common stock, reducing the number of shares he holds to
3,000,000 shares of common stock. By contract, the 3,000,000 shares retained by
Mr. Coulter are nonvoting. In addition, Mr. Coulter agreed to cancel all options
held by him to purchase 3,410,885 shares of common stock. The canceled options
included options on 1,400,000 shares exercisable at $3.00 per share and options
on 2,010,885 shares at $0.7168 per share. Mr. Coulter agreed to accept in lieu
thereof options to purchase 1,500,000 shares of common stock, with an exercise
price of $3.00 per share, for five years from August 22, 1999. Mr. Coulter
agreed to the termination of his employment agreement. The company agreed to pay
Mr. Coulter a severance payment of $150,000, payable at the rate of $30,000 per
month from the time of resignation, and to pay Mr. Coulter for consulting with
the company at the rate of $10,000 per month for a total of 36 months,
commencing upon his resignation. The company and Mr. Coulter have entered into a
general mutual release of claims. As a result of an alleged breach of the
resignation agreement by Mr. Coulter, the company has suspended the payment of
$10,000 per month to Mr. Coulter.
CFE and VCI (the "Consultant") are working 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 will
terminate no earlier than September 15, 2002. Mr. Palmer, CEO of the company, is
also the owner and President of the Consultant.
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<PAGE> 36
The Consulting Agreement states that the duties of the Consultant
include: (1) identifying, analyzing, structuring, negotiating and financing
business sales and/or acquisitions, including without limitation, merger
agreements, stock purchase agreements, and any agreements relating to financing
and/or the placement of debt or equity securities of the Company; (2) assisting
the Company in its corporate strategies; and (3) assisting the Company in the
implementation of its business plan, in each case as requested by the Company.
The Consultant shall receive as compensation as follows: (1) A
non-refundable monthly retainer of $5,000, payable in cash or restricted common
stock (at the company's option) at a price of $2.00 per share; (2) warrants to
purchase 1,200,000 shares of common stock (the "warrants"), with exercise prices
equal to (a) as to 300,000 warrants, $4.25, (b) as to 300,000 warrants, $5.25,
(c) as to 200,000 warrants, $6.25, and (d) as to 400,000 warrants, $8.50; (3)
fees equal to ten percent of the total aggregate consideration paid for any
acquisition or sale by the Company of any business, corporation or division (a
"Target"), or the sale, transfer or license of technology (collectively, a
"Transaction"), which fee shall be due upon closing of the Transaction; (4) a
financing fee equal to ten percent of any private or public placement of debt or
equity securities of or owned by the company; and (5) to the extent possible, a
share of any fees or commissions payable by third parties on any Transaction
contemplated by the Consulting Agreement. All compensation to be received by
Consultant under the Consulting Agreement is paid half to Corporate CFE and half
to VCI.
The company, at its option, may pay fees due under clause (3) and (4) of
the prior paragraph by issuance of restricted common stock or freely tradable,
registered common stock. Restricted common stock shall be issued at a rate equal
to the lesser of (i) 50% of the average bid price for the five trading days
prior to the closing date of a Transaction which entitles the Consultant to
receive such fees, or (ii) $5.00. Freely tradable, registered common stock,
pursuant to an effective and current registration statement, shall be issued at
the rate equal to the lesser of (i) 70% of the average bid price for the five
trading days prior to the closing date of a Transaction which entitles the
Consultant to receive such fees, or (ii) $7.50.
In the event of a conflict of interest which would prevent the
Consultant from acting due to Mr. Palmer's position with the company or if for
any reason Consultant is unable to continue performing the services as per the
terms of the Consulting Agreement, CFE will act in Consultant's stead. CFE has
no relationship with the company except as an investor. CFE will assume all the
duties and obligations set forth in the Consulting Agreement and shall be
entitled to receive all benefits related thereto. To date, on behalf of the
Company, the board has waived any conflict of interest that may arise from a
relationship between Mr. Palmer and any entity with which Consultant is
affiliated.
The company has 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 shares. The
purchase price is payable in monthly installments of $500,000. Each of those
series of the Preferred Stock has a liquidation preference of $2.00 per share,
bears cumulative 12% dividends, and may be converted immediately into common
stock
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<PAGE> 37
at the lower of $2.00 per share or 70% of the bid price of the common stock on
the date of a notice to convert as reported by the exchange or the market on
which the shares of common stock are traded. At a closing bid price of $5.25 on
January 21, 2000, VCI would be entitled to convert the 1,000,000 shares of
preferred stock into 1,000,000 shares of common stock.
PRINCIPAL STOCKHOLDERS
COMMON STOCK
The following table sets forth, as of January 17, 2000, the ownership of
the company's common stock by
- each director and named executive officer of the company,
- all executive officers and directors of the Company as a group,
and
- all persons known by the company to beneficially own more than
5% of the company's common stock.
<TABLE>
<CAPTION>
Amount and Percent of
Nature of Class of Total
Beneficial Shares and
Name and Address of Beneficial Owner Ownership(1) Options
------------------------------------ ------------ --------------
<S> <C> <C>
David B. Coulter(2) 3,750,000 18.97%
15555 Huntington Village Lane, #239
Building 9
Huntington Beach, CA 92647
Chester (Chet) L. Noblett Jr.(3) 2,541,986 13.03%
16520 Harbor Boulevard, Bldg. G
Fountain Valley, California 92708
Salvator Piraino(4) 161,103 *
16520 Harbor Boulevard, Bldg. G
Fountain Valley, California 92708
William Sarpalius(5) 226,838 1.24%
908 Pennsylvania Avenue, S.E.
Washington, D.C. 20003
</TABLE>
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<PAGE> 38
<TABLE>
<S> <C> <C>
Jeffrey Hecht(6) 382,912 2.07%
16520 Harbor Boulevard, Bldg. G
Fountain Valley, California 92708
Gary Pan(7) 45,000 *
16520 Harbor Boulevard, Bldg. G
Fountain Valley, California 92708
Michael C. Palmer(9) 735,000 3.87%
16520 Harbor Boulevard, Bldg. G
Fountain Valley, California 92708
James Mack(8) 98,026 *
16520 Harbor Boulevard, Bldg. G
Fountain Valley, California 92708
Directors and Executive Officers as a group 4,190,685 22.63%
</TABLE>
* Less than one percent.
(1) Unless otherwise stated below, each such person has sole voting and
investment power with respect to all such shares. Under Rule 13d-3(d),
shares not outstanding which are subject to options, warrants, rights or
conversion privileges exercisable within 60 days are deemed outstanding
for the purpose of calculating the number and percentage owned by such
person, but are not deemed outstanding for the purpose of calculating
the percentage owned by each other person listed.
(2) Includes options to purchase: (i) 1,500,000 shares of the company's
common stock at $3.00 per share for a period of five years from August
22, 1998.
(3) Includes options to purchase; (i) 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) 633,333 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); and (iii) 350,000 shares of our common stock at
$2.40 per share for a period of five years from the date of grant
(June 9, 1998).
(4) Includes options to purchase (i) 16,103 shares of the company's common
stock at $0.7168 per share for a period of five years from date of grant
(August 31, 1998); and, (ii) 20,000 shares of the company's common stock
at $5.50 per share for a period of five years from date of grant
(September 30, 1999); and (iii) 25,000 shares of the company's common
stock at $4.00 per share for a period of five years from date of grant
(February 9, 1999).
(5) Includes 30,000 shares owned by Carol Sarpalius, who is an employee of
the company and the wife of Mr. Sarpalius. Also includes options to
purchase: (i) 26,838 shares of the Company's common stock at $0.7168 per
share for a period of five years from date of
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<PAGE> 39
grant (August 31, 1999); and, (ii) 20,000 shares of the Company's common
stock at $5.50 per share for a period of five years from date of grant
(September 30, 1999); and, (iii) 25,000 shares of the Company's common
stock at $4.00 per share for a period of five years from date of grant
(September 15, 1998)
(6) Includes options to purchase: (i) 27,912 shares of the company's common
stock at $0.7168 per share for a period of five years from date of grant
(August 31, 1998); and, (ii) 225,000 shares of the company's common
stock at $3.00 per share for a period of five years from date of grant
(September 15, 1998).
(7) Includes options to purchase (i) 20,000 shares of the company's common
stock at $17.41 per share for a period of five years from date of grant
(September 30, 1999), and (ii) 25,000 shares of the company's common
stock at $4.00 per share for a period of five years from the date of
grant (February 9,1999).
(8) Includes options to purchase: (i) 4,294 shares of the company's common
stock at $0.7168 per share for a period of five years from date of grant
(August 31, 1998); and, (ii) 250,000 shares of the company's common
stock at $3.00 per share for a period of five years from date of grant
(September 28, 1998).
(9) Includes options to purchase: (i) 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 (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). Also included are warrants to purchase: (i) 150,000
shares of the company's common stock at $4.25 per share for a period of
five years from date of grant (November 1, 1999); (ii) 150,000 shares of
the company's common stock at $5.25 per share for a period of five years
from the date of grant (November 1, 1999); (iii) 100,000 shares of the
company's common stock at $6.25 per shares for a period of five years
from the date of grant (November 1,1999); and (iv) 200,000 shares of the
company's common stock at $8.25 per shares for a period of five years
from date of grant (November 1, 1999).
PREFERRED STOCK
The following table sets forth information regarding the beneficial
ownership of our voting preferred stock as of the date of this prospectus:
<TABLE>
<CAPTION>
Name and Address Number of Shares Percent
Class of Beneficial Owner Beneficially Owned of Class
----- ------------------- ------------------ --------
<S> <C> <C> <C>
Series A Vantage Capital, Inc. 1,000,000 100%
12% Convertible 1990 Bundy Drive, Suite 600
Preferred(1) Los Angeles, California 90025
</TABLE>
36
<PAGE> 40
<TABLE>
<S> <C> <C> <C>
Series B Corporate Financial 2,500,000 100%
12% Convertible Enterprises, Inc.
Preferred(1) 2224 Main Street
Santa Monica, California 90405
Series C Wentworth LLC 50,000 100%
6% Convertible Corporate Center
Preferred(1) West Bay Road
Grand Cayman
</TABLE>
(1) All of the above preferred stock is convertible into common
stock immediately. See "Description of securities" for details
on the conversion prices.
SELLING STOCKHOLDERS
All of the _______________ shares offered by this prospectus are being
registered for sale for the accounts of selling stockholders. As noted in the
following table, the selling stockholders have obtained or will obtain the
common stock offered under this prospectus by converting or exercising certain
of our convertible securities that they have held, now hold or have the right to
acquire. These selling stockholders hold shares of Series A 12% Convertible
Preferred Stock ("Series A Preferred"), Series B 12% Convertible Preferred Stock
("Series B Preferred"), Series C 6% Convertible Preferred Stock ("Series C
Preferred"), warrants to purchase common stock, which we issued to holders of
the Series C Preferred in connection with the issuance of the Series C
Preferred, and common stock acquired upon the exercise of certain warrants.
The table below includes, in the total number of shares offered, shares
of common stock that have been issued or are issuable upon conversion of shares
of Series A Preferred, Series B Preferred and Series C Preferred.
The table below also includes shares of common stock issuable upon
exercise of warrants issued to holder of Series C Preferred which are selling
stockholders, and shares of common stock acquired by a selling stockholder
pursuant to the exercise of certain warrants.
We will not receive any portion of the proceeds from the sale of shares
of common stock by the selling stockholders.
Based on the information supplied to us by each selling stockholder, the
following table sets forth certain information regarding the approximate number
of shares of common stock which each selling stockholder owns or has the right
to immediately acquire as of the date hereof, and as adjusted to reflect the
sale by the selling stockholders of the shares of common
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<PAGE> 41
stock offered by this prospectus. No selling stockholder has held any office or
maintained any material relationship with us or any of our predecessors or
affiliates, over the past three years.
<TABLE>
<CAPTION>
Shares Beneficially
Owned Prior to Shares Beneficially
Offering(1) Number of Owned After Offering(1)(2)
-------------------- Shares ---------- ------------
Name and Address Number Percent(3) Offered Number Percent
- ---------------- ---------- --------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Vantage Capital, Inc.
1990 Bundy Drive, Suite 600
Los Angeles, CA 90025 1,000,000(4) % 1,000,000 0 0
Corporate Financial
Enterprises, Inc.
2224 Main St.
Santa Monica, CA 90025 2,500,000(5) % 2,500,000 0 0
Wentworth LLC
Corporate Center
West Bay Road
Grand Cayman 9,000,000(6)(8) % 9,000,000(9) 0 0
Grayson & Associates
One Tabor Center 159,286(7) * 159,286 0 0
1200 17th St., 16th Floor
Denver, CO 80202
</TABLE>
- -------------------------
* Less than one percent.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Except as indicated, each
person possesses sole voting and investment power with respect to all of
the shares of common stock owned by such person, subject to community
property laws where applicable. In computing the number of shares
beneficially owned by a person and the percentage ownership of that
person, shares of common stock subject to options and convertible
securities held by that person that are currently exercisable, or become
exercisable within 60 days of the date of this prospectus are deemed
outstanding. Such shares, however, are not deemed outstanding for the
purpose of computing the percentage ownership of any other person. The
information as to each person has been furnished by such person.
(2) Assumes that all shares of common stock offered in this prospectus will
be sold.
(3) Based on approximately _______________ shares of common stock issued and
outstanding as of _______________, 2000 which assumes that the shares
offered for sale are outstanding.
(4) Michael D. Palmer, President of VCI, is the individual who has voting
and investment decision authority over this investment.
(5) ___________, ___________ of CFE, is the individual who has voting and
investment decision authority over this investment.
(6) ___________, ___________ of Wentworth LLC, is the individual who has
voting and investment decision authority over this investment.
(7) Gerald Grayson, President of Grayson & Associates, is the individual who
has voting and investment decision authority over this investment.
(8) Includes _________ shares of common stock issuable upon exercise of the
Series C Preferred assuming a conversion price of $_______; _________
shares which might become issuable upon conversion of preferred stock to
be purchased pursuant to our Equity Line with Wentworth, LLC; _________
shares to protect against an increase in the number of shares issuable
due to a decline in the market price of our common stock; and 238,877
shares of common stock issuable upon exercise of warrants issued to
Wentworth LLC, in connection with the issuance of the Series C
Preferred.
(9) The actual number of shares to be offered will depend on the number of
shares acquired by Wentworth, LLC, upon conversion of the Series C
Preferred it holds and any new series of preferred stock it may acquire
pursuant to the Equity Line.
DESCRIPTION OF SECURITIES
The following summary description of our capital stock is not intended
to be complete and is subject to and qualified in its entirety by reference to
our Amended and Restated Articles of Incorporation, copies of each of which are
filed as exhibits to the registration statement of which this prospectus forms a
part.
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<PAGE> 42
GENERAL
We have authorized capital stock consisting of 40,000,000 shares of
common stock, $0.001 par value, of which 18,263,632 common shares are issued and
outstanding, and 10,000,000 shares of preferred stock, $0.01 par value. We have
agreed to issue 3,550,000 preferred shares of which 50,000 are issued and
outstanding. There are _____ holders of record of our common stock.
We have reserved _______________ shares of common stock for issuance
pursuant to options; _______________ shares for issuance pursuant to outstanding
warrants; and _______________ shares for issuance pursuant to outstanding
convertible securities.
COMMON STOCK
The principal terms of our common stock are set forth below:
- number authorized: 40,000,000
- number outstanding: 18,263,632 exclusive of shares reflected in
this prospectus as being held for sale by the selling
stockholders
- dividend rate: see "Dividend policy"
- vote per share: one
- no preemptive rights or other rights to subscribe for unissued
or treasury shares or securities convertible into or exercisable
or exchangeable for shares of our common stock
- shares of common stock are duly authorized and validly issued,
fully paid and nonassessable
PREFERRED STOCK
Our board of directors has the authority to issue up to 10,000,000
shares of preferred stock in one or more series and to fix the powers,
designations, rights, preferences and restrictions thereof, including dividend
rights, conversion rights, voting rights, redemption terms, liquidation
preferences and the number of shares constituting each such series, without any
further vote or action by our stockholders. The issuance of preferred stock in
certain circumstances may delay, deter or prevent a change in control of the
company, may discourage bids for our common stock at a premium over the market
price of the common stock, and may adversely affect the market price of, and the
voting and other rights of the holders of, our common stock. The principal terms
of our common stock are set forth below:
Series A 12% Convertible Preferred.
- number authorized: 2,000,000 shares
- number to be outstanding: 1,000,000 shares
- dividend rate: 12% payable in common stock
- per share liquidation preference: $2 (aggregate preference of
$2,000,000)
39
<PAGE> 43
- vote per share: one
- right to appoint directors: none
- when convertible: anytime
- conversion price: lesser of $2 per share or 70% of the closing
bid price on the day before conversion
- contains standard anti-dilution provisions to protect against
stock splits and below market stock issuances
- redemption rights: redeemable only with consent of 70% or more
of the holders and either (i) all members of the board or (ii) a
majority of the board with no direct or indirect interest in the
redemption
- registration rights: may include the common stock underlying the
preferred stock in any of our registration statements to sell
securities
Series B 12% Convertible Preferred.
- number authorized: 2,500,000 shares
- number to be outstanding: 2,500,000 shares
- dividend rate: 12% payable in common stock
- per share liquidation preference: $2 (aggregate preference of
$5,000,000)
- vote per share: one
- right to appoint directors: may appoint 40% of directors as long
as at least 500,000 shares are outstanding
- when convertible: anytime
- conversion price: lesser of $2 per share or 70% of the closing
bid price on the day before conversion
- contains standard anti-dilution provisions to protect against
stock splits and below market stock issuances
- redemption rights: redeemable only with consent of 70% or more
of the holders and either (i) all members of the board or (ii) a
majority of the board with no direct or indirect interest in the
redemption and who have not been nominated by any holder whose
shares are being redeemed
- registration rights: may include the common stock underlying the
preferred stock in any of our registration statements to sell
securities
Series C 6% Convertible Preferred
- number authorized: 50,000 shares
- number outstanding: 50,000 shares
- dividend rate: 6% payable in either cash or common stock
- per share liquidation preference: $100 (aggregate preference of
$5,000,000)
- vote per share: one vote for each share of common stock into
which the preferred stock could be converted as of the record
date for the vote
- right to appoint directors: none
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<PAGE> 44
- when convertible: 16,666 shares are convertible as of the date
of this prospectus; 16,666 shares are convertible 60 days after
the date of this prospectus; and the balance are convertible 90
days after the date of this prospectus; provided that not
more than 20% of the shares may be converted in any period of
five consecutive trading days. Further, no holder may convert
into common stock if, as a result of such conversion, that
holder would own more than 19.9% of the issued and outstanding
shares of our common stock (we are required to redeem any
excess). In addition, no holder may convert Series C Preferred
Stock if, after such conversion, the holder would be deemed a
beneficial owner of more than 4.99% of the then outstanding
shares of common stock of the company
- conversion price: the lesser of 125% of the closing bid price
of the common stock on December 28, 1999, or 85% of the average
price for the five trading days prior to the conversion notice
date ($4.375 AS OF JANUARY 21, 2000)
- contains standard anti-dilution provisions to protect against
stock splits and below market stock issuances
- redemption rights: holders have no redemption rights. We may
redeem the stock at our election for cash at a price equal to
the economic benefit a holder would realize from converting the
stock to common stock and selling it if the market price is more
than $2 per share. If the market price is less than $2 per
share, we may redeem the stock by paying the liquidation
preference plus a premium up to __%
- registration rights: the common stock into which the Series C
Preferred may be converted is required to be registered with the
Securities and Exchange Commission
WARRANTS
Warrants to VCI and CFE
- number of warrants (VCI): 600,000
- number of warrants (CFE): 600,000
- when exercisable: anytime after December 31, 2000 and before the
close of business on September 15, 2009
- exercise price: for each of VCI and CFE, (a) as to 150,000
warrants, $4.25; (b) as to 150,000 warrants, $5.25; (c) as to
100,000 warrants, $6.25; and (d) as to 200,000 warrants, $8.50
- contains standard anti-dilution provisions to protect against
stock splits and below market stock issuances
- registration rights: the common stock into which the Series C
Preferred may be converted is required to be registered with the
Securities and Exchange Commission
Warrants to Wentworth LLC
- number of warrants: 238,877
- when exercisable: exercisable at any time and from time to time;
provided, however, that in no event shall the holder be
entitled to exercise the warrant or shall the company have the
obligation to issue shares upon such exercise of all or any
portion of the warrant to the extent that, after such
conversion, the sum of (1) the number of shares of common stock
beneficially owned by the holder and its affiliates (other than
shares of common stock, which may be deemed beneficially owned
through the ownership of the unconverted portion of the
preferred stock or unexercised portion of the warrants), and (2)
the number of shares of common stock issuable upon the
conversion of the preferred stock or exercise of the warrants
with respect to which the determination of this proviso is being
made, would result in beneficial ownership by the holder and its
affiliates of more than 9.99% of the outstanding shares of
common stock (after taking into account the shares to be issued
to the holder upon such conversion or exercise).
41
<PAGE> 45
- exercise price: $4.617
- contains standard anti-dilution provisions to protect against
stock splits and below market stock issuances
- registration rights: the common stock into which the Series C
Preferred may be converted is required to be registered with the
Securities and Exchange Commission
ANTI-TAKEOVER LAW
Acquisition of controlling interests. A corporation is subject to
Nevada's control share law if it has more than 200 stockholders, at least 100 of
whom are stockholders of record and residents of Nevada, and it does business
in Nevada or through an affiliated corporation.
The law focuses on the acquisition of a "controlling interest" which
means the ownership of outstanding voting shares sufficient, but for the
control share law, to enable the acquiring person to exercise the following
proportions of the voting power of the corporation in the election of
directors; (i) one-fifth or more but less than one-third, (ii) one-third or
more but less than a majority, or (iii) a majority or more. The ability to
exercise such voting power may be direct or indirect, as well as individual or
in association with others.
The effect of the control share law is that the acquiring person, and
those acting in association with it, obtains only such voting rights in the
control shares as are conferred by a resolution of the stockholders of the
corporation, approved at a special or annual meeting of stockholders. The
control share law contemplates that voting rights will be considered only once
by the other stockholders. Thus, there is no authority to strip voting rights
from the control shares of an acquiring person once those rights have been
approved. If the stockholders do not grant voting rights to the control shares
acquired by an acquiring person, those shares do not become permanent
non-voting shares. The acquiring person is free to sell its shares to others.
If the buyers of those shares themselves do not acquire a controlling interest,
their shares do not become governed by the control share law.
If control shares are accorded full voting rights and the acquiring
person has acquired control shares with a majority or more of the voting power,
any stockholder of record, other than an acquiring person, who has not voted in
favor of approval of voting rights is entitled to demand fair value for such
stockholder's shares.
Nevada's control share law may have the effect of discouraging takeovers
of the corporation.
Business combination law. In addition to the above control share law,
Nevada has a business combination law which prohibits certain business
combinations between Nevada corporations and "interested stockholders" for three
years after the "interested stockholder" first becomes an "interested
stockholder" unless the corporation's board of directors approves the
combination in advance. For purposes of Nevada law, an "interested stockholder"
is any person who is (i) the beneficial owner, directly or indirectly, of ten
percent or more of the voting power of the outstanding voting shares of the
corporation, or (ii) an affiliate or associate of the corporation and at any
time within the three previous years was the beneficial owner, directly or
indirectly, of ten percent or more of the voting power of the then outstanding
shares of the corporation. The definition of the term "business combination" is
sufficiently broad to cover virtually any kind of transaction that would allow a
potential acquiror to use the corporation's assets to finance the acquisition or
otherwise to benefit its own interests rather than the interests of the
corporation and its other shareholders.
The effect of Nevada's business combination law is to potentially
discourage parties interested in taking control of the company from doing so if
it cannot obtain the approval of our board of directors.
DIRECTOR AND OFFICER LIABILITY AND INDEMNIFICATION
Pursuant to the company's articles of incorporation, the personal
liability of a director or officer of the company to the company or a
shareholder for monetary damages for breach of a fiduciary duty is limited to
situations in which a director's or officer's acts or omissions involve
intentional misconduct, fraud or knowing violations of law.
The company's articles of incorporation and bylaws provide for the
indemnification of directors and officers of the company to the maximum extent
permitted by law. The bylaws provide generally for indemnification as to all
expenses incurred or imposed upon them as a result of actions, suits or
proceedings if they act in good faith and in a manner they reasonably believe to
be in or not opposed to the best interests of the company. These documents,
among other things, indemnify the company's employees, officers and directors
for certain expenses (including attorneys' fees), judgments, fines and
settlement amounts incurred by such person in any action or proceeding,
including any action by or in the right of the company, on account of services
as any employee, officer or director of the company or as an employee, officer
or director of any affiliate of the company. The company believes that these
provisions are necessary to attract and retain qualified persons as directors
and officers.
There is no pending litigation or proceeding involving a director,
officer, employee or other agent of the company as to which indemnification is
being sought, and the company is not aware of any pending or threatened
litigation that may result in claims for indemnification by any director,
officer, employee or other agent.
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<PAGE> 46
The company has purchased directors and officers liability insurance to
defend and indemnify directors and officers who are subject to claims made
against them for their actions and omissions as directors and officers of the
company. the insurance policy provides standard directors and officers liability
insurance in the amount of $5,000,000.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers or controlling persons, pursuant
to the foregoing provisions, or otherwise, we have been advised that, in the
opinion of the SEC, such indemnification is against public policy as expressed
in the Securities Act, and is, therefore, unenforceable.
SHARES ELIGIBLE FOR FUTURE SALE
As of the date of this offering, assuming full conversion of our Series
C preferred stock at the current conversion price, we will have _______________
shares of common stock outstanding. Of the outstanding shares of common stock,
_______________ are freely tradable by persons other than executive officers,
directors and ten percent shareholders of the company as that term is defined
under the Securities Act, without restriction or further registration, and
_______________ would be deemed "restricted securities" within the meaning of
Rule 144 under the Securities Act. If presently unexercised warrants or options
were exercised to purchase common stock, or presently convertible preferred
stock (other than Series C preferred stock) was converted into common stock, we
would have an additional _______________ shares of "restricted securities"
outstanding for a total of _______________ shares. "Restricted securities" may
not be sold in the absence of registration unless an exemption from registration
is available, including the exemption contained in Rule 144. The presently
outstanding "restricted securities" become eligible for resale under Rule 144 at
various dates commencing on _______________, 2000, and all will be eligible for
resale under Rule 144 by _______________, 200_.
In general, under Rule 144, a stockholder who has beneficially owned
shares of common stock for at least one year is entitled to sell, within any
three-month period, a number of "restricted" shares that does not exceed the
greater of one percent of the then outstanding shares of common stock or the
average weekly trading volume during the four calendar weeks preceding such
sale. Sales under Rule 144 are also subject to sale limitations, notice
requirements and the availability of current public information about us. Rule
144(k) provides that a stockholder who is not deemed to be an "affiliate" and
who has beneficially owned shares of common stock for at least two years is
entitled to sell those shares at any time under Rule 144(k) without regard to
the limitations described above. In addition to the shares of common stock that
are currently outstanding, a total of _______________ shares of common stock are
reserved for issuance upon exercise of options granted to our directors,
executive officers and employees; _______________ shares are issuable upon
exercise of outstanding warrants; and, at current conversion prices,
_______________ shares are issuable upon conversion of Series A and Series B
preferred stock.
43
<PAGE> 47
We are unable to estimate the number of shares that may be sold in the
future by existing holders of shares of our common stock or holders of options
or warrants or convertible securities that are outstanding or the effect, if
any, that sales of shares of common stock by these persons will have on the
market price of the common stock prevailing from time to time. Sales of
substantial amounts of common stock by these persons could adversely affect the
then prevailing market prices of the common stock and warrants.
PLAN OF DISTRIBUTION
The shares offered by this prospectus may be sold from time to time by
selling stockholders, who consist of the persons named under "Selling
stockholders" above and those persons' pledgees, donees, transferees or other
successors in interest. The selling stockholders may sell the shares on the OTC
Bulletin Board or otherwise, at market prices or at negotiated prices. They may
sell shares by one or a combination of the following:
- a block trade in which a broker or dealer so engaged will
attempt to sell the shares as agent, but may position and resell a portion of
the block as principal to facilitate the transaction;
- purchases by a broker or dealer as principal and resale by the
broker or dealer for its account pursuant to this prospectus;
- ordinary brokerage transactions and transactions in which a
broker solicits purchasers;
- privately negotiated transactions;
- short sales;
- if such a sale qualifies, in accordance with Rule 144
promulgated under the Securities Act rather than pursuant to this prospectus;
and
- any other method permitted pursuant to applicable law.
In making sales, brokers or dealers engaged by the selling stockholders
may arrange for other brokers or dealers to participate. Brokers or dealers will
receive commissions or discounts from selling stockholders in amounts to be
negotiated prior to the sale. The selling stockholders and any broker-dealers
that participate in the distribution may be deemed to be "underwriters" within
the meaning of Section 2(11) of the Securities Act of 1933, and any proceeds or
commissions received by them, and any profits on the resale of shares sold by
broker-dealers, may be deemed to be underwriting discounts and commissions.
44
<PAGE> 48
If any selling stockholder notifies us that a material arrangement has
been entered into with a broker-dealer for the sale of shares through a block
trade, special offering, exchange distribution or secondary distribution or a
purchase by a broker or dealer, we will file a prospectus supplement, if
required pursuant to Rule 424(c) under the Securities Act of 1933, setting
forth:
- the name of each of the participating broker-dealers,
- the number of shares involved,
- the price at which the shares were sold,
- the commissions paid or discounts or concessions allowed to the
broker-dealers, where applicable,
- a statement to the effect that the broker-dealers did not
conduct any investigation to verify the information set out or incorporated by
reference in this prospectus, and
- any other facts material to the transaction.
We are paying the expenses incurred in connection with preparing and
filing this prospectus and the registration statement to which it relates, other
than selling commissions. In addition, in the event the selling stockholders
sell short shares of common stock, this prospectus may be delivered in
connection with such short sales and the shares offered by this prospectus may
be used to cover such short sales. To the extent, if any, that the selling
stockholders may be considered "underwriters" within the meaning of the
Securities Act, the sale of the shares by them shall be covered by this
prospectus.
LEGAL MATTERS
Arter & Hadden LLP, Los Angeles, California, has advised us with respect
to the validity of the shares of common stock offered by this prospectus.
EXPERTS
Lichter & Company, independent auditors, have audited the consolidated
financial statements of the company for the years ended December 31, 1997 and
1998, as set forth in their report, which is included in this prospectus. The
company's consolidated financial statements are included in this prospectus in
reliance on their report, given their authority as experts in accounting and
auditing.
45
<PAGE> 49
WHERE YOU CAN FIND ADDITIONAL INFORMATION
The company has filed with the Securities and Exchange Commission, 450
Fifth Street, N.W., Washington, D.C. 20549, a registration statement on Form
SB-2 under the Securities Act with respect to the securities offered. As
permitted by SEC rules, this prospectus does not contain all of the information
set forth in the registration statement and the exhibits and schedules to the
registration statement. For further information concerning the company and the
securities offered, we refer you to the registration statement and the exhibits
and schedules filed as a part of the registration statement.
Statements contained in this prospectus concerning the contents of any
contract or any other document are not necessarily complete. In each instance
where a copy of that contract or document has been filed as an exhibit to the
registration statement, we refer you to the copy of the contract or document
that has been filed. Each statement is qualified in all respects by reference to
that exhibit. The registration statement, including its exhibits and schedules,
may be inspected without charge at the SEC's Public Reference Room, at 450 Fifth
Street, N.W., Room 1024, Washington, D.C. 20549, and at the SEC's regional
offices at Northwest Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511, and 7 World Trade Center, New York New York 10048.
Copies of all or any part of those documents may be obtained from the SEC's
office after payment of the SEC's prescribed fees. You may call the SEC at
1-800-SEC-0330 for further information on the operation of the SEC's public
reference rooms. The SEC maintains a Web site at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding companies that file electronically with the SEC.
We intend to provide our stockholders with annual reports containing
consolidated financial statements by an independent public accounting firm and
will make available to stockholders quarterly reports containing unaudited
consolidated financial data for the first three quarters of each year. We are
subject to the information and reporting requirements of the Securities Exchange
Act of 1934, as amended, and file periodic reports, proxy statements and other
information with the SEC.
46
<PAGE> 50
ESAT, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
Page
----
<S> <C>
Report of Lichter & Company, Independent Auditors............................... F-1
Consolidated Balance Sheets as of December 31, 1997 and 1998 and Condensed
Balance Sheets as of September 30, 1999 and December 31, 1998
(Unaudited)................................................................. F-2
Consolidated Statements of Income and Expense for the years ending December 31,
1997 and 1998 and the nine months ended September 30, 1999
(Unaudited)................................................................ F-4
Statements of Stockholders' Equity.............................................. F-6
Consolidated Statements of Cash Flows for the years ending December 31, 1997 and
1998 and the nine months ended September 30, 1999 (Unaudited)............... F-7
Notes to Financial Statements................................................... F-9
</TABLE>
<PAGE> 51
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
eSat, Inc. (Formerly Technology Guardian, Inc.)
Fountain Valley, California
Members of the Board:
We have audited the accompanying balance sheets of eSat, Inc. (Formerly
Technology Guardian, Inc.) ("the Company") as of December 31, 1998 and 1997, and
the related consolidated statements of operations, changes in stockholders'
equity, and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of eSat, Inc. (Formerly Technology
Guardian, Inc.) as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the period ended
December 31, 1998 and 1997 in conformity with generally accepted accounting
principles.
As discussed in Note Q to the financial statements, the Company has suffered
recurring losses, a decline in revenue and cash shortages. These issues raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note Q. The financial
statements do not include any adjustment that might result from the outcome of
this uncertainty.
As discussed in Note P to the financial statements, the Company's 1998
Additional Paid in Capital previously reported as $6,614,398 should have been
$6,051,234. This discovery was made subsequent to the issuance of the financial
statements. The financial statements have been restated to reflect this
correction.
February 23, 1999, except for Note P, as to which the date is June 14, 1999, and
Notes J, K and Q as to which the date is October 22, 1999 Los Angeles,
California.
/s/ LICHTER & COMPANY
F-1
<PAGE> 52
eSat, Inc.
(FORMERLY KNOWN AS TECHNOLOGY GUARDIAN, INC.)
BALANCE SHEETS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
ASSETS
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Current Assets
Cash $ 2,567,697 $ 0
Accounts Receivable 48,964 256,986
Inventories 289,260 148,479
Note Receivable 15,000 22,500
----------- -----------
Total Current Assets 2,920,921 427,965
----------- -----------
Fixed Assets (Net of accumulated depreciation of
$41,965 and $17,306, respectively) 293,251 23,928
----------- -----------
Total Fixed Assets 293,251 23,928
----------- -----------
Other Assets
Deposits 47,215 2,027
----------- -----------
Total Other Assets 47,215 2,027
----------- -----------
Total Assets $ 3,261,387 $ 453,920
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Cash $ 0 $ 11,827
Accounts Payable and Accrued Expenses 235,866 341,772
Sales Tax Payable 10,801 6,569
Payroll Taxes Payable 168,891 137,346
Deferred Revenue 117,070 0
Income Tax Payable 0 800
Short Term Debt (includes current portion
of long term debt) 6,414 164,093
----------- -----------
Total Current Liabilities 539,042 662,407
----------- -----------
Long Term Liabilities
Notes Payable (net of current portion) 0 119,265
----------- -----------
Total Long Term Liabilities 0 119,265
----------- -----------
Stockholders' Equity
Common Stock, Par Value $.001 Per Share,
Authorized 40,000,000 Shares Common
Stock, 10,000,000 Preferred Stock,
Issued and Outstanding 16,085,936
and 11,407,507 Common, respectively 16,086 11,408
Additional Paid in Capital 6,051,235 278,643
Retained (Deficits) (3,344,976) (617,803)
----------- -----------
Total Stockholders' Equity 2,722,345 (327,752)
----------- -----------
Total Liabilities and
Stockholders' Equity $ 3,261,387 $ 453,920
=========== ===========
</TABLE>
Accountant's report and notes are an integral part of these financial
statements.
F-2
<PAGE> 53
eSAT, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 12,276 $ 2,567,697
Accounts receivable 27,677 48,964
Inventories 389,269 289,260
Other current assets 40,094 15,000
----------- -----------
TOTAL CURRENT ASSETS 469,316 2,920,921
Property and equipment, net 704,023 293,251
Note receivable 250,000 --
Other assets, net 76,586 47,215
----------- -----------
$ 1,499,925 $ 3,261,387
=========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 1,455,551 $ 246,667
Payroll taxes payable 36,246 168,891
Deferred revenue 76,836 117,070
Notes payable and current portion on long term debt 54,309 6,414
----------- -----------
TOTAL CURRENT LIABILITIES 1,622,942 539,042
Note payable, net of current portion 26,405 --
Commitments and contingencies
Stockholders' equity:
Cumulative convertible preferred stock,
10,000,000 shares authorized; 2,000,000 shares
subscribed and unissued at September 30, 1999 4,000,000 --
Common stock - $.001 par value,
40,000,000 shares authorized; 18,234,566 shares issued
and outstanding at September 30, 1999 and 16,085,936 at
December 31, 1998 18,235 16,086
Additional paid in capital 9,115,025 6,051,235
Treasury stock (364,370) --
Subscription receivable (3,250,000) --
Accumulated deficit (9,668,312) (3,344,976)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY (149,422) 2,722,345
----------- -----------
$ 1,499,925 $ 3,261,387
=========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE> 54
eSat, Inc.
(FORMERLY KNOWN AS TECHNOLOGY GUARDIAN, INC.)
STATEMENTS OF INCOME AND EXPENSE
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Sales $ 341,047 $ 1,201,044
Cost of Goods Sold (net of inventory adjustment of
$140,780 and $140,000, respectively) 685,570 345,491
------------ ------------
Gross Profit (Loss) (344,523) 855,553
Selling, General and Administrative Expenses
Advertising 175,647 125,934
Auto expense 23,427 15,538
Commissions 46,753 115,921
Equipment rental 42,375 11,726
Freight and delivery 49,103 11,549
Insurance 35,537 11,193
Legal and accounting 157,955 92,936
Other operating 109,010 152,098
Payroll taxes 201,454 43,837
Rent 45,464 25,900
Repairs and maintenance 14,496 2,738
Travel and entertainment 165,173 45,652
Utilities 68,236 45,463
Wages and salaries 1,216,751 471,375
------------ ------------
2,351,382 1,171,860
------------ ------------
(Loss) from operations (2,695,905) (316,307)
Other Income and (Expense)
Interest expense (11,371) (19,145)
Depreciation (24,659) (12,546)
Bad debt (237,426) (105,000)
------------ ------------
(273,456) (136,691)
------------ ------------
(Loss) before extraordinary income and income taxes (2,969,362) (452,998)
Extraordinary income, net of income tax effect of $0 242,990 0
------------ ------------
(Loss) before income taxes (2,726,372) (452,998)
Income taxes 800 800
------------ ------------
Net (Loss) $ (2,727,172) $ (453,798)
============ ============
Net (Loss) Per Share (Basic and Diluted)
Basic $ (0.17) $ (0.04)
Diluted $ (0.17) $ (0.04)
Weighted Average Number of Shares
Basic 16,085,936 11,407,507
Diluted 16,085,936 11,407,507
</TABLE>
Accountant's report and notes are an integral part of these financial
statements.
F-4
<PAGE> 55
eSAT, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- ----------------------------
1999 1998 1999 1998
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Revenue $ 20,711 $ (455,888) $ 1,187,770 $ 237,758
Cost of goods sales 259,197 76,688 767,167 450,545
----------- ----------- ----------- -----------
Gross profit (238,486) (532,576) 420,603 (212,787)
Selling, general and administrative expenses 1,739,565 403,403 5,718,146 1,190,420
Write off uncollectible accounts 96,264 236,666 1,064,986 236,666
----------- ----------- ----------- -----------
1,835,829 640,069 6,783,132 1,427,086
Operating loss (2,074,315) (1,172,645) (6,362,529) (1,639,873)
Interest (income) (3,038) -- (55,384)
Interest expense 8,601 897 16,191 11,397
----------- ----------- ----------- -----------
Net loss before extraordinary item (2,079,878) (1,173,542) (6,323,366) (1,651,270)
Extraordinary gain on extinguishment
of debt, net of tax effect -- 242,990 -- 242,990
----------- ----------- ----------- -----------
Net loss $(2,079,878) $ (930,552) $(6,323,336) $(1,408,280)
=========== =========== =========== ===========
Basic and fully-diluted loss per common share $ (0.12) $ (0.08) $ (0.37) $ (0.12)
=========== =========== =========== ===========
Shares used in computing net loss per share 17,902,396 12,361,747 17,296,909 12,043,667
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-5
<PAGE> 56
eSat, Inc.
(FORMERLY KNOWN AS TECHNOLOGY GUARDIAN, INC.)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Retained (Deficits)
Balance at beginning of year $ (617,803) $ (164,005)
Net (loss) (2,727,172) (453,798)
Dividends declared on common stock 0 0
------------ ------------
Balance at end of year (3,344,976) (617,803)
------------ ------------
Common Stock (Par Value $.001)
Balance at beginning of year 11,408 10,653
Common stock issued in reverse acquisition
(1,050,400 shares) 1,050 0
Common stock issued (3,628,029 shares and
755,350 respectively) 3,628 755
------------ ------------
Balance at end of year 16,086 11,408
------------ ------------
Additional Paid in Capital
Balance at beginning of year 278,643 278,643
Sale of common stock 5,772,592 0
------------ ------------
Balance at end of year 6,051,235 278,643
------------ ------------
Total Stockholders' Equity at end of year $ 2,722,345 $ (327,752)
============ ============
Common shares outstanding at end of year 16,085,936 11,407,507
</TABLE>
Accountant's report and notes are an integral part of these financial
statements.
F-6
<PAGE> 57
eSat, Inc.
(FORMERLY KNOWN AS TECHNOLOGY GUARDIAN, INC.)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net (Loss) $(2,727,172) $ (453,798)
Adjustments to reconcile net income to net cash
(used in) operating activities:
Depreciation and amortization 24,659 12,546
(Increase) decrease in accounts receivable 208,022 (241,405)
(Increase) decrease in inventories (92,820) (139,651)
(Increase) decrease in notes receivable 7,500 52,500
(Increase) decrease in deposits (45,188) 0
Increase (decrease) in payroll taxes payable (31,545) 137,346
Increase (decrease) in accounts payable (105,906) 127,989
Increase (decrease) in sales tax payable 4,232 6,569
Increase (decrease) in deferred revenue 117,070 0
Increase (decrease) in income tax payable (800) 800
Increase (decrease) in short term debt (157,679) 259,387
----------- -----------
Net Cash (Used in) Operations (2,799,627) (237,717)
----------- -----------
Cash Flows From Financing Activities
Sale of common stock (net cash) 5,673,131 253,363
----------- -----------
Net Cash Provided by
Financing Activities 5,673,131 253,363
----------- -----------
Cash Flows From Investing Activities:
Purchase of equipment (293,980) (6,539)
Purchase of stock 0 (12,000)
----------- -----------
Net Cash (Used in)
Investing Activities (293,980) (18,539)
----------- -----------
Net Increase (Decrease)
in Cash 2,579,524 (2,893)
----------- -----------
Cash - Beginning (11,827) (8,934)
----------- -----------
Cash - Ending $ 2,567,697 $ (11,827)
=========== ===========
</TABLE>
Accountant's report and notes are an integral part of these financial
statements.
F-7
<PAGE> 58
eSAT, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------------
1999 1998
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(6,323,336) $(1,408,280)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 133,199 27,694
Issuance of stock options for services 1,226,800 --
Decrease in accounts receivable, net 21,287 208,435
(Increase) in inventory (100,009) (92,819)
(Increase) decrease in note receivable (250,000) 20,082
(Increase) in other current assets (25,094) (4,190)
(Increase) in other noncurrent assets (29,371) (48,508)
Increase (decrease) in other accounts payable
and accrued expenses 1,208,884 (298,604)
Increase (decrease) in deferred revenue (40,234) 91,951
Increase (decrease) in note payable and current
portion of debt 50,000 (281,533)
Increase (decrease) in payroll taxes payable (132,645) 155,422
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (4,260,519) (1,630,350)
----------- -----------
INVESTING ACTIVITIES
Purchase of property and equipment (543,971) (96,339)
----------- -----------
NET PROVIDED BY (CASH USED) IN INVESTING ACTIVITIES (543,971) (96,339)
----------- -----------
FINANCING ACTIVITIES
Net cash proceeds from issuance of common stock 1,839,139 1,814,329
Net cash proceeds from issuance of preferred stock 750,000 --
Net cash used to acquire treasury stock (364,370) 12,000
Cash proceeds from notes payable 24,300 --
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,249,069 1,826,329
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,555,421) 99,640
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,567,697 (11,827)
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 12,276 $ 87,813
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest $ 9,941 $ 10,500
=========== ===========
</TABLE>
See accompanying notes.
F-8
<PAGE> 59
ESAT, INC.
(FORMERLY KNOWN AS TECHNOLOGY GUARDIAN, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
Note A - Nature of Activities
Formed February 22, 1996, as a California Corporation, Technology
Guardian, Inc. (the Company) is a "C" Corporation as organized under the
Internal Revenue Code. Technology Guardian, Inc. is a technology company
whose primary purpose is to provide high-speed satellite Internet access
products and services. Its customers include businesses, educational
institutions, and government agencies.
The Company's product lines were developed to fill voids in the Internet
access arena, and have applications both domestically and
internationally. In the United States, businesses and organizations can
benefit from the Company's affordability, ease of use, and true
high-speed access. In many countries there is a lack of even marginal
communications infrastructure to support high-speed Internet access. The
Company's potential appears to be very positive in these markets.
The Company's three sales divisions are designed to address the Internet
access needs of the different segments of the marketplace. The Galactic
Satellite Internet (GSI) division targets businesses and governmental
sectors. Satellite Accessed Material for Schools (SAMS) was specifically
created to address the tremendous demand for educational access
solutions. SAMS brings quality high-speed access to our schools in a
managed educational environment.
In October 1998, the Company relocated to its new corporate headquarters
in Fountain Valley, California. This 11,000 square foot facility serves
as the Company's new headquarters and will provide additional office
space as well as a substantial R & D area. Later that same month, the
Company established its presence on the East Coast with the opening of a
1,864 square foot branch office in Washington, D.C.
A new Vice President of Business Development was brought in at the end
of 1998 to strengthen the Company's Partners Program. Through its VAR
network, the company has access to CompUSA's business customers and has
been approved for resale through Hewlett Packard's distribution
channels.
In late 1998, the Company introduced the DigiNXT product line, designed
specifically for sale to commercial customers at the retail level.
Retailers with a national presence will now have a high-speed Internet
product for their commercial business customers. CompUSA is leading the
way with plans to sell the DigiNXT nationwide.
F-9
<PAGE> 60
ESAT, INC.
(FORMERLY KNOWN AS TECHNOLOGY GUARDIAN, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
Note B - Summary of Significant Accounting Policies
Revenue Recognition, Returns and Sales Incentives
Hardware and Software- The Company recognizes revenue from hardware and
software sales as products are shipped. The Company, subject to certain
limitations, permits its customers to exchange products or receive
credits against future purchases. The Company offers its customers
several sales incentive programs which, among others, include funds
available for cooperative promotion of product sales. Customers earn
credit under such programs based on the volume of purchases. The
allowance for sales returns and costs of customer incentive programs are
accrued concurrently with the recognition of revenue.
Internet Access- The Company also generates revenue by selling
high-speed internet access. This service is purchased by customers on
either a one, two or three year service subscription contract. Revenue
is recognized as the service is provided using the straight-line method
over the life of the contract. A related liability is recorded for the
unearned portion of service revenue received. Costs that are directly
related to the acquisition of the contract are deferred and charged to
expense also using the straight-line method over the life of the
contract.
The Company reports income and expenses on the accrual basis for both
financial and income tax reporting purposes.
Risks and Uncertainties
The Company is subject to substantial risks from, among other things,
intense competition in the Internet industry in general and the
provisions of Internet access specifically, other risks associated with
the Internet industry, financing, liquidity requirements, rapidly
changing technology, limited operating history, year 2000 compliance and
the volatility of public markets.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain
estimates and summations that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses due in the reporting period. Actual results could differ
from those estimates. Significant estimates include collectibility of
accounts receivable, inventory, accounts payable, sales returns and
recoverability of long-term assets.
F-10
<PAGE> 61
ESAT, INC.
(FORMERLY KNOWN AS TECHNOLOGY GUARDIAN, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
Note B - Summary of Significant Accounting Policies (continued)
New Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standard No. 128. "Earnings per
Share" ("SFAS 128"), which is effective for financial statements issued
for periods ending after December 15, 1997. SFAS 128 simplifies the
previous standards for computing earnings per share ("EPS") and requires
the disclosure of basic and diluted earnings per share. The Company has
adopted SFAS 128 in presenting EPS disclosure for 1998 and 1997. Because
of the dilutive effect the Company's equity instruments have on EPS in
the years presented, basic and diluted EPS are both computed by dividing
the net loss by the weighted average number of shares outstanding.
In June 1997, the FASB issued Statement of Financial Accounting Standard
No. 130, "Reporting for Comprehensive Income" ("SFAS 130"). SFAS 130
requires a statement of comprehensive income to be included in the
financial statements for fiscal years beginning after December 15, 1997.
The Company has determined that there are no implications or
modifications which would result from the implementation of the
Statement to their financial statements for the periods presented.
In addition, in June of 1997, the FASB issued Statement of Financial
Accounting Standard No. 131, "Disclosure about Segments of an Enterprise
and Related Information" ("SFAS 131"), which requires disclosure of
certain information about operating segments, geographic area in which
the Company operated, major customers and products and services. The
Company has determined that it falls below the threshold limit for full
implementation of this Statement. There is no effect to the financial
statements for the periods presented due to the adoption of this
Statement.
In addition, in February 1998, the FASB issued Statement of Financial
Accounting Standards No. 132, "Employer's Disclosures about Pensions and
Other Post-retirement Benefits" (amendment of FASB Statements Nos., 87,
88, and 106), which standardizes the disclosure requirements for
pensions and other post retirement benefits to the extent practicable.
To the extent applicable the Company has adopted the disclosure
provisions of this Statement for the periods presented.
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes methods of
accounting for derivative financial instruments and hedging activities
related to those instruments as well as other hedging activities, and is
effective for fiscal years beginning after June 15, 1999. The Company is
currently determining the additional disclosures, if any, that may be
required under this pronouncement.
F-11
<PAGE> 62
ESAT, INC.
(FORMERLY KNOWN AS TECHNOLOGY GUARDIAN, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
Note B - Summary of Significant Accounting Policies (continued)
New Accounting Pronouncements (continued)
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1 ("SOP 98-1"), "Accounting for the
Costs of Computer Software Developed of Obtained for Internal Use." This
standard requires companies to capitalize qualifying computer software
costs, which are incurred during the application development stage and
amortize them over the software's estimated useful life. The Company is
currently evaluating the impact of SOP 98-1 on its financial statements
and related disclosures.
Allowance for Doubtful Accounts
All accounts are current and have been determined to be fully
collectible and no adjustment or allowance has been made for bad debts.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
The Company capitalizes all direct costs incurred in the construction of
facilities and the development and installation of new computer and
management systems. Such amounts include the costs of materials and
other direct construction costs, purchased computer hardware and
software, outside programming and consulting fees, direct employee
salaries and interest. Depreciation is provided on the straight-line
method over the estimated useful lives of the assets, as follows:
<TABLE>
<S> <C>
Furniture and Fixtures 3 to 10 years
Office Equipment 3 to 10 years
Leasehold Improvements Length of the lease at the time of installation
Automobiles 5 years
</TABLE>
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with
initial maturities of three months or less to be cash equivalents.
Inventories
Inventories are valued at the lower of cost or market; cost is
determined on the weighted average method.
F-12
<PAGE> 63
ESAT, INC.
(FORMERLY KNOWN AS TECHNOLOGY GUARDIAN, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
Note B - Summary of Significant Accounting Policies (continued)
Concentration of Credit Risk
Financial instruments which subject the Company to credit risk consist
primarily of cash equivalents and trade accounts receivable.
Concentration of credit risk with respect to trade accounts receivable
are generally diversified to the large number of entities comprising the
Company's customer base and their geographic dispersion. The Company
performs ongoing credit evaluations of its customers and maintains an
allowance for any potential credit losses. The Company actively
evaluates the creditworthiness of the financial institutions with which
it conducts business.
Advertising
Advertising costs are expensed in the year incurred.
Earnings Per Share
Earnings per share is based on the weighted average number of shares of
common stock and common stock equivalents outstanding during each
period. Earnings per share is computed using the treasury stock method.
The options to purchase common shares are considered to be outstanding
for all periods presented but are not calculated as part of the earnings
per share.
Stock-based Compensation
The Company accounts for stock-based employee compensation arrangements
in accordance with the provisions of Accounting Principles Board Opinion
("APB") No. 25, "Accounting for Stock Issued to Employees," and complies
with the disclosure provisions of Statement of Financial Accounting
Standards (SFAS) 123, "Accounting for Stock-Based Compensation." Under
APB 25, compensation cost is recognized over the vesting period based on
the difference, if any, on the date of grant between the fair value of
the Company's stock and the amount an employee must pay to acquire the
stock.
Business Combinations
In October 1998, the Company completed a reverse acquisition with U.S.
Connect 1995, Inc. (reorganized as Technology Guardian, Inc., a Nevada
Corporation). A total of 11,407,507 common shares were exchanged in a
1:1 ratio. All issued and outstanding shares of the Technology Guardian,
Inc. were converted into the right to receive shares of US Connect 1995,
Inc. upon completion of the merger. The transaction has been accounted
for as a reverse acquisition. The transaction is a merger of a private
operating company (old TGI) into a non-operating public shell
corporation with nominal assets. The owners of old TGI obtained
operating control of the combined company after the transaction.
F-13
<PAGE> 64
ESAT, INC.
(FORMERLY KNOWN AS TECHNOLOGY GUARDIAN, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
Note C - Cash
The Company maintains its cash balances at banks and a brokerage house
located in Los Angeles, and Costa Mesa, California. The bank balances
are insured by the Federal Deposit Insurance Corporation and
the brokerage accounts by the Securities Investor Protection Corporation
up to $100,000 and $10,000,000, respectively. As of December 31, 1998,
the uninsured portion of the balances held at the bank was $283,238.
Note D - Inventories
As of December 31, 1998 and 1997, inventories consisted of the following
classes of components:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Finished Goods $117,517 $148,479
Raw Materials 171,743 -0-
-------- --------
Total $289,260 $148,479
======== ========
</TABLE>
Note E - Furniture and Equipment
Furniture, Equipment, and Automobiles consist of the following:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Furniture and Fixtures $ 99,172 $ 16,199
Leasehold improvements 24,018 -0-
Equipment 192,700 16,910
Automobiles 19,326 8,125
--------- ---------
335,216 41,234
Accumulated Depreciation (41,965) (17,306)
--------- ---------
Total $ 293,251 $ 23,928
========= =========
</TABLE>
Note F - Commitments and Contingencies
The Company leases certain of its facilities and equipment under
non-cancelable operating leases. Future minimum rental payments, under
leases that have initial or remaining non-cancelable lease terms in
excess of one year are $599,845 in 1999, $569,066 in 2000, $573,990 in
2001, $131,042 in 2002, and $102,660 thereafter. Certain of the leases
contain inflation escalation clauses and requirements for the payment of
property taxes, insurance and maintenance expenses. Rent expense for the
years ended December 31, 1998 and 1997 was $45,500 and $25,900,
respectively.
F-14
<PAGE> 65
ESAT, INC.
(FORMERLY KNOWN AS TECHNOLOGY GUARDIAN, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
Note F - Commitments and Contingencies (continued)
In May 1996 the Company filed a lawsuit against Peripherals Plus, Inc.
(Defendant) for the recovery of damages due to breach of contract. The
Defendant cross-complained for breach of contract and related damages.
Both matters have been removed from the court's calendar and submitted
to binding arbitration. The matter has not been set for arbitration
hearing and is still pending. The Company intends to seek an
out-of-court settlement to resolve the matter. Please see Note J for the
outcome of this case.
In August 1998 Supercom, Inc. filed a lawsuit against the Company
seeking the recovery of goods sold to the Company in the amount of
$47,000. The Company has filed a cross-complaint against Supercom
seeking damages of $50,000 on the grounds that the goods delivered by
Supercom were defective and that Supercom failed to fulfill its service
and repair obligations. The case is set for trial in July 1999. The
Company intends to vigorously defend itself against Supercom's claims
and to prosecute its cross-complaint, but will not foreclose the
possibility of settlement. Please see Note J for the outcome of this
case.
In October 1998 Softbank Comdex, Inc. filed a lawsuit against the
Company seeking the recovery of $27,000 for alleged breach of contract.
The Company has denied the claim and intends to defend the case
vigorously based on its merits. It is expected that the case will be
assigned a trial date in the latter part of 1999. Due to the early stage
of the matter, a determination regarding the likelihood of a favorable
or unfavorable outcome cannot be made as of the date of issuance of this
report. There is not expected to be a material financial impact on the
Company in the event of an unfavorable settlement.
In June 1998, a former employee filed a complaint with the California
Department of Industrial Relations Division of Labor Enforcement against
the Company alleging breach of contract and asking for damages in the
amount of $90,000. Please see Note J for the outcome of this case.
The Company is involved in certain other legal proceedings arising from
the ordinary course of business, none of which is expected to have a
material impact on the financial condition or business of the Company.
F-15
<PAGE> 66
ESAT, INC.
(FORMERLY KNOWN AS TECHNOLOGY GUARDIAN, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
Note G - Employee Stock Options and Benefit Plans
In December 1997, the Company's stockholders approved the Technology
Guardian 1997 Stock Option and Stock Bonus Plan ("the Stock Award and
Incentive Plan"). Under the Stock Award and Incentive Plan, incentive
non-qualified stock options may be granted to employees, directors, and
consultants. The options, option prices, vesting provisions, dates of
grant and number of shares granted under the plans are determined
primarily by the Board of Directors or the committee authorized by the
Board of Directors to administer such plans, although incentive stock
options must be granted which are no less than the fair market value of
the Company's Common Stock at the date of the grant. Outstanding options
have 3- to 5-year terms. The Stock Award and Incentive Plan also permits
payment for options exercised in shares of the Company's common stock
and the granting of incentive stock options.
The Company applies APB No. 25 and its related interpretations for its
plan. Accordingly, compensations cost has been recognized for the plan
in the amount of $525,000 for the year ended December 31, 1998, as
determined by the table below:
<TABLE>
<CAPTION>
Grant Number of Exercise Fair Market APB 25
Date Shares Price Value Compensation
-------- --------- -------- ----------- ------------
<S> <C> <C> <C> <C>
08/28/98 1,035,885 0.72 0.72 $ 0
08/31/98 564,115 0.72 0.72 0
09/15/98 985,000 2.00 0.72 0
09/01/98 100,000 11.00 0.72 0
09/28/98 80,000 0.72 0.72 0
09/28/98 72,000 2.00 0.72 0
09/28/98 300,000 3.00 0.72 0
09/28/98 25,000 1.00 0.72 0
10/01/98 1,000,000 3.00 0.72 0
10/01/98 500,000 0.72 0.72 0
10/07/98 875,000 0.72 0.72 0
10/07/98 433,000 3.00 0.72 0
11/30/98 100,000 9.63 14.88 525,000
--------- ----------
6,070,000 $ 525,000
========= ==========
</TABLE>
F-16
<PAGE> 67
ESAT, INC.
(FORMERLY KNOWN AS TECHNOLOGY GUARDIAN, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
Note G - Employee Stock Options and Benefit Plans (continued)
In 1998, had the Company recorded a charge for the fair value of options
consistent with SFAS No. 123, net income would have been reduced by
$6,000,000 and basic net income per common share by $.50. The income on
net income per common share, assuming full dilution, is $.50 in 1998.
Prior to the completion of the Company's reverse acquisition, the fair
value of each option grant was determined on the date of grant using the
minimum value method. Subsequent to the offering, the fair value was
determined using the Black-Scholes model. The weighted average fair
market value of an option granted during 1998 and 1997 was $1.51 and
$.72, respectively. The following assumption were used to perform the
calculations:
<TABLE>
<S> <C>
Risk-free interest rate 5.4%
Expected option lives 4.8 years
Expected volatility 19.2%
Expected dividend yield 0.0%
</TABLE>
Because additional stock options are expected to be granted each year,
the above pro forma disclosures are not representative of pro forma
effects on reported financial results for future years.
A summary of the status of the Company stock option plans at December
31, 1998 as follows:
<TABLE>
<CAPTION>
Weighted Average
(thousands of shares) Shares Exercise Price
--------------------- ------ --------------
<S> <C> <C>
Outstanding at beginning of year -0- N/A
Granted 6,070 $1.51
Exercised -0- N/A
Canceled -0- N/A
------
Outstanding at year-end 6,070
======
Options exercisable at year-end 5,525
Weighted average fair value of options
granted during the year $ 1.51
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1998.
<TABLE>
<CAPTION>
Weighted Average
Number Remaining
Range of Outstanding Years of
Exercise Prices (thousands) Contractual Life
--------------- ----------- ----------------
<S> <C> <C>
$.71-2.99 3,937 4.7 years
3.00-5.00 2,133 5.0 years
------
$.71-5.00 6,070 4.8 years
</TABLE>
F-17
<PAGE> 68
ESAT, INC.
(FORMERLY KNOWN AS TECHNOLOGY GUARDIAN, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
Note H - Debt
The Company has entered into certain revolving debt instruments of a
short-term nature which, as of December 31, 1998, had an aggregate
outstanding amount of $6,400. Such revolving debt instruments provide
for interest at the rate of approximately 22.4% per annum and are
repayable in 48 monthly installments that commenced in February, 1996.
These instruments are not collateralized and are therefore subordinate
to all other liabilities of the Company, including trade payables.
The Company has failed to remit employee payroll taxes withheld and the
employers' portion of both State and Federal payroll taxes for a portion
of the year 1998. As of December 31, 1998 an unpaid tax liability in the
amount of $168,900 exists, including penalties and interest. Refer to
Note J - Subsequent Events.
Note I - Compensated Absences
Employees can earn annual vacation leave at the rate of five (5) days
per year for the first year. Upon completion of the first year of
employment, employees can earn annual vacation leave at the rate of ten
(10) days per year for years two through seven. Upon completion of the
eighth year of employment, employees can earn annual vacation leave at
the rate of fifteen (15) days per year. At termination, employees are
paid for any accumulated annual vacation leave. As of December 31, 1998
and 1997 the total vacation liability totaled $29,600 and $13,430,
respectively.
Note J - Subsequent Events
Subsequent to the year ended December 31, 1998, the Company completed a
change in name from Technology Guardian, Inc. to eSat, Inc. The NASDAQ
Bulletin Board trading symbol of the Company was likewise changed from
TEGI to ASAT.
Subsequent to the year ended December 31, 1998, the complaint filed by a
former employee of the Company alleging breach of contract was dismissed
in favor of the Company.
Subsequent to the year ended December 31, 1998, the Company remitted all
employee payroll taxes withheld and the employers' portion of both State
and Federal payroll taxes for a portion of the year 1998 which was
outstanding and unpaid as of the year end. As of the date of this report
no outstanding payroll tax liability exists for the prior year.
Subsequent to the year ended December 31, 1998, the former counsel of
the Company filed a lawsuit against the Company alleging nonpayment of
attorneys' fees in the amount of $80,000. The Company has filed
counter-claims against the firm, and third party claims against its
principal, for damages and rescission based on what the Company alleges
to have been the fraudulent inducement by the firm and its principal to
enter into a contract modification by which the firm received shares of
the Company's stock. The matter was settled in binding arbitration. The
Company made a payment to former counsel in the amount of $127,300.
F-18
<PAGE> 69
ESAT, INC.
(FORMERLY KNOWN AS TECHNOLOGY GUARDIAN, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
Note J - Subsequent Events (continued)
Subsequent to the year ended December 31, 1998, the Company entered into
an agreement with an underwriting firm to raise an additional twelve
million dollars ($12,000,000) in operating capital through a private
placement of one million five hundred thousand (1,500,000) shares of
restricted Common Stock at eight dollars ($8.00) per share. Such shares
are restricted from public sale under Rule 144 of the Securities Act of
1993 for a period not less than one year from the date of issuance. The
offering is a firm commitment from the underwriter with an expiry for
complete funding of August 30, 1999. This agreement expired with no
funding as of August 30, 1999.
Subsequent to the year ended December 31, 1998, the Chairman, President
and Chief Executive Officer, Mr. David Coulter, resigned effective March
22, 1999. In conjunction with his resignation Mr. Coulter entered into a
consulting agreement with the Company for a term of thirty-six (36)
months at a pay rate of ten thousand ($10,000) dollars per month. In the
event the Company is sold, Mr. Coulter would be paid the difference
between three hundred sixty thousand dollars ($360,000) and the
cumulative amount of the consulting fees paid to the date of sale. In
conjunction with the termination of his prior employment agreement, Mr.
Coulter shall be paid one hundred fifty thousand dollars ($150,000) in
five equal installments, the first payment to be made upon the effective
date of his resignation. As of September 1999 the Company has ceased
making the required monthly payments under this agreement.
Mr. Coulter shall retain three million (3,000,000) shares of nonvoting
common stock. All other shares owned by Mr. Coulter as of the effective
date of resignation shall be canceled. Mr. Coulter shall retain warrants
to purchase 1,500,000 shares of common stock at three dollars ($3.00)
per share. All other warrants previously issued to Mr. Coulter are
canceled.
On July 23, 1999 the Company was named as a defendant in a lawsuit
alleging breach of contract and requesting general and specific damages
and costs of suit. In addition, the suit is requesting the Company issue
2,092,500 shares of common stock to the plaintiff, at $1.30 per share,
according to the original contract. No dollar amount for the general and
specific damages has been provided at this time. The Company intends to
vigorously defend itself against this claim and as such has not made any
provision for loss in the financial statements.
Subsequent to the year ended December 31, 1998 the Company sold products
to customers in the ordinary course of business. The Company wrote-off
uncollectible accounts receivable related to particular sales of
$118,722 in 1999 and created an allowance for bad debt of $850,000
related to the remaining accounts receivable as of June 30, 1999. The
allowance was based on the age of accounts receivable and managements'
determination of collectibility.
Subsequent to the year ended December 31, 1998 the Company wrote-off
$42,624 of inventory. Due to the redesign and upgrading of the product
line certain items held in the Company's inventory were determined to be
obsolete and were written-off.
F-19
<PAGE> 70
ESAT, INC.
(FORMERLY KNOWN AS TECHNOLOGY GUARDIAN, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
Note J - Subsequent Events (continued)
Subsequent to the year ended December 31, 1998 the Company entered into
settlement agreements regarding Peripherals Plus, Inc., Supercom, Inc.
and Softbank Comdex, Inc. through binding arbitration. The Company made
a payments related to these matters in the amount of $43,700.
Subsequent to December 31, 1998 Corporate Financial Enterprises and
Vantage Capital, Inc. (the "Consultant") are working together as joint
venture partners pursuant to an exclusive Consulting Agreement entered
into between Vantage Capital, Inc., and eSat, Inc. (the "Company"),
dated September 17, 1999. The Consulting Agreement shall commence on
September 15, 1999 and shall terminate no earlier than September 15,
2002.
The Consulting Agreement states that the duties of the consultant
include: (1) identifying, analyzing, structuring, negotiating and
financing business sales and/or acquisitions, including without
limitation, merger agreements, stock purchase agreements, and any
agreements relating to financing and/or the placement of debt or equity
securities of the Company; (2) assist the Company in its corporate
strategies; and (3) assist the Company in the implementation of its
business plan, in each case as requested by the Company.
The Consultant shall receive as compensation as follows: (1) Retainer.
The company shall pay to Consultant a non-refundable monthly retainer of
$5,000, payable in cash, Restricted Common Stock, or Registered Common
Stock (at the Company's option) based on the terms of the Agreement (2)
Expenses. eSat, Inc., shall pay all such expenses reasonably incurred
during the consulting period by the Consultant. (3) Warrants. The
company shall issue to Consultant or its designees warrants to purchase
1,200,000 shares of Common Stock (the "Warrants"), with exercise prices
equal to (a) as to 300,000 warrants, $4.25, (b) as to 300,000 warrants,
$5.25, (c) as to 200,000 warrants, $6.25, and (d) as to 400,000
warrants, $8.50, and which may be exercised by Consultant at any time
through the payment of (i) cash, (ii) a promissory note bearing interest
at 6% per annum, or (iii) by tendering shares of Common Stock equal to
the aggregate exercise price divided by the last closing price of the
Common Stock. Such Warrants as are exercised shall vest immediately if
paid in cash or Common Stock, and on a pro rata basis in accordance with
receipt of cash or Common Stock in the event Warrant is exercised with a
promissory note. (4) Fees for Acquisition Opportunities. The Company
shall pay to the Consultant a fee equal to 10% of the total aggregate
consideration paid for any acquisition or sale by the Company of any
business, corporation or division (a "Target"), including, but not
limited to, acquisitions by stock purchase agreement, merger agreement,
plan of reorganization or asset purchase agreement, or any other
transaction involving the sale of assets out of the ordinary course
(measured by either magnitude or classification) or the sale, transfer
or license of technology (collectively, a "Transaction"), which fee
shall be due upon closing of the Transaction.
F-20
<PAGE> 71
ESAT, INC.
(FORMERLY KNOWN AS TECHNOLOGY GUARDIAN, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
Note J - Subsequent Events (continued)
Further, Consultant shall also be entitled to a financing fee equal to
10% of any private or public placement of debt or equity securities of
the Company, including without limitation, promissory notes, debentures,
convertible debt, common stock or preferred stock, or any other
securities owned by the Company, including without limitation securities
of other corporations. (5) Third Party Commissions.
Consultant and/or its Affiliates shall be entitled to share in any fees
or commissions payable by third parties on any Transaction contemplated
by the Consulting Agreement, including, but not limited to, any fees
payable or Consultant by a third party lender, financing partner, or
other party, or a seller of a corporation or business, including,
without limitation, investment banking fees or commissions, business
brokerage fees or commissions, finders fees, or any other fee payable by
a third party to Consultant for any reason including the identification
of the Company as a potential purchaser or seller of such corporation or
business (a "Transaction Commission"). The Company hereby waives any
conflict of interest that may arise due to any Transaction wherein
Consultant receives such a Transaction Commission, including, but not
limited to, any conflict of interest which may arise as a result of the
dual representation by Consultant of the seller or purchaser of a
corporation or business on the one hand, and the Company on the other.
(6) Fees Paid in Common Stock. The Company, at its option, may pay fees
due in cash, or by issuance of Restricted Common Stock or freely
tradable, registered Common Stock. Restricted Common Stock shall be
issued at a rate equal to the lesser of (i) 50% of the average Bid Price
for the five trading days prior to the closing date of a Transaction
which entitles the Consultant to receive such fees, or (ii) $5.00.
Freely tradable, registered Common Stock, pursuant to an effective and
current registration statement, shall be issued at the rate equal to the
lesser of (i) 70% of the average Bid Price for the five trading days
prior to the closing date of a Transaction which entitles the Consultant
to receive such fees, or (ii) $7.50.
Michael Palmer, President of Vantage Capital, Inc., is also the Chief
Executive Officer and on the Board of Directors of eSat, Inc., and
therefore the possibility of conflict of interest exists. In the event
of a conflict arises and if for any reason Vantage is unable to continue
performing the services as per the terms of the Consulting Agreement,
Corporate Financial Enterprises shall act in Vantage Capital, Inc.'s
stead. Corporate Financial Enterprises will assume all the duties and
obligations set forth in the Consulting Agreement and shall be entitled
to receive the benefits related thereto. eSat, Inc. waives any conflict
of interest that may arise from a relationship between Consultant and
any entity which Consultant is affiliated with.
F-21
<PAGE> 72
ESAT, INC.
(FORMERLY KNOWN AS TECHNOLOGY GUARDIAN, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
Note J - Subsequent Events (continued)
Subsequent to the year ended December 31, 1998, eSat, Inc. (the
"Company"), sold 2,000,000 shares of 12% Convertible Preferred Stock to
Corporate Financial Enterprises, Inc. and Vantage Capital, Inc. (the
"Purchasers"), in equal allotments of 1,000,000 shares each. Purchasers
purchased 2,000,000 shares of 12% Convertible Preferred Stock ("the
Preferred Stock") for the sum of $4,000,000, payable pursuant to a
promissory note providing for eight equal monthly payments of $500,000,
commencing on the Closing Date, and funding on the 17th of each month
thereafter. The Preferred Stock has a stated value and liquidation
preference of $2.00 per share, bears cumulative dividends at the rate of
12% per annum, and is convertible into shares of Common Stock of the
Company (the "Common Stock") at the lessor of (a) the rate of $2.00 per
share of Common Stock, or (b) 70% of the bid price of the Common Stock
on the date of a notice to convert, as reported by the exchange upon
which the Common Stock is then listed. The Preferred Stock contains
certain anti-dilution and price protection provisions, and has piggyback
registration rights.
Subsequent to December 31, 1998, a Warrant Agreement (the "Agreement")
was entered into on September 15, 1999 between eSat, Inc. (the
"Company") and Corporate Financial Enterprises, Inc. (the "Consultant").
The Company granted to Consultant Warrants to purchase 600,000 shares of
Common Stock equal to the Exercise Quantity, as may be adjusted from
time to time as set forth in the Agreement. The Warrant holder has the
right to exercise the warrants at any time and from time to time after
December 31, 2000 until September 1, 2009.
Note K - Related Party Transactions
Throughout the history of the Company, certain members of the Board of
Directors, members of the immediate family of management, and general
management have made loans to the Company to cover operating expenses or
operating deficiencies.
In April 1997, the Company entered into a settlement agreement between
Cyber Village Network, Inc.(CVN), a company controlled by an officer of
the corporation, and this same officer individually. Wherein both
parties agreed to release the Company from all potential claims arising
from a certain Option Agreement, and an agreement entered into by and
among the Company, the Company's President, CVN, and the aforementioned
officer of the Company, in exchange for the issuance of 849,750 shares
of the Company's Common Stock.
The aforementioned option agreement granted options to CVN to purchase
shares equal to 10% of the Company's outstanding shares in exchange for
the forgiveness of a $100,000 loan held by CVN. Additionally, CVN was
granted the option to purchase up to 30% of the outstanding shares of
the Company in exchange for $1,200,000. Further, this same option
agreement provided that the president of the Company had the right to
repurchase shares from CVN equal to 15% of the Company's common stock
following the exercise of the option by CVN in exchange for $1,200,000.
This Option Agreement was subsequently canceled and the parties released
each other from all claims.
F-22
<PAGE> 73
ESAT, INC.
(FORMERLY KNOWN AS TECHNOLOGY GUARDIAN, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
Note K - Related Party Transactions (continued)
In October 1997, an officer of the Company who is also a member of the
Board of Directors received a commission in the amount of $100,000 for
the referral of an investment group related to a recapitalization of the
Company. This same officer is the controlling shareholder of a
corporation which had previously loaned the Company $100,000 and was
granted 849,750 shares of the Company Common Stock in settlement for the
release from potential claims arising from the aforementioned Option
Agreement. A fair market value of $.10 per share was used for purposes
of calculating the total amount of expense recorded related to the
settlement. This value was determined based on private purchases of the
Company's common stock made within a 10 day time period of the date of
settlement. Settlement expense in the amount of $84,975 was expensed in
the year 1998.
During the year 1998, the Company granted to the Company's then
president 3,935,885 options at strikes prices ranging from $.71 to
$3.00, expiring five years from the date of issuance. These options
contain strike prices and fair market values as determined by use of the
Black-Scholes model as follows:
<TABLE>
<S> <C> <C> <C> <C>
Date of Option 10/1/98 8/24/98 8/10/98 9/15/98
Options granted 1,000,000 1,035,885 1,500,000 400,000
Strike price $3.00 $0.72 $0.72 $3.00
Fair Value per share $0.22 $0.46 $0.46 $0.22
</TABLE>
During the year 1998, the Company granted to the Company's chief
operating officer 1,095,802 options at strike prices ranging from $.71
to $3.00, expiring five years from the date of issuance. These options
contain strike prices and fair market values as determined by use of the
Black-Scholes model as follows:
<TABLE>
<S> <C> <C> <C>
Date of Option 8/31/98 10/1/98 10/7/98
Options granted 262,802 500,000 333,000
Strike price $0.72 $0.72 $3.00
Fair Value per share $0.22 $0.46 $0.46
</TABLE>
Subsequent to December 31, 1998 the Company entered into an Agreement
with Vantage Capital, Inc., which is wholly owned by Michael Palmer. Mr.
Palmer is Chief Executive Officer of eSat, Inc. and serves on its Board
of Directors. For details to this agreement see Note J.
F-23
<PAGE> 74
ESAT, INC.
(FORMERLY KNOWN AS TECHNOLOGY GUARDIAN, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
Note L - Income Taxes
Total Federal and State income tax expense for the years ended December
31, 1998 and 1997 amounted to $800 in each year. These represent the
minimum annual tax liability under Federal and State tax code. No future
benefit for the realization of an operating loss carry forward, in the
form of an asset, has been recognized due to the ongoing nature of the
losses and the potential inability for the Company to ever realize their
benefit. For the years ended December 31, 1998 and 1997, there is no
difference between the federal statutory tax rate and the effective tax
rate. At years ended December 31, 1998 and 1997 the Company had
available net operating loss carry forwards of $2,926,600 and $199,500
respectively, after adjusting for limitation, to be offset against
future taxable income. The operating loss carry forwards will expire at
various dates through the year 2014.
Note M - Other Income and Expense
During the year ended December 31, 1998, the Company recorded a one-time
revenue write down of a contract with a foreign government in the amount
of $236,700.
Note N - Extraordinary Income
During the year ended December 31, 1998, the Company was released from a
liability to a factoring company. In accordance with SFAS 4 the Company
recorded extraordinary income in the amount of $242,990.
The agreement with the factoring organization called for factor to
purchase receivables at a price equal to 80% of the face value of
acceptable accounts from the Company. The Company therefore would
appropriately record the transaction as a sale of receivables with
proceeds of the sale reduced by the fair value of the recourse
obligation. Under the terms of the Agreement, factor earned a fee equal
to 14% of the face amount of the accounts purchased and such fee shall
be taken at the time of collection of an invoice. Factor shall reserve
and hold 2.5% of the face value of purchased accounts for bad debts.
Factor shall be entitled to immediate and full recourse against the
Company to demand payment with respect to a purchase account in the
event that the purchase account is not paid in full within 75 days.
During the course of the relationship with the factor, the Company's
largest client filed a Chapter 7 bankruptcy liquidation resulting in
more than $100,000 in purchased accounts going unpaid. In accordance
with the terms of the Agreement factor made demand upon the Company for
immediate payment plus accrued unpaid fees and interest through the date
of Company's payment.
The Company was released from its liability to the factoring
organization because during the year 1998 it was unable to make payment
under the terms of the agreement, which had been entered into. Upon
breach of the agreement, the liability was transferred to the individual
who had provided a personal guarantee, Mr. David Coulter. This
individual subsequently settled all outstanding obligations with the
factoring organization through the transfer of 25,000 shares of
restricted Rule 144 stock from his name into the name of the factoring
organization and the payment of $89,000 out of his personal account.
F-24
<PAGE> 75
ESAT, INC.
(FORMERLY KNOWN AS TECHNOLOGY GUARDIAN, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
Note O - Other Matters
During the year ended December 31, 1998, the Company saw a substantial
decline in revenue due to a decision by management to terminate sales
until the new GSI could be tested and launched into the marketplace.
This decision was based on forecasts, which indicated that sales revenue
realized would be offset in future periods by upgrades of the new GSI.
Note P - Additional Paid in Capital Correction
The original audited balance of additional paid in capital was reduced
by $563,164. This amount represents the cost of raising capital that was
incurred during the year ended December 31,1998 and which was originally
expensed by the Company.
Note Q - Going Concern
The Company has suffered recurring losses, a decline in revenue, cash
shortages and has a net deficiency in Stockholders' Equity. These
issues, among others, raise substantial doubt about its ability to
continue as a going concern.
Management has prepared the following plan in order to address these,
and other operating, issues: On September 15, 1999 the Company entered
into an agreement with Vantage Capital, Inc. for an equity investment in
the amount of $4,000,000 through the sale of two million shares of 12%
Convertible Preferred Shares. Vantage has already delivered the first
$500,000 of the funding as of September, 1999, the remaining is to be
paid in installments over the next seven months.
In addition, management has temporarily reduced by forty percent its
workforce and made other operational cuts in order to reduce its
operating capital requirements.
The Company has deferred the construction of its own satellite uplink
facility until such time as it has sufficient investment capital and a
customer base that will yield and adequate utilization factor.
The Company feels that with the reduction in overhead, personnel,
operating expenses, and deferral of capital spending along with the
recent infusion of operating capital and an anticipated increase in
sales that they will be able to continue as a going concern.
F-25
<PAGE> 76
eSAT, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
1. BACKGROUND
eSat, Inc. ("eSat" or "Company") was incorporated on June 23, 1995, pursuant
to the laws of the State of Nevada, as U.S. Connect 1995, Inc., for the
purposes of marketing and servicing transaction processing services, prepaid
long distance cards, ATM machines and payment systems to small-to-medium
sized merchants. In October 1995, the Company consummated a public offering
of its securities from which it derived gross proceeds of approximately
$100,000. Prior to October 1998, the Company had not commenced operations
and was seeking to establish a new business. On October 8, 1998, the Company
consummated an Agreement and Plan of Merger ("Merger") with Technology
Guardian, Inc., a California corporation ("TGI"), whereby all the issued and
outstanding shares of TGI were exchanged for shares of the Company's Common
Stock. In connection with the Merger, the Company changed its name to
Technology Guardian, Inc., and succeeded to the business of TGI immediately
prior to the Merger. Prior to the Merger, Technology Guardian had been
engaged in providing computer network installation services and the related
sale of personal computers and telecommunications equipment necessary for
the configuration of a local area network (LAN), and in research and
development of the products currently offered by eSat, Inc. The Company
amended its certificate of incorporation to change it's name to "eSat, Inc."
on January 26,1999.
eSat's principle line of business consists of providing satellite Internet
access equipment and services to businesses, educational institutions and
government agencies. The Company's Internet access product line is based on
its Global Satellite Internet(TM) ("GSI") gateway, Nexstream(TM) Internet
gateway and Nexstreams Channel Casting(TM) which all provide existing LANs
with Internet access via a satellite based network. A "gateway" is a
specialized server that allows LAN users to share an Internet connection.
The Company's GSI product line consists of an Internet gateway server that
utilizes the Company's satellite network for downstream communications and a
telephone connection for upstream communications. The Nexstream product
line, which the Company anticipates launching in the first half of fiscal
2000, consists of an Internet gateway server that utilizes the same
satellite network for both upstream and downstream communications. The
Company's ChannelCasting(TM) product, which is currently in development,
will provide the simultaneous broadcast of video and data files to multiple
destinations through the use of the Company's existing and planned future
Internet gateway technology. The Company plans to be a geographically
diverse satellite Internet Service Provider through the establishment of
joint venture partners in various countries. The Company expects to finance
the expansion either through capital provided by the parties wishing to
provide the service internationally, or through capital generated by
issuing additional securities.
F-26
<PAGE> 77
eSAT, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The interim financial information for the three and nine-month periods ended
September, 1999 and 1998 is unaudited but includes all adjustments
(consisting only of normal recurring entries) which the Company's management
believes to be necessary for the fair presentation of the financial
position, results of operations and cash flows for the periods presented.
The accompanying interim financial statements should be read in conjunction
with the financial statements and related notes included in the Company's
Form 10, as filed with the Securities and Exchange Commission on November 8,
1999. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to Securities
and Exchange Commission rules and regulations. Interim results of operations
for the three and nine-month periods ended September 30, 1999, are not
necessarily indicative of operating results to be expected for the full
year.
REVENUE AND EXPENSE RECOGNITION
The Company recognizes revenue from hardware and software sales as products
are shipped. The Company, subject to certain limitations, permits its
customers to exchange products or receive credits against future purchases.
Individual accounts receivable are written-off as they are deemed to be
uncollectible. To date, the Company has had a history of a high level of
write offs of uncollectible accounts. See Item II,"Management's Discussion
and Analysis of Financial Condition and Results of Operations."
The Company also generates revenue by selling high-speed internet access.
This service is purchased by customers on either a one, two or three year
service subscription contract. Revenue is recognized as the service is
provided using the straight-line method over the life of the contract. A
related liability is recorded for the unearned portion of service revenue
received. Costs that are directly related to the acquisition of the contract
are deferred and charged to expense also using the straight-line method over
the life of the contract. The Company reports income and expenses on the
accrual basis for both financial and income tax reporting purposes.
NET LOSS PER SHARE
The Company applies the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings Per Share." Basic net income per share is
computed by dividing income available to common stockholders by the weighted
average number of common shares outstanding during the period. Diluted net
income per share is computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding
during the period increased to include, if dilutive, the number of
additional common shares that would have been outstanding if the dilutive
potential common shares had been issued. The dilutive effect of outstanding
stock options, warrants and convertible securities is reflected in diluted
net income per share by application of the treasury stock method. On the
accompanying income statements, the
F-27
<PAGE> 78
eSAT, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)
Company has excluded common equivalent shares from stock options, warrants
and convertible securities from the computation of diluted earnings per
share, as their effect would be antidilutive.
RECLASSIFICATIONS
Certain reclassifications have been made to prior year data to conform to
the current financial statement presentation.
3. 12% CONVERTIBLE PREFERRED STOCK
The Company has entered into an agreement with Vantage Capital for the
purpose of raising capital for the Company. Pursuant to this agreement,
Vantage Capital has arranged for the sale of 2.0 million shares of 12%
Convertible Preferred Stock (the "Series A and B Preferred Stock"), for a
total of $4.0 million, to itself and Corporate Financial Enterprises, in
equal subscriptions of $2.0 million apiece. The subscription is payable at
the rate of $500,000 per month. As of September 30, 1999, the Company had
received $750,000. Through December 21,1999, the Company had received a
total of $2,000,000.
The Series A and B Preferred Stock has a liquidation preference of $2.00 per
share and accrues interest at a 12% annual rate, payable in Common Stock of
the Company. The Series A and B Preferred Stock may be converted into shares
of Common Stock at the lower of $2.00 per share or 70% of the bid price of
the Common Stock on the date of a notice to convert as reported by the
exchange or the market on which the shares of Common Stock are traded. The
Series A and B Preferred Stock contains standard antidilution and price
protection provisions and standard piggy back rights. There is no firm
written agreement in place requiring the balance of the anticipated
investment to be made; however the Company expects that the full amount of
the anticipated investment will be made. Vantage Capital is owned by Michael
C. Palmer, the Chief Executive Officer of the Company.
4. SUBSEQUENT EVENTS
PRIVATE PLACEMENT OF PREFERRED STOCK AND EQUITY LINE OF CREDIT
On December 29, 1999, the Company entered into an agreement with a private
third-party investor that provides for the immediate purchase by the
investor of $5.0 million of Series C Convertible Preferred Stock ("Series C
Preferred") and the establishment of a $20.0 million equity line of credit
("Equity Line"). The Series C Preferred is convertible into Common Stock of
the Company at a price based on the market price of the Common Stock at the
time of conversion, subject to a maximum price of $4.30 per share, and bears
interest at 6% per annum. The Series C Preferred is convertible at the
investor's option, and becomes convertible in three equal installments,
commencing approximately 120 days after the purchase date and ending 90 days
thereafter.
Under the terms of the $20.0 million Equity Line, the Company has a right to
sell to the investor, and the investor has an obligation to buy from the
Company, up to an additional $20.0 million of convertible preferred stock.
The maximum amount of each such individual sale of preferred stock will be
determined by a formula based on the dollar-volume of trading of the
Company's Common Stock at the time of the sale, subject to an overall
maximum of $2.5 million per transaction. There must be at least 15 days
between such sales and no sales are allowed while the Company's Common Stock
is trading below $3.00 per share.
SALE OF I-XPOSURE COMMON STOCK
As of September 30, 1999, the Company's wholly owned subsidiary i-Xposure,
Inc. ("i-Xposure") was engaged in the development of a highly customizable
personal interactive desktop ("pid"). The pid includes a variety of personal
productivity modules (calendar, planner, contact list, etc.) as well as
serving as an Internet portal when users are online. Users of the pid can
download the software for free from sites that have licensed the pid from
i-Xposure. The pid allows licensees to include images, links to other web
sites and a variety of other interactive features on the users' desktops.
i-Xposure derives revenue from licensees when users download the pid and
also on other measures of Internet based activity.
F-28
<PAGE> 79
eSAT, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)
In order to fund i-Xposure's development without placing a burden on eSat's
limited financial resources, the Company has initiated a private placement
of up to 1.5 million shares of i-Xposure Common Stock at $2.00 per share. As
of December 22, 1999, the private placement had raised $240,000, before
selling commissions and other fees and expenses, from the sale of 120,000
shares of i-Xposure Common Stock. eSat will retain 4.0 million shares of
i-Xposure Common Stock. After sufficient funds have been received, i-Xposure
will operate as a separate, stand alone entity and maintain its own books
and records.
5. INVENTORIES
Inventories, net, are summarized as follows:
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
Finished goods $157,046 $117,517
Raw materials and components 232,223 171,743
-------- --------
$389,269 $289,260
======== ========
F-29
<PAGE> 80
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Pursuant to the company's articles of incorporation, the personal
liability of a director or officer of the company to the company or a
shareholder for monetary damages for breach of a fiduciary duty is limited to
situations in which a director's or officer's acts or omissions involve
intentional misconduct, fraud or knowing violations of law.
The company's articles of incorporation and bylaws provide for the
indemnification of directors and officers of the company to the maximum extent
permitted by law. The bylaws provide generally for indemnification as to all
expenses incurred or imposed upon them as a result of actions, suits or
proceedings if they act in good faith and in a manner they reasonably believe to
be in or not opposed to the best interests of the company. These documents,
among other things, indemnify the company's employees, officers and directors
for certain expenses (including attorneys' fees), judgments, fines and
settlement amounts incurred by such person in any action or proceeding,
including any action by or in the right of the company, on account of services
as any employee, officer or director of the company or as an employee, officer
or director of any affiliate of the company. The company believes that these
provisions are necessary to attract and retain qualified persons as directors
and officers.
There is no pending litigation or proceeding involving a director,
officer, employee or other agent of the company as to which indemnification is
being sought, and the company is not aware of any pending or threatened
litigation that may result in claims for indemnification by any director,
officer, employee or other agent.
The company has purchased directors and officers liability insurance to
defend and indemnify directors and officers who are subject to claims made
against them for their actions and omissions as directors and officers of the
company. the insurance policy provides standard directors and officers liability
insurance in the amount of $5,000,000.
Item 25. Other Expenses of Issuance and Distribution
<TABLE>
<CAPTION>
Description Amount
----------- ---------
<S> <C>
Registration Fee $13,550.72
NASD Filing Fee NA
Legal Fees and Expenses (including Blue Sky) *
Accounting Fees and Expenses *
Transfer Agent Fees and Expenses *
Printing Expenses *
Miscellaneous *
---------
$ *.(1)
=========
</TABLE>
* To be included by amendment.
II-1
<PAGE> 81
(1) While all shares registered for sale are being sold by selling
shareholders, all expenses of issuance and distribution are
being paid by registrant per contractual agreements.
Item 26. Recent Sales of Unregistered Securities
Technology Guardian, Inc., a California corporation, which was merged
into the company, entered into an Agreement with Pacific Capital Group Ltd.
("Pacific Capital"), to sell shares pursuant to the terms of a Confidential
Offering Memorandum dated July 2, 1998 ("Pacific Capital Offering"). Pacific
Capital arranged the sale of 2,092,500 shares at $0.7168 per share for a total
of $1,500,000, of which 754,045 shares were sold under Rule 504 of Regulation D,
and the remaining 1,338,455 under Regulation S.
In connection with the merger, the company assumed the obligations of
TGI to honor options to purchase 2,000,000 shares of TGI common stock, $.001 par
value per share, on a pro rata basis to all TGI shareholders as of August 30,
1998, at an exercise price of $.7168 per share, exercisable for five (5) years
from date of grant. In addition, the company assumed the obligations of TGI
wherein TGI issued options to purchase 1,500,000 shares of TGI common stock,
$.001 par value per share, to David B. Coulter, President of TGI, and 500,000
shares of TGI common stock, $.001 par value per share, to Chester L. Noblett,
the Vice President and COO of TGI, at an exercise price of $.7168 per share,
exercisable for five (5) years from date of grant. On October 13, 1998 the board
of directors authorized the issuance of additional options to purchase 1,000,000
shares of common stock to Mr. Coulter, and 333,333 shares of common stock to Mr.
Noblett, at an exercise price of $3.00 per share, exercisable for five (5) years
from date of grant.
The merger was consummated on October 8, 1998. Under Rule 145
promulgated by the Securities and Exchange Commission, the shares of the company
received by the shareholders of TGI in connection with the merger are deemed
newly issued shares. Of the shares of the company outstanding after the merger,
1,050,400 shares are attributed to the original shareholders of U.S. Connect
1995, and 9,315,000 shares were issued to shareholders of TGI. Of these shares,
1,338,455 shares were issued under Regulation S, and 7,976,545 shares were
issued under Regulation D.
After the merger the company issued 2,092,500 shares of common stock
under Regulation S according to its agreement with Corporate Financial
Enterprises, Inc. at $0.7168 per share. These shares were issued to investors in
Europe.
On October 28, 1998, the company commenced a private placement for
2,000,000 shares of common stock under Rule 506, at $2.40 per share (the
"October '98 Offering"). The company completed this offering in January 1999,
with gross proceeds of $4,800,000. Tradeway Securities Group, Inc. acted as
placement agent and received commissions of $480,000, plus a $144,000
nonaccountable expense allowance, warrants to purchase 500,000 shares of common
stock at $2.64 per share exercisable through January, 2004.
II-2
<PAGE> 82
Pursuant to the October '98 Offering, the company has agreed to issue
Loyalty Options to acquire up to 500,000 shares of the company's common stock to
be granted to those shareholders who retain ownership of the shares purchased in
the October '98 Offering, for two years from the date of purchase (the Loyalty
period). The options will be issued on the basis of one option for each 25
shares purchased. The options are exercisable at an exercise price of $4.80 per
share for a period of three years from the date of issue. No Loyalty Options
have been issued at this time.
In January, 1999, David B. Coulter transferred warrants to purchase
650,000 shares at $0.7168 per share to Corporate Financial Enterprises, Inc.,
which then exercised the option. The shares were issued pursuant to Section 4(2)
of the Securities Act of 1933, as amended.
In the period of November, 1998, through July 22, 1999, seven holders of
warrants exercised their warrants in a cashless exercise with respect to 754,683
shares of common stock. These warrant holders included Tim Shulburn as to 8,033
shares, Chuck Wolf as to 7,949 shares, Tom Jandt as to 10,350 shares, Andrew
Glashow as to 6,143 shares, Lawrence C. Early as to 28,837 shares, and Corporate
Financial Enterprises, Inc. as to 339,093 shares. These shares were issued
pursuant to Section 4(2) of the Securities Act of 1933, as amended. Mr. Early is
a former CFO of the company.
On February 8, 1999, a shareholder, Claude E. Lamb, exercised options to
purchase 25,000 shares at an exercise price of $0.7168. The company received
proceeds of $17,920. These shares were issued pursuant to Section 4(2) of the
Securities Act of 1933, as amended.
Pursuant to an agreement of September, 1998, the company issued 33,482
shares to the Pacific Capital Group for proceeds of $24,000. These shares were
issued pursuant to Regulation S.
In February, 1999, the company issued 205,000 shares under Regulation S
to 16 investors residing in Asia.
On January 4, 1999, the company issued one share to an investor, Andrea
Marti, for $15.50. This share was issued pursuant to Section 4(2) of the
Securities Act of 1933, as amended.
In December 1998 as partial compensation for work installing and
configuring telephone systems for the company, the company issued 1,000 shares
to Mr. David Gallie at a discount to the market. The company issued these 1,000
shares at $0.85 per share for total proceeds of $850 on December 18, 1998. These
shares were issued pursuant to Section 4(2) of the Securities Act of 1933, as
amended.
In January and February, 1999, the company issued 18,487 shares of
common stock to 15 Asian investors pursuant to Regulation S. The shares were
sold for $2.45 per share, with the company retaining net proceeds of $1.55 per
share, and paying a commission of $0.90 per share to Corporate Financial
Enterprises, Inc., pursuant to an agreement executed by David B. Coulter, a
former CEO of the company, and Corporate Financial Enterprises, Inc. on October
15, 1998.
II-3
<PAGE> 83
The gross proceeds to the company amounted to $45,293 and the net proceeds
amounted to $28,654.85. Corporate Financial Enterprises Inc. received $16,638.15
in commissions.
The company has agreed to issue 2,500,000 shares of Series B 12%
Convertible Preferred Stock to Corporate Financial Enterprises, Inc. and
1,000,000 shares of Series A 12% Convertible Preferred Stock to Vantage Capital,
Inc.. The purchase price is payable in monthly installments of $500,000. The
preferred stock has a liquidation preference of $2.00 per share, bears
cumulative 12% dividends, and may be converted into common stock at the lower of
$2.00 per share or 70% of the bid price of the common stock on the date of a
notice to convert as reported by the exchange or the market on which the shares
of common stock are traded. The shares were issued pursuant to Regulation D,
Rule 506 and Section 4(2) of the Securities Act of 1933, as amended.
In October 1999, the company issued 5,800 shares of common stock to
Richard Singer in connection with a services contract entered into between
Richard Singer and the company. The shares were issued pursuant to Rule 504 of
Regulation D.
In December 1999, the company issued 50,000 shares of its Series C 6%
Convertible Preferred Stock to Wentworth LLC for a total of $5,000,000. The
Preferred Stock has a liquidation preference of $100 per share, bears cumulative
dividends at 6% per annum payable in cash or common stock, and is convertible
into common stock at the lesser of $4.30 or 85% of the average closing price for
the five trading days immediately prior to the conversion. The shares were
issued to accredited investors pursuant to Regulation D, Rule 506 and Section
4(2) of the Securities Act of 1933, as amended.
Item 27. Exhibits
<TABLE>
<CAPTION>
Number Description
- ------ -----------
<S> <C>
2.1 Agreement and Plan of Merger between Technology Guardian, Inc. and U.S. Connect 1995, Inc., dated September 15,
1998, filed September 15, 1998 with the Nevada Secretary of State(1)
2.2 Articles of Merger of Technology Guardian, Inc. and Technology Guardian, Inc. (formerly U.S. Connect 1995, Inc.),
filed October 8, 1998 with the Nevada Secretary of State(1)
3.1 Certificate of Amended and Restated Articles of Incorporation of Technology Guardian, Inc., filed September 28,
1995 with the Nevada Secretary of State(1)
3.2 Certificate of Amendment to Articles of Incorporation of Technology Guardian, Inc., filed February 4, 1999
with the Nevada Secretary of State(1)
</TABLE>
II-4
<PAGE> 84
<TABLE>
<S> <C>
3.3 Bylaws of US Connect 1995, Inc.(1)
3.4 Certificate of Designations of Series A 12% Convertible Preferred Stock of Registrant, filed January __, 2000 with
the Nevada Secretary of State
3.5 Certificate of Designations of Series B 12% Convertible Preferred Stock of Registrant, filed January __, 2000 with
the Nevada Secretary of State
3.6 Certificate of Designations of Series C 6% Convertible Preferred Stock of Registrant, filed December 29, 1999 with
the Nevada Secretary of State
5 Arter & Hadden LLP Opinion re: legality
10.1 Stock Option Agreement between Registrant and William Sarpalius, dated September 1, 1999(1)
10.2 Stock Option Agreements between Registrant and Lori Walker, dated September 1, 1999(1)
10.3 Stock Option Agreements between Registrant and Carol Sarpalius, dated September 1, 1999(1)
10.4 Employment Agreement between Registrant and Chester Noblett, Jr., dated June 15, 1998(1)
10.5 Stock Option Agreement between Registrant and Chet Noblett, dated September 15, 1999(1)
10.6 Warrant Agreement between Registrant and Corporate Financial Enterprises, Inc., dated as of September 17, 1999
10.7 Warrant Agreement between Registrant and Vantage Capital, Inc., dated as of September 17, 1999
10.8 Common Stock Purchase Warrant by and between Registrant and Wentworth LLC, dated as of December 29, 1999
10.9 Registration Rights Agreement by and among Registrant, Vantage Capital, Inc., Corporate Financial Enterprises,
Inc., and American Equities, LLC, dated as of November 22, 1999
10.10 Stock Purchase Agreement by and among Registrant and Vantage Capital, Inc., dated as of November 22, 1999
</TABLE>
II-5
<PAGE> 85
<TABLE>
<S> <C>
10.11 Stock Purchase Agreement by and among Registrant and Corporate Financial Enterprises, Inc. and American Equities,
LLC, dated as of November 22, 1999
10.12 Securities Purchase Agreement by and between Registrant and Wentworth LLC, dated December 29, 1999
10.13 Registration Rights Agreement by and between Registrant and Wentworth LLC, dated December 29, 1999
10.14 Side Letter Agreement, dated December 29, 1999, between the Registrant and Wentworth LLC
10.15 Resignation Agreement between Registrant and David Coulter, dated March 22, 1999
10.16 Master Services Agreement between Registrant and Exodus Communications, Inc., dated December 30, 1999
10.17 Letter Agreement between Registrant and Parks, Palmer, Turner and Yemenidjian, LLP for the services of Michael Palmer,
dated November 10, 1998
10.18 Settlement Agreement and Mutual Release by and between Cyber Village Network, Inc., Chet Noblett, and Technology
Guardian, Inc. and David Coulter, dated October 17, 1997
10.19 Consulting Agreement between Registrant and Vantage Capital, Inc., dated September 17, 1999(2)
10.20 Loan Out Agreement between Registrant and Vantage Capital Corp. for the services of Michael Palmer, dated
November 1, 1999
10.21 Employment Agreement between Global Media Technology, Inc. and Barry B. Sandrew, dated October 7, 1999
10.22 Co-Employment Agreement between Registrant and Employers Resource Management Company, Inc.,
for the services of executive officers, dated September 29, 1998
10.23 Consulting Agreement between Registrant and Herbeck Consulting Group, Inc., dated December 6, 1999
</TABLE>
II-6
<PAGE> 86
<TABLE>
<S> <C>
21 List of Subsidiaries
23.1 Consent of Independent Auditors
23.2 Consent of Counsel (See Exhibit 5)
24 Power of Attorney (see signature page of Registration Statement)
99 Federal Communications Commission Radio Station Authorization, dated August 25, 1999
</TABLE>
(1) Filed as part of Registrant's Form 10 dated March 16, 1999, and
incorporated herein by reference.
(2) Filed as part of Registrant's Form 10 dated November 8, 1999, and
incorporated herein by reference.
(3) Filed as a part of Registrant's Form 10 dated May 11, 1999, and
incorporated herein by reference.
Item 28. Undertakings
(a) Rule 415 Offering. Registrant will:
(1) File, during any period in which it offers or
sells securities, a post-effective amendment to this Registration Statements to:
(i) Include any prospectus required by section
10(a)(3) of the Securities Act;
(ii) Reflect in the prospectus any facts or
events which, individually or together, represent a fundamental change in the
information in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total dollar value
of securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range may
be reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) (Section 230.424(b) of this chapter) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement; and
(iii) Include any additional or changed material
information on the plan of distribution.
(2) For determining liability under the Securities
Act, each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to be the
initial bona fide offering.
(3) File a post-effective amendment to remove from
registration any of the securities being registered that remain unsold at the
end of the offering.
(e) Request for acceleration of effective date. Insofar as
indemnification for liabilities arising under the Securities Act of 1933 (the
"Act") may be permitted to directors, officers and controlling persons of the
small business issuer pursuant to the foregoing provisions,
II-7
<PAGE> 87
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable.
In the event that claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the small business issuer in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of competent jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-8
<PAGE> 88
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Fountain Valley, State of California, on January 26,
2000.
ESAT, INC.
By /s/ Michael C. Palmer
-----------------------------
Michael C. Palmer,
Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears appoints each of Michael Palmer and
Chester Noblett, his agent and attorney-in-fact, with full power of substitution
to execute for him and in his name, in any and all capacities, all amendments
(including post-effective amendments) to the Registration Statement to which
this power of attorney is attached.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Chief Executive Officer
President
/s/ Michael C. Palmer Secretary January 26, 2000
- --------------------------------------- Director
Michael C. Palmer
Chairman of the Board
Chief Financial Officer
/s/ Chester (Chet) L. Noblett, Jr. Principal Accounting Officer January 26, 2000
- --------------------------------------- Assistant Secretary
Chester (Chet) L. Noblett, Jr.
/s/ Gary Pan Director January 26, 2000
- ---------------------------------------
Gary Pan
/s/ Salvator A. Piraino Director January 26, 2000
- ---------------------------------------
Salvator A. Piraino
</TABLE>
II-9
<PAGE> 89
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Description
- ------ -----------
<S> <C>
2.1 Agreement and Plan of Merger between Technology Guardian, Inc. and U.S. Connect 1995, Inc., dated September 15,
1998, filed September 15, 1998 with the Nevada Secretary of State(1)
2.2 Articles of Merger of Technology Guardian, Inc. and Technology Guardian, Inc. (formerly U.S. Connect 1995, Inc.),
filed October 8, 1998 with the Nevada Secretary of State(1)
3.1 Certificate of Amended and Restated Articles of Incorporation of Technology Guardian, Inc., filed September 28,
1995 with the Nevada Secretary of State(1)
3.2 Certificate of Amendment to Articles of Incorporation of Technology Guardian, Inc., filed February 4, 1999
with the Nevada Secretary of State(1)
3.3 Bylaws of US Connect 1995, Inc.(1)
3.4 Certificate of Designations of Series A 12% Convertible Preferred Stock of Registrant, filed January __, 2000 with
the Nevada Secretary of State
3.5 Certificate of Designations of Series B 12% Convertible Preferred Stock of Registrant, filed January __, 2000 with
the Nevada Secretary of State
3.6 Certificate of Designations of Series C 6% Convertible Preferred Stock of Registrant, filed December 29, 1999 with
the Nevada Secretary of State
5 Arter & Hadden LLP Opinion re: legality
10.1 Stock Option Agreement between Registrant and William Sarpalius, dated September 1, 1999(1)
10.2 Stock Option Agreements between Registrant and Lori Walker, dated September 1, 1999(1)
10.3 Stock Option Agreements between Registrant and Carol Sarpalius, dated September 1, 1999(1)
10.4 Employment Agreement between Registrant and Chester Noblett, Jr., dated June 15, 1998(1)
</TABLE>
<PAGE> 90
<TABLE>
<S> <C>
10.5 Stock Option Agreement between Registrant and Chet Noblett, dated September 15, 1999(1)
10.6 Warrant Agreement between Registrant and Corporate Financial Enterprises, Inc., dated as of September 17, 1999
10.7 Warrant Agreement between Registrant and Vantage Capital, Inc., dated as of September 17, 1999
10.8 Common Stock Purchase Warrant by and between Registrant and Wentworth LLC, dated as of December 29, 1999
10.9 Registration Rights Agreement by and among Registrant, Vantage Capital, Inc., Corporate Financial Enterprises,
Inc., and American Equities, LLC, dated as of November 22, 1999
10.10 Stock Purchase Agreement by and among Registrant and Vantage Capital, Inc., dated as of November 22, 1999
10.11 Stock Purchase Agreement by and among Registrant and Corporate Financial Enterprises, Inc. and American Equities,
LLC, dated as of November 22, 1999
10.12 Securities Purchase Agreement by and between Registrant and Wentworth LLC, dated December 29, 1999
10.13 Registration Rights Agreement by and between Registrant and Wentworth LLC, dated December 29, 1999
10.14 Side Letter Agreement, dated December 29, 1999, between the Registrant and Wentworth LLC
10.15 Resignation Agreement between Registrant and David Coulter, dated March 22, 1999
10.16 Master Services Agreement between Registrant and Exodus Communications, Inc., dated December 30, 1999
10.17 Letter Agreement between Registrant and Parks, Palmer, Turner and Yemenidjian, LLP for the services of Michael Palmer,
dated November 10, 1998
10.18 Settlement Agreement and Mutual Release by and between Cyber Village Network, Inc., Chet Noblett, and Technology
Guardian, Inc. and David Coulter, dated October 17, 1997
10.19 Consulting Agreement between Registrant and Vantage Capital, Inc., dated September 17, 1999(2)
10.20 Loan Out Agreement between Registrant and Vantage Capital Corp. for the services of Michael Palmer, dated
November 1, 1999
10.21 Employment Agreement between Global Media Technology, Inc. and Barry B. Sandrew, dated October 7, 1999
10.22 Co-Employment Agreement between Registrant and Employers Resource Management Company, Inc.,
for the services of executive officers, dated September 29, 1998
10.23 Consulting Agreement between Registrant and Herbeck Consulting Group, Inc., dated December 6, 1999
</TABLE>
<PAGE> 91
<TABLE>
<S> <C>
21 List of Subsidiaries
23.1 Consent of Independent Auditors
23.2 Consent of Counsel (See Exhibit 5)
24 Power of Attorney (see signature page of Registration Statement)
99 Federal Communications Commission Radio Station Authorization, dated August 25, 1999
</TABLE>
(1) Filed as part of Registrant's Form 10 dated March 16, 1999, and
incorporated herein by reference.
(2) Filed as part of Registrant's Form 10 dated November 8, 1999, and
incorporated herein by reference.
(3) Filed as a part of Registrant's Form 10 dated May 11, 1999, and
incorporated herein by reference.
<PAGE> 1
EXHIBIT 3.4
CERTIFICATE OF DESIGNATIONS
OF
SERIES A 12% CONVERTIBLE PREFERRED STOCK
OF
ESAT, INC.
Pursuant to Section 78-195 of the General Corporation Law of Nevada, the
undersigned duly authorized officers of ESAT, INC., a Nevada corporation (the
"Company"), hereby certify that the following resolution was duly adopted on
December 27, 1999, by the Board of Directors of the Company pursuant to
authority conferred on the Board of Directors by the provisions of the Articles
of Incorporation of the Company (as amended) and in accordance with the
provisions of the General Corporation Law of Nevada, and that said resolution
has not been amended or rescinded and is in full force and effect at the date
hereof:
RESOLVED, that pursuant to the authority expressly granted and vested in
the Board of Directors of the Company by the Corporation's Articles of
Incorporation, as amended to date, the Board of Directors hereby creates a new
series of the Corporation's authorized but unissued preferred stock, $.01 par
value per share, to be designated "Series A 12% Convertible Preferred Stock" and
to consist of 2,000,000 shares, and hereby fixes the voting powers,
designations, preferences and relative, participating, optional or other special
rights and the qualifications, limitations or restrictions thereof:
1. Number of Shares and Designation. The shares of this series of preferred
stock shall be designated as "Series A 12% Convertible Preferred Stock," $.01
par value per share (the "Series A Preferred Stock"), and the number of shares
constituting this series shall be 2,000,000.
2. Definitions. For purposes of the Series A Preferred Stock, the following
terms shall have the meanings indicated:
"Board of Directors" or "Board" shall mean the board of directors of the
Company or any committee authorized by such Board of Directors to perform
any of its responsibilities with respect to the Series A Preferred Stock.
"Business Day" shall mean any day other than a Saturday, Sunday or a day on
which banking institutions in the City of Los Angeles are authorized or
obligated by law or executive order to close.
"Common Stock" shall mean the Common Stock of the Company, $.01 par value
per share, and any capital stock of the Company which has the right to
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<PAGE> 2
participate in the distribution of earnings and assets of the Company
without limit as to amount or percentage, into which the Common Stock may
hereafter be classified by appropriate amendment to the Corporation's
Articles of Incorporation, as amended.
"Common Stock Equivalents" shall mean all options, warrants, securities of
any kind (including, without limitation, securities convertible into or
exchangeable or exercisable for Common Stock) and other rights (in each
case whether now existing or hereafter issued or arising) to acquire from
the Company shares of Common Stock (without regard to whether such options,
warrants, securities and other rights are then exchangeable, exercisable or
convertible in full, in part or at all).
"Conversion Price" shall mean the lesser of (i) $2.00 (as may be adjusted
pursuant to Section 8 hereof, the "Fixed Conversion Price"), or (ii)
seventy percent (70%) of the average of the closing bid and asked price as
reported on an Exchange on the date prior to conversion.
"Dividend Payment Date" shall have the meaning set forth in Subsection 3.2
hereof.
"Dividend Payment Record Date" shall have the meaning set forth in
Subsection 3.2 hereof.
"Dividend Periods shall mean quarterly dividend periods commencing on the
fifteenth day of January, April, July and October of each year and ending
on and including the day preceding the first day of the next succeeding
Dividend Period (other than the initial Dividend Period which shall
commence on the Original Issue Date.
"Exchange" shall mean a national securities exchange or on the NASDAQ
SmallCap, National Market System or OTC Bulletin Board Service
(collectively, and as applicable, "NASDAQ") or, if a last asked quotation
is not available for the Common Stock, the last sale price of the Common
Stock as reported by NASDAQ, or if not so reported, as listed in the
National Quotation Bureau, Inc.'s "Pink Sheets."
"Fair Value" as of a particular date shall mean the average of the closing
bid and asked prices of the Common Stock as reported on an Exchange. If
such quotations are unavailable, or with respect to other appropriate
security, property, assets, business or entity, "Fair Value" shall mean the
fair value of such item as determined by in good faith by the Board of
Directors or, if objected to by a majority of the Holders, as determined by
independent firm of accountants as set forth in Section 8.
"Holders" shall mean the purchasers of the Series A Preferred Stock of the
Company and their successors and assigns of record on the stock record
books of the Company.
2
<PAGE> 3
"Liquidation Value" shall mean, as to each share of Series A Preferred
Stock, the sum of $2.00.
"Original Issue Date" shall mean the first date on which shares of Series A
Preferred Stock are issued.
"Person" shall mean any individual, firm, partnership, corporation, limited
liability company, association, joint stock company, trust, joint venture
or other entity, and shall include any successor (by merger or otherwise)
of such entity.
"Purchase Price" shall mean $2.00, the amount paid to the Company for each
share of Series A Preferred Stock.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
3. Dividends.
3.1 General. The Holders of shares of the Series A Preferred Stock shall be
entitled to receive, out of assets legally available therefor, cumulative
dividends at an annual rate of 12% per share (an amount equivalent to 12% of the
Purchase Price per share) payable to Holders only in shares of the Common Stock
of the Company. The Board shall declare such dividend quarterly. The number of
shares of Common Stock to be issued on any Dividend Payment Date shall be
determined by dividing the amount of the dividend to be paid by the Fair Value
of the Common Stock as of the Dividend Payment Record Date.
3.2 Dividend Preference and Payment Dates. Such dividends shall be
cumulative from the Original Issue Date, whether or not in any Dividend Period
or Periods there shall be assets of the Company legally available for the
payment of such dividends and whether or not such dividends are declared, and
shall be payable quarterly, when, as and if declared by the Board of Directors,
on January 15, April 15, July 15 and October 15 in each year (each a "Dividend
Payment Date"), commencing on January 15, 2000. If January 15, 2000 or any other
Dividend Payment Date shall be on a day other than a Business Day, then the
Dividend Payment Date shall be on the next succeeding Business Day. Each such
dividend shall be payable in arrears to the Holders of record of shares of the
Series A Preferred Stock, as they appear on the stock records of the Company at
the close of business on those dates (each such date, a "Dividend Payment Record
Date"), not less than 10 days nor more than 60 days preceding the dividend
payment dates thereof, as shall be fixed by the Board of Directors. Dividends on
the Series A Preferred Stock shall accrue (whether or not declared) on a daily
basis from the Original Issue Date and accrued dividends for each Dividend
Period shall accumulate to the extent not paid on the Dividend Payment Date
3
<PAGE> 4
first following the Dividend Period for which they accrue. As used herein, the
term "accrued" with respect to dividends includes both accrued and accumulated
dividends. Accrued and unpaid dividends for any past Dividend Periods may be
declared and paid at any time, without reference to any regular Dividend Payment
Date, to Holders of record on such date, not exceeding 45 days preceding the
payment date thereof, as may be fixed by the Board of Directors.
3.3 Computation of Dividends for Partial Dividend Periods. The amount of
dividends payable for each full Dividend Period for the Series A Preferred Stock
shall be computed by dividing the annual dividend rate by four (rounded down to
the nearest cent). The amount of dividends payable for the initial Dividend
Period on the Series A Preferred Stock, or any other period shorter or longer
than a full Dividend Period on the Series A Preferred Stock, shall be computed
on the basis of a 360-day year consisting of twelve 30-day months. No interest,
or sum of money in lieu of interest, shall be payable in respect of any dividend
payment or payments on the Series A Preferred Stock which are in arrears.
3.4 Priority and Dividend Participation/Parity Stock. (a) So long as any
shares of the Series A Preferred Stock are outstanding, no dividends, except as
described in the next succeeding sentence, shall be declared or paid or set
apart for payment on any class or series of stock of the Company ranking, as to
dividends, on a parity with the Series A Preferred Stock, for any period unless
full cumulative dividends have been or contemporaneously are declared and paid
or declared and a sum sufficient for the payment thereof set apart for such
payment on the Series A Preferred Stock for all Dividend Periods terminating on
or prior to the date of payment, or setting apart for payment, of such full
cumulative dividends on such parity stock. When dividends are not paid in full
or a sum sufficient for such payment is not set apart, as aforesaid, upon the
shares of the Series A Preferred Stock and any other class or series of stock
ranking on a parity as to dividends with the Series Preferred Stock, all
dividends declared upon shares of the Series Preferred Stock and all dividends
declared upon such other stock shall be declared pro rata so that the amounts of
dividends per share declared on the Series A Preferred Stock and such other
stock shall in all cases bear to each other the same ratio that accrued
dividends per share on the shares of the Series A Preferred Stock and on such
other stock bear to each other.
(b) So long as any shares of the Series A Preferred Stock are outstanding,
no other stock of the Company ranking on a parity with the Series A Preferred
Stock as to dividends or upon liquidation, dissolution or winding up shall be
redeemed, purchased or otherwise acquired for any consideration (or any moneys
be paid to or made available for a sinking fund or otherwise for the purchase or
redemption of any shares of any such stock) by the Company (except by conversion
into or exchange for stock of the Company ranking junior to the Series A
Preferred Stock as to dividends and upon liquidation, dissolution or winding up)
unless (a) the full cumulative dividends, if any, accrued on all outstanding
shares of the Series A Preferred Stock shall have been paid
4
<PAGE> 5
or set apart for payment for all past Dividend Periods and (b) sufficient funds
shall have been set apart for the payment of the dividend for the current
Dividend Period with respect to the Series A Preferred Stock.
3.5 Priority and Dividend Participation/Junior Stock. So long as any shares
of the Series A Preferred Stock are outstanding, except for dividends payable on
not more than $5,000,000 of Preferred Stock which, at issuance, may be declared
by the Company's Board of Directors to be senior to the Series A Preferred Stock
(provided that (i) such dividends do not exceed ten percent (10%) per annum of
the net proceeds to the Company upon sale, and (ii) such Preferred Stock is sold
at a price equal to its fair market value), no dividends (other than dividends
or distributions paid in shares of, or options, warrants or rights to subscribe
for or purchase shares of, Common Stock or other stock ranking junior to the
Series A Preferred Stock as to dividends and upon liquidation, dissolution or
winding up) shall be declared or paid or set apart for payment and no other
distribution shall be declared or made or set apart for payment, in each case
upon the Common Stock or any other stock of the Company ranking junior to the
Series A Preferred Stock as to dividends or upon liquidation, dissolution or
winding up, nor shall any Common Stock nor any other such stock of the Company
ranking junior to the Series A Preferred Stock as to dividends or upon
liquidation, dissolution or winding up be redeemed, purchased or otherwise
acquired for any consideration (or any moneys be paid to or made available for a
sinking fund or otherwise for the purchase or redemption of any shares of any
such stock) by the Company (except by conversion into or exchange for stock of
the Company ranking junior to the Series A Preferred Stock as to dividends and
upon liquidation, dissolution or winding up) unless, in each case (a) the full
cumulative dividends, if any, accrued on all outstanding shares of the Series A
Preferred Stock and any other stock of the Company ranking on a parity with the
Series A Preferred Stock as to dividends shall have been paid or set apart for
payment for all past Dividend Periods and all past dividend periods with respect
to such other stock and (b) sufficient funds shall have been set apart for the
payment of the dividend for the current Dividend Period with respect to the
Series A Preferred Stock and for the current dividend period with respect to any
other stock of the Company ranking on a parity with the Series A Preferred Stock
as to dividends.
4. Liquidation Value
4.1 General. In the event of any liquidation, dissolution or winding up of
the Company, whether voluntary or involuntary, before any payment or
distribution of the assets of the Company (whether capital or surplus) shall be
made to or set apart for the holders of Common Stock or any other series or
class or classes of stock of the Company ranking junior to the Series A
Preferred Stock upon liquidation, dissolution or winding up, the Holders of the
shares of Series A Preferred Stock shall be entitled to receive $2.00 per share
(the "Liquidation Value") plus an amount per share equal to all dividends
(whether or not earned or declared) accrued and unpaid thereon to the date of
final distribution to such Holders. No payment on account of any liquidation,
5
<PAGE> 6
dissolution or winding up of the Company shall be made to the holders of any
class or series of stock ranking on a parity with the Series A Preferred Stock
in respect of the distribution of assets upon dissolution, liquidation or
winding up unless there shall likewise be paid at the same time to the Holders
of the Series A Preferred Stock like proportionate amounts determined ratably in
proportion to the full amounts to which the Holders of all outstanding shares of
Series A Preferred Stock and the holders of all outstanding shares of such
parity stock are respectively entitled with respect to such distribution. If,
upon any liquidation, dissolution or winding up of the Company, the assets of
the Company, or proceeds thereof, distributable among the Holders of the shares
of Series A Preferred Stock shall be insufficient to pay in full the
preferential amount aforesaid and liquidating payments on any other shares of
stock ranking, as to liquidation, dissolution or winding up, on a parity with
the Series A Preferred Stock, then such assets, or the proceeds thereof, shall
be distributed among the Holders of shares of Series A Preferred Stock and any
such other stock ratably in accordance with the respective amounts which would
be payable on such shares of Series A Preferred Stock and any such other stock
if all amounts payable thereon were paid in full. For the purposes of this
Section 4, (a) a consolidation or merger of the Company with one or more
corporations or other entities, (b) a sale, lease, exchange or transfer of all
or any part of the Corporation's assets or (c) a statutory share exchange shall
not be deemed to be a liquidation, dissolution or winding up, voluntary or
involuntary.
4.2 Notice of Liquidation, Dissolution or Winding Up. Written notice of any
liquidation, dissolution or winding up of the Company, stating the payment date
or dates when and the place or places where the amounts distributable in such
circumstances shall be payable, shall be given by first class mail, postage
prepaid, not less than 30 days prior to any payment date stated therein, to the
Holders of record of the Series A Preferred Stock at their respective addresses
as the same shall appear on the books of the Company.
5. Transfers.
5.1 Delivery of Certificate, Transfer Instructions and Transfer
Certificate. Each certificate of Series A Preferred Stock presented for
transfer, exchange or conversion:
(a) shall be duly endorsed or accompanied by a written instruction of
transfer in form satisfactory to the Company or to its registrar therefor
duly executed by such Holder or its attorney, duly authorized in writing;
and
(b) shall be accompanied by a Transferor Certificate, a form of which
will be provided by the Company.
6. Redemption. The Series A Preferred Stock shall not be redeemable except
upon the written consent of the Holders of not less than 70% of the issued and
6
<PAGE> 7
outstanding Series A Preferred Stock and either the entire Board of Directors,
or a majority of the members of the Board of Directors who have no direct or
indirect interest in the redemption and who have not been nominated by any
Holder whose shares of Series A Preferred stock will be redeemed.
7. Shares to be Retired. All shares of Series A Preferred Stock purchased,
redeemed, exchanged or converted by the Company shall be retired and canceled
and shall be restored to the status of authorized but unissued shares of the
Corporation's preferred stock, without designation as to series and may
thereafter be reissued.
8. Conversion. Holders of shares of Series A Preferred Stock shall have the
right to convert all or a portion of such shares (including fractions of such
shares) into shares of Common Stock, as follows:
8.1 Right to Convert. Subject to and upon compliance with the provisions of
this Section 8, a Holder of shares of Series A Preferred Stock shall have the
right, at such Holder's option, at any time to convert any of such shares (or
fractions thereof) into shares of Common Stock. The number of shares of Common
Stock issuable upon conversion of each share of Series A Preferred Stock shall
be equal to:
$2.00
-----
Conversion Price
No fractional shares or securities representing fractional shares of Common
Stock will be issued upon conversion, and instead the number of shares issuable
upon conversion shall be reduced to the nearest whole share.
8.2 Mechanics of Conversion. (a) In order to exercise the conversion right
pursuant to Subsection 8.1 above, the Holder of each share of Series A Preferred
Stock (or fraction thereof) to be converted shall surrender the certificate
representing such share, duly endorsed or assigned to the Company or in blank,
at the office of the Company, accompanied by written notice to the Company that
the Holder thereof elects to convert Series A Preferred Stock or a specified
portion thereof. Unless the shares issuable on conversion are to be issued in
the same name as the name in which such share of Series A Preferred Stock is
registered, each share surrendered for conversion shall be accompanied by
instruments of transfer, in form satisfactory to the Company, duly executed by
the Holder or such Holder's duly authorized attorney and an amount sufficient to
pay any transfer or similar tax (or evidence reasonably satisfactory to the
Company demonstrating that such taxes have been paid or are not required to be
paid).
(b) Holders of shares of Series A Preferred Stock at the close of business
on a Dividend Payment Record Date shall be entitled to receive the dividend
payable on such shares on the corresponding Dividend Payment Date
notwithstanding the conversion thereof following such Dividend Payment Record
Date and prior to such
7
<PAGE> 8
Dividend Payment Date. However, shares of Series A Preferred Stock surrendered
for conversion during the period between the close of business on any Dividend
Payment Record Date and the opening of business on the corresponding Dividend
Payment Date must be accompanied by payment of an amount equal to the dividend
payment with respect to such shares of Series A Preferred Stock presented for
conversion on such Dividend Payment Date. A Holder of shares of Series A
Preferred Stock on a Dividend Payment Record Date who (or whose transferee)
tenders any such shares for conversion into shares of Common Stock on the
corresponding Dividend Payment Date will receive the dividend payable by the
Company on such shares of Series A Preferred Stock on such date and the
converting Holder need not include payment in the amount of such dividend upon
surrender of shares of Series A Preferred Stock for conversion on the Dividend
Payment Date. Except as provided above, the Company shall make no payment or
allowance for unpaid dividends, whether or not in arrears, on converted shares
or for dividends on the shares of Common Stock issued upon such conversion.
(c) Within ten (10) days after the surrender of certificates for shares of
Series A Preferred Stock as aforesaid, the Company shall issue and shall deliver
at such office to such Holder, or on such Holder's written order, a certificate
or certificates for the number of shares of Common Stock issuable upon the
conversion of such shares in accordance with the provisions of this Section 8,
and any fractional interest in respect of a share of Common Stock arising upon
such conversion shall be settled as provided in Subsection 8.3 hereof.
(d) Each conversion shall be deemed to have been effected immediately prior
to the close of business on the date on which the certificates for shares of
Series A Preferred Stock shall have been surrendered and such notice received by
the Company as aforesaid, and the person or persons in whose name or names any
certificate or certificates for shares of Common Stock shall be issuable
upon such conversion shall be deemed to have become the Holder or Holders of
record of the shares represented thereby at such time on such date, and such
conversion shall be at the Conversion Price in effect on the date prior to the
date of such notice of conversion, unless the stock transfer books of the
Company shall be closed on that date, in which event such person or persons
shall be deemed to have become such Holder or Holders of record at the close of
business on the next succeeding day on which such stock transfer books are open.
All shares of Common Stock delivered upon conversion of the Series A Preferred
Stock will upon delivery be duly and validly issued and fully paid and
nonassessable.
8.3 Payment of Fractional Interests. Instead of any fractional interest in
a share of Common Stock which would otherwise be deliverable upon the conversion
of a share of Series A Preferred Stock (or fraction thereof), the number of
shares of Common Stock issuable upon conversion shall be reduced to the nearest
whole share. If more than one share shall be surrendered for conversion at one
time by the same Holder, the number of full shares of Common Stock issuable upon
conversion thereof
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shall be computed on the basis of the aggregate number of shares of Series A
Preferred Stock so surrendered.
8.4 Adjustments to Conversion Price for Diluting Issues.
(a) No Dilution or Impairment: Adjustments.
(i) Prohibited Actions. So long as any Shares of Series A Preferred
Stock are outstanding, the Company will not avoid or seek to avoid the
observance or performance of any of the terms of the Series A Preferred Stock or
impair the ability of the Holder(s) to realize the full intended economic value
thereof, but will at all times in good faith assist in the carrying out of all
such terms, and of the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holder(s) of the Series A
Preferred Stock against dilution or other impairment.
(ii) Adjustment of Fixed Conversion Price in the Event of Certain
Issuances of Common Stock or Common Stock Equivalents. In case the Company shall
at any time issue or sell Common Stock or Common Stock Equivalents (by merger
otherwise) for less than Fair Value as of the date of such issuance (other than
any Common Stock Equivalents issued and outstanding on November 22, 1999), or
issue Common Stock or Common Stock Equivalents by way of a dividend (except for
dividends payable in Common Stock pursuant to the Series A Preferred Stock or
the Company's Certificate of Determination for its Series B 12% Convertible
Preferred Stock) or other distribution on any stock of the Company or effect a
forward stock split of the outstanding shares of Common Stock, the Fixed
Conversion Price then in effect shall be proportionately decreased (on the date
of such issuance, sale or split), so that the new Fixed Conversion Price shall
be equal to the product of (x) the former Fixed Conversion Price and (y) the
lesser of (i) one or (ii) the following fraction:
The number of shares of Common Stock and
Common Stock Equivalents outstanding immediately prior to such issuance
The number of shares of Common Stock and
Common Stock Equivalents outstanding immediately after such issuance
(iii) Company to Prevent Dilution. In any case at any time or from
time to time conditions arise by reason of action taken by the Company which are
not adequately covered by the provisions of this Section 8, and which could
adversely affect the rights of the Holders under any provision herein, unless
the adjustment necessary shall be agreed upon by the Company and the Holders,
the Board of Directors of the Company shall appoint KPMG, LLP, or, if KPMG, LLP
shall be unavailable or shall have been engaged by the Company at any time
within the two years prior to such time (other than to resolve a dispute
pursuant hereto or a similar provision in any agreement or other document by
which the Company is bound), a firm of independent certified public accountants
of recognized national standing, acceptable to the Holders, who at the Company's
expense shall give their opinion upon the adjustment, if any, on a basis
consistent with the standards established in the other provisions of this
Section 8, necessary
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with respect to the Fixed Conversion Price, so as to preserve, without dilution,
the rights of the Holders. Upon the receipt of such opinion, the Company's Board
of Directors shall forthwith make the adjustments described therein; provided,
however, that no such adjustment shall be made to increase the Fixed Conversion
Price.
(iv) Reorganization; Asset Sales; Etc. In case of (i) any capital
reorganization or any reclassification of the capital stock of the Company, (ii)
any consolidation or merger of the Company or any Subsidiary with or into
another Person, (iii) the disposition or transfer of assets of the Company other
than in the ordinary course of the Company's business, (iv) any dividend or
other distribution to the holders of capital stock of the Company in the form of
any asset, including without limitation securities of the Company (other than
dividends payable in Common Stock pursuant to the terms of the Series A
Preferred Stock or the Certificate of Determination for the Company's Series B
Preferred Stock), or (v) the dissolution, liquidation or winding up of the
Company, the Holders shall thereafter be entitled to convert the Series A
Preferred Stock into (and it shall be a condition to the consummation of any
such transaction or event that appropriate provision shall be made so that such
Holders shall thereafter be entitled to convert the Series A Preferred Stock
into) the kind and amount of shares of stock and other securities and property
receivable in such transaction by a holder of the number of shares of Common
Stock of the Company into which the Series A Preferred Stock was convertible
immediately prior to such capital reorganization, reclassification of capital
stock, non-surviving combination or disposition; and in any such case
appropriate adjustments shall be made in the application of the provisions of
this Section 8 with respect to securities, rights and interests into which the
Series A Preferred Stock is then convertible.
(v) Adjustment Statement. Whenever the Fixed Conversion Price is
adjusted as herein provided, the Company shall, within ten days following the
consummation of the event triggering such adjustment, deliver to the Holders a
statement signed by the President of the Company and by its Treasurer or
Secretary stating the adjusted Fixed Conversion Price determined as specified
herein. The statement shall show in detail the facts requiring such adjustment,
including a statement of the consideration received by the Company for any
additional stock issued. In the event the Company shall fail to timely deliver
such adjustment statement, the Company shall be in default hereof, and the
Holder's reasonable determination of any adjustment shall be deemed conclusive
and binding, absent manifest error.
(vi) Prior Notice to the Holders. If at any time:
(1) The Company shall pay any dividend payable in Common Stock or
Common Stock Equivalents upon its capital stock or make any distribution to the
holders of its capital stock (other than dividends payable in Common Stock
pursuant to the terms of the Series A Preferred Stock or the Certificate of
Determination for the Company's Series B Preferred Stock); or
(2) The Company shall offer for subscription pro rata to the
holders of its capital stock any additional shares of stock of any class or any
other rights; or
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(3) The Company shall effect any capital reorganization or any
reclassification of or change in the outstanding capital stock of the Company
(other than a change in par value, or a change from par value to no par value,
or a change from no par value to par value, or a change resulting solely from a
subdivision of outstanding shares), or any consolidation or merger, or any sale,
transfer or other disposition of all or substantially all of its property,
assets, business and goodwill as an entirety, or the liquidation, dissolution or
winding up of the Company; or
(4) The Company shall declare a dividend upon its capital stock
(other than dividends payable in Common Stock pursuant to the terms of the
Series A Preferred Stock or the Certificate of Determination for the Company's
Series B Preferred Stock);
then, in any such event, the Company shall cause at least thirty (30) days'
prior written notice to be mailed to the Holders at the address of each such
Holder shown on the books of the Company. The notice shall also specify the date
on which the books of the Company shall close or a record be taken for such
stock dividend, distribution or subscription rights, or the date on which such
reclassification, reorganization, consolidation, merger, sale, transfer,
disposition, liquidation, dissolution, winding up, or dividend, as the case may
be, shall take place, and the date of participation therein by the holders of
shares of capital stock if any such date is to be fixed, and shall also set
forth such facts with respect thereto as shall be reasonably necessary to
indicate the effect of such action on the rights of the Holder.
(vii) Disputes. If there is any dispute as to the computation of the
Conversion Price, the Company will retain, at its expense, KPMG, LLP, or, if
KPMG, LLP shall be unavailable or shall have been engaged by the Company at any
time within the two years prior to such time (other than to resolve a dispute
pursuant hereto or a similar provision in any agreement or other document by
which the Company is bound), PriceWaterhouseCoopers LLP, or, if
PriceWaterhouseCoopers LLP is similarly unavailable or previously engaged, a
firm of independent certified public accountants of recognized national
standing, acceptable to the Holders, to conduct an audit of the computations
pursuant to the terms hereof involved in such dispute, including the financial
statements or other information upon which such computations were based. The
determination of such accounting firm shall, in the absence of manifest error,
be conclusive and binding.
8.5 Deferral of Issuance of Additional Shares. In any case in which
Subsection 8.4 provides that an adjustment shall become effective immediately
after a record date for an event and the date fixed for conversion pursuant to
Section 8 occurs after such record date but before the occurrence of such event,
the Company may defer until the actual occurrence of such event (a) issuing to
the Holder of any share of Series A Preferred Stock surrendered for conversion
the additional shares of Common Stock issuable upon such conversion by reason of
the adjustment required by such event over and above the Common Stock issuable
upon such conversion before giving effect to such adjustment and (b) paying to
such Holder any amount in cash in lieu of
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any fraction pursuant to Subsection 8.4 hereof.
8.6 Computation of Outstanding Common Stock. For purposes of this Section
8, the number of shares of Common Stock at any time outstanding shall not
include any shares of Common Stock then owned or held by or for the account of
the Company or any corporation controlled by the Company.
8.7 Multiple Adjustments in a Single Transaction. Notwithstanding any other
provision herein to the contrary, the issuance of any shares of Common Stock
pursuant to any plan providing for the reinvestment of dividends or interest
payable on securities of the Company and the investment of additional optional
amounts in shares of Common Stock under any such plan shall not be deemed to
constitute an issuance of Common Stock. There shall be no adjustment of the
Conversion Price in case of the issuance of any stock of the Company in a
reorganization, acquisition or other similar transaction except as specifically
set forth in this Section 8. If any action or transaction would require
adjustment of the Conversion Price pursuant to more than one Section of this
Section 8, only one adjustment shall be made and such adjustment shall be the
amount of adjustment which has the highest absolute value.
8.8 Further Adjustment by the Board of Directors. In case the Company shall
take any action affecting the Common Stock, other than action described in this
Section 8, which in the opinion of the Board of Directors would materially and
adversely affect the conversion rights of the Holders of the shares of Series A
Preferred Stock, the Fixed Conversion Price for the Series A Preferred Stock may
be adjusted lower, to the extent permitted by law, in such manner, if any, and
at such time, as the Board of Directors may determine to be equitable in the
circumstances.
8.9 Payment of Documentary Stamp and Transfer Taxes. The Company will pay
any and all documentary stamp or similar issue or transfer taxes payable in
respect of the issue or delivery of the shares of Series A Preferred Stock (or
any other securities issued on account of the Series A Preferred Stock pursuant
hereto) or shares of Common Stock on conversion of the Series A Preferred Stock
pursuant hereto; provided, however, that the Company shall not be required to
pay any tax which may be payable in respect of any transfer involved in the
issue or delivery of shares of Series A Preferred Stock (or any other securities
issued on account of the Series A Preferred Stock pursuant hereto) or shares of
Common Stock in a name other than the name in which the shares of Series A
Preferred Stock with respect to which such Common Stock shares are issued were
registered and the Company shall not be required to make any issue or delivery
unless and until the person requesting such issue or delivery has paid to the
Company the amount of any such tax or has established, to the reasonable
satisfaction of the Company, that such tax has been paid or is not required to
be paid.
8.10 Reservation of Common Stock. The Company shall reserve and keep
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available out of its authorized but unissued Common Stock such number of shares
of Common Stock as shall from time to time be sufficient to effect conversion of
the Convertible Preferred Stock.
9. Ranking. Except for not more than $5,000,000 of Preferred Stock which,
at issuance, may be declared by the Company's Board of Directors to be senior to
the Series A Preferred Stock (provided that such Preferred Stock is sold at a
price equal to its fair market value), any class or classes of stock of the
Company now existing or hereafter designated, other than the Company's Series B
Preferred Stock, shall be deemed to rank junior to the Series A Preferred Stock,
as to dividends or as to the distribution of assets upon liquidation,
dissolution or winding up.
10. Voting. The Holders of Series A Preferred Stock shall be entitled to
notice of any stockholders' meeting in accordance with the By-Laws of the
Company, and shall be entitled to one (1) vote for each share of Series A
Preferred Stock on all matters submitted to the stockholders for approval. With
respect to matters affecting only the Series A Preferred Stock, each outstanding
share of Preferred Stock will be entitled to one vote. In either case described
in this Section 10, shares held by the Company or any entity controlled by the
Company shall be excluded and shall have no voting rights.
11. Events of Default.
11.1 Events of Default Defined. Each of the events specified in the
following Subsections 11.1(a) through (d) shall, upon written notice of default
from Holders of a majority of the outstanding shares of Series A Preferred
Stock, be an Event of Default, provided that an Event of Default may be waived
in writing by such Holders.
(a) the Company shall breach or default in the performance of or
compliance with, any representation or warranty, covenant,
agreement, condition or term contained in this Certificate of
Designations, including the payment of any dividend hereunder,
and such default shall not have been remedied within thirty (30)
days after written notice thereof shall have been given to the
Company; or
(b) the Company or any operating subsidiary shall make an assignment
for the benefit of creditors, or shall admit in writing its
inability to pay its debts as they become due, or an order for
relief is entered against the Company or such operating
subsidiary under any bankruptcy laws or the Company or any such
operating subsidiary shall file any petition or answer seeking
for itself any reorganization, arrangement, composition,
readjustment, dissolution or similar relief under any present or
future statute, law
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or regulation, or shall file an answer admitting the material
allegations of a petition filed against the Company or such
operating subsidiary in any such proceeding, or shall seek or
consent to or acquiesce in the appointment of any trustee,
receiver or liquidator of the Company or such operating
subsidiary, or the Company or its board of directors or its
stockholders shall take any action looking to the dissolution or
liquidation of the Company or such operating subsidiary and such
has not been remedied within 30 days after written notice thereof
shall have been given to the Company; or
(c) within 60 days after the commencement of any proceeding against
the Company or such operating subsidiary seeking any
reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or
future statute, law or regulation, such proceeding shall not have
been dismissed or, within 60 days after the appointment without
the consent or acquiescence of the Company of any trustee,
receiver or liquidator of the Company or such operating
subsidiary of all or any substantial part of the properties of
the Company or such operating subsidiary, such appointment shall
not have been vacated; or
(d) a final judgment which, together with other outstanding final
judgments against the Company, exceeds an aggregate of $250,000,
shall be rendered against the Company and within 90 days after
entry thereof, such judgment shall not have been discharged or
execution thereof stayed pending appeal or, within 60 days after
the expiration of any such stay, such judgment shall not have
been discharged.
11.2 Remedies. The Holders of a majority of the Series A Preferred Stock
outstanding at the time of any Event of Default may proceed to protect and
enforce the rights of said Holders by a suit in equity, action at law or other
appropriate proceeding for the specific performance of any agreement contained
herein, or for any injunction against a violation of any of the terms or
provisions hereof or in aid of the exercise of any power granted hereby or by
law. The Holders shall not be required to post bond in connection with such
proceedings. The Company will pay to the Holders thereof such further amount as
shall be sufficient to cover the cost and expense of any action instituted by
the Holders upon such Event of Default, including (without limitation)
reasonable attorneys fees. If the Holders shall give any notice or take any
action in respect of a claimed default, the Company will forthwith give written
notice thereof to all other such Holders at the time outstanding, describing the
notices or action and the nature of the claimed default. No course of dealing
and no delay on the part of any
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Holders in exercising any right shall operate as a waiver thereof or otherwise
prejudice such Holders' rights. No remedy conferred hereby shall be exclusive
of any other remedy referred to herein or now or hereafter available at law, in
equity, by statute or otherwise.
12. Covenants. In addition to any other rights provided by law or agreement
so long as any shares of the Series A Preferred Stock remain shall be
outstanding, without first obtaining the affirmative vote or written consent of
the Holders of not less than 50% of the shares of Series A Preferred Stock then
outstanding (as adjusted for all subdivisions and combinations), the Company
shall not:
(a) pay or declare any dividend or distribution on any shares of
Common Stock or apply any of its assets to the redemption,
retirement, purchase or other acquisition directly or indirectly,
through subsidiaries or otherwise, of any shares of Common Stock;
(b) issue or sell any shares of its capital stock, or any rights or
options to acquire any shares of its capital stock, other than
(i) issuances of Common Stock upon conversion of the Series A
Preferred Stock, (ii) issuances of Common Stock or Series A
Preferred Stock in the form of dividends payable on shares of
outstanding Common Stock or Series A Preferred Stock,
respectively, and (iii) issuances of up to 1,000,000 shares
(which number shall be proportionately adjusted in the case of
recapitalizations, stock splits, stock dividends or combinations
of shares) of Common Stock upon exercise of options therefor to
officers, directors or employees of, or consultants to, the
Company pursuant to a stock option plan or other employee stock
incentive program approved by the Board of Directors (other than
shares of Common Stock issuable upon exercise of Options
outstanding on the date hereof);
(c) cause or permit, or agree or consent to cause or permit in the
future (upon the happening of a contingency or otherwise) any of
its property, whether now owned or hereafter acquired, to be
subject to a lien or liens except:
(i) liens securing taxes, assessments or governmental charges or
the claims or demands of materialmen, mechanics, carriers,
warehousemen, landlords and other like persons, none of
which are in default or delinquent;
(ii) liens incurred or deposits made in the ordinary course of
business (A) in connection with workmen's compensation,
unemployment insurance, social security and other like laws,
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or (B) to secure the performance of letters of credit, bids,
tenders, sales contracts, leases, statutory obligations,
surety, appeal and performance bonds and other similar
obligations not incurred in connection with the borrowing of
money, the obtaining of advances or the payment of the
deferred purchase price of property;
(iii) attachment, judgment and other similar liens arising in
connection with any court proceedings, provided the
execution or other enforcement of such liens is effectively
stayed and the claims secured thereby are being actively
contested in good faith and by appropriate proceedings;
(iv) reservations, exceptions, encroachments, easements, rights
of way, covenants, conditions, restrictions, leases and
other similar title exceptions or encumbrances affecting
real property provided they do not in the aggregate
materially detract from the value of said properties or
materially interfere with their use in the ordinary conduct
of the Corporation's business; and
(v) liens arising out of debt authorized by the requisite vote
of the Board of Directors.
(d) amend or repeal any provision of, or add any provision to, the
Corporation's Articles of Incorporation or Bylaws if such action
would alter or change the preferences, rights, privileges or
powers of, or the restrictions provided for the benefit of, the
Series A Preferred Stock;
(e) change the general character of its business as constituted as of
the Original Issue Date;
(f) issue any of its equity securities for consideration other than
cash, other than (i) issuances of Common Stock upon conversion of
the Series A Preferred Stock, (ii) issuances of Common Stock or
Series A Preferred Stock in the form of dividends payable on
shares of outstanding Common Stock or Series A Preferred Stock,
respectively, (iii) issuances of up to 1,000,000 shares (which
number shall be proportionately adjusted in the case of
recapitalizations, stock splits, stock dividends or combinations
of shares) of Common Stock upon exercise of options therefor to
officers, directors or employees of, or consultants to, the
Company pursuant to a stock option plan or other employee stock
incentive program approved by the Board of Directors (without
giving effect
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to Common Stock issued upon exercise of Options outstanding on
the date hereof), and (iv) acquisitions of other companies or
assets related to the business of the Company;
(g) make or permit to remain outstanding any loan or advance to, or
extend credit other than credit extended in the normal course of
business to any Person who is not an affiliate of the Company, or
guarantee, endorse or otherwise be or become contingently liable,
directly or indirectly, in connection with the obligations, stock
or dividends of, or own, purchase or acquire any stock,
obligations or securities of, or any other interest in, or make
any capital contribution to, any Person, except that the Company
or any subsidiary may:
(i) own, purchase or acquire (A) certificates of deposit of
commercial banks organized under the laws of the United
States (having a capital and surplus in excess of
$50,000,000) and (B) obligations of the United States
Government or any agency thereof, and obligations
guaranteed by the United States Government, in each case
due within one year from the date of purchase and payable
in the United States in United States dollars;
(ii) endorse negotiable instruments for collection or deposit in
the ordinary course of business; and
(iii) permit to make and remain outstanding indebtedness
permitted by clause (d) of this Section 12.
13. Record Holder. The Company may deem and treat the record Holder of any
shares of Series A Preferred Stock as the true and lawful owner thereof for all
purposes, and the Company shall not be affected by any notice to the contrary.
14. Notice. Except as may otherwise be provided for herein, all notices
referred to herein shall be in writing, and all notices hereunder shall be
deemed to have been given upon receipt. In the case of a notice of conversion
given to the Company as contemplated in Subsection 8.2 hereof, or, in all other
cases, upon the earlier of receipt of such notice or three Business Days after
the mailing of such notice if sent by registered mail (unless first class mail
shall be specifically permitted for such notice under the terms of this
Certificate) with postage prepaid, addressed: if to the Company, as follows:
eSat, Inc.
16250 Harbor Blvd., Bldg G
Fountain Valley, California 92708
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Telecopier: (714) 895-2977
Attention: Chief Executive Officer
, or such other place as designated in a written notice to the Holders of the
Series A Preferred Stock, or other agent of the Company designated as permitted
by this Certificate, or, if to any Holder of the Series A Preferred Stock, to
such Holder at the address of such Holder of the Series A Preferred Stock as
listed in the stock record books of the Company; or to such other address as the
Company or Holder, as the case may be, shall have designated by notice similarly
given.
IN WITNESS WHEREOF, this Certificate has been executed on behalf of the
Company by the undersigned on the 27th day of December, 1999.
ESAT, INC.
By:
-------------------------------------
Michael Palmer
President and Chief Executive Officer
-------------------------------------
Chester Noblett, Jr.
Assistant Secretary
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EXHIBIT 3.5
CERTIFICATE OF DESIGNATIONS
OF
SERIES B 12% CONVERTIBLE PREFERRED STOCK
OF
ESAT, INC.
Pursuant to Sections 78-195 of the General Corporation Law of Nevada, the
undersigned duly authorized officers of ESAT, INC., a Nevada corporation (the
"Company"), hereby certify that the following resolution was duly adopted on
December 27, 1999, by the Board of Directors of the Company pursuant to
authority conferred on the Board of Directors by the provisions of the Articles
of Incorporation of the Company (as amended) and in accordance with the
provisions of the General Corporation Law of Nevada, and that said resolution
has not been amended or rescinded and is in full force and effect at the date
hereof:
RESOLVED, that pursuant to the authority expressly granted and vested in
the Board of Directors of the Company by the Corporation's Articles of
Incorporation, as amended to date, the Board of Directors hereby creates a new
series of the Corporation's authorized but unissued preferred stock, $.01 par
value per share, to be designated "Series B 12% Convertible Preferred Stock" and
to consist of 2,500,000 shares, and hereby fixes the voting powers,
designations, preferences and relative, participating, optional or other special
rights and the qualifications, limitations or restrictions thereof:
1. Number of Shares and Designation. The shares of this series of preferred
stock shall be designated as "Series B 12% Convertible Preferred Stock," $.01
par value per share (the "Series B Preferred Stock"), and the number of shares
constituting this series shall be 2,500,000.
2. Definitions. For purposes of the Series B Preferred Stock, the following
terms shall have the meanings indicated:
"Board of Directors" or "Board" shall mean the board of directors of the
Company or any committee authorized by such Board of Directors to perform
any of its responsibilities with respect to the Series B Preferred Stock.
"Business Day" shall mean any day other than a Saturday, Sunday or a day on
which banking institutions in the City of Los Angeles are authorized or
obligated by law or executive order to close.
"Common Stock" shall mean the Common Stock of the Company, $.01 par value
per share, and any capital stock of the Company which has the right to
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participate in the distribution of earnings and assets of the Company
without limit as to amount or percentage, into which the Common Stock may
hereafter be classified by appropriate amendment to the Corporation's
Articles of Incorporation, as amended.
"Common Stock Equivalents" shall mean all options, warrants, securities of
any kind (including, without limitation, securities convertible into or
exchangeable or exercisable for Common Stock) and other rights (in each
case whether now existing or hereafter issued or arising) to acquire from
the Company shares of Common Stock (without regard to whether such options,
warrants, securities and other rights are then exchangeable, exercisable or
convertible in full, in part or at all).
"Conversion Price" shall mean the lesser of (i) $2.00 (as may be adjusted
pursuant to Section 8 hereof, the "Fixed Conversion Price"), or (ii)
seventy percent (70%) of the average of the closing bid and asked price as
reported on an Exchange on the date prior to conversion.
"Dividend Payment Date" shall have the meaning set forth in Subsection 3.2
hereof.
"Dividend Payment Record Date" shall have the meaning set forth in
Subsection 3.2 hereof.
"Dividend Periods shall mean quarterly dividend periods commencing on the
fifteenth day of January, April, July and October of each year and ending
on and including the day preceding the first day of the next succeeding
Dividend Period (other than the initial Dividend Period which shall
commence on the Original Issue Date.
"Exchange" shall mean a national securities exchange or on the NASDAQ
SmallCap, National Market System or OTC Bulletin Board Service
(collectively, and as applicable, "NASDAQ") or, if a last asked quotation
is not available for the Common Stock, the last sale price of the Common
Stock as reported by NASDAQ, or if not so reported, as listed in the
National Quotation Bureau, Inc.'s "Pink Sheets."
"Fair Value" as of a particular date shall mean the average of the closing
bid and asked prices of the Common Stock as reported on an Exchange. If
such quotations are unavailable, or with respect to other appropriate
security, property, assets, business or entity, "Fair Value" shall mean the
fair value of such item as determined by in good faith by the Board of
Directors or, if objected to by a majority of the Holders, as determined by
independent firm of accountants as set forth in Section 8.
"Holders" shall mean the purchasers of the Series B Preferred Stock of the
Company and their successors and assigns of record on the stock record
books
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of the Company.
"Liquidation Value" shall mean, as to each share of Series B Preferred
Stock, the sum of $2.00.
"Original Issue Date" shall mean the first date on which shares of Series B
Preferred Stock are issued.
"Person" shall mean any individual, firm, partnership, corporation, limited
liability company, association, joint stock company, trust, joint venture
or other entity, and shall include any successor (by merger or otherwise)
of such entity.
"Purchase Price" shall mean $2.00, the amount paid to the Company for each
share of Series B Preferred Stock.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
3. Dividends.
3.1 General. The Holders of shares of the Series B Preferred Stock shall be
entitled to receive, out of assets legally available therefor, cumulative
dividends at an annual rate of 12% per share (an amount equivalent to 12% of the
Purchase Price per share) payable to Holders only in shares of the Common Stock
of the Company. The Board shall declare such dividend quarterly. The number of
shares of Common Stock to be issued on any Dividend Payment Date shall be
determined by dividing the amount of the dividend to be paid by the Fair Value
of the Common Stock as of the Dividend Payment Record Date.
3.2 Dividend Preference and Payment Dates. Such dividends shall be
cumulative from the Original Issue Date, whether or not in any Dividend Period
or Periods there shall be assets of the Company legally available for the
payment of such dividends and whether or not such dividends are declared, and
shall be payable quarterly, when, as and if declared by the Board of Directors,
on January 15, April 15, July 15 and October 15 in each year (each a "Dividend
Payment Date"), commencing on January 15, 2000. If January 15, 2000 or any other
Dividend Payment Date shall be on a day other than a Business Day, then the
Dividend Payment Date shall be on the next succeeding Business Day. Each such
dividend shall be payable in arrears to the Holders of record of shares of the
Series B Preferred Stock, as they appear on the stock records of the Company at
the close of business on those dates (each such date, a "Dividend Payment Record
Date"), not less than 10 days nor more than 60 days preceding the dividend
payment dates thereof, as shall be fixed by the Board of Directors. Dividends on
the Series B Preferred Stock shall accrue (whether or not declared) on a daily
basis from the Original Issue Date and accrued dividends for each Dividend
Period shall accumulate to the extent not paid on the Dividend Payment Date
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first following the Dividend Period for which they accrue. As used herein, the
term "accrued" with respect to dividends includes both accrued and accumulated
dividends. Accrued and unpaid dividends for any past Dividend Periods may be
declared and paid at any time, without reference to any regular Dividend Payment
Date, to Holders of record on such date, not exceeding 45 days preceding the
payment date thereof, as may be fixed by the Board of Directors.
3.3 Computation of Dividends for Partial Dividend Periods. The amount of
dividends payable for each full Dividend Period for the Series B Preferred Stock
shall be computed by dividing the annual dividend rate by four (rounded down to
the nearest cent). The amount of dividends payable for the initial Dividend
Period on the Series B Preferred Stock, or any other period shorter or longer
than a full Dividend Period on the Series B Preferred Stock, shall be computed
on the basis of a 360-day year consisting of twelve 30-day months. No interest,
or sum of money in lieu of interest, shall be payable in respect of any dividend
payment or payments on the Series B Preferred Stock which are in arrears.
3.4 Priority and Dividend Participation/Parity Stock. (a) So long as any
shares of the Series B Preferred Stock are outstanding, no dividends, except as
described in the next succeeding sentence, shall be declared or paid or set
apart for payment on any class or series of stock of the Company ranking, as to
dividends, on a parity with the Series B Preferred Stock, for any period unless
full cumulative dividends have been or contemporaneously are declared and paid
or declared and a sum sufficient for the payment thereof set apart for such
payment on the Series B Preferred Stock for all Dividend Periods terminating on
or prior to the date of payment, or setting apart for payment, of such full
cumulative dividends on such parity stock. When dividends are not paid in full
or a sum sufficient for such payment is not set apart, as aforesaid, upon the
shares of the Series B Preferred Stock and any other class or series of stock
ranking on a parity as to dividends with the Series Preferred Stock, all
dividends declared upon shares of the Series Preferred Stock and all dividends
declared upon such other stock shall be declared pro rata so that the amounts of
dividends per share declared on the Series B Preferred Stock and such other
stock shall in all cases bear to each other the same ratio that accrued
dividends per share on the shares of the Series B Preferred Stock and on such
other stock bear to each other.
(b) So long as any shares of the Series B Preferred Stock are outstanding,
no other stock of the Company ranking on a parity with the Series B Preferred
Stock as to dividends or upon liquidation, dissolution or winding up shall be
redeemed, purchased or otherwise acquired for any consideration (or any moneys
be paid to or made available for a sinking fund or otherwise for the purchase or
redemption of any shares of any such stock) by the Company (except by conversion
into or exchange for stock of the Company ranking junior to the Series B
Preferred Stock as to dividends and upon liquidation, dissolution or winding up)
unless (a) the full cumulative dividends, if any, accrued on all outstanding
shares of the Series B Preferred Stock shall have been paid
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or set apart for payment for all past Dividend Periods and (b) sufficient funds
shall have been set apart for the payment of the dividend for the current
Dividend Period with respect to the Series B Preferred Stock.
3.5 Priority and Dividend Participation/Junior Stock. So long as any shares
of the Series B Preferred Stock are outstanding, except for dividends payable on
not more than $5,000,000 of Preferred Stock which, at issuance, may be declared
by the Company's Board of Directors to be senior to the Series B Preferred Stock
(provided that (i) such dividends do not exceed ten percent (10%) per annum of
the net proceeds to the Company upon sale, and (ii) such Preferred Stock is sold
at a price equal to its fair market value) no dividends (other than dividends or
distributions paid in shares of, or options, warrants or rights to subscribe for
or purchase shares of, Common Stock or other stock ranking junior to the Series
B Preferred Stock as to dividends and upon liquidation, dissolution or winding
up) shall be declared or paid or set apart for payment and no other distribution
shall be declared or made or set apart for payment, in each case upon the Common
Stock or any other stock of the Company ranking junior to the Series B Preferred
Stock as to dividends or upon liquidation, dissolution or winding up, nor shall
any Common Stock nor any other such stock of the Company ranking junior to the
Series B Preferred Stock as to dividends or upon liquidation, dissolution or
winding up be redeemed, purchased or otherwise acquired for any consideration
(or any moneys be paid to or made available for a sinking fund or otherwise for
the purchase or redemption of any shares of any such stock) by the Company
(except by conversion into or exchange for stock of the Company ranking junior
to the Series B Preferred Stock as to dividends and upon liquidation,
dissolution or winding up) unless, in each case (a) the full cumulative
dividends, if any, accrued on all outstanding shares of the Series B Preferred
Stock and any other stock of the Company ranking on a parity with the Series B
Preferred Stock as to dividends shall have been paid or set apart for payment
for all past Dividend Periods and all past dividend periods with respect to such
other stock and (b) sufficient funds shall have been set apart for the payment
of the dividend for the current Dividend Period with respect to the Series B
Preferred Stock and for the current dividend period with respect to any other
stock of the Company ranking on a parity with the Series B Preferred Stock as to
dividends.
4. Liquidation Value.
4.1 General. In the event of any liquidation, dissolution or winding up of
the Company, whether voluntary or involuntary, before any payment or
distribution of the assets of the Company (whether capital or surplus) shall be
made to or set apart for the holders of Common Stock or any other series or
class or classes of stock of the Company ranking junior to the Series B
Preferred Stock upon liquidation, dissolution or winding up, the Holders of the
shares of Series B Preferred Stock shall be entitled to receive $2.00 per share
(the "Liquidation Value") plus an amount per share equal to all dividends
(whether or not earned or declared) accrued and unpaid thereon to the date of
final distribution to such Holders. No payment on account of any liquidation,
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dissolution or winding up of the Company shall be made to the holders of any
class or series of stock ranking on a parity with the Series B Preferred Stock
in respect of the distribution of assets upon dissolution, liquidation or
winding up unless there shall likewise be paid at the same time to the Holders
of the Series B Preferred Stock like proportionate amounts determined ratably in
proportion to the full amounts to which the Holders of all outstanding shares of
Series B Preferred Stock and the holders of all outstanding shares of such
parity stock are respectively entitled with respect to such distribution. If,
upon any liquidation, dissolution or winding up of the Company, the assets of
the Company, or proceeds thereof, distributable among the Holders of the shares
of Series B Preferred Stock shall be insufficient to pay in full the
preferential amount aforesaid and liquidating payments on any other shares of
stock ranking, as to liquidation, dissolution or winding up, on a parity with
the Series B Preferred Stock, then such assets, or the proceeds thereof, shall
be distributed among the Holders of shares of Series B Preferred Stock and any
such other stock ratably in accordance with the respective amounts which would
be payable on such shares of Series B Preferred Stock and any such other stock
if all amounts payable thereon were paid in full. For the purposes of this
Section 4, (a) a consolidation or merger of the Company with one or more
corporations or other entities, (b) a sale, lease, exchange or transfer of all
or any part of the Corporation's assets or (c) a statutory share exchange shall
not be deemed to be a liquidation, dissolution or winding up, voluntary or
involuntary.
4.2 Notice of Liquidation, Dissolution or Winding Up. Written notice of any
liquidation, dissolution or winding up of the Company, stating the payment date
or dates when and the place or places where the amounts distributable in such
circumstances shall be payable, shall be given by first class mail, postage
prepaid, not less than 30 days prior to any payment date stated therein, to the
Holders of record of the Series B Preferred Stock at their respective addresses
as the same shall appear on the books of the Company.
5. Transfers.
5.1 Delivery of Certificate, Transfer Instructions and Transfer
Certificate. Each certificate of Series B Preferred Stock presented for
transfer, exchange or conversion:
(a) shall be duly endorsed or accompanied by a written instruction of
transfer in form satisfactory to the Company or to its registrar therefor
duly executed by such Holder or its attorney, duly authorized in writing;
and
(b) shall be accompanied by a Transferor Certificate, a form of which
will be provided by the Company.
6. Redemption. The Series B Preferred Stock shall not be redeemable except
upon the written consent of the Holders of not less than 70% of the issued and
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outstanding Series B Preferred Stock and either the entire Board of Directors,
or a majority of the members of the Board of Directors who have no direct or
indirect interest in the redemption and who have not been nominated by any
Holder whose shares of Series B Preferred stock will be redeemed.
7. Shares to be Retired. All shares of Series B Preferred Stock purchased,
redeemed, exchanged or converted by the Company shall be retired and canceled
and shall be restored to the status of authorized but unissued shares of the
Corporation's preferred stock, without designation as to series and may
thereafter be reissued.
8. Conversion. Holders of shares of Series B Preferred Stock shall have the
right to convert all or a portion of such shares (including fractions of such
shares) into shares of Common Stock, as follows:
8.1 Right to Convert. Subject to and upon compliance with the provisions of
this Section 8, a Holder of shares of Series B Preferred Stock shall have the
right, at such Holder's option, at any time to convert any of such shares (or
fractions thereof) into shares of Common Stock. The number of shares of Common
Stock issuable upon conversion of each share of Series B Preferred Stock shall
be equal to:
$2.00
-----
Conversion Price
No fractional shares or securities representing fractional shares of Common
Stock will be issued upon conversion, and instead the number of shares issuable
upon conversion shall be reduced to the nearest whole share.
8.2 Mechanics of Conversion. (a) In order to exercise the conversion right
pursuant to Subsection 8.1 above, the Holder of each share of Series B Preferred
Stock (or fraction thereof) to be converted shall surrender the certificate
representing such share, duly endorsed or assigned to the Company or in blank,
at the office of the Company, accompanied by written notice to the Company that
the Holder thereof elects to convert Series B Preferred Stock or a specified
portion thereof. Unless the shares issuable on conversion are to be issued in
the same name as the name in which such share of Series B Preferred Stock is
registered, each share surrendered for conversion shall be accompanied by
instruments of transfer, in form satisfactory to the Company, duly executed by
the Holder or such Holder's duly authorized attorney and an amount sufficient to
pay any transfer or similar tax (or evidence reasonably satisfactory to the
Company demonstrating that such taxes have been paid or are not required to be
paid).
(b) Holders of shares of Series B Preferred Stock at the close of business
on a Dividend Payment Record Date shall be entitled to receive the dividend
payable on such shares on the corresponding Dividend Payment Date
notwithstanding the conversion thereof following such Dividend Payment Record
Date and prior to such
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Dividend Payment Date. However, shares of Series B Preferred Stock surrendered
for conversion during the period between the close of business on any Dividend
Payment Record Date and the opening of business on the corresponding Dividend
Payment Date must be accompanied by payment of an amount equal to the dividend
payment with respect to such shares of Series B Preferred Stock presented for
conversion on such Dividend Payment Date. A Holder of shares of Series B
Preferred Stock on a Dividend Payment Record Date who (or whose transferee)
tenders any such shares for conversion into shares of Common Stock on the
corresponding Dividend Payment Date will receive the dividend payable by the
Company on such shares of Series B Preferred Stock on such date and the
converting Holder need not include payment in the amount of such dividend upon
surrender of shares of Series B Preferred Stock for conversion on the Dividend
Payment Date. Except as provided above, the Company shall make no payment or
allowance for unpaid dividends, whether or not in arrears, on converted shares
or for dividends on the shares of Common Stock issued upon such conversion.
(c) Within ten (10) days after the surrender of certificates for shares of
Series B Preferred Stock as aforesaid, the Company shall issue and shall deliver
at such office to such Holder, or on such Holder's written order, a certificate
or certificates for the number of shares of Common Stock issuable upon the
conversion of such shares in accordance with the provisions of this Section 8,
and any fractional interest in respect of a share of Common Stock arising upon
such conversion shall be settled as provided in Subsection 8.3 hereof.
(d) Each conversion shall be deemed to have been effected immediately prior
to the close of business on the date on which the certificates for shares of
Series B Preferred Stock shall have been surrendered and such notice received by
the Company as aforesaid, and the person or persons in whose name or names any
certificate or certificates for shares of Common Stock shall be issuable upon
such conversion shall be deemed to have become the Holder or Holders of record
of the shares represented thereby at such time on such date, and such conversion
shall be at the Conversion Price in effect on the date prior to the date of such
notice of conversion, unless the stock transfer books of the Company shall be
closed on that date, in which event such person or persons shall be deemed to
have become such Holder or Holders of record at the close of business on the
next succeeding day on which such stock transfer books are open. All shares of
Common Stock delivered upon conversion of the Series B Preferred Stock will upon
delivery be duly and validly issued and fully paid and nonassessable.
8.3 Payment of Fractional Interests. Instead of any fractional interest in
a share of Common Stock which would otherwise be deliverable upon the conversion
of a share of Series B Preferred Stock (or fraction thereof), the number of
shares of Common Stock issuable upon conversion shall be reduced to the nearest
whole share. If more than one share shall be surrendered for conversion at one
time by the same Holder, the number of full shares of Common Stock issuable upon
conversion thereof
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shall be computed on the basis of the aggregate number of shares of Series B
Preferred Stock so surrendered.
8.4 Adjustments to Conversion Price for Diluting Issues.
(a) No Dilution or Impairment: Adjustments.
(i) Prohibited Actions. So long as any Shares of Series B Preferred
Stock are outstanding, the Company will not avoid or seek to avoid the
observance or performance of any of the terms of the Series B Preferred Stock or
impair the ability of the Holder(s) to realize the full intended economic value
thereof, but will at all times in good faith assist in the carrying out of all
such terms, and of the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holder(s) of the Series B
Preferred Stock against dilution or other impairment.
(ii) Adjustment of Fixed Conversion Price in the Event of Certain
Issuances of Common Stock or Common Stock Equivalents. In case the Company shall
at any time issue or sell Common Stock or Common Stock Equivalents (by merger
otherwise) for less than Fair Value as of the date of such issuance (other than
any Common Stock Equivalents issued and outstanding on November 22, 1999), or
issue Common Stock or Common Stock Equivalents by way of a dividend (except for
dividends payable in Common Stock pursuant to the Series B Preferred Stock or
the Company's Certificate of Determination for its Series A 12% Convertible
Preferred Stock) or other distribution on any stock of the Company or effect a
forward stock split of the outstanding shares of Common Stock, the Fixed
Conversion Price then in effect shall be proportionately decreased (on the date
of such issuance, sale or split), so that the new Fixed Conversion Price shall
be equal to the product of (x) the former Fixed Conversion Price and (y) the
lesser of (i) one or (ii) the following fraction:
The number of shares of Common Stock and
Common Stock Equivalents outstanding immediately prior to such issuance
The number of shares of Common Stock and
Common Stock Equivalents outstanding immediately after such issuance
(iii) Company to Prevent Dilution. In any case at any time or from
time to time conditions arise by reason of action taken by the Company which are
not adequately covered by the provisions of this Section 8, and which could
adversely affect the rights of the Holders under any provision herein, unless
the adjustment necessary shall be agreed upon by the Company and the Holders,
the Board of Directors of the Company shall appoint KPMG, LLP, or, if KPMG, LLP
shall be unavailable or shall have been engaged by the Company at any time
within the two years prior to such time (other than to resolve a dispute
pursuant hereto or a similar provision in any agreement or other document by
which the Company is bound), a firm of independent certified public accountants
of recognized national standing, acceptable to the Holders, who at the Company's
expense shall give their opinion upon the adjustment, if any, on a basis
consistent with the standards established in the other provisions of this
Section 8, necessary
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with respect to the Fixed Conversion Price, so as to preserve, without dilution,
the rights of the Holders. Upon the receipt of such opinion, the Company's Board
of Directors shall forthwith make the adjustments described therein; provided,
however, that no such adjustment shall be made to increase the Fixed Conversion
Price.
(iv) Reorganization; Asset Sales; Etc. In case of (i) any capital
reorganization or any reclassification of the capital stock of the Company, (ii)
any consolidation or merger of the Company or any Subsidiary with or into
another Person, (iii) the disposition or transfer of assets of the Company other
than in the ordinary course of the Company's business, (iv) any dividend or
other distribution to the holders of capital stock of the Company in the form of
any asset, including without limitation securities of the Company (other than
dividends payable in Common Stock pursuant to the terms of the Series B
Preferred Stock or the Certificate of Determination for the Company's Series A
Preferred Stock), or (v) the dissolution, liquidation or winding up of the
Company, the Holders shall thereafter be entitled to convert the Series B
Preferred Stock into (and it shall be a condition to the consummation of any
such transaction or event that appropriate provision shall be made so that such
Holders shall thereafter be entitled to convert the Series B Preferred Stock
into) the kind and amount of shares of stock and other securities and property
receivable in such transaction by a holder of the number of shares of Common
Stock of the Company into which the Series B Preferred Stock was convertible
immediately prior to such capital reorganization, reclassification of capital
stock, non-surviving combination or disposition; and in any such case
appropriate adjustments shall be made in the application of the provisions of
this Section 8 with respect to securities, rights and interests into which the
Series B Preferred Stock is then convertible.
(v) Adjustment Statement. Whenever the Fixed Conversion Price is
adjusted as herein provided, the Company shall, within ten days following the
consummation of the event triggering such adjustment, deliver to the Holders a
statement signed by the President of the Company and by its Treasurer or
Secretary stating the adjusted Fixed Conversion Price determined as specified
herein. The statement shall show in detail the facts requiring such adjustment,
including a statement of the consideration received by the Company for any
additional stock issued. In the event the Company shall fail to timely deliver
such adjustment statement, the Company shall be in default hereof, and the
Holder's reasonable determination of any adjustment shall be deemed conclusive
and binding, absent manifest error.
(vi) Prior Notice to the Holders. If at any time:
(1) The Company shall pay any dividend payable in Common Stock or
Common Stock Equivalents upon its capital stock or make any distribution to the
holders of its capital stock (other than dividends payable in Common Stock
pursuant to the terms of the Series B Preferred Stock or the Certificate of
Determination for the Company's Series A Preferred Stock); or
(2) The Company shall offer for subscription pro rata to the
holders of its capital stock any additional shares of stock of any class or any
other rights; or
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(3) The Company shall effect any capital reorganization or any
reclassification of or change in the outstanding capital stock of the Company
(other than a change in par value, or a change from par value to no par value,
or a change from no par value to par value, or a change resulting solely from a
subdivision of outstanding shares), or any consolidation or merger, or any sale,
transfer or other disposition of all or substantially all of its property,
assets, business and goodwill as an entirety, or the liquidation, dissolution or
winding up of the Company; or
(4) The Company shall declare a dividend upon its capital stock
(other than dividends payable in Common Stock pursuant to the terms of the
Series B Preferred Stock or the Certificate of Determination for the Company's
Series A Preferred Stock);
then, in any such event, the Company shall cause at least thirty (30) days'
prior written notice to be mailed to the Holders at the address of each such
Holder shown on the books of the Company. The notice shall also specify the date
on which the books of the Company shall close or a record be taken for such
stock dividend, distribution or subscription rights, or the date on which such
reclassification, reorganization, consolidation, merger, sale, transfer,
disposition, liquidation, dissolution, winding up, or dividend, as the case may
be, shall take place, and the date of participation therein by the holders of
shares of capital stock if any such date is to be fixed, and shall also set
forth such facts with respect thereto as shall be reasonably necessary to
indicate the effect of such action on the rights of the Holder.
(vii) Disputes. If there is any dispute as to the computation of
the Conversion Price, the Company will retain, at its expense, KPMG, LLP, or, if
KPMG, LLP shall be unavailable or shall have been engaged by the Company at any
time within the two years prior to such time (other than to resolve a dispute
pursuant hereto or a similar provision in any agreement or other document by
which the Company is bound), PriceWaterhouseCoopers LLP, or, if
PriceWaterhouseCoopers LLP is similarly unavailable or previously engaged, a
firm of independent certified public accountants of recognized national
standing, acceptable to the Holders, to conduct an audit of the computations
pursuant to the terms hereof involved in such dispute, including the financial
statements or other information upon which such computations were based. The
determination of such accounting firm shall, in the absence of manifest error,
be conclusive and binding.
8.5 Deferral of Issuance of Additional Shares. In any case in which
Subsection 8.4 provides that an adjustment shall become effective immediately
after a record date for an event and the date fixed for conversion pursuant to
Section 8 occurs after such record date but before the occurrence of such event,
the Company may defer until the actual occurrence of such event (a) issuing to
the Holder of any share of Series B Preferred Stock surrendered for conversion
the additional shares of Common Stock issuable upon such conversion by reason of
the adjustment required by such event over and above the Common Stock issuable
upon such conversion before giving effect to such adjustment and (b) paying to
such Holder any amount in cash in lieu of
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any fraction pursuant to Subsection 8.4 hereof.
8.6 Computation of Outstanding Common Stock. For purposes of this Section
8, the number of shares of Common Stock at any time outstanding shall not
include any shares of Common Stock then owned or held by or for the account of
the Company or any corporation controlled by the Company.
8.7 Multiple Adjustments in a Single Transaction. Notwithstanding any other
provision herein to the contrary, the issuance of any shares of Common Stock
pursuant to any plan providing for the reinvestment of dividends or interest
payable on securities of the Company and the investment of additional optional
amounts in shares of Common Stock under any such plan shall not be deemed to
constitute an issuance of Common Stock. There shall be no adjustment of the
Conversion Price in case of the issuance of any stock of the Company in a
reorganization, acquisition or other similar transaction except as specifically
set forth in this Section 8. If any action or transaction would require
adjustment of the Conversion Price pursuant to more than one Section of this
Section 8, only one adjustment shall be made and such adjustment shall be the
amount of adjustment which has the highest absolute value.
8.8 Further Adjustment by the Board of Directors. In case the Company shall
take any action affecting the Common Stock, other than action described in this
Section 8, which in the opinion of the Board of Directors would materially and
adversely affect the conversion rights of the Holders of the shares of Series B
Preferred Stock, the Fixed Conversion Price for the Series B Preferred Stock may
be adjusted lower, to the extent permitted by law, in such manner, if any, and
at such time, as the Board of Directors may determine to be equitable in the
circumstances.
8.9 Payment of Documentary Stamp and Transfer Taxes. The Company will pay
any and all documentary stamp or similar issue or transfer taxes payable in
respect of the issue or delivery of the shares of Series B Preferred Stock (or
any other securities issued on account of the Series B Preferred Stock pursuant
hereto) or shares of Common Stock on conversion of the Series B Preferred Stock
pursuant hereto; provided, however, that the Company shall not be required to
pay any tax which may be payable in respect of any transfer involved in the
issue or delivery of shares of Series B Preferred Stock (or any other securities
issued on account of the Series B Preferred Stock pursuant hereto) or shares of
Common Stock in a name other than the name in which the shares of Series B
Preferred Stock with respect to which such Common Stock shares are issued were
registered and the Company shall not be required to make any issue or delivery
unless and until the person requesting such issue or delivery has paid to the
Company the amount of any such tax or has established, to the reasonable
satisfaction of the Company, that such tax has been paid or is not required to
be paid.
8.10 Reservation of Common Stock. The Company shall reserve and keep
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available out of its authorized but unissued Common Stock such number of shares
of Common Stock as shall from time to time be sufficient to effect conversion of
the Convertible Preferred Stock.
9. Ranking. Except for not more than $5,000,000 of Preferred Stock which,
at issuance, may be declared by the Company's Board of Directors to be senior to
the Series B Preferred Stock (provided that such Preferred Stock is sold at a
price equal to its fair market value), any class or classes of stock of the
Company now existing or hereafter designated, other than the Company's
Series A Preferred Stock, shall be deemed to rank junior to the Series B
Preferred Stock, as to dividends or as to the distribution of assets upon
liquidation, dissolution or winding up.
10. Voting.
10.1 Voting Rights with Common Stock. The Holders of Series B Preferred
Stock shall be entitled to notice of any stockholders' meeting in accordance
with the By-Laws of the Company, and shall be entitled to one (1) vote for
each share of Series B Preferred Stock on all matters submitted to the
stockholders for approval. With respect to matters affecting only the Series B
Preferred Stock, each outstanding share of Preferred Stock will be entitled to
one vote. In either case described in this Section 10, shares held by the
Company or any entity controlled by the Company shall be excluded and shall have
no voting rights.
10.2 Board Representation. So long as there remain at least 500,000 shares
of Series B Preferred Stock outstanding, the Holders of the Series B Preferred
Stock shall be entitled to nominate and elect two-fifths of the number of
directors on the Board of Directors, which number shall be rounded up to the
nearest whole number in the event the number of directors on the Board of
Directors is other than 5. So long as the Series B Preferred Stock shall have
nominated any member of the Board of Directors, the Company shall maintain
officers' and directors' liability insurance with coverage of not less than
$5,000,000.
11. Events of Default.
11.1 Events of Default Defined. Each of the events specified in the
following Subsections 11.1(a) through (d) shall, upon written notice of default
from Holders of a majority of the outstanding shares of Series B Preferred
Stock, be an Event of Default, provided that an Event of Default may be waived
in writing by such Holders.
(a) the Company shall breach or default in the performance of or
compliance with, any representation or warranty, covenant,
agreement, condition or term contained in this Certificate of
Designations, including the payment of any dividend hereunder,
and such default shall not have been remedied within thirty (30)
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days after written notice thereof shall have been given to the
Company; or
(b) the Company or any operating subsidiary shall make an assignment
for the benefit of creditors, or shall admit in writing its
inability to pay its debts as they become due, or an order for
relief is entered against the Company or such operating
subsidiary under any bankruptcy laws or the Company or any such
operating subsidiary shall file any petition or answer seeking
for itself any reorganization, arrangement, composition,
readjustment, dissolution or similar relief under any present or
future statute, law or regulation, or shall file an answer
admitting the material allegations of a petition filed against
the Company or such operating subsidiary in any such proceeding,
or shall seek or consent to or acquiesce in the appointment of
any trustee, receiver or liquidator of the Company or such
operating subsidiary, or the Company or its board of directors or
its stockholders shall take any action looking to the dissolution
or liquidation of the Company or such operating subsidiary and
such has not been remedied within 30 days after written notice
thereof shall have been given to the Company; or
(c) within 60 days after the commencement of any proceeding against
the Company or such operating subsidiary seeking any
reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or
future statute, law or regulation, such proceeding shall not have
been dismissed or, within 60 days after the appointment without
the consent or acquiescence of the Company of any trustee,
receiver or liquidator of the Company or such operating
subsidiary of all or any substantial part of the properties of
the Company or such operating subsidiary, such appointment shall
not have been vacated; or
(d) a final judgment which, together with other outstanding final
judgments against the Company, exceeds an aggregate of $250,000,
shall be rendered against the Company and within 90 days after
entry thereof, such judgment shall not have been discharged or
execution thereof stayed pending appeal or, within 60 days after
the expiration of any such stay, such judgment shall not have
been discharged.
11.2 Remedies. The Holders of a majority of the Series B Preferred Stock
outstanding at the time of any Event of Default may proceed to protect and
enforce the
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rights of said Holders by a suit in equity, action at law or other appropriate
proceeding for the specific performance of any agreement contained herein, or
for any injunction against a violation of any of the terms or provisions hereof
or in aid of the exercise of any power granted hereby or by law. The Holders
shall not be required to post bond in connection with such proceedings. The
Company will pay to the Holders thereof such further amount as shall be
sufficient to cover the cost and expense of any action instituted by the Holders
upon such Event of Default, including (without limitation) reasonable attorneys
fees. If the Holders shall give any notice or take any action in respect of a
claimed default, the Company will forthwith give written notice thereof to all
other such Holders at the time outstanding, describing the notices or action and
the nature of the claimed default. No course of dealing and no delay on the part
of any Holders in exercising any right shall operate as a waiver thereof or
otherwise prejudice such Holders' rights. No remedy conferred hereby shall be
exclusive of any other remedy referred to herein or now or hereafter available
at law, in equity, by statute or otherwise.
12. Covenants. In addition to any other rights provided by law or agreement
so long as any shares of the Series B Preferred Stock remain shall be
outstanding, without first obtaining the affirmative vote or written consent of
the Holders of not less than 50% of the shares of Series B Preferred Stock then
outstanding (as adjusted for all subdivisions and combinations), the Company
shall not:
(a) pay or declare any dividend or distribution on any shares of
Common Stock or apply any of its assets to the redemption,
retirement, purchase or other acquisition directly or indirectly,
through subsidiaries or otherwise, of any shares of Common Stock;
(b) issue or sell any shares of its capital stock, or any rights or
options to acquire any shares of its capital stock, other than
(i) issuances of Common Stock upon conversion of the Series B
Preferred Stock, (ii) issuances of Common Stock or Series B
Preferred Stock in the form of dividends payable on shares of
outstanding Common Stock or Series B Preferred Stock,
respectively, and (iii) issuances of up to 1,000,000 shares
(which number shall be proportionately adjusted in the case of
recapitalizations, stock splits, stock dividends or combinations
of shares) of Common Stock upon exercise of options therefor to
officers, directors or employees of, or consultants to, the
Company pursuant to a stock option plan or other employee stock
incentive program approved by the Board of Directors (other than
shares of Common Stock issuable upon exercise of Options
outstanding on the date hereof);
(c) cause or permit, or agree or consent to cause or permit in the
future (upon the happening of a contingency or otherwise) any of
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its property, whether now owned or hereafter acquired, to be
subject to a lien or liens except:
(i) liens securing taxes, assessments or governmental charges
or the claims or demands of materialmen, mechanics,
carriers, warehousemen, landlords and other like persons,
none of which are in default or delinquent;
(ii) liens incurred or deposits made in the ordinary course of
business (A) in connection with workmen's compensation,
unemployment insurance, social security and other like
laws, or (B) to secure the performance of letters of
credit, bids, tenders, sales contracts, leases, statutory
obligations, surety, appeal and performance bonds and other
similar obligations not incurred in connection with the
borrowing of money, the obtaining of advances or the
payment of the deferred purchase price of property;
(iii) attachment, judgment and other similar liens arising in
connection with any court proceedings, provided the
execution or other enforcement of such liens is effectively
stayed and the claims secured thereby are being actively
contested in good faith and by appropriate proceedings;
(iv) reservations, exceptions, encroachments, easements, rights
of way, covenants, conditions, restrictions, leases and
other similar title exceptions or encumbrances affecting
real property provided they do not in the aggregate
materially detract from the value of said properties or
materially interfere with their use in the ordinary conduct
of the Corporation's business; and
(v) liens arising out of debt authorized by the requisite vote
of the Board of Directors.
(d) amend or repeal any provision of, or add any provision to, the
Corporation's Articles of Incorporation or Bylaws if such action
would alter or change the preferences, rights, privileges or
powers of, or the restrictions provided for the benefit of, the
Series B Preferred Stock;
(e) change the general character of its business as constituted as of
the Original Issue Date;
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<PAGE> 17
(f) issue any of its equity securities for consideration other than
cash, other than (i) issuances of Common Stock upon conversion of
the Series B Preferred Stock, (ii) issuances of Common Stock or
Series B Preferred Stock in the form of dividends payable on
shares of outstanding Common Stock or Series B Preferred Stock,
respectively, (iii) issuances of up to 1,000,000 shares (which
number shall be proportionately adjusted in the case of
recapitalizations, stock splits, stock dividends or combinations
of shares) of Common Stock upon exercise of options therefor to
officers, directors or employees of, or consultants to, the
Company pursuant to a stock option plan or other employee stock
incentive program approved by the Board of Directors (without
giving effect to Common Stock issued upon exercise of Options
outstanding on the date hereof), and (iv) acquisitions of other
companies or assets related to the business of the Company;
(g) make or permit to remain outstanding any loan or advance to, or
extend credit other than credit extended in the normal course of
business to any Person who is not an affiliate of the Company, or
guarantee, endorse or otherwise be or become contingently liable,
directly or indirectly, in connection with the obligations, stock
or dividends of, or own, purchase or acquire any stock,
obligations or securities of, or any other interest in, or make
any capital contribution to, any Person, except that the Company
or any subsidiary may:
(i) own, purchase or acquire (A) certificates of deposit of
commercial banks organized under the laws of the United
States (having a capital and surplus in excess of
$50,000,000) and (B) obligations of the United States
Government or any agency thereof, and obligations
guaranteed by the United States Government, in each case
due within one year from the date of purchase and payable
in the United States in United States dollars;
(ii) endorse negotiable instruments for collection or deposit in
the ordinary course of business; and
(iii) permit to make and remain outstanding indebtedness
permitted by clause (d) of this Section 12.
13. Record Holder. The Company may deem and treat the record Holder of any
shares of Series B Preferred Stock as the true and lawful owner thereof for all
purposes, and the Company shall not be affected by any notice to the contrary.
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<PAGE> 18
14. Notice. Except as may otherwise be provided for herein, all notices
referred to herein shall be in writing, and all notices hereunder shall be
deemed to have been given upon receipt. In the case of a notice of conversion
given to the Company as contemplated in Subsection 8.2 hereof, or, in all other
cases, upon the earlier of receipt of such notice or three Business Days after
the mailing of such notice if sent by registered mail (unless first class mail
shall be specifically permitted for such notice under the terms of this
Certificate) with postage prepaid, addressed: if to the Company, as follows:
eSat, Inc.
16250 Harbor Blvd., Bldg G
Fountain Valley, California 92708
Telecopier: (714) 895-2977
Attention: Chief Executive Officer
, or such other place as designated in a written notice to the Holders of the
Series B Preferred Stock, or other agent of the Company designated as permitted
by this Certificate, or, if to any Holder of the Series B Preferred Stock, to
such Holder at the address of such Holder of the Series B Preferred Stock as
listed in the stock record books of the Company; or to such other address as the
Company or Holder, as the case may be, shall have designated by notice similarly
given.
IN WITNESS WHEREOF, this Certificate has been executed on behalf of the
Company by the undersigned on the 27th day of December, 1999.
ESAT, INC.
By:
-------------------------------------
Michael Palmer
President and Chief Executive Officer
-------------------------------------
Chester Noblett, Jr.
Assistant Secretary
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<PAGE> 1
EXHIBIT 3.6
CERTIFICATE OF DESIGNATIONS
OF
SERIES C 6% CONVERTIBLE PREFERRED STOCK
OF
ESAT, INC.
Pursuant to Section 78-195 of the General Corporation Law of Nevada, the
undersigned duly authorized officers of ESAT, INC., a Nevada corporation (the
"Company"), hereby certify that the following resolution was duly adopted on
December 27, 1999, by the Board of Directors of the Company pursuant to
authority conferred on the Board of Directors by the provisions of the Articles
of Incorporation of the Company (as amended) and in accordance with the
provisions of the General Corporation Law of Nevada, and that said resolution
has not been amended or rescinded and is in full force and effect at the date
hereof:
RESOLVED, that pursuant to the authority expressly granted and vested in
the Board of Directors of the Company by the Corporation's Articles of
Incorporation, as amended to date, the Board of Directors hereby creates a new
series of the Corporation's authorized but unissued preferred stock, $.01 par
value per share, to be designated "Series C 6% Convertible Preferred Stock" and
to consist of 50,000 shares, and hereby fixes the voting powers, designations,
preferences and relative, participating, optional or other special rights and
the qualifications, limitations or restrictions thereof:
1. Designation and Definitions.
(a) Designation. A total of 50,000 shares of the Corporation's
previously undesignated Preferred Stock, $.001 par value, shall be designated as
the "Series C Preferred Stock" (hereafter "series C Preferred Stock"). The
original issue price per share of the Series C Preferred Stock shall be $100
(the "Original Issue Price").
(b) Certain Definitions. As used herein, the following terms,
unless the context otherwise requires, have the following respective meanings:
(i) "Common Stock" means the common stock, par value $.001
per share, of the Corporation.
(ii) "Conversion Date" means (i) in the case of a conversion
upon the request of a holder of Series C Preferred Stock, 3 days from the
Conversion Notice Date, and (ii) in the case of a conversion upon the request of
the Corporation, the Conversion Notice Date.
(iii) "Conversion Notice Date" means (i) each date on which
the Corporation receives by telecopy written notice in accordance with Section
5(h) hereof from a holder of Series C Preferred Stock that such holder elects to
convert shares of its Series C Preferred Stock, or (ii) the date on which the
Corporation gives by telecopy written notice to holders of Series C Preferred
Stock to convert shares of Series C Preferred Stock.
<PAGE> 2
(iv) "Conversion Price" means the lesser of 125% of the
closing bid price of the Common Stock on the Trading Day immediately preceding
the [ISSUE DATE] or 85% of the Five Day Average Quoted Price for the five
Trading Days immediately preceding the Conversion Notice Date.
(v) "Discount Rate" means 15%.
(vi) "Dividend Payment Date" shall have the meaning set
forth in Subsection 2.2 hereof.
(vii) "Dividend Payment Record Date" shall have the meaning
set forth in Subsection 2.2 hereof.
(viii) "Dividend Periods" shall mean quarterly dividend
periods commencing on the fifteenth day of January, April, July and October of
each year and ending on and including the day preceding the first day of the
next succeeding Dividend Period (other than the initial Dividend Period which
shall commence on the Original Issue Date.
(ix) "Effective Date" means the date on which a registration
of the Common Stock issuable upon conversion of the Series C Preferred Stock on
Form SB-2 or Form S-3 (or any successor form) is declared effective by the
Securities and Exchange Commission.
(x) "Exchange" shall mean a national securities exchange or
on the NASDAQ SmallCap, National Market System or OTC Bulletin Board Service
(collectively, and as applicable, "NASDAQ") or, if a last asked quotation is not
available for the Common Stock, the last sale price of the Common Stock as
reported by NASDAQ, or if not so reported, as listed in the National Quotation
Bureau, Inc.'s "Pink Sheets."
(xi) "Fair Value" as of a particular date shall mean the
average of the closing bid and asked prices of the Common Stock as reported on
an Exchange. If such quotations are unavailable, or with respect to other
appropriate security, property, assets, business or entity, "Fair Value" shall
mean the fair value of such item as determined by in good faith by the Board of
Directors or, if objected to by a majority of the holders, as determined by
independent firm of accountants.
(xii) "Five Day Average Quoted Price" means the average of
the closing bid price of the Common Stock of the Corporation as reported by the
OTC Bulletin Board (or more senior NASDAQ reporting system) or Bloomberg, for
five) consecutive Trading Days.
(xiii) "Fundamental Change" means: (i) any sale, lease,
exchange or other transfer of all or substantially all of the assets of the
Corporation; or (ii) any merger or consolidation to which the Corporation is a
party. Notwithstanding the foregoing, the following shall not be a Fundamental
Change: A merger or consolidation (a) to which the Corporation is a party; (b)
in which it is the surviving corporation and there is no resulting
reclassification of the outstanding Common Stock; and (c) after giving effect to
which, persons who were, immediately before the consummation or closing of such
merger or consolidation, holders of outstanding
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<PAGE> 3
Common Stock will be the direct or indirect owners of securities of the
Corporation possessing, on a fully diluted basis, at least 51% of the voting
power of all voting securities of the Corporation (excluding, for purposes of
such computation, any such person who also is a party to such merger or
consolidation).
(xiv) "Issue Date" means, with respect to each share of
Series C Preferred Stock held by any holder, the date on which the Corporation
originally issued such share to such holder (regardless of the number of times
transfer of such share is made on the stock transfer books maintained by or for
the Corporation, and regardless of the number of certificates which may be
issued to evidence such share, and irrespective of any subsequent transfer or
other disposition of such share to any other holder).
(xv) "Quoted Price" means the closing bid price of the
Common Stock of the Corporation as reported by an Exchange or Bloomberg.
(xvi) "Trading Day" means a day on which the principal
securities exchange on which the Common Stock is listed or admitted to trading
is open for the transaction of business; or, if the Common Stock is not listed
or admitted to trading on any securities exchange but is listed on the NASDAQ
system (or such other trading system then in use by the National Association of
Securities Dealers, Inc.), a day on which such system is open for the
transaction of business; or, if the foregoing does not apply, any business day.
2. Dividends.
(a) General. The holders of shares of the Series C Preferred
Stock shall be entitled to receive, out of assets legally available therefor,
cumulative dividends at an annual rate of six percent per share (an amount
equivalent to six percent of the Original Issue Price per share) payable to
holders, at the election of the Corporation, in cash or in freely tradable
shares of the Common Stock of the Corporation. The Board shall declare such
dividend quarterly. The number of shares of Common Stock to be issued on any
Dividend Payment Date shall be determined by dividing the amount of the dividend
to be paid by the Fair Value of the Common Stock as of the Dividend Payment
Record Date.
(b) Dividend Preference and Payment Dates. Such dividends shall
be cumulative from the Original Issue Date, whether or not in any Dividend
Period or Periods there shall be assets of the Corporation legally available for
the payment of such dividends and whether or not such dividends are declared,
and shall be payable quarterly, when, as and if declared by the Board of
Directors, on January 15, April 15, July 15, and October 15 in each year (each a
"Dividend Payment Date"), commencing on January 15, 2000. If January 15, 2000 or
any other Dividend Payment Date shall be on a day other than a Business Day,
then the Dividend Payment Date shall be on the next succeeding Business Day.
Each such dividend shall be payable in arrears to the holders of record of
shares of the Series C Preferred Stock, as they appear on the stock records of
the Corporation at the close of business on those dates (each such date, a
"Dividend Payment Record Date"), not less than ten days nor more than 60 days
preceding the dividend payment dates thereof, as shall be fixed by the Board of
Directors. Dividends on the Series C Preferred Stock shall accrue (whether or
not declared) on a daily basis
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<PAGE> 4
from the Original Issue Date and accrued dividends for each Dividend Period
shall accumulate to the extent not paid on the Dividend Payment Date first
following the Dividend Period for which they accrue. As used herein, the term
"accrued" with respect to dividends includes both accrued and accumulated
dividends. Accrued and unpaid dividends for any past Dividend Periods may be
declared and paid at any time, without reference to any regular Dividend Payment
Date, to holders of record on such date, not exceeding 45 days preceding the
payment date thereof, as may be fixed by the Board of Directors.
(c) Computation of Dividends for Partial Dividend Periods;
Payment of Dividends on Shares Called for Redemption. The amount of dividends
payable for each full Dividend Period for the Series C Preferred Stock shall be
computed by dividing the annual dividend rate by four (rounded down to the
nearest cent). The amount of dividends payable for the initial Dividend Period
on the Series C Preferred Stock, or any other period shorter or longer than a
full Dividend Period on the Series C Preferred Stock, shall be computed on the
basis of a 360-day year consisting of twelve 30-day months. No interest, or sum
of money in lieu of interest, shall be payable in respect of any dividend
payment or payments on the Series C Preferred Stock which are in arrears.
(d) Priority and Dividend Participation/Parity Stock.
(i) So long as any shares of the Series C Preferred Stock
are outstanding, no dividends, except as described in the next succeeding
sentence, shall be declared or paid or set apart for payment on any class or
series of stock of the Corporation ranking, as to dividends, on a parity with
the Series C Preferred Stock, for any period unless full cumulative dividends
have been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment thereof set apart for such payment on the Series C
Preferred Stock for all Dividend Periods terminating on or prior to the date of
payment, or setting apart for payment, of such full cumulative dividends on such
parity stock. When dividends are not paid in full or a sum sufficient for such
payment is not set apart, as aforesaid, upon the shares of the Series C
Preferred Stock and any other class or series of stock ranking on a parity as to
dividends with the Series Preferred Stock, all dividends declared upon shares of
the Series Preferred Stock and all dividends declared upon such other stock
shall be declared pro rata so that the amounts of dividends per share declared
on the Series C Preferred Stock and such other stock shall in all cases bear to
each other the same ratio that accrued dividends per share on the shares of the
Series C Preferred Stock and on such other stock bear to each other.
(ii) So long as any shares of the Series C Preferred Stock
are outstanding, no other stock of the Corporation ranking on a parity with the
Series C Preferred Stock as to dividends or upon liquidation, dissolution or
winding up shall be redeemed, purchased or otherwise acquired for any
consideration (or any moneys be paid to or made available for a sinking fund or
otherwise for the purchase or redemption of any shares of any such stock) by the
Corporation (except by conversion into or exchange for stock of the Corporation
ranking junior to the Series C Preferred Stock as to dividends and upon
liquidation, dissolution or winding up) unless (a) the full cumulative
dividends, if any, accrued on all outstanding shares of the Series C Preferred
Stock shall have been paid or set apart for payment
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<PAGE> 5
for all past Dividend Periods and (b) sufficient funds shall have been set apart
for the payment of the dividend for the current Dividend Period with respect to
the Series C Preferred Stock.
(e) Priority and Dividend Participation/Junior Stock. So long as
any shares of the Series C Preferred Stock are outstanding, no dividends (other
than dividends or distributions paid in shares of, or options, warrants or
rights to subscribe for or purchase shares of, Common Stock or other stock
ranking junior to the Series C Preferred Stock as to dividends and upon
liquidation, dissolution or winding up) shall be declared or paid or set apart
for payment and no other distribution shall be declared or made or set apart for
payment, in each case upon the Common Stock or any other stock of the
Corporation ranking junior to the Series C Preferred Stock as to dividends or
upon liquidation, dissolution or winding up, nor shall any Common Stock nor any
other such stock of the Corporation ranking junior to the Series C Preferred
Stock as to dividends or upon liquidation, dissolution or winding up be
redeemed, purchased or otherwise acquired for any consideration (or any moneys
be paid to or made available for a sinking fund or otherwise for the purchase or
redemption of any shares of any such stock) by the Corporation (except by
conversion into or exchange for stock of the Corporation ranking junior to the
Series C Preferred Stock as to dividends and upon liquidation, dissolution or
winding up) unless, in each case (a) the full cumulative dividends, if any,
accrued on all outstanding shares of the Series C Preferred Stock and any other
stock of the Corporation ranking on a parity with the Series C Preferred Stock
as to dividends shall have been paid or set apart for payment for all past
Dividend Periods and all past dividend periods with respect to such other stock
and (b) sufficient funds shall have been set apart for the payment of the
dividend for the current Dividend Period with respect to the Series C Preferred
Stock and for the current dividend period with respect to any other stock of the
Corporation ranking on a parity with the Series C Preferred Stock as to
dividends.
3. Liquidation, Dissolution or Winding Up.
(a) Treatment at Liquidation, Dissolution or Winding Up. In the
event of any liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, or in the event of its insolvency, before any
distribution or payment is made to any holders of Common Stock or any other
class or series of capital stock of the Corporation designated to be junior to
the Series C Preferred Stock, and subject to the liquidation rights and
preferences of any class or series of Preferred Stock designated by the Board of
Directors in the future to be senior to or on a parity with the Series C
Preferred Stock with respect to liquidation preferences, the holder of each
share of Series C Preferred Stock shall be entitled to be paid first out of the
assets of the Corporation available for distribution to holders of the
Corporation's capital stock of all classes, whether such assets are capital,
surplus or earnings, an amount equal to the Original Issue Price per share of
Series C Preferred Stock held by any holder (the "Liquidation Value"). For
purposes hereof, the Series C Preferred Stock shall rank on liquidation senior
to the Corporation's Series A Preferred Stock and Series B Preferred Stock.
If, upon liquidation, dissolution or winding up of the
Corporation, the assets of the Corporation available for distribution to its
stockholders shall be insufficient to pay the holders of the Series C Preferred
Stock the full amount to which they otherwise would be
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<PAGE> 6
entitled, the holders of Series C Preferred Stock shall share ratably in any
distribution of available assets pro rata in proportion to the respective
liquidation preference amounts which would otherwise be payable upon liquidation
with respect to the outstanding shares of the Series C Preferred Stock if all
liquidation preference amounts with respect to such shares were paid in full,
based upon the aggregate Liquidation Value payable upon all shares of Series C
Preferred Stock then outstanding.
After such payment shall have been made in full to the holders of
the Series C Preferred Stock, or funds necessary for such payment shall have
been set aside by the Corporation in trust for the account of holders of the
Series C Preferred Stock so as to be available for such payment, the remaining
assets available for distribution shall be distributed ratably among the holders
of the Common Stock and any class or series of capital stock designated to be
junior to the Series C Preferred Stock (if any) in right of payment upon any
liquidation, dissolution or winding up of the Corporation.
The amounts set forth above shall be subject to equitable
adjustment by the Board of Directors whenever there shall occur a stock
dividend, stock split, combination, reorganization, recapitalization,
reclassification or other similar event involving a change in the capital
structure of the Series C Preferred Stock.
(b) Distributions Other Than Cash. Whenever the distributions
provided for in this Section shall be payable in property other than cash, the
value of such distribution shall be the fair market value of such property as
determined in good faith by the Board of Directors. All distributions (including
distributions other than cash) made hereunder shall be made pro rata to the
holders of Series C Preferred Stock.
(c) Events Not Deemed A Liquidation. A Fundamental Change will
not be deemed to be a liquidation, dissolution or winding up of the Corporation
under this Section 3.
4. Voting Power.
(a) General. Except as expressly provided in this Section 4 or as
otherwise required by the General Corporation Law of the State of Nevada, each
holder of Series C Preferred Stock shall be entitled to vote on all matters and
shall be entitled to that number of votes equal to the largest number of whole
shares of Common Stock into which such holder's shares of Series C Preferred
Stock could be converted, pursuant to the provisions of Section 5 hereof, at the
record date for the determination of stockholders entitled to vote on any matter
or, if no such record date is established, at the date such vote is taken or any
written consent of stockholders is solicited. Except as otherwise required by
law, the holders of shares of Series C Preferred Stock and Common Stock shall
vote together (or render written consent in lieu of a vote) as a single class on
all matters submitted to the stockholders of the Corporation. The determination
as to the number of "whole shares" shall be based upon the aggregate number of
shares of Series C Preferred Stock held by each holder, not upon each share of
Series C Preferred Stock so held by the holder.
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<PAGE> 7
(b) Amendments to Charter. For so long as there are any shares of
Series C Preferred Stock outstanding, the Corporation shall not amend its
Articles of Incorporation or this Certificate of Designation without the
approval, by vote or written consent, of the holders of at least a majority of
the then outstanding shares of Series C Preferred Stock, voting together as a
class, each share of Series C Preferred Stock to be entitled to one vote in each
instance, if such amendment would adversely affect the rights of the holders of
Series C Preferred Stock; provided that the creation, or increase in the
authorized number of shares, of any class or series of stock ranking senior to
or on a parity with the Series C Preferred Stock either as to dividends or upon
liquidation shall not be deemed to adversely affect the rights of the holders of
Series C Preferred Stock for purposes of this Section 4(b).
5. Conversion Rights.
(a) Conversion. Subject to Section 6 and as provided elsewhere in
this Section 5, each holder of Series C Preferred Stock shall have the right, at
such holder's option, to convert any of the shares of Series C Preferred Stock
held by such holder into such number of fully paid and nonassessable shares of
Common Stock as shall be determined by multiplying the number of shares of
Series C Preferred Stock to be converted by a fraction, the numerator of which
is the Original Issue Price, and the denominator of which is the Conversion
Price pursuant to the following schedule: (i) 16,666 shares of Series C
Preferred Stock at any time after the Effective Date; (ii) an additional 16,666
shares of Series C Peferred Stock commencing on the 60th day after the Effective
Date; and (iii) the balance of the Series C Preferred Stock commencing on the
90th day after the Effective Date; provided that in no event shall any holder of
Series C Preferred Stock convert more than 20% of such holder's shares of Series
C Preferred Stock in any period of five consecutive Trading Days.
Notwithstanding anything to the contrary in the previous sentence, if the Quoted
Price declines below $2.00 per share, the Corporation may suspend conversions
once only for up to ten Trading Days. On or after the second anniversary of the
date hereof, the Corporation may, at its option, by giving written notice to the
holders of shares of Series C Preferred Stock to be converted, convert all
outstanding shares of Series C Preferred Stock into such number of fully paid
and non-assessable shares of Common Stock as shall be determined by multiplying
the number of shares of Series C Preferred Stock to be converted by a fraction,
the numerator of which is the Original Issue Price, and the denominator of which
is the Conversion Price.
(b) Limitation on Number of Shares. Notwithstanding anything set
forth in this Section 5 to the contrary, other than upon the delivery of a
Redemption Notice or upon a Fundamental Change, no holder of Series C Preferred
Stock shall be entitled to convert Series C Preferred Stock into shares of
Common Stock to the extent that such conversions when taken together with all
other conversions of shares of Series C Preferred Stock shall exceed 19.9% of
the issued and outstanding shares of Common Stock of the Corporation on the date
hereof, provided that if such conversion is to exceed 19.9%, the Corporation
shall redeem any shares of Series C Preferred Stock submitted for conversion in
excess of 19.9% for an amount equal to (x) the Original Issue Price, divided by
(y) one minus the Discount Rate. In addition, notwithstanding anything herein to
the contrary, except in the event of a Fundamental Change, no holder of Series C
Preferred Stock shall have the right, and the Corporation shall not have the
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<PAGE> 8
obligation, to convert all or any portion of the Series C Preferred Stock if and
to the extent that the issuance to such holder of shares of Series C Preferred
Stock upon such conversion would result in such holder being deemed the
beneficial owner of more than 4.99% of the then outstanding shares of Common
Stock within the meaning of Section 13(d) of the Securities Exchange Act of
1934, as amended, and the rules promulgated thereunder.
(c) Dividends Other Than Common Stock Dividends. In the event the
Corporation shall make or issue, or shall fix a record date for the
determination of holders of Common Stock entitled to receive a dividend or other
distribution (other than a distribution in liquidation or other distribution
otherwise provided for herein) with respect to the Common Stock payable in (i)
securities of the Corporation other than shares of Common Stock or (ii) other
assets (excluding cash dividends or distributions), then and in each such event
provision shall be made so that the holders of the Series C Preferred Stock
shall receive upon conversion thereof in addition to the number of shares of
Common Stock receivable thereupon, the number of securities or such other assets
of the Corporation which they would have received had their Series C Preferred
Stock been converted into Common Stock on the date of such event and had they
thereafter, during the period from the date of such event to and including the
Conversion Date, retained such securities or such other assets receivable by
them during such period, giving application to all other adjustments called for
during such period under this Section 5 with respect to the rights of the
holders of the Series C Preferred Stock.
(d) Subdivision or Combination of Common Stock. In case the
Corporation shall at any time subdivide (by any stock split, stock dividend or
otherwise) its outstanding shares of Common Stock into a greater number of
shares, the Conversion Price in effect immediately prior to such subdivision
shall be proportionately reduced, and, conversely, in case the outstanding
shares of Common Stock shall be combined into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination shall be
proportionately increased.
(e) Capital Reorganization or Reclassification. If the Common
Stock issuable upon the conversion of the Series C Preferred Stock shall be
changed into the same or different number of shares of any class or classes of
capital stock, whether by capital reorganization, recapitalization,
reclassification or otherwise (other than a subdivision or combination of shares
or stock dividend provided for elsewhere in this Section 5, or the sale of all
or substantially all of the Corporation's capital stock or assets to any other
person), then and in each such event the holders of Series C Preferred Stock
shall have the right thereafter to convert such shares into the kind and amount
of shares of capital stock and other securities and property receivable upon
such reorganization, recapitalization, reclassification or other change by the
holders of the number of shares of Common Stock into which such shares of Series
C Preferred Stock might have been converted immediately prior to such
reorganization, recapitalization, reclassification or change, all subject to
further adjustment as provided herein.
(f) Mandatory Conversion - Fundamental Change. If any Fundamental
Change shall occur, then each share of Series C Preferred Stock outstanding as
of the date of the consummation or closing thereof shall be (and be deemed to
have been) converted automatically,
8
<PAGE> 9
without any further action by the holders thereof, into such number of fully
paid and nonassessable shares of Common Stock as shall be determined by
multiplying the number of shares of Series C Preferred Stock outstanding on the
date of such consummation or closing date by a fraction, the numerator of which
is the Original Issue Price, and the denominator of which is the Conversion
Price. Such conversion shall be deemed to have occurred whether or not the
certificates representing such shares are surrendered to the Corporation or its
transfer agent.
The Corporation shall give notice of a proposed or anticipated
Fundamental Change to all holders of the Series C Preferred Stock not later than
30 days before the expected closing or consummation of such Fundamental Change.
The Corporation also shall give prompt notice of the closing or consummation of
such Fundamental Change to all holders of record of the Series C Preferred Stock
as of the date of such closing or consummation. Each holder of Series C
Preferred Stock shall thereupon promptly surrender for conversion, to the
Corporation at its principal office or to any transfer agent for the Series C
Preferred Stock or the Common Stock, all certificates representing all shares of
Series C Preferred Stock held by such holder, accompanied by a written notice
specifying the name or names in which such holder wishes the certificate(s) for
shares of Common Stock to be issued.
(g) Certificate as to Adjustments; Notice by Corporation. In each
case of an adjustment or readjustment of the Conversion Price, the Corporation
at its expense will furnish each holder of Series C Preferred Stock so affected
with a certificate prepared by an officer of the Corporation, showing such
adjustment or readjustment, and stating in detail the facts upon which such
adjustment or readjustment is based.
(h) Exercise of Conversion Privilege. To exercise its conversion
privilege, a holder of Series C Preferred Stock shall give written notice by
telecopy to the Corporation at its principal office that such holder elects to
convert shares of its Series C Preferred Stock and shall thereafter surrender
the original certificate(s) representing the shares being converted to the
Corporation at its principal office, or, if so directed by the Corporation, to
the Corporation's transfer agent, together with an originally executed copy of
such notice. Such notice shall also state the name or names (with its address or
addresses, as well as the address(es) for delivery) in which the certificate(s)
for shares of Common Stock issuable upon such conversion shall be issued. The
certificate(s) for the shares of Series C Preferred Stock surrendered for
conversion shall be accompanied by proper assignment thereof to the Corporation
or in blank. As promptly as practicable after the Corporation receives the
original certificate(s) for the shares of Series C Preferred Stock surrendered
for conversion, the proper assignment thereof to the Corporation or in blank and
the original notice of conversion (collectively, the "ORIGINAL DOCUMENTATION"),
but in no event more than three Trading Days after the later of the
Corporation's receipt of the Original Documentation and the Conversion Date (the
"Delivery Date"), the Corporation shall issue and shall deliver to the holder of
the shares of Series C Preferred Stock being converted, at the addresses set
forth therefor by the holder, such certificate(s) as it may request for the
number of whole shares of Common Stock issuable upon the conversion of such
shares of Series C Preferred Stock in accordance with the provisions of this
Section 5, and cash, as provided in Section 5(i), in respect of any fraction of
a share of Common Stock issuable upon such conversion. Such conversion or any
conversion upon the
9
<PAGE> 10
request of the Corporation shall be deemed to have been effected immediately
prior to the close of business on the applicable Conversion Date, and at such
time the rights of the holder as holder of the converted shares of Series C
Preferred Stock shall cease and the person(s) in whose name(s) any
certificate(s) for shares of Common Stock shall be issuable upon such conversion
shall be deemed to have become the holder(s) of record of the shares of Common
Stock represented thereby.
(i) Cash in Lieu of Fractional Shares. No fractional shares of
Common Stock or scrip representing fractional shares shall be issued upon the
conversion of shares of Series C Preferred Stock. Instead of any fractional
shares of Common Stock that would otherwise be issuable upon conversion of
Series C Preferred Stock, the Corporation shall pay to the holder of the share
of Series C Preferred Stock being converted a cash adjustment in respect of such
fractional shares in an amount equal to the same fraction of the market price
per share of the Common Stock (as determined in a reasonable manner prescribed
by the Board of Directors) at the close of business on the Conversion Date. The
determination as to whether or not any fractional shares are issuable shall be
based upon the aggregate number of shares of Series C Preferred Stock being
converted at any one time by any holder thereof, not upon each share of Series C
Preferred Stock being converted.
(j) Partial Conversion. In the event some but not all of the
shares of Series C Preferred Stock represented by a certificate(s) surrendered
by a holder are converted, the Corporation shall execute and deliver to or on
the order of the holder, at the expense of the Corporation, a new certificate
representing the number of shares of Series C Preferred Stock which were not
converted. Such new certificate shall be so delivered on or prior to the date
set forth in Section 5(h) for the delivery of certificates for shares of Common
Stock.
(k) Reservation of Common Stock. The Corporation shall at all
times reserve and keep available out of its authorized but unissued shares of
Common Stock, solely for the purpose of effecting the conversion of the shares
of the Series C Preferred Stock, such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series C Preferred Stock (including any shares of
Series C Preferred Stock represented by any warrants, options, subscription or
purchase rights for the Series C Preferred Stock), and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all then outstanding shares of the Series C Preferred
Stock (including any shares of Series C Preferred Stock represented by any
warrants, options, subscriptions or purchase rights for the Series C Preferred
Stock), then the Corporation shall use all means reasonably available to it, and
promptly take any and all actions as may be necessary, to increase its
authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purpose.
10
<PAGE> 11
(l) Delivery of Common Stock. In the event that due to the
Corporation's direct or indirect actions or to its failure to act (the
"Corporation's Actions"), the Corporation fails to deliver the number of whole
shares of Common Stock issuable upon conversion pursuant to Section 5(i) (the
"Conversion Stock") within five business days following the Delivery Date, the
Corporation shall pay late payments to the holder seeking conversion (the
"Converting Holder") pursuant to the following schedule: (i) for the sixth
business day following the Delivery Date, $100 for each $10,000 of Liquidation
Value of Conversion Stock, (ii) for the seventh business day following the
Delivery Date, $200 for each $10,000 of Liquidation Value of Conversion Stock,
(iii) for the eighth business day following the Delivery Date, $300 for each
$10,000 of Liquidation Value of Conversion Stock, (iv) for the eighth business
day following the Delivery Date, $400 for each $10,000 of Liquidation Value of
Conversion Stock, (v) for the ninth business day following the Delivery Date,
$500 for each $10,000 of Liquidation Value of Conversion Stock, for the tenth or
more business day following the Delivery Date, $500 plus an additional $100 for
each $10,000 of Liquidation Value of Conversion Stock for each additional
business day in which the Conversion Stock is not delivered. Corporation's
Actions shall not include delays by the Corporation's transfer agent which are
entirely beyond the control of the Corporation.
The Corporation shall pay any payments incurred under this
Section 5(l) in immediately available funds upon demand. Nothing herein shall
limit the Converting Holder's right to pursue actual damages for the
Corporation's Actions resulting in the Corporation's failure to issue and
deliver the Conversion Stock to the Converting Holder. Furthermore, in addition
to any other remedies which may be available to the to the Converting Holder, in
the event that due to the Corporation's Actions, the transfer agent fails to
deliver such shares of Common Stock within five business days after the Delivery
Date, the Converting Holder will be entitled to revoke the relevant Notice of
Conversion by delivering a notice to such effect to the Corporation whereupon
the Corporation and the Converting Holder shall each be restored to their
respective positions immediately prior to delivery of such notice of conversion.
If, by the relevant Delivery Date, due to the Corporation's
Actions, the transfer agent fails for any reason to deliver the Conversion Stock
and after such Delivery Date, the Converting Holder purchases, in an open market
transaction or otherwise, shares of Common Stock (the "Covering Shares") solely
in order to make delivery in satisfaction of a sale of Common Stock by the
Converting Holder (the "Sold Shares"), which delivery such Converting Holder
anticipated to make using the Conversion Stock (a "Buy-In"), the Corporation
shall pay to the Converting Holder, in addition to any other amounts due to such
holder hereunder, and not in lieu thereof, the Buy-In Adjustment Amount (as
defined below). The "Buy In Adjustment Amount" is the amount equal to the
excess, if any, of (x) the Converting Holder's total purchase price (including
brokerage commissions, if any) for the Converting Shares over (y) the net
proceeds (after brokerage commissions, if any) received by the Converting Holder
from the sale of the Sold Shares. The Corporation shall pay the Buy-In
Adjustment Amount to the Purchaser in immediately available funds immediately
upon demand by the Converting Holder. By way of illustration and not in
limitation of the foregoing, if the Converting Holder purchases shares of Common
Stock having a total purchase price (including brokerage commissions) of $11,000
to cover a Buy-In with respect to shares of Common Stock it sold for net
proceeds of $10,000, the
11
<PAGE> 12
Buy-In Adjustment Amount which Corporation will be required to pay to the
Converting Holder will be $1,000.
6. Redemption Rights. At the Corporation's option, at any time, the
Corporation may redeem all or any of the then outstanding shares of Series C
Preferred Stock by giving written notice to the holders of shares of Series C
Preferred Stock to be redeemed (the "Redemption Notice") of its election to
redeem such shares. The Corporation shall pay in cash an amount equal to the
Redemption Price as defined below by wire transfer within seven days after the
Redemption Notice ("Redemption Payment Date").
Each holder of shares of Series C Preferred Stock being redeemed
shall, promptly after receipt of the Redemption Notice surrender for redemption
to the Corporation at its principal office or to any transfer agent for the
Series C Preferred Stock or the Common Stock all certificates representing all
shares of Series C Preferred Stock held by such holder, accompanied by a written
notice specifying the name or names and address or wire transfer information in
which such holder wishes the redemption payment to be made.
Effective as of the close of business on the date of the
Redemption Notice, each share of Series C Preferred Stock then outstanding shall
be (and be deemed to have been) redeemed automatically, without any further
action by the holders. Such redemption shall be deemed to have occurred whether
or not the certificates representing such shares are surrendered to the
Corporation or its transfer agent and shall cut off and supersede any pending
conversion; provided, however, that, if the Corporation does not pay the
Redemption Price by the Redemption Payment Date, the redemption will be deemed
null and void, the Series C Preferred Stock shall remain outstanding, and the
Corporation shall lose its right to redeem any further shares of Series C
Preferred Stock.
The price per share of Series C Preferred Stock to be redeemed
(the "Redemption Price") shall be determined as follows: (i) if the Quoted Price
on the date of the Redemption Notice ("Redemption Notice Date") is $2.00 per
share or more, the Redemption Price shall be equal to the economic benefit a
holder of Series C Preferred Stock would realize (before taxes and brokerage
commissions) from converting the Series C Preferred Stock to Common Stock and
selling it on the Redemption Notice Date; or (ii) if the Quoted Price on the
Redemption Notice Date is below $2.00 per share, the Redemption Price shall be
determined pursuant to the following schedule:
12
<PAGE> 13
<TABLE>
<CAPTION>
Redemption Price as
a Percentage of the Original Issue
Redemption within x months Price
of Issue Date where x =
<S> <C>
0 - 6 117.5%
7 - 9 120.0%
10 - 12 125.0%
12+ 130.0%
</TABLE>
7. Notices of Record Date. In the event of any:
(a) taking by the Corporation of a record of the holders of any
class of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of capital stock of any
class or any other securities or property, or to receive any other right;
(b) capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the Corporation,
any merger or consolidation of the Corporation, or any transfer of all or
substantially all of the assets of the Corporation to any other Corporation, or
any other entity or person; or
(c) voluntary or involuntary dissolution, liquidation or winding
up of the Corporation, then and in each such event the Corporation shall
telecopy and thereafter mail or cause to be mailed to each holder of Series C
Preferred Stock a notice specifying (i) the date on which any such record is to
be taken for the purpose of such dividend, distribution or right and a
description of such dividend, distribution or right, (ii) the date on which any
such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding up is expected to
become effective, and (iii) the time, if any, that is to be fixed, as to when
the holders of record of Common Stock (or other securities) shall be entitled to
exchange their shares of Common Stock (or other securities) for securities or
other property deliverable upon such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding up. Such notice shall be telecopied and thereafter mailed by first class
mail, postage prepaid, or by express overnight courier service, at least ten
days prior to the date specified in such notice on which such action is to be
taken.
8. General.
(a) Replacement of Certificates. Upon the Corporation's receipt,
from the holder of any certificate evidencing shares of Series C Preferred
Stock, of evidence reasonably satisfactory to the Corporation (an affidavit of
such holder will be satisfactory) of the ownership and the loss, theft,
destruction or mutilation of such certificate, and in the case of any such loss,
theft or destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation, and in the case of any such mutilation, upon surrender of such
certificate, the Corporation (at its expense) shall execute and deliver to such
holder, in lieu of such certificate, a new certificate that represents the
number of shares represented by, is dated the date of, is issued in the name of
the
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<PAGE> 14
holder of, and is substantially identical in form of, such lost, stolen,
destroyed or mutilated certificate.
(b) Payment of Taxes. The Corporation shall pay all taxes (other
than taxes based upon income) and other governmental charges that may be imposed
in connection with the issuance or delivery of any shares of Common Stock (or
other of the Corporation's securities) that results from the conversion of
shares of Series C Preferred Stock pursuant to this Certificate of Designations.
If the Corporation, pursuant to a notice from a holder of any shares of Series C
Preferred Stock, effects the issuance or delivery of any shares of Common Stock
(or other of the Corporation's securities) in any name(s) other than such
holder's name, then such holder shall deliver to the Corporation with the
aforesaid notice (i) all transfer taxes and other governmental charges payable
upon the issuance or delivery of securities in such other name(s) or (ii)
evidence satisfactory to the Corporation that such taxes and charges have been
or shall be paid in full.
(c) Status of Redeemed or Converted Shares. Shares of Series C
Preferred Stock that are redeemed, converted or otherwise acquired by the
Corporation in any manner (including by purchase or exchange) shall be canceled
and upon cancellation (i) shall no longer be deemed to be outstanding, (ii)
shall become authorized but unissued shares of preferred stock undesignated as
to series, and (iii) may be reissued as part of another series of preferred
stock.
IN WITNESS WHEREOF, this Certificate has been executed on behalf of the
Company by the undersigned on the 28th day of December 1999.
ESAT, INC.
By: /s/ MICHAEL PALMER
Michael Palmer
President and Chief Executive Officer
<PAGE> 1
EXHIBIT 5
[ARTER & HADDEN LLP Letterhead]
January 25, 2000
To the Addressees on Attachment A
Re: Validly issued, fully paid and non-assessable Common Stock of eSat, Inc.
Ladies and Gentlemen:
We have acted as counsel to eSat, Inc. (the "Company") in connection
with the sale by certain Selling Shareholders of up to 9,000,000 shares (the
"Shares") of the Common Stock, par value $.001 per share, of the Company in a
public offering being registered under the Securities Act of 1933 in a
registration statement on Form SB-2 (the "Registration Statement"). In that
capacity, we are familiar with the proceedings, corporate and other, relating to
the authorization and issuance of the Shares.
Based on the foregoing, and such other examination of law and fact as we
have deemed necessary, we are of the opinion that the Shares offered by the
Selling Shareholders (as defined in the Registration Statement) will be validly
issued, fully paid and non-assessable when issued to them.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the caption "Legal
Matters" in the prospectus, which is a part of the Registration Statement.
Sincerely,
Arter & Hadden LLP
/s/ Arter & Hadden LLP
<PAGE> 1
EXHIBIT 10.6
WARRANT AGREEMENT
Between
ESAT, INC.
and
CORPORATE FINANCIAL ENTERPRISES, INC.
Dated as of September 17, 1999
THE WARRANTS AND WARRANT SECURITIES TO BE RECEIVED UPON EXERCISE OF THE WARRANTS
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR QUALIFIED UNDER ANY STATE SECURITIES LAWS. THE WARRANTS
AND WARRANT SECURITIES, AS THE CASE MAY BE, MAY NOT BE OFFERED, SOLD, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED, WHETHER OR NOT FOR CONSIDERATION, IN THE
ABSENCE OF (1) AN EFFECTIVE REGISTRATION STATEMENT AND QUALIFICATION IN EFFECT
WITH RESPECT TO THE WARRANTS AND WARRANT SECURITIES, AS THE CASE MAY BE, UNDER
THE SECURITIES ACT AND UNDER ANY APPLICABLE STATE SECURITIES LAWS OR (2) AN
EXEMPTION FROM SUCH REGISTRATION AND QUALIFICATION.
<PAGE> 2
WARRANT AGREEMENT
THIS WARRANT AGREEMENT (this "Agreement") is dated as of the 17th day of
September, 1999, and executed by between eSat, Inc., a Nevada corporation (the
"Company") and Corporate Financial Enterprises, Inc., a Delaware corporation
(the "Consultant").
WHEREAS, the Company has agreed to grant to Consultant or its assigns
common stock purchase warrants in substantially the form attached hereto as
Exhibit A hereto (the "Warrants") to acquire up to an aggregate of 600,000
shares of the Company's Common Stock (the "Exercise Quantity"). This Agreement
sets forth certain rights and obligations of the Company and Consultant with
respect to the Warrants.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants,
representations, warranties and agreements contained in this Agreement, the
parties hereto agree as follows:
I. DEFINITIONS
Section 1.01 Defined Terms. As used in this agreement, the following
capitalized terms shall have the meanings respectively assigned to them below,
which meanings shall be applicable equally to the singular and plural forms of
the terms so defined.
"Common Stock" shall mean the common stock, par value $0.01, of the
Company.
"Common Stock Equivalents" shall mean all options, warrants (including,
without limitation, the Warrants), securities of any kind (including, without
limitation, securities convertible into or exchangeable or exercisable for
Common Stock) and other rights (in each case whether now existing or hereafter
issued or arising) to acquire from the Company shares of Common Stock (without
regard to whether such options, warrants, securities and other rights are then
exchangeable, exercisable or convertible in full, in part or at all).
"Company" shall have the meaning set forth in the preamble.
"Dividend" means, as to any Person, any declaration or payment of any
dividend or distribution (other than a dividend of Common Stock) on, or the
making of any pro rata distribution, loan, advance, or investment to, any shares
of capital stock of such Person.
"Exchange" means the NASDAQ SmallCap, National Market System or OTC
Bulletin Board Service (collectively, and as applicable, "NASDAQ") or, if such
quotations are not available for the Common Stock, the last sale price of the
Common Stock as reported by NASDAQ, or if not so reported, as listed in the
National Quotation Bureau, Inc.'s "Pink Sheets."
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder, and any successor
provisions thereto.
<PAGE> 3
"Exercise Price" shall have the meaning given in each Warrant. The initial
Exercise Price shall be (i) as to 150,000 Warrants, $4.25, (ii) as to 150,000
Warrants, $5.25, (iii) as to 100,000 Warrants, $6.25, and (iii) as to 200,000
Warrants, $8.50. The Exercise Price and the number of shares of Common Stock
purchasable pursuant to the Warrants shall be subject to adjustment from time to
time as hereinafter set forth in Article V hereof.
"Expiration Period" means September 17, 2009.
"Exercise Quantity" shall mean the number of shares of Common Stock,
determined from time to time, taking into account all shares of Common Stock
theretofore issued upon exercise of the Warrants, required to be issued by the
Company to the holders of the Warrants. Exercise Quantity shall initially have
the meaning given in each Warrant, and may be adjusted from time to time,
pursuant to the provisions of the Warrants and this Agreement.
"Fair Value" as of a particular date shall mean the closing asked price of
the Common Stock as reported on an Exchange. If such quotations are unavailable,
or with respect to other appropriate security, property, assets, business or
entity, "Fair Value" shall mean the fair value of such item as determined by
mutual agreement reached by the Holder and the Company or, in the event the
parties are unable to agree, an opinion of an independent investment banking
firm or firms in accordance with the following procedure. In the case of any
event which gives rise to a requirement to determine "Fair Value" pursuant to
this Agreement, the Company shall notify the Holders of such event as promptly
as practicable, but in any event within ten (10) calendar days following such
event and if the procedures contemplated herein in connection with determining
Fair Value have not been complied with fully, then any such determination of
Fair Value for any purpose of this Agreement shall be deemed to be preliminary
and subject to adjustment pending full compliance with such procedures.
Upon the occurrence of an event requiring the determination of Fair Value,
the Company shall give the Holder(s) of the Warrants notice of such event, and
the Company and the Holders shall engage in direct good faith discussions to
arrive at a mutually agreeable determination of Fair Value. In the event the
Company and the Holder(s) are unable to arrive at a mutually agreeable
determination within ten (10) days of the notice, the Company and the Holder(s)
of the Warrants (who, if more than one, shall agree among themselves by a
majority) shall retain Imperial Capital LLC or, if Imperial Capital LLC is
unavailable or unable to accept such engagement, Greif & Co. Such firm shall
determine the Fair Value of the security, property, assets, business or entity,
as the case may be, in question and deliver its opinion in writing to the
Company and to such Holder within thirty (30) days of its retention. Each of the
Company and the Holders (as a group) shall submit to such investment banking
firm their proposed determination of Fair Value, and any other supporting
documentation reasonably requested by the investment banking firm. In no event
shall the marketability, or lack thereof, or lack of registration of a security
be a factor in determining the "Fair Value" of such security. The determination
so made shall be conclusive and binding on the Company and such Holder(s),
absent clear and manifest error. The fees and expenses of such investment
banking firm retained
<PAGE> 4
pursuant to this provision shall be borne by the Company in advance. In the
event the Company fails to pay such fees, or the retainer or deposit requested
by such investment banking firm, within 10 days of the acceptance by such
investment banking firm (conditional or unconditional) of such engagement, then
the Holders' proposed determination of Fair Value shall be conclusive and
binding upon the Company.
"Holder" or "Holders" shall mean the Person(s) then registered as the
owners of the Warrants or Warrant Securities, as the case may be, on the books
and records of the Company.
"Person" shall mean any individual, corporation, partnership, limited
liability company, association, joint-stock company, trust, estate,
unincorporated organization, joint venture, court or governmental or political
subdivision or agency thereof.
"Registrable Securities" shall have the meaning assigned to it in Section
6.01 hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder, and any successor provisions
thereto.
"Subsidiary" of any Person means (i) a corporation, association or other
business entity of which more than 50% of the total voting power of all classes
of the outstanding voting stock or other indicia of ownership is owned, directly
or indirectly, by such Person or by one or more other Subsidiaries of such
Person or by such Person and one or more Subsidiaries thereof, (ii) any
partnership (a) the sole general partner or the managing general partner of
which is such Person or a Subsidiary of such Person or (b) the only general
partners of which are such Person or one or more Subsidiaries of such Person (or
any combination thereof) and (iii) any other Person not described in clauses (i)
and (ii) above in which such Person, or one or more other Subsidiaries of such
Person or such Person and one or more other Subsidiaries thereof, directly or
indirectly, owns 50% ownership and the power, whether by such ownership
interest, pursuant to a written contract or agreement or otherwise, to direct
the policies and management or the financial and other affairs thereof.
"Warrant Securities" shall mean the shares of Common Stock purchasable or
purchased from time to time under the Warrants or acquirable or acquired upon
any transfer of any such securities, together with all additional securities
receivable or received in payment of Dividends or distributions on or splits of
those securities or receivable or received as a result of adjustments provided
for in Article V hereof.
II. WARRANTS
Section 2.01 Grant of Warrants. The Company hereby grants to Consultant,
for good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, Warrants to purchase a number of shares of Common Stock
equal to the Exercise Quantity, as may be adjusted from time to time as set
forth herein, which Warrants shall be evidenced in substantially the form
attached as Exhibit A. Consultant and any subsequent Holder of the
<PAGE> 5
Warrants and of Warrant Securities shall have the rights and obligations
provided for in the Warrants and in this Agreement.
Section 2.02 Exercise of Warrants. Subject to the terms of this Agreement,
the Warrant holder shall have the right, at any time and from time to time after
December 31, 2000 until 5:00 p.m., Pacific Time, on September 17, 2009, to
purchase from the Company up to the number of fully paid and nonassessable
shares of Warrant Securities to which the Warrant holder may at the time be
entitled to purchase pursuant to this Agreement and the Warrant, upon
presentation and surrender of the Warrant (or a copy thereof) to the Company,
together with the Exercise Form duly completed and executed and payment in the
aggregate amount equal to the Exercise Price multiplied by the number of shares
of Common Stock being purchased. At the option of Holder, payment of the
Exercise Price may be made either by (i) personal or business check payable to
the order of the Company, (ii) surrender of certificates then held representing,
or deduction from the number of shares issuable upon exercise of the Warrant, of
that number of shares which has an aggregate Fair Value determined in accordance
with this Agreement on the date of exercise equal to the aggregate Exercise
Price for all shares to be purchased pursuant to the Warrant, (iii) by a
promissory note bearing interest at six percent (6%) per annum and payable in
five equal annual installments commencing on the first anniversary of the
exercise of the Warrant, or (iv) by any combination of the foregoing methods.
The Holder of Common Stock issued in exchange for a promissory note as
contemplated in clause (iii) above shall have no voting rihts, dividend rights
or liquidation rights pursuant to Section VI hereof or any other rights until
payments are made on the promissory note, at which time such rights shall be
deemed to have accrued on the whole number of shares paid for at the Exercise
Price by each principal payment on the promissory note. If the Holder of Common
Stock issued in exchange for a promissory note defaults in payment of such note,
upon 30 days written notice, the Company shall forthwith cancel the Common Stock
so issued which has not been paid for, and, until such time as the Holder shall
have paid the promissory note in full, the Company will not be obligated to
reissue such shares of Common Stock. All shares paid for with a promissory note
will bear a legend to the foregoing effect.
Within ten business days of the Company's receipt of the Warrant (or a copy
thereof), the completed and signed Exercise Form and the requisite payment (if
any), the Company shall issue and deliver (or cause to be delivered) to the
exercising Holder stock certificates aggregating the number of shares of Warrant
Securities purchased. In the event the Company fails to deliver or cause to be
delivered to the Holder such certificates (without legend or restriction if such
Warrant Securities are then registered pursuant to the Warrant Agreement) within
such ten business day period, unless such failure is based on an order of a
court of competent jurisdiction or a governmental agency or an Exchange or other
market on which the Company's securities are listed or traded (provided such
order is not a result of action or inaction of the Company), simultaneously with
the late delivery of such certificate, the Company shall pay to the Holder an
amount equal to the greater of (i) $500 per calendar day, (ii) the product of
(x) the last sale price on the date the certificates are properly issued and
delivered to the Holder, less the last sale price on the date of the Exercise
Form, multiplied by (y) the number of shares of Warrant Securities purchased as
set forth in the Exercise Form, or (iii) the quotient of (x) the last reported
sale price on the day prior to the date of the Exercise Form, multiplied by the
number of shares of Warrant
<PAGE> 6
Securities issuable to such Holder upon such exercise, divided by (y) 200 (the
"Delay Damages"), for each day after the seventh business day following the
delivery of the Warrant and such Exercise Form to the Company through and
including the day such certificates (without legend or restriction if such
Warrant Securities are then registered pursuant to the terms of the Warrant
Agreement) are delivered to the Holder at the address set forth in such Exercise
Form. In the event the Company restricts or delays the transfer or clearance of
such certificates by the Holder (whether by stop transfer order, unreasonable
delay or otherwise), unless such action is based on an order of a court of
competent jurisdiction or a governmental agency or an Exchange or other market
on which the Company's securities are listed or traded (provided such order is
not a result of action or inaction of the Company), the Company shall pay to the
Holder the Delay Damages for each calendar day of such restriction or delay.
Section 2.03 Partial Exercise. In the event of a partial exercise of the
Warrant, the Company shall issue and deliver to the Holder a new Warrant at the
same time such stock certificates are delivered, which new Warrant shall entitle
the Holder to purchase the balance of the Exercise Quantity not purchased in
that partial exercise and shall otherwise be upon the same terms and provisions
as the Warrant.
III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company, hereby represents and warrants as follows:
(a) The Company is a corporation duly organized, validly existing, and in
good standing under the laws of Nevada, with full corporate power and authority
to conduct its business as it is now being conducted, to own or use the
properties and assets that it purports to own or use, and to perform all its
obligations under the contracts to which it is a party. The Company is duly
qualified to do business as a foreign corporation and is in good standing under
the laws of each state or other jurisdiction in which either the ownership or
use of the properties owned or used by it, or the nature of the activities
conducted by it, requires such qualification, including, without limitation,
California.
(b) The execution and delivery of this Agreement and the Warrants have been
duly and properly authorized by all requisite corporate action of the Company
and its board of directors, and no consent of any other Person is required as a
prerequisite to the validity, enforceability and performance of this Agreement
and the Warrants that has not been obtained. The Company has the full legal
right, power and authority to execute and deliver this Agreement and the
Warrants and to perform its obligations hereunder and thereunder. When issued
and delivered pursuant to this Agreement, the Warrants will have been duly and
validly executed, issued and delivered and will constitute valid and legally
binding obligations of the Company and the Holder thereof will be entitled to
the benefits provided herein and therein.
(c) The Warrant Securities, when issued, sold and delivered in accordance
with the terms hereof, for the consideration expressed herein, shall be duly and
validly issued and
<PAGE> 7
outstanding, fully paid and nonassessable, and will be issued in compliance with
all applicable federal and state securities or blue sky laws.
(d) The Company is not a party to or otherwise subject to any contract or
agreement which restricts or otherwise affects its right or ability to execute
and deliver this Agreement or the Warrants or to perform any obligation
hereunder or thereunder (including, without limitation, issuance of the Warrant
Securities). Neither the execution or delivery of this Agreement or the
Warrants, nor compliance therewith (including, without limitation, issuance of
the Warrant Securities), will conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a default under, or result in any
violation of, or result in the creation of any material lien upon any assets or
properties of the Company under, or require any consent, approval, or other
action by, notice to or filing with any court or governmental agency or division
pursuant to the Articles of Incorporation or Bylaws of the Company, as currently
in effect, any award of any arbitrator, or any agreement, instrument or law to
which the Company is subject or by which it or its assets or properties is
bound.
(e) The Warrants are, and the Warrant Securities will be, issued by the
Company to Consultant in a transaction exempt from registration and
qualification under the applicable federal and state securities and blue sky
laws.
IV. COVENANTS
Section 4.01 Covenants of the Company. The Company hereby covenants and
agrees that, during the term of this Agreement, unless Holders of outstanding
Warrants evidencing a majority of the Warrants agree otherwise in writing,
(a) Each of the Warrant Securities issued and delivered upon the exercise
of the Warrants and payment of the Exercise Price will be duly and validly
authorized and issued, will be fully paid and nonassessable, and will not be
subject to any unpaid tax of the Company or any lien imposed on or created by
the Company, whether respecting their issuance to and purchase by the Holder of
the Warrants or otherwise. The Company will take all such actions as may be
necessary to assure that all such Warrant Securities may be so issued without
violation of any applicable law or governmental regulation or any requirements
of any domestic securities exchange or quotation system upon which such Warrant
Securities may be listed.
(b) The Company shall reserve and at all times keep available for issuance
an authorized number of shares of Common Stock or Warrant Securities sufficient
to permit the full and immediate exercise of the Warrants and the full and
immediate exercise, exchange and conversion of all other securities, options,
warrants and other rights issued or granted by the Company.
(c) The Company shall not permit the par value of its Common Stock to
exceed, at any time, the Exercise Price and shall take all such actions as may
be necessary or appropriate to ensure that it does not do so.
<PAGE> 8
(d) As soon as available, and in no event later than the dates filed with
the Securities and Exchange Commission (the "Commission") or any other
governmental agency or division or other regulatory authority, if such documents
are so filed, the Company shall, upon request, deliver to any Holder(s) of the
Warrants and the Warrant Securities copies of (i) all annual, quarterly and
monthly financial statements made available by the Company to its shareholders,
(ii) all reports, notices and proxy or information statements sent or made
available generally by the Company to its shareholders, and (iii) all regular
and periodic reports and all registration statements, prospectuses and other
information filed by the Company with the Commission, relevant state authorities
or any securities exchange, securities quotation system or other self-regulatory
organization.
(e) The Company agrees that to the extent reasonably necessary to permit
the Holders to sell shares of the Common Stock in accordance with and in
reliance on Rule 144, and for so long as such shares are owned by the Holders
and such shares are not registered for resale under the Securities Act, the
Company will make and keep public information available within the meaning of
Rule 144 at all times from and after the Closing Date, and file with the SEC in
a timely manner all reports and other documents required of the Company under
the Securities Act and the Exchange Act.
(f) The Company shall cooperate with the Holder(s) of the Warrants and the
Warrant Securities in supplying such information as may be reasonably necessary
for the Holder(s) to complete and file any information or other reporting forms
from time to time required by the Commission, relevant state authorities or any
securities exchange, securities quotation system or other self-regulatory
organization, including, without limitation, information pertaining to or
required for the availability of any exemption from the securities laws for the
sale, transfer or other disposition of the Warrants or any of the Warrant
Securities.
Section 4.02 Indemnification.
(a) The Company agrees to defend, indemnify and hold harmless, to the full
extent permitted by law, Consultant and each other Holder of the Warrants, this
Agreement, or any Warrant Security purchased hereunder, any underwriter(s), and
their respective directors, officers, employees, attorneys and agents, as well
as each other Person (if any) controlling any of the foregoing Persons within
the meaning of Section 15 of the Securities Act, or Section 20 of the Exchange
Act, from and against any and all claims, liabilities, losses and expenses
(including, without limitation, the reasonable disbursements, expenses and fees
of their respective attorneys, accountants and experts) that may be imposed
upon, incurred by, or asserted against any of them, any of their respective
directors, officers, employees, attorneys and agents, or any such control
Person, under the Securities Act, the Exchange Act or any other statute or at
common law, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof), arise out of or are related directly or indirectly to (i)
the breach of any of the representations, warranties and/or covenants of the
Company contained herein, or (ii) any alleged untrue statement of any material
fact contained, on the effective date thereof, in any registration statement
under which such securities are or were registered under the Securities Act or
the Exchange Act, or in any preliminary prospectus or final prospectus related
thereto, or any
<PAGE> 9
amendment or supplement thereto, unless such alleged untrue statement of
material fact is based on information provided in writing for inclusion in such
registration statement, preliminary prospectus or final prospectus by a Holder
of the Warrants or Warrant Securities seeking the indemnity, or any alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and shall reimburse
such Persons for any legal or any other expenses reasonably incurred by such
Persons in connection with investigating or defending any such loss, claim,
damage, liability or action. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of any such
indemnified Person, and shall survive the transfer of such securities by such
Person. Promptly after receipt of notice of the commencement of any action in
respect of which indemnity may be sought against the Company, the Company shall
assume the defense of such action (including the employment of counsel, who
shall be counsel of national reputation and presence, and who shall be
reasonably satisfactory to the party seeking indemnity hereunder) and the
payment of expenses insofar as such action shall relate to any alleged liability
in respect of which indemnity may be sought against the Company. If the Company
assumes the defense of such action, (i) it will be conclusively established for
purposes of this Agreement that the claims made in that action are within the
scope of and subject to indemnification; (ii) no compromise or settlement of
such claims may be effected by the Company without the indemnified party's
consent unless (1) there is no finding or admission of any violation of law,
regulation, rule or order or any violation of the rights of any other person or
entity and no effect on any other claims that may be made against the
indemnified party, and (2) the sole relief provided is monetary damages that are
paid in full by Company; and (iii) the indemnified party will have no liability
with respect to any compromise or settlement of such claims effected without its
consent. If notice is given to the Company of the commencement of any action and
the Company does not, within ten days after the indemnified party's notice is
given to the Company, give notice to the indemnified party of its election to
assume the defense of such action, the Company will be bound by any
determination made in such action or any compromise or settlement effected by
the indemnified party.
(b) Notwithstanding the foregoing, if an indemnified party determines in
good faith that there is a reasonable probability that a claim or action may
adversely affect it or its affiliates other than as a result of monetary damages
for which it would be entitled to indemnification under this Agreement, or if an
indemnified party determines that there are defenses available to it that are
either not available to the Company or not being raised by the Company, or if
the indemnified party determines that there is a conflict of interest between
the Company and the indemnified party in the claim or action, the indemnified
party may, by notice to the Company, assume the exclusive right to defend,
compromise, or settle such claim or action against itself as indemnified party
only, and the Company will be bound by any determination of a claim or action so
defended or any compromise or settlement effected to the extent such
determination, compromise or settlement covers the indemnified party only.
Section 4.03 Repurchases and Redemptions. In the event the Company
repurchases or redeems equity securities of the Company or any Common Stock
Equivalents in any calendar year having an aggregate Fair Value in excess of
$10,000, thereafter it shall reduce the Exercise Price of each Warrant by an
amount equal to the quotient obtained by dividing (x) the aggregate
<PAGE> 10
amount of cash and the aggregate Fair Value of any property paid out or to be
paid out by the Company in connection with any such repurchase or redemption by
(y) the number of shares of Common Stock outstanding immediately after such
repurchase or redemption.
Section 4.04 Listing on the Securities Exchange. The Company shall, at its
expense, list on NASDAQ or any securities exchange where it lists its Common
Stock, and maintain and increase when necessary such listing of all outstanding
Warrant Securities so long as any shares of Common Stock shall be so listed. The
Company shall also so list on each such securities exchange or NASDAQ, and will
maintain such listing of, any other securities which the Holder(s) shall be
entitled to receive upon the exercise thereof if at the time any securities of
the same class shall be listed on such securities exchange or NASDAQ by the
Company.
V. ANTIDILUTION
Section 5.01 No Dilution or Impairment: Adjustments.
(a) Prohibited Actions. So long as any Warrants are outstanding, the
Company will not avoid or seek to avoid the observance or performance of any of
the terms of this Agreement or the Warrants or impair the ability of the
Holder(s) to realize the full intended economic value thereof, but will at all
times in good faith assist in the carrying out of all such terms, and of the
taking of all such action as may be necessary or appropriate in order to protect
the rights of the Holder(s) of the Warrants against dilution or other
impairment.
(b) Adjustment of Exercise Price in the Event of Certain Issuances of
Common Stock or Common Stock Equivalents. In case the Company shall at any time
issue or sell Common Stock or Common Stock Equivalents (by merger otherwise) for
less than Fair Value as of the date of such issuance or at a price per share
less than the then current Exercise Price of the Warrants (other than (i)
delivery of shares of Common Stock upon exercise of the Warrants, and (ii) any
Common Stock Equivalents issued and outstanding on the date hereof), or issue
Common Stock or Common Stock Equivalents by way of a Dividend (except for
dividends payable in Common Stock pursuant to the Company's Certificate of
Determination for either its Series A 12% Convertible Preferred Stock (the
"Series A Preferred Stock") or its Series B 12% Convertible Preferred Stock (the
"Series B Preferred Stock," and, together with the Series A Preferred Stock, the
"Preferred Stock") or other distribution on any stock of the Company or
effect a forward stock split of the outstanding shares of Common Stock, the
Exercise Price then in effect shall be proportionately decreased (on the date of
such issuance, sale or split), so that the new Exercise Price shall be equal to
the product of (x) the former Exercise Price and (y) the lesser of (i) one or
(ii) the following fraction:
The number of shares of Common Stock and
Common Stock Equivalents outstanding immediately prior to such issuance
The number of shares of Common Stock and
Common Stock Equivalents outstanding immediately after such issuance
and the Exercise Quantity purchasable upon exercise of the Warrants immediately
prior thereto
<PAGE> 11
shall be adjusted so that the new Exercise Quantity shall be equal to the
product of (x) the former Exercise Quantity and (y) the following fraction:
The Exercise Price in effect immediately prior to such
adjustment The Exercise Price in effect immediately after such adjustment
(c) Company to Prevent Dilution. In any case at any time or from time to
time conditions arise by reason of action taken by the Company which are not
adequately covered by the provisions of this Article V, and which might
adversely affect the rights of the Holders under any provision of this
Agreement, unless the adjustment necessary shall be agreed upon by the Company
and the Holders, the Board of Directors of the Company shall appoint a firm of
independent certified public accountants of recognized national standing,
acceptable to the Holders, who at the Company's expense shall give their opinion
upon the adjustment, if any, on a basis consistent with the standards
established in the other provisions of this Article V, necessary with respect to
the Exercise Price and the Exercise Quantity, so as to preserve, without
dilution, the rights of the Holders. Upon the receipt of such opinion, the
Company's Board of Directors shall forthwith make the adjustments described
therein; provide, however, that no such adjustment shall be made to increase the
Exercise Price or decrease the Exercise Quantity.
(d) Reorganization; Asset Sales; Etc. In case of (i) any capital
reorganization or any reclassification of the capital stock of the Company, (ii)
any consolidation or merger of the Company or any Subsidiary with or into
another Person, (iii) the disposition or transfer of assets of the Company other
than in the ordinary course of the Company's business, (iv) any Dividend or
other distribution to the holders of capital stock of the Company in the form of
any asset, including without limitation securities of the Company, or (v) the
dissolution, liquidation or winding up of the Company, the Holders shall
thereafter be entitled to purchase (and it shall be a condition to the
consummation of any such transaction or event that appropriate provision shall
be made so that such Holders shall thereafter be entitled to purchase) the kind
and amount of shares of stock and other securities and property receivable in
such transaction by a holder of the number of shares of Common Stock of the
Company into which this Agreement entitled the Holders to purchase immediately
prior to such capital reorganization, reclassification of capital stock,
non-surviving combination or disposition; and in any such case appropriate
adjustments shall be made in the application of the provisions of this Article V
with respect to rights and interests thereafter purchasable upon the exercise of
a Warrant.
(e) Adjustment Statement. Whenever the Exercise Price or Exercise Quantity
is adjusted as herein provided, the Company shall, within ten days following the
consummation of the event triggering such adjustment, deliver to the Holders a
statement signed by the President of the Company and by its Treasurer or
Secretary stating the adjusted Exercise Price and Exercise Quantity for which
the Warrants are exercisable, determined as specified herein. The statement
shall show in detail the facts requiring such adjustment, including a statement
of the consideration received by the Company for any additional stock issued. In
the event the Company shall fail to timely deliver such adjustment statement,
the Company shall be in default hereof, and the Holder's reasonable
determination of any adjustment shall be deemed conclusive and binding, absent
manifest error. Irrespective of any adjustments in the Exercise Price or the
<PAGE> 12
Exercise Quantity or the kind of shares purchasable upon the exercise of the
Warrants, the Warrants theretofore or thereafter issued may continue to express
the same price and number and kind of shares as are stated in the Warrants
initially issuable pursuant to this Agreement.
(f) Prior Notice to the Holders. If at any time:
(i) The Company shall pay any Dividend payable in Common Stock or
Common Stock Equivalents upon its capital stock or make any distribution to the
holders of its capital stock; or
(ii) The Company shall offer for subscription pro rata to the holders
of its capital stock any additional shares of stock of any class or any other
rights; or
(iii) The Company shall effect any capital reorganization or any
reclassification of or change in the outstanding capital stock of the Company
(other than a change in par value, or a change from par value to no par value,
or a change from no par value to par value, or a change resulting solely from a
subdivision of outstanding shares), or any consolidation or merger, or any sale,
transfer or other disposition of all or substantially all of its property,
assets, business and goodwill as an entirety, or the liquidation, dissolution or
winding up of the Company; or
(iv) The Company shall declare a Dividend upon its capital stock;
then, in any such event, the Company shall cause at least thirty (30) days'
prior written notice to be mailed to the Holders at the address of each such
Holder shown on the books of the Company. The notice shall also specify the date
on which the books of the Company shall close or a record be taken for such
stock dividend, distribution or subscription rights, or the date on which such
reclassification, reorganization, consolidation, merger, sale, transfer,
disposition, liquidation, dissolution, winding up, or Dividend, as the case may
be, shall take place, and the date of participation therein by the holders of
shares of capital stock if any such date is to be fixed, and shall also set
forth such facts with respect thereto as shall be reasonably necessary to
indicate the effect of such action on the rights of the Holder.
(g) Disputes. If there is any dispute as to the computation of the Exercise
Price or the Exercise Quantity, the Company will retain, at its expense, KPMG,
LLP, or, if KPMG, LLP shall be unavailable or shall have been engaged by the
Company at any time within the two years prior to such time (other than to
resolve a dispute pursuant to this Agreement or a similar provision in any other
agreement or document), PriceWaterhouseCoopers LLP, or, if
PriceWaterhouseCoopers LLP is similarly unavailable or previously engaged, a
firm of independent certified public accountants of recognized national
standing, to conduct an audit of the computations pursuant to the terms hereof
involved in such dispute, including the financial statements or other
information upon which such computations were based. The determination of such
accounting firm shall, in the absence of manifest error, be conclusive and
binding.
<PAGE> 13
VI. REGISTRATION RIGHTS
Section 6.01 Piggyback Registration Rights. If at any time the Company
shall determine to register under the Securities Act (including pursuant to a
demand of any security holder of the Company exercising registration rights) any
of its Common Stock other than on a registration statement on Form S-8 or any
successor thereof, it shall send to Consultant and to each of the Holder(s)
written notice of such determination at least thirty (30) days prior to each
such filing and, if within twenty (20) days after receipt of such notice, any
Holder shall so request in writing, the Company shall include in such
registration statement (to the extent permitted by applicable regulation) all or
any part of the Warrant Securities (collectively referred to in this Agreement
as "Registrable Securities") that such Holder requests to be registered. Any
Registrable Securities which are included in any underwritten offering under
this Section 6.01 shall be sold upon such terms as the managing underwriters
shall reasonably request but in any event shall be upon terms not less favorable
than those upon which any other selling security holder or the Company shall
sell any of its securities, provided, however, that if the managing underwriters
in an underwritten offering shall determine that the inclusion of all of such
Registrable Securities would materially and adversely effect the number or price
of the securities to be sold or the number of shares that the Company desires to
sell, then the Company shall have the right to reduce, or, if deemed necessary
by the managing underwriter(s) in writing, eliminate entirely, on a pro rata
basis, the number of Registrable Securities included in such registration. If
any Holder disapproves of the terms of such underwriting, such Holder may elect
to withdraw therefrom by written notice to the Company and the underwriter.
Notwithstanding the provisions of this Section 6.01, the Company shall have the
right, at any time after it shall have given written notice pursuant to this
Section 6.01 (irrespective of whether a written request for inclusion of
Registrable Securities shall have been made), to elect not to file any such
proposed registration statement or to withdraw the same after the filing and
prior to the effective date thereof.
Section 6.02 Effectiveness. If necessary to permit unrestricted and
unlimited distribution of the Registrable Securities, the Company shall use its
reasonable best efforts to maintain the effectiveness of the registration
statement pursuant to which any of the Registrable Securities are being offered,
and from time to time will amend or supplement such registration statement and
the prospectus related thereto as and to the extent necessary to comply with the
Securities Act and any applicable state securities statute or regulation. If the
registration by the Company of the resale of Registrable Securities is eligible
for Form S-3 or any successor to such form, the Company shall use its reasonable
best efforts to maintain the effectiveness of the registration statement until
all registered Registrable Securities are sold.
Section 6.03 Further Obligations of the Company. Whenever, under the
preceding Sections of this Article VI, the Company is required hereunder to
register Registrable Securities, it agrees that it shall also do the following:
(a) Furnish to each selling Holder such copies of each preliminary and
final prospectus and any other documents as such Holder may reasonably request
to facilitate the
<PAGE> 14
public offering of its Registrable Securities;
(b) Register or qualify the Registrable Securities to be registered
pursuant to this Article VI under the applicable securities or blue sky laws of
such jurisdictions as any selling Holder may reasonably request;
(c) Furnish to each selling Holder: (i) a signed counterpart of an opinion
of counsel for the Company, dated the effective date of the registration
statement; and (ii) a copy of any "comfort" letters signed by the Company's
independent public accountants who have examined and reported on the Company's
financial statements included in the registration statement, covering the same
matters as are customarily covered in opinions of issuer's counsel and in
accountants' "comfort" letters delivered to the underwriters in underwritten
public offerings of securities;
(d) Permit each selling Holder or such Holder's counsel or other
representatives to inspect and copy such corporate documents and records as may
reasonably be requested by them in connection with such registration; and
(e) Furnish to each selling Holder, upon request, a copy of all documents
filed and all correspondence from or to the Commission in connection with any
such offering.
Section 6.04 Expenses. Except for underwriters' discounts and brokerage
commissions allocable to the Registrable Securities, the Company shall bear all
costs and expenses of each registration contemplated in Sections 6.01 and 6.02
including, but not limited to, printing, legal and accounting fees and expenses,
Commission and NASD filing fees and blue sky fees and expenses in any
jurisdiction in which the securities to be offered are to be registered or
qualified.
Section 6.05 Transfer of Registration Rights. The registration rights of
the Holders of Registrable Securities under this Article VI shall inure to the
benefit of and shall be exercisable by any transferee of Registrable Securities.
Section 6.06 Participation Rights.
The Company will not grant to any Person (other than Consultant, the
Holders, any Affiliate thereof or any transferee of Registrable Securities under
this Article VI) at any time on or after the date of this Agreement the right (a
"Participation Right") to request the Company to register any securities of the
Company under the Securities Act by reason of the exercise by any Holder of its
rights under this Article VI unless such Participation Right provides that such
securities shall not be registered and sold at the same time if the managing
underwriter for the offering, including the Registrable Securities, believes
that sale of such securities would adversely affect the amount of, or price at
which, the respective Registrable Securities being registered under this Article
VI can be sold.
Notwithstanding anything in this Article VI to the contrary, in no event
shall this Article VI be construed as prohibiting, restricting or impairing the
Company's ability to comply
<PAGE> 15
with the registration rights agreements or the registration rights in any Common
Stock Equivalents it has entered into prior to the date hereof.
VII. TRANSFER OF WARRANTS AND WARRANT SECURITIES
Section 7.01 Transfer. Except as set forth in Section 7.02 below, the
Warrants and all rights thereunder are transferable, in whole or in part, on the
books of the Company to be maintained for such purpose, upon surrender of such
Warrant at the office of the Company maintained for such purpose, together with
a written assignment of such Warrant duly executed by the Holder hereof or its
agent or attorney. Upon such surrender and payment, the Company shall execute
and deliver a new Warrant or Warrants in the name of the assignee or assignees
and in the denominations specified in such instrument of assignment, and the
surrendered Warrant shall promptly be canceled. The transferred Warrant, if
properly assigned in compliance herewith, may be exercised by an assignee for
the purchase of shares of Common Stock without having a new Warrant issued. The
Company will not close its stock transfer books against a transfer of the
Warrants or the Warrant Securities or any exercise of the Warrants. Any such
transfer or exercise tendered while such stock transfer books shall be closed
shall be deemed effective immediately prior to such closure.
Subject to Section 7.02 below, the Warrants may be divided or combined with
other Warrants upon presentation at the aforesaid office of the Company,
together with a written notice specifying the names and denominations in which
new Warrants are to be issued, signed by the Holder thereof or its agent or
attorney. Subject to compliance with this, as to any transfer which may be
involved in such division or combination, the Company shall execute and deliver
a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided
or combined in accordance with such notice.
The Company shall pay all expenses, taxes (other than income taxes, if any,
of the transferee) and other charges incurred by the Company in the performance
of its obligations in connection with the preparation, issue and delivery of
Warrants under this Section. The Company agrees to maintain at the offices of
its transfer agent books for the registration and transfer of the Warrants.
Notwithstanding any provision to the contrary contained herein, the Warrants and
the Warrant Securities shall be transferable only in compliance with the
provisions of the Securities Act and applicable state securities laws in respect
of the transfer of any Warrant or any Warrant Securities.
Section 7.02 Transfer Restrictions. Neither this Warrant Agreement, the
Warrants nor the Warrant Securities, when issued, have been registered under the
Securities Act or under the securities laws of any state. Neither this
Agreement, the Warrants nor the Warrant Securities, when issued, may be
transferred: (a) if such transfer would constitute a violation of any federal or
state securities laws or a breach of the conditions to any exemption from
registration thereunder and (b) unless and until one of the following has
occurred: (i) registration of the Warrants or the Warrant Securities, as the
case may be, under the Securities Act, and such registration or qualification as
may be necessary under the securities laws of any state, have become effective,
(ii) the Holder has delivered an opinion of counsel, or other evidence
<PAGE> 16
reasonably satisfactory to the Company, that such registration or qualification
is not required, or (iii) such transfer would be permitted under Rule 144 under
the Securities Act.
Each certificate for Warrant Securities issued upon exercise of a Warrant
and each certificate issued to a subsequent transferee, unless at the time of
exercise such Warrant Securities are registered under the Securities Act, shall
bear a legend substantially in the following form (and any additional legends
required by applicable law) on the face thereof:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR QUALIFIED UNDER ANY STATE SECURITIES LAWS. THESE SECURITIES
MAY NOT BE OFFERED, SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED,
WHETHER OR NOT FOR CONSIDERATION, IN THE ABSENCE OF (1) AN EFFECTIVE
REGISTRATION STATEMENT AND QUALIFICATION IN EFFECT WITH RESPECT TO THESE
SECURITIES UNDER THE SECURITIES ACT AND UNDER ANY APPLICABLE STATE
SECURITIES LAWS OR (2) AN EXEMPTION FROM SUCH REGISTRATION AND
QUALIFICATION.
Section 7.03 Replacement of Instruments. Within ten business days following
receipt by the Company or its transfer agent of evidence reasonably satisfactory
to it of the ownership of and the loss, theft, destruction or mutilation of any
certificate or instrument evidencing any Warrants or Warrant Securities, and (a)
in the case of loss, theft or destruction, upon receipt by the Company or its
transfer agent of indemnity reasonably satisfactory to it (provided that, the
Holder's own agreement of indemnification shall be deemed to be satisfactory),
or (b) in the case of mutilation, upon surrender and cancellation thereof, the
Company, at its expense, will execute, register and deliver, in lieu thereof, a
new certificate or instrument for (or covering the purchase of) an equal number
of Warrants or Warrant Securities.
VIII. MISCELLANEOUS
Section 8.01 Term. Except as otherwise expressly provided in this Agreement
or the Warrants, this Agreement shall expire on September 17, 2009, provided
that the Company's obligations to honor an exercise of the Warrants given prior
to such expiration or to perform any obligation continue and survive
notwithstanding the expiration of this Agreement.
Section 8.02 No Waiver Under Other Agreements. The terms and provisions
contained in this Agreement are not intended and shall not be construed to
waive, modify, repeal, stay, diminish or otherwise impair or affect in any
manner whatsoever any right or remedy of Consultant or the Holder(s) under the
Company's Articles of Incorporation, Bylaws or similar agreements, or any other
agreements between the Company and/or its affiliates and Consultant.
Section 8.03 Reliance. Each party to this Agreement shall be entitled to
rely upon any notice, consent, certificate, affidavit, statement, paper,
document, writing or other
<PAGE> 17
communication reasonably believed by that party to be genuine and to have been
signed, sent or made by the proper Person or Persons.
Section 8.04 Notice. All notices and other communications provided for or
permitted hereunder shall be made in writing and be by hand-delivery or
certified mail, return receipt requested, or by telecopy, (a) if to Consultant,
to the address set forth on the signature page hereof or such other address
given by Consultant to the Company in writing, (b), if to a subsequent Holder of
Warrants or Warrant Securities issued pursuant to the exercise of the Warrants,
at the most current address given by such Holder to the Company in writing; or
(c)if to the Company, as follows:
eSat, Inc.
16250 Harbor Blvd., Bldg G
Fountain Valley, California 92708
Telecopier: (714) 895-2977
Attention: Chief Executive Officer
All such notices and communications shall be deemed to have been duly given
when delivered by hand, if personally delivered; four business days after being
deposited in the mail, postage prepaid, if mailed, when receipt is acknowledged,
if telecopied, or the next business day, if timely delivered to an air courier
guaranteeing overnight delivery.
Section 8.05 Enforcement. The Company acknowledges that the Holders may
proceed to exercise or enforce any right, power, privilege, remedy or interest
that they may have under this Agreement or applicable law without notice, except
as otherwise expressly provided herein, without pursuing, exhausting or
otherwise exercising or enforcing any other right, power, privilege, remedy or
interest that they may have against or in respect of any other party, or any
other Person or thing, and without regard to any act or omission of such party
or any other Person. The Company's obligations hereunder, including, without
limitation the obligation to issue the Warrant Securities upon exercise of the
Warrant, are absolute and unconditional and are not subject to any abatement,
reduction, setoff, defense, counterclaim or recoupment due or alleged to be due
to, or by reason of, any past, present or future claims which the Company may
have against the Consultant, any Holder, or any assignee, thereof, for any
reason whatsoever. All rights and remedies of the party hereto are cumulative of
each other and of every other right or remedy such party may otherwise have at
law or in equity, and the exercise of one or more rights or remedies shall not
prejudice or impair the concurrent or subsequent exercise of other rights or
remedies.
Section 8.06 Equitable Relief. Each party acknowledges and agrees that it
would be impossible to measure in money the damage in the event of a breach of
any of the terms and provisions of this Agreement by any party hereto, and that,
in the event of any such breach, there may not be an adequate remedy at law,
although the foregoing shall not constitute a waiver of any of the party's
rights, powers, privileges and remedies against or in respect of a breaching
party, any other person or thing under this Agreement or applicable law. It is
therefore agreed that, in addition to all other such rights, powers, privileges
and remedies that it may have, each party shall be entitled, without the
obligation to post bond, to injunctive relief, specific
<PAGE> 18
performance or such other equitable relief as such party may request to exercise
or otherwise enforce any of the terms and provisions of this Agreement and to
enjoin or otherwise restrain any act prohibited thereby, and no party will urge,
and each party hereby waives, any defense that there is an adequate remedy
available at law.
Section 8.07 Merger or Consolidation of the Company. So long as the Warrant
remains outstanding, the Company will not merge or consolidate with or into, or
sell, transfer or lease all or substantially all of its property to, any other
corporation unless the successor or purchasing corporation, as the case may be
(if not the Company), shall expressly assume, by supplemental agreement, the due
and punctual performance and observance of each and every covenant and condition
of this Agreement to be performed and observed by the Company.
Section 8.08 Interpretation; Headings, Severability.
(a) The parties acknowledge and agree that since each party and its counsel
have had the opportunity to review and negotiate the terms and provisions of
this Agreement and have contributed to its revision, the normal rule of
construction to the effect that any ambiguities are resolved against the
drafting party shall not be employed in the interpretation of this Agreement,
and its terms and provisions shall be construed fairly as to all parties hereto
and not in favor of or against any party, regardless of which party was
generally responsible for the preparation of this Agreement.
(b) The Section and other headings contained in this Agreement are for
reference purposes only and shall not affect the meaning or interpretation of
this Agreement.
(c) In the event that any term or provision of this Agreement shall be
finally determined to be superseded, invalid, illegal or otherwise unenforceable
pursuant to applicable law by a governmental authority having jurisdiction and
venue, such determination shall not impair or otherwise affect the validity,
legality or enforceability: (i) by or before that authority of the remaining
terms and provisions of this Agreement, which shall be enforced as if the
superseded, invalid, illegal or otherwise unenforceable term or provision were
modified to the extent required to permit such provision to be not superseded,
invalid, illegal or unenforceable, or (ii) by or before any other authority of
any of the terms and provisions of this Agreement.
(d) If any period of time specified in this Agreement expires on a day that
is not a Business Day, that period shall be extended to and expire on the next
succeeding Business Day.
Section 8.09 Survival of Covenants. Each of the covenants and other
agreements of the parties contained in this Agreement shall be absolute and,
except as otherwise expressly provided, unconditional, shall survive the
execution and delivery of this Agreement and shall continue in full force and
effect until the term of this Agreement has expired, and thereafter with respect
to events occurring prior thereto.
Section 8.10 No Required Exercise. No term or provision of the Warrants or
this Agreement is intended to require, nor shall any such term or provision be
construed as requiring,
<PAGE> 19
any Holder of the Warrants to exercise or sell the Warrants.
Section 8.11 Binding Effect. This Agreement shall be binding upon and
enforceable against the parties hereto and their respective successors and
assigns.
Section 8.12 No Waiver by Action or Course of Dealing. No course of dealing
or any delay or failure to exercise any right hereunder on the part of any party
hereto shall operate as a waiver of such right or otherwise prejudice the
rights, powers or remedies of such party.
Section 8.13 Waiver; Modification; Amendment. Each and every modification
to and amendment of this Agreement shall be in writing and signed by the
Company, Consultant (if at that time Consultant is a Holder) and by the Holders
of a majority in interest of all issued and unissued Warrant Securities. Each
and every waiver of and consent to any departure from any term or provision
hereof (except as otherwise provided herein) shall be in writing and signed by
Consultant (if at that time it is a Holder) and by the Holders of a majority in
interest of all issued and unissued Warrant Securities and by each party against
whom enforcement of the waiver or consent may be sought. Notwithstanding the
foregoing, no modification, amendment or waiver of any term or provision hereof
with respect to the Exercise Price, the Exercise Quantity, any terms of Article
V hereof, any of the terms of this Section 8.13 or which purports, or has the
effect of, shortening the term of any Warrant or limiting the right or ability
of a Holder thereof to exercise a Warrant shall be enforceable against a Holder
unless such Holder specifically approves, in writing, such modifications,
amendment or modification.
Section 8.14 Entire Agreement. This Agreement and the Warrants contain the
entire agreement of the parties with respect to the Warrants and supersede all
other representations, warranties, agreements and understandings, oral or
otherwise, among the parties hereto with respect to the Warrants, except as
otherwise provided herein.
Section 8.15 No Inconsistent Agreements or Rights. The Company shall not
enter into any agreement with respect to its securities that is inconsistent
with the rights granted to the Holders in this Agreement.
Section 8.16 Time of the Essence. With regard to all dates and time periods
set forth or referred to in this Agreement, time is of the essence.
Section 8.17 Attorneys' Fees and Costs. Should any party institute any
action, suit or other proceeding arising out of or relating to this Agreement or
the Warrants, the prevailing party shall be entitled to receive from the losing
party reasonable attorneys' fees and costs incurred in connection therewith,
along with all costs of defense, investigation, preparation, experts and
collection.
Section 8.18 Governing Law; Consent to Jurisdiction; Waiver of Jury Trial.
THIS AGREEMENT, THE WARRANTS AND THE WARRANT SECURITIES AND ALL AMENDMENTS,
SUPPLEMENTS, WAIVERS, AND CONSENTS RELATING HERETO
<PAGE> 20
OR THERETO SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL
LAWS OF THE STATE OF CALIFORNIA WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
LAW. THE COMPANY HEREBY IRREVOCABLY SUBMITS ITSELF TO THE NON-EXCLUSIVE
JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE STATE OF CALIFORNIA,
COUNTY OF LOS ANGELES, AND AGREES AND CONSENTS THAT SERVICES OF PROCESS MAY BE
MADE UPON IT IN ANY LEGAL PROCEEDINGS RELATING HERETO BY ANY MEANS ALLOWED UNDER
CALIFORNIA OR FEDERAL LAW. THE COMPANY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO
THE LAYING OF VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH COURT AND ANY CLAIM
THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM. THE COMPANY AND CONSULTANT EACH HEREBY AGREE TO WAIVE ITS
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT, THE SECURITIES OR ANY OTHER AGREEMENTS RELATING
TO THE SECURITIES OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF
THIS TRANSACTION. NOTWITHSTANDING ANYTHING TO THE CONTRARY HEREIN, THIS WAIVER
IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING,
AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS
OR MODIFICATIONS TO THIS AGREEMENT, THE WARRANTS, THE WARRANT SECURITIES OR ANY
OTHER DOCUMENTS OR AGREEMENTS RELATING THERETO.
[Signature page follows]
<PAGE> 21
IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement
to be executed as of the day and year first above written.
THE COMPANY:
eSat, Inc.
By:
-------------------------------------
Michael Palmer
Chief Executive Officer
CONSULTANT
By:
-------------------------------------
Regis Possino, President
2224 Main Street
Santa Monica, California 90405
Tel: (310) 452-1005
Fax: (310) 581-6806
<PAGE> 22
Exhibit A
to
Warrant Agreement
Initial Warrant
<PAGE> 23
THE WARRANT SECURITIES TO BE RECEIVED UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER
ANY STATE SECURITIES LAWS. THE WARRANT SECURITIES MAY NOT BE OFFERED, SOLD,
PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED, WHETHER OR NOT FOR
CONSIDERATION, IN THE ABSENCE OF (1) AN EFFECTIVE REGISTRATION STATEMENT AND
QUALIFICATION WITH RESPECT TO THE WARRANT SECURITIES UNDER THE SECURITIES ACT
AND UNDER ANY APPLICABLE STATE SECURITIES LAWS OR (2) AN EXEMPTION FROM SUCH
QUALIFICATION AND REGISTRATION.
WARRANT CERTIFICATE NO. 1
COMMON STOCK PURCHASE WARRANT
September 17, 1999
Capitalized terms used and not otherwise defined in this Warrant shall have the
meanings respectively assigned to them in the Warrant Agreement, dated as of the
date hereof, by and between the Company and Holder.
eSat, Inc., a Nevada corporation (the "Company") does hereby certify and agree
that, for good and valuable consideration (the existence, sufficiency and
receipt of which are hereby acknowledged by the Company), Corporate Financial
Enterprises, Inc., a Delaware corporation, its successor, and assigns
("Holder"), hereby is entitled to purchase from the Company, during the term set
forth in Section 1 hereof, up to an aggregate amount of 150,000 shares (the
"Exercise Quantity") of duly authorized, validly issued, fully paid and
non-assessable shares of Common Stock of the Company (the "Common Stock"), all
upon the terms and provisions and subject to adjustment of such Exercise
Quantity provided in the Warrant Agreement and this Common Stock Purchase
Warrant (the "Warrant"). The exercise price per share of Common Stock for which
this Warrant is exercisable shall be $4.25, as adjusted from time to time
pursuant to the terms of this Warrant and the Warrant Agreement (the "Exercise
Price").
1. Term of the Warrant. The term of this Warrant commences as of the date
hereof, and shall expire at 5:00 P.M., Pacific time, on September 17, 2009.
2. Exercise of Warrant.
(a) This Warrant may be exercised by the Holder of this Warrant at any
time during the term hereof, but after December 31, 2000, in whole or in part,
from time to time (but not for fractional shares, unless this Warrant is
exercised in whole), by presentation and surrender of this Warrant (or a copy
hereof) to the Company, together with the annexed Exercise Form duly completed
and executed and payment in the aggregate amount equal to the Exercise Price
multiplied by the number of shares of Common Stock being purchased. At the
option of Holder, payment of the Exercise Price may be made either by (i)
personal or business check
<PAGE> 24
payable to the order of the Company, (ii) surrender of certificates then held
representing, or deduction from the number of shares issuable upon exercise of
this Warrant, of that number of shares which has an aggregate Fair Value
determined in accordance with this Agreement on the date of exercise equal to
the aggregate Exercise Price for all shares to be purchased pursuant to this
Warrant, (iii) by a promissory note bearing interest at six percent (6%) per
annum and payable in five equal annual installments commencing on the first
anniversary of the exercise of this Warrant, or (iv) by any combination of the
foregoing methods. Within ten business days of the Company's receipt of this
Warrant (or a copy thereof), the completed and signed Exercise Form and the
requisite payment (if any), the Company shall issue and deliver (or cause to be
delivered) to the exercising Holder stock certificates aggregating the number of
shares of Warrant Securities purchased. In the event the Company fails to
deliver or cause to be delivered to the Holder such certificates (without legend
or restriction if such Warrant Securities are then, or are required to be,
registered pursuant to the Warrant Agreement) within such ten business day
period, the Company shall pay to the Holder the Delay Damages, for each day
after the seventh business day following the delivery of this Warrant and such
Exercise Form to the Company through and including the day such certificates
(without legend or restriction if such Warrant Securities are then, or are
required to be, registered pursuant to the terms of the Warrant Agreement) are
delivered to the Holder at the address set forth in such Exercise Form. In the
event the Company restricts or delays the transfer or clearance of such
certificates by the Holder (whether by stop transfer order, unreasonable delay
or otherwise), the Company shall pay to the Holder the Delay Damages for each
calendar day of such restriction or delay.
(b) In the event the Holder of this Warrant desires that any or all of
the stock certificates to be issued upon the exercise hereof be registered in a
name or names other than that of the Holder of this Warrant, the Holder must (i)
so request in writing at the time of exercise if the transfer is not a
registered transfer, and (ii) provide to the Company evidence reasonably
satisfactory to the Company to the effect that the proposed transfer may be
effected without registration under the Securities Act.
(c) Except as otherwise provided in the Warrant Agreement, upon the
due exercise by the Holder of this Warrant, whether in whole or in part, the
Holder (or any other person to whom a stock certificate is to be so issued)
shall be deemed for all purposes to have become the Holder of record of the
shares of Common Stock for which this Warrant has been so exercised, effective
immediately prior to the close of business on the date this Warrant, the
completed and signed Exercise Form and the requisite payment were duly delivered
to the Company, irrespective of the date of actual delivery of certificates
representing such shares of Common Stock so issued.
3. Surrender of Warrant; Expenses.
(a) Whether in connection with the exercise, exchange or registration
of transfer or replacement of this Warrant, surrender of this Warrant (or a copy
hereof) shall be made to the Company during normal business hours on a business
day (unless the Company otherwise permits) at the executive offices of the
Company or to such other office or duly
<PAGE> 25
authorized representative of the Company as from time to time may be designated
by the Company by written notice given to the Holder of this Warrant.
(b) The Company shall pay all costs and expenses incurred in
connection with the exercise, registering, exchange, transfer or replacement of
this Warrant, including the costs of preparation, execution and delivery of
warrants and stock certificates, and shall pay all taxes (other than any taxes
measured by the income of any Person other than the Company) and other charges
imposed by law payable in connection with the transfer or replacement of this
Warrant.
(c) The Company shall deliver or cause to be delivered to the Holder
exercising this Warrant or any portion hereof certificates representing the
shares of Common Stock issuable upon such exercise within ten business days of
the surrender and delivery by such Holder to the Company of this Warrant and a
duly completed Exercise Form. In the event the Company fails to deliver or cause
to be delivered to the Holder such certificates (without legend or restriction
if such Warrant Securities are then, or are required to be, registered pursuant
to the Warrant Agreement) within such ten business day period, the Company shall
pay to the Holder the Delay Damages. In the event the Company restricts or
delays the transfer or clearance of such certificates by the Holder (whether by
stop transfer order, unreasonable delay or otherwise), the Company shall pay to
the Holder the Delay Damages for each calendar day of such restriction or delay.
4. Warrant Register; Exchange; Transfer; Loss.
(a) The Company at all times shall maintain at its chief executive
offices, or at the offices of its transfer agent, an open register for all
Warrants, in which the Company shall record the name and address of each Person
to whom a Warrant has been issued or transferred, the number of shares of Common
Stock or other securities purchasable hereunder and the corresponding purchase
prices.
(b) This Warrant may be exchanged for two or more warrants entitling
the identical Holder hereof to purchase the same aggregate Exercise Quantity at
the same Exercise Price per share and otherwise having the same terms and
provisions as this Warrant. The identical Holder may request such an exchange by
surrender of this Warrant to the Company, together with a written exchange
request specifying the desired number of warrants and allocation of the Exercise
Quantity purchasable under the existing Warrant.
(c) This Warrant may be transferred only in accordance with the
provisions of Article VII of the Warrant Agreement, in whole or in part, by the
Holder or any duly authorized representative of such Holder. A transfer may be
registered with the Company by submission to it of this Warrant, together with
the annexed Assignment Form duly completed and executed, and if the transfer is
not a registered transfer, evidence reasonably satisfactory to the Company that
such transfer is in compliance with federal and state securities laws. Within
ten business days after the Company's receipt of this Warrant and the Assignment
Form so completed and executed, the Company will issue and deliver to the
transferee a new Warrant representing the portion of the Exercise Quantity
transferred at the same Exercise Price per share and otherwise
<PAGE> 26
having the same terms and provisions as this Warrant, which the Company will
register in the new Holder's name.
(d) Upon receipt by the Company of evidence reasonably satisfactory to
it of the ownership of and the loss, theft, destruction or mutilation of this
Warrant, and (a) in the case of loss, theft or destruction, upon receipt by the
Company of indemnity reasonably satisfactory to it (provided that, the Holder's
own agreement of indemnity shall be deemed to be satisfactory), or (b) in the
case of mutilation, upon surrender and cancellation thereof, the Company, at its
expense, will execute, register and deliver, in lieu thereof, a new certificate
or instrument for (or covering the purchase of) this Warrant.
(e) The Company will not close its books against the transfer of this
Warrant or any of the Warrant Securities in any manner which interferes with the
timely exercise of this Warrant. The Company will from time to time take all
such action as may be necessary to assure that the par value per share of the
unissued Common Stock acquirable upon exercise of this Warrant is at all times
equal or less than the Exercise Price then in effect.
5. Rights and Obligations of the Company and the Holder. The Company and
the Holder of this Warrant are entitled to the rights and bound by the
obligations set forth in the Warrant Agreement, all of which rights and
obligations are hereby incorporated by reference herein. This Warrant shall not
entitle its Holder to any rights of a stockholder in the Company (other than as
provided in Section 2(c) of this Warrant and the Warrant Agreement).
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its duly authorized representative and its corporate seal, if any, to be
impressed hereupon and attested to by its Secretary or Assistant Secretary.
eSat, Inc.
By:
-------------------------------------
Michael Palmer
Chief Executive Officer
By:
-------------------------------------
Secretary
<PAGE> 27
eSat, Inc.
EXERCISE FORM
eSat, Inc. (the "Company")
The undersigned hereby irrevocably elects to exercise the right of purchase
represented by the within Warrant Certificate for, and to purchase thereunder,
shares of common stock of the Company (the "Warrant Securities"), and requests
that certificates for the Warrant Securities be issued in the name of:
------------------------------------------
(Please print or Type Name, Address and Social Security Number)
------------------------------------------
------------------------------------------
and, if said number of shares of Warrant Securities shall not be all the Warrant
Securities purchasable hereunder, that a new Warrant Certificate for the balance
of the Warrant Securities purchasable under the within Warrant Certificate be
registered in the name of the undersigned Holder or his Assignee as below
indicated and delivered to the address stated below.
Dated:
---------------
Name of Holder
or Assignee:
----------------------------------------
(Please Print)
Address:
----------------------------------------
Signature:
----------------------------------------
Note: The above signature must correspond with the name as it appears upon the
face of this Warrant Certificate in every particular, without alteration or
enlargement or any change whatever, unless these Warrants have been assigned.
<PAGE> 28
ASSIGNMENT
(To be signed only upon assignment of Warrants)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers the
right to purchase shares of common stock represented by the within Warrant
Certificate unto, and requests that a certificate for such Warrant be issued in
the name of:
-------------------------------------
(Name and Address of Assignee Must be Printed or Typewritten)
-------------------------------------
-------------------------------------
The undersigned hereby irrevocably constitutes and appoints _______________
Attorney to transfer said Warrants on the books of the Company, with full power
of substitution in the premises and, if said number of shares of common stock
shall not be all of the common stock purchasable under the within Warrant
Certificate, that a new Warrant Certificate for the balance of the common stock
purchasable under the within Warrant Certificate be registered in the name of
the undersigned Holder and delivered to such Holder's address as then set forth
on the Company's books.
Dated:
------------- --------------------------------------
Signature of Registered Holder
Note: The above signature must correspond with the name as it appears upon the
face of this Warrant Certificate in every particular, without alteration or
enlargement or any change whatever.
<PAGE> 29
THE WARRANT SECURITIES TO BE RECEIVED UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER
ANY STATE SECURITIES LAWS. THE WARRANT SECURITIES MAY NOT BE OFFERED, SOLD,
PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED, WHETHER OR NOT FOR
CONSIDERATION, IN THE ABSENCE OF (1) AN EFFECTIVE REGISTRATION STATEMENT AND
QUALIFICATION WITH RESPECT TO THE WARRANT SECURITIES UNDER THE SECURITIES ACT
AND UNDER ANY APPLICABLE STATE SECURITIES LAWS OR (2) AN EXEMPTION FROM SUCH
QUALIFICATION AND REGISTRATION.
WARRANT CERTIFICATE NO. 2
COMMON STOCK PURCHASE WARRANT
September 17, 1999
Capitalized terms used and not otherwise defined in this Warrant shall have the
meanings respectively assigned to them in the Warrant Agreement, dated as of the
date hereof, by and between the Company and Holder.
eSat, Inc., a Nevada corporation (the "Company") does hereby certify and agree
that, for good and valuable consideration (the existence, sufficiency and
receipt of which are hereby acknowledged by the Company), Corporate Financial
Enterprises, Inc., a Delaware corporation, its successor, and assigns
("Holder"), hereby is entitled to purchase from the Company, during the term set
forth in Section 1 hereof, up to an aggregate amount of 150,000 shares (the
"Exercise Quantity") of duly authorized, validly issued, fully paid and
non-assessable shares of Common Stock of the Company (the "Common Stock"), all
upon the terms and provisions and subject to adjustment of such Exercise
Quantity provided in the Warrant Agreement and this Common Stock Purchase
Warrant (the "Warrant"). The exercise price per share of Common Stock for which
this Warrant is exercisable shall be $5.25, as adjusted from time to time
pursuant to the terms of this Warrant and the Warrant Agreement (the "Exercise
Price").
1. Term of the Warrant. The term of this Warrant commences as of the date
hereof, and shall expire at 5:00 P.M., Pacific time, on September 17, 2009.
2. Exercise of Warrant.
(a) This Warrant may be exercised by the Holder of this Warrant at any
time during the term hereof, but after December 31, 2000, in whole or in part,
from time to time (but not for fractional shares, unless this Warrant is
exercised in whole), by presentation and surrender of this Warrant (or a copy
hereof) to the Company, together with the annexed Exercise Form duly completed
and executed and payment in the aggregate amount equal to the Exercise Price
multiplied by the number of shares of Common Stock being purchased. At the
option of Holder, payment of the Exercise Price may be made either by (i)
personal or business check payable to the order of the Company, (ii) surrender
of certificates then held representing, or
<PAGE> 30
deduction from the number of shares issuable upon exercise of this Warrant, of
that number of shares which has an aggregate Fair Value determined in accordance
with this Agreement on the date of exercise equal to the aggregate Exercise
Price for all shares to be purchased pursuant to this Warrant, (iii) by a
promissory note bearing interest at six percent (6%) per annum and payable in
five equal annual installments commencing on the first anniversary of the
exercise of this Warrant, or (iv) by any combination of the foregoing methods.
Within ten business days of the Company's receipt of this Warrant (or a copy
thereof), the completed and signed Exercise Form and the requisite payment (if
any), the Company shall issue and deliver (or cause to be delivered) to the
exercising Holder stock certificates aggregating the number of shares of Warrant
Securities purchased. In the event the Company fails to deliver or cause to be
delivered to the Holder such certificates (without legend or restriction if such
Warrant Securities are then, or are required to be, registered pursuant to the
Warrant Agreement) within such ten business day period, the Company shall pay to
the Holder the Delay Damages, for each day after the seventh business day
following the delivery of this Warrant and such Exercise Form to the Company
through and including the day such certificates (without legend or restriction
if such Warrant Securities are then, or are required to be, registered pursuant
to the terms of the Warrant Agreement) are delivered to the Holder at the
address set forth in such Exercise Form. In the event the Company restricts or
delays the transfer or clearance of such certificates by the Holder (whether by
stop transfer order, unreasonable delay or otherwise), the Company shall pay to
the Holder the Delay Damages for each calendar day of such restriction or delay.
(b) In the event the Holder of this Warrant desires that any or all of
the stock certificates to be issued upon the exercise hereof be registered in a
name or names other than that of the Holder of this Warrant, the Holder must (i)
so request in writing at the time of exercise if the transfer is not a
registered transfer, and (ii) provide to the Company evidence reasonably
satisfactory to the Company to the effect that the proposed transfer may be
effected without registration under the Securities Act.
(c) Upon the due exercise by the Holder of this Warrant, whether in
whole or in part, the Holder (or any other person to whom a stock certificate is
to be so issued) shall be deemed for all purposes to have become the Holder of
record of the shares of Common Stock for which this Warrant has been so
exercised, effective immediately prior to the close of business on the date this
Warrant, the completed and signed Exercise Form and the requisite payment were
duly delivered to the Company, irrespective of the date of actual delivery of
certificates representing such shares of Common Stock so issued.
3. Surrender of Warrant; Expenses.
(a) Whether in connection with the exercise, exchange or registration
of transfer or replacement of this Warrant, surrender of this Warrant (or a copy
hereof) shall be made to the Company during normal business hours on a business
day (unless the Company otherwise permits) at the executive offices of the
Company or to such other office or duly authorized representative of the Company
as from time to time may be designated by the Company by written notice given to
the Holder of this Warrant.
<PAGE> 31
(b) The Company shall pay all costs and expenses incurred in
connection with the exercise, registering, exchange, transfer or replacement of
this Warrant, including the costs of preparation, execution and delivery of
warrants and stock certificates, and shall pay all taxes (other than any taxes
measured by the income of any Person other than the Company) and other charges
imposed by law payable in connection with the transfer or replacement of this
Warrant.
(c) The Company shall deliver or cause to be delivered to the Holder
exercising this Warrant or any portion hereof certificates representing the
shares of Common Stock issuable upon such exercise within ten business days of
the surrender and delivery by such Holder to the Company of this Warrant and a
duly completed Exercise Form. In the event the Company fails to deliver or cause
to be delivered to the Holder such certificates (without legend or restriction
if such Warrant Securities are then, or are required to be, registered pursuant
to the Warrant Agreement) within such ten business day period, the Company shall
pay to the Holder the Delay Damages. In the event the Company restricts or
delays the transfer or clearance of such certificates by the Holder (whether by
stop transfer order, unreasonable delay or otherwise), the Company shall pay to
the Holder the Delay Damages for each calendar day of such restriction or delay.
4. Warrant Register; Exchange; Transfer; Loss.
(a) The Company at all times shall maintain at its chief executive
offices, or at the offices of its transfer agent, an open register for all
Warrants, in which the Company shall record the name and address of each Person
to whom a Warrant has been issued or transferred, the number of shares of Common
Stock or other securities purchasable hereunder and the corresponding purchase
prices.
(b) This Warrant may be exchanged for two or more warrants entitling
the identical Holder hereof to purchase the same aggregate Exercise Quantity at
the same Exercise Price per share and otherwise having the same terms and
provisions as this Warrant. The identical Holder may request such an exchange by
surrender of this Warrant to the Company, together with a written exchange
request specifying the desired number of warrants and allocation of the Exercise
Quantity purchasable under the existing Warrant.
(c) This Warrant may be transferred only in accordance with the
provisions of Article VII of the Warrant Agreement, in whole or in part, by the
Holder or any duly authorized representative of such Holder. A transfer may be
registered with the Company by submission to it of this Warrant, together with
the annexed Assignment Form duly completed and executed, and if the transfer is
not a registered transfer, evidence reasonably satisfactory to the Company that
such transfer is in compliance with federal and state securities laws. Within
ten business days after the Company's receipt of this Warrant and the Assignment
Form so completed and executed, the Company will issue and deliver to the
transferee a new Warrant representing the portion of the Exercise Quantity
transferred at the same Exercise Price per share and otherwise having the same
terms and provisions as this Warrant, which the Company will register in the new
Holder's name.
<PAGE> 32
(d) Upon receipt by the Company of evidence reasonably satisfactory to
it of the ownership of and the loss, theft, destruction or mutilation of this
Warrant, and (a) in the case of loss, theft or destruction, upon receipt by the
Company of indemnity reasonably satisfactory to it (provided that, the Holder's
own agreement of indemnity shall be deemed to be satisfactory), or (b) in the
case of mutilation, upon surrender and cancellation thereof, the Company, at its
expense, will execute, register and deliver, in lieu thereof, a new certificate
or instrument for (or covering the purchase of) this Warrant.
(e) The Company will not close its books against the transfer of this
Warrant or any of the Warrant Securities in any manner which interferes with the
timely exercise of this Warrant. The Company will from time to time take all
such action as may be necessary to assure that the par value per share of the
unissued Common Stock acquirable upon exercise of this Warrant is at all times
equal or less than the Exercise Price then in effect.
5. Rights and Obligations of the Company and the Holder. The Company and
the Holder of this Warrant are entitled to the rights and bound by the
obligations set forth in the Warrant Agreement, all of which rights and
obligations are hereby incorporated by reference herein. This Warrant shall not
entitle its Holder to any rights of a stockholder in the Company (other than as
provided in Section 2(c) of this Warrant and the Warrant Agreement).
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its duly authorized representative and its corporate seal, if any, to be
impressed hereupon and attested to by its Secretary or Assistant Secretary.
eSat, Inc.
By:
-------------------------------------
Michael Palmer
Chief Executive Officer
By:
-------------------------------------
Secretary
<PAGE> 33
eSat, Inc.
EXERCISE FORM
eSat, Inc. (the "Company")
The undersigned hereby irrevocably elects to exercise the right of purchase
represented by the within Warrant Certificate for, and to purchase thereunder,
shares of common stock of the Company (the "Warrant Securities"), and requests
that certificates for the Warrant Securities be issued in the name of:
------------------------------------------
(Please print or Type Name, Address and Social Security Number)
------------------------------------------
------------------------------------------
and, if said number of shares of Warrant Securities shall not be all the Warrant
Securities purchasable hereunder, that a new Warrant Certificate for the balance
of the Warrant Securities purchasable under the within Warrant Certificate be
registered in the name of the undersigned Holder or his Assignee as below
indicated and delivered to the address stated below.
Dated:
---------------
Name of Holder
or Assignee:
----------------------------------------
(Please Print)
Address:
----------------------------------------
Signature:
----------------------------------------
Note: The above signature must correspond with the name as it appears upon the
face of this Warrant Certificate in every particular, without alteration or
enlargement or any change whatever, unless these Warrants have been assigned.
<PAGE> 34
ASSIGNMENT
(To be signed only upon assignment of Warrants)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers the
right to purchase shares of common stock represented by the within Warrant
Certificate unto, and requests that a certificate for such Warrant be issued in
the name of:
-------------------------------------
(Name and Address of Assignee Must be Printed or Typewritten)
-------------------------------------
-------------------------------------
The undersigned hereby irrevocably constitutes and appoints _______________
Attorney to transfer said Warrants on the books of the Company, with full power
of substitution in the premises and, if said number of shares of common stock
shall not be all of the common stock purchasable under the within Warrant
Certificate, that a new Warrant Certificate for the balance of the common stock
purchasable under the within Warrant Certificate be registered in the name of
the undersigned Holder and delivered to such Holder's address as then set forth
on the Company's books.
Dated:
---------------- ----------------------------------------
Signature of Registered Holder
Note: The above signature must correspond with the name as it appears upon the
face of this Warrant Certificate in every particular, without alteration or
enlargement or any change whatever.
<PAGE> 35
THE WARRANT SECURITIES TO BE RECEIVED UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER
ANY STATE SECURITIES LAWS. THE WARRANT SECURITIES MAY NOT BE OFFERED, SOLD,
PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED, WHETHER OR NOT FOR
CONSIDERATION, IN THE ABSENCE OF (1) AN EFFECTIVE REGISTRATION STATEMENT AND
QUALIFICATION WITH RESPECT TO THE WARRANT SECURITIES UNDER THE SECURITIES ACT
AND UNDER ANY APPLICABLE STATE SECURITIES LAWS OR (2) AN EXEMPTION FROM SUCH
QUALIFICATION AND REGISTRATION.
WARRANT CERTIFICATE NO. 3
COMMON STOCK PURCHASE WARRANT
September 17, 1999
Capitalized terms used and not otherwise defined in this Warrant shall have the
meanings respectively assigned to them in the Warrant Agreement, dated as of the
date hereof, by and between the Company and Holder.
eSat, Inc., a Nevada corporation (the "Company") does hereby certify and agree
that, for good and valuable consideration (the existence, sufficiency and
receipt of which are hereby acknowledged by the Company), Corporate Financial
Enterprises, Inc., a Delaware corporation, its successor, and assigns
("Holder"), hereby is entitled to purchase from the Company, during the term set
forth in Section 1 hereof, up to an aggregate amount of 100,000 shares (the
"Exercise Quantity") of duly authorized, validly issued, fully paid and
non-assessable shares of Common Stock of the Company (the "Common Stock"), all
upon the terms and provisions and subject to adjustment of such Exercise
Quantity provided in the Warrant Agreement and this Common Stock Purchase
Warrant (the "Warrant"). The exercise price per share of Common Stock for which
this Warrant is exercisable shall be $6.25, as adjusted from time to time
pursuant to the terms of this Warrant and the Warrant Agreement (the "Exercise
Price").
1. Term of the Warrant. The term of this Warrant commences as of the date
hereof, and shall expire at 5:00 P.M., Pacific time, on September 17, 2009.
2. Exercise of Warrant.
(a) This Warrant may be exercised by the Holder of this Warrant at any
time during the term hereof, but after December 31, 2000, in whole or in part,
from time to time (but not for fractional shares, unless this Warrant is
exercised in whole), by presentation and surrender of this Warrant (or a copy
hereof) to the Company, together with the annexed Exercise Form duly completed
and executed and payment in the aggregate amount equal to the Exercise Price
multiplied by the number of shares of Common Stock being purchased. At the
option of Holder, payment of the Exercise Price may be made either by (i)
personal or business check payable to the order of the Company, (ii) surrender
of certificates then held representing, or
<PAGE> 36
deduction from the number of shares issuable upon exercise of this Warrant, of
that number of shares which has an aggregate Fair Value determined in accordance
with this Agreement on the date of exercise equal to the aggregate Exercise
Price for all shares to be purchased pursuant to this Warrant, (iii) by a
promissory note bearing interest at six percent (6%) per annum and payable in
five equal annual installments commencing on the first anniversary of the
exercise of this Warrant, or (iv) by any combination of the foregoing methods.
Within ten business days of the Company's receipt of this Warrant (or a copy
thereof), the completed and signed Exercise Form and the requisite payment (if
any), the Company shall issue and deliver (or cause to be delivered) to the
exercising Holder stock certificates aggregating the number of shares of Warrant
Securities purchased. In the event the Company fails to deliver or cause to be
delivered to the Holder such certificates (without legend or restriction if such
Warrant Securities are then, or are required to be, registered pursuant to the
Warrant Agreement) within such ten business day period, the Company shall pay to
the Holder the Delay Damages, for each day after the seventh business day
following the delivery of this Warrant and such Exercise Form to the Company
through and including the day such certificates (without legend or restriction
if such Warrant Securities are then, or are required to be, registered pursuant
to the terms of the Warrant Agreement) are delivered to the Holder at the
address set forth in such Exercise Form. In the event the Company restricts or
delays the transfer or clearance of such certificates by the Holder (whether by
stop transfer order, unreasonable delay or otherwise), the Company shall pay to
the Holder the Delay Damages for each calendar day of such restriction or delay.
(b) In the event the Holder of this Warrant desires that any or all of
the stock certificates to be issued upon the exercise hereof be registered in a
name or names other than that of the Holder of this Warrant, the Holder must (i)
so request in writing at the time of exercise if the transfer is not a
registered transfer, and (ii) provide to the Company evidence reasonably
satisfactory to the Company to the effect that the proposed transfer may be
effected without registration under the Securities Act.
(c) Upon the due exercise by the Holder of this Warrant, whether in
whole or in part, the Holder (or any other person to whom a stock certificate is
to be so issued) shall be deemed for all purposes to have become the Holder of
record of the shares of Common Stock for which this Warrant has been so
exercised, effective immediately prior to the close of business on the date this
Warrant, the completed and signed Exercise Form and the requisite payment were
duly delivered to the Company, irrespective of the date of actual delivery of
certificates representing such shares of Common Stock so issued.
3. Surrender of Warrant; Expenses.
(a) Whether in connection with the exercise, exchange or registration
of transfer or replacement of this Warrant, surrender of this Warrant (or a copy
hereof) shall be made to the Company during normal business hours on a business
day (unless the Company otherwise permits) at the executive offices of the
Company or to such other office or duly authorized representative of the Company
as from time to time may be designated by the Company by written notice given to
the Holder of this Warrant.
<PAGE> 37
(b) The Company shall pay all costs and expenses incurred in
connection with the exercise, registering, exchange, transfer or replacement of
this Warrant, including the costs of preparation, execution and delivery of
warrants and stock certificates, and shall pay all taxes (other than any taxes
measured by the income of any Person other than the Company) and other charges
imposed by law payable in connection with the transfer or replacement of this
Warrant.
(c) The Company shall deliver or cause to be delivered to the Holder
exercising this Warrant or any portion hereof certificates representing the
shares of Common Stock issuable upon such exercise within ten business days of
the surrender and delivery by such Holder to the Company of this Warrant and a
duly completed Exercise Form. In the event the Company fails to deliver or cause
to be delivered to the Holder such certificates (without legend or restriction
if such Warrant Securities are then, or are required to be, registered pursuant
to the Warrant Agreement) within such ten business day period, the Company shall
pay to the Holder the Delay Damages. In the event the Company restricts or
delays the transfer or clearance of such certificates by the Holder (whether by
stop transfer order, unreasonable delay or otherwise), the Company shall pay to
the Holder the Delay Damages for each calendar day of such restriction or delay.
4. Warrant Register; Exchange; Transfer; Loss.
(a) The Company at all times shall maintain at its chief executive
offices, or at the offices of its transfer agent, an open register for all
Warrants, in which the Company shall record the name and address of each Person
to whom a Warrant has been issued or transferred, the number of shares of Common
Stock or other securities purchasable hereunder and the corresponding purchase
prices.
(b) This Warrant may be exchanged for two or more warrants entitling
the identical Holder hereof to purchase the same aggregate Exercise Quantity at
the same Exercise Price per share and otherwise having the same terms and
provisions as this Warrant. The identical Holder may request such an exchange by
surrender of this Warrant to the Company, together with a written exchange
request specifying the desired number of warrants and allocation of the Exercise
Quantity purchasable under the existing Warrant.
(c) This Warrant may be transferred only in accordance with the
provisions of Article VII of the Warrant Agreement, in whole or in part, by the
Holder or any duly authorized representative of such Holder. A transfer may be
registered with the Company by submission to it of this Warrant, together with
the annexed Assignment Form duly completed and executed, and if the transfer is
not a registered transfer, evidence reasonably satisfactory to the Company that
such transfer is in compliance with federal and state securities laws. Within
ten business days after the Company's receipt of this Warrant and the Assignment
Form so completed and executed, the Company will issue and deliver to the
transferee a new Warrant representing the portion of the Exercise Quantity
transferred at the same Exercise Price per share and otherwise having the same
terms and provisions as this Warrant, which the Company will register in the new
Holder's name.
<PAGE> 38
(d) Upon receipt by the Company of evidence reasonably satisfactory to
it of the ownership of and the loss, theft, destruction or mutilation of this
Warrant, and (a) in the case of loss, theft or destruction, upon receipt by the
Company of indemnity reasonably satisfactory to it (provided that, the Holder's
own agreement of indemnity shall be deemed to be satisfactory), or (b) in the
case of mutilation, upon surrender and cancellation thereof, the Company, at its
expense, will execute, register and deliver, in lieu thereof, a new certificate
or instrument for (or covering the purchase of) this Warrant.
(e) The Company will not close its books against the transfer of this
Warrant or any of the Warrant Securities in any manner which interferes with the
timely exercise of this Warrant. The Company will from time to time take all
such action as may be necessary to assure that the par value per share of the
unissued Common Stock acquirable upon exercise of this Warrant is at all times
equal or less than the Exercise Price then in effect.
5. Rights and Obligations of the Company and the Holder. The Company and
the Holder of this Warrant are entitled to the rights and bound by the
obligations set forth in the Warrant Agreement, all of which rights and
obligations are hereby incorporated by reference herein. This Warrant shall not
entitle its Holder to any rights of a stockholder in the Company (other than as
provided in Section 2(c) of this Warrant and the Warrant Agreement).
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its duly authorized representative and its corporate seal, if any, to be
impressed hereupon and attested to by its Secretary or Assistant Secretary.
eSat, Inc.
By:
-------------------------------------
Michael Palmer
Chief Executive Officer
By:
-------------------------------------
Secretary
<PAGE> 39
eSat, Inc.
EXERCISE FORM
eSat, Inc. (the "Company")
The undersigned hereby irrevocably elects to exercise the right of purchase
represented by the within Warrant Certificate for, and to purchase thereunder,
shares of common stock of the Company (the "Warrant Securities"), and requests
that certificates for the Warrant Securities be issued in the name of:
------------------------------------------
(Please print or Type Name, Address and Social Security Number)
------------------------------------------
------------------------------------------
and, if said number of shares of Warrant Securities shall not be all the Warrant
Securities purchasable hereunder, that a new Warrant Certificate for the balance
of the Warrant Securities purchasable under the within Warrant Certificate be
registered in the name of the undersigned Holder or his Assignee as below
indicated and delivered to the address stated below.
Dated:
---------------
Name of Holder
or Assignee:
----------------------------------------
(Please Print)
Address:
----------------------------------------
Signature:
----------------------------------------
Note: The above signature must correspond with the name as it appears upon the
face of this Warrant Certificate in every particular, without alteration or
enlargement or any change whatever, unless these Warrants have been assigned.
<PAGE> 40
ASSIGNMENT
(To be signed only upon assignment of Warrants)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers the
right to purchase shares of common stock represented by the within Warrant
Certificate unto, and requests that a certificate for such Warrant be issued in
the name of:
-------------------------------------
(Name and Address of Assignee Must be Printed or Typewritten)
-------------------------------------
-------------------------------------
The undersigned hereby irrevocably constitutes and appoints _______________
Attorney to transfer said Warrants on the books of the Company, with full power
of substitution in the premises and, if said number of shares of common stock
shall not be all of the common stock purchasable under the within Warrant
Certificate, that a new Warrant Certificate for the balance of the common stock
purchasable under the within Warrant Certificate be registered in the name of
the undersigned Holder and delivered to such Holder's address as then set forth
on the Company's books.
Dated:
----------------- ----------------------------------------
Signature of Registered Holder
Note: The above signature must correspond with the name as it appears upon the
face of this Warrant Certificate in every particular, without alteration or
enlargement or any change whatever.
<PAGE> 41
THE WARRANT SECURITIES TO BE RECEIVED UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER
ANY STATE SECURITIES LAWS. THE WARRANT SECURITIES MAY NOT BE OFFERED, SOLD,
PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED, WHETHER OR NOT FOR
CONSIDERATION, IN THE ABSENCE OF (1) AN EFFECTIVE REGISTRATION STATEMENT AND
QUALIFICATION WITH RESPECT TO THE WARRANT SECURITIES UNDER THE SECURITIES ACT
AND UNDER ANY APPLICABLE STATE SECURITIES LAWS OR (2) AN EXEMPTION FROM SUCH
QUALIFICATION AND REGISTRATION.
WARRANT CERTIFICATE NO. 4
COMMON STOCK PURCHASE WARRANT
September 17, 1999
Capitalized terms used and not otherwise defined in this Warrant shall have the
meanings respectively assigned to them in the Warrant Agreement, dated as of the
date hereof, by and between the Company and Holder.
eSat, Inc., a Nevada corporation (the "Company") does hereby certify and
agree that, for good and valuable consideration (the existence, sufficiency and
receipt of which are hereby acknowledged by the Company), Corporate Financial
Enterprises, Inc., a Delaware corporation, its successor, and assigns
("Holder"), hereby is entitled to purchase from the Company, during the term set
forth in Section 1 hereof, up to an aggregate amount of 200,000 shares (the
"Exercise Quantity") of duly authorized, validly issued, fully paid and
non-assessable shares of Common Stock of the Company (the "Common Stock"), all
upon the terms and provisions and subject to adjustment of such Exercise
Quantity provided in the Warrant Agreement and this Common Stock Purchase
Warrant (the "Warrant"). The exercise price per share of Common Stock for which
this Warrant is exercisable shall be $8.50, as adjusted from time to time
pursuant to the terms of this Warrant and the Warrant Agreement (the "Exercise
Price").
1. Term of the Warrant. The term of this Warrant commences as of the date
hereof, and shall expire at 5:00 P.M., Pacific time, on September 17, 2009.
2. Exercise of Warrant.
(a) This Warrant may be exercised by the Holder of this Warrant at any
time during the term hereof, but after December 31, 2000, in whole or in part,
from time to time (but not for fractional shares, unless this Warrant is
exercised in whole), by presentation and surrender of this Warrant (or a copy
hereof) to the Company, together with the annexed Exercise Form duly completed
and executed and payment in the aggregate amount equal to the Exercise Price
multiplied by the number of shares of Common Stock being purchased. At the
option of Holder, payment of the Exercise Price may be made either by (i)
personal or business check payable to the order of the Company, (ii) surrender
of certificates then held representing, or
<PAGE> 42
deduction from the number of shares issuable upon exercise of this Warrant, of
that number of shares which has an aggregate Fair Value determined in accordance
with this Agreement on the date of exercise equal to the aggregate Exercise
Price for all shares to be purchased pursuant to this Warrant, (iii) by a
promissory note bearing interest at six percent (6%) per annum and payable in
five equal annual installments commencing on the first anniversary of the
exercise of this Warrant, or (iv) by any combination of the foregoing methods.
Within ten business days of the Company's receipt of this Warrant (or a copy
thereof), the completed and signed Exercise Form and the requisite payment (if
any), the Company shall issue and deliver (or cause to be delivered) to the
exercising Holder stock certificates aggregating the number of shares of Warrant
Securities purchased. In the event the Company fails to deliver or cause to be
delivered to the Holder such certificates (without legend or restriction if such
Warrant Securities are then, or are required to be, registered pursuant to the
Warrant Agreement) within such ten business day period, the Company shall pay to
the Holder the Delay Damages, for each day after the seventh business day
following the delivery of this Warrant and such Exercise Form to the Company
through and including the day such certificates (without legend or restriction
if such Warrant Securities are then, or are required to be, registered pursuant
to the terms of the Warrant Agreement) are delivered to the Holder at the
address set forth in such Exercise Form. In the event the Company restricts or
delays the transfer or clearance of such certificates by the Holder (whether by
stop transfer order, unreasonable delay or otherwise), the Company shall pay to
the Holder the Delay Damages for each calendar day of such restriction or delay.
(b) In the event the Holder of this Warrant desires that any or all of
the stock certificates to be issued upon the exercise hereof be registered in a
name or names other than that of the Holder of this Warrant, the Holder must (i)
so request in writing at the time of exercise if the transfer is not a
registered transfer, and (ii) provide to the Company evidence reasonably
satisfactory to the Company to the effect that the proposed transfer may be
effected without registration under the Securities Act.
(c) Upon the due exercise by the Holder of this Warrant, whether in
whole or in part, the Holder (or any other person to whom a stock certificate is
to be so issued) shall be deemed for all purposes to have become the Holder of
record of the shares of Common Stock for which this Warrant has been so
exercised, effective immediately prior to the close of business on the date this
Warrant, the completed and signed Exercise Form and the requisite payment were
duly delivered to the Company, irrespective of the date of actual delivery of
certificates representing such shares of Common Stock so issued.
3. Surrender of Warrant; Expenses.
(a) Whether in connection with the exercise, exchange or registration
of transfer or replacement of this Warrant, surrender of this Warrant (or a copy
hereof) shall be made to the Company during normal business hours on a business
day (unless the Company otherwise permits) at the executive offices of the
Company or to such other office or duly authorized representative of the Company
as from time to time may be designated by the Company by written notice given to
the Holder of this Warrant.
<PAGE> 43
(b) The Company shall pay all costs and expenses incurred in
connection with the exercise, registering, exchange, transfer or replacement of
this Warrant, including the costs of preparation, execution and delivery of
warrants and stock certificates, and shall pay all taxes (other than any taxes
measured by the income of any Person other than the Company) and other charges
imposed by law payable in connection with the transfer or replacement of this
Warrant.
(c) The Company shall deliver or cause to be delivered to the Holder
exercising this Warrant or any portion hereof certificates representing the
shares of Common Stock issuable upon such exercise within ten business days of
the surrender and delivery by such Holder to the Company of this Warrant and a
duly completed Exercise Form. In the event the Company fails to deliver or cause
to be delivered to the Holder such certificates (without legend or restriction
if such Warrant Securities are then, or are required to be, registered pursuant
to the Warrant Agreement) within such ten business day period, the Company shall
pay to the Holder the Delay Damages. In the event the Company restricts or
delays the transfer or clearance of such certificates by the Holder (whether by
stop transfer order, unreasonable delay or otherwise), the Company shall pay to
the Holder the Delay Damages for each calendar day of such restriction or delay.
4. Warrant Register; Exchange; Transfer; Loss.
(a) The Company at all times shall maintain at its chief executive
offices, or at the offices of its transfer agent, an open register for all
Warrants, in which the Company shall record the name and address of each Person
to whom a Warrant has been issued or transferred, the number of shares of Common
Stock or other securities purchasable hereunder and the corresponding purchase
prices.
(b) This Warrant may be exchanged for two or more warrants entitling
the identical Holder hereof to purchase the same aggregate Exercise Quantity at
the same Exercise Price per share and otherwise having the same terms and
provisions as this Warrant. The identical Holder may request such an exchange by
surrender of this Warrant to the Company, together with a written exchange
request specifying the desired number of warrants and allocation of the Exercise
Quantity purchasable under the existing Warrant.
(c) This Warrant may be transferred only in accordance with the
provisions of Article VII of the Warrant Agreement, in whole or in part, by the
Holder or any duly authorized representative of such Holder. A transfer may be
registered with the Company by submission to it of this Warrant, together with
the annexed Assignment Form duly completed and executed, and if the transfer is
not a registered transfer, evidence reasonably satisfactory to the Company that
such transfer is in compliance with federal and state securities laws. Within
ten business days after the Company's receipt of this Warrant and the Assignment
Form so completed and executed, the Company will issue and deliver to the
transferee a new Warrant representing the portion of the Exercise Quantity
transferred at the same Exercise Price per share and otherwise having the same
terms and provisions as this Warrant, which the Company will register in the new
Holder's name.
<PAGE> 44
(d) Upon receipt by the Company of evidence reasonably satisfactory to
it of the ownership of and the loss, theft, destruction or mutilation of this
Warrant, and (a) in the case of loss, theft or destruction, upon receipt by the
Company of indemnity reasonably satisfactory to it (provided that, the Holder's
own agreement of indemnity shall be deemed to be satisfactory), or (b) in the
case of mutilation, upon surrender and cancellation thereof, the Company, at its
expense, will execute, register and deliver, in lieu thereof, a new certificate
or instrument for (or covering the purchase of) this Warrant.
(e) The Company will not close its books against the transfer of this
Warrant or any of the Warrant Securities in any manner which interferes with the
timely exercise of this Warrant. The Company will from time to time take all
such action as may be necessary to assure that the par value per share of the
unissued Common Stock acquirable upon exercise of this Warrant is at all times
equal or less than the Exercise Price then in effect.
5. Rights and Obligations of the Company and the Holder. The Company and
the Holder of this Warrant are entitled to the rights and bound by the
obligations set forth in the Warrant Agreement, all of which rights and
obligations are hereby incorporated by reference herein. This Warrant shall not
entitle its Holder to any rights of a stockholder in the Company (other than as
provided in Section 2(c) of this Warrant and the Warrant Agreement).
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its duly authorized representative and its corporate seal, if any, to be
impressed hereupon and attested to by its Secretary or Assistant Secretary.
eSat, Inc.
By:
-------------------------------------
Michael Palmer
Chief Executive Officer
By:
-------------------------------------
Secretary
<PAGE> 45
eSat, Inc.
EXERCISE FORM
eSat, Inc. (the "Company")
The undersigned hereby irrevocably elects to exercise the right of purchase
represented by the within Warrant Certificate for, and to purchase thereunder,
shares of common stock of the Company (the "Warrant Securities"), and requests
that certificates for the Warrant Securities be issued in the name of:
------------------------------------------
(Please print or Type Name, Address and Social Security Number)
------------------------------------------
------------------------------------------
and, if said number of shares of Warrant Securities shall not be all the Warrant
Securities purchasable hereunder, that a new Warrant Certificate for the balance
of the Warrant Securities purchasable under the within Warrant Certificate be
registered in the name of the undersigned Holder or his Assignee as below
indicated and delivered to the address stated below.
Dated:
---------------
Name of Holder
or Assignee:
----------------------------------------
(Please Print)
Address:
----------------------------------------
Signature:
----------------------------------------
Note: The above signature must correspond with the name as it appears upon the
face of this Warrant Certificate in every particular, without alteration or
enlargement or any change whatever, unless these Warrants have been assigned.
<PAGE> 46
ASSIGNMENT
(To be signed only upon assignment of Warrants)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers the
right to purchase shares of common stock represented by the within Warrant
Certificate unto, and requests that a certificate for such Warrant be issued in
the name of:
-------------------------------------
(Name and Address of Assignee Must be Printed or Typewritten)
-------------------------------------
-------------------------------------
The undersigned hereby irrevocably constitutes and appoints _______________
Attorney to transfer said Warrants on the books of the Company, with full power
of substitution in the premises and, if said number of shares of common stock
shall not be all of the common stock purchasable under the within Warrant
Certificate, that a new Warrant Certificate for the balance of the common stock
purchasable under the within Warrant Certificate be registered in the name of
the undersigned Holder and delivered to such Holder's address as then set forth
on the Company's books.
Dated:
----------------- ----------------------------------------
Signature of Registered Holder
Note: The above signature must correspond with the name as it appears upon the
face of this Warrant Certificate in every particular, without alteration or
enlargement or any change whatever.
<PAGE> 1
EXHIBIT 10.7
WARRANT AGREEMENT
Between
ESAT, INC.
and
VANTAGE CAPITAL, INC.
Dated as of September 17, 1999
THE WARRANTS AND WARRANT SECURITIES TO BE RECEIVED UPON EXERCISE OF THE WARRANTS
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR QUALIFIED UNDER ANY STATE SECURITIES LAWS. THE WARRANTS
AND WARRANT SECURITIES, AS THE CASE MAY BE, MAY NOT BE OFFERED, SOLD, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED, WHETHER OR NOT FOR CONSIDERATION, IN THE
ABSENCE OF (1) AN EFFECTIVE REGISTRATION STATEMENT AND QUALIFICATION IN EFFECT
WITH RESPECT TO THE WARRANTS AND WARRANT SECURITIES, AS THE CASE MAY BE, UNDER
THE SECURITIES ACT AND UNDER ANY APPLICABLE STATE SECURITIES LAWS OR (2) AN
EXEMPTION FROM SUCH REGISTRATION AND QUALIFICATION.
<PAGE> 2
WARRANT AGREEMENT
THIS WARRANT AGREEMENT (this "Agreement") is dated as of the 17th day of
September 1999, and executed by between eSat, Inc., a Nevada corporation (the
"Company") and Vantage Capital, Inc., a California corporation (the
"Consultant").
WHEREAS, the Company has agreed to grant to Consultant or its assigns
common stock purchase warrants in substantially the form attached hereto as
Exhibit A hereto (the "Warrants") to acquire up to an aggregate of 600,000
shares of the Company's Common Stock (the "Exercise Quantity"). This Agreement
sets forth certain rights and obligations of the Company and Consultant with
respect to the Warrants.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants, representations, warranties and agreements contained in this
Agreement, the parties hereto agree as follows:
I. DEFINITIONS
Section 1.01 Defined Terms. As used in this agreement, the following
capitalized terms shall have the meanings respectively assigned to them below,
which meanings shall be applicable equally to the singular and plural forms of
the terms so defined.
"Common Stock" shall mean the common stock, par value $0.01, of the
Company.
"Common Stock Equivalents" shall mean all options, warrants (including,
without limitation, the Warrants), securities of any kind (including, without
limitation, securities convertible into or exchangeable or exercisable for
Common Stock) and other rights (in each case whether now existing or hereafter
issued or arising) to acquire from the Company shares of Common Stock (without
regard to whether such options, warrants, securities and other rights are then
exchangeable, exercisable or convertible in full, in part or at all).
"Company" shall have the meaning set forth in the preamble.
"Dividend" means, as to any Person, any declaration or payment of any
dividend or distribution (other than a dividend of Common Stock) on, or the
making of any pro rata distribution, loan, advance, or investment to, any shares
of capital stock of such Person.
"Exchange" means the NASDAQ SmallCap, National Market System or OTC
Bulletin Board Service (collectively, and as applicable, "NASDAQ") or, if
quotations are not available for the Common Stock, the last sale price of the
Common Stock as reported by NASDAQ, or if not so reported, as listed in the
National Quotation Bureau, Inc.'s "Pink Sheets.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder, and any successor
provisions thereto.
<PAGE> 3
"Exercise Price" shall have the meaning given in each Warrant. The
initial Exercise Price shall be (i) as to 150,000 Warrants, $4.25, (ii) as to
150,000 Warrants, $5.25, (iii) as to 100,000 Warrants, $6.25, and (iii) as to
200,000 Warrants, $8.50. The Exercise Price and the number of shares of Common
Stock purchasable pursuant to the Warrants shall be subject to adjustment from
time to time as hereinafter set forth in Article V hereof.
"Expiration Period" means September 17, 2009.
"Exercise Quantity" shall mean the number of shares of Common Stock,
determined from time to time, taking into account all shares of Common Stock
theretofore issued upon exercise of the Warrants, required to be issued by the
Company to the holders of the Warrants. Exercise Quantity shall initially have
the meaning given in each Warrant, and may be adjusted from time to time,
pursuant to the provisions of the Warrants and this Agreement.
"Fair Value" as of a particular date shall mean the closing asked price
of the Common Stock as reported on an Exchange. If such quotations are
unavailable, or with respect to other appropriate security, property, assets,
business or entity, "Fair Value" shall mean the fair value of such item as
determined by mutual agreement reached by the Holder and the Company or, in the
event the parties are unable to agree, an opinion of an independent investment
banking firm or firms in accordance with the following procedure. In the case of
any event which gives rise to a requirement to determine "Fair Value" pursuant
to this Agreement, the Company shall notify the Holders of such event as
promptly as practicable, but in any event within ten (10) calendar days
following such event and if the procedures contemplated herein in connection
with determining Fair Value have not been complied with fully, then any such
determination of Fair Value for any purpose of this Agreement shall be deemed to
be preliminary and subject to adjustment pending full compliance with such
procedures.
Upon the occurrence of an event requiring the determination of Fair
Value, the Company shall give the Holder(s) of the Warrants notice of such
event, and the Company and the Holders shall engage in direct good faith
discussions to arrive at a mutually agreeable determination of Fair Value. In
the event the Company and the Holder(s) are unable to arrive at a mutually
agreeable determination within ten (10) days of the notice, the Company and the
Holder(s) of the Warrants (who, if more than one, shall agree among themselves
by a majority) shall retain Imperial Capital LLC or, if Imperial Capital LLC is
unavailable or unable to accept such engagement, Greif & Co. Such firm shall
determine the Fair Value of the security, property, assets, business or entity,
as the case may be, in question and deliver its opinion in writing to the
Company and to such Holder within thirty (30) days of its retention. Each of the
Company and the Holders (as a group) shall submit to such investment banking
firm their proposed determination of Fair Value, and any other supporting
documentation reasonably requested by the investment banking firm. In no event
shall the marketability, or lack thereof, or lack of registration of a security
be a factor in determining the "Fair Value" of such security. The determination
so made shall be conclusive and binding on the Company and such Holder(s),
absent clear and manifest error. The fees and expenses of such investment
banking firm retained pursuant to this provision shall be borne by the Company
in advance. In the event the Company fails to pay such fees, or the retainer or
deposit requested by such investment banking firm,
2
<PAGE> 4
within 10 days of the acceptance by such investment banking firm (conditional or
unconditional) of such engagement, then the Holders' proposed determination of
Fair Value shall be conclusive and binding upon the Company.
"Holder" or "Holders" shall mean the Person(s) then registered as the
owners of the Warrants or Warrant Securities, as the case may be, on the books
and records of the Company.
"Person" shall mean any individual, corporation, partnership, limited
liability company, association, joint-stock company, trust, estate,
unincorporated organization, joint venture, court or governmental or political
subdivision or agency thereof.
"Registrable Securities" shall have the meaning assigned to it in
Section 6.01 hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder, and any successor provisions
thereto.
"Subsidiary" of any Person means (i) a corporation, association or other
business entity of which more than 50% of the total voting power of all classes
of the outstanding voting stock or other indicia of ownership is owned, directly
or indirectly, by such Person or by one or more other Subsidiaries of such
Person or by such Person and one or more Subsidiaries thereof, (ii) any
partnership (a) the sole general partner or the managing general partner of
which is such Person or a Subsidiary of such Person or (b) the only general
partners of which are such Person or one or more Subsidiaries of such Person (or
any combination thereof) and (iii) any other Person not described in clauses (i)
and (ii) above in which such Person, or one or more other Subsidiaries of such
Person or such Person and one or more other Subsidiaries thereof, directly or
indirectly, owns 50% ownership and the power, whether by such ownership
interest, pursuant to a written contract or agreement or otherwise, to direct
the policies and management or the financial and other affairs thereof.
"Warrant Securities" shall mean the shares of Common Stock purchasable
or purchased from time to time under the Warrants or acquirable or acquired upon
any transfer of any such securities, together with all additional securities
receivable or received in payment of Dividends or distributions on or splits of
those securities or receivable or received as a result of adjustments provided
for in Article V hereof.
II. WARRANTS
Section 2.01 Grant of Warrants. The Company hereby grants to Consultant,
for good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, Warrants to purchase a number of shares of Common Stock
equal to the Exercise Quantity, as may be adjusted from time to time as set
forth herein, which Warrants shall be evidenced in substantially the form
attached as Exhibit A. Consultant and any subsequent Holder of the Warrants and
of Warrant Securities shall have the rights and obligations provided for in the
Warrants and in this Agreement.
3
<PAGE> 5
Section 2.02 Exercise of Warrants. Subject to the terms of this
Agreement, the Warrant holder shall have the right, at any time and from time to
time after December 31, 2000 until 5:00 p.m., Pacific Time, on September 17,
2009, to purchase from the Company up to the number of fully paid and
nonassessable shares of Warrant Securities to which the Warrant holder may at
the time be entitled to purchase pursuant to this Agreement and the Warrant,
upon presentation and surrender of the Warrant (or a copy thereof) to the
Company, together with the Exercise Form duly completed and executed and payment
in the aggregate amount equal to the Exercise Price multiplied by the number of
shares of Common Stock being purchased. At the option of Holder, payment of the
Exercise Price may be made either by (i) personal or business check payable to
the order of the Company, (ii) surrender of certificates then held representing
that number of shares which has an aggregate Fair Value determined in accordance
with this Agreement on the date of exercise equal to the aggregate Exercise
Price for all shares to be purchased pursuant to the Warrant, (iii) by a
promissory note bearing interest at six percent (6%) per annum and payable in
five equal annual installments commencing on the first anniversary of the
exercise of the Warrant, or (iv) by any combination of the foregoing methods.
The Holder of Common Stock issued in exchange for a promissory note as
contemplated in clause (iii) above shall have no voting rights, dividend rights
or liquidation rights pursuant to Section VI hereof or any other rights until
payments are made on the promissory note, at which time such rights shall be
deemed to have accrued on the whole number of shares paid for at the Exercise
Price by each principal payment on the promissory note. If the Holder of Common
Stock issued in exchange for a promissory note defaults in payment of such note,
upon 30 days written notice, the Company shall forthwith cancel the Common Stock
so issued which has not been paid for, and, until such time as the Holder shall
have paid the promissory note in full, the Company will not be obligated to
reissue such shares of Common Stock. All shares paid for with a promissory note
will bear a legend to the foregoing effect.
Within ten business days of the Company's receipt of the Warrant (or a
copy thereof), the completed and signed Exercise Form and the requisite payment
(if any), the Company shall issue and deliver (or cause to be delivered) to the
exercising Holder stock certificates aggregating the number of shares of Warrant
Securities purchased. In the event the Company fails to deliver or cause to be
delivered to the Holder such certificates (without legend or restriction if such
Warrant Securities are then registered pursuant to the Warrant Agreement) within
such ten business day period, unless such failure is based on an order of a
court of competent jurisdiction or a governmental agency or an Exchange or other
market on which the Company's securities are listed or traded (provided such
order is not a result of action or inaction of the Company), simultaneously with
the late delivery of such certificate, the Company shall pay to the Holder an
amount equal to the product of (x) the last sale price on the date the
certificates are properly issued and delivered to the Holder, less the last sale
price on the date of the Exercise Form, multiplied by (y) the number of shares
of Warrant Securities purchased as set forth in the Exercise Form (the "Delay
Damages"). In the event the Company restricts or delays the transfer or
clearance of such certificates by the Holder (whether by stop transfer order,
unreasonable delay or otherwise), unless such action is based on an order of a
court of competent jurisdiction or a governmental agency or an Exchange or other
market on which the Company's securities are listed or traded (provided such
order is not a result of action or inaction of the Company), the
4
<PAGE> 6
Company shall pay to the Holder the Delay Damages for each calendar day of such
restriction or delay.
Section 2.03 Partial Exercise. In the event of a partial exercise of the
Warrant, the Company shall issue and deliver to the Holder a new Warrant at the
same time such stock certificates are delivered, which new Warrant shall entitle
the Holder to purchase the balance of the Exercise Quantity not purchased in
that partial exercise and shall otherwise be upon the same terms and provisions
as the Warrant.
III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company, hereby represents and warrants as follows:
(a) The Company is a corporation duly organized, validly existing, and
in good standing under the laws of Nevada, with full corporate power and
authority to conduct its business as it is now being conducted, to own or use
the properties and assets that it purports to own or use, and to perform all its
obligations under the contracts to which it is a party. The Company is duly
qualified to do business as a foreign corporation and is in good standing under
the laws of each state or other jurisdiction in which either the ownership or
use of the properties owned or used by it, or the nature of the activities
conducted by it, requires such qualification, including, without limitation,
California.
(b) The execution and delivery of this Agreement and the Warrants have
been duly and properly authorized by all requisite corporate action of the
Company and its board of directors, and no consent of any other Person is
required as a prerequisite to the validity, enforceability and performance of
this Agreement and the Warrants that has not been obtained. The Company has the
full legal right, power and authority to execute and deliver this Agreement and
the Warrants and to perform its obligations hereunder and thereunder. When
issued and delivered pursuant to this Agreement, the Warrants will have been
duly and validly executed, issued and delivered and will constitute valid and
legally binding obligations of the Company and the Holder thereof will be
entitled to the benefits provided herein and therein.
(c) The Warrant Securities, when issued, sold and delivered in
accordance with the terms hereof, for the consideration expressed herein, shall
be duly and validly issued and outstanding, fully paid and nonassessable, and
will be issued in compliance with all applicable federal and state securities or
blue sky laws.
(d) The Company is not a party to or otherwise subject to any contract
or agreement which restricts or otherwise affects its right or ability to
execute and deliver this Agreement or the Warrants or to perform any obligation
hereunder or thereunder (including, without limitation, issuance of the Warrant
Securities). Neither the execution or delivery of this Agreement or the
Warrants, nor compliance therewith (including, without limitation, issuance of
the Warrant Securities), will conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a default under, or result in any
violation of, or result in the creation of any material lien upon any assets or
properties of the Company under, or require any consent, approval, or other
action by, notice to or filing with any court or governmental agency or division
pursuant to
5
<PAGE> 7
the Articles of Incorporation or Bylaws of the Company, as currently in effect,
any award of any arbitrator, or any agreement, instrument or law to which the
Company is subject or by which it or its assets or properties is bound.
(e) The Warrants are, and the Warrant Securities will be, issued by the
Company to Consultant in a transaction exempt from registration and
qualification under the applicable federal and state securities and blue sky
laws.
IV. COVENANTS
Section 4.01 Covenants of the Company. The Company hereby covenants and
agrees that, during the term of this Agreement, unless Holders of outstanding
Warrants evidencing a majority of the Warrants agree otherwise in writing,
(a) Each of the Warrant Securities issued and delivered upon the
exercise of the Warrants and payment of the Exercise Price will be duly and
validly authorized and issued, will be fully paid and nonassessable, and will
not be subject to any unpaid tax of the Company or any lien imposed on or
created by the Company, whether respecting their issuance to and purchase by the
Holder of the Warrants or otherwise. The Company will take all such actions as
may be necessary to assure that all such Warrant Securities may be so issued
without violation of any applicable law or governmental regulation or any
requirements of any domestic securities exchange or quotation system upon which
such Warrant Securities may be listed.
(b) The Company shall reserve and at all times keep available for
issuance an authorized number of shares of Common Stock or Warrant Securities
sufficient to permit the full and immediate exercise of the Warrants and the
full and immediate exercise, exchange and conversion of all other securities,
options, warrants and other rights issued or granted by the Company.
(c) The Company shall not permit the par value of its Common Stock to
exceed, at any time, the Exercise Price and shall take all such actions as may
be necessary or appropriate to ensure that it does not do so.
(d) As soon as available, and in no event later than the dates filed
with the Securities and Exchange Commission (the "Commission") or any other
governmental agency or division or other regulatory authority, if such documents
are so filed, the Company shall, upon request, deliver to any Holder(s) of the
Warrants and the Warrant Securities copies of (i) all annual, quarterly and
monthly financial statements made available by the Company to its shareholders,
(ii) all reports, notices and proxy or information statements sent or made
available generally by the Company to its shareholders, and (iii) all regular
and periodic reports and all registration statements, prospectuses and other
information filed by the Company with the Commission, relevant state authorities
or any securities exchange, securities quotation system or other self-regulatory
organization.
(e) The Company agrees that to the extent reasonably necessary to permit
the Holders to sell shares of the Common Stock in accordance with and in
reliance on Rule 144, and for so
6
<PAGE> 8
long as such shares are owned by the Holders and such shares are not registered
for resale under the Securities Act, the Company will make and keep public
information available within the meaning of Rule 144 at all times from and after
the Closing Date, and file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act.
(f) The Company shall cooperate with the Holder(s) of the Warrants and
the Warrant Securities in supplying such information as may be reasonably
necessary for the Holder(s) to complete and file any information or other
reporting forms from time to time required by the Commission, relevant state
authorities or any securities exchange, securities quotation system or other
self-regulatory organization, including, without limitation, information
pertaining to or required for the availability of any exemption from the
securities laws for the sale, transfer or other disposition of the Warrants or
any of the Warrant Securities.
Section 4.02 Indemnification.
(a) The Company agrees to defend, indemnify and hold harmless, to the
full extent permitted by law, Consultant and each other Holder of the Warrants,
this Agreement, or any Warrant Security purchased hereunder, any underwriter(s),
and their respective directors, officers, employees, attorneys and agents, as
well as each other Person (if any) controlling any of the foregoing Persons
within the meaning of Section 15 of the Securities Act, or Section 20 of the
Exchange Act, from and against any and all claims, liabilities, losses and
expenses (including, without limitation, the reasonable disbursements, expenses
and fees of their respective attorneys, accountants and experts) that may be
imposed upon, incurred by, or asserted against any of them, any of their
respective directors, officers, employees, attorneys and agents, or any such
control Person, under the Securities Act, the Exchange Act or any other statute
or at common law, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof), arise out of or are related directly or indirectly
to (i) the breach of any of the representations, warranties and/or covenants of
the Company contained herein, or (ii) any alleged untrue statement of any
material fact contained, on the effective date thereof, in any registration
statement under which such securities are or were registered under the
Securities Act or the Exchange Act, or in any preliminary prospectus or final
prospectus related thereto, or any amendment or supplement thereto, unless such
alleged untrue statement of material fact is based on information provided in
writing for inclusion in such registration statement, preliminary prospectus or
final prospectus by a Holder of the Warrants or Warrant Securities seeking the
indemnity, or any alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
and shall reimburse such Persons for any legal or any other expenses reasonably
incurred by such Persons in connection with investigating or defending any such
loss, claim, damage, liability or action. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of any
such indemnified Person, and shall survive the transfer of such securities by
such Person. Promptly after receipt of notice of the commencement of any action
in respect of which indemnity may be sought against the Company, the Company
shall assume the defense of such action (including the employment of counsel,
who shall be counsel of national reputation and presence, and who shall be
reasonably satisfactory to the party seeking indemnity hereunder) and the
payment of
7
<PAGE> 9
expenses insofar as such action shall relate to any alleged liability in respect
of which indemnity may be sought against the Company. If the Company assumes the
defense of such action, (i) it will be conclusively established for purposes of
this Agreement that the claims made in that action are within the scope of and
subject to indemnification; (ii) no compromise or settlement of such claims may
be effected by the Company without the indemnified party's consent unless (1)
there is no finding or admission of any violation of law, regulation, rule or
order or any violation of the rights of any other person or entity and no effect
on any other claims that may be made against the indemnified party, and (2) the
sole relief provided is monetary damages that are paid in full by Company; and
(iii) the indemnified party will have no liability with respect to any
compromise or settlement of such claims effected without its consent. If notice
is given to the Company of the commencement of any action and the Company does
not, within ten days after the indemnified party's notice is given to the
Company, give notice to the indemnified party of its election to assume the
defense of such action, the Company will be bound by any determination made in
such action or any compromise or settlement effected by the indemnified party.
(b) Notwithstanding the foregoing, if an indemnified party determines in
good faith that there is a reasonable probability that a claim or action may
adversely affect it or its affiliates other than as a result of monetary damages
for which it would be entitled to indemnification under this Agreement, or if an
indemnified party determines that there are defenses available to it that are
either not available to the Company or not being raised by the Company, or if
the indemnified party determines that there is a conflict of interest between
the Company and the indemnified party in the claim or action, the indemnified
party may, by notice to the Company, assume the exclusive right to defend,
compromise, or settle such claim or action against itself as indemnified party
only, and the Company will be bound by any determination of a claim or action so
defended or any compromise or settlement effected to the extent such
determination, compromise or settlement covers the indemnified party only.
Section 4.03 Repurchases and Redemptions. In the event the Company
repurchases or redeems equity securities of the Company or any Common Stock
Equivalents in any calendar year having an aggregate Fair Value in excess of
$10,000, thereafter it shall reduce the Exercise Price of each Warrant by an
amount equal to the quotient obtained by dividing (x) the aggregate amount of
cash and the aggregate Fair Value of any property paid out or to be paid out by
the Company in connection with any such repurchase or redemption by (y) the
number of shares of Common Stock outstanding immediately after such repurchase
or redemption.
Section 4.04 Listing on the Securities Exchange. The Company shall, at
its expense, list on NASDAQ or any securities exchange where it lists its Common
Stock, and maintain and increase when necessary such listing of all outstanding
Warrant Securities so long as any shares of Common Stock shall be so listed. The
Company shall also so list on each such securities exchange or NASDAQ, and will
maintain such listing of, any other securities which the Holder(s) shall be
entitled to receive upon the exercise thereof if at the time any securities of
the same class shall be listed on such securities exchange or NASDAQ by the
Company.
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<PAGE> 10
V. ANTIDILUTION
Section 5.01 No Dilution or Impairment: Adjustments.
(a) Prohibited Actions. So long as any Warrants are outstanding, the
Company will not avoid or seek to avoid the observance or performance of any of
the terms of this Agreement or the Warrants or impair the ability of the
Holder(s) to realize the full intended economic value thereof, but will at all
times in good faith assist in the carrying out of all such terms, and of the
taking of all such action as may be necessary or appropriate in order to protect
the rights of the Holder(s) of the Warrants against dilution or other
impairment.
(b) Adjustment of Exercise Price in the Event of Certain Issuances of
Common Stock or Common Stock Equivalents. In case the Company shall at any time
issue or sell Common Stock or Common Stock Equivalents (by merger otherwise) for
less than Fair Value as of the date of such issuance or at a price per share
less than the then current Exercise Price of the Warrants (other than (i)
delivery of shares of Common Stock upon exercise of the Warrants, and (ii) any
Common Stock Equivalents issued and outstanding on the date hereof), or issue
Common Stock or Common Stock Equivalents by way of a Dividend (except for
dividends payable in Common Stock pursuant to the Company's Certificate of
Determination for either its Series A 12% Convertible Preferred Stock (the
"Series A Preferred Stock") or its Series B 12% Convertible Preferred Stock (the
"Series B Preferred Stock," and, together with the Series A Preferred Stock, the
"Preferred Stock") or other distribution on any stock of the Company or effect a
forward stock split of the outstanding shares of Common Stock, the Exercise
Price then in effect shall be proportionately decreased (on the date of such
issuance, sale or split), so that the new Exercise Price shall be equal to the
product of (x) the former Exercise Price and (y) the lesser of (i) one or (ii)
the following fraction:
The number of shares of Common Stock and
Common Stock Equivalents outstanding immediately prior to such issuance
The number of shares of Common Stock and
Common Stock Equivalents outstanding immediately after such issuance
and the Exercise Quantity purchasable upon exercise of the Warrants immediately
prior thereto shall be adjusted so that the new Exercise Quantity shall be equal
to the product of (x) the former Exercise Quantity and (y) the following
fraction:
The Exercise Price in effect immediately prior to such adjustment
The Exercise Price in effect immediately after such adjustment
(c) Company to Prevent Dilution. In any case at any time or from time to
time conditions arise by reason of action taken by the Company which are not
adequately covered by the provisions of this Article V, and which might
adversely affect the rights of the Holders under any provision of this
Agreement, unless the adjustment necessary shall be agreed upon by the Company
and the Holders, the Board of Directors of the Company shall appoint a firm of
independent certified public accountants of recognized national standing,
acceptable to the Holders, who at the Company's expense shall give their opinion
upon the adjustment, if any, on a
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<PAGE> 11
basis consistent with the standards established in the other provisions of this
Article V, necessary with respect to the Exercise Price and the Exercise
Quantity, so as to preserve, without dilution, the rights of the Holders. Upon
the receipt of such opinion, the Company's Board of Directors shall forthwith
make the adjustments described therein; provide, however, that no such
adjustment shall be made to increase the Exercise Price or decrease the Exercise
Quantity.
(d) Reorganization; Asset Sales; Etc. In case of (i) any capital
reorganization or any reclassification of the capital stock of the Company, (ii)
any consolidation or merger of the Company or any Subsidiary with or into
another Person, (iii) the disposition or transfer of assets of the Company other
than in the ordinary course of the Company's business, (iv) any Dividend or
other distribution to the holders of capital stock of the Company in the form of
any asset, including without limitation securities of the Company, or (v) the
dissolution, liquidation or winding up of the Company, the Holders shall
thereafter be entitled to purchase (and it shall be a condition to the
consummation of any such transaction or event that appropriate provision shall
be made so that such Holders shall thereafter be entitled to purchase) the kind
and amount of shares of stock and other securities and property receivable in
such transaction by a holder of the number of shares of Common Stock of the
Company into which this Agreement entitled the Holders to purchase immediately
prior to such capital reorganization, reclassification of capital stock,
non-surviving combination or disposition; and in any such case appropriate
adjustments shall be made in the application of the provisions of this Article V
with respect to rights and interests thereafter purchasable upon the exercise of
a Warrant.
(e) Adjustment Statement. Whenever the Exercise Price or Exercise
Quantity is adjusted as herein provided, the Company shall, within ten days
following the consummation of the event triggering such adjustment, deliver to
the Holders a statement signed by the President of the Company and by its
Treasurer or Secretary stating the adjusted Exercise Price and Exercise Quantity
for which the Warrants are exercisable, determined as specified herein. The
statement shall show in detail the facts requiring such adjustment, including a
statement of the consideration received by the Company for any additional stock
issued. In the event the Company shall fail to timely deliver such adjustment
statement, the Company shall be in default hereof, and the Holder's reasonable
determination of any adjustment shall be deemed conclusive and binding, absent
manifest error. Irrespective of any adjustments in the Exercise Price or the
Exercise Quantity or the kind of shares purchasable upon the exercise of the
Warrants, the Warrants theretofore or thereafter issued may continue to express
the same price and number and kind of shares as are stated in the Warrants
initially issuable pursuant to this Agreement.
(f) Prior Notice to the Holders. If at any time:
(i) The Company shall pay any Dividend payable in Common Stock or
Common Stock Equivalents upon its capital stock or make any distribution to the
holders of its capital stock; or
(ii) The Company shall offer for subscription pro rata to the
holders of its capital stock any additional shares of stock of any class or any
other rights; or
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(iii) The Company shall effect any capital reorganization or any
reclassification of or change in the outstanding capital stock of the Company
(other than a change in par value, or a change from par value to no par value,
or a change from no par value to par value, or a change resulting solely from a
subdivision of outstanding shares), or any consolidation or merger, or any sale,
transfer or other disposition of all or substantially all of its property,
assets, business and goodwill as an entirety, or the liquidation, dissolution or
winding up of the Company; or
(iv) The Company shall declare a Dividend upon its capital stock;
then, in any such event, the Company shall cause at least thirty (30) days'
prior written notice to be mailed to the Holders at the address of each such
Holder shown on the books of the Company. The notice shall also specify the date
on which the books of the Company shall close or a record be taken for such
stock dividend, distribution or subscription rights, or the date on which such
reclassification, reorganization, consolidation, merger, sale, transfer,
disposition, liquidation, dissolution, winding up, or Dividend, as the case may
be, shall take place, and the date of participation therein by the holders of
shares of capital stock if any such date is to be fixed, and shall also set
forth such facts with respect thereto as shall be reasonably necessary to
indicate the effect of such action on the rights of the Holder.
(g) Disputes. If there is any dispute as to the computation of the
Exercise Price or the Exercise Quantity, the Company will retain, at its
expense, KPMG, LLP, or, if KPMG, LLP shall be unavailable or shall have been
engaged by the Company at any time within the two years prior to such time
(other than to resolve a dispute pursuant to this Agreement or a similar
provision in any other agreement or document), PriceWaterhouseCoopers LLP, or,
if PriceWaterhouseCoopers LLP is similarly unavailable or previously engaged, a
firm of independent certified public accountants of recognized national
standing, to conduct an audit of the computations pursuant to the terms hereof
involved in such dispute, including the financial statements or other
information upon which such computations were based. The determination of such
accounting firm shall, in the absence of manifest error, be conclusive and
binding.
VI. REGISTRATION RIGHTS
Section 6.01 Piggyback Registration Rights. If at any time the Company
shall determine to register under the Securities Act (including pursuant to a
demand of any security holder of the Company exercising registration rights) any
of its Common Stock other than on a registration statement on Form S-8 or any
successor thereof, it shall send to Consultant and to each of the Holder(s)
written notice of such determination at least thirty (30) days prior to each
such filing and, if within twenty (20) days after receipt of such notice, any
Holder shall so request in writing, the Company shall include in such
registration statement (to the extent permitted by applicable regulation) all or
any part of the Warrant Securities (collectively referred to in this Agreement
as "Registrable Securities") that such Holder requests to be registered. Any
Registrable Securities which are included in any underwritten offering under
this Section 6.01 shall be sold upon such terms as the managing underwriters
shall reasonably request but in any event shall be upon terms not less favorable
than those upon which any other selling security
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<PAGE> 13
holder or the Company shall sell any of its securities, provided, however, that
if the managing underwriters in an underwritten offering shall determine that
the inclusion of all of such Registrable Securities would materially and
adversely effect the number or price of the securities to be sold or the number
of shares that the Company desires to sell, then the Company shall have the
right to reduce, or, if deemed necessary by the managing underwriter(s) in
writing, eliminate entirely, on a pro rata basis, the number of Registrable
Securities included in such registration. If any Holder disapproves of the terms
of such underwriting, such Holder may elect to withdraw therefrom by written
notice to the Company and the underwriter. Notwithstanding the provisions of
this Section 6.01, the Company shall have the right, at any time after it shall
have given written notice pursuant to this Section 6.01 (irrespective of whether
a written request for inclusion of Registrable Securities shall have been made),
to elect not to file any such proposed registration statement or to withdraw the
same after the filing and prior to the effective date thereof.
Section 6.02 Effectiveness. If necessary to permit unrestricted and
unlimited distribution of the Registrable Securities, the Company shall use its
reasonable best efforts to maintain the effectiveness of the registration
statement pursuant to which any of the Registrable Securities are being offered,
and from time to time will amend or supplement such registration statement and
the prospectus related thereto as and to the extent necessary to comply with the
Securities Act and any applicable state securities statute or regulation. If the
registration by the Company of the resale of Registrable Securities is eligible
for Form S-3 or any successor to such form, the Company shall use its reasonable
best efforts to maintain the effectiveness of the registration statement until
all registered Registrable Securities are sold.
Section 6.03 Further Obligations of the Company. Whenever, under the
preceding Sections of this Article VI, the Company is required hereunder to
register Registrable Securities, it agrees that it shall also do the following:
(a) Furnish to each selling Holder such copies of each preliminary and
final prospectus and any other documents as such Holder may reasonably request
to facilitate the public offering of its Registrable Securities;
(b) Register or qualify the Registrable Securities to be registered
pursuant to this Article VI under the applicable securities or blue sky laws of
such jurisdictions as any selling Holder may reasonably request;
(c) Furnish to each selling Holder: (i) a signed counterpart of an
opinion of counsel for the Company, dated the effective date of the registration
statement; and (ii) a copy of any "comfort" letters signed by the Company's
independent public accountants who have examined and reported on the Company's
financial statements included in the registration statement, covering the same
matters as are customarily covered in opinions of issuer's counsel and in
accountants' "comfort" letters delivered to the underwriters in underwritten
public offerings of securities;
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<PAGE> 14
(d) Permit each selling Holder or such Holder's counsel or other
representatives to inspect and copy such corporate documents and records as may
reasonably be requested by them in connection with such registration; and
(e) Furnish to each selling Holder, upon request, a copy of all
documents filed and all correspondence from or to the Commission in connection
with any such offering.
Section 6.04 Expenses. Except for underwriters' discounts and brokerage
commissions allocable to the Registrable Securities, the Company shall bear all
costs and expenses of each registration contemplated in Sections 6.01, 6.02 and
6.03 including, but not limited to, printing, legal and accounting fees and
expenses, Commission and NASD filing fees and blue sky fees and expenses in any
jurisdiction in which the securities to be offered are to be registered or
qualified.
Section 6.05 Transfer of Registration Rights. The registration rights of
the Holders of Registrable Securities under this Article VI shall inure to the
benefit of and shall be exercisable by any transferee of Registrable Securities.
Section 6.06 Participation Rights. The Company will not grant to any
Person (other than Consultant, the Holders, any Affiliate thereof or any
transferee of Registrable Securities under this Article VI) at any time on or
after the date of this Agreement the right (a "Participation Right") to request
the Company to register any securities of the Company under the Securities Act
by reason of the exercise by any Holder of its rights under this Article VI
unless such Participation Right provides that such securities shall not be
registered and sold at the same time if the managing underwriter for the
offering, including the Registrable Securities, believes that sale of such
securities would adversely affect the amount of, or price at which, the
respective Registrable Securities being registered under this Article VI can be
sold.
Notwithstanding anything in this Article VI to the contrary, in no event
shall this Article VI be construed as prohibiting, restricting or impairing the
Company's ability to comply with the registration rights agreements or the
registration rights in any Common Stock Equivalents it has entered into prior to
the date hereof.
VII. TRANSFER OF WARRANTS AND WARRANT SECURITIES
Section 7.01 Transfer. Except as set forth in Section 7.02 below, the
Warrants and all rights thereunder are transferable, in whole or in part, on the
books of the Company to be maintained for such purpose, upon surrender of such
Warrant at the office of the Company maintained for such purpose, together with
a written assignment of such Warrant duly executed by the Holder hereof or its
agent or attorney. Upon such surrender and payment, the Company shall execute
and deliver a new Warrant or Warrants in the name of the assignee or assignees
and in the denominations specified in such instrument of assignment, and the
surrendered Warrant shall promptly be canceled. The transferred Warrant, if
properly assigned in compliance herewith, may be exercised by an assignee for
the purchase of shares of Common Stock without having a new Warrant issued. The
Company will not close its stock transfer books against a transfer of the
Warrants or the Warrant Securities or any exercise of the Warrants. Any such
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<PAGE> 15
transfer or exercise tendered while such stock transfer books shall be closed
shall be deemed effective immediately prior to such closure.
Subject to Section 7.02 below, the Warrants may be divided or combined
with other Warrants upon presentation at the aforesaid office of the Company,
together with a written notice specifying the names and denominations in which
new Warrants are to be issued, signed by the Holder thereof or its agent or
attorney. Subject to compliance with this, as to any transfer which may be
involved in such division or combination, the Company shall execute and deliver
a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided
or combined in accordance with such notice.
The Company shall pay all expenses, taxes (other than income taxes, if
any, of the transferee) and other charges incurred by the Company in the
performance of its obligations in connection with the preparation, issue and
delivery of Warrants under this Section. The Company agrees to maintain at the
offices of its transfer agent books for the registration and transfer of the
Warrants. Notwithstanding any provision to the contrary contained herein, the
Warrants and the Warrant Securities shall be transferable only in compliance
with the provisions of the Securities Act and applicable state securities laws
in respect of the transfer of any Warrant or any Warrant Securities.
Section 7.02 Transfer Restrictions. Neither this Warrant Agreement, the
Warrants nor the Warrant Securities, when issued, have been registered under the
Securities Act or under the securities laws of any state. Neither this
Agreement, the Warrants nor the Warrant Securities, when issued, may be
transferred: (a) if such transfer would constitute a violation of any federal or
state securities laws or a breach of the conditions to any exemption from
registration thereunder and (b) unless and until one of the following has
occurred: (i) registration of the Warrants or the Warrant Securities, as the
case may be, under the Securities Act, and such registration or qualification as
may be necessary under the securities laws of any state, have become effective,
(ii) the Holder has delivered an opinion of counsel, or other evidence
reasonably satisfactory to the Company, that such registration or qualification
is not required, or (iii) such transfer would be permitted under Rule 144 under
the Securities Act.
Each certificate for Warrant Securities issued upon exercise of a
Warrant and each certificate issued to a subsequent transferee, unless at the
time of exercise such Warrant Securities are registered under the Securities
Act, shall bear a legend substantially in the following form (and any additional
legends required by applicable law) on the face thereof:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER ANY STATE SECURITIES
LAWS. THESE SECURITIES MAY NOT BE OFFERED, SOLD, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED, WHETHER OR NOT FOR
CONSIDERATION, IN THE ABSENCE OF (1) AN EFFECTIVE REGISTRATION
STATEMENT AND QUALIFICATION IN
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EFFECT WITH RESPECT TO THESE SECURITIES UNDER THE SECURITIES ACT
AND UNDER ANY APPLICABLE STATE SECURITIES LAWS OR (2) AN
EXEMPTION FROM SUCH REGISTRATION AND QUALIFICATION.
Section 7.03 Replacement of Instruments. Within ten business days
following receipt by the Company or its transfer agent of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of any certificate or instrument evidencing any Warrants or Warrant
Securities, and (a) in the case of loss, theft or destruction, upon receipt by
the Company or its transfer agent of indemnity reasonably satisfactory to it
(provided that, the Holder's own agreement of indemnification shall be deemed to
be satisfactory), or (b) in the case of mutilation, upon surrender and
cancellation thereof, the Company, at its expense, will execute, register and
deliver, in lieu thereof, a new certificate or instrument for (or covering the
purchase of) an equal number of Warrants or Warrant Securities.
VIII. MISCELLANEOUS
Section 8.01 Term. Except as otherwise expressly provided in this
Agreement or the Warrants, this Agreement shall expire on September 17, 2009,
provided that the Company's obligations to honor an exercise of the Warrants
given prior to such expiration or to perform any obligation continue and survive
notwithstanding the expiration of this Agreement.
Section 8.02 No Waiver Under Other Agreements. The terms and provisions
contained in this Agreement are not intended and shall not be construed to
waive, modify, repeal, stay, diminish or otherwise impair or affect in any
manner whatsoever any right or remedy of Consultant or the Holder(s) under the
Company's Articles of Incorporation, Bylaws or similar agreements, or any other
agreements between the Company and/or its affiliates and Consultant.
Section 8.03 Reliance. Each party to this Agreement shall be entitled to
rely upon any notice, consent, certificate, affidavit, statement, paper,
document, writing or other communication reasonably believed by that party to be
genuine and to have been signed, sent or made by the proper Person or Persons.
Section 8.04 Notice. All notices and other communications provided for
or permitted hereunder shall be made in writing and be by hand-delivery or
certified mail, return receipt requested, or by telecopy, (a) if to Consultant,
to the address set forth on the signature page hereof or such other address
given by Consultant to the Company in writing, (b), if to a subsequent Holder of
Warrants or Warrant Securities issued pursuant to the exercise of the Warrants,
at the most current address given by such Holder to the Company in writing; or
(c)if to the Company, as follows:
eSat, Inc.
16250 Harbor Blvd., Bldg G
Fountain Valley, California 92708
Telecopier: (714) 895-2977
Attention: Chief Executive Officer
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All such notices and communications shall be deemed to have been duly given when
delivered by hand, if personally delivered; four business days after being
deposited in the mail, postage prepaid, if mailed, when receipt is acknowledged,
if telecopied, or the next business day, if timely delivered to an air courier
guaranteeing overnight delivery.
Section 8.05 Enforcement. The Company acknowledges that the Holders may
proceed to exercise or enforce any right, power, privilege, remedy or interest
that they may have under this Agreement or applicable law without notice, except
as otherwise expressly provided herein, without pursuing, exhausting or
otherwise exercising or enforcing any other right, power, privilege, remedy or
interest that they may have against or in respect of any other party, or any
other Person or thing, and without regard to any act or omission of such party
or any other Person. The Company's obligations hereunder, including, without
limitation the obligation to issue the Warrant Securities upon exercise of the
Warrant, are absolute and unconditional and are not subject to any abatement,
reduction, setoff, defense, counterclaim or recoupment due or alleged to be due
to, or by reason of, any past, present or future claims which the Company may
have against the Consultant, any Holder, or any assignee, thereof, for any
reason whatsoever. All rights and remedies of the party hereto are cumulative of
each other and of every other right or remedy such party may otherwise have at
law or in equity, and the exercise of one or more rights or remedies shall not
prejudice or impair the concurrent or subsequent exercise of other rights or
remedies.
Section 8.06 Equitable Relief. Each party acknowledges and agrees that
it would be impossible to measure in money the damage in the event of a breach
of any of the terms and provisions of this Agreement by any party hereto, and
that, in the event of any such breach, there may not be an adequate remedy at
law, although the foregoing shall not constitute a waiver of any of the party's
rights, powers, privileges and remedies against or in respect of a breaching
party, any other person or thing under this Agreement or applicable law. It is
therefore agreed that, in addition to all other such rights, powers, privileges
and remedies that it may have, each party shall be entitled, without the
obligation to post bond, to injunctive relief, specific performance or such
other equitable relief as such party may request to exercise or otherwise
enforce any of the terms and provisions of this Agreement and to enjoin or
otherwise restrain any act prohibited thereby, and no party will urge, and each
party hereby waives, any defense that there is an adequate remedy available at
law.
Section 8.07 Merger or Consolidation of the Company. So long as the
Warrant remains outstanding, the Company will not merge or consolidate with or
into, or sell, transfer or lease all or substantially all of its property to,
any other corporation unless the successor or purchasing corporation, as the
case may be (if not the Company), shall expressly assume, by supplemental
agreement, the due and punctual performance and observance of each and every
covenant and condition of this Agreement to be performed and observed by the
Company.
Section 8.08 Interpretation; Headings, Severability.
(a) The parties acknowledge and agree that since each party and its
counsel have had the opportunity to review and negotiate the terms and
provisions of this Agreement and have
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contributed to its revision, the normal rule of construction to the effect that
any ambiguities are resolved against the drafting party shall not be employed in
the interpretation of this Agreement, and its terms and provisions shall be
construed fairly as to all parties hereto and not in favor of or against any
party, regardless of which party was generally responsible for the preparation
of this Agreement.
(b) The Section and other headings contained in this Agreement are for
reference purposes only and shall not affect the meaning or interpretation of
this Agreement.
(c) In the event that any term or provision of this Agreement shall be
finally determined to be superseded, invalid, illegal or otherwise unenforceable
pursuant to applicable law by a governmental authority having jurisdiction and
venue, such determination shall not impair or otherwise affect the validity,
legality or enforceability: (i) by or before that authority of the remaining
terms and provisions of this Agreement, which shall be enforced as if the
superseded, invalid, illegal or otherwise unenforceable term or provision were
modified to the extent required to permit such provision to be not superseded,
invalid, illegal or unenforceable, or (ii) by or before any other authority of
any of the terms and provisions of this Agreement.
(d) If any period of time specified in this Agreement expires on a day
that is not a Business Day, that period shall be extended to and expire on the
next succeeding Business Day.
Section 8.09 Survival of Covenants. Each of the covenants and other
agreements of the parties contained in this Agreement shall be absolute and,
except as otherwise expressly provided, unconditional, shall survive the
execution and delivery of this Agreement and shall continue in full force and
effect until the term of this Agreement has expired, and thereafter with respect
to events occurring prior thereto.
Section 8.10 No Required Exercise. No term or provision of the Warrants
or this Agreement is intended to require, nor shall any such term or provision
be construed as requiring, any Holder of the Warrants to exercise or sell the
Warrants.
Section 8.11 Binding Effect. This Agreement shall be binding upon and
enforceable against the parties hereto and their respective successors and
assigns.
Section 8.12 No Waiver by Action or Course of Dealing. No course of
dealing or any delay or failure to exercise any right hereunder on the part of
any party hereto shall operate as a waiver of such right or otherwise prejudice
the rights, powers or remedies of such party.
Section 8.13 Waiver; Modification; Amendment. Each and every
modification to and amendment of this Agreement shall be in writing and signed
by the Company, Consultant (if at that time Consultant is a Holder) and by the
Holders of a majority in interest of all issued and unissued Warrant Securities.
Each and every waiver of and consent to any departure from any term or provision
hereof (except as otherwise provided herein) shall be in writing and signed by
Consultant (if at that time it is a Holder) and by the Holders of a majority in
interest of all issued and unissued Warrant Securities and by each party against
whom enforcement of the waiver or consent may be sought. Notwithstanding the
foregoing, no modification, amendment or waiver
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of any term or provision hereof with respect to the Exercise Price, the Exercise
Quantity, any terms of Article V hereof, any of the terms of this Section 8.13
or which purports, or has the effect of, shortening the term of any Warrant or
limiting the right or ability of a Holder thereof to exercise a Warrant shall be
enforceable against a Holder unless such Holder specifically approves, in
writing, such modifications, amendment or modification.
Section 8.14 Entire Agreement. This Agreement and the Warrants contain
the entire agreement of the parties with respect to the Warrants and supersede
all other representations, warranties, agreements and understandings, oral or
otherwise, among the parties hereto with respect to the Warrants, except as
otherwise provided herein.
Section 8.15 No Inconsistent Agreements or Rights. The Company shall not
enter into any agreement with respect to its securities that is inconsistent
with the rights granted to the Holders in this Agreement.
Section 8.16 Time of the Essence. With regard to all dates and time
periods set forth or referred to in this Agreement, time is of the essence.
Section 8.17 Attorneys' Fees and Costs. Should any party institute any
action, suit or other proceeding arising out of or relating to this Agreement or
the Warrants, the prevailing party shall be entitled to receive from the losing
party reasonable attorneys' fees and costs incurred in connection therewith,
along with all costs of defense, investigation, preparation, experts and
collection.
Section 8.18 Governing Law; Consent to Jurisdiction; Waiver of Jury
Trial. THIS AGREEMENT, THE WARRANTS AND THE WARRANT SECURITIES AND ALL
AMENDMENTS, SUPPLEMENTS, WAIVERS, AND CONSENTS RELATING HERETO OR THERETO SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE
OF CALIFORNIA WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. THE COMPANY
HEREBY IRREVOCABLY SUBMITS ITSELF TO THE NON-EXCLUSIVE JURISDICTION OF THE STATE
AND FEDERAL COURTS SITTING IN THE STATE OF CALIFORNIA, COUNTY OF LOS ANGELES,
AND AGREES AND CONSENTS THAT SERVICES OF PROCESS MAY BE MADE UPON IT IN ANY
LEGAL PROCEEDINGS RELATING HERETO BY ANY MEANS ALLOWED UNDER CALIFORNIA OR
FEDERAL LAW. THE COMPANY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF
VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH COURT AND ANY CLAIM THAT ANY SUCH
PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
THE COMPANY AND CONSULTANT EACH HEREBY AGREE TO WAIVE ITS RESPECTIVE RIGHTS TO A
JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
AGREEMENT, THE SECURITIES OR ANY OTHER AGREEMENTS RELATING TO THE SECURITIES OR
ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION.
NOTWITHSTANDING ANYTHING TO THE
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CONTRARY HEREIN, THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED
EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT
AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT, THE
WARRANTS, THE WARRANT SECURITIES OR ANY OTHER DOCUMENTS OR AGREEMENTS RELATING
THERETO.
IN WITNESS WHEREOF, the parties hereto have caused this Warrant
Agreement to be executed as of the day and year first above written.
THE COMPANY:
eSat, Inc.
By
--------------------------------------
Chester Noblett
CONSULTANT
VANTAGE CAPITAL, INC.
By
--------------------------------------
Michael Palmer, President
1990 S. Bundy
Los Angeles, CA 90025
Tel: 310-207-2777
Fax: 310-207-1731
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Exhibit A
to
Warrant Agreement
Initial Warrant
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THE WARRANT SECURITIES TO BE RECEIVED UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER
ANY STATE SECURITIES LAWS. THE WARRANT SECURITIES MAY NOT BE OFFERED, SOLD,
PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED, WHETHER OR NOT FOR
CONSIDERATION, IN THE ABSENCE OF (1) AN EFFECTIVE REGISTRATION STATEMENT AND
QUALIFICATION WITH RESPECT TO THE WARRANT SECURITIES UNDER THE SECURITIES ACT
AND UNDER ANY APPLICABLE STATE SECURITIES LAWS OR (2) AN EXEMPTION FROM SUCH
QUALIFICATION AND REGISTRATION.
WARRANT CERTIFICATE NO. 1
COMMON STOCK PURCHASE WARRANT
September 17, 1999
Capitalized terms used and not otherwise defined in this Warrant shall
have the meanings respectively assigned to them in the Warrant Agreement, dated
as of the date hereof, by and between the Company and Holder.
eSat, Inc., a Nevada corporation (the "Company") does hereby certify and
agree that, for good and valuable consideration (the existence, sufficiency and
receipt of which are hereby acknowledged by the Company), Vantage Capital, Inc.,
a California corporation, its successor, and assigns ("Holder"), hereby is
entitled to purchase from the Company, during the term set forth in Section 1
hereof, up to an aggregate amount of 150,000 shares (the "Exercise Quantity") of
duly authorized, validly issued, fully paid and non-assessable shares of Common
Stock of the Company (the "Common Stock"), all upon the terms and provisions and
subject to adjustment of such Exercise Quantity provided in the Warrant
Agreement and this Common Stock Purchase Warrant (the "Warrant"). The exercise
price per share of Common Stock for which this Warrant is exercisable shall be
$4.25, as adjusted from time to time pursuant to the terms of this Warrant and
the Warrant Agreement (the "Exercise Price").
1. Term of the Warrant. The term of this Warrant commences as of the
date hereof, and shall expire at 5:00 P.M., Pacific time, on September 17, 2009.
2. Exercise of Warrant.
(a) This Warrant may be exercised by the Holder of this Warrant
at any time during the term hereof, but after December 31, 2000, in whole or in
part, from time to time (but not for fractional shares, unless this Warrant is
exercised in whole), by presentation and surrender of this Warrant (or a copy
hereof) to the Company, together with the annexed Exercise Form duly completed
and executed and payment in the aggregate amount equal to the Exercise Price
multiplied by the number of shares of Common Stock being purchased. At the
option of Holder, payment of the Exercise Price may be made either by (i)
personal or business check payable to the order of the Company, (ii) surrender
of certificates then held representing, or deduction from the number of shares
issuable upon exercise of this Warrant, of that number of
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shares which has an aggregate Fair Value determined in accordance with this
Agreement on the date of exercise equal to the aggregate Exercise Price for all
shares to be purchased pursuant to this Warrant, (iii) by a promissory note
bearing interest at six percent (6%) per annum and payable in five equal annual
installments commencing on the first anniversary of the exercise of this
Warrant, or (iv) by any combination of the foregoing methods. Within ten
business days of the Company's receipt of this Warrant (or a copy thereof), the
completed and signed Exercise Form and the requisite payment (if any), the
Company shall issue and deliver (or cause to be delivered) to the exercising
Holder stock certificates aggregating the number of shares of Warrant Securities
purchased. In the event the Company fails to deliver or cause to be delivered to
the Holder such certificates (without legend or restriction if such Warrant
Securities are then, or are required to be, registered pursuant to the Warrant
Agreement) within such ten business day period, the Company shall pay to the
Holder the Delay Damages, for each day after the seventh business day following
the delivery of this Warrant and such Exercise Form to the Company through and
including the day such certificates (without legend or restriction if such
Warrant Securities are then, or are required to be, registered pursuant to the
terms of the Warrant Agreement) are delivered to the Holder at the address set
forth in such Exercise Form. In the event the Company restricts or delays the
transfer or clearance of such certificates by the Holder (whether by stop
transfer order, unreasonable delay or otherwise), the Company shall pay to the
Holder the Delay Damages for each calendar day of such restriction or delay.
(b) In the event the Holder of this Warrant desires that any or
all of the stock certificates to be issued upon the exercise hereof be
registered in a name or names other than that of the Holder of this Warrant, the
Holder must (i) so request in writing at the time of exercise if the transfer is
not a registered transfer, and (ii) provide to the Company evidence reasonably
satisfactory to the Company to the effect that the proposed transfer may be
effected without registration under the Securities Act.
(c) Except as otherwise provided in the Warrant Agreement, upon
the due exercise by the Holder of this Warrant, whether in whole or in part, the
Holder (or any other person to whom a stock certificate is to be so issued)
shall be deemed for all purposes to have become the Holder of record of the
shares of Common Stock for which this Warrant has been so exercised, effective
immediately prior to the close of business on the date this Warrant, the
completed and signed Exercise Form and the requisite payment were duly delivered
to the Company, irrespective of the date of actual delivery of certificates
representing such shares of Common Stock so issued.
3. Surrender of Warrant; Expenses.
(a) Whether in connection with the exercise, exchange or
registration of transfer or replacement of this Warrant, surrender of this
Warrant (or a copy hereof) shall be made to the Company during normal business
hours on a business day (unless the Company otherwise permits) at the executive
offices of the Company or to such other office or duly authorized representative
of the Company as from time to time may be designated by the Company by written
notice given to the Holder of this Warrant.
22
<PAGE> 24
(b) The Company shall pay all costs and expenses incurred in
connection with the exercise, registering, exchange, transfer or replacement of
this Warrant, including the costs of preparation, execution and delivery of
warrants and stock certificates, and shall pay all taxes (other than any taxes
measured by the income of any Person other than the Company) and other charges
imposed by law payable in connection with the transfer or replacement of this
Warrant.
(c) The Company shall deliver or cause to be delivered to the
Holder exercising this Warrant or any portion hereof certificates representing
the shares of Common Stock issuable upon such exercise within ten business days
of the surrender and delivery by such Holder to the Company of this Warrant and
a duly completed Exercise Form. In the event the Company fails to deliver or
cause to be delivered to the Holder such certificates (without legend or
restriction if such Warrant Securities are then, or are required to be,
registered pursuant to the Warrant Agreement) within such ten business day
period, the Company shall pay to the Holder the Delay Damages. In the event the
Company restricts or delays the transfer or clearance of such certificates by
the Holder (whether by stop transfer order, unreasonable delay or otherwise),
the Company shall pay to the Holder the Delay Damages for each calendar day of
such restriction or delay.
4. Warrant Register; Exchange; Transfer; Loss.
(a) The Company at all times shall maintain at its chief
executive offices, or at the offices of its transfer agent, an open register for
all Warrants, in which the Company shall record the name and address of each
Person to whom a Warrant has been issued or transferred, the number of shares of
Common Stock or other securities purchasable hereunder and the corresponding
purchase prices.
(b) This Warrant may be exchanged for two or more warrants
entitling the identical Holder hereof to purchase the same aggregate Exercise
Quantity at the same Exercise Price per share and otherwise having the same
terms and provisions as this Warrant. The identical Holder may request such an
exchange by surrender of this Warrant to the Company, together with a written
exchange request specifying the desired number of warrants and allocation of the
Exercise Quantity purchasable under the existing Warrant.
(c) This Warrant may be transferred only in accordance with the
provisions of Article VII of the Warrant Agreement, in whole or in part, by the
Holder or any duly authorized representative of such Holder. A transfer may be
registered with the Company by submission to it of this Warrant, together with
the annexed Assignment Form duly completed and executed, and if the transfer is
not a registered transfer, evidence reasonably satisfactory to the Company that
such transfer is in compliance with federal and state securities laws. Within
ten business days after the Company's receipt of this Warrant and the Assignment
Form so completed and executed, the Company will issue and deliver to the
transferee a new Warrant representing the portion of the Exercise Quantity
transferred at the same Exercise Price per share and otherwise having the same
terms and provisions as this Warrant, which the Company will register in the new
Holder's name.
23
<PAGE> 25
(d) Upon receipt by the Company of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of this Warrant, and (a) in the case of loss, theft or destruction,
upon receipt by the Company of indemnity reasonably satisfactory to it (provided
that, the Holder's own agreement of indemnity shall be deemed to be
satisfactory), or (b) in the case of mutilation, upon surrender and cancellation
thereof, the Company, at its expense, will execute, register and deliver, in
lieu thereof, a new certificate or instrument for (or covering the purchase of)
this Warrant.
(e) The Company will not close its books against the transfer of
this Warrant or any of the Warrant Securities in any manner which interferes
with the timely exercise of this Warrant. The Company will from time to time
take all such action as may be necessary to assure that the par value per share
of the unissued Common Stock acquirable upon exercise of this Warrant is at all
times equal or less than the Exercise Price then in effect.
5. Rights and Obligations of the Company and the Holder. The Company and
the Holder of this Warrant are entitled to the rights and bound by the
obligations set forth in the Warrant Agreement, all of which rights and
obligations are hereby incorporated by reference herein. This Warrant shall not
entitle its Holder to any rights of a stockholder in the Company (other than as
provided in Section 2(c) of this Warrant and the Warrant Agreement).
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized representative and its corporate seal, if any, to be
impressed hereupon and attested to by its Secretary or Assistant Secretary.
eSat, Inc.
By
--------------------------------------
Chester Noblett
24
<PAGE> 26
eSat, Inc.
EXERCISE FORM
eSat, Inc. (the "Company")
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant Certificate for, and to purchase
thereunder, _______________ shares of common stock of the Company (the "Warrant
Securities"), and requests that certificates for the Warrant Securities be
issued in the name of:
--------------------------------------------------------------------
(Please print or Type Name, Address and Social Security Number)
--------------------------------------------------------------------
--------------------------------------------------------------------
and, if said number of shares of Warrant Securities shall not be all the Warrant
Securities purchasable hereunder, that a new Warrant Certificate for the balance
of the Warrant Securities purchasable under the within Warrant Certificate be
registered in the name of the undersigned Holder or his Assignee as below
indicated and delivered to the address stated below.
Dated:
---------------
Name of Holder
or Assignee:
--------------------------------
(Please Print)
Address:
--------------------------------
--------------------------------
Signature:
--------------------------------
Note: The above signature must correspond with the name as it appears upon the
face of this Warrant Certificate in every particular, without alteration
or enlargement or any change whatever, unless these Warrants have been
assigned.
25
<PAGE> 27
ASSIGNMENT
(To be signed only upon assignment of Warrants)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
the right to purchase _______________ shares of common stock represented by the
within Warrant Certificate unto, and requests that a certificate for such
Warrant be issued in the name of:
--------------------------------------------------------------------
(Name and Address of Assignee Must be Printed or Typewritten)
--------------------------------------------------------------------
--------------------------------------------------------------------
The undersigned hereby irrevocably constitutes and appoints _______________
Attorney to transfer said Warrants on the books of the Company, with full power
of substitution in the premises and, if said number of shares of common stock
shall not be all of the common stock purchasable under the within Warrant
Certificate, that a new Warrant Certificate for the balance of the common stock
purchasable under the within Warrant Certificate be registered in the name of
the undersigned Holder and delivered to such Holder's address as then set forth
on the Company's books.
Dated:
---------------- -----------------------------------
Signature of Registered Holder
Note: The above signature must correspond with the name as it appears upon the
face of this Warrant Certificate in every particular, without alteration
or enlargement or any change whatever.
26
<PAGE> 28
THE WARRANT SECURITIES TO BE RECEIVED UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER
ANY STATE SECURITIES LAWS. THE WARRANT SECURITIES MAY NOT BE OFFERED, SOLD,
PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED, WHETHER OR NOT FOR
CONSIDERATION, IN THE ABSENCE OF (1) AN EFFECTIVE REGISTRATION STATEMENT AND
QUALIFICATION WITH RESPECT TO THE WARRANT SECURITIES UNDER THE SECURITIES ACT
AND UNDER ANY APPLICABLE STATE SECURITIES LAWS OR (2) AN EXEMPTION FROM SUCH
QUALIFICATION AND REGISTRATION.
WARRANT CERTIFICATE NO. 2
COMMON STOCK PURCHASE WARRANT
September 17, 1999
Capitalized terms used and not otherwise defined in this Warrant shall
have the meanings respectively assigned to them in the Warrant Agreement, dated
as of the date hereof, by and between the Company and Holder.
eSat, Inc., a Nevada corporation (the "Company") does hereby certify and
agree that, for good and valuable consideration (the existence, sufficiency and
receipt of which are hereby acknowledged by the Company), Vantage Capital, Inc.,
a California corporation, its successor, and assigns ("Holder"), hereby is
entitled to purchase from the Company, during the term set forth in Section 1
hereof, up to an aggregate amount of 150,000 shares (the "Exercise Quantity") of
duly authorized, validly issued, fully paid and non-assessable shares of Common
Stock of the Company (the "Common Stock"), all upon the terms and provisions and
subject to adjustment of such Exercise Quantity provided in the Warrant
Agreement and this Common Stock Purchase Warrant (the "Warrant"). The exercise
price per share of Common Stock for which this Warrant is exercisable shall be
$5.25, as adjusted from time to time pursuant to the terms of this Warrant and
the Warrant Agreement (the "Exercise Price").
1. Term of the Warrant. The term of this Warrant commences as of the
date hereof, and shall expire at 5:00 P.M., Pacific time, on September 17, 2009.
2. Exercise of Warrant.
(a) This Warrant may be exercised by the Holder of this Warrant
at any time during the term hereof, but after December 31, 2000, in whole or in
part, from time to time (but not for fractional shares, unless this Warrant is
exercised in whole), by presentation and surrender of this Warrant (or a copy
hereof) to the Company, together with the annexed Exercise Form duly completed
and executed and payment in the aggregate amount equal to the Exercise Price
multiplied by the number of shares of Common Stock being purchased. At the
option of Holder, payment of the Exercise Price may be made either by (i)
personal or business check payable to the order of the Company, (ii) surrender
of certificates then held representing, or deduction from the number of shares
issuable upon exercise of this Warrant, of that number of
27
<PAGE> 29
shares which has an aggregate Fair Value determined in accordance with this
Agreement on the date of exercise equal to the aggregate Exercise Price for all
shares to be purchased pursuant to this Warrant, (iii) by a promissory note
bearing interest at six percent (6%) per annum and payable in five equal annual
installments commencing on the first anniversary of the exercise of this
Warrant, or (iv) by any combination of the foregoing methods. Within ten
business days of the Company's receipt of this Warrant (or a copy thereof), the
completed and signed Exercise Form and the requisite payment (if any), the
Company shall issue and deliver (or cause to be delivered) to the exercising
Holder stock certificates aggregating the number of shares of Warrant Securities
purchased. In the event the Company fails to deliver or cause to be delivered to
the Holder such certificates (without legend or restriction if such Warrant
Securities are then, or are required to be, registered pursuant to the Warrant
Agreement) within such ten business day period, the Company shall pay to the
Holder the Delay Damages, for each day after the seventh business day following
the delivery of this Warrant and such Exercise Form to the Company through and
including the day such certificates (without legend or restriction if such
Warrant Securities are then, or are required to be, registered pursuant to the
terms of the Warrant Agreement) are delivered to the Holder at the address set
forth in such Exercise Form. In the event the Company restricts or delays the
transfer or clearance of such certificates by the Holder (whether by stop
transfer order, unreasonable delay or otherwise), the Company shall pay to the
Holder the Delay Damages for each calendar day of such restriction or delay.
(b) In the event the Holder of this Warrant desires that any or
all of the stock certificates to be issued upon the exercise hereof be
registered in a name or names other than that of the Holder of this Warrant, the
Holder must (i) so request in writing at the time of exercise if the transfer is
not a registered transfer, and (ii) provide to the Company evidence reasonably
satisfactory to the Company to the effect that the proposed transfer may be
effected without registration under the Securities Act.
(c) Upon the due exercise by the Holder of this Warrant, whether
in whole or in part, the Holder (or any other person to whom a stock certificate
is to be so issued) shall be deemed for all purposes to have become the Holder
of record of the shares of Common Stock for which this Warrant has been so
exercised, effective immediately prior to the close of business on the date this
Warrant, the completed and signed Exercise Form and the requisite payment were
duly delivered to the Company, irrespective of the date of actual delivery of
certificates representing such shares of Common Stock so issued.
3. Surrender of Warrant; Expenses.
(a) Whether in connection with the exercise, exchange or
registration of transfer or replacement of this Warrant, surrender of this
Warrant (or a copy hereof) shall be made to the Company during normal business
hours on a business day (unless the Company otherwise permits) at the executive
offices of the Company or to such other office or duly authorized representative
of the Company as from time to time may be designated by the Company by written
notice given to the Holder of this Warrant.
28
<PAGE> 30
(b) The Company shall pay all costs and expenses incurred in
connection with the exercise, registering, exchange, transfer or replacement of
this Warrant, including the costs of preparation, execution and delivery of
warrants and stock certificates, and shall pay all taxes (other than any taxes
measured by the income of any Person other than the Company) and other charges
imposed by law payable in connection with the transfer or replacement of this
Warrant.
(c) The Company shall deliver or cause to be delivered to the
Holder exercising this Warrant or any portion hereof certificates representing
the shares of Common Stock issuable upon such exercise within ten business days
of the surrender and delivery by such Holder to the Company of this Warrant and
a duly completed Exercise Form. In the event the Company fails to deliver or
cause to be delivered to the Holder such certificates (without legend or
restriction if such Warrant Securities are then, or are required to be,
registered pursuant to the Warrant Agreement) within such ten business day
period, the Company shall pay to the Holder the Delay Damages. In the event the
Company restricts or delays the transfer or clearance of such certificates by
the Holder (whether by stop transfer order, unreasonable delay or otherwise),
the Company shall pay to the Holder the Delay Damages for each calendar day of
such restriction or delay.
4. Warrant Register; Exchange; Transfer; Loss.
(a) The Company at all times shall maintain at its chief
executive offices, or at the offices of its transfer agent, an open register for
all Warrants, in which the Company shall record the name and address of each
Person to whom a Warrant has been issued or transferred, the number of shares of
Common Stock or other securities purchasable hereunder and the corresponding
purchase prices.
(b) This Warrant may be exchanged for two or more warrants
entitling the identical Holder hereof to purchase the same aggregate Exercise
Quantity at the same Exercise Price per share and otherwise having the same
terms and provisions as this Warrant. The identical Holder may request such an
exchange by surrender of this Warrant to the Company, together with a written
exchange request specifying the desired number of warrants and allocation of the
Exercise Quantity purchasable under the existing Warrant.
(c) This Warrant may be transferred only in accordance with the
provisions of Article VII of the Warrant Agreement, in whole or in part, by the
Holder or any duly authorized representative of such Holder. A transfer may be
registered with the Company by submission to it of this Warrant, together with
the annexed Assignment Form duly completed and executed, and if the transfer is
not a registered transfer, evidence reasonably satisfactory to the Company that
such transfer is in compliance with federal and state securities laws. Within
ten business days after the Company's receipt of this Warrant and the Assignment
Form so completed and executed, the Company will issue and deliver to the
transferee a new Warrant representing the portion of the Exercise Quantity
transferred at the same Exercise Price per share and otherwise having the same
terms and provisions as this Warrant, which the Company will register in the new
Holder's name.
29
<PAGE> 31
(d) Upon receipt by the Company of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of this Warrant, and (a) in the case of loss, theft or destruction,
upon receipt by the Company of indemnity reasonably satisfactory to it (provided
that, the Holder's own agreement of indemnity shall be deemed to be
satisfactory), or (b) in the case of mutilation, upon surrender and cancellation
thereof, the Company, at its expense, will execute, register and deliver, in
lieu thereof, a new certificate or instrument for (or covering the purchase of)
this Warrant.
(e) The Company will not close its books against the transfer of
this Warrant or any of the Warrant Securities in any manner which interferes
with the timely exercise of this Warrant. The Company will from time to time
take all such action as may be necessary to assure that the par value per share
of the unissued Common Stock acquirable upon exercise of this Warrant is at all
times equal or less than the Exercise Price then in effect.
5. Rights and Obligations of the Company and the Holder. The Company and
the Holder of this Warrant are entitled to the rights and bound by the
obligations set forth in the Warrant Agreement, all of which rights and
obligations are hereby incorporated by reference herein. This Warrant shall not
entitle its Holder to any rights of a stockholder in the Company (other than as
provided in Section 2(c) of this Warrant and the Warrant Agreement).
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized representative and its corporate seal, if any, to be
impressed hereupon and attested to by its Secretary or Assistant Secretary.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized representative and its corporate seal, if any, to be
impressed hereupon and attested to by its Secretary or Assistant Secretary.
eSat, Inc.
By
--------------------------------------
Chester Noblett
30
<PAGE> 32
eSat, Inc.
EXERCISE FORM
eSat, Inc. (the "Company")
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant Certificate for, and to purchase
thereunder, _______________ shares of common stock of the Company (the "Warrant
Securities"), and requests that certificates for the Warrant Securities be
issued in the name of:
--------------------------------------------------------------------
(Please print or Type Name, Address and Social Security Number)
--------------------------------------------------------------------
--------------------------------------------------------------------
and, if said number of shares of Warrant Securities shall not be all the Warrant
Securities purchasable hereunder, that a new Warrant Certificate for the balance
of the Warrant Securities purchasable under the within Warrant Certificate be
registered in the name of the undersigned Holder or his Assignee as below
indicated and delivered to the address stated below.
Dated:
---------------
Name of Holder
or Assignee:
--------------------------------
(Please Print)
Address:
--------------------------------
--------------------------------
Signature:
--------------------------------
Note: The above signature must correspond with the name as it appears upon the
face of this Warrant Certificate in every particular, without alteration
or enlargement or any change whatever, unless these Warrants have been
assigned.
31
<PAGE> 33
ASSIGNMENT
(To be signed only upon assignment of Warrants)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
the right to purchase _______________ shares of common stock represented by the
within Warrant Certificate unto, and requests that a certificate for such
Warrant be issued in the name of:
--------------------------------------------------------------------
(Name and Address of Assignee Must be Printed or Typewritten)
--------------------------------------------------------------------
--------------------------------------------------------------------
The undersigned hereby irrevocably constitutes and appoints _______________
Attorney to transfer said Warrants on the books of the Company, with full power
of substitution in the premises and, if said number of shares of common stock
shall not be all of the common stock purchasable under the within Warrant
Certificate, that a new Warrant Certificate for the balance of the common stock
purchasable under the within Warrant Certificate be registered in the name of
the undersigned Holder and delivered to such Holder's address as then set forth
on the Company's books.
Dated:
---------------- -----------------------------------
Signature of Registered Holder
Note: The above signature must correspond with the name as it appears upon the
face of this Warrant Certificate in every particular, without alteration
or enlargement or any change whatever.
32
<PAGE> 34
THE WARRANT SECURITIES TO BE RECEIVED UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER
ANY STATE SECURITIES LAWS. THE WARRANT SECURITIES MAY NOT BE OFFERED, SOLD,
PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED, WHETHER OR NOT FOR
CONSIDERATION, IN THE ABSENCE OF (1) AN EFFECTIVE REGISTRATION STATEMENT AND
QUALIFICATION WITH RESPECT TO THE WARRANT SECURITIES UNDER THE SECURITIES ACT
AND UNDER ANY APPLICABLE STATE SECURITIES LAWS OR (2) AN EXEMPTION FROM SUCH
QUALIFICATION AND REGISTRATION.
WARRANT CERTIFICATE NO. 3
COMMON STOCK PURCHASE WARRANT
September 17, 1999
Capitalized terms used and not otherwise defined in this Warrant shall
have the meanings respectively assigned to them in the Warrant Agreement, dated
as of the date hereof, by and between the Company and Holder.
eSat, Inc., a Nevada corporation (the "Company") does hereby certify and
agree that, for good and valuable consideration (the existence, sufficiency and
receipt of which are hereby acknowledged by the Company), Vantage Capital, Inc.,
a California corporation, its successor, and assigns ("Holder"), hereby is
entitled to purchase from the Company, during the term set forth in Section 1
hereof, up to an aggregate amount of 100,000 shares (the "Exercise Quantity") of
duly authorized, validly issued, fully paid and non-assessable shares of Common
Stock of the Company (the "Common Stock"), all upon the terms and provisions and
subject to adjustment of such Exercise Quantity provided in the Warrant
Agreement and this Common Stock Purchase Warrant (the "Warrant"). The exercise
price per share of Common Stock for which this Warrant is exercisable shall be
$6.25, as adjusted from time to time pursuant to the terms of this Warrant and
the Warrant Agreement (the "Exercise Price").
1. Term of the Warrant. The term of this Warrant commences as of the
date hereof, and shall expire at 5:00 P.M., Pacific time, on September 17, 2009.
2. Exercise of Warrant.
(a) This Warrant may be exercised by the Holder of this Warrant
at any time during the term hereof, but after December 31, 2000, in whole or in
part, from time to time (but not for fractional shares, unless this Warrant is
exercised in whole), by presentation and surrender of this Warrant (or a copy
hereof) to the Company, together with the annexed Exercise Form duly completed
and executed and payment in the aggregate amount equal to the Exercise Price
multiplied by the number of shares of Common Stock being purchased. At the
option of Holder, payment of the Exercise Price may be made either by (i)
personal or business check payable to the order of the Company, (ii) surrender
of certificates then held representing, or deduction from the number of shares
issuable upon exercise of this Warrant, of that number of
33
<PAGE> 35
shares which has an aggregate Fair Value determined in accordance with this
Agreement on the date of exercise equal to the aggregate Exercise Price for all
shares to be purchased pursuant to this Warrant, (iii) by a promissory note
bearing interest at six percent (6%) per annum and payable in five equal annual
installments commencing on the first anniversary of the exercise of this
Warrant, or (iv) by any combination of the foregoing methods. Within ten
business days of the Company's receipt of this Warrant (or a copy thereof), the
completed and signed Exercise Form and the requisite payment (if any), the
Company shall issue and deliver (or cause to be delivered) to the exercising
Holder stock certificates aggregating the number of shares of Warrant Securities
purchased. In the event the Company fails to deliver or cause to be delivered to
the Holder such certificates (without legend or restriction if such Warrant
Securities are then, or are required to be, registered pursuant to the Warrant
Agreement) within such ten business day period, the Company shall pay to the
Holder the Delay Damages, for each day after the seventh business day following
the delivery of this Warrant and such Exercise Form to the Company through and
including the day such certificates (without legend or restriction if such
Warrant Securities are then, or are required to be, registered pursuant to the
terms of the Warrant Agreement) are delivered to the Holder at the address set
forth in such Exercise Form. In the event the Company restricts or delays the
transfer or clearance of such certificates by the Holder (whether by stop
transfer order, unreasonable delay or otherwise), the Company shall pay to the
Holder the Delay Damages for each calendar day of such restriction or delay.
(b) In the event the Holder of this Warrant desires that any or
all of the stock certificates to be issued upon the exercise hereof be
registered in a name or names other than that of the Holder of this Warrant, the
Holder must (i) so request in writing at the time of exercise if the transfer is
not a registered transfer, and (ii) provide to the Company evidence reasonably
satisfactory to the Company to the effect that the proposed transfer may be
effected without registration under the Securities Act.
(c) Upon the due exercise by the Holder of this Warrant, whether
in whole or in part, the Holder (or any other person to whom a stock certificate
is to be so issued) shall be deemed for all purposes to have become the Holder
of record of the shares of Common Stock for which this Warrant has been so
exercised, effective immediately prior to the close of business on the date this
Warrant, the completed and signed Exercise Form and the requisite payment were
duly delivered to the Company, irrespective of the date of actual delivery of
certificates representing such shares of Common Stock so issued.
3. Surrender of Warrant; Expenses.
(a) Whether in connection with the exercise, exchange or
registration of transfer or replacement of this Warrant, surrender of this
Warrant (or a copy hereof) shall be made to the Company during normal business
hours on a business day (unless the Company otherwise permits) at the executive
offices of the Company or to such other office or duly authorized representative
of the Company as from time to time may be designated by the Company by written
notice given to the Holder of this Warrant.
34
<PAGE> 36
(b) The Company shall pay all costs and expenses incurred in
connection with the exercise, registering, exchange, transfer or replacement of
this Warrant, including the costs of preparation, execution and delivery of
warrants and stock certificates, and shall pay all taxes (other than any taxes
measured by the income of any Person other than the Company) and other charges
imposed by law payable in connection with the transfer or replacement of this
Warrant.
(c) The Company shall deliver or cause to be delivered to the
Holder exercising this Warrant or any portion hereof certificates representing
the shares of Common Stock issuable upon such exercise within ten business days
of the surrender and delivery by such Holder to the Company of this Warrant and
a duly completed Exercise Form. In the event the Company fails to deliver or
cause to be delivered to the Holder such certificates (without legend or
restriction if such Warrant Securities are then, or are required to be,
registered pursuant to the Warrant Agreement) within such ten business day
period, the Company shall pay to the Holder the Delay Damages. In the event the
Company restricts or delays the transfer or clearance of such certificates by
the Holder (whether by stop transfer order, unreasonable delay or otherwise),
the Company shall pay to the Holder the Delay Damages for each calendar day of
such restriction or delay.
4. Warrant Register; Exchange; Transfer; Loss.
(a) The Company at all times shall maintain at its chief
executive offices, or at the offices of its transfer agent, an open register for
all Warrants, in which the Company shall record the name and address of each
Person to whom a Warrant has been issued or transferred, the number of shares of
Common Stock or other securities purchasable hereunder and the corresponding
purchase prices.
(b) This Warrant may be exchanged for two or more warrants
entitling the identical Holder hereof to purchase the same aggregate Exercise
Quantity at the same Exercise Price per share and otherwise having the same
terms and provisions as this Warrant. The identical Holder may request such an
exchange by surrender of this Warrant to the Company, together with a written
exchange request specifying the desired number of warrants and allocation of the
Exercise Quantity purchasable under the existing Warrant.
(c) This Warrant may be transferred only in accordance with the
provisions of Article VII of the Warrant Agreement, in whole or in part, by the
Holder or any duly authorized representative of such Holder. A transfer may be
registered with the Company by submission to it of this Warrant, together with
the annexed Assignment Form duly completed and executed, and if the transfer is
not a registered transfer, evidence reasonably satisfactory to the Company that
such transfer is in compliance with federal and state securities laws. Within
ten business days after the Company's receipt of this Warrant and the Assignment
Form so completed and executed, the Company will issue and deliver to the
transferee a new Warrant representing the portion of the Exercise Quantity
transferred at the same Exercise Price per share and otherwise having the same
terms and provisions as this Warrant, which the Company will register in the new
Holder's name.
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<PAGE> 37
(d) Upon receipt by the Company of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of this Warrant, and (a) in the case of loss, theft or destruction,
upon receipt by the Company of indemnity reasonably satisfactory to it (provided
that, the Holder's own agreement of indemnity shall be deemed to be
satisfactory), or (b) in the case of mutilation, upon surrender and cancellation
thereof, the Company, at its expense, will execute, register and deliver, in
lieu thereof, a new certificate or instrument for (or covering the purchase of)
this Warrant.
(e) The Company will not close its books against the transfer of
this Warrant or any of the Warrant Securities in any manner which interferes
with the timely exercise of this Warrant. The Company will from time to time
take all such action as may be necessary to assure that the par value per share
of the unissued Common Stock acquirable upon exercise of this Warrant is at all
times equal or less than the Exercise Price then in effect.
5. Rights and Obligations of the Company and the Holder. The Company and
the Holder of this Warrant are entitled to the rights and bound by the
obligations set forth in the Warrant Agreement, all of which rights and
obligations are hereby incorporated by reference herein. This Warrant shall not
entitle its Holder to any rights of a stockholder in the Company (other than as
provided in Section 2(c) of this Warrant and the Warrant Agreement).
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized representative and its corporate seal, if any, to be
impressed hereupon and attested to by its Secretary or Assistant Secretary.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized representative and its corporate seal, if any, to be
impressed hereupon and attested to by its Secretary or Assistant Secretary.
eSat, Inc.
By
--------------------------------------
Chester Noblett
36
<PAGE> 38
eSat, Inc.
EXERCISE FORM
eSat, Inc. (the "Company")
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant Certificate for, and to purchase
thereunder, _______________ shares of common stock of the Company (the "Warrant
Securities"), and requests that certificates for the Warrant Securities be
issued in the name of:
--------------------------------------------------------------------
(Please print or Type Name, Address and Social Security Number)
--------------------------------------------------------------------
--------------------------------------------------------------------
and, if said number of shares of Warrant Securities shall not be all the Warrant
Securities purchasable hereunder, that a new Warrant Certificate for the balance
of the Warrant Securities purchasable under the within Warrant Certificate be
registered in the name of the undersigned Holder or his Assignee as below
indicated and delivered to the address stated below.
Dated:
---------------
Name of Holder
or Assignee:
--------------------------------
(Please Print)
Address:
--------------------------------
--------------------------------
Signature:
--------------------------------
Note: The above signature must correspond with the name as it appears upon the
face of this Warrant Certificate in every particular, without alteration
or enlargement or any change whatever, unless these Warrants have been
assigned.
37
<PAGE> 39
ASSIGNMENT
(To be signed only upon assignment of Warrants)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
the right to purchase _______________ shares of common stock represented by the
within Warrant Certificate unto, and requests that a certificate for such
Warrant be issued in the name of:
--------------------------------------------------------------------
(Name and Address of Assignee Must be Printed or Typewritten)
--------------------------------------------------------------------
--------------------------------------------------------------------
The undersigned hereby irrevocably constitutes and appoints _______________
Attorney to transfer said Warrants on the books of the Company, with full power
of substitution in the premises and, if said number of shares of common stock
shall not be all of the common stock purchasable under the within Warrant
Certificate, that a new Warrant Certificate for the balance of the common stock
purchasable under the within Warrant Certificate be registered in the name of
the undersigned Holder and delivered to such Holder's address as then set forth
on the Company's books.
Dated:
---------------- -----------------------------------
Signature of Registered Holder
Note: The above signature must correspond with the name as it appears upon the
face of this Warrant Certificate in every particular, without alteration
or enlargement or any change whatever.
38
<PAGE> 40
THE WARRANT SECURITIES TO BE RECEIVED UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER
ANY STATE SECURITIES LAWS. THE WARRANT SECURITIES MAY NOT BE OFFERED, SOLD,
PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED, WHETHER OR NOT FOR
CONSIDERATION, IN THE ABSENCE OF (1) AN EFFECTIVE REGISTRATION STATEMENT AND
QUALIFICATION WITH RESPECT TO THE WARRANT SECURITIES UNDER THE SECURITIES ACT
AND UNDER ANY APPLICABLE STATE SECURITIES LAWS OR (2) AN EXEMPTION FROM SUCH
QUALIFICATION AND REGISTRATION.
WARRANT CERTIFICATE NO. 4
COMMON STOCK PURCHASE WARRANT
September 17, 1999
Capitalized terms used and not otherwise defined in this Warrant shall
have the meanings respectively assigned to them in the Warrant Agreement, dated
as of the date hereof, by and between the Company and Holder.
eSat, Inc., a Nevada corporation (the "Company") does hereby certify and
agree that, for good and valuable consideration (the existence, sufficiency and
receipt of which are hereby acknowledged by the Company), Vantage Capital, Inc.,
a California corporation, its successor, and assigns ("Holder"), hereby is
entitled to purchase from the Company, during the term set forth in Section 1
hereof, up to an aggregate amount of 200,000 shares (the "Exercise Quantity") of
duly authorized, validly issued, fully paid and non-assessable shares of Common
Stock of the Company (the "Common Stock"), all upon the terms and provisions and
subject to adjustment of such Exercise Quantity provided in the Warrant
Agreement and this Common Stock Purchase Warrant (the "Warrant"). The exercise
price per share of Common Stock for which this Warrant is exercisable shall be
$8.50, as adjusted from time to time pursuant to the terms of this Warrant and
the Warrant Agreement (the "Exercise Price").
1. Term of the Warrant. The term of this Warrant commences as of the
date hereof, and shall expire at 5:00 P.M., Pacific time, on September 17, 2009.
2. Exercise of Warrant.
(a) This Warrant may be exercised by the Holder of this Warrant
at any time during the term hereof, but after December 31, 2000, in whole or in
part, from time to time (but not for fractional shares, unless this Warrant is
exercised in whole), by presentation and surrender of this Warrant (or a copy
hereof) to the Company, together with the annexed Exercise Form duly completed
and executed and payment in the aggregate amount equal to the Exercise Price
multiplied by the number of shares of Common Stock being purchased. At the
option of Holder, payment of the Exercise Price may be made either by (i)
personal or business check payable to the order of the Company, (ii) surrender
of certificates then held representing, or deduction from the number of shares
issuable upon exercise of this Warrant, of that number of
39
<PAGE> 41
shares which has an aggregate Fair Value determined in accordance with this
Agreement on the date of exercise equal to the aggregate Exercise Price for all
shares to be purchased pursuant to this Warrant, (iii) by a promissory note
bearing interest at six percent (6%) per annum and payable in five equal annual
installments commencing on the first anniversary of the exercise of this
Warrant, or (iv) by any combination of the foregoing methods. Within ten
business days of the Company's receipt of this Warrant (or a copy thereof), the
completed and signed Exercise Form and the requisite payment (if any), the
Company shall issue and deliver (or cause to be delivered) to the exercising
Holder stock certificates aggregating the number of shares of Warrant Securities
purchased. In the event the Company fails to deliver or cause to be delivered to
the Holder such certificates (without legend or restriction if such Warrant
Securities are then, or are required to be, registered pursuant to the Warrant
Agreement) within such ten business day period, the Company shall pay to the
Holder the Delay Damages, for each day after the seventh business day following
the delivery of this Warrant and such Exercise Form to the Company through and
including the day such certificates (without legend or restriction if such
Warrant Securities are then, or are required to be, registered pursuant to the
terms of the Warrant Agreement) are delivered to the Holder at the address set
forth in such Exercise Form. In the event the Company restricts or delays the
transfer or clearance of such certificates by the Holder (whether by stop
transfer order, unreasonable delay or otherwise), the Company shall pay to the
Holder the Delay Damages for each calendar day of such restriction or delay.
(b) In the event the Holder of this Warrant desires that any or
all of the stock certificates to be issued upon the exercise hereof be
registered in a name or names other than that of the Holder of this Warrant, the
Holder must (i) so request in writing at the time of exercise if the transfer is
not a registered transfer, and (ii) provide to the Company evidence reasonably
satisfactory to the Company to the effect that the proposed transfer may be
effected without registration under the Securities Act.
(c) Upon the due exercise by the Holder of this Warrant, whether
in whole or in part, the Holder (or any other person to whom a stock certificate
is to be so issued) shall be deemed for all purposes to have become the Holder
of record of the shares of Common Stock for which this Warrant has been so
exercised, effective immediately prior to the close of business on the date this
Warrant, the completed and signed Exercise Form and the requisite payment were
duly delivered to the Company, irrespective of the date of actual delivery of
certificates representing such shares of Common Stock so issued.
3. Surrender of Warrant; Expenses.
(a) Whether in connection with the exercise, exchange or
registration of transfer or replacement of this Warrant, surrender of this
Warrant (or a copy hereof) shall be made to the Company during normal business
hours on a business day (unless the Company otherwise permits) at the executive
offices of the Company or to such other office or duly authorized representative
of the Company as from time to time may be designated by the Company by written
notice given to the Holder of this Warrant.
40
<PAGE> 42
(b) The Company shall pay all costs and expenses incurred in
connection with the exercise, registering, exchange, transfer or replacement of
this Warrant, including the costs of preparation, execution and delivery of
warrants and stock certificates, and shall pay all taxes (other than any taxes
measured by the income of any Person other than the Company) and other charges
imposed by law payable in connection with the transfer or replacement of this
Warrant.
(c) The Company shall deliver or cause to be delivered to the
Holder exercising this Warrant or any portion hereof certificates representing
the shares of Common Stock issuable upon such exercise within ten business days
of the surrender and delivery by such Holder to the Company of this Warrant and
a duly completed Exercise Form. In the event the Company fails to deliver or
cause to be delivered to the Holder such certificates (without legend or
restriction if such Warrant Securities are then, or are required to be,
registered pursuant to the Warrant Agreement) within such ten business day
period, the Company shall pay to the Holder the Delay Damages. In the event the
Company restricts or delays the transfer or clearance of such certificates by
the Holder (whether by stop transfer order, unreasonable delay or otherwise),
the Company shall pay to the Holder the Delay Damages for each calendar day of
such restriction or delay.
4. Warrant Register; Exchange; Transfer; Loss.
(a) The Company at all times shall maintain at its chief
executive offices, or at the offices of its transfer agent, an open register for
all Warrants, in which the Company shall record the name and address of each
Person to whom a Warrant has been issued or transferred, the number of shares of
Common Stock or other securities purchasable hereunder and the corresponding
purchase prices.
(b) This Warrant may be exchanged for two or more warrants
entitling the identical Holder hereof to purchase the same aggregate Exercise
Quantity at the same Exercise Price per share and otherwise having the same
terms and provisions as this Warrant. The identical Holder may request such an
exchange by surrender of this Warrant to the Company, together with a written
exchange request specifying the desired number of warrants and allocation of the
Exercise Quantity purchasable under the existing Warrant.
(c) This Warrant may be transferred only in accordance with the
provisions of Article VII of the Warrant Agreement, in whole or in part, by the
Holder or any duly authorized representative of such Holder. A transfer may be
registered with the Company by submission to it of this Warrant, together with
the annexed Assignment Form duly completed and executed, and if the transfer is
not a registered transfer, evidence reasonably satisfactory to the Company that
such transfer is in compliance with federal and state securities laws. Within
ten business days after the Company's receipt of this Warrant and the Assignment
Form so completed and executed, the Company will issue and deliver to the
transferee a new Warrant representing the portion of the Exercise Quantity
transferred at the same Exercise Price per share and otherwise having the same
terms and provisions as this Warrant, which the Company will register in the new
Holder's name.
41
<PAGE> 43
(d) Upon receipt by the Company of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of this Warrant, and (a) in the case of loss, theft or destruction,
upon receipt by the Company of indemnity reasonably satisfactory to it (provided
that, the Holder's own agreement of indemnity shall be deemed to be
satisfactory), or (b) in the case of mutilation, upon surrender and cancellation
thereof, the Company, at its expense, will execute, register and deliver, in
lieu thereof, a new certificate or instrument for (or covering the purchase of)
this Warrant.
(e) The Company will not close its books against the transfer of
this Warrant or any of the Warrant Securities in any manner which interferes
with the timely exercise of this Warrant. The Company will from time to time
take all such action as may be necessary to assure that the par value per share
of the unissued Common Stock acquirable upon exercise of this Warrant is at all
times equal or less than the Exercise Price then in effect.
5. Rights and Obligations of the Company and the Holder. The Company and
the Holder of this Warrant are entitled to the rights and bound by the
obligations set forth in the Warrant Agreement, all of which rights and
obligations are hereby incorporated by reference herein. This Warrant shall not
entitle its Holder to any rights of a stockholder in the Company (other than as
provided in Section 2(c) of this Warrant and the Warrant Agreement).
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized representative and its corporate seal, if any, to be
impressed hereupon and attested to by its Secretary or Assistant Secretary.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized representative and its corporate seal, if any, to be
impressed hereupon and attested to by its Secretary or Assistant Secretary.
eSat, Inc.
By
--------------------------------------
Chester Noblett
42
<PAGE> 44
eSat, Inc.
EXERCISE FORM
eSat, Inc. (the "Company")
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant Certificate for, and to purchase
thereunder, _______________ shares of common stock of the Company (the "Warrant
Securities"), and requests that certificates for the Warrant Securities be
issued in the name of:
--------------------------------------------------------------------
(Please print or Type Name, Address and Social Security Number)
--------------------------------------------------------------------
--------------------------------------------------------------------
and, if said number of shares of Warrant Securities shall not be all the Warrant
Securities purchasable hereunder, that a new Warrant Certificate for the balance
of the Warrant Securities purchasable under the within Warrant Certificate be
registered in the name of the undersigned Holder or his Assignee as below
indicated and delivered to the address stated below.
Dated:
---------------
Name of Holder
or Assignee:
--------------------------------
(Please Print)
Address:
--------------------------------
--------------------------------
Signature:
--------------------------------
Note: The above signature must correspond with the name as it appears upon the
face of this Warrant Certificate in every particular, without alteration
or enlargement or any change whatever, unless these Warrants have been
assigned.
43
<PAGE> 45
ASSIGNMENT
(To be signed only upon assignment of Warrants)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
the right to purchase _______________ shares of common stock represented by the
within Warrant Certificate unto, and requests that a certificate for such
Warrant be issued in the name of:
--------------------------------------------------------------------
(Name and Address of Assignee Must be Printed or Typewritten)
--------------------------------------------------------------------
--------------------------------------------------------------------
The undersigned hereby irrevocably constitutes and appoints _______________
Attorney to transfer said Warrants on the books of the Company, with full power
of substitution in the premises and, if said number of shares of common stock
shall not be all of the common stock purchasable under the within Warrant
Certificate, that a new Warrant Certificate for the balance of the common stock
purchasable under the within Warrant Certificate be registered in the name of
the undersigned Holder and delivered to such Holder's address as then set forth
on the Company's books.
Dated:
---------------- -----------------------------------
Signature of Registered Holder
Note: The above signature must correspond with the name as it appears upon the
face of this Warrant Certificate in every particular, without alteration
or enlargement or any change whatever.
44
<PAGE> 1
EXHIBIT 10.8
ANNEX VI
TO
SECURITIES PURCHASE AGREEMENT
FORM OF WARRANT
THESE SECURITIES AND THE SECURITIES ISSUABLE UPON THEIR EXERCISE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED UNLESS
COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT, A "NO ACTION"
LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION WITH RESPECT TO SUCH
TRANSFER, A TRANSFER MEETING THE REQUIREMENTS OF RULE 144 OF THE SECURITIES AND
EXCHANGE COMMISSION, OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER TO THE
EFFECT THAT ANY SUCH TRANSFER IS EXEMPT FROM SUCH REGISTRATION.
ESAT, INC.
COMMON STOCK PURCHASE WARRANT
1. Issuance; Certain Definitions. In consideration of good and
valuable consideration, the receipt of which is hereby acknowledged by ESAT,
INC., a Nevada corporation (the "Company"), WENTWORTH LLC, or registered assigns
(the "Holder") is hereby granted the right to purchase at any time until 5:00
P.M., New York City time, on December 29, 2004 (the "Expiration Date"), Two
Hundred Thirty-Eight Thousand Eight Hundred Seventy-Seven (238,877) fully paid
and nonassessable shares of the Company's Common Stock, no par value per share
(the "Common Stock"), at an initial exercise price per share (the "Exercise
Price") of $4.617 subject to further adjustment as set forth herein.
2. Exercise of Warrants.
2.1 General. This Warrant is exercisable in whole or in
part at any time and from time to time at the Exercise Price per share of Common
Stock payable hereunder, payable in cash or by certified or official bank check,
or by "cashless exercise," by means of tendering this Warrant Certificate to the
Company to receive a number of shares of Common Stock equal in Market Value to
the difference between the Market Value of the shares of Common Stock issuable
upon exercise of this Warrant and the cash exercise price thereof. Upon
surrender of this Warrant Certificate with the annexed Notice of Exercise Form
duly executed (which Notice of Exercise Form may be submitted either by delivery
to the Company or by facsimile transmission as provided in Section 8 hereof),
together with payment of the Exercise Price for the shares of Common Stock
purchased, if applicable, the Holder shall be entitled to receive a certificate
or certificates for the shares of Common Stock so purchased. For the purposes of
this Section 2, "Market Value" shall be an amount equal to the average closing
ask
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<PAGE> 2
price of a share of Common Stock, as reported by Bloomberg, LP, for the five (5)
trading days preceding the Company's receipt of the Notice of Exercise Form duly
executed multiplied by the number of shares of Common Stock to be issued upon
surrender of this Warrant Certificate.
2.2 Limitation on Exercise. Notwithstanding the provisions
of this Warrant, the Securities Purchase Agreement (as defined below) or of the
other Transaction Agreements (as defined in the Securities Purchase Agreement),
in no event (except (i) with respect to an automatic conversion, if any, of the
Preferred Stock as provided in the Certificate of Designations or a conversion
pursuant to a Redemption Notice Conversion [as defined in the Certificate of
Designations], (ii) as specifically provided in the Certificate of Designations
as an exception to this provision, or (iii) if the Company is in default
hereunder or under any of the Transaction Agreements, and the Holder has
asserted such default in writing and the applicability of this provision to such
default) shall the Holder be entitled to exercise this Warrant or shall the
Company have the obligation, to issue shares upon such exercise of all or any
portion of this Warrant to the extent that, after such conversion, the sum of
(1) the number of shares of Common Stock beneficially owned by the Holder and
its affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unconverted portion of the
Preferred Stock or unexercised portion of the Warrants), and (2) the number of
shares of Common Stock issuable upon the conversion of the Preferred Stock or
exercise of the Warrants with respect to which the determination of this proviso
is being made, would result in beneficial ownership by the Holder and its
affiliates of more than 9.99% of the outstanding shares of Common Stock (after
taking into account the shares to be issued to the Holder upon such conversion
or exercise). For purposes of the proviso to the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended (the "1934 Act"), except as
otherwise provided in clause (1) of such sentence. The Holder, by its acceptance
of this Warrant, further agrees that if the Holder transfers or assigns any of
the Warrants to a party who or which would not be considered such an affiliate,
such assignment shall be made subject to the transferee's or assignee's specific
agreement to be bound by the provisions of this Section 2.2 as if such
transferee or assignee were the original Holder hereof.
3. Reservation of Shares. The Company hereby agrees that at all
times during the term of this Warrant there shall be reserved for issuance upon
exercise of this Warrant such number of shares of its Common Stock as shall be
required for issuance upon exercise of this Warrant (the "Warrant Shares").
4. Mutilation or Loss of Warrant. Upon receipt by the Company of
evidence satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant, and (in the case of loss, theft or destruction) receipt of
reasonably satisfactory indemnification, and (in the case of mutilation) upon
surrender and cancellation of this Warrant, the Company will execute and deliver
a new Warrant of like tenor and date and any such lost, stolen, destroyed or
mutilated Warrant shall thereupon become void.
2
<PAGE> 3
5. Rights of the Holder. The Holder shall not, by virtue hereof,
be entitled to any rights of a stockholder in the Company, either at law or
equity, and the rights of the Holder are limited to those expressed in this
Warrant and are not enforceable against the Company except to the extent set
forth herein.
6. Protection Against Dilution.
6.1 Adjustment Mechanism. If an adjustment of the Exercise
Price is required pursuant to this Section 6, the Holder shall be entitled to
purchase such number of additional shares of Common Stock as will cause (i) the
total number of shares of Common Stock Holder is entitled to purchase pursuant
to this Warrant, multiplied by (ii) the adjusted purchase price per share, to
equal (iii) [the dollar amount of] the total number of shares of Common Stock
Holder is entitled to purchase before adjustment multiplied by the total
purchase price before adjustment.
6.2 Capital Adjustments. In case of any stock split or
reverse stock split, stock dividend, reclassification of the Common Stock,
recapitalization, merger or consolidation, or like capital adjustment affecting
the Common Stock of the Company, the provisions of this Section 6 shall be
applied as if such capital adjustment event had occurred immediately prior to
the date of this Warrant and the original purchase price had been fairly
allocated to the stock resulting from such capital adjustment; and in other
respects the provisions of this Section shall be applied in a fair, equitable
and reasonable manner so as to give effect, as nearly as may be, to the purposes
hereof. A rights offering to stockholders shall be deemed a stock dividend to
the extent of the bargain purchase element of the rights.
6.3 Adjustment for Spin Off. If, for any reason, prior to
the exercise of this Warrant in full, the Company spins off or otherwise divests
itself of a part of its business or operations or disposes all or of a part of
its assets in a transaction (the "Spin Off") in which the Company does not
receive compensation for such business, operations or assets, but causes
securities of another entity (the "Spin Off Securities") to be issued to
security holders of the Company, then
(a) the Company shall cause (i) to be reserved Spin Off
Securities equal to the number thereof which would have been issued to
the Holder had all of the Holder's unexercised Warrants outstanding on
the record date (the "Record Date") for determining the amount and
number of Spin Off Securities to be issued to security holders of the
Company (the "Outstanding Warrants") been exercised as of the close of
business on the trading day immediately before the Record Date (the
"Reserved Spin Off Shares"), and (ii) to be issued to the Holder on the
exercise of all or any of the Outstanding Warrants, such amount of the
Reserved Spin Off Shares equal to (x) the Reserved Spin Off Shares
multiplied by (y) a fraction, of which (I) the numerator is the amount
of the Outstanding Warrants then being exercised, and (II) the
denominator is the amount of the Outstanding Warrants; and
3
<PAGE> 4
(b) the Exercise Price on the Outstanding Warrants shall
be adjusted immediately after consummation of the Spin Off by
multiplying the Exercise Price by a fraction (if, but only if, such
fraction is less than 1.0), the numerator of which is the numerator of
which is the Average Market Price of the Common Stock for the five (5)
trading days immediately following the fifth trading day after the
Record Date, and the denominator of which is the Average Market Price of
the Common Stock on the five (5) trading days immediately following the
fifth trading day after the Record Date, and the denominator of which is
the Average Market Price of the Common Stock on the five (5) trading
days immediately preceding the Record Date; and such adjusted Exercise
Price shall be deemed to be the Exercise Price with respect to the
Outstanding Warrants after the Record Date.
For the purposes of this Section 6.3, the "Average Market Price of the Common
Stock" shall mean, for the relevant period, (x) the average closing bid price of
a share of Common Stock, as reported by Bloomberg, LP or, if not so reported, as
reported on the over-the-counter market or (y) if the Common Stock is listed on
a stock exchange, the closing price on such exchange on the date indicated in
the relevant provision hereof, as reported in The Wall Street Journal.
7. Transfer to Comply with the Securities Act; Registration
Rights.
(a) This Warrant has not been registered under the Securities Act
of 1933, as amended, (the "Act") and has been issued to the Holder for
investment and not with a view to the distribution of either the Warrant or the
Warrant Shares. Neither this Warrant nor any of the Warrant Shares or any other
security issued or issuable upon exercise of this Warrant may be sold,
transferred, pledged or hypothecated in the absence of an effective registration
statement under the Act relating to such security or an opinion of counsel
satisfactory to the Company that registration is not required under the Act.
Each certificate for the Warrant, the Warrant Shares and any other security
issued or issuable upon exercise of this Warrant shall contain a legend on the
face thereof, in form and substance satisfactory to counsel for the Company,
setting forth the restrictions on transfer contained in this Section.
8. Notices. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage pre-paid. Any such notice shall be deemed
given when so delivered personally, telegraphed, telexed or sent by facsimile
transmission, or, if mailed, two days after the date of deposit in the United
States mails, as follows:
(i) if to the Company, to:
ESAT, INC.
Bldg. G
4
<PAGE> 5
16520 Harbor Boulevard
Fountain Valley, California 92708
ATTN:
Telephone No.: (714) 418-3200
Telecopier No.: (714)
(ii) if to the Holder, to:
Wentworth LLC
Corporate Centre
West Bay Road
Grand Cayman, Cayman Islands
with a copy to:
Krieger & Prager, Esqs.
39 Broadway - Suite 1440
New York, New York 10006
Telecopier No. (212) 363-2999
Telephone No.: (212) 689-3322
Any party may be notice given in accordance with this Section to the other
parties designate another address or person for receipt of notices hereunder.
9. Supplements and Amendments; Whole Agreement. This Warrant may
be amended or supplemented only by an instrument in writing signed by the
parties hereto. This Warrant of even date herewith contain the full
understanding of the parties hereto with respect to the subject matter hereof
and thereof and there are no representations, warranties, agreements or
understandings other than expressly contained herein and therein.
10. Governing Law. This Warrant shall be deemed to be a contract
made under the laws of the State of New York for contracts to be wholly
performed in such state and without giving effect to the principles thereof
regarding the conflict of laws. Each of the parties consents to the jurisdiction
of the federal courts whose districts encompass any part of the City of New York
or the state courts of the State of New York sitting in the City of New York in
connection with any dispute arising under this Warrant and hereby waives, to the
maximum extent permitted by law, any objection, including any objection based on
forum non conveniens, to the bringing of any such proceeding in such
jurisdictions. To the extent determined by such court, the Company shall
reimburse the Holder for any reasonable legal fees and disbursements incurred by
the Buyer in enforcement of or protection of any of its rights under any of the
Transaction Agreements.
5
<PAGE> 6
11. Counterparts. This Warrant may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and all such counterparts shall together constitute but one and
the same instrument.
12. Descriptive Headings. Descriptive headings of the several
Sections of this Warrant are inserted for convenience only and shall not control
or affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Warrant as of
the 29 th day of December, 1999.
ESAT, INC.
By: /s/_________________________________
Name: Michael C. Palmer
Its: Chief Executive Officer &
Secretary
Attest:
/s/________________________
Name: Thomas B. Miller
Title: Chief Financial Officer
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NOTICE OF EXERCISE OF WARRANT
The undersigned hereby irrevocably elects to exercise the right,
represented by the Warrant Certificate, dated as of December 29, 1999, to
purchase shares of the Common Stock, no par value per share, of ESAT, INC., and
tenders herewith payment in accordance with Section 1 of said Common Stock
Purchase Warrant.
Please deliver the stock certificate to:
Dated:______________________
____________________________
[Name of Holder]
By:_________________________
[ ] CASH: $ _______________________
[ ] CASHLESS EXERCISE
AGGREGATE MARKET VALUE OF _____ SHARES $_______________
AGGREGATE CASH EXERCISE PRICE OF _______ SHARES $_______________
DIFFERENCE / MARKET VALUE $_______________
NUMBER OF SHARES ISSUABLE
7
<PAGE> 1
EXHIBIT 10.9
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of November 22, 1999, between
eSat, Inc., a Nevada corporation (together with any successors, the "Company"),
and Vantage Capital, Inc., a Delaware Corporation ("Vantage"), Corporate
Financial Enterprises, Inc., a Delaware corporation ("CFE"), American Equities,
LLC, a California limited liability company ("AELLC," and, together with CFE and
Vantage, the "Investor").
W I T N E S S E T H
WHEREAS, pursuant to those certain Stock Purchase Agreements (the "Stock
Purchase Agreements"), by and among the Company and the Investor, the Company
has agreed to sell and the Investor has agreed to purchase the Series A
Preferred Stock or Series B Preferred Stock (collectively, the "Preferred
Stock") of the Company, in each case which is convertible into shares of the
Company's Common Stock, $.01 value per share (the "Common Stock"); and
WHEREAS, pursuant to the terms of, and in partial consideration for, the
Investor's entering into the Stock Purchase Agreements, the Company has agreed
to provide the Investor with certain registration rights with respect to the
Common Stock;
NOW THEREFORE, in consideration of the mutual promises, representations,
warranties, covenants and conditions set forth in the Stock Purchase Agreements
and this Registration Rights Agreement, the Company and the Investor agree as
follows:
1. Certain Definitions. As used in this Agreement the following terms shall
have the following respective meanings:
"Closing Date" shall mean November 22, 1999.
"Commission" shall mean the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"Common Stock" shall mean the Company's Common Stock, $.01 par value per
share.
"Holders" shall mean the holders of Preferred Stock, or Common Stock issued
upon conversion of Preferred Stock.
"Registrable Shares" shall mean any Common Stock of the Company issued or
issuable in respect of the Preferred Stock whether on conversion of the
Preferred Stock or as a payment of dividends, including Common Stock issued on a
stock split, stock dividend, recapitalization or similar event; provided,
however, that shares of Common Stock or other securities shall no longer be
treated as Registrable Shares if (a) they have been sold to or through a broker
or dealer or underwriter in a public distribution or a public securities
transaction, (b) they have been sold in a transaction exempt from the
registration and prospectus delivery requirements of the Securities Act of 1933
so that all transfer restrictions and restrictive legends with respect thereto
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are removed upon consummation of such sale or (c) they are available for sale
under Rule 144 or otherwise, without restriction as to volume or manner of sale,
in the opinion of counsel to the Company, without compliance with the
registration and prospectus delivery requirements of the Securities Act of 1933
so that no transfer restrictions or restrictive legends will appear upon the
Common Stock certificates following the consummation of such sale.
The terms "register", "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act of 1933 and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement. Said registration shall include all amendments,
post-effective amendments and supplements to any such registration statement as
may be necessary under the Act and the regulations of the Commission to keep
such registration effective with respect to the Registrable Shares until the
date the Holder or its assignee no longer owns any Preferred Stock or Common
Stock issued upon conversion of such Preferred Stock.
"Registration Expenses" shall mean all expenses incurred by the Company in
compliance with Section 2 hereof, including, without limitation, all
registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company, blue sky fees and expenses, and the reasonable expenses
of any special audits incident to or required by any such registration (but
excluding the compensation of regular employees of the Company, which shall be
paid in any event by the Company).
"Reserved Shares" shall mean the shares of Common Stock issuable upon
conversion of the Preferred Stock that have been duly and validly reserved for
issuance, and upon issuance which shall be duly and validly issued, fully paid,
and non-assessable.
"Act" shall mean the Securities Act of 1933, as amended, or any similar
federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Shares.
2. Piggyback Registration Rights. If at any time the Company shall
determine to register under the Securities Act (including pursuant to a demand
of any security holder of the Company exercising registration rights) any of its
Common Stock other than on a registration statement on Form S-8 or any successor
thereof, it shall send to each of the Holder(s) written notice of such
determination at least thirty (30) days prior to each such filing and, if within
twenty (20) days after receipt of such notice, any Holder shall so request in
writing, the Company shall include in such registration statement (to the extent
permitted by applicable regulation) all or any part of the Registrable Shares
that such Holder requests to be registered. Any Registrable Shares which are
included in any underwritten offering under this 2(a) shall be sold upon such
terms as the managing underwriters shall reasonably request but in any event
shall be upon terms not less favorable than those upon which any other selling
security holder or the Company shall sell any of its securities, provided,
however, that if the managing underwriters in an underwritten
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<PAGE> 3
offering shall determine that the inclusion of all of such Registrable Shares
would materially and adversely effect the number or price of the securities to
be sold or the number of shares that the Company desires to sell, then the
Company shall have the right to reduce, or, if deemed necessary by the managing
underwriter(s) in writing, eliminate entirely, on a pro rata basis, the number
of Registrable Shares included in such registration. If any Holder disapproves
of the terms of such underwriting, such Holder may elect to withdraw therefrom
by written notice to the Company and the underwriter. Notwithstanding the
provisions of this Section 2, the Company shall have the right, at any time
after it shall have given written notice pursuant to this Section 2
(irrespective of whether a written request for inclusion of Registrable
Securities shall have been made), to elect not to file any such proposed
registration statement or to withdraw the same after the filing and prior to the
effective date thereof.
3. Obligation of the Company. In connection with the registration of the
Registrable Shares, the Company shall do each of the following:
(a) File with the SEC a Registration Statement with respect to not less
than the number of Registrable Shares provided in Section 2, above, and
thereafter use its best efforts to cause each Registration Statement relating to
Registrable Shares to become effective five business days after notice from the
Securities and Exchange Commission that the Registration Statement may be
declared effective and keep the Registration Statement effective at all times
until the earliest of (i) November 12, 2004 or (ii) the date the Holder or its
assignee no longer owns any of the Registrable Shares (items (i) and (ii)
cumulatively being referred to as the "Registration Period"), which Registration
Statement (including any amendments or supplements thereto and prospectuses
contained therein) shall not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances in which they were made,
not misleading;
(b) Prepare and file with the SEC such amendments (including post-effective
amendments) and supplements to the Registration Statement and the prospectus
used in connection with the Registration Statement as may be necessary to keep
the Registration effective at all times during the Registration Period, and,
during the Registration Period, comply with the provisions of the Act with
respect to the disposition of all Registrable Shares of the Company covered by
the Registration Statement until such time as all of such Registrable Shares
have been disposed of in accordance with the intended methods of disposition by
the seller or sellers thereof as set forth in the Registration Statement;
(c) Furnish to each Holder whose Registrable Shares are included in the
Registration Statement and its legal counsel identified to the Company, (i)
promptly after the same is prepared and publicly distributed, filed with the
SEC, or received by the Company, one (1) copy of the Registration Statement,
each prospectus, and each amendment or supplement thereto, and (ii) such number
of copies of a prospectus and all amendments and supplements thereto and such
other documents, as the Holder may reasonably request in order to facilitate the
disposition of the Registrable Shares owned by such Holder;
(d) Use reasonable efforts to (i) register and qualify the Registrable
Shares covered by
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<PAGE> 4
the Registration Statement under such other securities or blue sky laws of such
jurisdictions as the Holder(s) who hold a majority in interest of the
Registrable Shares being offered reasonably request and in which significant
volumes of shares of Common Stock are traded, (ii) prepare and file in those
jurisdictions such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof at all times during the Registration Period,
(iii) take such other actions as may be necessary to maintain such registrations
and qualification in effect at all times during the Registration Period, and
(iv) take all other actions reasonably necessary or advisable to qualify the
Registrable Shares for sale in such jurisdictions: provided, however, that the
Company shall not be required in connection therewith or as a condition thereto
to (A) qualify to do business in any jurisdiction where it would not otherwise
be required to qualify but for this Section 3(d), (B) subject itself to general
taxation in any such jurisdiction, (C) file a general consent to service of
process in any such jurisdiction, (D) provide any undertakings that cause more
than nominal expense or burden to the Company or (E) make any change in its
articles of incorporation or by-laws or any then existing contracts, which in
each case the Board of Directors of the Company determines to be contrary to the
best interests of the Company and its stockholders;
(e) As promptly as practicable after becoming aware of such event, notify
each Holder of the happening of any event of which the Company has knowledge, as
a result of which the prospectus included in the Registration Statement, as then
in effect, includes any untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and uses its best efforts promptly to prepare a supplement or
amendment to the Registration Statement or other appropriate filing with the SEC
to correct such untrue statement or omission, and deliver a number of copies of
such supplement or amendment to each Holder as such Holder may reasonably
request;
(f) As promptly as practicable after becoming aware of such event, notify
each Holder who holds Registrable Shares being sold (or, in the event of an
underwritten offering, the managing underwriters) of the issuance by the SEC of
any notice of effectiveness or any stop order or other suspension of the
effectiveness of the Registration Statement at the earliest possible time;
(g) Use its commercially reasonable efforts, if eligible, either to (i)
cause all the Registrable Shares covered by the Registration Statement to be
listed on a national securities exchange and on each additional national
securities exchange on which securities of the same class or series issued by
the Company are then listed, if any, if the listing of such Registrable Shares
is then permitted under the rules of such exchange, or (ii) secure designation
of all the Registrable Shares covered by the Registration Statement on the
National Association of Securities Dealers Automated Quotations System
("NASDAQ") within the meaning of Rule 11Aa2-1 of the SEC under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the quotation of the
Registrable Shares on the NASDAQ National Market System; or if, despite the
Company's commercially reasonable efforts to satisfy the preceding clause (i) or
(ii), the Company is unsuccessful in doing so, to secure NASD authorization and
quotation for such Registrable Shares on either the SmallCap Market or the
over-the-counter bulletin board
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<PAGE> 5
and, without limiting the generality of the foregoing, to arrange for at least
two market makers to register with the National Association of Securities
Dealers, Inc. ("NASD") as such with respect to such Registrable Shares;
(h) Provide a transfer agent for the Registrable Shares not later than the
effective date of the Registration Statement;
(i) Cooperate with the Holders who hold Registrable Shares being offered to
facilitate the timely preparation and delivery of certificates for the
Registrable Shares to be offered pursuant to the Registration Statement and
enable such certificates for the Registrable Shares to be in such denominations
or amounts as the Holders may reasonably request and registered in such names as
the Holders may request; and, within five (5) business days after a Registration
Statement which includes Registrable Shares is ordered effective by the SEC, the
Company shall deliver, and shall cause legal counsel selected by the Company to
deliver, to the transfer agent for the Registrable Shares (with copies to the
Holders whose Registrable Shares are included in such Registration Statement) an
appropriate instruction and opinion of such counsel, if required; and
(j) Take all other reasonable actions necessary to expedite and facilitate
the transfer upon conversion by the Investor of the Registrable Shares pursuant
to the Registration Statement.
The Company shall use its best efforts to effect such registration (including,
without limitation, the execution of an undertaking to file amendments,
post-effective amendments, and supplements, appropriate qualification under
applicable blue sky or other state securities laws and appropriate compliance
with applicable regulations issued under the Act and the Regulations of the
Commission) as may be so requested and as would permit or facilitate the sale
and distribution of all or such Registrable Shares as are specified in such
request.
4. Expenses of Registration. The Company shall bear all Registration
Expenses incurred in connection with any registration or qualification of the
Registrable Shares pursuant to this Agreement. All Selling Expenses shall be
born by the Holder.
5. Registration Procedures. The Company shall advise the Holders of the
initiation of a registration under the Agreement and as to the completion
thereof. At its expense the Company will prepare and file with the Commission
such amendments and supplements to such registration statement and the
prospectus used in connection with such registration statement as may be
necessary to comply with the provisions of the Act and the Regulations of the
Commission with respect to the disposition of securities covered by such
registration statement.
6. Indemnification.
(a) The Company will indemnify and hold harmless the Investor, each of
its stockholders, executives, employees, representatives, affiliates, officers,
directors and partners, and each person controlling the Investor, and all
Holders, with respect to which registration has been effected pursuant to this
Agreement against all claims, losses, damages and liabilities (or actions,
proceedings or settlements in respect thereof) arising out of or based on any
untrue
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<PAGE> 6
statement (or alleged untrue statement) of a material fact contained in any
prospectus or other document incident to any such registration, or based on any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
any violation by the Company of the Act or any rule or regulation thereunder
applicable to the Company and will reimburse the Investor, each of its
stockholders, executives, employees, representatives, affiliates, officers,
directors and partners, and each person controlling the Investor for any legal
and any other expenses as they are reasonably incurred in connection with
investigating and defending any such claim, loss, damage, liability or action,
provided, however, that the indemnity contained in this Section 6(a) shall not
apply to amounts paid in settlement of any such claim, loss, damage, liability
or action if such Settlement is effected without the consent of the Company, and
provided further that the Company shall not be liable in any such case to the
extent that any such claim, loss, damage, liability or expense arises out of or
is based on any untrue statement or omission based upon written information
furnished to the Company by the Investor and stated to be specifically for use
in the registration statement filed pursuant to this Agreement. The foregoing
indemnity agreement is further subject to the condition that insofar as it
relates to any untrue prospectus, such indemnity agreement shall not inure to
the benefit of the foregoing indemnified parties if copies of a final prospectus
correcting the misstatement, or alleged misstatement, omission or alleged
omission upon which such loss, liability, claim or damage is based is timely
delivered to such indemnified party and a copy thereof was not furnished to the
person asserting the loss, liability, claim or damage.
(b) The Investor and all Holders will indemnify the Company, each of
its stockholders, executives, employers, representatives, affiliates, directors,
officers and each person who controls the Company within the meaning of the Act
and the rules and regulations thereunder against all claims, losses, damages and
liabilities (or actions, proceedings, or settlements in respect thereof) arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any prospectus or other document incident to any such
registration or based upon any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or any violation of the Act or any rule of regulation
thereunder applicable to the Company and will reimburse the Company, and its
stockholders, executives, employers, representatives, affiliates, directors,
officers, partners, persons, underwriters or control persons for any legal or
any other expense reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action, in each case to the
extent, and only to the extent, that such untrue statement (or alleged untrue
statement) or omission or alleged omission) relating to such Holder is made in
such registration statement, prospectus, offering circular or other document in
reliance upon and in conformity with written information furnished to the
Company by the Investor or a Holder and stated to be specifically for use
therein; provided, however, that the obligations of the Investor and/or a Holder
shall be limited to an amount equal to the proceeds to such Investor or Holder.
(c) Each party entitled to indemnification under this Section 6 (an
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim
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as to which indemnity may be sought and shall permit the Indemnifying Party to
assume the defense of any such claim or any litigation resulting therefrom,
provided that counsel for the Indemnifying Party, who shall conduct the defense
of such claim or any litigation resulting therefrom, shall be approved by the
Indemnified Party (whose approval shall not unreasonably be withheld or
delayed), and the Indemnified Party may participate in such defense at such
indemnified party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Agreement unless, and only to
the extent that such failure adversely affects the rights or obligations of the
Indemnifying party. No Indemnifying Party, in the defense of any such claim or
litigation shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. Each Indemnified Party shall furnish such information regarding
itself or the claim in question as an Indemnifying Party may reasonably request
in writing and as shall be reasonably required in connection with defense of
such claim and litigation resulting therefrom.
7. Information by Holder of Registrable Shares. The Holder shall at all
times cooperate with the Company including furnishing to the Company such
information regarding the Holder and the distribution proposed by such Holder of
Registrable Shares as the Company may reasonably request in writing and as shall
be reasonably required in connection with any registration referred to in this
Agreement. If there is a delay in the filing or effectiveness of the
Registration Statement as a result of the Holder's failure to cooperate with the
Company, the damages set forth in Section 2(c) shall not apply for the period of
delay caused by such failure to cooperate. The Company however, shall give
Holder at least three (3) business days notice of its request for cooperation.
8. Transfers or Assignments of Registration Rights. The Investor's rights
under this Agreement to cause the Company to register the Registrable Shares may
be transferred or assigned by the Investor to a purchaser of the Preferred
Stock, or any portion of the Preferred Stock, and such assignment shall only be
effective upon delivery of written notice of such assignment to the Company.
Upon such assignment the assignee shall have all the rights and obligations of
the Investor hereunder.
9. Miscellaneous.
9.1 Governing Law. This agreement shall be governed by and construed in
accordance with the laws of the State of California without giving effect to
conflict of laws principles.
9.2 Successors and Assigns. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
9.3 Entire Agreement. This Agreement constitutes the full and entire
understanding
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and agreement between the parties with regard to the subject matter hereof.
9.4 Notices, etc. All notices and other communications required or
permitted hereunder shall be in writing and shall either be sent via facsimile
transmission, be mailed by first-class mail, postage prepaid, or be delivered by
hand or by messenger or courier delivery service, addressed (a) if to the
Investor, at the address listed in the Stock Purchase Agreements or at such
other address as the Investor shall have furnished to the Company in writing, or
(b) if to the Company, at its executive offices, or at such other address as the
Company shall have furnished to the Investor in writing.
9.5 Delays or Omissions. No delay or omission to exercise any right, power
or remedy accruing to any Holder of any Registrable Shares, upon any breach or
default of the Company under this Agreement, shall impair any such right, power,
or remedy of such Holder nor shall it be construed to be a waiver of any such
breach or default, or an acquiesce therein, or of or in any similar breach or
default thereunder occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default thereafter occurring.
Any waiver, permit, consent or approval of any kind or character on the part of
any Holder of any breach or default under this Agreement, must be in writing and
shall be effective only to the extent specifically set forth in such writing.
All remedies, either under this Agreement or by law or otherwise afforded to any
Holder, shall be cumulative and not alternative.
9.6 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument. An executed facsimile counterpart of this Agreement shall be
effective as an original.
9.7 Severability. In the case any provision of this Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
9.8 Amendments. This provision of this Agreement may be amended at any time
and from time to time, and particular provisions of this Agreement may be
waived, with and only with an agreement or consent in writing signed by the
Company and by the owners of a majority of the Registrable Shares as of the date
of such amendment or waiver.
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IN WITNESS WHEREOF, the Company and the Investors have caused this
Agreement to be executed by each of their duly authorized representatives.
THE COMPANY: INVESTORS:
eSat, Inc. AMERICAN EQUITIES, LLC
By: By:
---------------------------------- ----------------------------------
Chester Noblett Reid Breitman
President
CORPORATE FINANCIAL ENTERPRISES, INC.
By:
-------------------------------------
Name: Regis Possino
Title: President
VANTAGE CAPITAL, INC.
By:
-------------------------------------
Name: Michael Palmer
Title: President
9
<PAGE> 1
EXHIBIT 10.10
STOCK PURCHASE AGREEMENT
BY AND AMONG
ESAT, INC.
AND
VANTAGE CAPITAL, INC., A CALIFORNIA CORPORATION
DATED AS OF NOVEMBER 22, 1999
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STOCK PURCHASE AGREEMENT
Stock Purchase Agreement, made and entered into as of November 22, 1999
(the "Agreement"), among eSat, Inc., a Nevada corporation (the "Company") and
Vantage Capital, Inc., a California corporation, and its designees ("Investor").
WHEREAS, the Company desires to sell, and the Investor desires to purchase,
on the terms and conditions of this Agreement, 1,000,000 shares of the Series A
12% Convertible Preferred Stock of the Company, $0.01 par value (the "Preferred
Stock"), in the form attached hereto as Exhibit A;
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Company and the Investor agrees
as follows:
SECTION I. SALE AND PURCHASE OF THE COMPANY'S SECURITIES; CLOSING.
1.1 SALE AND PURCHASE OF PREFERRED STOCK; ISSUANCE OF WARRANTS.
(a) Subject to the terms and conditions hereof, the Company agrees to
sell to Investor and Investor agrees to purchase from the Company on the Closing
Date, 1,000,000 shares of Preferred Stock for an aggregate cash purchase price
(the "Purchase Price") of Two Million Dollars ($2,000,000), payable to the
Company in four equal monthly installments of $500,000 each, commencing on
November 15, 1999. Investor shall have the right to prepay all or any part of
the Purchase Price at any time.
1.2 CLOSING. The closing of the transactions (the "Transactions")
contemplated by this Agreement (the "Closing"), shall take place at the offices
of the Company, at 10:00 a.m., Pacific Standard time, on the first business day
following satisfaction (or waiver) of all of the conditions set forth in
Sections IV and V hereof (the "Closing Date") or at such other place or day as
may be mutually acceptable to the Investor and the Company.
1.3 DELIVERY; PAYMENT. At the Closing, the Company will deliver to Investor
a certificate, dated the Closing Date, representing the shares of Preferred
Stock purchased by such Investor, registered in its name (or in the name of its
nominee if it so specifies to the Company prior to the Closing Date).
SECTION II. THE COMPANY'S REPRESENTATIONS AND WARRANTIES
In order to induce Investor to enter into this Agreement and to purchase
the Preferred Stock, the Company hereby represents and warrants to Investor,
except as disclosed in the Company Disclosure Schedule delivered to the Investor
on the date
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hereof, as follows. The matters referred to in the Company Disclosure Letter
shall be deemed to qualify only the specific representations and warranties
which are referred to therein. References to items as being subject "to the best
knowledge of the Company" means the actual knowledge of any present director or
executive officer of the Company, or the knowledge such person should have, or a
reasonably prudent person could be expected to discover or become aware of, in
the course of conducting a reasonably comprehensive investigation into such
matters.
2.1 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of Nevada and has the requisite power and authority and all necessary
governmental approvals to own, lease and operate its properties and to carry on
its business as it is now being conducted. The Company is duly qualified or
licensed as a foreign corporation to do business, and is in good standing, in
each jurisdiction where the character of the properties owned, leased or
operated by it or the nature of its business makes such qualification or
licensing necessary, including California As of the date of this Agreement the
Company has no other equity interest in any other entity.
2.2 ARTICLES OF INCORPORATION AND BYLAWS. The Company has heretofore
furnished to Investor a complete and correct copy of the Articles of
Incorporation and bylaws of the Company as amended to date. The Articles of
Incorporation and bylaws of the Company are in full force and effect. As of the
date of this Agreement, the Company is not in violation of any of the provisions
of its Articles of Incorporation or bylaws.
2.3 CAPITALIZATION. The authorized capital stock of the Company consists of
50,000,000 shares of common stock and 10,000,000 shares of preferred stock. As
of the date hereof and as of the Closing Date, (i) 39,910,607 shares of common
stock were issued and outstanding, all of which were validly issued, fully paid
and nonassessable (except 22,144,000 shares which were issued as collateral for
loans and never paid for, and which will be canceled within 90 days of the
Closing Date), and (ii) no shares of preferred stock were issued and outstanding
(not including the Preferred Stock issued pursuant hereto or 2,500,000 shares of
the Company's 12% Series B Convertible Preferred Stock). As of the date hereof
and as of the Closing Date, options and warrants to purchase not more than
10,000,000 shares of common stock have been granted and are outstanding. Except
as described above or contemplated hereby, there are, and as of the Closing Date
there will be, no options, warrants or other rights, agreements, arrangements or
commitments of any character relating to the issued or unissued capital stock of
the Company or obligating the Company to issue or sell any shares of capital
stock of, or other equity interests in, the Company. All shares of the Company's
capital stock subject to issuance, upon issuance on the terms and conditions
specified in the instruments pursuant to which they are issuable, will be duly
authorized, validly issued, fully paid and nonassessable. To the best knowledge
of the Company, except as provided in the Preferred Stock terms, there are no
shareholder agreements, voting trusts or other agreements relating
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to voting or disposition of any shares of the Company's capital stock or
granting to any person or group of persons the right to elect, or to designate
or nominate for election, a director to the Company's board of directors.
2.4 AUTHORITY RELATIVE TO THE TRANSACTION AGREEMENTS. The Company has all
necessary corporate power and authority to execute and deliver this Agreement
and the certificates representing the Preferred Stock (collectively, the
"Transaction Documents"), to perform its obligations hereunder and thereunder
and to consummate the Transactions. The execution and delivery of the
Transaction Documents and the consummation by the Company of the Transactions
have been duly and validly authorized by all necessary corporate action and no
other corporate proceedings on the part of the Company are necessary to
authorize the Transaction Documents or to consummate the Transactions. The
Transaction Documents have been duly and validly executed and delivered by the
Company and, assuming the due authorization, execution and delivery by Investor,
constitute legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to creditors' rights generally and to general principles of
equity.
2.5 MATERIAL CONTRACTS; NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The Company has made available to the Investor on or prior to the
date hereof true, correct and complete copies of each agreement, contract or
other instrument (including all amendments thereto) to which the Company is a
party or by which the Company is bound which would require the Company to pay in
excess of $25,000 in the aggregate, or which provides that the Company will
receive more than $25,000 in the aggregate, or which would otherwise obligate
the Company to provide services or products with an aggregate value of in excess
of $25,000 (collectively, the "Material Contracts").
(b) To the best knowledge of the Company, neither the Company nor any
party other than the Company, is in default in any material respect in the
performance, observance or fulfillment of any of the material obligations,
covenants or conditions contained in any Material Contract to which the Company
is a party. To the best knowledge of the Company, all of the Material Contracts
are in full force and effect, and are the valid, legal and binding obligations
of all of the parties thereto.
(c) The execution and delivery of this Agreement by the Company does
not, and the performance of this Agreement by the Company will not (i) conflict
with or violate the Articles of Incorporation or bylaws of the Company, (ii) to
the best knowledge of the Company, conflict with or violate any foreign or
domestic (federal, state or local) law, statute, ordinance, rule, regulation,
permit, injunction, writ, judgment, decree or order ("Law") applicable to the
Company or by which any asset of
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the Company is bound or affected, or (iii) to the best knowledge of the Company,
conflict with, result in any breach of or constitute a default (or an event that
with notice or lapse of time or both would become a default) under, or give to
others any right of termination, amendment, acceleration or cancellation of, or
require any payment under, or result in the creation of a lien, claim, security
interest or other charge or encumbrance on any asset of the Company pursuant to,
any Material Contract.
(d) To the best knowledge of the Company, the execution and delivery
of this Agreement by the Company do not, and the performance of this Agreement
by the Company will not, require any consent, approval, authorization or permit
of, or filing with or notification to, any United States (federal, state or
local) or foreign government or governmental, regulatory or administrative
authority, agency, commission, board, bureau, court or instrumentality or
arbitrator of any kind ("Governmental Authority"), except (i) for applicable
requirements, if any, of the Securities Act of 1933, as amended (the "Securities
Act"), the Exchange Act and state securities laws, and (ii) where failure to
obtain such consents, approvals, authorizations or permits, or to make such
filings or notifications, would not prevent consummation of the Transactions or
otherwise prevent the Company from performing its obligations under this
Agreement.
2.6 FINANCIAL STATEMENTS.
(a) The Company has heretofore delivered to Investor a true and
complete copy of its unaudited statement of operations, statement of cash flows
and balance sheet, as of June 30, 1999 (the "Financials"). The Financials fairly
present, in all material respects, the financial position and results of
operations of the Company as at the respective dates thereof and for the
respective periods indicated therein.
(b) Except as and to the extent set forth on, or reserved against on,
the balance sheet of the Company as of June 30, 1999 contained in the
Financials, the Company has no liability or obligation of any nature (whether
accrued, absolute, contingent, fixed, liquidated, unliquidated or otherwise) as
of the date of execution and delivery of this Agreement that would be required
to be reflected on, or reserved against in, a balance sheet of the Company, or
in the notes thereto, prepared in accordance with generally accepted accounting
principles, except for liabilities or obligations incurred in the ordinary
course of business since June 30, 1999.
(c) Except in each case as disclosed in the Financials, the Company is
not indebted to any director or executive officer of the Company (except for
amounts due as normal salaries and bonuses or in reimbursement of ordinary
expenses) and no such person is indebted to the Company.
2.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since June 30, 1999, except as
contemplated by this Agreement, the Company has conducted its business
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<PAGE> 6
only in the ordinary course and in a manner consistent with past practice and,
since such date to the date hereof, there has not been (a) any material change
by the Company in its accounting methods, principles or practices, (b) any
revaluation by the Company of any material asset (including, without limitation,
any writing down of the value of inventory or writing off of notes or accounts
receivable), other than in the ordinary course of business consistent with past
practice, (c) entry by the Company into any commitment or transaction material
to the Company, except in the ordinary course of business and consistent with
past practice, (d) any agreement by the Company to take any of the actions
described in this Section 2.7 except as expressly contemplated by this
Agreement, other than for such events that would not, individually or in the
aggregate, have a Company Material Adverse Effect.
2.8 INTELLECTUAL PROPERTY.
(i) Intellectual Property Assets. The Company is the exclusive owner of all
Intellectual Property Assets, and has the full right to own, use and exploit
such assets. The term "Intellectual Property Assets" includes all of the
following which are owned, used or licensed by the Company:
(1) all trademarks, service marks, trade and trading names, logos,
marketing symbols, fictional business names, and all protective properties
therefor, including trademark and service mark registrations and applications
therefor (collectively, "Marks");
(2) all inventions, discoveries, innovations and protective properties
therefor, including, but not limited to, patents, utility models and
applications therefor (collectively, "Patents");
(3) all works of authorship, artistry and creative works, and all
copyrights therefor, including copyright registrations and applications therefor
(collectively, "Copyrights");
(4) all rights in mask works (collectively, "Rights in Mask Works");
and
(5) all know-how, trade secrets, confidential information, customer
lists, software, technical and business information and data, process
specifications, plans, diagrams, drawings, and blue prints (collectively, "Trade
Secrets");
(6) all rights of publicity and moral rights throughout the world; and
(7) any licenses of any of the foregoing pursuant to which the Company
has any right to the use or benefit of, or other rights with respect to, any of
the foregoing (other than off-the-shelf or other commercially available
software).
(ii) Agreements. The Company is not obligated to pay royalties or license
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fees to any person.
(iii) Patents.
(1) The Company is the exclusive owner of all right, title and
interest in and to each of its patents, if any, free and clear of all
encumbrances.
(2) No pending or issued patent has been or is now involved in any
interference, reissue, reexamination or opposition proceeding. There is no
potentially interfering patent or patent application of any third party.
(3) None of the Company's patents is infringed or has been challenged
or threatened in any way. None of the products or services manufactured or
provided or sold, nor any process or know-how used, by the Company infringes or
has been alleged to infringe any patent or other proprietary right of any other
person or entity.
(iv) Trademarks.
(1) The Company is the owner of all right, title and interest in and
to each of the it trademarks, serial marks or other registrations (the "Marks"),
free and clear of all encumbrances.
(2) All Marks that have been registered with the United States Patent
and Trademark Office are currently in compliance with all Legal Requirements
(including the timely post-registration filing of affidavits of use and
incontestability and renewal applications) and are valid and enforceable.
(3) No Mark has been or is now involved in any opposition,
invalidation, or cancellation and no such action is threatened with respect to
any of the Marks.
(4) There is no potentially interfering trademark or trademark
application of any third party.
(5) No Mark is infringed or has been challenged or threatened in any
way. None of the Marks used by the Company infringes or is alleged to infringe
any trade name, trademark, or service mark or designation of origin of any third
party.
(v) Copyrights.
(1) The Company is the exclusive owner of all right, title, and
interest in and to each of its copyrights, free and clear of all encumbrances.
(2) All registered copyrights are currently in compliance with Legal
Requirements, and are valid and enforceable.
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(3) None of the Company's copyrights is infringed or has been
challenged or threatened in any way. None of the subject matter of any of the
copyrights infringes or is alleged to infringe any copyright of any third party
or is a derivative work based on the work of a third party.
2.9 LITIGATION. As of the date of this Agreement, except as set forth
on Schedule 2.9, there is no suit, claim, action, proceeding or investigation
pending, or, to the Company's best knowledge, threatened against the Company.
2.10 BROKERS. No broker, finder or investment banker is entitled to
any brokerage, finder's or other fee or commission in connection with the
Transactions based upon arrangements made by or on behalf of the Company, other
than Investor, which the Company agrees to pay $100,000 within 30 days following
the Closing Date.
2.11 SHARES FULLY PAID, ETC. The shares of Preferred Stock to be sold
to Investor pursuant hereto, when issued and paid for pursuant to the terms of
this Agreement, will be duly authorized, validly issued and outstanding, fully
paid and nonassessable and shall be free and clear of all pledges, liens,
encumbrances and restrictions. The common stock issuable upon conversion of the
Preferred Stock has been reserved for issuance and when issued upon exercise in
accordance with the terms of the Preferred Stock, will be duly authorized,
validly issued and outstanding, fully paid, nonassessable and free and clear of
all pledges, liens, encumbrances and restrictions.
2.12 SHARES OF COMMON STOCK. The outstanding shares of common stock of
the Company are have been issued in full compliance with the Securities Act, the
California corporations code and any other applicable blue sky laws.
2.13 NO PREEMPTIVE RIGHTS. The issuance, sale and delivery of the
Preferred Stock and the common stock into which the Preferred Stock is
convertible are not subject to any preemptive right of shareholders of the
Company arising under law or the Articles of Incorporation or Bylaws or to any
contractual right of first refusal or other contractual right in favor of any
person.
2.14 EMPLOYEE BENEFIT PLAN. Each employee benefit plan which covers
employees of the Company has been maintained in compliance in all material
respects with all applicable laws.
2.15 INSURANCE. The Company is insured with reputable insurers against
such risks and in such amounts as are prudent in accordance with industry
practices. All of the insurance policies, binders or bonds maintained by the
Company (the "Policies") have been maintained in accordance with their
respective terms and will remain in full force and effect after the Closing. The
Company has not received any notice of default with respect to any provision of
any such Policies.
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SECTION III. REPRESENTATIONS OF THE INVESTOR.
INVESTOR REPRESENTS THAT:
3.1 INVESTMENT INTENT.
(a) The shares of Preferred Stock being acquired by Investor are
being Acquired for investment for Investor's own account and not with the view
to, or for resale in connection with, any distribution or public offering
thereof. Such Investor understands that the shares of Preferred Stock have not
been registered under the Securities Act or any state securities laws by reason
of their contemplated issuance in transactions exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) thereof and
applicable state securities laws, and that the reliance of the Company and
others upon these exemptions is predicated in part upon this representation by
Investor. Such Investor further understands that the shares of Preferred Stock
may not be transferred or resold without (i) registration under the Securities
Act and any applicable state securities laws, or (ii) an exemption from the
requirements of the Securities Act and applicable state securities laws.
(b) Each certificate representing shares of Preferred Stock shall
be endorsed with the following legend:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED WITH
THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR WITH THE SECURITIES COMMISSION OF ANY
STATE UNDER ANY APPLICABLE STATE SECURITIES OR BLUE SKY LAWS AND
MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT OR IN A TRANSACTION EXEMPT FROM
THE REGISTRATION REQUIREMENTS OF THOSE SECURITIES LAWS.
3.2 LOCATION OF PRINCIPAL OFFICE, QUALIFICATION, ETC. The state in
which Investor's principal office (or domicile, if such Investor is an
individual) is located is California. Investor acknowledges that the Company has
made available to Investor at a reasonable time prior to the execution of this
Agreement the opportunity to ask questions and receive answers concerning the
terms and conditions of the sale of securities contemplated by this Agreement
and to obtain any additional information (which the Company possesses or can
acquire without unreasonable effort or expense) as may be necessary to verify
the accuracy of information furnished to Investor. Investor (a) is able to bear
the loss of its entire investment in the shares of Preferred Stock without any
material adverse effect on its business, operations or prospects, and (b) has
such knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risks of the investment to be made by it
pursuant to this Agreement.
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3.3 ACTS AND PROCEEDINGS. This Agreement has been duly authorized by
all necessary action on the part of Investor, has been duty executed and
delivered by Investor, and is a valid and binding agreement of Investor.
3.4 ACCREDITED INVESTOR. The Investor is an "accredited investor"
within the meaning of Rule 501 promulgated under the Securities Act.
3.5 ORGANIZATION AND QUALIFICATION. Investor is duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and has the requisite power and authority and all necessary
governmental approvals to own, lease and operate its properties and to carry on
its business as it is now being conducted, except where the failure to be so
incorporated, existing or in good standing or to have such power, authority and
governmental approvals would not, individually or in the aggregate, have a
material adverse effect on Investor's business, operations, properties, assets,
financial condition or results of operations.
3.6 NO CONFLICT
(a) The execution and delivery of this Agreement by Investor does
not, and the performance of this Agreement by Investor will not conflict with or
violate the organizing documents of the Investor.
SECTION IV. CONDITIONS OF INVESTOR'S OBLIGATION
The obligation to purchase and pay for the shares of Preferred Stock which
Investor has agreed to purchase on the Closing Date is subject to the
fulfillment prior to or on the Closing Date, of the conditions set forth in this
Section 4.
4.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company under this Agreement which are qualified as to materiality shall
have been true and correct (as so qualified) when made and shall be true and
correct (as so qualified) at and as of the Closing Date, as if made on and as of
such date. The representations and warranties of the Company under this
Agreement which are not qualified as to materiality shall have been true and
correct in all material respects when made and shall be true and correct in all
material respects at and as of the Closing Date, as if made on and as of such
date.
4.2 COMPLIANCE WITH AGREEMENT. The Company shall have performed and
complied with all agreements or covenants required by this Agreement to be
performed and complied with by it prior to or as of the Closing Date.
4.3 INJUNCTIONS, RESTRAINING ORDER OR ADVERSE LITIGATION. No order,
judgment or decree of any court, arbitral tribunal, administrative agency or
other governmental or regulatory authority or agency shall purport to enjoin or
restrain the
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Investor from acquiring the shares of Preferred Stock.
SECTION V. CONDITIONS TO COMPANY'S OBLIGATIONS
The obligation to sell the shares of Preferred Stock which the Company has
agreed to sell on the Closing Date is subject to the fulfillment prior to or on
the Closing Date of the conditions set forth in this Section 5.
5.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Investor under this Agreement shall be true and correct in all material
respects as of the Closing Date with the same effect as though made on and as of
the Closing Date.
5.2 COMPLIANCE WITH AGREEMENT. The Investor shall have performed and
complied with all agreements or covenants required by this Agreement to be
performed and complied with by it prior to or as of the Closing Date.
5.3 INJUNCTIONS, RESTRAINING ORDER OR ADVERSE LITIGATION. No order,
judgment or decree of any court, arbitral tribunal, administrative agency or
other governmental or regulatory authority or agency shall purport to enjoin or
restrain the Investor from acquiring the shares of Preferred Stock on the
Closing Date.
SECTION VI. CERTAIN COVENANTS OF THE INVESTOR AND THE COMPANY.
6.1 APPROVALS, ETC. Subject to the terms and conditions provided
herein, each of the parties hereto agrees to (i) use all reasonable efforts to
take all action and to do all other things necessary, proper or advisable to
consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement; and (ii) use all reasonable efforts to obtain
all necessary or appropriate waivers contemplated by this Agreement.
6.2 ACCESS. The Company hereby agrees that, from the date hereof until
the earlier to occur of the termination of this Agreement and the Closing Date,
the Company will grant the Investor and its representatives such access during
normal business hours as may be reasonably requested to the personnel, advisors,
properties, books, accounts, records, contracts and documentation of, or
relating to, the business and operations of the Company.
VII. INDEMNIFICATION; REMEDIES
7.1 SURVIVAL; RIGHT TO INDEMNIFICATION NOT AFFECTED BY KNOWLEDGE. All
representations, warranties, covenants, and obligations in this Agreement, the
Company Disclosure Letter, any supplements to the Company Disclosure Letter and
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any certificate or document delivered pursuant to this Agreement will survive
the Closing for two years. The right to indemnification, payment of Damages or
other remedy based on such representations, warranties, covenants, and
obligations will not be affected by any investigation conducted with respect to,
or any knowledge acquired (or capable of being acquired) at any time, whether
before or after the execution and delivery of this Agreement or the Closing
Date, with respect to the accuracy or inaccuracy of or compliance with, any such
representation, warranty, covenant, or obligation. The waiver of any condition
based on the accuracy of any representation or warranty, or on the performance
of or compliance with any covenant or obligation, will not affect the right to
indemnification, payment of Damages, or other remedy based on such
representations, warranties, covenants, and obligations.
7.2 INDEMNIFICATION AND PAYMENT OF DAMAGES. Each Party (an "Indemnifying Party")
will indemnify and hold harmless the other parties and their respective
representatives, stockholders, controlling persons, and affiliates
(collectively, the "Indemnified Persons") for, and will pay to the Indemnified
Persons the amount of, any loss, liability, claim, damage (including incidental
and consequential damages), expense (including costs of investigation and
defense and reasonable attorneys' fees) or diminution of value, whether or not
involving a third-party claim (collectively, "Damages"), arising, directly or
indirectly, from or in connection with:
(a) any breach of any representation or warranty made by the Indemnifying
Party in this Agreement, or any schedule, certificate or document
delivered by the Indemnifying Party pursuant to this Agreement;
(b) any breach of any representation or warranty made by the Indemnifying
Party in this Agreement as if such representation or warranty were
made on and as of the Closing Date;
(c) any breach by the Indemnifying Party of any of its covenants or
obligations in this Agreement;
(d) any claim by any Person for brokerage or finder's fees or commissions
or similar payments based upon any agreement or understanding alleged
to have been made by any such Person with the Company (or any person
acting on its behalf) in connection with any of the Transactions.
The remedies provided in this Section 7.2 will not be exclusive of or limit any
other remedies that may be available to Investor or the other Indemnified
Persons.
7.3 PROCEDURE FOR INDEMNIFICATION--THIRD PARTY CLAIMS
(a) Promptly after receipt by an indemnified party under this Section 7 of
notice of the commencement of any action, arbitration, audit, hearing,
investigation, litigation, or suit (whether civil, criminal,
administrative,
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investigative, or informal) commenced or brought against it (a
"Proceeding"), such indemnified party will, if a claim is to be made
against an Indemnifying Party under such Section, give notice to the
Indemnifying Party of the commencement of such claim, but the failure
to notify the Indemnifying Party will not relieve the Indemnifying
Party of any liability that it may have to any indemnified party,
except to the extent that the Indemnifying Party demonstrates that the
defense of such action is prejudiced by the Indemnifying Party's
failure to give such notice.
(b) If any Proceeding referred to in Section 7.3(a) is brought against an
indemnified party and it gives notice to the Indemnifying Party of the
commencement of such Proceeding, the Indemnifying Party will be
entitled to participate in such Proceeding and, to the extent that it
wishes (unless (i) the Indemnifying Party is also a party to such
Proceeding and the indemnified party determines in good faith that
joint representation would be inappropriate, or (ii) the Indemnifying
Party fails to provide reasonable assurance to the indemnified party
of its financial capacity to defend such Proceeding and provide
indemnification with respect to such Proceeding), to assume the
defense of such Proceeding with counsel satisfactory to the
indemnified party and, after notice from the Indemnifying Party to the
indemnified party of its election to assume the defense of such
Proceeding, the Indemnifying Party will not, as long as it diligently
conducts such defense, be liable to the indemnified party under this
Section 7 for any fees of other counsel or any other expenses with
respect to the defense of such Proceeding, in each case subsequently
incurred by the indemnified party in connection with the defense of
such Proceeding, other than reasonable costs of investigation. If the
Indemnifying Party assumes the defense of a Proceeding, (i) it will be
conclusively established for purposes of this Agreement that the
claims made in that Proceeding are within the scope of and subject to
indemnification; (ii) no compromise or settlement of such claims may
be effected by the Indemnifying Party without the indemnified party's
consent unless (1) there is no finding or admission of any violation
of law, statute, rule, regulation, order or decree or any violation of
the rights of any person or entity and no effect on any other claims
that may be made against the indemnified party, and (2) the sole
relief provided is monetary damages that are paid in full by the
Indemnifying Party; and (iii) the indemnified party will have no
liability with respect to any compromise or settlement of such claims
effected without its consent. If notice is given to an Indemnifying
Party of the commencement of any Proceeding and the Indemnifying Party
does not, within ten days after the indemnified party's notice is
given, give notice to the indemnified party of its election to assume
the defense of such Proceeding, the Indemnifying Party will be bound
by any determination made in such Proceeding or any compromise or
settlement effected by the indemnified party.
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(c) Notwithstanding the foregoing, if an indemnified party determines in
good faith that there is a reasonable probability that a Proceeding
may adversely affect it or its affiliates, the indemnified party may,
by notice to the Indemnifying Party, assume the exclusive right to
defend, compromise, or settle such Proceeding, but the Indemnifying
Party will not be bound by any determination of a Proceeding so
defended or any compromise or settlement effected without its consent
(which may not be unreasonably withheld).
(d) the Company hereby consents to the non-exclusive jurisdiction of any
court in which a Proceeding is brought against any Indemnified Person
for purposes of any claim that an Indemnified Person may have under
this Agreement with respect to such Proceeding or the matters alleged
therein, and agree that process may be served on the Company with
respect to such a claim anywhere in the world.
7.4 PROCEDURE FOR INDEMNIFICATION--OTHER CLAIMS. A claim for indemnification for
any matter not involving a third-party claim may be asserted by notice to the
party from whom indemnification is sought.
SECTION VIII. MISCELLANEOUS.
8.1 NO WAIVERS; CUMULATIVE REMEDIES. No failure or delay on the part
of the Investor in exercising any right, power or remedy hereunder or under any
Transaction Document shall operate as waiver thereof; nor shall any single or
partial exercise of any such right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right, power or remedy
hereunder or thereunder. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.
8.2 CHANGES, WAIVERS, ETC. Neither this Agreement nor any provision
hereof may be changed, waived, discharged or terminated orally, but only by a
statement in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought.
8.3 EXPENSES. Each party shall pay its own expenses in connection with
the Transactions contemplated hereby and by the Transaction Documents.
8.4 NOTICES. All notices, requests, consents and other communications
required or permitted hereunder shall be in writing and shall be delivered, or
mailed first-class postage prepaid, registered or certified mail.
(a) if to Investor, addressed to such Investor at its address as
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shown on the books of the Company, or at such other address as such holder may
specify by written notice to the Company; or
(b) if to the Company, at
eSat, Inc.
16250 Harbor Blvd., Bldg G
Fountain Valley, California 92708
Telecopier: (714) 895-2977
Attention: Secretary
, or; or at such other address as the Company may specify by written notice to
the Investor.
8.5 ASSIGNMENT.
(a) This Agreement and all of the provisions hereof will be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
(b) Investor may assign its rights under this Agreement to any of
its affiliates.
8.6 SEVERABILITY. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
8.7 ENTIRE AGREEMENT. This Agreement and exhibits and schedules hereto
and the other Transaction Documents contain the entire agreement between the
parties and supersede any prior understandings, agreements or representations by
or between the parties, written or oral, which may have related to the subject
matter hereof in any way.
8.8 GOVERNING LAW. The internal law, without regard to conflicts of
laws principles, of the State of California shall govern all questions
concerning the construction, validity and interpretation of this Agreement and
the performance of the obligations imposed by this Agreement.
8.9 COUNTERPARTS. This Agreement may be executed concurrently in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the Company and the Investor have caused this
Agreement to be executed by its duly authorized representative.
THE COMPANY: INVESTOR:
eSat, Inc. Vantage Capital, Inc.
By: By:
---------------------------------- ----------------------------------
Chester Noblett Michael Palmer
President
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EXHIBIT 10.11
STOCK PURCHASE AGREEMENT
BY AND AMONG
ESAT, INC.
AND
CORPORATE FINANCIAL ENTERPRISES, INC., AND
AMERICAN EQUITIES, LLC
DATED AS OF NOVEMBER 22, 1999
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STOCK PURCHASE AGREEMENT
Stock Purchase Agreement, made and entered into as of November 22, 1999
(the "Agreement"), among eSat, Inc., a Nevada corporation (the "Company") and
Corporate Financial Enterprises, Inc., a Delaware corporation and/or its
designees ("CFE") and American Equities, LLC, a California limited liability
company, and its designees ("AE," and, together with CFE, "Investor").
WHEREAS, the Company desires to sell, and the Investor desires to purchase,
on the terms and conditions of this Agreement, up to 2,500,000 shares of the
Series B 12% Convertible Preferred Stock of the Company, $0.01 par value (the
"Preferred Stock"), in the form attached hereto as Exhibit A;
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the Company and the Investor agrees
as follows:
SECTION I. SALE AND PURCHASE OF THE COMPANY'S SECURITIES; CLOSING.
1.1 SALE AND PURCHASE OF PREFERRED STOCK. Subject to the terms and
conditions hereof, the Company agrees to sell to Investor and Investor agrees to
purchase from the Company on the Closing Date, 2,500,000 shares of Preferred
Stock for an aggregate cash purchase price (the "Purchase Price") of Five
Million Dollars ($5,000,000), payable to the Company (i) $1,000,000 in cash at
Closing (it being acknowledged that the Company has received $750,000 toward
such payment prior to the date hereof), and (ii) $4,000,000 in eight equal
monthly installments of $500,000 each, commencing on December 22, 1999. Investor
shall have the right to prepay all or any part of the Purchase Price at any
time.
1.2 CLOSING. The closing of the transactions (the "Transactions")
contemplated by this Agreement (the "Closing"), shall take place at the offices
of CFE, 2224 Main Street, Santa Monica, California 90405, at 10:00 a.m., Pacific
Standard time, on the first business day following satisfaction (or waiver) of
all of the conditions set forth in Sections IV and V hereof (the "Closing Date")
or at such other place or day as may be mutually acceptable to the Investor and
the Company.
1.3 DELIVERY; PAYMENT. At the Closing, the Company will deliver to
Investor a certificate, dated the Closing Date, representing the shares of
Preferred Stock purchased by such Investor, registered in its name (or in the
name of its nominee if it so specifies to the Company prior to the Closing
Date).
SECTION II. THE COMPANY'S REPRESENTATIONS AND WARRANTIES
In order to induce Investor to enter into this Agreement and to purchase
the
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Preferred Stock, the Company hereby represents and warrants to Investor, except
as disclosed in the Company Disclosure Schedule delivered to the Investor on the
date hereof, as follows. The matters referred to in the Company Disclosure
Letter shall be deemed to qualify only the specific representations and
warranties which are referred to therein. References to items as being subject
"to the best knowledge of the Company" means the actual knowledge of any present
director or executive officer of the Company, or the knowledge such person
should have, or a reasonably prudent person could be expected to discover or
become aware of, in the course of conducting a reasonably comprehensive
investigation into such matters.
2.1 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of Nevada and has the requisite power and authority and all necessary
governmental approvals to own, lease and operate its properties and to carry on
its business as it is now being conducted. The Company is duly qualified or
licensed as a foreign corporation to do business, and is in good standing, in
each jurisdiction where the character of the properties owned, leased or
operated by it or the nature of its business makes such qualification or
licensing necessary, including California As of the date of this Agreement the
Company has no other equity interest in any other entity.
2.2 ARTICLES OF INCORPORATION AND BYLAWS. The Company has heretofore
furnished to Investor a complete and correct copy of the Articles of
Incorporation and bylaws of the Company as amended to date. The Articles of
Incorporation and bylaws of the Company are in full force and effect. As of the
date of this Agreement, the Company is not in violation of any of the provisions
of its Articles of Incorporation or bylaws.
2.3 CAPITALIZATION. The authorized capital stock of the Company
consists of 50,000,000 shares of common stock and 10,000,000 shares of preferred
stock. As of the date hereof and as of the Closing Date, (i) 39,910,607 shares
of common stock were issued and outstanding, all of which were validly issued,
fully paid and nonassessable (except 22,144,000 shares which were issued as
collateral for loans and never paid for, and which will be canceled within 90
days of the Closing Date), and (ii) no shares of preferred stock were issued and
outstanding (not including the Preferred Stock issued pursuant hereto or
1,000,000 shares of the Company's 12% Series A Convertible Preferred Stock). As
of the date hereof and as of the Closing Date, options and warrants to purchase
not more than 10,000,000 shares of common stock have been granted and are
outstanding. Except as described above or contemplated hereby, there are, and as
of the Closing Date there will be, no options, warrants or other rights,
agreements, arrangements or commitments of any character relating to the issued
or unissued capital stock of the Company or obligating the Company to issue or
sell any shares of capital stock of, or other equity interests in, the Company.
All shares of the Company's capital stock subject to issuance, upon issuance on
the terms and conditions specified in the instruments pursuant to which they are
issuable, will be duly authorized, validly issued, fully paid and nonassessable.
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To the best knowledge of the Company, except as provided in the Preferred Stock
terms, there are no shareholder agreements, voting trusts or other agreements
relating to voting or disposition of any shares of the Company's capital stock
or granting to any person or group of persons the right to elect, or to
designate or nominate for election, a director to the Company's board of
directors.
2.4 AUTHORITY RELATIVE TO THE TRANSACTION AGREEMENTS. The Company has
all necessary corporate power and authority to execute and deliver this
Agreement and the certificates representing the Preferred Stock (collectively,
the "Transaction Documents"), to perform its obligations hereunder and
thereunder and to consummate the Transactions. The execution and delivery of the
Transaction Documents and the consummation by the Company of the Transactions
have been duly and validly authorized by all necessary corporate action and no
other corporate proceedings on the part of the Company are necessary to
authorize the Transaction Documents or to consummate the Transactions. The
Transaction Documents have been duly and validly executed and delivered by the
Company and, assuming the due authorization, execution and delivery by Investor,
constitute legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to creditors' rights generally and to general principles of
equity.
2.5 MATERIAL CONTRACTS; NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) The Company has made available to the Investor on or prior to
the date hereof true, correct and complete copies of each agreement, contract or
other instrument (including all amendments thereto) to which the Company is a
party or by which the Company is bound which would require the Company to pay in
excess of $25,000 in the aggregate, or which provides that the Company will
receive more than $25,000 in the aggregate, or which would otherwise obligate
the Company to provide services or products with an aggregate value of in excess
of $25,000 (collectively, the "Material Contracts").
(b) To the best knowledge of the Company, neither the Company nor
any party other than the Company, is in default in any material respect in the
performance, observance or fulfillment of any of the material obligations,
covenants or conditions contained in any Material Contract to which the Company
is a party. To the best knowledge of the Company, all of the Material Contracts
are in full force and effect, and are the valid, legal and binding obligations
of all of the parties thereto.
(c) The execution and delivery of this Agreement by the Company
does not, and the performance of this Agreement by the Company will not (i)
conflict with or violate the Articles of Incorporation or bylaws of the Company,
(ii) to the best knowledge of the Company, conflict with or violate any foreign
or domestic
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(federal, state or local) law, statute, ordinance, rule, regulation, permit,
injunction, writ, judgment, decree or order ("Law") applicable to the Company or
by which any asset of the Company is bound or affected, or (iii) to the best
knowledge of the Company, conflict with, result in any breach of or constitute a
default (or an event that with notice or lapse of time or both would become a
default) under, or give to others any right of termination, amendment,
acceleration or cancellation of, or require any payment under, or result in the
creation of a lien, claim, security interest or other charge or encumbrance on
any asset of the Company pursuant to, any Material Contract.
(d) To the best knowledge of the Company, the execution and
delivery of this Agreement by the Company do not, and the performance of this
Agreement by the Company will not, require any consent, approval, authorization
or permit of, or filing with or notification to, any United States (federal,
state or local) or foreign government or governmental, regulatory or
administrative authority, agency, commission, board, bureau, court or
instrumentality or arbitrator of any kind ("Governmental Authority"), except (i)
for applicable requirements, if any, of the Securities Act of 1933, as amended
(the "Securities Act"), the Exchange Act and state securities laws, and (ii)
where failure to obtain such consents, approvals, authorizations or permits, or
to make such filings or notifications, would not prevent consummation of the
Transactions or otherwise prevent the Company from performing its obligations
under this Agreement.
2.6 FINANCIAL STATEMENTS.
(a) The Company has heretofore delivered to Investor a true and
complete copy of its unaudited statement of operations, statement of cash flows
and balance sheet, as of June 30, 1999 (the "Financials"). The Financials fairly
present, in all material respects, the financial position and results of
operations of the Company as at the respective dates thereof and for the
respective periods indicated therein.
(b) Except as and to the extent set forth on, or reserved against
on, the balance sheet of the Company as of June 30, 1999 contained in the
Financials, the Company has no liability or obligation of any nature (whether
accrued, absolute, contingent, fixed, liquidated, unliquidated or otherwise) as
of the date of execution and delivery of this Agreement that would be required
to be reflected on, or reserved against in, a balance sheet of the Company, or
in the notes thereto, prepared in accordance with generally accepted accounting
principles, except for liabilities or obligations incurred in the ordinary
course of business since June 30, 1999.
(c) Except in each case as disclosed in the Financials, the
Company is not indebted to any director or executive officer of the Company
(except for amounts due as normal salaries and bonuses or in reimbursement of
ordinary expenses) and no such person is indebted to the Company.
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2.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since June 30, 1999, except
as contemplated by this Agreement, the Company has conducted its business only
in the ordinary course and in a manner consistent with past practice and, since
such date to the date hereof, there has not been (a) any material change by the
Company in its accounting methods, principles or practices, (b) any revaluation
by the Company of any material asset (including, without limitation, any writing
down of the value of inventory or writing off of notes or accounts receivable),
other than in the ordinary course of business consistent with past practice, (c)
entry by the Company into any commitment or transaction material to the Company,
except in the ordinary course of business and consistent with past practice, (d)
any agreement by the Company to take any of the actions described in this
Section 2.7 except as expressly contemplated by this Agreement, other than for
such events that would not, individually or in the aggregate, have a Company
Material Adverse Effect.
2.8 INTELLECTUAL PROPERTY.
(i) Intellectual Property Assets. The Company is the exclusive owner of all
Intellectual Property Assets, and has the full right to own, use and exploit
such assets. The term "Intellectual Property Assets" includes all of the
following which are owned, used or licensed by the Company:
(1) all trademarks, service marks, trade and trading names, logos,
marketing symbols, fictional business names, and all protective properties
therefor, including trademark and service mark registrations and applications
therefor (collectively, "Marks");
(2) all inventions, discoveries, innovations and protective properties
therefor, including, but not limited to, patents, utility models and
applications therefor (collectively, "Patents");
(3) all works of authorship, artistry and creative works, and all
copyrights therefor, including copyright registrations and applications therefor
(collectively, "Copyrights");
(4) all rights in mask works (collectively, "Rights in Mask Works");
and
(5) all know-how, trade secrets, confidential information, customer
lists, software, technical and business information and data, process
specifications, plans, diagrams, drawings, and blue prints (collectively, "Trade
Secrets");
(6) all rights of publicity and moral rights throughout the world; and
(7) any licenses of any of the foregoing pursuant to which the Company
has any right to the use or benefit of, or other rights with respect to, any of
the foregoing (other than off-the-shelf or other commercially available
software).
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(ii) Agreements. The Company is not obligated to pay royalties or license
fees to any person.
(iii) Patents.
(1) The Company is the exclusive owner of all right, title and
interest in and to each of its patents, if any, free and clear of all
encumbrances.
(2) No pending or issued patent has been or is now involved in any
interference, reissue, reexamination or opposition proceeding. There is no
potentially interfering patent or patent application of any third party.
(3) None of the Company's patents is infringed or has been challenged
or threatened in any way. None of the products or services manufactured or
provided or sold, nor any process or know-how used, by the Company infringes or
has been alleged to infringe any patent or other proprietary right of any other
person or entity.
(iv) Trademarks.
(1) The Company is the owner of all right, title and interest in and
to each of the it trademarks, serial marks or other registrations (the "Marks"),
free and clear of all encumbrances.
(2) All Marks that have been registered with the United States Patent
and Trademark Office are currently in compliance with all Legal Requirements
(including the timely post-registration filing of affidavits of use and
incontestability and renewal applications) and are valid and enforceable.
(3) No Mark has been or is now involved in any opposition,
invalidation, or cancellation and no such action is threatened with respect to
any of the Marks.
(4) There is no potentially interfering trademark or trademark
application of any third party.
(5) No Mark is infringed or has been challenged or threatened in any
way. None of the Marks used by the Company infringes or is alleged to infringe
any trade name, trademark, or service mark or designation of origin of any third
party.
(v) Copyrights.
(1) The Company is the exclusive owner of all right, title, and
interest in and to each of its copyrights, free and clear of all encumbrances.
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(2) All registered copyrights are currently in compliance with Legal
Requirements, and are valid and enforceable.
(3) None of the Company's copyrights is infringed or has been
challenged or threatened in any way. None of the subject matter of any of the
copyrights infringes or is alleged to infringe any copyright of any third party
or is a derivative work based on the work of a third party.
2.9 LITIGATION. As of the date of this Agreement, except as set forth
on Schedule 2.9, there is no suit, claim, action, proceeding or investigation
pending, or, to the Company's best knowledge, threatened against the Company.
2.10 BROKERS. No broker, finder or investment banker is entitled to
any brokerage, finder's or other fee or commission in connection with the
Transactions based upon arrangements made by or on behalf of the Company, other
than (i) Corporate Financial Enterprises, Inc., which the Company agrees to pay
$500,000 within 30 days following the Closing Date.
2.11 SHARES FULLY PAID, ETC. The shares of Preferred Stock to be sold
to Investor pursuant hereto, when issued and paid for pursuant to the terms of
this Agreement, will be duly authorized, validly issued and outstanding, fully
paid and nonassessable and shall be free and clear of all pledges, liens,
encumbrances and restrictions. The common stock issuable upon conversion of the
Preferred Stock has been reserved for issuance and when issued upon exercise in
accordance with the terms of the Preferred Stock, will be duly authorized,
validly issued and outstanding, fully paid, nonassessable and free and clear of
all pledges, liens, encumbrances and restrictions.
2.12 SHARES OF COMMON STOCK. The outstanding shares of common stock of
the Company have been issued in full compliance with the Securities Act, the
California corporations code and any other applicable blue sky laws.
2.13 NO PREEMPTIVE RIGHTS. The issuance, sale and delivery of the
Preferred Stock and the common stock into which the Preferred Stock is
convertible are not subject to any preemptive right of shareholders of the
Company arising under law or the Articles of Incorporation or Bylaws or to any
contractual right of first refusal or other contractual right in favor of any
person.
2.14 EMPLOYEE BENEFIT PLAN. Each employee benefit plan which covers
employees of the Company has been maintained in compliance in all material
respects with all applicable laws.
2.15 INSURANCE. The Company is insured with reputable insurers against
such risks and in such amounts as are prudent in accordance with industry
practices. All of the insurance policies, binders or bonds maintained by the
Company
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(the "Policies") have been maintained in accordance with their respective terms
and will remain in full force and effect after the Closing. The Company has not
received any notice of default with respect to any provision of any such
Policies.
2.16 DISCLOSURE. The information contained in the Company's
registration statement on Form 10, as filed on November 8, 1999, is true,
complete and correct in all material respects, and does not contain any untrue
statement of a material fact or any omission to state a material fact necessary
in order to make the statements made, in the light of
the circumstances under which they were made, not misleading.
SECTION III. REPRESENTATIONS OF THE INVESTOR.
INVESTOR REPRESENTS THAT:
3.1 INVESTMENT INTENT.
(a) The shares of Preferred Stock being acquired by Investor are
being acquired for investment for Investor's own account and not with the view
to, or for resale in connection with, any distribution or public offering
thereof. Such Investor understands that the shares of Preferred Stock have not
been registered under the Securities Act or any state securities laws by reason
of their contemplated issuance in transactions exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) thereof and
applicable state securities laws, and that the reliance of the Company and
others upon these exemptions is predicated in part upon this representation by
Investor. Such Investor further understands that the shares of Preferred Stock
may not be transferred or resold without (i) registration under the Securities
Act and any applicable state securities laws, or (ii) an exemption from the
requirements of the Securities Act and applicable state securities laws.
(b) Each certificate representing shares of Preferred Stock shall
be endorsed with the following legend:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED WITH
THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR WITH THE SECURITIES COMMISSION OF ANY
STATE UNDER ANY APPLICABLE STATE SECURITIES OR BLUE SKY LAWS AND
MAY NOT BE SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT OR IN A TRANSACTION EXEMPT FROM
THE REGISTRATION REQUIREMENTS OF THOSE SECURITIES LAWS.
3.2 LOCATION OF PRINCIPAL OFFICE, QUALIFICATION, ETC. The state in
which Investor's principal office (or domicile, if such Investor is an
individual) is located is California. Investor acknowledges that the Company has
made available to Investor
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at a reasonable time prior to the execution of this Agreement the
opportunity to ask questions and receive answers concerning the terms
and conditions of the sale of securities contemplated by this
Agreement and to obtain any additional information (which the Company
possesses or can acquire without unreasonable effort or expense) as
may be necessary to verify the accuracy of information furnished to
Investor. Investor (a) is able to bear the loss of its entire
investment in the shares of Preferred Stock without any material
adverse effect on its business, operations or prospects, and (b) has
such knowledge and experience in financial and business matters that
it is capable of evaluating the merits and risks of the investment to
be made by it pursuant to this Agreement.
3.3 ACTS AND PROCEEDINGS. This Agreement has been duly authorized by
all necessary action on the part of Investor, has been duty executed and
delivered by Investor, and is a valid and binding agreement of Investor.
3.4 ACCREDITED INVESTOR. The Investor is an "accredited investor"
within the meaning of Rule 501 promulgated under the Securities Act.
3.5 ORGANIZATION AND QUALIFICATION. Investor is duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and has the requisite power and authority and all necessary
governmental approvals to own, lease and operate its properties and to carry on
its business as it is now being conducted, except where the failure to be so
incorporated, existing or in good standing or to have such power, authority and
governmental approvals would not, individually or in the aggregate, have a
material adverse effect on Investor's business, operations, properties, assets,
financial condition or results of operations.
3.6 NO CONFLICT
(a) The execution and delivery of this Agreement by Investor does
not, and the performance of this Agreement by Investor will not conflict with or
violate the organizing documents of the Investor.
SECTION IV. CONDITIONS OF INVESTOR'S OBLIGATION
The obligation to purchase and pay for the shares of Preferred Stock which
Investor has agreed to purchase on the Closing Date is subject to the
fulfillment prior to or on the Closing Date, of the conditions set forth in this
Section 4.
4.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company under this Agreement which are qualified as to materiality shall
have been true and correct (as so qualified) when made and shall be true and
correct (as so qualified) at and as of the Closing Date, as if made on and as of
such date. The representations and warranties of the Company under this
Agreement which are not qualified as to materiality shall have been true and
correct in all material respects when made and shall be true and correct in all
material respects at and as of
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the Closing Date, as if made on and as of such date.
4.2 COMPLIANCE WITH AGREEMENT. The Company shall have performed and
complied with all agreements or covenants required by this Agreement to be
performed and complied with by it prior to or as of the Closing Date.
4.3 INJUNCTIONS, RESTRAINING ORDER OR ADVERSE LITIGATION. No order,
judgment or decree of any court, arbitral tribunal, administrative agency or
other governmental or regulatory authority or agency shall purport to enjoin or
restrain the Investor from acquiring the shares of Preferred Stock.
SECTION V. CONDITIONS TO COMPANY'S OBLIGATIONS
The obligation to sell the shares of Preferred Stock which the Company has
agreed to sell on the Closing Date is subject to the fulfillment prior to or
on the Closing Date of the conditions set forth in this Section 5.
5.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Investor under this Agreement shall be true and correct in all material
respects as of the Closing Date with the same effect as though made on and as of
the Closing Date.
5.2 COMPLIANCE WITH AGREEMENT. The Investor shall have performed and
complied with all agreements or covenants required by this Agreement to be
performed and complied with by it prior to or as of the Closing Date.
5.3 INJUNCTIONS, RESTRAINING ORDER OR ADVERSE LITIGATION. No order,
judgment or decree of any court, arbitral tribunal, administrative agency or
other governmental or regulatory authority or agency shall purport to enjoin or
restrain the Investor from acquiring the shares of Prefered Stock on the Closing
Date.
SECTION VI. CERTAIN COVENANTS OF THE INVESTOR AND THE COMPANY.
6.1 APPROVALS, ETC. Subject to the terms and conditions provided
herein, each of the parties hereto agrees to (i) use all reasonable efforts to
take all action and to do all other things necessary, proper or advisable to
consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement; and (ii) use all reasonable efforts to obtain
all necessary or appropriate waivers contemplated by this Agreement.
6.2 ACCESS. The Company hereby agrees that, from the date hereof until
the earlier to occur of the termination of this Agreement and the Closing Date,
the Company will grant the Investor and its representatives such access during
normal business hours as may be reasonably requested to the personnel, advisors,
properties,
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books, accounts, records, contracts and documentation of, or relating to, the
business and operations of the Company.
VII. INDEMNIFICATION; REMEDIES
7.1 SURVIVAL; RIGHT TO INDEMNIFICATION NOT AFFECTED BY KNOWLEDGE. All
representations, warranties, covenants, and obligations in this Agreement, the
Company Disclosure Letter, any supplements to the Company Disclosure Letter and
any certificate or document delivered pursuant to this Agreement will survive
the Closing for two years. The right to indemnification, payment of Damages or
other remedy based on such representations, warranties, covenants, and
obligations will not be affected by any investigation conducted with respect to,
or any knowledge acquired (or capable of being acquired) at any time, whether
before or after the execution and delivery of this Agreement or the Closing
Date, with respect to the accuracy or inaccuracy of or compliance with, any such
representation, warranty, covenant, or obligation. The waiver of any condition
based on the accuracy of any representation or warranty, or on the performance
of or compliance with any covenant or obligation, will not affect the right to
indemnification, payment of Damages, or other remedy based on such
representations, warranties, covenants, and obligations.
7.2 INDEMNIFICATION AND PAYMENT OF DAMAGES. Each Party (an "Indemnifying Party")
will indemnify and hold harmless the other parties and their respective
representatives, stockholders, controlling persons, and affiliates
(collectively, the "Indemnified Persons") for, and will pay to the Indemnified
Persons the amount of, any loss, liability, claim, damage (including incidental
and consequential damages), expense (including costs of investigation and
defense and reasonable attorneys' fees) or diminution of value, whether or not
involving a third-party claim (collectively, "Damages"), arising, directly or
indirectly, from or in connection with:
(a) any breach of any representation or warranty made by the Indemnifying
Party in this Agreement, or any schedule, certificate or document
delivered by the Indemnifying Party pursuant to this Agreement;
(b) any breach of any representation or warranty made by the Indemnifying
Party in this Agreement as if such representation or warranty were
made on and as of the Closing Date;
(c) any breach by the Indemnifying Party of any of its covenants or
obligations in this Agreement;
(d) any claim by any Person for brokerage or finder's fees or commissions
or similar payments based upon any agreement or understanding alleged
to have been made by any such Person with the Company (or any person
acting on its behalf) in connection with any of the Transactions.
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The remedies provided in this Section 7.2 will not be exclusive of or limit any
other remedies that may be available to Investor or the other Indemnified
Persons.
7.3 PROCEDURE FOR INDEMNIFICATION--THIRD PARTY CLAIMS
(a) Promptly after receipt by an indemnified party under this Section 7 of
notice of the commencement of any action, arbitration, audit, hearing,
investigation, litigation, or suit (whether civil, criminal,
administrative, investigative, or informal) commenced or brought
against it (a "Proceeding"), such indemnified party will, if a claim
is to be made against an Indemnifying Party under such Section, give
notice to the Indemnifying Party of the commencement of such claim,
but the failure to notify the Indemnifying Party will not relieve the
Indemnifying Party of any liability that it may have to any
indemnified party, except to the extent that the Indemnifying Party
demonstrates that the defense of such action is prejudiced by the
Indemnifying Party's failure to give such notice.
(b) If any Proceeding referred to in Section 7.3(a) is brought against an
indemnified party and it gives notice to the Indemnifying Party of the
commencement of such Proceeding, the Indemnifying Party will be
entitled to participate in such Proceeding and, to the extent that it
wishes (unless (i) the Indemnifying Party is also a party to such
Proceeding and the indemnified party determines in good faith that
joint representation would be inappropriate, or (ii) the Indemnifying
Party fails to provide reasonable assurance to the indemnified party
of its financial capacity to defend such Proceeding and provide
indemnification with respect to such Proceeding), to assume the
defense of such Proceeding with counsel satisfactory to the
indemnified party and, after notice from the Indemnifying Party to the
indemnified party of its election to assume the defense of such
Proceeding, the Indemnifying Party will not, as long as it diligently
conducts such defense, be liable to the indemnified party under this
Section 7 for any fees of other counsel or any other expenses with
respect to the defense of such Proceeding, in each case subsequently
incurred by the indemnified party in connection with the defense of
such Proceeding, other than reasonable costs of investigation. If the
Indemnifying Party assumes the defense of a Proceeding, (i) it will be
conclusively established for purposes of this Agreement that the
claims made in that Proceeding are within the scope of and subject to
indemnification; (ii) no compromise or settlement of such claims may
be effected by the Indemnifying Party without the indemnified party's
consent unless (1) there is no finding or admission of any violation
of law, statute, rule, regulation, order or decree or any violation of
the rights of any person or entity and no effect on any other claims
that may be made against the indemnified party, and (2) the sole
relief provided is monetary damages that are paid in full by the
Indemnifying Party; and (iii) the indemnified
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party will have no liability with respect to any compromise or
settlement of such claims effected without its consent. If notice is
given to an Indemnifying Party of the commencement of any Proceeding
and the Indemnifying Party does not, within ten days after the
indemnified party's notice is given, give notice to the indemnified
party of its election to assume the defense of such Proceeding, the
Indemnifying Party will be bound by any determination made in such
Proceeding or any compromise or settlement effected by the indemnified
party.
(c) Notwithstanding the foregoing, if an indemnified party determines in
good faith that there is a reasonable probability that a Proceeding
may adversely affect it or its affiliates, the indemnified party may,
by notice to the Indemnifying Party, assume the exclusive right to
defend, compromise, or settle such Proceeding, but the Indemnifying
Party will not be bound by any determination of a Proceeding so
defended or any compromise or settlement effected without its consent
(which may not be unreasonably withheld).
(d) the Company hereby consents to the non-exclusive jurisdiction of any
court in which a Proceeding is brought against any Indemnified Person
for purposes of any claim that an Indemnified Person may have under
this Agreement with respect to such Proceeding or the matters alleged
therein, and agree that process may be served on the Company with
respect to such a claim anywhere in the world.
7.4 PROCEDURE FOR INDEMNIFICATION--OTHER CLAIMS. A claim for indemnification for
any matter not involving a third-party claim may be asserted by notice to the
party from whom indemnification is sought.
SECTION VIII. MISCELLANEOUS.
8.1 NO WAIVERS; CUMULATIVE REMEDIES. No failure or delay on the part
of the Investor in exercising any right, power or remedy hereunder or under any
Transaction Document shall operate as waiver thereof; nor shall any single or
partial exercise of any such right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right, power or remedy
hereunder or thereunder. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.
8.2 CHANGES, WAIVERS, ETC. Neither this Agreement nor any provision
hereof may be changed, waived, discharged or terminated orally, but only by a
statement in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought.
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8.3 EXPENSES. Each party shall pay its own expenses in connection with
the Transactions contemplated hereby and by the Transaction Documents.
8.4 NOTICES. All notices, requests, consents and other communications
required or permitted hereunder shall be in writing and shall be delivered, or
mailed first-class postage prepaid, registered or certified mail.
(a) if to Investor, addressed to such Investor at its address as
shown on the books of the Company, or at such other address as such holder may
specify by written notice to the Company; or
(b) if to the Company, at
eSat, Inc.
16250 Harbor Blvd., Bldg G
Fountain Valley, California 92708
Telecopier: (714) 895-2977
Attention: Chief Executive Officer
, or; or at such other address as the Company may specify by written notice to
the Investor.
8.5 ASSIGNMENT.
(a) This Agreement and all of the provisions hereof will be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
(b) Investor may assign its rights under this Agreement to any of
its affiliates.
8.6 SEVERABILITY. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
8.7 ENTIRE AGREEMENT. This Agreement and exhibits and schedules hereto
and the other Transaction Documents contain the entire agreement between the
parties and supersede any prior understandings, agreements or representations by
or between the parties, written or oral, which may have related to the subject
matter hereof in any way.
8.8 GOVERNING LAW. The internal law, without regard to conflicts of
laws principles, of the State of California shall govern all questions
concerning the construction, validity and interpretation of this Agreement and
the performance of the obligations imposed by this Agreement.
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8.9 COUNTERPARTS. This Agreement may be executed concurrently in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the Company and the Investor have caused this Agreement
to be executed by its duly authorized representative.
THE COMPANY: INVESTOR:
eSat, Inc. AMERICAN EQUITIES, LLC
By: By:
---------------------------------- -------------------------------------
Michael Palmer Reid Breitman
President Managing Member
CORPORATE FINANCIAL ENTERPRISES, INC.
By:
-------------------------------------
Name: Regis Possino
Title: President
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<PAGE> 1
EXHIBIT 10.12
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, dated as of the date of
acceptance set forth below, is entered into by and between ESAT, INC., a Nevada
corporation, with headquarters located at 16520 Harbor Boulevard, Bldg. G,
Fountain Valley, California 92708(the "Company"), and each entity named on a
signature page hereto (each, a "Buyer") (each agreement with a Buyer being
deemed a separate and independent agreement between the Company and such Buyer,
except that each Buyer acknowledges and consents to the rights granted to each
other Buyer under such agreement and the Transaction Agreements, as defined
below, referred to therein).
W I T N E S S E T H:
WHEREAS, the Company and the Buyer are executing and delivering
this Agreement in accordance with and in reliance upon the exemption from
securities registration afforded, inter alia, by Rule 506 under Regulation D
("Regulation D") as promulgated by the United States Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as amended (the "1933
Act"), and/or Section 4(2) of the 1933 Act; and
WHEREAS, the Buyer wishes to purchase, upon the terms and subject
to the conditions of this Agreement, Series C 6% Convertible Preferred Stock of
the Company (the "Convertible Preferred Stock") which will be convertible into
shares of Common Stock, $.001 par value per share, of the Company (the "Common
Stock"), upon the terms and subject to the conditions of such Convertible
Preferred Stock , together with the Warrants (as defined below) exercisable for
the purchase of shares of Common Stock, and subject to acceptance of this
Agreement by the Company;
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE.
a. PURCHASE.
(i) The undersigned hereby agrees to purchase from the Company
Convertible Preferred Stock in the principal amount set forth on the signature
page of this Agreement (the "Preferred Stock") out of a total offering of not
more than $5,000,000 of such Convertible Preferred Stock, and having the terms
and conditions and being in the form attached hereto as ANNEX I(A).
(ii) Subject to the terms and conditions of this Agreement and
the other
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Transaction Agreements, the Buyer will purchase (x) the Preferred Stock on the
Closing Date (as defined below).
(iii) The purchase price to be paid by the Purchaser shall be
equal to the face amount of the Preferred Stock being purchased on the relevant
Closing Date (as defined below) and shall be payable in United States Dollars.
b. CERTAIN DEFINITIONS. As used herein, each of the following
terms has the meaning set forth below, unless the context otherwise requires:
(i) "Preferred Stock" means all or any portion of the Preferred
Stock.
(ii) "Securities" means the Preferred Stock, the Warrants and the
Common Stock issuable upon conversion of the Preferred Stock or the exercise of
the Warrants.
(iii) "Purchase Price" means the purchase price for the Preferred
Stock.
(iv) " Closing Date" means the date of the closing of the
purchase and sale of the Preferred Stock, as provided herein.
(v) "Closing Date" means the Closing Date.
(vi) "Effective Date" means the effective date of the
Registration Statement covering the Registrable Securities (as those terms are
defined in the Registration Rights Agreement defined below) for the Preferred
Stock and Warrants issued on the Closing Date.
(vii) "Market Price of the Common Stock" means (x) the closing
bid price of the Common Stock for the trading day ending on the trading day
immediately before the relevant date indicated in the relevant provision hereof
(unless a different relevant period is specified in the relevant provision), as
reported by Bloomberg, LP or, if not so reported, as reported on the
over-the-counter market or (y) if the Common Stock is listed on a stock
exchange, the closing price on such exchange on the trading day immediately
before the relevant date indicated in the relevant provision hereof (unless a
different relevant period is specified in the relevant provision), as reported
in The Wall Street Journal.
(xi) "Converted Shares" means the shares of Common Stock issuable
upon conversion of the Preferred Stock.
(xii) "Warrant Shares" means the shares of Common Stock issuable
upon exercise of the Warrants.
(xiii) "Shares" means the shares of Common Stock representing any
or all of the Converted Shares and the Warrant Shares.
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(xiv) "Certificates" means the relevant Preferred Stock and the
relevant Warrants, each duly executed on behalf of the Company and issued in the
name of the Buyer.
(xv) "Person" means any living person or any entity, such as, but
not necessarily limited to, a corporation, partnership or trust.
(xvi) "Affiliate" means, with respect to a specific Person
referred to in the relevant provision, another Person who or which controls or
is controlled by or is under common control with such specified Person.
(xvii) "Transaction Documents means the Securities Purchase
Agreement, the Registration Rights Agreement, the Warrant, and the Certificate
of Designations.
c. FORM OF PAYMENT; DELIVERY OF CERTIFICATES.
(i) The Buyer shall pay the Purchase Price for the relevant
Preferred Stock by delivering immediately available good funds in United States
Dollars to the escrow agent (the "Escrow Agent") identified in the Joint Escrow
Instructions attached hereto as Annex II (the "Joint Escrow Instructions") on
the date prior to the relevant Closing Date.
(ii) No later than the relevant Closing Date, but in any event
promptly following payment by the Buyer to the Escrow Agent of the relevant
Purchase Price, the Company shall deliver the relevant Certificates to the
Escrow Agent.
(iii) By signing this Agreement, each of the Buyer and the
Company, subject to acceptance by the Escrow Agent, agrees to all of the terms
and conditions of, and becomes a party to, the Joint Escrow Instructions, all of
the provisions of which are incorporated herein by this reference as if set
forth in full.
d. METHOD OF PAYMENT. Payment into escrow of the Purchase Price
shall be made by wire transfer of funds to:
Bank of New York
350 Fifth Avenue
New York, New York 10001
ABA# 021000018
For credit to the account of Krieger & Prager, Esqs.
Account No.: [To be provided by Krieger & Prager]
Re: ESAT, Inc.
Not later than 5:00 p.m., New York time, on the date which is seven (7) New York
Stock Exchange trading days after the Company shall have accepted this Agreement
and returned a signed counterpart of this Agreement to the Escrow Agent by
facsimile, the Buyer shall deposit
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with the Escrow Agent the Purchase Price for the Preferred Stock in currently
available funds. Time is of the essence with respect to such payment, and
failure by the Buyer to make such payment, shall allow the Company to cancel
this Agreement.
e. ESCROW PROPERTY. The Purchase Price and the Certificates
delivered to the Escrow Agent as contemplated by Sections 1(c) and (d) hereof
are referred to as the "Escrow Property."
2. BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO
INFORMATION; INDEPENDENT INVESTIGATION.
The Buyer represents and warrants to, and covenants and agrees
with, the Company as follows:
a. Without limiting Buyer's right to sell the Common Stock
pursuant to the Registration Statement, the Buyer is purchasing the Preferred
Stock and the Warrants and will be acquiring the Shares for its own account for
investment only and not with a view towards the public sale or distribution
thereof and not with a view to or for sale in connection with any distribution
thereof.
b. The Buyer is (i) an "accredited investor" as that term is
defined in Rule 501 of the General Rules and Regulations under the 1933 Act by
reason of Rule 501(a)(3), (ii) experienced in making investments of the kind
described in this Agreement and the related documents, (iii) able, by reason of
the business and financial experience of its officers (if an entity) and
professional advisors (who are not affiliated with or compensated in any way by
the Company or any of its affiliates or selling agents), to protect its own
interests in connection with the transactions described in this Agreement, and
the related documents, and (iv) able to afford the entire loss of its investment
in the Securities.
c. All subsequent offers and sales of the Preferred Stock and the
Shares by the Buyer shall be made pursuant to registration of the Shares under
the 1933 Act or pursuant to an exemption from registration.
d. The Buyer understands that the Preferred Stock is being
offered and sold to it in reliance on specific exemptions from the registration
requirements of United States federal and state securities laws and that the
Company is relying upon the truth and accuracy of, and the Buyer's compliance
with, the representations, warranties, agreements, acknowledgments and
understandings of the Buyer set forth herein in order to determine the
availability of such exemptions and the eligibility of the Buyer to acquire the
Preferred Stock.
e. The Buyer and its advisors, if any, have been furnished with
or have been given access to all materials relating to the business, finances
and operations of the Company and materials relating to the offer and sale of
the Preferred Stock and the offer of the Shares which have been requested by the
Buyer, including ANNEX V hereto. The Buyer and its advisors, if any, have been
afforded the opportunity to ask questions of the Company and have received
complete
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<PAGE> 5
and satisfactory answers to any such inquiries. Without limiting the
generality of the foregoing, the Buyer has also had the opportunity to obtain
and to review the Company's Form 10-SB Registration Statement (the "Company's
SEC Documents").
f. The Buyer understands that its investment in the Securities
involves a high degree of risk.
g. The Buyer understands that no United States federal or state
agency or any other government or governmental agency has passed on or made any
recommendation or endorsement of the Securities.
h. This Agreement has been duly and validly authorized, executed
and delivered on behalf of the Buyer and is a valid and binding agreement of the
Buyer enforceable in accordance with its terms, subject as to enforceability to
general principles of equity and to bankruptcy, insolvency, moratorium and other
similar laws affecting the enforcement of creditors' rights generally.
i. The Buyer is a corporation duly organized, validly existing
and in good standing under the laws of the Cayman Islands and has the requisite
corporate power to own its properties and to carry on its business as now being
conducted. The Buyer is duly qualified as a foreign corporation to do business
and is in good standing in each jurisdiction where the nature of the business
conducted or property owned by it makes such qualification necessary, other than
those jurisdictions in which the failure to so qualify would not have a material
adverse effect on the business, operations or condition (financial or otherwise)
or results of operations of the Company and its subsidiaries taken as a whole.
j. Buyer is a "sophisticated investor" (as described in Rule
506(b)(2)(ii) of Regulation D) and an "accredited investor" (as defined in Rule
501(a) of Regulation D), and Purchaser has such knowledge and experience in
business and financial matters that it is capable of evaluating the merits and
risks of an investment in the Company's securities.
k. The Buyer expressly agrees that that until all of the
Preferred Stock shall have been converted, the Buyer shall not engage in short
sales of the Common Stock of the Company. The Buyer acknowledges that purchases,
sales and other transactions may be subject to various federal and state
securities laws and agrees to comply with all such applicable securities laws.
3. COMPANY REPRESENTATIONS, ETC. The Company represents and
warrants to the Buyer that, except as provided in ANNEX V hereto:
a. CONCERNING THE PREFERRED STOCK AND THE SHARES. There are no
preemptive rights of any stockholder of the Company, as such, to acquire the
Preferred Stock, the Warrants or the Shares.
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<PAGE> 6
b. REPORTING COMPANY STATUS. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the requisite corporate power to own its properties and to
carry on its business as now being conducted. The Company is duly qualified as a
foreign corporation to do business and is in good standing in each jurisdiction
where the nature of the business conducted or property owned by it makes such
qualification necessary, other than those jurisdictions in which the failure to
so qualify would not have a material adverse effect on the business, operations
or condition (financial or otherwise) or results of operation of the Company and
its subsidiaries taken as a whole. The Company has filed a Form 10-SB to
register its Common Stock pursuant to Section 12 of the 1934 Act, and the Common
Stock is listed and traded on The NASDAQ/Bulletin Board Market. The Company has
received no notice, either oral or written, with respect to the continued
eligibility of the Common Stock for such listing, and the Company has maintained
all requirements for the continuation of such listing.
c. AUTHORIZED SHARES. The authorized capital stock of the Company
consists of (i) 50,000,00 shares of Common Stock, $.001 par value per share, of
which approximately 18,191,062 had been issued as of December 20, 1999 and
(ii) 10,000,000 shares of Preferred Stock with rights, preferences and
limitations to be determined by the Board of Directors of the Company, of which
the Series A and Series B have been authorized for a total of 2,000,000 shares.
As of the date of this Agreement, there are no shares of Preferred Stock issued.
All issued and outstanding shares of Common Stock have been duly authorized and
validly issued and are fully paid and nonassessable. The Company has sufficient
authorized and unissued shares of Common Stock as may be necessary to effect the
issuance of the Shares. The Shares have been duly authorized and, when issued
upon conversion of, or as interest on, the Preferred Stock or upon exercise of
the Warrants, each in accordance with its respective terms, will be duly and
validly issued, fully paid and non- assessable and will not subject the holder
thereof to personal liability by reason of being such holder.
d. SECURITIES PURCHASE AGREEMENT; REGISTRATION RIGHTS AGREEMENT
AND STOCK. This Agreement and the Registration Rights Agreement, the form of
which is attached hereto as ANNEX IV (the "Registration Rights Agreement"), and
the transactions contemplated thereby, have been duly and validly authorized by
the Company, this Agreement has been duly executed and delivered by the Company
and this Agreement is, and the Preferred Stock, the Warrants and the
Registration Rights Agreement, when executed and delivered by the Company, will
be, valid and binding agreements of the Company enforceable in accordance with
their respective terms, subject as to enforceability to general principles of
equity and to bankruptcy, insolvency, moratorium, and other similar laws
affecting the enforcement of creditors' rights generally.
e. NON-CONTRAVENTION. The execution and delivery of this
Agreement and the Registration Rights Agreement by the Company, the issuance of
the Securities, and the consummation by the Company of the other transactions
contemplated by this Agreement, the Registration Rights Agreement, and the
Preferred Stock do not and will not conflict with or result in a breach by the
Company of any of the terms or provisions of, or constitute a default
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<PAGE> 7
under (i) the articles of incorporation or by-laws of the Company, each as
currently in effect, (ii) any indenture, mortgage, deed of trust, or other
material agreement or instrument to which the Company is a party or by which it
or any of its properties or assets are bound, including any listing agreement
for the Common Stock except as herein set forth, (iii) to its knowledge, any
existing applicable law, rule, or regulation or any applicable decree, judgment,
or order of any court, United States federal or state regulatory body,
administrative agency, or other governmental body having jurisdiction over the
Company or any of its properties or assets, or (iv) the Company's listing
agreement for its Common Stock, except such conflict, breach or default which
would not have a material adverse effect on the business, operations or
condition (financial or otherwise) or results of operations of the Company and
its subsidiaries, taken as a whole, or on the transactions contemplated herein.
f. APPROVALS. No authorization, approval or consent of any court,
governmental body, regulatory agency, self-regulatory organization, or stock
exchange or market or the stockholders of the Company is required to be obtained
by the Company for the issuance and sale of the Securities to the Buyer as
contemplated by this Agreement, except such authorizations, approvals and
consents that have been obtained.
g. SEC FILINGS. None of the Company's SEC Documents contained, at
the time they were filed, any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary to make the
statements made therein in light of the circumstances under which they were
made, not misleading. The Company has since November 1, 1999 timely filed all
requisite forms, reports and exhibits thereto with the SEC.
h. ABSENCE OF CERTAIN CHANGES. Since December 31, 1998, there has
been no material adverse change and no material adverse development in the
business, properties, operations, condition (financial or otherwise), or results
of operations of the Company, except as disclosed in the Company's SEC
Documents. Since December 31, 1998, except as provided in the Company's SEC
Documents, the Company has not (i) incurred or become subject to any material
liabilities (absolute or contingent) except liabilities incurred in the ordinary
course of business consistent with past practices; (ii) discharged or satisfied
any material lien or encumbrance or paid any material obligation or liability
(absolute or contingent), other than current liabilities paid in the ordinary
course of business consistent with past practices; (iii) declared or made any
payment or distribution of cash or other property to stockholders with respect
to its capital stock, or purchased or redeemed, or made any agreements to
purchase or redeem, any shares of its capital stock; (iv) sold, assigned or
transferred any other tangible assets, or canceled any debts or claims, except
in the ordinary course of business consistent with past practices; (v) suffered
any substantial losses or waived any rights of material value, whether or not in
the ordinary course of business, or suffered the loss of any material amount of
existing business; (vi) made any changes in employee compensation, except in the
ordinary course of business consistent with past practices; or (vii) experienced
any material problems with labor or management in connection with the terms and
conditions of their employment.
i. FULL DISCLOSURE. There is no fact known to the Company (other
than
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<PAGE> 8
general economic conditions known to the public generally or as disclosed in the
Company's SEC Documents) that has not been disclosed in writing to the Buyer
that (i) would reasonably be expected to have a material adverse effect on the
business or condition of the Company (financial or otherwise) or results of
operations of the Company and its subsidiaries, taken as a whole , (ii) would
reasonably be expected to materially and adversely affect the ability of the
Company to perform its obligations pursuant to this Agreement or any of the
agreements contemplated hereby (collectively, including this Agreement, the
"Transaction Agreements"), or (iii) would reasonably be expected to materially
and adversely affect the value of the rights granted to the Buyer in the
Transaction Agreements.
j. ABSENCE OF LITIGATION. Except as set forth in the Company's
SEC Documents, there is no action, suit, proceeding, inquiry or investigation
before or by any court, public board or body pending or, to the knowledge of the
Company, threatened against or affecting the Company, wherein an unfavorable
decision, ruling or finding would have a material adverse effect on the
properties, business or financial condition, or results of operation of the
Company and its subsidiaries taken as a whole or the transactions contemplated
by any of the Transaction Agreements or which would adversely affect the
validity or enforceability of, or the authority or ability of the Company to
perform its obligations under, any of the Transaction Agreements.
k. ABSENCE OF EVENTS OF DEFAULT. Except as set forth in Section
3(e) hereof, no Event of Default (or its equivalent term), as defined in the
respective agreement to which the Company is a party, and no event which, with
the giving of notice or the passage of time or both, would become an Event of
Default (or its equivalent term) (as so defined in such agreement), has occurred
and is continuing, which would have a material adverse effect on the business,
operations or the condition (financial or otherwise) or results of operations of
the Company and its subsidiaries, taken as a whole.
l. PRIOR ISSUES. During the twelve (12) months preceding the date
hereof, the Company has not issued any convertible securities or, except as
provided in the Company's SEC Documents, any shares of the Common Stock or
Preferred Stock.
m. NO UNDISCLOSED LIABILITIES OR EVENTS. The Company has no
liabilities or obligations other than those disclosed in the Company's SEC
Documents or those incurred in the ordinary course of the Company's business
since December 31, 1998, and which individually or in the aggregate, do not or
would not have a material adverse effect on the properties, business, condition
(financial or otherwise), or results of operations of the Company and its
subsidiaries, taken as a whole. No event or circumstances has occurred or exists
with respect to the Company or its properties, business, condition (financial or
otherwise), or results of operations, which, under applicable law, rule or
regulation, requires public disclosure or announcement prior to the date hereof
by the Company but which has not been so publicly announced or disclosed. Except
for mergers or acquisitions requiring the issuance of common stock and/or
preferred stock, there are no proposals currently under consideration or
currently anticipated to be under consideration by the Board of Directors or the
executive officers of the Company which proposal would (x)
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change the certificate of incorporation or other charter document or by-laws of
the Company, each as currently in effect, with or without shareholder approval,
which change would reduce or otherwise adversely affect the rights and powers of
the shareholders of the Common Stock or (y) materially or substantially change
the business, assets or capital of the Company, including its interests in
subsidiaries.
n. NO DEFAULT. The Company is not in default in the performance
or observance of any material obligation, agreement, covenant or condition
contained in any material indenture, mortgage, deed of trust or other material
instrument or agreement to which it is a party or by which it or its property is
bound.
o. NO INTEGRATED OFFERING. Neither the Company nor any of its
affiliates nor any person acting on its or their behalf has, directly or
indirectly, at any time since November 1, 1999, made any offer or sales of any
security or solicited any offers to buy any security under circumstances that
would eliminate the availability of the exemption from registration under Rule
506 of Regulation D in connection with the offer and sale of the Securities as
contemplated hereby.
p. DILUTION. The number of Shares issuable upon conversion of the
Preferred Stock and the exercise of the Warrants may increase substantially in
certain circumstances, including, but not necessarily limited to, the
circumstance wherein the trading price of the Common Stock declines prior to the
conversion of the Preferred Stock. The Company's executive officers and
directors have studied and fully understand the nature of the Securities being
sold hereby and recognize that they have a potential dilutive effect. The board
of directors of the Company has concluded, in its good faith business judgment,
that such issuance is in the best interests of the Company. The Company
specifically acknowledges that its obligation to issue the Shares upon
conversion of the Preferred Stock and upon exercise of the Warrants is binding
upon the Company and enforceable regardless of the dilution such issuance may
have on the ownership interests of other shareholders of the Company.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
a. TRANSFER RESTRICTIONS. The Buyer acknowledges that (1) the
Preferred Stock have not been and are not being registered under the provisions
of the 1933 Act and, except as provided in the Registration Rights Agreement,
the Shares have not been and are not being registered under the 1933 Act, and
may not be transferred unless (A) subsequently registered thereunder or (B) the
Buyer shall have delivered to the Company an opinion of counsel, reasonably
satisfactory in form, scope and substance to the Company, to the effect that the
Securities to be sold or transferred may be sold or transferred pursuant to an
exemption from such registration; (2) any sale of the Securities made in
reliance on Rule 144 promulgated under the 1933 Act may be made only in
accordance with the terms of said Rule and further, if said Rule is not
applicable, any resale of such Securities under circumstances in which the
seller, or the person through whom the sale is made, may be deemed to be an
underwriter, as that term is used in the 1933 Act, may require compliance with
some other exemption under the 1933 Act or
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the rules and regulations of the SEC thereunder; and (3) neither the Company nor
any other person is under any obligation to register the Securities (other than
pursuant to the Registration Rights Agreement) under the 1933 Act or to comply
with the terms and conditions of any exemption thereunder.
b. RESTRICTIVE LEGEND. The Buyer acknowledges and agrees that the
Preferred Stock and the Warrants, and, until such time as the Common Stock has
been registered under the 1933 Act as contemplated by the Registration Rights
Agreement and sold in accordance with an effective Registration Statement,
certificates and other instruments representing any of the Securities shall bear
a restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of any such Securities):
THESE SECURITIES (THE "SECURITIES") HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE
SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OFFERED FOR SALE IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES OR AN OPINION
OF COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO THE CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED.
c. REGISTRATION RIGHTS AGREEMENT. The parties hereto agree to
enter into the Registration Rights Agreement on or before the Closing Date.
d. FILINGS. The Company undertakes and agrees to make all
necessary filings in connection with the sale of the Securities to the Buyer
under any United States laws and regulations applicable to the Company, or by
any domestic securities exchange or trading market, and to provide a copy
thereof to the Buyer promptly after such filing.
e. REPORTING STATUS. So long as the Buyer beneficially owns any
of the Securities, the Company shall file all reports required to be filed with
the SEC pursuant to Section 13 or 15(d) of the 1934 Act, and the Company shall
not terminate its status as an issuer required to file reports under the 1934
Act even if the 1934 Act or the rules and regulations thereunder would permit
such termination. The Company will take all reasonable action under its control
to obtain and to continue the listing and trading of its Common Stock
(including, without limitation, all Registrable Securities) on The
NASDAQ/Bulletin Board Market and will comply in all material respects with the
Company's reporting, filing and other obligations under the by-laws or rules of
the National Association of Securities Dealers, Inc. ("NASD") or The
NASDAQ/Bulletin Board Market.
f. USE OF PROCEEDS. The Buyer acknowledges that the Company
intends to make acquisitions or effect mergers subsequent to the execution of
this Agreement. Accordingly, the Company will use the proceeds from the sale of
the Preferred Stock (excluding amounts paid by the Company for legal fees,
finder's fees and escrow fees in connection with the sale of the Preferred
Stock) for cash deposits associated with such acquisitions or mergers and for
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internal working capital purposes. Except for the express purposes detailed in
this section 4f, unless specifically consented to in advance in each instance by
the Buyer, the Company shall not, directly or indirectly, use such proceeds for
any loan to or investment in any other corporation, partnership enterprise or
other person or for the repayment of any outstanding loan by the Company to any
other party.
g. CERTAIN AGREEMENTS. (i) The Company covenants and agrees that
it will not, without the prior written consent of the Buyer, enter into any
subsequent or further offer or sale of Common Stock or securities convertible
into Common Stock (collectively, "New Common Stock") with any third party
pursuant to a transaction which in any manner permits the sale of the New Common
Stock on any date which is earlier than one hundred twenty (120) days from the
last day of the calendar month in which the Effective Date occurs.
(ii) The provisions of subparagraph (g)(i) will not apply to (w)
Common Stock issued pursuant to an exemption from registration under the
Securities Act of 1933 other than pursuant to Regulation S; (x) an underwritten
public offering of shares of Common Stock or Preferred Stock; (y) an offering of
convertible Preferred Stock at market or above; or (z) the issuance of
securities (other than for cash) in connection with an acquisition, merger,
consolidation, sale of assets, disposition or the exchange of the capital stock
for assets, stock or other joint venture interests.
(iii) By the Closing Date, the Company shall obtain the agreement
(each, a "Principal's Agreement") of each of its Principals (as defined below)
that, without the prior written consent of the Buyer in each instance, such
Principal will not sell or otherwise transfer or offer to sell or otherwise
transfer any shares of Common Stock directly or indirectly held by such
Principal prior to one hundred twenty (120) days after the Effective Date. Each
such Principal's Agreement shall (w) specify that it is entered into as an
inducement to the Buyer's execution, delivery and performance of this Agreement,
(x) name the Buyer as a third party beneficiary thereof, (y) acknowledge that
the Company's transfer agent will be provided with instructions that transfers
by a Principal require the consent of the Company and the Buyer, and (z)
contemplate that, in addition to any other damages or remedies that may be
appropriate, the Principal's Agreement shall be enforceable by injunction sought
by the Company and the Buyer or any one or more of them. A "Corporate Principal"
is a person who meets any one or more of the following criteria: (A) a person
who is a director or principal officer of the Company (each, a "Company
Principal") and who, directly or indirectly, holds in excess of five (5%)
percent of any shares of Common Stock of the Company (each, a "Company
Principal"); (B) a spouse of a Company Principal (a "Principal's Spouse") who,
directly or indirectly, holds any shares of Common Stock of the Company, (C) a
parent or child of a Company Principal who resides in the household of a Company
Principal or of a Principal's Spouse (each, a "Principal's Relative") and who,
directly or indirectly, holds any shares of Common Stock, or (D) any other
person or entity, including, without limitation, for profit or non-profit
corporations, partnerships and trusts, whose voting rights regarding Common
Stock of the Company is subject to the direction, control or other influence of
any Company Principal, Principal's Spouse, or Principal's Relative.
(iv) In the event the Company breaches the provisions of this
Section 4(g), the
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<PAGE> 12
Conversion Rate (as defined in the Certificate of Designations) shall be amended
to be equal to (x) 90% of (y) the amount determined in accordance with the
provisions of the Preferred Stock without regard to this provision, and the
Purchaser may require the Company to immediately redeem all outstanding
Preferred Stock in accordance with Section 4(j)(y) hereof.
h. AVAILABLE SHARES. The Company shall have at all times
authorized and reserved for issuance, free from preemptive rights, shares of
Common Stock sufficient to yield two hundred percent (200%) of the number of
shares of Common Stock issuable (i) at conversion as may be required to satisfy
the conversion rights of the Buyer pursuant to the terms and conditions of the
Preferred Stock which have been issued and not yet converted, and (ii) upon
exercise as may be required to satisfy the exercise rights of the Buyer pursuant
to the terms and conditions of the Warrants which have been issued and not yet
converted.
i. WARRANTS. The Company agrees to issue to the Buyer on each
Closing Date transferable, divisible warrants with cashless exercise rights (the
"Warrants") for the purchase of one (1) share of Common Stock for every 6.66
shares into which the Preferred Stock purchased by the Buyer are convertible
into on the Closing Date. Fractional shares shall be rounded up to the next
highest share. The Warrants shall bear an exercise price equal to one hundred
twenty-five percent (125%) of the Market Price of the Common Stock on the
relevant Closing Date. The Warrants will expire on the last day of the month in
which the fifth anniversary of the relevant Closing Date occurs. The Warrants
shall be in the form annexed hereto as ANNEX VI, together with registration
rights as provided in the Registration Rights Agreement and piggy-back
registration after the expiration of the effectiveness of the Registration
Statement contemplated by the Registration Rights Agreement.
j. LIMITATION ON ISSUANCE OF SHARES. The Company may be limited
in the number of shares of Common Stock it may issue by virtue of (i) the number
of authorized shares or (ii) the applicable rules and regulations of the
principal securities market on which the Common Stock is listed or traded,
including, but not necessarily limited to, NASDAQ Rule 4310(c)(25)(H)(i)(d)(2)
(collectively, the "Cap Regulations"). Without limiting the other provisions
thereof, the Certificate of Designations shall provide that (i) the Company will
take all steps reasonably necessary to be in a position to issue shares of
Common Stock on conversion of the Preferred Stock without violating the Cap
Regulations and (ii) if, despite taking such steps, the Company still can not
issue such shares of Common Stock without violating the Cap Regulations, the
holder of a Preferred Stock which can not be converted as result of the Cap
Regulations (each such Preferred Stock, an "Unconverted Preferred Stock") shall
have the option, exercisable in such holder's sole and absolute discretion, to
elect either of the following remedies:
(x) if permitted by the Cap Regulations, require the
Company to issue (x) shares of Common Stock in accordance with such
holder's notice of conversion at a conversion purchase price equal to
the average of the closing bid price per share of Common Stock for any
five (5) consecutive trading days (subject to certain equitable
adjustments for certain events occurring during such period) during the
sixty (60) trading days immediately preceding the date of
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<PAGE> 13
notice of conversion; or
(y) require the Company to redeem each Unconverted
Preferred Stock (y) for an amount (the "Redemption Amount") as set forth
in the Certificate of Designations.
A holder of an Unconverted Preferred Stock may elect one of the above remedies
with respect to a portion of such Unconverted Preferred Stock and the other
remedy with respect to other portions of the Unconverted Preferred Stock. The
Certificate of Designations shall contain provisions substantially consistent
with the above terms, with such additional provisions as may be consented to by
the Buyer. The provisions of this paragraph are not intended to limit the scope
of the provisions otherwise included in the Certificate of Designations.
k. RIGHT OF FIRST REFUSAL, SPECIAL DILUTION PROTECTION.
(i) The Company covenants and agrees that if during the period
from the date hereof through and including the date which is thirty (30) days
after the first closing of the purchase of Common Stock pursuant to the Letter
of Intent dated December 27, 1999 between the Company and the Buyer, the Company
offers to enters into any transaction (a "New Transaction") for the sale of New
Common Stock, the Company shall notify the Buyer in writing of all of the terms
of such offer (a "New Transaction Offer"). The Buyer shall have the right (the
"Right of First Refusal"), exercisable by written notice given to the Company by
the close of business on the fifth business day after the Buyer's receipt of the
New Transaction Offer (the "Right of First Refusal Expiration Date"), to
participate in all or any part of the New Transaction Offer on the terms so
specified.
(ii) If, and only if, the Buyer does not exercise the Right of
First Refusal in full, the Company may consummate the remaining portion of the
New Transaction with any New Investor on the terms specified in the New
Transaction Offer within thirty (30) days of the Right of First Refusal
Expiration Date.
(iii) If the terms of the New Transaction to be consummated with
such other party differ from the terms specified in the New Transaction Offer so
that the terms are more beneficial in any respect to the New Investor, the
Company shall give the Buyer a New Transaction Offer relating to the terms of
the New Transaction, as so changed, and the Buyer's Right of First Refusal and
the preceding terms of this paragraph (l) shall apply with respect to such
changed terms.
(iv) If there is more than one Buyer signatory to this Agreement,
the preceding provisions of this paragraph (l) shall apply pro rata among them
(based on their relative Buyer's Allocable Shares), except that, to the extent
any such Buyer does not exercise its Right of First Refusal in full (a
"Declining Buyer"), the remaining Buyer or Buyers who or which have exercised
their own Right of First Refusal in full, shall have the right (pro rata among
them based
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<PAGE> 14
on their relative Buyer's Allocable Shares, if more than one) to exercise all or
a portion of such Declining Buyer's unexercised Right of Refusal. Nothing in
this paragraph (l) shall be deemed to permit a transaction not otherwise
permitted by subparagraph (g)(i), as modified by the provisions of subparagraph
(g)(ii).
(v) In the event the New Transaction is consummated with such
other third party on terms providing for (x) either a sale price equal to or
computed based on, or a determination of a conversion price based on, a lower
percentage of the then current market price (howsoever defined or computed) than
provided in the Certificate of Designations for determining the Conversion Rate
or a lower Base Price (howsoever defined or computed) and/or (y) the issuance of
warrants at an exercise price lower than that provided in the Warrants, the
terms of any unissued or unconverted Preferred Stock or any unissued or
unexercised Warrants shall be modified to reduce the relevant Conversion Rate,
Base Price or Warrant exercise price to be equal to that provided in the New
Transaction as so consummated.
l. REIMBURSEMENT. If (i) any Buyer, other than by reason of its
gross negligence or willful misconduct, becomes involved in any capacity in any
action, proceeding or investigation brought by any stockholder of the Company,
in connection with or as a result of the consummation of the transactions
contemplated by the Transaction Agreements, or if such Buyer is impleaded in any
such action, proceeding or investigation by any Person, or (ii) any Buyer, other
than by reason of its gross negligence or willful misconduct or by reason of its
trading of the Common Stock in a manner that is illegal under the federal
securities laws, becomes involved in any capacity in any action, proceeding or
investigation brought by the SEC against or involving the Company or in
connection with or as a result of the consummation of the transactions
contemplated by the Transaction Agreements, or if such Buyer is impleaded in any
such action, proceeding or investigation by any Person, then in any such case,
the Company will reimburse such Buyer for its reasonable legal and other
expenses (including the cost of any investigation and preparation) incurred in
connection therewith, as such expenses are incurred. In addition, other than
with respect to any matter in which such Buyer is a named party, the Company
will pay such Buyer the charges, as reasonably determined by such Buyer, for the
time of any officers or employees of such Buyer devoted to appearing and
preparing to appear as witnesses, assisting in preparation for hearings, trials
or pretrial matters, or otherwise with respect to inquiries, hearing, trials,
and other proceedings relating to the subject matter of this Agreement. The
reimbursement obligations of the Company under this paragraph shall be in
addition to any liability which the Company may otherwise have, shall extend
upon the same terms and conditions to any Affiliates of the Buyers who are
actually named in such action, proceeding or investigation, and partners,
directors, agents, employees and controlling persons (if any), as the case may
be, of the Buyers and any such Affiliate, and shall be binding upon and inure to
the benefit of any successors, assigns, heirs and personal representatives of
the Company, the Buyers and any such Affiliate and any such Person. The Company
also agrees that neither any Buyer nor any such Affiliate, partners, directors,
agents, employees or controlling persons shall have any liability to the Company
or any person asserting claims on behalf of or in right of the Company in
connection with or as a result of the consummation of the Transaction Agreements
except to the extent that any losses, claims, damages, liabilities or
14
<PAGE> 15
expenses incurred by the Company result from the gross negligence or willful
misconduct of such Buyer.
5. TRANSFER AGENT INSTRUCTIONS.
a. Promptly following the delivery by the Buyer of the Purchase
Price for the Preferred Stock in accordance with Section 1(c) hereof, the
Company will irrevocably instruct its transfer agent to issue Common Stock from
time to time upon conversion of the Preferred Stock in such amounts as specified
from time to time by the Company to the transfer agent, bearing the restrictive
legend specified in Section 4(b) of this Agreement prior to registration of the
Shares under the 1933 Act, registered in the name of the Buyer or its nominee
and in such denominations to be specified by the Buyer in connection with each
conversion of the Preferred Stock. The Company warrants that no instruction
other than such instructions referred to in this Section 5 and stop transfer
instructions to give effect to Section 4(a) hereof prior to registration and
sale of the Shares under the 1933 Act will be given by the Company to the
transfer agent and that the Shares shall otherwise be freely transferable on the
books and records of the Company as and to the extent provided in this
Agreement, the Registration Rights Agreement, and applicable law. Nothing in
this Section shall affect in any way the Buyer's obligations and agreement to
comply with all applicable securities laws upon resale of the Securities. If the
Buyer provides the Company with an opinion of counsel reasonably satisfactory to
the Company that registration of a resale by the Buyer of any of the Securities
in accordance with clause (1)(B) of Section 4(a) of this Agreement is not
required under the 1933 Act, the Company shall (except as provided in clause (2)
of Section 4(a) of this Agreement) permit the transfer of the Securities and, in
the case of the Converted Shares or the Warrant Shares, as the case may be,
promptly instruct the Company's transfer agent to issue one or more certificates
for Common Stock without legend in such name and in such denominations as
specified by the Buyer.
b. (i) The Company will permit the Buyer to exercise its right to
convert the Preferred Stock by telecopying or delivering an executed and
completed Notice of Conversion to the Company and delivering, within five (5)
business days thereafter, the original Preferred Stock being converted to the
Company by express courier, with a copy to the transfer agent.
(ii) The term "Conversion Date" means, with respect to any
conversion elected by the holder of the Preferred Stock, the date specified in
the Notice of Conversion, provided the copy of the Notice of Conversion is
telecopied to or otherwise delivered to the Company in accordance with the
provisions hereof so that it is received by the Company on or before such
specified date.
(iii) The Company will transmit the certificates
representing the Converted Shares issuable upon conversion of any Preferred
Stock (together, unless otherwise instructed by the Buyer, with Preferred Stock
not being so converted) to the Buyer at the address specified in the Notice of
Conversion (which may be the Buyer's address for notices as contemplated by
Section 11 hereof or a different address) via express courier , by electronic
transfer or otherwise, within three (3) business days if the address for
delivery is in the United
15
<PAGE> 16
States and within five (5) business days if the address for delivery is outside
the United States (such fifth business day or seventh business day, as the case
may be, the "Delivery Date") after (A) the business day on which the Company has
received both of the Notice of Conversion (by facsimile or other delivery) and
the original Preferred Stock being converted (and if the same are not delivered
to the Company on the same date, the date of delivery of the second of such
items) or (B) the date an interest payment on the Preferred Stock, which the
Company has elected to pay by the issuance of Common Stock, as contemplated by
the Preferred Stock, was due.
c. The Company understands that a delay in the issuance of the
Shares of Common Stock beyond the Delivery Date could result in economic loss to
the Buyer. As compensation to the Buyer for such loss, the Company agrees to pay
late payments to the Buyer for late issuance of Shares upon Conversion in
accordance with the Certificate of Designations.
d. In lieu of delivering physical certificates representing the
Common Stock issuable upon conversion, provided the Company's transfer agent is
participating in the Depository Trust Company ("DTC") Fast Automated Securities
Transfer program, upon request of the Buyer and its compliance with the
provisions contained in this paragraph, so long as the certificates therefor do
not bear a legend and the Buyer thereof is not obligated to return such
certificate for the placement of a legend thereon, the Company shall use its
best efforts to cause its transfer agent to electronically transmit the Common
Stock issuable upon conversion to the Buyer by crediting the account of Buyer's
Prime Broker with DTC through its Deposit Withdrawal Agent Commission system.
e. The Company will authorize its transfer agent to give
information relating to the Company directly to the Buyer or the Buyer's
representatives upon the request of the Buyer or any such representative. The
Company will provide the Buyer with a copy of the authorization so given to the
transfer agent.
f. The Company will authorize its transfer agent to give
information relating to the Company directly to the Buyer or the Buyer's
representatives upon the request of the Buyer or any such representative. The
Company will provide the Buyer with a copy of the authorization so given to the
transfer agent.
g. If, at any time (i) the Company challenges, disputes or denies
the right of a holder of Preferred Stock to effect a conversion of the Preferred
Stock into Common Stock or otherwise dishonors or rejects any Conversion Notice
delivered in accordance with the terms of this Agreement or the Certificate of
Designations or any exercise of any Warrant in accordance with its terms
("Warrant Exercise"), or (ii) any third party who is not and has never been an
Affiliate of such holder commences any lawsuit or proceeding or otherwise
asserts any claim before any court or public or governmental authority, which
lawsuit, proceeding or claim seeks to challenge, deny, enjoin, limit, modify,
delay or dispute the right of such holder to effect the conversion of the
Preferred Stock into Common Stock, and the Company refuses to honor any such
Conversion Notice or Warrant Exercise, then such holder shall have the right, by
written
16
<PAGE> 17
notice to the Company, to require the Company to promptly redeem the Preferred
Stock for cash at a redemption price (the "Mandatory Purchase Amount") equal to
(x) one hundred twenty-two percent (122%) of the liquidation preference of the
unconverted Preferred Stock held by such holder plus (y) all accrued but unpaid
dividends on the Preferred Stock through the date of payment of the Mandatory
Purchase Amount. Under any of the circumstances set forth above, the Company
shall be responsible for the payment of all costs and expenses of such holder,
including, but not necessarily limited to, reasonable legal fees and expenses,
as and when incurred in connection with such holder's disputing any such action
or pursuing such holder's rights hereunder (in addition to any other rights such
holder may have hereunder or otherwise). The Mandatory Purchase Amount will be
payable to such holder in cash within five (5) business days from the date such
holder gives the Company written notice that it is exercising its rights under
this paragraph.
h. The holder of any Preferred Stock shall be entitled to
exercise its conversion privilege with respect to the Preferred Stock
notwithstanding the commencement of any case under 11 U.S.C.Section 101 et seq.
(the "Bankruptcy Code"). In the event the Company is a debtor under the
Bankruptcy Code, the Company hereby waives, to the fullest extent permitted, any
rights to relief it may have under 11 U.S.C.Section 362 in respect of such
holder's conversion privilege. The Company hereby waives, to the fullest extent
permitted, any rights to relief it may have under 11 U.S.C. Section 362 in
respect of the conversion of the Preferred Stock. The Company agrees, without
cost or expense to such holder, to take or to consent to any and all action
necessary to effectuate relief under 11 U.S.C. Section 362.
6. CLOSING DATES.
a. The Closing Date shall occur on the date which is the first
NYSE trading day after each of the conditions contemplated by Sections 7 and 8
hereof shall have either been satisfied or been waived by the party in whose
favor such conditions run.
b. The closing of the purchase and issuance of Preferred Stock
shall occur on the relevant Closing Date at the offices of the Escrow Agent and
shall take place no later than 3:00 P.M., New York time, on such day or such
other time as is mutually agreed upon by the Company and the Buyer.
c. Notwithstanding anything to the contrary contained herein, the
Escrow Agent will be authorized to release the Escrow Funds to the Company and
to others and to release the other Escrow Property on the relevant Closing Date
upon satisfaction of the conditions set forth in Sections 7 and 8 hereof and as
provided in the Joint Escrow Instructions.
7. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The Buyer understands that the Company's obligation to sell the
relevant Preferred Stock to the Buyer pursuant to this Agreement on the relevant
Closing Date is conditioned upon:
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<PAGE> 18
a. The execution and delivery of this Agreement by the Buyer;
b. Delivery by the Buyer to the Escrow Agent of good funds as
payment in full of an amount equal to the Purchase Price for the relevant
Preferred Stock in accordance with this Agreement;
c. The accuracy on such Closing Date of the representations and
warranties of the Buyer contained in this Agreement, each as if made on such
date, and the performance by the Buyer on or before such date of all covenants
and agreements of the Buyer required to be performed on or before such date; and
d. There shall not be in effect any law, rule or regulation
prohibiting or restricting the transactions contemplated hereby, or requiring
any consent or approval which shall not have been obtained.
8. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The Company understands that the Buyer's obligation to purchase
the Preferred Stock on the relevant Closing Date is conditioned upon:
a. The execution and delivery of this Agreement and the
Registration Rights Agreement by the Company;
b. Delivery by the Company to the Escrow Agent of the relevant
Certificates in accordance with this Agreement;
c. The accuracy in all material respects on such Closing Date of
the representations and warranties of the Company contained in this Agreement.
each as if made on such date, and the performance by the Company on or before
such date of all covenants and agreements of the Company required to be
performed on or before such date;
d. On such Closing Date, the Registration Rights Agreement shall
be in full force and effect and the Company shall not be in default thereunder;
e. On such Closing Date, the Buyer shall have received an opinion
of counsel for the Company, dated such Closing Date, in form, scope and
substance reasonably satisfactory to the Buyer, substantially to the effect set
forth in ANNEX III attached hereto;
f. There shall not be in effect any law, rule or regulation
prohibiting or restricting the transactions contemplated hereby, or requiring
any consent or approval which
18
<PAGE> 19
shall not have been obtained;
g. From and after the date hereof to and including such Closing
Date, the trading of the Common Stock shall not have been suspended by the SEC
or the NASD and trading in securities generally on the New York Stock Exchange
or The NASDAQ/Bulletin Board Market shall not have been suspended or limited,
nor shall minimum prices been established for securities traded on The
NASDAQ/Bulletin Board Market, nor shall there be any outbreak or escalation of
hostilities involving the United States or any material adverse change in any
financial market that in either case in the reasonable judgment of the Buyer
makes it impracticable or inadvisable to purchase the Preferred Stock; and
9. GOVERNING LAW: MISCELLANEOUS.
a. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of California for contracts to be wholly
performed in such state and without giving effect to the principles thereof
regarding the conflict of laws. Each of the parties consents to the jurisdiction
of the federal courts whose districts encompass any part of the City of Los
Angeles or the state courts of the State of California sitting in the City of
Los Angeles in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any objection, including
any objection based on forum non conveniens, to the bringing of any such
proceeding in such jurisdictions. To the extent determined by such court, the
Company shall reimburse the Buyer for any reasonable legal fees and
disbursements incurred by the Buyer in enforcement of or protection of any of
its rights under any of the Transaction Agreements.
b. Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
c. This Agreement shall inure to the benefit of and be binding
upon the successors and assigns of each of the parties hereto.
d. All pronouns and any variations thereof refer to the
masculine, feminine or neuter, singular or plural, as the context may require.
e. A facsimile transmission of this signed Agreement shall be
legal and binding on all parties hereto.
f. This Agreement may be signed in one or more counterparts, each
of which shall be deemed an original.
g. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
19
<PAGE> 20
h. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
i. This Agreement may be amended only by an instrument in writing
signed by the party to be charged with enforcement thereof.
j. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof.
10. NOTICES. Any notice required or permitted hereunder shall be
given in writing (unless otherwise specified herein) and shall be deemed
effectively given on the earliest of
(a) the date delivered, if delivered by personal delivery as
against written receipt therefor or by confirmed facsimile
transmission,
(b) the seventh business day after deposit, postage prepaid, in
the United States Postal Service by registered or certified mail,
or
(c) the third business day after mailing by international express
courier, with delivery costs and fees prepaid,
in each case, addressed to each of the other parties thereunto entitled at the
following addresses (or at such other addresses as such party may designate by
ten (10) days' advance written notice similarly given to each of the other
parties hereto):
COMPANY: ESAT, Inc.
16520 Harbor Boulevard, Bldg. G
Fountain Valley, California 92708
Telephone No.: (714) 418-3200
Telecopier No.:
with a copy to: Arter & Hadden LLP
725 South Figueroa Street, Suite 3400
Los Angeles, California 90017
Attn: Kay Rustand, Esq.
Telephone No.: (213) 430-3000
Telecopier No.: (213) 617-9255
BUYER: At the address set forth on the signature page of this
Agreement.
with a copy to: Krieger & Prager, Esqs.
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<PAGE> 21
Suite 1440
39 Broadway
New York, New York 10006
Attn: Samuel Krieger, Esq.
Telephone No.: (212) 363-2900
Telecopier No. (212) 363-2999
ESCROW AGENT: Krieger & Prager, Esqs.
Suite 1440
39 Broadway
New York, New York 10006
Attn: Samuel Krieger, Esq.
Telephone No.: (212) 363-2900
Telecopier No. (212) 363-2999
11. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The Company's and
the Buyer's representations and warranties herein shall survive the execution
and delivery of this Agreement and the delivery of the Certificates and the
Warrants and the payment of the Purchase Price, and shall inure to the benefit
of the Buyer and the Company and their respective successors and assigns.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK.]
IN WITNESS WHEREOF, this Agreement has been duly executed by the
Buyer by one of its officers thereunto duly authorized as of the date set forth
below.
AMOUNT AND PURCHASE PRICE OF PREFERRED STOCK: $5,000,000
SIGNATURES FOR ENTITIES
IN WITNESS WHEREOF, the undersigned represents that the foregoing
statements are true and correct and that it has caused this Securities Purchase
Agreement to be duly executed on its behalf this 23rd day of December, 1999.
Corporate Centre, West Bay Road WENTWORTH LLC
- ----------------------------------- -----------------------------------
Address Printed Name of Subscriber
Grand Cayman
- -----------------------------------
By: /s/
-----------------------------------
Telecopier No. (284) 494-4771 Navigator Management Ltd.
Director
Cayman Islands Printed Name and Title
- -----------------------------------
Jurisdiction of Incorporation
or Organization
21
<PAGE> 22
As of the date set forth below, the undersigned hereby accepts this Agreement
and represents that the foregoing statements are true and correct and that it
has caused this Securities Purchase Agreement to be duly executed on its behalf.
ESAT, INC.
By: /s/
-----------------------------------
Michael C. Palmer
Title: Chief Executive Officer & Secretary
Date: December 29, 1999
22
<PAGE> 23
ANNEX I FORM OF PREFERRED STOCK
ANNEX II JOINT ESCROW INSTRUCTIONS
ANNEX III OPINION OF COUNSEL
ANNEX IV REGISTRATION RIGHTS AGREEMENT
ANNEX V COMPANY DISCLOSURE MATERIALS
ANNEX VI FORM OF WARRANT
23
<PAGE> 24
ANNEX V
TO
SECURITIES PURCHASE AGREEMENT
COMPANY DISCLOSURE
NONE
24
<PAGE> 1
EXHIBIT 10.13
ANNEX IV
TO
REGISTRATION RIGHTS AGREEMENT SECURITIES PURCHASE
AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of December 29, 1999
(this "Agreement"), is made by and between ESAT, INC., a Nevada corporation,
with headquarters located at 16520 Harbor Boulevard, Bldg. G, Fountain Valley,
California 92708 (the "Company"), and each entity named on a signature page
hereto (each, an "Initial Investor") (each agreement with an Initial Investor
being deemed a separate and independent agreement between the Company and such
Initial Investor, except that each Initial Investor acknowledges and consents to
the rights granted to each other Initial Investor under such agreement).
WITNESSETH:
WHEREAS, upon the terms and subject to the conditions of the
Securities Purchase Agreement, dated as of December 29,1999, between the Initial
Investor and the Company (the "Securities Purchase Agreement"; terms not
otherwise defined herein shall have the meanings ascribed to them in the
Securities Purchase Agreement), the Company has agreed to issue and sell to the
Initial Investor, Series C 6% Convertible Preferred Stock of the Company, in an
aggregate liquidation amount not exceeding $5,000,000 (the "Preferred Stock");
and
WHEREAS, the Company has agreed to issue the Warrants to the
Initial Investor in connection with the issuance of the Preferred Stock; and
WHEREAS, the Preferred Stock is convertible into shares of Common
Stock (the "Conversion Shares"; which term, for purposes of this Agreement,
shall include shares of Common Stock of the Company issuable in lieu of accrued
interest on conversion as contemplated by the Certificate of Designations) upon
the terms and subject to the conditions contained in the Certificate of
Designations, and the Warrants may be exercised for the purchase of shares of
Common Stock (the "Warrant Shares") upon the terms and conditions of the
Warrants; and
WHEREAS, to induce the Initial Investor to execute and deliver
the Securities Purchase Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the rules
and regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), with respect to the Conversion Shares and the Warrant Shares;
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NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Initial Investor hereby agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms
shall have the following meanings:
(a) "Investor" means the Initial Investor and any permitted
transferee or assignee who agrees to become bound by the provisions of this
Agreement in accordance with Section 9 hereof and who holds Preferred Stock,
Warrants or Registrable Securities.
(b) "Potential Material Event" means any of the following: (i)
the possession by the Company of material information not ripe for disclosure in
a registration statement, which shall be evidenced by determinations in good
faith by the Board of Directors of the Company that disclosure of such
information in the registration statement would be detrimental to the business
and affairs of the Company; or (ii) any material engagement or activity by the
Company which would, in the good faith determination of the Board of Directors
of the Company, be adversely affected by disclosure in a registration statement
at such time, which determination shall be accompanied by a good faith
determination by the Board of Directors of the Company that the registration
statement would be materially misleading absent the inclusion of such
information.
(c) "Register," "Registered," and "Registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415 under
the Securities Act or any successor rule providing for offering securities on a
continuous basis ("Rule 415"), and the declaration or ordering of effectiveness
of such Registration Statement by the United States Securities and Exchange
Commission (the "SEC").
(d) "Registrable Securities" means the Conversion Shares and the
Warrant Shares applicable to the Preferred Stock and Warrants issued on the
Initial Closing Date or the relevant Additional Closing Date, as the case may
be, and the Other Registrable Securities as defined herein.
(e) "Registration Statement" means a registration statement of
the Company under the Securities Act.
2. REGISTRATION.
(a) MANDATORY REGISTRATION.
(i) The Company shall prepare and file with the SEC, as soon as
possible after the Initial Closing Date no later than a date (the "Required
Filing Date") which is thirty
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(30) days following the Initial Closing Date, either a Registration Statement on
Form SB-2 or an amendment to an existing Registration Statement, in either event
registering for resale by the Investor a sufficient number of shares of Common
Stock for the Initial Investors to sell the Registrable Securities (or such
lesser number as may be required by the SEC, but in no event less than two
hundred percent (200%) of the aggregate number of shares (A) into which the
relevant Preferred Stock and all interest thereon through their respective
Maturity Dates would be convertible at the time of filing of such Registration
Statement (assuming for such purposes that all such Preferred Stock had been
eligible to be converted, and had been converted, into Conversion Shares in
accordance with their terms, whether or not such accrual of interest,
eligibility or conversion had in fact occurred as of such date) and (B) which
would be issued upon exercise of all of the relevant Warrants at the time of
filing of the Registration Statement (assuming for such purposes that such
Warrants had been eligible to be exercised and had been exercised in accordance
with their terms, whether or not such eligibility or exercise had in fact
occurred as of such date). The Registration Statement (W) shall include only the
Registrable Securities and (X) shall also state that, in accordance with Rule
416 and 457 under the Securities Act, it also covers such indeterminate number
of additional shares of Common Stock as may become issuable upon conversion of
the Preferred Stock and the exercise of the Warrants to prevent dilution
resulting from stock splits or stock dividends. The Company will use its
reasonable best efforts to cause such Registration Statement to be declared
effective on a date (a "Required Effective Date") which is no later than is the
earlier of (Y) five (5) days after notice by the SEC that it may be declared
effective or (Z) ninety (90) days after the Initial Closing Date or thirty (30)
days after the relevant Additional Closing Date, as the case may be.
(ii) If at any time (an "Increased Registered Shares Date"), the
number of shares of Common Stock represented by the Registrable Shares, issued
or to be issued as contemplated by the Transaction Agreements, exceeds the
aggregate number of shares of Common Stock then registered, the Company shall,
within ten (10) business days after receipt of a written notice from any
Investor, either (X) amend the relevant Registration Statement filed by the
Company pursuant to the preceding provisions of this Section 2, if such
Registration Statement has not been declared effective by the SEC at that time,
to register two hundred percent (200%) of such Registrable Shares, computed as
contemplated by the immediately preceding subparagraph (i), or (Y) if such
Registration Statement has been declared effective by the SEC at that time, file
with the SEC an additional Registration Statement on Form SB-2 or other
appropriate registration statement form (an "Additional Registration Statement")
to register two hundred percent (200%) of the shares of Common Stock represented
by the Registrable Shares, computed as contemplated by the immediately preceding
subparagraph (i), that exceed the aggregate number of shares of Common Stock
already registered. The Company will use its reasonable best efforts to cause
such Registration Statement to be declared effective on a date (a "Required
Effective Date") which is no later than (Q) with respect to a Registration
Statement under clause (X) of this subparagraph (ii), the Required Effective
Date contemplated by the immediately preceding subparagraph (i) and (R) with
respect to an Additional Registration Statement, the earlier of (I) five (5)
days after notice by the SEC that it may be declared effective or (II) thirty
(30) days after the Increased Registered Shares Date.
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<PAGE> 4
(b) PAYMENTS BY THE COMPANY.
(i) If the Registration Statement covering the Registrable
Securities is not filed in proper form with the SEC by the Required Filing Date,
the Company will make payment to the Initial Investor in such amounts and at
such times as shall be determined pursuant to this Section 2(b).
(ii) If the Registration Statement covering the
Registrable Securities is not effective by thirty (30) days after the relevant
Required Effective Date or if the Investor is restricted from making sales of
Registrable Securities covered by a previously effective Registration Statement
at any time (the date such restriction commences, a "Restricted Sale Date")
after the Effective Date other than during a Suspension Period (as defined
below), then the Company will make payments to the Initial Investor in such
amounts and at such times as shall be determined pursuant to this Section 2(b).
(iii) The amount (the "Periodic Amount") to be paid by the
Company to the Initial Investor shall be determined as of each Computation Date
(as defined below) and such amount shall be equal to the Periodic Amount
Percentage (as defined below) of the Purchase Price for all Preferred Stock for
the period from the date following the relevant Required Filing Date, Required
Effective Date or Restricted Sale Date, as the case may be, to the first
relevant Computation Date, and thereafter to each subsequent Computation Date.
The "Periodic Amount Percentage" means (A) two percent (2%) of the Purchase
Price for all the Preferred Stock previously purchased for the period from the
date following the relevant Required Filing Date, Required Effective Date or
Restricted Sale Date, as the case may be, to the first relevant Computation Date
(prorated on a daily basis if such period is less than thirty [30] days), and
(B) two percent (2%) of the Purchase Price of all Preferred Stock to each
Computation Date thereafter (prorated on a daily basis if such period is less
than thirty [30] days). Anything in the preceding provisions of this paragraph
(iii) to the contrary notwithstanding, after the Effective Date the Purchase
Price shall be deemed to refer to the sum of (X) the principal amount of all
Preferred Stock previously purchased but not yet converted and (Y) the Held
Shares Value (as defined below). The "Held Shares Value" means, for shares
acquired by the Investor upon a conversion within the thirty (30) days preceding
the Restricted Sale Date, but not yet sold by the Investor, the principal amount
of the Preferred Stock converted into such Conversion Shares; provided, however,
that if the Investor effected more than one conversion during such thirty (30)
day period and sold less than all of such shares, the sold shares shall be
deemed to be derived first from the conversions in the sequence of such
conversions (that is, for example, until the number of shares from the first of
such conversions have been sold, all shares shall be deemed to be from the first
conversion; thereafter, from the second conversion until all such shares are
sold). By way of illustration and not in limitation of the foregoing, if the
Registration Statement for the Registrable Securities relating to the Preferred
Stock and Warrants issued on the Initial Closing Date is timely filed but is not
declared effective until one hundred sixty-five (165) days after the Initial
Closing Date, the Periodic Amount will aggregate four percent (4%) of the
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Purchase Price of the Initial Preferred Stock (2% for days 120-150, plus 2% for
days 151-165), provided, however, that no Periodic Amount shall be due if the
Registration Statement is effective within thirty (30) days from the Required
Effective Date.
(iv) Each Periodic Amount will be payable by the Company
in cash or other immediately available funds to the Investor monthly, without
requiring demand therefor by the Investor.
(v) The parties acknowledge that the damages which may be
incurred by the Investor if the Registration Statement is not filed by the
Required Filing Date or if the Registration Statement has not been declared
effective by a Required Effective Date, including if the right to sell
Registrable Securities under a previously effective Registration Statement is
suspended, may be difficult to ascertain. The parties agree that the Periodic
Amounts represent a reasonable estimate on the part of the parties, as of the
date of this Agreement, of the amount of such damages.
(vi) Notwithstanding the foregoing, the amounts payable by
the Company pursuant to this provision shall not be payable to the extent any
delay in the effectiveness of the Registration Statement occurs because of an
act of, or a failure to act or to act timely by the Initial Investor or its
counsel, or in the event all of the Registrable Securities may be sold pursuant
to Rule 144 or another available exemption under the Act.
(vii) "Computation Date" means (A) the date which is the
earlier of (1) thirty (30) days after the Required Filing Date, any relevant
Required Effective Date or a Restricted Sale Date, as the case may be, or (2)
the date after the Required Filing Date, such Required Effective Date or
Restricted Sale Date on which the Registration Statement is filed (with respect
to payments due as contemplated by Section 2(b)(i) hereof) or is declared
effective or has its restrictions removed (with respect to payments due as
contemplated by Section 2(b)(ii) hereof), as the case may be, and (B) each date
which is the earlier of (1) thirty (30) days after the previous Computation Date
or (2) the date after the previous Computation Date on which the Registration
Statement is filed (with respect to payments due as contemplated by Section
2(b)(i) hereof) or is declared effective or has its restrictions removed (with
respect to payments due as contemplated by Section 2(b)(ii) hereof), as the case
may be.
3. OBLIGATIONS OF THE COMPANY. In connection with the
registration of the Registrable Securities, the Company shall do each of the
following.
(a) Prepare promptly, and file with the SEC by the Required
Filing Date a Registration Statement with respect to not less than the number of
Registrable Securities provided in Section 2(a) above, and thereafter use its
reasonable best efforts to cause such Registration Statement relating to
Registrable Securities to become effective by the Required Effective Date and
keep the Registration Statement effective at all times during the period (the
"Registration Period") continuing until the earliest of (i) the date that is two
(2) years after the
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<PAGE> 6
last day of the calendar month following the month in which the closing of the
last tranche of Preferred Stock occurs, (ii) the date when the Investors may
sell all Registrable Securities under Rule 144 or (iii) the date the Investors
no longer own any of the Registrable Securities, which Registration Statement
(including any amendments or supplements thereto and prospectuses contained
therein) shall not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading;
(b) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration Statement effective at all times during the
Registration Period, and, during the Registration Period, comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration Statement
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statement;
(c) The Company shall permit a single firm of counsel designated
by the Initial Investors to review the Registration Statement and all amendments
and supplements thereto a reasonable period of time (but not less than three (3)
business days) prior to their filing with the SEC, and not file any document in
a form to which such counsel reasonably objects.
(d) Notify each Investor, such Investor's legal counsel
identified to the Company (which, until further notice, shall be deemed to be
Krieger & Prager, ATTN: Samuel Krieger, Esq.; each, an "Investor's Counsel"),
and any managing underwriters immediately (and, in the case of (i)(A) below, not
less than five (5) days prior to such filing) and (if requested by any such
Person) confirm such notice in writing no later than one (1) business day
following the day (i)(A) when a Prospectus or any Prospectus supplement or
post-effective amendment to the Registration Statement is proposed to be filed;
(B) whenever the SEC notifies the Company whether there will be a "review" of
such Registration Statement; (C) whenever the Company receives (or a
representative of the Company receives on its behalf) any oral or written
comments from the SEC respect of a Registration Statement (copies or, in the
case of oral comments, summaries of such comments shall be promptly furnished by
the Company to the Investors); and (D) with respect to the Registration
Statement or any post-effective amendment, when the same has become effective;
(ii) of any request by the SEC or any other Federal or state governmental
authority for amendments or supplements to the Registration Statement or
Prospectus or for additional information; (iii) of the issuance by the SEC of
any stop order suspending the effectiveness of the Registration Statement
covering any or all of the Registrable Securities or the initiation of any
Proceedings for that purpose; (iv) if at any time any of the representations or
warranties of the Company contained in any agreement (including any underwriting
agreement) contemplated hereby ceases to be true and correct in all material
respects; (v) of the receipt by the Company of any notification with respect to
the suspension of the qualification or exemption from qualification of any of
the Registrable Securities for sale in any jurisdiction, or the initiation
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<PAGE> 7
or threatening of any Proceeding for such purpose; and (vi) of the occurrence of
any event that to the best knowledge of the Company makes any statement made in
the Registration Statement or Prospectus or any document incorporated or deemed
to be incorporated therein by reference untrue in any material respect or that
requires any revisions to the Registration Statement, Prospectus or other
documents so that, in the case of the Registration Statement or the Prospectus,
as the case may be, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. In addition, the Company shall furnish the Investors with
copies of all intended written responses to the comments contemplated in clause
(C) of this Section 3(d) not later than one (1) business day in advance of the
filing of such responses with the SEC so that the Investors shall have the
opportunity to comment thereon.
(e) Furnish to each Investor and such Investor's Counsel (i)
promptly after the same is prepared and publicly distributed, filed with the
SEC, or received by the Company, one (1) copy of the Registration Statement,
each preliminary prospectus and prospectus, and each amendment or supplement
thereto, and (ii) such number of copies of a prospectus, and all amendments and
supplements thereto and such other documents, as such Investor may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such Investor;
(f) As promptly as practicable after becoming aware thereof,
notify each Investor of the happening of any event of which the Company has
knowledge, as a result of which the prospectus included in the Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, and use its best efforts promptly to prepare a supplement
or amendment to the Registration Statement or other appropriate filing with the
SEC to correct such untrue statement or omission, and deliver a number of copies
of such supplement or amendment to each Investor as such Investor may reasonably
request;
(g) As promptly as practicable after becoming aware thereof,
notify each Investor who holds Registrable Securities being sold (or, in the
event of an underwritten offering, the managing underwriters) of the issuance by
the SEC of a Notice of Effectiveness or any notice of effectiveness or any stop
order or other suspension of the effectiveness of the Registration Statement at
the earliest possible time;
(h) Notwithstanding the foregoing, if at any time or from time to
time after the date of effectiveness of the Registration Statement, the Company
notifies the Investors in writing of the existence of a Potential Material
Event, the Investors shall not offer or sell any Registrable Securities, or
engage in any other transaction involving or relating to the Registrable
Securities, from the time of the giving of notice with respect to a Potential
Material Event until such Investor receives written notice from the Company that
such Potential Material Event either has
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<PAGE> 8
been disclosed to the public or no longer constitutes a Potential Material
Event; provided, however, that the Company may not so suspend the right to such
holders of Registrable Securities for more than two twenty (20) day periods in
the aggregate during any 12-month period ("Suspension Period") with at least a
ten (10) business day interval between such periods, during the periods the
Registration Statement is required to be in effect;
(i) Use its reasonable efforts to secure and maintain the
designation of all the Registrable Securities covered by the Registration
Statement on the "OTC Bulletin Board Market" of the National Association of
Securities Dealers Automated Quotations System ("NASDAQ") within the meaning of
Rule 11Aa2-1 of the SEC under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and the quotation of the Registrable Securities on The
NASDAQ Bulletin Board Market; and, without limiting the generality of the
foregoing, to arrange for at least two market makers to register with the
National Association of Securities Dealers, Inc. ("NASD") as such with respect
to such Registrable Securities;
(j) Provide a transfer agent , which may be a single entity, for
the Registrable Securities not later than the effective date of the Registration
Statement;
(k) Cooperate with the Investors to facilitate the timely
preparation and delivery of certificates for the Registrable Securities to be
offered pursuant to the Registration Statement and enable such certificates for
the Registrable Securities to be in such denominations or amounts as the case
may be, as the Investors may reasonably request, and, within three (3) business
days after a Registration Statement which includes Registrable Securities is
ordered effective by the SEC, the Company shall deliver, and shall cause legal
counsel selected by the Company to deliver, to the transfer agent for the
Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such Registration Statement) an appropriate
instruction and opinion of such counsel; and
(l) Take all other reasonable actions necessary to expedite and
facilitate disposition by the Investor of the Registrable Securities pursuant to
the Registration Statement.
4. OBLIGATIONS OF THE INVESTORS. In connection with the
registration of the Registrable Securities, the Investors shall have the
following obligations:
(a) It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement with respect to
the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of the Registrable
Securities held by it, as shall be reasonably required to effect the
registration of such Registrable Securities and shall execute such documents in
connection with such registration as the Company may reasonably request. At
least ten (10) days prior to the first anticipated filing date of the
Registration Statement, the Company shall notify each Investor of the
information the Company requires from each such Investor (the "Requested
Information") if such Investor elects
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<PAGE> 9
to have any of such Investor's Registrable Securities included in the
Registration Statement. If at least two (2) business days prior to the filing
date the Company has not received the Requested Information from an Investor (a
"Non-Responsive Investor"), then the Company may file the Registration Statement
without including Registrable Securities of such Non-Responsive Investor;
(b) Each Investor, by such Investor's acceptance of the
Registrable Securities, agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of the
Registration Statement hereunder, unless such Investor has notified the Company
in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from the Registration Statement; and
(c) Each Investor agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section 3(e)
or 3(f), above, such Investor will immediately discontinue disposition of
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until such Investor's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3(e) or 3(f) and, if
so directed by the Company, such Investor shall deliver to the Company (at the
expense of the Company) or destroy (and deliver to the Company a certificate of
destruction) all copies in such Investor's possession, of the prospectus
covering such Registrable Securities current at the time of receipt of such
notice.
5. EXPENSES OF REGISTRATION. (a) All reasonable expenses (other
than underwriting discounts and commissions of the Investor) incurred in
connection with registrations, filings or qualifications pursuant to Section 3,
but including, without limitation, all registration, listing, and qualifications
fees, printers and accounting fees, the fees and disbursements of counsel for
the Company and a fee for a single counsel for the Investors (as a group and not
individually) not exceeding $3,500 for the Registration Statement covering the
Registrable Securities applicable to the Preferred Stock and Warrants issued on
the Closing Date shall be borne by the Company.
(b) The Buyer acknowledges that the Company either intends to
issue shares or has already issued shares as of the date of this agreement
pursuant to (i) its advisory agreement with Grayson & Associates; (ii) its
warrant agreements with Corporate Financial Enterprises, Inc. ("CFE") and
Vantage Capital, Inc. ("VCI") and the defined term should be "Registrable
CFE/VCI Shares"; (iii) the issuance of Series A 12% Preferred Stock to VCI and
Series B 12% Preferred Stock to CFE and an affiliated entity known as American
Equities, LLC (the "Other Registrable Shares"),each of which has certain
registration rights..
(c) Except as otherwise provided for in this Section 5, neither
the Company nor any of its subsidiaries has, as of the date hereof, nor shall
the Company nor any of its subsidiaries, on or after the date of this Agreement,
enter into any agreement with respect to its securities that is inconsistent
with the rights granted to the Investors in this Agreement or
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<PAGE> 10
otherwise conflicts with the provisions hereof. Except as otherwise provided for
in this Section 5, neither the Company nor any of its subsidiaries has
previously entered into any agreement granting any registration rights with
respect to any of its securities to any Person. Except as otherwise provided for
in this Section 5, and without limiting the generality of the foregoing, without
the written consent of the Investors holding a majority of the Registrable
Securities, the Company shall not grant to any person the right to request the
Company to register any securities of the Company under the Securities Act
unless the rights so granted are subject in all respects to the prior rights in
full of the Investors set forth herein, and are not otherwise in conflict or
inconsistent with the provisions of this Agreement and the other Transaction
Agreements.
6. INDEMNIFICATION. In the event any Registrable Securities are
included in a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Investor who holds such Registrable Securities, the
directors, if any, of such Investor, the officers, if any, of such Investor,
each person, if any, who controls any Investor within the meaning of the
Securities Act or the Exchange Act (each, an "Indemnified Person" or
"Indemnified Party"), against any losses, claims, damages, liabilities or
expenses (joint or several) incurred (collectively, "Claims") to which any of
them may become subject under the Securities Act, the Exchange Act or otherwise,
insofar as such Claims (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations in the Registration Statement, or
any post-effective amendment thereof, or any prospectus included therein: (i)
any untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement or any post-effective amendment thereof or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, (ii)
any untrue statement or alleged untrue statement of a material fact contained in
the final prospectus (as amended or supplemented, if the Company files any
amendment thereof or supplement thereto with the SEC) or the omission or alleged
omission to state therein any material fact necessary to make the statements
made therein, in light of the circumstances under which the statements therein
were made, not misleading or (iii) any violation or alleged violation by the
Company of the Securities Act, the Exchange Act, any state securities law or any
rule or regulation under the Securities Act, the Exchange Act or any state
securities law (the matters in the foregoing clauses (i) through (iii) being,
collectively, "Violations"). Subject to clause (b) of this Section 6, the
Company shall reimburse the Investors, promptly as such expenses are incurred
and are due and payable, for any legal fees or other reasonable expenses
incurred by them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(a) shall not (I) apply to a Claim arising
out of or based upon a Violation which occurs in reliance upon and in conformity
with information furnished in writing to the Company by or on behalf of any
Indemnified Person expressly for use in connection with the preparation of the
Registration Statement or any such amendment thereof or supplement thereto, if
such prospectus was timely made available by the Company pursuant to Section
3(c) hereof; (II) be available to the extent such Claim is based on a
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failure of the Investor to deliver or cause to be delivered the prospectus made
available by the Company; or (III) apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of the
Company, which consent shall not be unreasonably withheld. Each Investor will
indemnify the Company and its officers, directors and agents (each, an
"Indemnified Person" or "Indemnified Party") against any claims arising out of
or based upon a Violation which occurs in reliance upon and in conformity with
information furnished in writing to the Company, by or on behalf of such
Investor, expressly for use in connection with the preparation of the
Registration Statement, subject to such limitations and conditions as are
applicable to the Indemnification provided by the Company to this Section 6.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Indemnified Person and shall survive
the transfer of the Registrable Securities by the Investors pursuant to Section
9.
(b) Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action (including any governmental action), such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof and the indemnifying party shall have
the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party, as the
case may be. In case any such action is brought against any Indemnified Person
or Indemnified Party, and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate in, and, to the
extent that it may wish, jointly with any other indemnifying party similarly
notified, assume the defense thereof, subject to the provisions herein stated
and after notice from the indemnifying party to such Indemnified Person or
Indemnified Party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such Indemnified Person or Indemnified
Party under this Section 6 for any legal or other reasonable out-of-pocket
expenses subsequently incurred by such Indemnified Person or Indemnified Party
in connection with the defense thereof other than reasonable costs of
investigation, unless the indemnifying party shall not pursue the action of its
final conclusion. The Indemnified Person or Indemnified Party shall have the
right to employ separate counsel in any such action and to participate in the
defense thereof, but the fees and reasonable out-of-pocket expenses of such
counsel shall not be at the expense of the indemnifying party if the
indemnifying party has assumed the defense of the action with counsel reasonably
satisfactory to the Indemnified Person or Indemnified Party. The failure to
deliver written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying party of any
liability to the Indemnified Person or Indemnified Party under this Section 6,
except to the extent that the indemnifying party is prejudiced in its ability to
defend such action. The indemnification required by this Section 6 shall be made
by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.
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7. CONTRIBUTION. To the extent any indemnification by an
indemnifying party is prohibited or limited by law, the indemnifying party
agrees to make the maximum contribution with respect to any amounts for which it
would otherwise be liable under Section 6 to the fullest extent permitted by
law; provided, however, that (a) no contribution shall be made under
circumstances where the maker would not have been liable for indemnification
under the fault standards set forth in Section 6; (b) no seller of Registrable
Securities guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any seller
of Registrable Securities who was not guilty of such fraudulent
misrepresentation; and (c) contribution by any seller of Registrable Securities
shall be limited in amount to the net amount of proceeds received by such seller
from the sale of such Registrable Securities.
8. REPORTS UNDER EXCHANGE ACT. With a view to making available to
the Investors the benefits of Rule 144 promulgated under the Securities Act or
any other similar rule or regulation of the SEC that may at any time permit the
Investors to sell securities of the Company to the public without registration
("Rule 144"), the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
(c) furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
Securities Act and the Exchange Act, (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company and (iii) such other information as may be reasonably requested to
permit the Investors to sell such securities pursuant to Rule 144 without
registration.
9. ASSIGNMENT OF THE REGISTRATION RIGHTS. The rights to have the
Company register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Investors to any transferee of the Registrable
Securities (or all or any portion of any unconverted Preferred Stock or
unexercised Warrant) only if: (a) the Investor agrees in writing with the
transferee or assignee to assign such rights, and a copy of such agreement is
furnished to the Company within a reasonable time after such assignment, (b) the
Company is, within a reasonable time after such transfer or assignment,
furnished with written notice of (i) the name and address of such transferee or
assignee and (ii) the securities with respect to which such registration rights
are being transferred or assigned, (c) immediately following such transfer or
assignment the further disposition of such securities by the transferee or
assignee is restricted under the Securities Act and applicable state securities
laws, and (d) at or before the time the Company received the written notice
contemplated by clause (b) of this sentence the transferee or assignee agrees in
writing with the Company to be bound by all of the provisions contained
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<PAGE> 13
herein. In the event of any delay in filing or effectiveness of the Registration
Statement as a result of such assignment, the Company shall not be liable for
any damages arising from such delay, or the payments set forth in Section 2(c)
hereof arising from such delay.
10. AMENDMENT OF REGISTRATION RIGHTS. Any provision of this
Agreement may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and Investors who
hold an eighty (80%) percent interest of the Registrable Securities. Any
amendment or waiver effected in accordance with this Section 10 shall be binding
upon each Investor and the Company.
11. RULE 144 REQUIREMENTS. The Company shall make publicly
available and available to the Holder of Registrable Securities, pursuant to
Rule 144 of the Commission under the Securities Act, such information as shall
be necessary to enable the Holders of Registrable Securities to make sales of
Registrable Securities pursuant to that Rule. The Company will furnish to any
Holder of Registrable Securities, upon request made by such Holder at any time,
a written statement signed by the Company, addressed to such Holder, describing
briefly the action the Company has taken or proposes to take to comply with the
current public information requirements of Rule 144. The Company will, at the
request of any Holder of Registrable Securities, upon receipt from such Holder
of a certificate certifying (i) that such Holder has held such Registrable
Securities for a period of not less than one (1) year, (ii) that such Holder has
not been an affiliate (as defined in Rule 144) of the Company for more than the
ninety (90) preceding days, and (iii) as to such other matters as may be
appropriate in accordance with such Rule, remove from the stock certificates
representing such Registrable Securities that portion of any restrictive legend
which relates to the registration provisions of the Securities Act, provided,
however, counsel to Holder may provide such instructions and opinion to the
transfer agent regarding the removal of the restrictive legend.
12. MISCELLANEOUS.
(a) A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
(b) Notices required or permitted to be given hereunder shall be
given in the manner contemplated by the Agreement, (i) if to the Company or to
the Initial Investor, to their respective address contemplated by the Agreement,
and (iii) if to any other Investor, at such address as such Investor shall have
provided in writing to the Company, or at such other address as each such party
furnishes by notice given in accordance with this Section 11(b).
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<PAGE> 14
(c) Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
(d) This Agreement shall be governed by and interpreted in
accordance with the laws of the State of California for contracts to be wholly
performed in such state and without giving effect to the principles thereof
regarding the conflict of laws. Each of the parties consents to the jurisdiction
of the federal courts whose districts encompass any part of the City of Los
Angeles or the state courts of the State of California sitting in the City of
Los Angeles in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any objection, including
any objection based on forum non coveniens, to the bringing of any such
proceeding in such jurisdictions. To the extent determined by such court, the
Company shall reimburse the Buyer for any reasonable legal fees and
disbursements incurred by the Buyer in enforcement of or protection of any of
its rights under this Agreement.
(e) If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
(f) Subject to the requirements of Section 9 hereof, this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of each of the parties hereto.
(g) All pronouns and any variations thereof refer to the
masculine, feminine or neuter, singular or plural, as the context may require.
(h) The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning thereof.
(i) This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original but all of which shall constitute one
and the same agreement. This Agreement, once executed by a party, may be
delivered to the other party hereto by telephone line facsimile transmission of
a copy of this Agreement bearing the signature of the party so delivering this
Agreement.
(j) The Company acknowledges that any failure by the Company to
perform its obligations under Section 3(a) hereof, or any delay in such
performance could result in loss to the Investors, and the Company agrees that,
in addition to any other liability the Company may have by reason of such
failure or delay, the Company shall be liable for all direct damages caused by
any such failure or delay, unless the same is the result of force majeure.
Neither party shall be liable for consequential damages.
(k) This Agreement constitutes the entire agreement among the
parties hereto
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<PAGE> 15
with respect to the subject matter hereof. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein.
This Agreement supersedes all prior agreements and understandings among the
parties hereto with respect to the subject matter hereof. This Agreement may be
amended only by an instrument in writing signed by the party to be charged with
enforcement thereof.
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<PAGE> 16
IN WITNESS WHEREOF, the parties have caused this Agreement to be
duly executed by their respective officers thereunto duly authorized as of the
day and year first above written.
COMPANY:
ESAT, INC.
By: /s/________________________________
Name: Michael C. Palmer
Title: Chief Executive Officer & Secretary
WENTWORTH LLC
By: /s/________________________________
Name: Navigator Management Ltd.
Title: Director
16
<PAGE> 1
EXHIBIT 10.14
WENTWORTH LLC
CORPORATE CENTER
WEST BAY ROAD
GRAND CAYMAN, CAYMAN ISLANDS
December 29, 1999
ESAT, Inc.
Bldg. G
16520 Harbor Boulevard
Fountain Valley, California 92708
Attention: President
Re: ESAT, Inc. (the "Company")
Gentlemen:
Reference is made to the Securities Purchase Agreement (the
"Purchase Agreement"), of even date hereof, between the Company and the
undersigned (the "Purchasers").
During the one year period following the Effective Date, the
Purchasers additionally commit, subject to and upon the terms and conditions
hereof, to purchase from the Company, and the Company shall sell to the
Purchasers shares of Common Stock (the "Additional Shares") for an aggregate
purchase price of up to $20,000,000 at a price equal to 90% of the five lowest
closing bid prices of the Common Stock (not necessarily consecutive) for the ten
(10) trading days prior to each Additional Financing Notice.
The commitment of the Purchasers set forth in this letter is
subject to the terms, conditions and qualifications set forth below:
1. Additional Documentation. In order to effectuate a purchase
and sale of the Additional Shares, prior to their issuance, the Company and the
Purchasers shall enter into the following agreements: (a) a securities purchase
agreement (the "Additional Purchase Agreement") setting forth the terms and
conditions of the purchase and sale, and (b) a registration rights agreement
identical to the Registration Rights Agreement (the "Additional Registration
Rights Agreement", and together with the Additional Purchase Agreement,
collectively the "Additional Transaction Documents"). The Purchasers shall
prepare the Additional Transaction Documents, which shall be in form mutatis
mutandis to the initial Transaction Documents.
2. The Additional Closing. (i) The Company shall have the right
to deliver one or more written notices to the Purchaser (the "Additional
Financing Notice") requiring such party to
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<PAGE> 2
buy the Additional Shares for an aggregate purchase price of $20,000,000 (the
"Additional Purchase Price"), but not to exceed $2,000,000.00 per Additional
Financing Notice. The Company agrees to deliver one or more Additional Financing
Notices for a minimum of $2,500,000. An Additional Financing Notice may be
delivered no earlier than fifteen (15) Trading Days following the Effective Date
or the prior Additional Financing Notice. The closing of the purchase and sale
of the Additional Securities (the "Additional Closing") shall take place at the
offices of Krieger & Prager, Esqs., Suite 1440, 39 Broadway, New York, New York
10006 on the fifth (5th) Business Day after the Additional Financing Notice is
received by the Purchasers or the Company, as the case may be, or on such other
date as otherwise agreed to by the parties hereto; provided, however, that in no
case shall the Additional Closing take place unless and until all of the
conditions listed in Section ___ of this letter and the Additional Purchase
Agreement shall have been satisfied by the Company or waived by the Purchasers.
The date of the Additional Closing is hereinafter referred to as the "Additional
Closing Date." Notwithstanding anything to the contrary contained in this
letter, each Purchaser may designate an Affiliate thereof to acquire all or any
portion of the Additional Securities.
(ii) At the Additional Closing, the parties shall deliver
or shall cause to be delivered the following: (a) the Company shall deliver to
(x) each Purchaser or its designated Affiliate, (1) the number of Additional
Shares registered in the name of such Purchaser or its designated Affiliate,
representing the shares of Common Stock to be issued and sold to such Purchaser
at the Additional Closing; (2) a legal opinion in form and substance acceptable
to the Purchasers, and (3) executed Additional Transaction Documents and the
Transfer Agent Instructions relating to the Additional Securities, and (4) a
five (5) year transferable divisible warrant in the form of the Transaction
Documents to purchase shares equal to 15% of the Additional Financing Notice
with an exercise price equal to 125% of the average of the closing bid prices
for the five day trading period immediately preceding the Additional Closing
Date with provisions for cashless exercise at the Purchaser's option and with
"piggy back" registration rights, (y) to Krieger & Prager, Esqs., $12,500 at the
First Additional Closing and $2,500 at each Additional Closing thereof, as
reimbursement of the legal fees and expenses incurred by the Purchasers to
prepare the Additional Transaction Documents, which amount shall be deducted by
the Purchasers from the amount due to the Company for the Additional Securities
and shall be paid directly to Krieger & Prager, Esqs., (z) the fees of Grayson &
Associates; and (b) each Purchaser shall deliver to the Company (1) its pro rata
portion of the Additional Purchase Price, in United States dollars in
immediately available funds by wire transfer to an account designated in writing
by the Company for such purpose prior to the Additional Closing Date and (2) the
executed Additional Transaction Documents.
3. Conditions precedent to the Additional Closing.
Notwithstanding anything to the contrary contained in this letter, the
commitment of a Purchaser to acquire the Additional Securities is subject to the
satisfaction or waiver by the Purchasers of each of the following conditions:
(a) Closing of Initial Shares and Initial Warrants. The Closing
shall have occurred;
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<PAGE> 3
(b) Performance by the Company. The Company shall have performed,
satisfied and complied with all covenants, agreements and conditions required by
the Transaction Documents to be performed, satisfied or complied with by the
Company between the Closing Date and the Additional Closing Date and no Event
(as defined in the Registration Rights Agreement ) shall have occurred;
(c) Underlying Shares Registration Statement. The Additional
Shares Registration Statement shall have been declared effective under the
Securities Act by the Commission and shall have remained effective at all times,
not subject to any actual or threatened stop order or subject to any actual or
threatened suspension at any time prior to the Additional Closing Date;
(d) Shares of Common Stock. The Company shall have duly reserved
the number of shares of Common Stock as required by the Additional Transaction
Documents;
(e) Closing Threshold. For the fifteen (15) Trading Days
immediately preceding both the Additional Financing Notice and the Additional
Closing Date, the weighted dollar trading volume of the Common Stock, based on
the Closing Bid Price on the Principal Market, shall be at least 1,250% of the
amount of the Additional Financing Notice and the average of the Per Share
Market Value for such fifteen (15) Trading Day period shall be greater than
$3.00.
(f) Deliveries pursuant to Additional Transaction Documents. At
the Additional Closing, the Company shall deliver the Additional Securities and
executed Additional Transaction Documents relating to the Additional Securities
in the forms contemplated by this letter.
(g) Restriction on Additional Financing. [T/B/D] Restriction on
Future Financing. (i) The Company covenants and agrees that it will not, without
the prior written consent of the Purchaser, enter into any subsequent or further
offer or sale of Common Stock or securities convertible into Common Stock
(collectively, "New Common Stock") with any third party on any date which is
thirty (30) days prior or subsequent to any Additional Closing Date.
(ii) The provisions of subparagraph (g)(i) will not apply
to (w) Common Stock issued pursuant to an exemption from registration under the
Securities Act of 1933; (x) an underwritten public offering of shares of Common
Stock or Preferred Stock; (y) an offering of convertible Preferred Stock at
market or above; or (z) the issuance of securities (other than for cash) in
connection with an acquisition, merger, consolidation, sale of assets,
disposition or the exchange of the capital stock for assets, stock or other
joint venture interests.
4. Governing Law. This letter shall be governed by and construed
and enforced in accordance with the internal laws of the State of New York,
without regard to the principles of conflicts of law thereof.
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<PAGE> 4
5. Execution. This letter may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
Please indicate your agreement with the foregoing by executing a
countersigned copy of this letter and returning the same to our attention,
whereupon effective immediately thereafter this letter shall become a legally
valid and binding agreement between the Purchasers and the Company.
We look forward to our continuing relationship.
Sincerely,
WENTWORTH LLC
By:_______________________
Name:
Title:
Agreed and accepted
December 29, 1999
ESAT, INC.
By: _______________________
Name:
Title:
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<PAGE> 1
EXHIBIT 10.15
RESIGNATION AGREEMENT
This Resignation Agreement is made between eSat, Inc. (the "Company") and
David B. Coulter ("Coulter") on March 22, 1999.
1. Coulter hereby resigns as a director and as an officer of the Company.
2. Coulter shall serve as a consultant to the Company for 36 months. The
consulting agreement may be terminated only for cause, and if
terminated earlier, Coulter shall be entitled to be paid for the
entire term. Coulter shall be paid at the rate of $10,000 per month.
If the Company is sold prior to the expiration of the 36 months, then
Coulter shall be paid the difference between $360,000 and the
cumulative amount of the consulting fees paid to Coulter. The Company
shall be deemed sold if there is a tender offer that results in the
acquisition of 51% of the outstanding stock or more, or the
acquisition of the majority of the assets of the Company. As a
consultant, Coulter shall be under the direction of the board of
directors and shall only do that which the board of directors has
authorized.
3. Coulter shall retain 3,000,000 shares of common stock. The shares
shall be nonvoting and Coulter shall not be entitled to vote the
shares on any matter. After the expiration of one year, if Coulter
sells the shares (and the shares may be sold only in accordance with
applicable law), then the purchase shall have the right to vote the
shares. All other shares above 3,000,000 shall be canceled. Coulter
warrants that he has not sold any amount of shares to any other
person.
4. Coulter shall retain warrants to purchase 1,500,000 at $3.00 per
share. The terms of the warrant shall be similar to the warrants
previously issued to Coulter.
5. Coulter shall be paid $150,000, in five equal monthly installments of
$30,000, the first payment to be made upon the execution of this
agreement.
6. Coulter shall be entitled to the use of an office at the Company's
headquarters for a period up to 12 months. Coulter shall be entitled
to a business card with the designation of "Founder".
7. Coulter and the Company shall prepare and execute a formal general
mutual release.
<PAGE> 2
8. The board of directors acknowledges that Coulter sold warrants for
$500,000.
The parties acknowledge their agreement by affixing their signatures below.
/s/ David B. Coulter
- ----------------------------------
David B. Coulter
eSat, Inc.
By /s/ Chet Noblett
- ----------------------------------
Chet Noblett
By /s/ Sal Piraino
- ----------------------------------
Sal Piraino
By /s/ Gary Pan
- ----------------------------------
Gary Pan
By /s/ William Sarpalius
- ----------------------------------
William Sarpalius
<PAGE> 1
EXHIBIT 10.16
EXODUS COMMUNICATIONS, INC.
MASTER SERVICES AGREEMENT
THIS MASTER SERVICES AGREEMENT (the "Agreement") between Exodus Communications,
Inc. ("Exodus") and _____eSAT,_Inc.___________ ("Customer") is made effective as
of date indicated below the Customer signature on the initial Order Form
submitted by Customer and accepted by Exodus.
1. OVERVIEW.
1.1 General. This Agreement states the terms and conditions by which
Exodus will deliver and Customer will receive any or all of the services
provided by Exodus, including facilities, bandwidth, managed services and
professional services. If Customer purchases any equipment from Exodus (as
indicated in the Order Form(s) described below), the terms and conditions by
which Customer purchases and Exodus sells such equipment are stated in Addendum
A attached hereto. Only this Section 1.1 and Addendum A shall apply to the
purchase and sale of equipment. The specific services and/or products to be
provided hereunder are identified in the Order Form(s) submitted by Customer and
accepted by Exodus and described in detail in the Specification Sheets and
Statements of Work attached to each Order Form. Each Order Form (with the
attached Specification Sheet(s) and Statement(s) of Work) submitted, accepted
and executed by both parties is hereby incorporated by reference into this
Agreement. This Agreement is intended to cover any and all Services ordered by
Customer and provided by Exodus. In the event that any terms set forth herein
apply specifically to a service not ordered by Customer, such terms shall not
apply to Customer.
1.2 Definitions.
(a) "Customer Area" means that portion(s) of the Internet Data
Center(s) made available to Customer for the placement of Customer Equipment
and/or Exodus Supplied Equipment and use of the Service(s).
(b) "Customer Equipment" means the Customer's computer hardware,
not including stored data, and other tangible equipment placed by Customer in
the Customer Area. The Customer Equipment shall be identified on Exodus'
standard customer equipment list completed and delivered by Customer to Exodus,
as amended in writing from time to time by Customer.
(c) "Customer Registration Form" means the list that contains the
names and contact information (e.g. pager, email and telephone numbers) of
Customer and the individuals authorized by Customer to enter the Internet Data
Center(s) and Customer Area, as delivered by Customer to Exodus and amended in
writing from time to time by Customer.
(d) "Customer Technology" means Customer's proprietary
technology, including Customer's Internet operations design, content, software
tools, hardware designs, algorithms, software (in source and object forms), user
interface designs, architecture, class libraries, objects and documentation
(both printed and electronic), know-how, trade secrets and any related
intellectual property rights throughout the world (whether owned by Customer or
licensed to Customer from a third party) and also including any derivatives,
improvements, enhancements or extensions of Customer Technology conceived,
reduced to practice, or developed during the term of this Agreement by Customer.
(e) "Exodus Supplied Equipment" means the computer hardware,
software and other tangible equipment and intangible computer code contained
therein to be provided by Exodus for use by Customer as set forth on the Order
Form(s).
(f) "Exodus Technology" means Exodus' proprietary technology,
including Exodus Services, software tools, hardware designs, algorithms,
software (in source and object forms), user interface designs, architecture,
class libraries, objects and documentation (both printed and electronic),
network designs, know-how, trade secrets and any related intellectual property
rights throughout the world (whether owned by Exodus or licensed to Exodus from
a third party) and also including any derivatives, improvements, enhancements or
extensions of Exodus Technology conceived, reduced to practice, or developed
during the term of this Agreement by either party that are not uniquely
applicable to Customer or that have general applicability in the art.
(g) "Initial Term" means the minimum term for which Exodus will
provide the Service(s) to Customer, as indicated on the Order Form(s). Except as
otherwise expressly provided in this Agreement, Exodus is obligated to provide
and Customer is obligated to pay for each Service through its Initial Term and
any Renewal Term.
(h) "Internet Data Center(s)" means any of the facilities used by
Exodus to provide the Service(s).
(i) "Professional Services" means any non-standard professional
or consulting service provided by Exodus to Customer as more fully described in
a Statement of Work.
(j) "Renewal Term" means any service term following the Initial
Term, as specified in Section 2.2.
(k) "Representatives" mean the individuals identified in writing
on the Customer Registration Form and authorized by Customer to enter the
Internet Data Center(s) and the Customer Area.
(l) "Rules and Regulations" means the Exodus general rules and
regulations governing Customer's use of Services, including, but not limited to,
online conduct, and the obligations of Customer and its Representatives in the
Internet Data Centers.
(m) "Service(s)" means the specific service(s) provided by Exodus
as described on the Order Form(s).
(n) "Service Commencement Date" means the date Exodus will begin
providing the Service(s) to Customer, as indicated in a Notice of Service
Commencement delivered by Exodus to Customer.
(o) "Service Level Warranty" is described and defined in Section
5.2 below.
(p) "Specification Sheet" means the detailed description for each
Service, other than Professional Services, ordered by Customer that is attached
to an Order Form(s).
(q) "Statement of Work" means the detailed description(s) of the
Professional Services attached to (an) Order Form(s).
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<PAGE> 2
(r) "Work" means any tangible deliverable provided by Exodus to
Customer as described in the Statement of Work for any Professional Service.
2. DELIVERY OF SERVICES; TERMS; FEES.
2.1 Delivery of Services.
(a) General. By submitting an Order Form, Customer agrees to take
and pay for, and, by accepting the Order Form, Exodus agrees to provide, the
Service(s) during the Initial Term and for any Renewal Term, as specified in
paragraph 2.2(b) below.
(b) Delivery of Supplemental Services. The purpose of this
provision is to enable Exodus to provide Customer with certain limited services
and equipment needed by Customer on a "one-off" or emergency basis
("Supplemental Services") where such services are not included within the scope
of the Services as described in the Specification Sheets and/or Statement of
Work. Supplemental Service may include, as an example, a request from Customer
to Exodus via telephone that Exodus immediately replace a problem Customer
server with an Exodus server for a temporary period of time. Exodus shall notify
Customer of the fees for any Supplemental Services requested by Customer and
obtain Customer's approval prior to providing such services. In the event Exodus
reasonably determines that Supplemental Services are required on an emergency
basis, Exodus may provide such services without the consent of Customer,
thereafter provide notice of the services to Customer and bill Customer a
reasonable fee for such services. Customer agrees to pay Exodus the fees charged
by Exodus for Supplemental Services. Customer will be charged for Supplemental
Services in the invoice issued the month following delivery of the services.
Exodus will use commercially reasonable efforts to provide Supplemental
Services, provided that Exodus has no obligation to determine the need for or
provide Supplemental Services. All Supplemental Services provided pursuant to
this paragraph 2.1(b) are provided on an "as-is" basis and exclude warranties of
any kind, whether express or implied.
2.2 Term.
(a) Term Commencement. The term for each Service will commence on
the Service Commencement Date indicated in the Notice of Service Commencement
delivered by Exodus to Customer when Exodus begins providing each Service to
Customer.
(b) Renewal Term(s). Each Service will continue automatically for
additional terms equal to the Initial Term ("Renewal Term") unless Customer
notifies Exodus in writing at least thirty (30) days prior to the end of the
Initial Term or a Renewal Term, as applicable, that it has elected to terminate
such Service, in which case such Service shall terminate at the end of such
term. The termination of any Service will not affect Customer's obligations to
pay for other Service(s). Notwithstanding the foregoing, Exodus may change or
increase the prices it charges Customer for any Service at any time after the
Initial Term effective thirty (30) days after providing notice to Customer. This
paragraph 2.2(b) does not apply to Exodus Supplied Equipment which is only
provided for the Initial Term.
3. FEES AND PAYMENT TERMS.
3.1 Fees and Expenses. Customer will pay all fees due according to the
prices and terms listed in the Order Form(s). The prices listed in the Order
Form(s) will remain in effect during the Initial Term indicated in the Order
Form(s) and will continue thereafter, unless modified in accordance with Section
2.2. Customer also agrees to reimburse Exodus for actual out-of-pocket
reasonable expenses incurred in providing Professional Services to Customer.
3.2 Payment Terms. On the Service Commencement Date for each Service,
Customer will be billed an amount equal to all non-recurring charges indicated
in the Order Form and the monthly recurring charges for the first month of the
term. Monthly recurring charges for all other months will be billed in advance
of the provision of Services. All other charges for Services received and
expenses incurred for Professional Services during a month (e.g., bandwidth
usage fees, travel expenses) will be billed at the end of the month in which the
Services were provided. Payment for all fees is due upon receipt of each Exodus
invoice. All payments will be made in the United States in U.S. dollars.
3.3 Late Payments. Any payment not received within thirty (30) days of
the invoice date will accrue interest at a rate of one and one-half percent (1
_%) per month, or the highest rate allowed by applicable law, whichever is
lower. If Customer is delinquent in its payments, Exodus may, upon written
notice to Customer, modify the payment terms to require full payment before the
provision of all Services and Exodus Supplied Equipment or require other
assurances to secure Customer's payment obligations hereunder.
3.4 Taxes. All fees charged by Exodus for Services are exclusive of all
taxes and similar fees now in force or enacted in the future imposed on the
transaction and/or the delivery of Services, all of which Customer will be
responsible for and will pay in full, except for taxes based on Exodus' net
income.
4. CONFIDENTIAL INFORMATION; INTELLECTUAL PROPERTY OWNERSHIP; LICENSE GRANTS.
4.1 Confidential Information.
(a) Nondisclosure of Confidential Information. Each party
acknowledges that it will have access to certain confidential information of the
other party concerning the other party's business, plans, customers, technology,
and products, and other information held in confidence by the other party
("Confidential Information"). Confidential Information will include all
information in tangible or intangible form that is marked or designated as
confidential or that, under the circumstances of its disclosure, should be
considered confidential. Confidential Information will also include, but not be
limited to, Exodus Technology, Customer Technology, and the terms and conditions
of this Agreement. Each party agrees that it will not use in any way, for its
own account or the account of any third party, except as expressly permitted by,
or required to achieve the purposes of, this Agreement, nor disclose to any
third party (except as required by law or to that party's attorneys, accountants
and other advisors as reasonably necessary), any of the other party's
Confidential Information and will take reasonable precautions to protect the
confidentiality of such information, at least as stringent as it takes to
protect its own Confidential Information.
(b) Exceptions. Information will not be deemed Confidential
Information hereunder if such information: (i) is known to the receiving party
prior to receipt from the disclosing party directly or indirectly from a source
other than one having an obligation of confidentiality to the disclosing party;
(ii) becomes known (independently of disclosure by the disclosing party) to the
receiving party directly or indirectly from a source other than one having an
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obligation of confidentiality to the disclosing party; (iii) becomes publicly
known or otherwise ceases to be secret or confidential, except through a breach
of this Agreement by the receiving party; or (iv) is independently developed by
the receiving party. The receiving party may disclose Confidential Information
pursuant to the requirements of a governmental agency or by operation of law,
provided that it gives the disclosing party reasonable prior written notice
sufficient to permit the disclosing party to contest such disclosure.
4.2 Intellectual Property.
(a) Ownership. Except for the rights expressly granted herein and
the assignment expressly made in paragraph 4.4(a), this Agreement does not
transfer from Exodus to Customer any Exodus Technology, and all right, title and
interest in and to Exodus Technology will remain solely with Exodus. Except for
the rights expressly granted herein, this Agreement does not transfer from
Customer to Exodus any Customer Technology, and all right, title and interest in
and to Customer Technology will remain solely with Customer. Exodus and Customer
each agrees that it will not, directly or indirectly, reverse engineer,
decompile, disassemble or otherwise attempt to derive source code or other trade
secrets from the other party.
(b) General Skills and Knowledge. Notwithstanding anything to the
contrary in this Agreement, Exodus will not be prohibited or enjoined at any
time by Customer from utilizing any skills or knowledge of a general nature
acquired during the course of providing the Services, including, without
limitation, information publicly known or available or that could reasonably be
acquired in similar work performed for another customer of Exodus.
4.3 License Grants.
(a) By Exodus. Exodus hereby grants to Customer a nonexclusive,
royalty-free license, during the term of this Agreement, to use the Exodus
Technology solely for purposes of using the Service(s). Customer shall have no
right to use the Exodus Technology for any purpose other than using the
Service(s).
(b) By Customer. Customer agrees that if, in the course of
performing the Service(s), it is necessary for Exodus to access Customer
Equipment and use Customer Technology, Exodus is hereby granted and shall have a
nonexclusive, royalty-free license, during the term of this Agreement, to use
the Customer Technology solely for the purposes of delivering the Service(s) to
Customer. Exodus shall have no right to use the Customer Technology for any
purpose other than providing the Service(s).
4.4 Professional Services; Assignments and License.
(a) Assignment of Work. Effective at the time Exodus receives
full and final payment for the Professional Service, Exodus assigns to Customer
all right, title and interest, including all intellectual property rights, in
the Work, provided, however, that such assignment does not include the Exodus
Technology.
(b) License Grant. Commencing at the time Exodus receives full
and final payment for the Work, Exodus grants to Customer a non-exclusive,
non-transferable, royalty free, perpetual license to use the Exodus Technology
incorporated into the Work solely in connection with the use of the Work as a
whole. To the extent that Customer or its employees or contractors participate
in the creation or development of Exodus Technology, Customer, on behalf of
itself and its employees and contractors, hereby assigns to Exodus all right,
title and interest, including all intellectual property rights in, the Exodus
Technology.
5. EXODUS REPRESENTATIONS AND WARRANTIES.
5.1 General.
(a) Authority and Performance of Exodus. Exodus represents and
warrants that (i) it has the legal right to enter into this Agreement and
perform its obligations hereunder, and (ii) the performance of its obligations
and delivery of the Services to Customer will not violate any applicable U.S.
laws or regulations, including OSHA requirements, or cause a breach of any
agreements with any third parties. In the event of a breach of the warranties
set forth in this paragraph 5.1(a), Customer's sole remedy is termination
pursuant to Section 10 of the Agreement.
(b) Year 2000 Performance Compliance. Exodus warrants that none
of the computer hardware and software systems and equipment incorporated into or
utilized in the delivery of the Services contains any date dependent routines or
logic which will fail to operate correctly after December 31, 1999, by reason of
such date dependence; provided, however, that no representation or warranty is
made as to the adequacy of any Customer or third party service provider hardware
or software used in connection with the Services. In the event of any breach of
the warranties under this paragraph 5.1(b), Customer's sole remedy is
termination pursuant to Section 10 of the Agreement.
5.2. Service Level Warranty. In the event that Customer experiences any
of the service performance issues defined in this Section 5.2 as a result of
Exodus' failure to provide bandwidth or facility services, Exodus will, upon
Customer's request in accordance with paragraph 5.2(d) below, credit Customer's
account as described below (the "Service Level Warranty"). The Service Level
Warranty shall not apply to any services other than bandwidth and facility
services, and, shall not apply to performance issues (i) caused by factors
outside of Exodus' reasonable control; (ii) that resulted from any actions or
inactions of Customer or any third parties; or (iii) that resulted from
Customer's equipment and/or third party equipment (not within the sole control
of Exodus).
(a) Service Warranty Definitions. For purposes of this Agreement,
the following definitions shall apply only to the Services (not including
Professional Services).
(i) "Downtime" shall mean sustained packet loss in excess
of fifty percent (50%) within Exodus' U.S. network for fifteen (15) consecutive
minutes due to the failure of Exodus to provide Service(s) for such period.
Downtime shall not include any packet loss or network unavailability during
Exodus' scheduled maintenance of the Internet Data Centers, network and
Service(s), as described in the Rules and Regulations.
(ii) "Excess Latency" shall mean transmission latency in
excess of one hundred twenty (120) milliseconds round trip time between any two
points within Exodus' U.S. network.
(iii) "Excess Packet Loss" shall mean packet loss in
excess of one percent (1%) between any two points within Exodus' U.S. network.
(iv) "Performance Problem" shall mean Excess Packet Loss
and/or Excess Latency.
(v) "Service Credit" shall mean an amount equal to the
pro-rata monthly recurring connectivity charges (i.e., all
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monthly recurring bandwidth-related charges) for one (1) day of Service.
(b) Downtime Periods. In the event Customer experiences Downtime,
Customer shall be eligible to receive from Exodus a Service Credit for each
Downtime period. Examples: If Customer experiences one Downtime period, it shall
be eligible to receive one Service Credit. If Customer experiences two Downtime
periods, either from a single event or multiple events, it shall be eligible to
receive two Service Credits.
(c) Performance Problem; Packet Loss and Latency. In the event
that Exodus discovers or is notified by Customer that Customer is experiencing a
Performance Problem, Exodus will take all actions necessary to determine the
source of the Performance Problem.
(i) Time to Discover Source of Performance Problem;
Notification of Customer. Within two (2) hours of discovering or receiving
notice of the Performance Problem, Exodus will determine whether the source of
the Performance Problem is limited to the Customer Equipment and the Exodus
equipment connecting the Customer Equipment to the Exodus LAN. If Exodus
determines that the Customer Equipment and Exodus connection are not the source
of the Performance Problem, Exodus will determine the source of the Performance
Problem within an additional two (2) hour period. In any event, Exodus will
notify Customer of the source of the Performance Problem within sixty (60)
minutes of identifying the source.
(ii) Remedy of Packet Loss and Latency. If the source of
the Performance Problem is within the sole control of Exodus, Exodus will remedy
the Performance Problem within two (2) hours of determining the source of the
Performance Problem. If the source of and remedy to the Performance Problem
reside outside of the Exodus LAN or WAN, Exodus will use commercially reasonable
efforts to notify the party(ies) responsible for the source of the Performance
Problem and cooperate with it (them) to resolve such problem as soon as
possible.
(iii) Failure to Determine Source and/or Remedy. In the
event that Exodus (A) is unable to determine the source of the Performance
Problem within the time periods described in subsection (i) above and/or; (B) is
the sole source of the Performance Problem and is unable to remedy such
Performance Problem within the time period described in subsection (ii) above,
Exodus will deliver a Service Credit to Customer for each two (2) hour period in
excess of the time periods for identification and resolution described above.
(d) Customer Must Request Service Credit. In order to receive any
of the Service Credits described in this Section 5.2, Customer must notify
Exodus within seven (7) days from the time Customer becomes eligible to receive
a Service Credit. Failure to comply with this requirement will forfeit
Customer's right to receive a Service Credit.
(e) Remedies Shall Not Be Cumulative; Maximum Service Credit. The
aggregate maximum number of Service Credits to be issued by Exodus to Customer
for any and all Downtime periods and Performance Problems that occur in a single
calendar month shall not exceed seven (7) Service Credits. A Service Credit
shall be issued in the Exodus invoice in the month following the Downtime or
Performance Problem, unless the Service Credit is due in Customer's final month
of Service. In such case, a refund for the dollar value of the Service Credit
will be mailed to Customer. Customer shall also be eligible to receive a
pro-rata refund for (i) Downtime periods and Performance Problems for which
Customer does not receive a Service Credit and (ii) any Services Exodus does not
deliver to Customer for which Customer has paid.
(f) Termination Option for Chronic Problems. Customer may
terminate this Agreement for cause and without penalty by notifying Exodus
within five (5) days following the end of a calendar month in the event either
of the following occurs: (i) Customer experiences more than fifteen (15)
Downtime periods resulting from three (3) or more nonconsecutive Downtime events
during the calendar month; or (ii) Customer experiences more than eight (8)
consecutive hours of Downtime due to any single event. Such termination will be
effective thirty (30) days after receipt of such notice by Exodus.
(g) THE SERVICE LEVEL WARRANTY SET FORTH IN THIS SECTION 5.2
SHALL ONLY APPLY TO THE BANDWIDTH AND FACILITIES SERVICE(S) PROVIDED BY EXODUS
AND, DOES NOT APPLY TO (I) ANY PROFESSIONAL SERVICES; (II) ANY SUPPLEMENTAL
SERVICES; AND (III) ANY SERVICE(S) THAT EXPRESSLY EXCLUDE THIS SERVICE LEVEL
WARRANTY (AS STATED IN THE SPECIFICATION SHEETS FOR SUCH SERVICES). THIS SECTION
5.2 STATES CUSTOMER'S SOLE AND EXCLUSIVE REMEDY FOR ANY FAILURE BY EXODUS TO
PROVIDE SERVICE(S).
5.3 Service Performance Warranty. Exodus warrants that it will perform
the Services in a manner consistent with industry standards reasonably
applicable to the performance thereof.
5.4 Selection of Exodus Supplied Equipment; Manufacturer Warranty.
Customer acknowledges that it has selected the Exodus Supplied Equipment and
disclaims any statements made by Exodus. Except with respect to any express
warranties for Service(s) related to Exodus Supplied Equipment, Customer
acknowledges and agrees that its use and possession of the Exodus Supplied
Equipment by Customer shall be subject to and controlled by the terms of any
manufacturer's or, if appropriate, supplier's warranty, and Customer agrees to
look solely to the manufacturer or, if appropriate, supplier with respect to all
mechanical, service and other claims, and the right to enforce all warranties
made by said manufacturer are hereby, to the extent Exodus has the right,
assigned to Customer solely for the Initial Term.
5.5 No Other Warranty. EXCEPT FOR THE EXPRESS WARRANTIES SET FORTH IN
THIS SECTION 5, THE SERVICES ARE PROVIDED ON AN "AS IS" BASIS, AND CUSTOMER'S
USE OF THE SERVICES IS AT ITS OWN RISK. EXODUS DOES NOT MAKE, AND HEREBY
DISCLAIMS, ANY AND ALL OTHER EXPRESS AND/OR IMPLIED WARRANTIES, INCLUDING, BUT
NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE,
NONINFRINGEMENT AND TITLE, AND ANY WARRANTIES ARISING FROM A COURSE OF DEALING,
USAGE, OR TRADE PRACTICE. EXODUS DOES NOT WARRANT THAT THE SERVICES WILL BE
UNINTERRUPTED, ERROR-FREE, OR COMPLETELY SECURE.
5.6 Disclaimer of Actions Caused by and/or Under the Control of Third
Parties. EXODUS DOES NOT AND CANNOT CONTROL THE FLOW OF DATA TO OR FROM EXODUS'
NETWORK AND OTHER PORTIONS OF THE INTERNET. SUCH FLOW DEPENDS IN LARGE PART ON
THE PERFORMANCE OF INTERNET SERVICES PROVIDED OR CONTROLLED BY THIRD PARTIES. AT
TIMES, ACTIONS OR INACTIONS OF SUCH THIRD PARTIES CAN IMPAIR OR DISRUPT
CUSTOMER'S CONNECTIONS TO THE INTERNET (OR PORTIONS THEREOF). ALTHOUGH EXODUS
WILL USE COMMERCIALLY REASONABLE EFFORTS TO TAKE ALL ACTIONS IT DEEMS
APPROPRIATE TO REMEDY AND AVOID SUCH EVENTS, EXODUS CANNOT GUARANTEE THAT SUCH
EVENTS WILL NOT OCCUR. ACCORDINGLY, EXODUS DISCLAIMS ANY AND ALL LIABILITY
RESULTING FROM OR RELATED TO SUCH EVENTS.
6. CUSTOMER OBLIGATIONS.
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6.1 Warranties of Customer.
(a) General. Customer represents and warrants that (i) it has the
legal right and authority, and will continue to own or maintain the legal right
and authority, during the term of this Agreement, to place and use any Customer
Equipment as contemplated under this Agreement; (ii) the performance of its
obligations and use of the Services (by Customer, its customers and users) will
not violate any applicable laws, regulations or the Rules and Regulations or
cause a breach of any agreements with any third parties or unreasonably
interfere with other Exodus customers' use of Exodus services, and (iii) all
equipment, materials and other tangible items placed by Customer at Internet
Data Centers will be used in compliance with all applicable manufacturer
specifications.
(b) Breach of Warranties. In the event of any breach of any of
the foregoing warranties, in addition to any other remedies available at law or
in equity, Exodus will have the right, in its sole reasonable discretion, to
suspend immediately any related Services if deemed reasonably necessary by
Exodus to prevent any harm to Exodus and its business. Exodus will provide
notice and opportunity to cure if practicable depending on the nature of the
breach. Once cured, Exodus will promptly restore the Service(s).
6.2 Compliance with Law and Rules and Regulations. Customer agrees that
it will use the Service(s) only for lawful purposes and in accordance with this
Agreement. Customer will comply at all times with all applicable laws and
regulations and the Rules and Regulations, as updated by Exodus from time to
time. The Rules and Regulations are incorporated herein and made a part hereof
by this reference. Exodus may change the Rules and Regulations upon fifteen (15)
days' notice to Customer, which notice may be provided by posting such new Rules
and Regulations at the Exodus Web site www.exodus.net. Customer agrees that it
has received, read and understands the current version of the Rules and
Regulations. The Rules and Regulations contain restrictions on Customer's and
Customer's users' online conduct (including prohibitions against unsolicited
commercial email) and contain financial penalties for violations of such
restrictions. Customer agrees to comply with such restrictions and, in the event
of a failure to comply, Customer agrees to pay the financial penalties in
accordance with the Rules and Regulations. Customer acknowledges that Exodus
exercises no control whatsoever over the content of the information passing
through Customer's site(s) and that it is the sole responsibility of Customer to
ensure that the information it and its users transmit and receive complies with
all applicable laws and regulations and the Rules and Regulations.
6.3 Access and Security. Except with the advanced written consent of
Exodus, Customer's access to the Internet Data Centers will be limited solely to
the Representatives. Representatives may only access the Customer Area and are
prohibited from accessing other areas of the Internet Data Center(s) unless
accompanied by an authorized Exodus representative.
6.4 Restrictions on Use of Services. Customer shall not, without the
prior written consent of Exodus (which may be withheld in its sole discretion),
resell the Services to any third parties or connect Customer Equipment directly
to anything other than the Exodus network, equipment and facilities.
6.5 Relocation of Customer Equipment. In the event that it becomes
necessary to relocate the Customer Equipment to another Customer Area or
Internet Data Center operated by Exodus, Customer will cooperate in good faith
with Exodus to facilitate such relocation, provided that such relocation is
based on reasonable business needs of Exodus (including the needs of other
Exodus customers), the expansion of the space requirements of Customer or
otherwise. Exodus shall be solely responsible for any costs and expenses
incurred by Exodus in connection with any such relocation and will use
commercially reasonable efforts, in cooperation with Customer, to minimize and
avoid any interruption to the Services.
6.6 Exodus Supplied Equipment.
(a) Delivery and Term. On or prior to the Service Commencement
Date, Exodus shall deliver to Customer, at the designated Customer Area, the
Exodus Supplied Equipment. Customer shall have the right to use the Exodus
Supplied Equipment for the Initial Term set forth in the Order Form and any
additional period agreed to in writing by Exodus. Customer shall not remove any
Exodus Supplied Equipment from the Customer Area(s) without the prior written
consent of Exodus.
(b) Title. The Exodus Supplied Equipment shall always remain the
personal property of Exodus. Customer shall have no right or interest in or to
the Exodus Supplied Equipment except as provided in this Agreement and the
applicable Order Form and shall hold the Exodus Supplied Equipment subject and
subordinate to the rights of Exodus. Customer agrees to execute UCC financing
statements as and when requested by Exodus and hereby appoints Exodus as its
attorney-in-fact to execute such financing statements on behalf of Customer.
Customer will, at its own expense, keep the Exodus Supplied Equipment free and
clear from any liens or encumbrances of any kind (except any caused by Exodus)
and will indemnify and hold Exodus harmless from and against any loss or expense
caused by Customer's failure to do so. Customer shall give Exodus immediate
written notice of any attachment or judicial process affecting the Exodus
Supplied Equipment or Exodus' ownership. Customer will not remove, alter or
destroy any labels on the Exodus Supplied Equipment stating that it is the
property of Exodus and shall allow the inspection of the Exodus Supplied
Equipment at any time.
(c) Use, Maintenance and Repair. Customer will, at its own
expense, keep the Exodus Supplied Equipment in good repair, appearance and
condition, other than normal wear and tear, and, if not included in the
Services, shall obtain, pay for and keep in effect through the Initial Term a
hardware and software maintenance agreement with the manufacturer or other party
acceptable to Exodus. All parts furnished in connection with such repair and
maintenance shall be manufacturer authorized parts and shall immediately become
components of the Exodus Supplied Equipment and the property of Exodus. Customer
shall use the Exodus Supplied Equipment in compliance with the manufacturer's or
supplier's suggested guidelines.
(d) Upgrades and Additions. Customer may affix or install any
accessory, addition, upgrade, equipment or device on to the Exodus Supplied
Equipment (other than electronic data) ("Additions") provided that such
Additions (i) can be removed without causing material damage to the Exodus
Supplied Equipment; (ii) do not reduce the value of the Exodus Supplied
Equipment and (iii) are obtained from or approved in writing by Exodus and are
not subject to the interest of any third party other than Exodus. Any other
Additions may not be installed without Exodus' prior written consent. At the end
of the Initial Term, Customer shall remove any Additions which (i) were not
provided by Exodus and (ii) are readily removable without causing material
damage or impairment of the intended
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function, use, or value of the Exodus Supplied Equipment, and restore the Exodus
Supplied Equipment to its original configuration. Any Additions, which are not
so removable, will become the property of Exodus (lien free).
7. INSURANCE.
7.1 Exodus Minimum Levels. Exodus agrees to keep in full force and effect
during the term of this Agreement: (i) comprehensive general liability insurance
in an amount not less than $2 million per occurrence for bodily injury and
property damage and (ii) workers' compensation insurance in an amount not less
than that required by applicable law. Exodus agrees that it will ensure and be
solely responsible for ensuring that its contractors and subcontractors maintain
insurance coverage at levels no less than those required by applicable law and
customary in Exodus' and its agents' industries.
7.2 Customer Minimum Levels. In order to provide customers with physical
access to facilities operated by Exodus and equipment owned by third parties,
Exodus is required by its insurers to ensure that each Exodus customer maintains
adequate insurance coverage. Customer agrees to keep in full force and effect
during the term of this Agreement: (i) comprehensive general liability insurance
in an amount not less than $2 million per occurrence for bodily injury and
property damage and (ii) workers compensation insurance in an amount not less
than that required by applicable law. Customer agrees that it will ensure and be
solely responsible for ensuring that its agents (including contractors and
subcontractors) maintain insurance coverage at levels no less than those
required by applicable law and customary in Customer's and its agents'
industries.
7.3 Certificates of Insurance; Naming Exodus as an Additional Insured.
Prior to installation of any Customer Equipment in the Customer Area, Customer
will (i) deliver to Exodus certificates of insurance which evidence the minimum
levels of insurance set forth above; and (ii) cause its insurance provider(s) to
name Exodus as an additional insured and notify Exodus in writing of the
effective date thereof.
8. LIMITATIONS OF LIABILITY.
8.1 Personal Injury. EACH REPRESENTATIVE AND ANY OTHER PERSON VISITING AN
INTERNET DATA CENTER DOES SO AT ITS OWN RISK. EXODUS ASSUMES NO LIABILITY
WHATSOEVER FOR ANY HARM TO SUCH PERSONS RESULTING FROM ANY CAUSE OTHER THAN THE
NEGLIGENCE OR WILLFUL MISCONDUCT OF EXODUS.
8.2 Damage to Customer Equipment. EXODUS ASSUMES NO LIABILITY FOR ANY
DAMAGE TO, OR LOSS OF, ANY CUSTOMER EQUIPMENT RESULTING FROM ANY CAUSE OTHER
THAN THE NEGLIGENCE OR WILLFUL MISCONDUCT OF EXODUS. TO THE EXTENT EXODUS IS
LIABLE FOR ANY DAMAGE TO, OR LOSS OF, CUSTOMER EQUIPMENT FOR ANY REASON, SUCH
LIABILITY WILL BE LIMITED SOLELY TO THE THEN-CURRENT REPLACEMENT VALUE OF THE
CUSTOMER EQUIPMENT, EXCLUDING LOST DATA, SOFTWARE AND FIRMWARE.
8.3. CONSEQUENTIAL DAMAGES WAIVER. EXCEPT FOR A BREACH OF SECTION 4.1
("CONFIDENTIAL INFORMATION") OF THIS AGREEMENT, IN NO EVENT WILL EITHER PARTY BE
LIABLE OR RESPONSIBLE TO THE OTHER FOR ANY TYPE OF INCIDENTAL, PUNITIVE,
INDIRECT OR CONSEQUENTIAL DAMAGES, INCLUDING, BUT NOT LIMITED TO, LOST REVENUE,
LOST PROFITS, REPLACEMENT GOODS, LOSS OF TECHNOLOGY, RIGHTS OR SERVICES, LOSS OF
DATA, OR INTERRUPTION OR LOSS OF USE OF SERVICE OR EQUIPMENT, EVEN IF ADVISED OF
THE POSSIBILITY OF SUCH DAMAGES, WHETHER ARISING UNDER THEORY OF CONTRACT, TORT
(INCLUDING NEGLIGENCE), STRICT LIABILITY OR OTHERWISE.
8.4. Basis of the Bargain; Failure of Essential Purpose. The parties
acknowledge that Exodus has set its prices and entered into this Agreement in
reliance upon the limitations of liability and the disclaimers of warranties and
damages set forth herein, and that the same form an essential basis of the
bargain between the parties. The parties agree that the limitations and
exclusions of liability and disclaimers specified in this Agreement will survive
and apply even if found to have failed of their essential purpose.
9. INDEMNIFICATION.
9.1. Indemnification. Each party will indemnify, defend and hold the
other harmless from and against any and all costs, liabilities, losses, and
expenses (including, but not limited to, reasonable attorneys' fees)
(collectively, "Losses") resulting from any claim, suit, action, or proceeding
(each, an "Action") brought by any third party against the other or its
affiliates alleging (i) the infringement or misappropriation of any intellectual
property right relating to the delivery or use of the Service(s) (but excluding
any infringement contributorily caused by the other party); (ii) personal injury
caused by the negligence or willful misconduct of the other party; and (iii) any
violation of or failure to comply with the Rules and Regulations. Customer will
indemnify, defend and hold Exodus, its affiliates and customers harmless from
and against any and all Losses resulting from or arising out of any Action
brought against Exodus, its affiliates or customers alleging any damage or
destruction to the Customer Area, the Internet Data Centers, Exodus equipment or
other customer equipment caused by Customer, its Representative(s) or designees.
9.2 Notice. Each party's indemnification obligations hereunder shall be
subject to (i) receiving prompt written notice of the existence of any Action;
(ii) being able to, at its option, control the defense of such Action; (iii)
permitting the indemnified party to participate in the defense of any Action;
and (iv) receiving full cooperation of the indemnified party in the defense
thereof.
10. TERMINATION.
10.1. Termination For Cause. Either party may terminate this Agreement
if: (i) the other party breaches any material term or condition of this
Agreement and fails to cure such breach within thirty (30) days after receipt of
written notice of the same, except in the case of failure to pay fees, which
must be cured within five (5) days after receipt of written notice from Exodus;
(ii) the other party becomes the subject of a voluntary petition in bankruptcy
or any voluntary proceeding relating to insolvency, receivership, liquidation,
or composition for the benefit of creditors; or (iii) the other party becomes
the subject of an involuntary petition in bankruptcy or any involuntary
proceeding relating to insolvency, receivership, liquidation, or composition for
the benefit of creditors, if such petition or proceeding is not dismissed within
sixty (60) days of filing. Customer may also terminate this Agreement in
accordance with the terms set forth in paragraph 5.2(f) ("Termination Option For
Chronic Problems") of this Agreement.
10.2 No Liability for Termination. Neither party will be liable to the
other for any termination or expiration of any Service or this Agreement in
accordance with its terms.
10.3. Effect of Termination. Upon the effective date of termination of
this Agreement:
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(a) Exodus will immediately cease providing the Service(s);
(b) any and all payment obligations of Customer under this
Agreement for Service(s) provided through the date of termination will
immediately become due;
(c) within thirty (30) days of such termination, each party will
return all Confidential Information of the other party in its possession and
will not make or retain any copies of such Confidential Information except as
required to comply with any applicable legal or accounting record keeping
requirement; and
(d) within five (5) days of such termination Customer shall (i)
remove from the Internet Data Centers all Customer Equipment (excluding any
Exodus Supplied Equipment) and any other Customer property; (ii) deliver or make
available all Exodus Supplied Equipment to an authorized representative of
Exodus, and (iii) return the Customer Area to Exodus in the same condition as it
was on the Service Commencement Date for the Customer Area, normal wear and tear
excepted. If Customer does not remove the Customer Equipment and its other
property within such five-day period, Exodus will have the option to (i) move
any and all such property to secure storage and charge Customer for the cost of
such removal and storage, and/or (ii) liquidate the property in any reasonable
manner.
10.4. Customer Equipment as Security. In the event that Customer fails to
pay Exodus all undisputed amounts owed Exodus under this Agreement when due,
Customer agrees that, upon delivery of written notice to Customer, Exodus may
(i) restrict Customer's physical access to the Customer Area and Equipment;
and/or (ii) take possession of any Customer Equipment and store it, at
Customer's expense, until taken in full or partial satisfaction of any lien or
judgment, all without being liable to prosecution or for damages.
10.5. Survival. The following provisions will survive any expiration or
termination of the Agreement: Sections 3, 4.1, 4.2, 4.4, 5.5, 6.6(d), 8, 9, 10
and 11 (excluding 11.2).
11. MISCELLANEOUS PROVISIONS.
11.1 Force Majeure. Except for the obligation to make payments, neither
party will be liable for any failure or delay in its performance under this
Agreement due to any cause beyond its reasonable control, including acts of war,
acts of God, earthquake, flood, embargo, riot, sabotage, labor shortage or
dispute, governmental act or failure of the Internet (not resulting from the
actions or inactions of Exodus), provided that the delayed party: (a) gives the
other party prompt notice of such cause, and (b) uses its reasonable commercial
efforts to promptly correct such failure or delay in performance. If Exodus is
unable to provide Service(s) for a period of thirty (30) consecutive days as a
result of a continuing force majeure event, Customer may cancel the Service(s).
11.2 No Lease; Agreement Subordinate to Master Lease. This Agreement is a
services agreement and is not intended to and will not constitute a lease of any
real property. Customer acknowledges and agrees that (i) it has been granted
only a license to occupy the Customer Area and use the Internet Data Centers and
any equipment provided by Exodus in accordance with this Agreement; (ii)
Customer has not been granted any real property interest in the Customer Area or
Internet Data Centers; (iii) Customer has no rights as a tenant or otherwise
under any real property or landlord/tenant laws, regulations, or ordinances;
(iv) this Agreement, to the extent it involves the use of space leased by
Exodus, shall be subordinate to any lease between Exodus and its landlord(s);
and (v) the expiration or termination of any such lease shall terminate this
Agreement as to such property subject to Customer retaining any rights or claims
it may have against Exodus arising from the expiration or termination of such
lease. Customer hereby waives and releases any claims or rights to make a claim
that it may have against the landlord(s) under any lease by Exodus with respect
to any equipment or property of Customers' located in the premises demised to
Exodus by such landlord(s).
11.3 Marketing. Customer agrees that during the term of this Agreement
Exodus may publicly refer to Customer, orally and in writing, as a Customer of
Exodus. Any other reference to Customer by Exodus requires the written consent
of Customer.
11.4 Government Regulations. Customer will not export, re-export,
transfer, or make available, whether directly or indirectly, any regulated item
or information to anyone outside the U.S. in connection with this Agreement
without first complying with all export control laws and regulations which may
be imposed by the U.S. Government and any country or organization of nations
within whose jurisdiction Customer operates or does business.
11.5. Non-Solicitation. During the Term of this Agreement and continuing
through the first anniversary of the termination of this Agreement, Customer
agrees that it will not, and will ensure that its affiliates do not, directly or
indirectly, solicit or attempt to solicit for employment any persons employed by
Exodus or contracted by Exodus to provide Services to Customer.
11.6. No Third Party Beneficiaries. Exodus and Customer agree that,
except as otherwise expressly provided in this Agreement, there shall be no
third party beneficiaries to this Agreement, including but not limited to the
insurance providers for either party or the customers of Customer.
11.7. Governing Law; Dispute Resolution. This Agreement is made under and
will be governed by and construed in accordance with the laws of the State of
California (except that body of law controlling conflicts of law) and
specifically excluding from application to this Agreement that law known as the
United Nations Convention on the International Sale of Goods. The parties will
endeavor to settle amicably by mutual discussions any disputes, differences, or
claims whatsoever related to this Agreement. Failing such amicable settlement,
any controversy, claim, or dispute arising under or relating to this Agreement,
including the existence, validity, interpretation, performance, termination or
breach thereof, shall finally be settled by arbitration in accordance with the
Arbitration Rules (and if Customer is a non-U.S. entity, the International
Arbitration Rules) of the American Arbitration Association ("AAA"). There will
be three (3) arbitrators (the "Arbitration Tribunal"), the first of which will
be appointed by the claimant in its notice of arbitration, the second of which
will be appointed by the respondent within thirty (30) days of the appointment
of the first arbitrator and the third of which will be jointly appointed by the
party-appointed arbitrators within thirty (30) days thereafter. The language of
the arbitration shall be English. The Arbitration Tribunal will not have the
authority to award punitive damages to either party. Each party shall bear its
own expenses, but the parties will share equally the expenses of the Arbitration
Tribunal and the AAA. This Agreement will be enforceable, and any arbitration
award will be final, and judgment thereon may be entered in any court of
competent jurisdiction. The arbitration will be held in San Francisco,
California, USA. Notwithstanding the foregoing, claims for preliminary
injunctive relief, other pre-judgment remedies,
Page 7
<PAGE> 8
and claims for Customer's failure to pay for Services in accordance with this
Agreement may be brought in a state or federal court in the United States with
jurisdiction over the subject matter and parties.
11.8. Severability; Waiver. In the event any provision of this Agreement
is held by a tribunal of competent jurisdiction to be contrary to the law, the
remaining provisions of this Agreement will remain in full force and effect. The
waiver of any breach or default of this Agreement will not constitute a waiver
of any subsequent breach or default, and will not act to amend or negate the
rights of the waiving party.
11.9. Assignment. Customer may assign this Agreement in whole as part of
a corporate reorganization, consolidation, merger, or sale of substantially all
of its assets. Customer may not otherwise assign its rights or delegate its
duties under this Agreement either in whole or in part without the prior written
consent of Exodus, and any attempted assignment or delegation without such
consent will be void. Exodus may assign this Agreement in whole or part. Exodus
also may delegate the performance of certain Services to third parties,
including Exodus' wholly owned subsidiaries, provided Exodus controls the
delivery of such Services to Customer and remains responsible to Customer for
the delivery of such Services. This Agreement will bind and inure to the benefit
of each party's successors and permitted assigns.
11.10 Notice. Any notice or communication required or permitted to be
given hereunder may be delivered by hand, deposited with an overnight courier,
sent by email, confirmed facsimile, or mailed by registered or certified mail,
return receipt requested, postage prepaid, in each case to the address of the
receiving party as listed on the Order Form or at such other address as may
hereafter be furnished in writing by either party to the other party. Such
notice will be deemed to have been given as of the date it is delivered, mailed,
emailed, faxed or sent, whichever is earlier.
11.11. Relationship of Parties. Exodus and Customer are independent
contractors and this Agreement will not establish any relationship of
partnership, joint venture, employment, franchise or agency between Exodus and
Customer. Neither Exodus nor Customer will have the power to bind the other or
incur obligations on the other's behalf without the other's prior written
consent, except as otherwise expressly provided herein.
11.12. Entire Agreement; Counterparts; Originals. This Agreement,
including all documents incorporated herein by reference, constitutes the
complete and exclusive agreement between the parties with respect to the subject
matter hereof, and supersedes and replaces any and all prior or contemporaneous
discussions, negotiations, understandings and agreements, written and oral,
regarding such subject matter. Any additional or different terms in any purchase
order or other response by Customer shall be deemed objected to by Exodus
without need of further notice of objection, and shall be of no effect or in any
way binding upon Exodus. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original, but all of which
together shall constitute one and the same instrument. Once signed, any
reproduction of this Agreement made by reliable means (e.g., photocopy,
facsimile) is considered an original. This Agreement may be changed only by a
written document signed by authorized representatives of Exodus and Customer in
accordance with this Section 11.12. For purposes of this Agreement, the term
"written" means anything reduced to a tangible form by a party, including a
printed or hand written document, e-mail or other electronic format.
11.13 Interpretation of Conflicting Terms. In the event of a conflict
between or among the terms in this Agreement, the Order Form(s), the
Specification Sheet(s), the Statement(s) of Work, and any other document made a
part hereof, the documents shall control in the following order: the Order Form
with the latest date, the Statement of Work, Specification Sheets, the Agreement
and other documents.
Page 8
<PAGE> 9
Authorized representatives of Customer and Exodus have read the foregoing and
all documents incorporated therein and agree and accept such terms effective as
of the date first above written.
CUSTOMER EXODUS COMMUNICATIONS, INC.
Signature: /s/ Michael C. Palmer Signature: /s/ Debbie Howard
---------------------- ----------------------
Print Name: Michael C. Palmer Print Name: Debbie Howard
--------------------- ---------------------
Title: Chief Executive Officer Title: Contracts
-------------------------- --------------------------
Date: December 30, 1999 Date: January 11, 2000
-------------------------- --------------------------
This Agreement incorporates the following documents:
- - Order Form(s)
Specification Sheet(s)
Statement(s) Of Work (if applicable)
- - Registration Form
- - Addendum A - Equipment Purchase Terms and Conditions (if applicable)
Page 9
<PAGE> 10
ADDENDUM A
EQUIPMENT PURCHASE TERMS AND CONDITIONS
1. SHIPPING AND HANDLING. All equipment purchased by Customer (the
"Equipment") is provided FOB vendor facility. Shipment will be made as specified
by Customer and Customer is solely responsible for all expenses in connection
with the delivery of the Equipment. The Equipment will be deemed accepted by
Customer upon shipment.
2. PURCHASE PRICE AND TAXES. Customer shall pay to Exodus the purchase
price set forth in the applicable Order Form ("Purchase Price") for each item of
Equipment. Customer hereby grants and Exodus reserves a purchase money security
interest in the Equipment and the proceeds thereof as a security for its
obligations hereunder until payment of the full Purchase Price to Exodus. The
Purchase Price is due and payable within thirty (30) days of shipment of the
Equipment. Customer shall pay all taxes and other governmental charges assessed
in connection with the sale, use or possession of the Equipment including,
without limitation, any and all sales and/or use taxes and personal property
taxes (other than taxes on Exodus' net income).
3. TITLE. Customer shall acquire title to the Equipment upon full payment
of the purchase price(s) set forth herein. Notwithstanding the foregoing, Exodus
and any licensor of rights to Exodus shall retain title to and rights in the
intellectual property (whether or not subject to patent or copyright) and
content contained in the materials supplied under the terms of this Agreement.
4. SELECTION OF EQUIPMENT; MANUFACTURER WARRANTY. Customer acknowledges
that is has selected the Equipment and disclaims any statements made by Exodus.
Customer acknowledges and agrees that use and possession of the Equipment by
Customer shall be subject to and controlled by the terms of any manufacturer's
or, if appropriate, supplier's warranty, and Customer agrees to look solely to
the manufacturer or, if appropriate, supplier with respect to all mechanical,
service and other claims, and the right to enforce all warranties made by said
manufacturer are hereby, to the extent Exodus has the right, assigned to
Customer. THE FOREGOING WARRANTY IS THE EXCLUSIVE WARRANTY AND IS IN LIEU OF ANY
ORAL REPRESENTATION AND ALL OTHER WARRANTIES AND DAMAGES, WHETHER EXPRESSED,
IMPLIED OR STATUTORY. EXODUS HAS NOT MADE NOR DOES MAKE ANY OTHER WARRANTIES OF
ANY KIND, EXPRESSED OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY WARRANTY OF
FITNESS FOR A PARTICULAR PURPOSE, MERCHANTABILITY, OR OF NONINFRINGEMENT OF
THIRD PARTY RIGHTS AND AS TO EXODUS AND ITS ASSIGNEES, CUSTOMER PURCHASES THE
EQUIPMENT "AS IS".
5. LIMITATION OF LIABILITY. Exodus' entire liability for any damages
which may arise hereunder, for any cause whatsoever, and regardless of the form
of action, whether in contract or in tort, including Exodus' negligence, or
otherwise, shall be limited to the Purchase Price paid by Customer for the
Equipment. IN NO EVENT WILL EXODUS BE LIABLE FOR ANY SPECIAL, INDIRECT,
INCIDENTAL, OR CONSEQUENTIAL DAMAGES, OR FOR ANY LOSS OF BUSINESS OR PROSPECTIVE
BUSINESS OPPORTUNITIES, PROFITS, SAVINGS, INFORMATION, USE OR OTHER COMMERCIAL
OR ECONOMIC LOSS, EVEN IF EXODUS HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES.
6. GOVERNING LAW; DISPUTE RESOLUTION. This Agreement is made under and
will be governed by and construed in accordance with the laws of the State of
California (except that body of law controlling conflicts of law) and
specifically excluding from application to this Agreement that law known as the
United Nations Convention on the International Sale of Goods. The parties will
endeavor to settle amicably by mutual discussions any disputes, differences, or
claims whatsoever related to this Agreement. Failing such amicable settlement,
any controversy, claim, or dispute arising under or relating to this Agreement,
including the existence, validity, interpretation, performance, termination or
breach thereof, the parties to this Agreement hereby consent to jurisdiction and
venue in the courts of the state of California and in the U.S. District Courts
in the City of San Francisco, California.
7. MISCELLANEOUS. THE ABOVE TERMS AND CONDITIONS ARE THE ONLY TERMS AND
CONDITIONS UPON WHICH EXODUS IS WILLING TO SELL THE EQUIPMENT AND SUPERSEDE ALL
PREVIOUS AGREEMENTS, PROMISES OR REPRESENTATIONS, ORAL OR WRITTEN.
Page 1
<PAGE> 1
EXHIBIT 10.17
[PARKS PALMER TURNER & YEMENIDJIAN, LLP LETTERHEAD]
November 10, 1998
Mr. David Coulter
Technology Guardian, Inc.
16520 Harbor Boulevard
Building G
Fountain Valley, Ca. 92708
Dear David:
RE: ENGAGEMENT FOR C.F.O. AND CONSULTING
Parks, Palmer, Turner and Yemenidjian, LLP (PPTY) is pleased to present this
response to your proposal for Technology Guardian (TGI) to have Michael C.
Palmer act as the Chief Financial Officer.
CHIEF FINANCIAL OFFICER OPERATING OUTLINE:
1. Oversee the preparation of financial information, SEC reporting, budgets
and forecasts and review each month's results to advise on areas of performance.
2. Oversee the selection process and make recommendations as to the
appropriate outside auditing firm to certify the required audited year-end
financial statements.
3. Assist with the selection of a permanent accounting staff.
4. Help coordinate sources of capital and new acquisitions and assist with
negotiations and discussion regarding terms and conditions of these new
opportunities.
FEES AND TIMING
Fees will be based on my normal billing rate of $350.00 per hour. Invoices will
be rendered and paid monthly. Out-of-pocket costs are not included in the above
fee estimates and will be billed separately.
<PAGE> 2
Mr. David Coulter
Technology Guardian, Inc.
November 10, 1998
Page 2 of 2
FEES AND TIMING
Fees will be based on my normal billing rate of $350.00 per hour. Invoices will
be rendered and paid monthly. Out-of-pocket costs are not included in the above
fee estimates and will be billed separately.
TGI will also grant stock options for 100,000 shares of Technology Guardian,
Inc. stock @ $9.50 each as of Nov 10 '98. One year hold from exercise.
If you would like us to proceed with this engagement, please acknowledge by
signing the copy of this letter and returning it to us.
We sincerely appreciate this opportunity to be of service. If you have any
questions, we will be pleased to discuss them with you.
Sincerely,
PARKS, PALMER, TURNER & YEMENTIDJIAN, LLP
/s/ MICHAEL C. PALMER
- --------------------------------
Michael C. Palmer, Partner
MCP:mt
AGREED AND APPROVED FOR Technology Guardian, Inc. BY:
/s/ DAVID COULTER 12/14/98
- -------------------------------- ------------------------
David Coulter, President and CEO Date
<PAGE> 1
EXHIBIT 10.18
SETTLEMENT AGREEMENT AND MUTUAL RELEASE
THIS SETTLEMENT AGREEMENT AND MUTUAL RELEASE (collectively the
"Agreement") is entered into by and between Cyber Village Network, Inc.
("CVN"), Chet Noblett ("Noblett"), and Technology Guardian, Inc. ("TGI"), and
David Coulter ("Coulter").
RECITALS
WHEREAS, on August 6, 1997, the parties entered into an agreement (the
"Option Agreement") whereby TGI granted the following options to CVN: (i) an
option to purchase ten percent (10%) of the authorized and issued shares of
TGI's common stock in exchange for forgiveness of a promissory note which
obligated TGI to pay $100,000 to CVN, or, in the alternative, pay $100,000 in
cash; and, (ii) an option to purchase shares of TGI common stock in an amount
equivalent to 30% of the authorized and issued shares of TGI in exchange for
$1,200,000 for a period of nine months from the date if and when the first
option was exercised;
WHEREAS, the Option Agreement provided if and when CVN shall exercise the
option to purchase shares of TGI common stock in an amount equivalent to 30% of
the TGI's issued and outstanding shares, Coulter may purchase from CVN shares
of TGI common stock equal to 15% of TGI's issued and outstanding common stock
in exchange for $1,300,000;
WHEREAS, on October 4, 1997, CVN and TGI entered into an agreement whereby
CVN exercised its option to purchase 10% of TGI's issued and outstanding shares
of common stock in exchange for forgiveness of a $100,000 promissory note held
by CVN, as well as the option to purchase 30% of TGI's issued and outstanding
shares of common stock in exchange for $1,300,000 which was offset by Coulter's
obligation to pay CVN $1,200,000 in exchange for shares equal to 15% of TGI
issued and outstanding stock;
WHEREAS, on September 8, 1997, CVN and its agent, Noblett, entered into an
agreement with TGI and Coulter whereby TGI would pay Noblett 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,
Noblett would rebate one-third of aforementioned fees to Coulter;
WHEREAS, TGI has agreed to issue shares of its common stock in an amount
equal to 10% of its issued and outstanding common stock in exchange for the
forgiveness of the $100,000 promissory note held by CVN;
WHEREAS, the parties desire to rescind all remaining provisions of the
aforementioned agreements and any other agreements whether verbal or in writing
from one another arising out said agreements;
<PAGE> 2
AGREEMENT
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged:
1. In consideration of the promises and undertakings contained in this
Settlement Agreement and Release, CVN, and Noblett, for themselves, and, as
applicable, for each of their subsidiaries, predecessors, successors, assigns,
officers, directors, shareholders, agents, attorneys, representatives,
employees, owners, managers, contractors, and subcontractors do hereby forever
generally, completely and absolutely release and discharge TGI and Coulter, and,
as applicable, each of their predecessors, successors, assigns, agents,
attorneys, representatives, employees, insurers, partners, managers and heirs of
and from any and all claims, demands, actions, chooses in action, obligations,
liabilities and damages of every kind and nature whatsoever, in law or in
equity, whether as of this date known or unknown, asserted or unasserted, which
any such person or entity may now have or may claim to have in the future, due
to, arising from, or based in whole or in part upon, any act, omission, event,
transaction, matter or thing involved, alleged or referred to, or arising
directly or indirectly from or in connection with any of the above-mentioned
agreements which are attached and made a part hereof, or any other agreements
among the parties.
2. In consideration of the promises and undertakings contained in this
Settlement Agreement and Release, TGI shall issue 849,750 shares of TGI common
stock to Noblett at the completion of a recapitalization by TGI, and pay Noblett
an amount equal to $50,000 and an additional $50,000 payable from the proceeds
of a private offering of TGI securities in excess of $500,000.
3. At the completion of a recapitalization by TGI, TGI shall issue
1,030,000 shares of its common stock which will represent 10% of its issued and
outstanding common stock, in exchange for the forgiveness of the $100,000
promissory note held by CVN.
4. This Agreement has been executed in the State of California and all
questions as to its validity, meaning, application, binding effect or
enforceability shall be governed by the internal laws of the State of
California. The parties acknowledge and agree that this Agreement shall not be
construed more favorably in favor of one party than the other based upon which
party drafted this Agreement, it being acknowledged that all parties contributed
substantially to the negotiation of this Agreement.
5. Each of the parties hereto declares that prior to the execution of this
Agreement, he or it apprised himself or itself of sufficient relevant data to
intelligently exercise judgment in determining whether to execute this
Agreement. Each party hereto declares that the decision to execute this
Agreement is not predicated on or influenced by any declarations, warranties or
representations of the other party or any predecessors in interest, successors,
assigns, officers, attorneys, or agents of any of the other party hereto, except
as expressly set forth herein. Each party hereto states that he or it has read
the Agreement and that this Agreement is entered into freely and
<PAGE> 3
voluntarily. It is further understood and agreed that all of the terms of this
Agreement are contractual and not mere recitals, and each of the parties hereto
warrants that he or it understands the terms of this Agreement and that he or it
intends to be bound thereby.
6. This Agreement may be executed in counterparts as may be necessary or
convenient, and by the different parties hereto on different counterparts, each
of which once so executed shall be deemed an original.
7. Any determination of invalidity, illegality, or unenforceability of any
provision of this Agreement, determined by a court of competent jurisdiction,
shall not affect validity, legality, or enforceability of any other provisions.
8. Each party affirms it has authority to enter into and execute this
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement this
17 day of October, 1997.
Cyber Village Networks, Inc.
By: /s/ CHET NOBLETT
-------------------------
Chet Noblett, CEO
/s/ CHET NOBLETT
-----------------------------
Chet Noblett
Technology Guardian, Inc.
By: /s/ DAVID COULTER
-------------------------
David Coulter, President
/s/ DAVID COULTER
-----------------------------
David Coulter
<PAGE> 1
EXHIBIT 10.20
LOAN OUT AGREEMENT
THIS AGREEMENT is made as of the 1st day of November, 1999 (the
"Effective Date"), by and between eSAT, Inc., a Nevada corporation ("eSAT") and
Vantage Capital Corp., a California corporation (the "Corporation"), with
respect to the following facts:
A. eSAT is a publicly owned company providing satellite Internet and
Digital Delivery Services and products.
B. Michael C. Palmer, who is employed by the Corporation, has
considerable management and business experience with respect to
the operations of publicly owned companies.
C. eSAT and the Corporation desire to enter into an agreement whereby
the Corporation will loan out the services of Michael C. Palmer
("The CEO") as Chief Executive Officer of eSAT Inc.
The parties agree as follows:
1. CEO'S RELATIONSHIP AND RESPONSIBILITIES.
(a) CEO shall use his best efforts to provide such services as may be
assigned to him from time to time by, and at the sole and
exclusive discretion of the Board of Directors of eSAT. It is
contemplated that such services will include a policy making
function concerning the organization and management of eSAT that
generally would be attributable to a company's chief executive
officer.
(b) CEO shall remain an employee of the Corporation and is not and
shall not be construed to be an employee, partner, joint venture,
agent, representative or participant of or with eSAT pursuant to
this Agreement.
(c) During the term of this Agreement, CEO shall devote such time to
the performance of services contemplated by this Agreement as is
reasonably necessary for a satisfactory performance. Without
limiting the foregoing, CEO shall not, except upon the prior
written consent of eSAT in each instance, perform any services
similar to those contemplated to be performed by CEO under this
Agreement for any individual or entity engaged in any business
which is the same as or similar to the business engaged in any
time during the term of this Agreement by eSAT. In no event shall
CEO engage in activities adverse to eSAT's interests.
- 1 -
<PAGE> 2
LOAN OUT AGREEMENT
Michael C. Palmer
(d) The Corporation hereby warrants it is a corporation duly organized
and existing under the laws of California, that CEO is its
employees and that it has the power and authority to contract for
CEO services as provided herein. The Corporation further
represents that there is no agreement preventing the fulfillment
of this Agreement or which shall impair of diminish the value of
the rights granted under this Agreement.
(e) The obligations of eSAT under this Agreement are subject to CEO
entering into a Confidentiality and Indemnification Agreement in
the form attached hereto as Addendum B of this Agreement.
2. COMPENSATION.
(a) Base Fee. In consideration of all services performed by CEO under
this Agreement, the Corporation shall be entitled to receive a
consulting fee of $25,000 per month payable on the last day of
each month during the term of this Agreement.
(b) Incentive Payment. Within thirty (30) days following the close of
each year of the services under this Agreement, eSAT shall pay the
Corporation an incentive payment in an amount equal to three (3%)
percent of the increase in eSAT's shareholder value, if any,
experienced during such year of services. For this purpose, eSAT's
shareholder value shall be determined as of each of the first and
last day of the applicable year of services as follows.
Total number of eSAT's common stock shares outstanding on
such date, as determined for purposes of computing eSAT's
basic earnings per share in accordance with generally
accepted accounting principles
Multiplied by
The bid price per share for eSAT's common stock on such
date.
If the CEO serves for less than twelve (12) months during the
final year of this Agreement, then the Corporation will be paid a
pro rata share of the full-year incentive payment based upon time
actually served by the CEO during such final year.
- 2 -
<PAGE> 3
LOAN OUT AGREEMENT
Michael C. Palmer
(c) Expenses. CEO shall be entitled to incur necessary and reasonable
travel expenses to perform his duties under the Agreement as
authorized by the Board of Directors. CEO shall furnish
appropriate proof of such expenses as are requested by eSAT and
will be reimbursed for such expenses on a monthly basis.
(d) Grant of Stock Options. In further consideration of the foregoing,
eSAT hereby grants to the Corporation an option to purchase an
aggregate of 1,000,000 shares of eSAT's Common Stock at an
exercise price of Three Dollars ($3.00) per share. Such option
shall vest and become exercisable in accordance with the terms and
conditions set forth in the Stock Option Agreement, which is
attached hereto as Addendum A of this Agreement.
(e) Throughout the term of this Agreement, eSAT shall provide CEO with
the use of an automobile and driver.
(f) As a non-employee of the Corporation, CEO shall not be eligible to
participate in fringe benefit, welfare benefit, retirement benefit
or deferred compensation plans or programs of eSAT other than as
provided herein or as authorized by the Board of Directors.
3. CONFIDENTIAL DATA.
(a) The Corporation acknowledges that CEO and/or it may from time to
time receive certain non-public information ("Proprietary
Information") including, without limitation, trade secrets,
proprietary know-how, names of customers, and other matters
relating to eSAT's business or eSAT's suppliers or customers. The
Corporation expressly agrees that neither it nor any of its
employees or agents shall communicate, disclose or make available
all or any party of the Proprietary Information to any third
party, except, when necessary, in furtherance of eSAT;s business.
The Corporation agrees that it shall use its best efforts to
prevent, inadvertent disclosure of the Proprietary Information to
any third party. The Corporation further agrees that it shall not
copy or use, nor permit others to copy or use, directly or
indirectly, the Proprietary Information other than for the purpose
of the transactions contemplated by this Agreement. Should CEO
conceive any invention as a result of reviewing the Proprietary
Information or rendering services to eSAT hereunder, the
Corporation agrees to assign or to cause to be assigned such
invention to eSAT.
(b) The Corporation agrees and acknowledges that the Proprietary
Information and all copies of and written materials summarizing,
describing or relating to such information, whether supplied by
eSAT or others or compiled by CEO shall be the property of eSAT
and shall be returned promptly to eSAT upon termination or
expiration.
- 3 -
<PAGE> 4
LOAN OUT AGREEMENT
Michael C. Palmer
(c) The parties agree that the public disclosure by eSAT of any part
of the Proprietary Information will release the Corporation from
the foregoing obligations only with respect to that portion of the
Proprietary Information actually disclosed by eSAT.
(d) Each of the parties agrees that it shall not disclose any of the
terms or provisions of this Agreement to any third party except
with the prior written consent of the other party hereto or as may
be required by applicable law.
(e) Injunctive Relief. The Corporation hereby acknowledges that the
loss to eSAT which would arise from a material breach of the
confidentiality obligations provision contained in this Agreement
cannot be reasonably or adequately compensated in damages in an
action at law. The Corporation therefore expressly agrees eSAT in
addition to any other rights or remedies which it may possess,
shall be entitled to injunctive relief to prevent a breach of the
confidentiality obligations provision contained in this Agreement.
(f) The provisions of this Section 3 shall survive the termination or
expiration of this Agreement.
4. USE OF ESAT'S OR CEO'S NAME.
Neither the Corporation nor CEO shall not use the name or trademarks of
eSAT on any written document, stationery, business cards, advertisement,
building directory, telephone directory, office door, or in any other
manner without the prior written consent of eSAT.
eSAT shall not use the name or trademarks of either the Corporation or
CEO on any written document, stationery, business cards, advertisement,
building directory, telephone directory, office door, or in any other
manner without the prior written consent of the Corporation except where
the use may be required by applicable law.
5. TERM OF AGREEMENT, TERMINATION.
(a) The term of this Agreement (the "Loan Out Term") shall be for a
period of thirty six (36) months, commencing on the Effective Date
and continuing through and including October 31, 2002, unless
otherwise terminated as provided in this Section.
- 4 -
<PAGE> 5
LOAN OUT AGREEMENT
Michael C. Palmer
(b) Either party may terminate this Agreement with or without cause at
any time upon 30 days' advance written notice and the Agreement
shall then terminate at the end of the 30-day period. In the event
the Agreement is terminated by eSAT prior to October 31, 2002, the
Corporation shall receive compensation, pursuant to Section 2 (a)
for one year with no further obligation to perform services
hereunder.
(c) As a material inducement to eSAT to enter into this Agreement, the
Corporation expressly agrees that eSAT shall have no obligation to
extend the term of this Agreement beyond the initial Term stated
herein and that, notwithstanding any particular circumstances of
the Corporation's or CEO's investment or expenditure of time, or
effort in connection with the performance of the Corporation's
duties under this Agreement, any termination or expiration of this
Agreement in accordance with this Section 5 shall be without
liability of eSAT to the Corporation by reason of any such
termination or expiration. The Corporation expressly acknowledges
that eSAT has not made any representations as to the possible or
expected duration of this Agreement, except as provided herein.
(d) Upon the expiration or termination of this Agreement, the
Corporation and CEO shall immediately (i) discontinue all use of
eSAT's name and any and all trademarks, trade names or
designations of origin owned or used by eSAT or eSAT's suppliers;
(ii) return to eSAT all literature, advertising and promotional
material, displays, business cards and similar items which may
have been furnished by eSAT to CEO; (iii) cease representing to
the public or to any person or entity that either the Corporation
or CEO has any relationship with eSAT; and (iv) deliver to eSAT
all files, permits, licenses and the like obtained or maintained
by the Corporation or CEO on behalf of eSAT or in connection with
the business of eSAT.
6. GOVERNING LAW; ARBITRATION; EQUITABLE REMEDIES.
(a) Governing Law. This Agreement and all other contracts between the
parties relating to eSAT's business, whether now existing or
hereafter arising, shall exclusively be governed by and
interpreted in accordance with the laws of the State of
California, without reference to principles of conflicts of law.
(b) Arbitration. Subject to paragraph (c) of this Section, any
dispute, controversy or claim arising out of or related to this
Agreement, or the interpretation, breach, termination or validity
hereof shall be settled finally by arbitration conducted in Los
Angeles, California in accordance with the Rules of the American
Arbitration Association as then in force by
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<PAGE> 6
LOAN OUT AGREEMENT
Michael C. Palmer
one arbitrator appointed in accordance with such rules. The
arbitrator shall decide all matters in accordance with applicable
law and this Agreement. All costs in connection with any
proceedings hereunder, other than the attorneys'; fees and
disbursements of each party, shall be borne equally by the
parties, unless otherwise determined by the arbitrator. The
arbitrator's award shall be final conclusive and binding on the
parties, and shall be the exclusive remedy regarding any claims,
counterclaims, issues or accounting presented or pled to the
arbitrator. Judgment on the award may be entered in any applicable
jurisdiction and fees incidental to the enforcement of any award
shall be charged, to the maximum permitted extent, against the
party resisting enforcement.
(c) Provisional Remedies. Paragraph (b) of this Section shall not
limit the right of any party to seek to obtain in any court or
other tribunal any interim relief or provisional remedy,
including, without limitation, injunctive relief or attachment.
Seeking or obtaining such interim relief or provisional remedy
shall not constitute waiver of the right to arbitration hereunder.
7. GENERAL PROVISIONS.
(a) Notices. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been
given upon delivery if delivered personally, one full business day
after proper telex or facsimile transmittal if transmitted by
telex or facsimile, or five full business days after mailing if
mailed by certified or registered airmail, return receipt
requested, postage prepaid, addressed as follows:
To eSAT: eSAT Inc.
16520 Harbor Boulevard, Bldg G.
Fountain Valley, CA 92708
Attention: President
To the Corporation: Michael C. Palmer
C/O eSAT, Inc.
16520 Harbor Boulevard, Bldg G
Fountain Valley, CA 92708
(b) Severability. If any provision of this Agreement, or any portion
of any such provision, is held to be unenforceable or invalid, the
remaining provisions and portions shall nevertheless be carried
into effect to the maximum extent permitted by applicable law.
- 6 -
<PAGE> 7
LOAN OUT AGREEMENT
Michael C. Palmer
(c) Waivers. All rights of the parties are separate and cumulative,
and no one of them, whether exercised or not, shall be deemed to
be to the exclusion of any other rights and shall not limit or
prejudice any other legal or equitable rights or remedies which
the parties may have. The parties shall not be deemed to waive any
of their rights or remedies under this Agreement, unless such
waiver is in writing and signed by the party to be bound. No delay
or omission on the part of either party in exercising any right
shall operate as a waiver of such right or any other right or
remedy. A waiver on any one occasion shall not be construed as a
bar to or waiver of any right or remedy on any future occasion.
(d) Language of Contract; Headings. The headings contained in this
Agreement are for convenience only and are a part of this
Agreement, and do not in any way interpret, limit or amplify the
scope, extent or intent of this Agreement, or any of the
provisions of this Agreement.
(e) Assignment. It is expressly acknowledged and agreed that the
personal services of CEO are of the essence of this Agreement.
Accordingly, the Corporation shall have no right to assign, or
delegate to any other person the responsibilities to be performed
by CEO or to substitute any other person in CEO's place.
(f) Binding Effect. Subject to the provisions of Section 8(e) hereof,
this Agreement shall be binding upon and shall inure to the
benefit of the parties and their respective heirs, successors,
assigns and legal and personal representatives.
(g) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of
which taken together shall constitute one and the same instrument.
(h) Payroll and Withholding Taxes. The Corporation is an independent
contractor and CEO is not an employee of eSAT. All payments to be
made or benefits to be provided hereunder by eSAT shall not be
subject to reduction for any applicable payroll-related or
withholding taxes, and the Corporation agrees to hold eSAT
harmless from any payroll-related or withholding tax liability.
(i) Restricted Shares. The Corporation understands that the shares of
common stock of eSAT that it may receive upon its exercise of a
stock option granted pursuant to Section 2 will not be registered
under the Securities Act of 1933, as amended, or registered or
qualified under any state securities laws and may not be sold,
transferred, assigned,
- 7 -
<PAGE> 8
LOAN OUT AGREEMENT
Michael C. Palmer
pledged or otherwise disposed of unless there is an effective
registration statement under such act covering such shares of
common stock and such shares of common stock have been registered
or qualified under applicable state securities laws, or eSAT
receives an opinion of counsel, acceptable to eSAT, that such
sale, transfer, assignment, pledge or disposition is exempt from
the registration and prospectus delivery requirements of such act
and such state laws. The Corporation acknowledges that the shares
of common stock that it may receive upon its exercise of such
stock option will be stamped with a legend substantially similar
to the preceding sentence and that eSAT's transfer agent will be
issued stop transfer orders with respect to the shares of common
stock the Corporation receives.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first set forth hereinabove.
ESAT INC. VANTAGE CAPITAL GROUP
By: /s/ Chet Noblett By: /s/ Michael C. Palmer
-------------------------------- --------------------------------
Chet Noblett Michael C. Palmer
Chairman President
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<PAGE> 1
EXHIBIT 10.21
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of the 7th
day of October, 1999 ("Effective Date"), between Global Media Technology, Inc.,
a Nevada corporation (the "Company"), and Barry B. Sandrew, P.H.D. (the
"Employee").
WITNESSETH:
WHEREAS, it is the desire of the Company to offer the Employee employment
with the Company upon the terms and subject to the conditions set forth herein;
and
WHEREAS, it is the desire of the Employee to accept the Company's offer
of employment upon the terms and subject to the conditions set forth herein.
NOW THEREFORE, in consideration of the premises and mutual covenants,
conditions and agreements contained herein and for such other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, each intending to be legally bound hereby, agree as follows:
1. Employment and Consultancy. The Company hereby agrees to employ the
Employee and the Employee hereby agrees to be employed by the Company upon the
terms and subject to the conditions set forth herein for the period of
employment as set forth in Section 2 hereof (the "Period of Employment"). During
the period commencing on the date of the parties' execution of this Agreement
and ending on October 6, 1999, the Employee will serve as an independent
consultant as set forth in Section 8 hereof.
2. Term: Period of Employment. Subject to the terms and conditions of
this Agreement, the Period of Employment hereunder shall be for an indefinite
period commencing on the date hereof (the "Effective Date") and ending on the
election of either the Employee or the Company or both such parties hereto to
exercise the termination provisions set forth in Section 7 or upon the election
of the parties to enter into other contractual terms. The phrase "Period of
Employment" as used herein shall be deemed to have terminated as of the date of
any notice provided to the Employee pursuant to Section 7 hereof,
notwithstanding the Company's obligation to pay the Employee pursuant to
Subsections 7(b) and 7(c) hereof.
3. Office and Duties. During the Period of Employment:
(a) The Employee shall be employed as the President of the
Company, having the authority and duties attendant to such position as set forth
in the bylaws of the Company (the "Bylaws") and having such responsibilities as
may reasonably be prescribed for such position by the board of directors of the
Company (the "Board of Directors") in accordance with the Bylaws;
(b) The Employee shall devote substantially all of his time to
the business and affairs of the Company except for vacations, illness or
incapacity, as hereinafter set forth. Notwithstanding the preceding sentence,
nothing in this Agreement shall preclude the Employee from devoting reasonable
amounts of time:
<PAGE> 2
(i) to serving as a director, officer or member of a
committee of any organization or entity involving no conflict of interest with
the Company; or
(ii) engaging in charitable and community activities; or
(iii) to work with the following entities:
UC MEDACCESS
Channel One
IATR
TalentKING
Dynamic Resources
WEC/WithIt
TowerHill Capital Group
(iv) to engage in other activities or work with other
entities with the prior written consent of the Company.
provided, however, that such activities do not interfere with the performance by
the Employee of his duties hereunder nor conflict with the interests of the
Company. In consideration of such employment, the Employee agrees that he shall
not, directly or indirectly, individually or as a member of any partnership or
joint venture, or as an officer, director, stockholder, employee or agent of any
other person, firm, corporation, business organization or other entity, engage
in any trade or business activity or pursuit for his own account or for or on
behalf of any other person, firm, corporation, business organization or other
entity, those activities which competes, conflicts or interferes with that of
the Company or the performance of the Employee's obligations hereunder.
Notwithstanding the foregoing, nothing contained herein shall be construed to
prevent the Employee from: (x) investing in the stock of any corporation which
is listed on a national securities exchange or traded in the over-the-counter
market if the Employee does not and will not, as a result of such investment,
own more than five percent (5%) of the stock of such corporation ("Permitted
Investments"); or (y) engaging in personal business ventures to which the
Employee devotes time outside of the time required to be devoted to the business
of the Company hereunder.
(c) The Employee shall be entitled to vacation time each year in
accordance with the following schedule:
<TABLE>
<CAPTION>
Employment Years Vacation Days Per Year
---------------- ----------------------
<S> <C>
First and Second 10
Third and Fourth 15
Fifth through Tenth 20
Thereafter 25
</TABLE>
2
<PAGE> 3
4. Compensation and Benefits. In exchange for the services rendered by
the Employee pursuant hereto in any capacity during the Period of Employment,
the Employee shall be compensated as follows:
(a) Compensation. Commencing on the Effective Date of this
Agreement, the Company shall pay the Employee a salary equal to Two Hundred
Fifty Thousand Dollars ($250,000) per annum at a rate of Twenty Thousand Eight
Hundred Thirty Three Dollars and Thirty Three cents ($20,833.33) per month (such
monthly amount, as the same may be increased from time to time by the Board of
Directors, shall be defined as the "Monthly Compensation"). Such salary shall be
payable in accordance with the customary payroll practices of the Company.
(i) Signing Bonus. In addition to the compensation and
benefits provided herein, the Employee shall be entitled to a signing bonus of
30,000 shares of the common stock of eSat, Inc., $0.001 par value ("Shares")
upon his execution of this Agreement. Such Shares shall be "restricted
securities" as that term is defined in Rule 144 under the Securities Act of 1933
and therefore subject to a twelve (12)-month trading restriction from date of
issue. The Employee's interest in the Shares granted to him hereunder shall be
fully vested upon the parties' execution of this Agreement. In connection with
the issuance and delivery of the Shares to the Employee pursuant to this
Subsection 4(b), the Employee shall pay the Company the minimum amount necessary
to satisfy all applicable federal, state and local income and employment tax
withholding requirements. If the Employee fails to pay such taxes or at the
Employee's request, the Company may withhold the required amounts from other
payments payable to the Employee hereunder or withhold the requisite number of
Shares necessary to satisfy any such requirement.
(b) Discretionary Bonuses. In addition to the signing bonus set
forth above, the Employee shall be entitled to receive a bonus from time to time
if, in the sole judgment of the Board of Directors, the financial performance of
the Company or the services rendered by the Employee merit such a bonus.
(c) Withholding and Employment Tax. Payment of all compensation
hereunder shall be subject to customary withholding tax and other employment
taxes as may be required with respect to compensation paid by an employer to an
employee.
(d) Options. In consideration of the Employee's agreement to
render the services provided herein, the Company shall grant to the Employee an
option exercisable to purchase an aggregate of One Million (1,000,000) shares of
the Company's common stock at an exercise price of Ten Cents ($0.10) per share.
Such options shall vest and become exercisable in accordance with the terms and
conditions set forth in the Stock Option Agreement, which is attached hereto as
Addendum A of this Agreement.
5. Business Expenses. The Company shall reimburse the Employee for all
reasonable travel or other expenses incurred by the Employee in connection with
the performance of his duties under this Agreement, provided that the same are
previously authorized by the Company in accordance with such procedures as the
Company may from time to time establish for employees and as required to
preserve any deductions for federal income taxation purposes to which the
Company may be entitled. The foregoing business expense reimbursement policy
3
<PAGE> 4
shall also apply to cover the Employee's reasonable commuting expenses,
including the cost of overnight accommodations and the Employee's daily commute
from his residence in Encinitas, California.
6. Company Benefits. The Employee shall be entitled to participate in the
fringe benefit programs, 401(k) plan and group medical, dental, vision and life
insurance plans or programs of the Company, if any, to the extent that his
position, tenure, salary, age, health and other qualifications make him eligible
to participate, subject to the rules and regulations applicable thereto.
7. Termination of Employment. Notwithstanding any other provision of this
Agreement, employment hereunder may be terminated:
(a) By the Company, in the event of the Employee's death or
Disability (as hereinafter defined) or for Just Cause (as hereinafter defined).
"Just Cause" shall mean: (i) the Employee's indictment for, conviction of or the
entering into of a plea of guilty to a crime involving a felonious act or acts,
including dishonesty, fraud or moral turpitude by the Employee; (ii) prolonged
or repeated absence from duty without the consent of the Company (for reasons
other than the Employee's health or incapacity); (iii) habitual engaging in any
activity which is competitive with the business of the Company; and (iv) willful
misconduct, gross negligence or dishonesty on the part of the Employee relating
to the performance of his duties hereunder. The Employee shall be deemed to have
a "Disability" for purposes of this Agreement if he is unable to perform with
reasonable accommodation, by reason of physical or mental incapacity, a material
portion of his duties or obligations under this Agreement for a period of one
hundred twenty (120) consecutive days in any 365-day period. The Board of
Directors shall determine whether and when the Disability of the Employee has
occurred and such determination shall not be arbitrary or unreasonable. The
Company shall provide written notice to the Employee within thirty (30) days
after discovery of the occurrence of an event or circumstance which constitutes
"Just Cause," specify the event or circumstance giving rise to the Company's
exercise of its right hereunder and, with respect to Just Cause arising under
either Subsection 7(a)(i), (iii) or (iv), the Employee's employment hereunder
shall be deemed terminated as of the date of such notice. With respect to Just
Cause arising under Subsection 7(a)(ii), the Company shall provide the Employee
with thirty (30) days written notice of such violation and the Employee shall be
given reasonable opportunity during such thirty (30) day period to cure the
subject violation;
(b) By the Company, in its sole and absolute discretion and for
any reason other than the Employee's death or Disability or for Just Cause,
provided that in such event the Company shall, as liquidated damages or
severance pay, or both continue to pay the Employee an amount equal to the
Employee's then Monthly Compensation (as defined in Section 4(a) hereof) for one
(1) year following the date of termination; provided that during such one
(1)-year period should the Employee be engaged as a consultant or employee by
another company the wages or fees earned by the Employee during such period
shall offset and reduce the amounts otherwise payable pursuant to this
Subsection; and
4
<PAGE> 5
(c) By the Employee (i) upon any material violation of any
material provision of this Agreement by the Company, which violation remains
unremedied for a period of thirty (30) days after written notice of the same is
delivered to the Company by the Employee, and (ii) upon any material change in
the responsibilities of the Employee, without the Employee's prior consent;
provided that, in such event the Company shall, as liquidated damages or
severance pay, or both continue to pay to the Employee an amount equal to the
Employee's Monthly Compensation for one (1) year following the date of
termination; provided that during such one (1)-year period should the Employee
be engaged as a consultant or employee by another company the wages or fees
earned by the Employee during such period shall offset and reduce the amounts
otherwise payable pursuant to this Subsection.
Nothing set forth in this section shall: (i) require the Employee in the
event of termination pursuant to Subsections 7(b) or 7(c) above to mitigate
damages during the period in which the Employee is receiving payment thereunder
(the "Severance Period"); or (ii) entitle the Company to offset the amounts owed
by the Company to the Employee pursuant to Subsections 7(b) or 7(c) by any
income or compensation received by the Employee from sources other than the
Company during such Severance Period. In addition, the Company shall not be
entitled to withhold or otherwise offset any amounts payable to the Employee
under Subsections 7(b) or 7(c) above in response to an alleged violation by the
Employee of any of the obligations which are imposed under this Agreement and
survive termination hereof until such time as court of competent jurisdiction or
other appropriate governing body has rendered judgment or otherwise made a
determination with respect to whether such violation has occurred.
8. Consultancy. The Company hereby appoints the Employee as an
independent consultant in a consulting capacity with respect to the business of
the Company. In such capacity, the Employee shall perform all duties as set
forth in Section 2 hereof. The Employee will serve as an independent consultant
from the date of the parties' execution of this Agreement until October 6, 1999
(the "Consultancy Period"). By his execution of this Agreement, the Employee
accepts such appointment. During the Consultancy Period, the Employee shall earn
the same compensation as would otherwise be payable pursuant to Section 4(a)
hereof. The Employee shall operate his consulting business and shall freely
employ any such employees or agents and on such terms as he chooses. All persons
employed by the Employee in connection with the performance of the Employee's
duties hereunder during the Consultancy Period shall be employees or agents of
the Employee and shall not have any relationship to the Company. The Employee
shall be responsible for all costs of operating his business, including but not
limited to, taxes, all licenses, insurance policies, employee expenses,
telephone, travel, or equipment. The Employee agrees that he will, at his own
expense, comply with all applicable laws, and will, among other things, file any
required reports, take any required actions, and obtain any required
governmental permits, approvals and clearances. Because the Employee is an
independent contractor of the Company during the Consultancy Period, he shall be
solely responsible for the payment of federal, state and local taxes on the
compensation payments he may receive pursuant to this Section. During the
Consultancy Period, the Employee shall not be eligible to participate in any
fringe benefit, welfare benefit, retirement benefit or deferred compensation
plans or programs of the Company. During the entire term of the Consultancy
Period, the Employee shall be subject to the non-solicitation and
confidentiality provisions under this Agreement.
5
<PAGE> 6
9. Non-Solicitation. Notwithstanding any earlier termination, during the
Period of Employment (including any Renewal Period) and for one (1) year
thereafter, the Employee shall not: (i) solicit or induce any employee of the
Company to terminate his or her employment or otherwise leave the Company's
employ or hire any such employee (unless the Board of Directors shall have
authorized such employment and the Company shall have consented thereto in
writing); or (ii) contact or solicit any clients or customers of the Company,
either as an individual or as a member of any partnership or joint venture, or
as an officer, director, stockholder, investor, employee or agent of any other
person, person, corporation, business organization or other entity.
10.Confidential Information. The parties hereto recognize that it is
fundamental to the business and operation of the Company, its affiliates,
subsidiaries and divisions to preserve the specialized knowledge, trade secrets,
and confidential information of the foregoing concerning the fields of
advertising, marketing and interactive solutions. The strength and good will of
the Company is derived from the specialized knowledge, trade secrets, and
confidential information generated from experience through the activities
undertaken by the Company, its affiliates, subsidiaries and divisions thereof.
The disclosure of any of such information and the knowledge thereof on the part
of competitors would be beneficial to such competitors and detrimental to the
Company, its affiliates, subsidiaries and divisions thereof, as would the
disclosure of information about the marketing practices, pricing practices,
costs, profit margins, design specifications, analytical techniques, concepts,
ideas, process developments (whether or not patentable), customer and client
agreements, vendor and supplier agreements and similar items or technologies. By
reason of his being an employee of the Company, in the course of his employment,
the Employee has or shall have access to, and has obtained or shall obtain,
specialized knowledge, trade secrets and confidential information such as that
described herein about the business and operation of the Company, its
affiliates, subsidiaries and divisions thereof. Therefore, the Employee hereby
agrees as follows, recognizing and acknowledging that the Company is relying on
the following in entering into this Agreement:
(a) The Employee hereby sells, transfers and assigns to the
Company, or to any person or entity designated by the Company, any and all
right, title and interest of the Employee in and to all creations, designs,
inventions, ideas, disclosures and improvements, whether patented or unpatented,
and copyrightable material, made or conceived by the Employee solely or jointly,
in whole or in part, during or before the term hereof (commencing with the date
of the Employee's employment with the Company) which: (i) relate to methods,
apparatus, designs, products, processes or devices created, promoted, marketed,
distributed, sold, leased, used, developed, relied upon or otherwise provided by
the Company or any affiliate, subsidiary or division thereof; or (ii) otherwise
relate to or pertain to the business, operations or affairs of the Company or
any affiliate, subsidiary or division thereof. Whether during the Period of
Employment or thereafter, the Employee shall execute and deliver to the Company
such formal transfers and assignments and such other papers and documents as may
be required of the Employee to permit the Company or any person or entity
designated by the Company to file, enforce and prosecute the patent applications
to any of the foregoing and, as to copyrightable material, to obtain copyright
thereon; and
6
<PAGE> 7
(b) Notwithstanding any earlier termination, during the Period of
Employment (including any Renewal Period) and for a period of one (1) year
thereafter, the Employee shall, except as otherwise required by or compelled by
law, keep secret and retain in strict confidence, and shall not use, disclose to
others, or publish any information, other than information which is in the
public domain or becomes publicly available through no wrongful act on the part
of the Employee, which information shall be deemed not to be confidential
information, relating to the business, operation or other affairs of the
Company, its affiliates, subsidiaries and divisions thereof, including but not
limited to confidential information concerning the design and marketing
practices, pricing practices, costs, profit margins, products, methods,
guidelines, procedures, engineering designs and standards, design
specifications, analytical techniques, technical information, customer, client,
vendor or supplier information, employee information, and any and all other
confidential information acquired by him in the course of his past or future
services for the Company or any affiliate, subsidiary or division or division
thereof. The Employee shall hold as the Company's property all notes, memoranda,
books, records, papers, letters, formulas and other data and all copies thereof
and therefrom in any way relating to the business, operation or other affairs of
the Company, its affiliates, subsidiaries and divisions thereof, whether made by
him or otherwise coming into his possession. Upon termination of his employment
or upon the demand of the Company, at any time, the Employee shall deliver the
same to the Company within twenty-four (24) hours of such termination or demand.
11.Reasonableness of Restrictions. The Employee hereby agrees that the
restrictions in this Agreement, including without limitation, those relating to
the duration of the provisions hereof and the territory to which such
restrictions apply, are necessary and fundamental to the protection of the
business and operation of the Company, its affiliates, subsidiaries and
divisions thereof, and are reasonable and valid.
12.Reformation of Certain Provisions. In the event that a court of
competent jurisdiction determines that the non-solicitation or the
confidentiality provisions hereof are unreasonably broad or otherwise
unenforceable because of the length of their respective terms or the breadth of
their territorial scope, of for any other reason, the parties hereto agree that
such court may reform the terms and/or scope of such covenants so that the same
are reasonable and, as reformed, shall be enforceable.
13.Indemnification. The Employee represents and warrants that except as
otherwise disclosed on Addendum B hereof, there is no agreement preventing his
performance of the duties and responsibilities to the Company required of him
pursuant to this Agreement or which shall impair or diminish the value of the
rights granted hereunder. The Employee agrees to indemnify and hold the Company
harmless from all liability, actions, claims, demands, loss and damage,
including reasonable attorney's fees, which may be suffered by the Company by
reason of any breach of any warranty made by him hereunder.
14. Arbitration. Subject to Section 15 below, any controversy, dispute
and/or claim in any manner arising out of or relating to this Agreement; any
claim, including but not limited to any claim of race, age, national origin,
religion, sex, pregnancy, family leave, harassment, sexual orientation,
disability discrimination, defamation, infliction of emotional distress, breach
of
7
<PAGE> 8
contract, violation of public policy or statute, or wrongful termination arising
out of the voluntary or involuntary termination of the employment, shall be
settled solely by final and binding arbitration in accordance with the
Employment Dispute Resolution Rules of the American Arbitration Association. Any
arbitration proceeding shall take place in Orange County, California. Judgment
on any decision rendered by the arbitrator may be entered in any court having
jurisdiction thereof.
15.Certain Provisions; Specific Performance. In the event of a breach by
the Employee of the non-solicitation or confidentiality provisions hereof, such
breach shall not be subject to the arbitration provision of Section 14 above and
the Company shall be entitled to seek immediate injunctive relief and a decree
of specific performance against the Employee. Such remedy is non-exclusive and
shall be in addition to any other remedy to which the Company or any affiliate,
subsidiary or division thereof may be entitled.
16.Consolidation; Merger; Sale of Assets. Nothing in this Agreement shall
preclude the Company from combining, consolidating or merging with or into,
transferring all or substantially all of its assets to, or entering into a
partnership or joint venture with, another corporation or other entity, or
effecting any other kind of corporate combination, provided that, the
corporation resulting from or surviving such combination, consolidation or
merger, or to which such assets are transferred, or such partnership or joint
venture assumes this Agreement and all obligations and undertakings of the
Company hereunder. Upon such a consolidation, merger, transfer or assets or
formation of such partnership or joint venture, this Agreement shall inure to
the benefit of, be assumed by, and be binding upon such resulting or surviving
transferee corporation or such partnership or such joint venture, and the term
"Company," as used in this Agreement, shall mean such corporation, partnership
or joint venture, or other entity and this Agreement shall continue in full
force and effect and shall entitle the Employee and his heirs, beneficiaries and
representatives to exactly the same compensation, benefits, perquisites,
payments and other rights as would have been their entitlement had such
combination, consolidation, merger, transfer of assets or formation of such
partnership or joint venture not occurred.
17.Survival. Sections 7 and 9 through 15 shall survive the termination
for any reason of this Agreement (whether such termination is by the Company, by
the Employee, upon the expiration of this Agreement by its terms or otherwise).
18.Severability. The provisions of this Agreement shall be considered
severable in the event that any of such provisions are held by a court of
competent jurisdiction to be invalid, void or otherwise unenforceable. Such
invalid, or otherwise unenforceable provisions shall be automatically replaced
by other provisions which are valid and unenforceable and which are as similar
as possible in term and intent to those provisions deemed to be invalid, void or
otherwise unenforceable. Notwithstanding the foregoing, the remaining provisions
hereof shall remain enforceable to the fullest extent permitted by law.
19. Entire Agreement; Amendment. This Agreement contains the entire
agreement between the Company and the Employee with respect to the subject
matter hereof. This Agreement may not be amended, changed, modified or
discharged, nor may any provision hereof
8
<PAGE> 9
be waived, except by an instrument in writing, executed by or on behalf of the
party against whom enforcement of any amendment, waiver, change, modification or
discharge is sought. No course of conduct or dealing shall be construed to
modify, amend or otherwise affect any of the provisions hereof.
20.Notices. All notices, request, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
physically delivered, delivered by express mail or other expedited service or
upon receipt if mailed, postage prepaid, via first class mail as follows:
<TABLE>
<S> <C>
a) To the Company: Global Media Technology, Inc.
16520 Harbor Boulevard, Bldg. G
Fountain Valley, California 92708
Attention: Chief Executive Officer
b) To the Employee: Barry B. Sandrew, P.H.D.
c/o Global Media Technology, Inc.
16520 Harbor Boulevard, Bldg. G
Fountain Valley, California 92708
</TABLE>
and/or to such other persons and addresses as any party hereto shall have
specified in writing to the other.
21. Assignability. This Agreement shall not be assignable by the
Employee, but shall be binding upon and shall inure to the benefit of his heirs,
executors, administrators and legal representatives. This Agreement shall be
binding upon any successor to the Company and shall be assignable by the Company
to any affiliate, subsidiary or division thereof.
22. Governing Law. This Agreement shall be governed by and construed
under the laws of the State of California, without regard to the principles of
conflicts of laws thereof.
23. Waiver and Further Agreement. Any waiver or any breach of any terms
or conditions of this Agreement shall not operate as a waiver of any other
breach of such terms or conditions or any other term or condition hereof, nor
shall any failure to enforce any provision hereof operate as a waiver of such
provision or of any other provision hereof. Each of the parties hereto agrees to
execute all such further instruments and documents and to take all such further
action as the other party may reasonably require in order to effectuate the
terms and purposes of this Agreement.
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24. Headings of No Effect. The headings contained in this Agreement are
for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
GLOBAL MEDIA TECHNOLOGY, INC.
Date: August 7, 1999 By: /s/ Michael C. Palmer
------------------------------------
Michael C. Palmer, CEO
THE EMPLOYEE
By: /s/ Barry B. Sandrew
------------------------------------
Date: August 7, 1999 Barry B. Sandrew
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ADDENDUM A
THE OPTION TO PURCHASE SHARES OF THE COMMON STOCK OF GLOBAL MEDIA TECHNOLOGY,
INC., REPRESENTED BY THIS AGREEMENT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT"), AND ARE "RESTRICTED SECURITIES" AS THAT TERM
IS DEFINED IN RULE 144 UNDER THE ACT. NEITHER THE OPTIONS NOR THE UNDERLYING
SHARES MAY BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, THE AVAILABILITY OF WHICH IS
TO BE ESTABLISHED TO THE SATISFACTION OF SAID CORPORATION AND SUCH FURTHER
RESTRICTIONS AS THE BOARD OF DIRECTORS MAY DETERMINE.
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT effective as of this 7thday of October, 1999,
between Global Media Technology, Inc., a Nevada corporation (the "Corporation"),
and Barry B. Sandrew (the "Recipient").
WHEREAS, pursuant to that certain Employment Agreement entered into as of
October 7, 1999 by and between the Corporation and Recipient (the "Employment
Agreement"), the Corporation agreed to grant to Recipient an option to purchase
1,000,000 shares of this Corporation's common stock, $.001 par value ("Common
Stock") at an exercise price of $0.10 per share.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy whereof is hereby acknowledged, the Corporation and the Optionee agree
as follows:
1. Grant of Option. The Corporation hereby grants to Recipient an option to
purchase (the "Option") an aggregate of 1, 000,000 shares of the
Corporation's Common Stock for a purchase price of $0.10 per share (the
"Option Price").
2. Vesting of Option. The option shall become exercisable by Recipient
during the term of the Option, as provided in Paragraph 6, at the rate of
20% of the shares of the Corporation's Common Stock covered by the Option
upon the Recipient's completion of each full year of continuous
employment pursuant to the Employment Agreement. Accordingly, the Option
shall be fully exercisable upon the Recipient's completion of 5 full
years of continuous employment with the Corporation.
3. Exercise of Option. Once exercisable, as provided in Paragraph 2, this
Option may be exercised in whole or in part at any time during the term
of the Option, provided, however, no portion of this Option shall be
exercisable after the expiration of the term thereof.
The Option may be exercised, as provided in this Paragraph 3, by
notice and payment to the Corporation as provided in Paragraph 5 hereof.
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<PAGE> 12
4. Fair Market Value. For purpose of this Option, "Fair Market Value" shall
be the value determined in accordance with the following provisions:
(a) If the Common Stock is not at the time listed or admitted to
trading on any stock exchange but is traded on the Nasdaq National
Market System or the Nasdaq SmallCap Market, the Fair Market Value
shall be the closing selling price per share of Common Stock on
the date in question, as such price is reported by the National
Association of Securities Dealers through the Nasdaq National
Market System or any successor system or the Nasdaq SmallCap
Market or any successor market. If there is no closing selling
price for the Common Stock on the date in question, then the FMV
shall be the closing selling price on the last preceding date for
which such quotation exists.
(b) If the Common Stock is at the time listed or admitted to trading
on any stock exchange, the Fair Market value shall be the closing
selling price per share of Common Stock on the date in question on
the stock exchange determined by the Board of Directors of the
corporation to be the primary market for the Common Stock, as such
price is officially quoted in the composite tape of transactions
on such exchange. If there is no closing selling price for the
Common Stock on the date in question, then the Fair Market Value
shall be the closing selling price on the last preceding date for
which such quotation exists.
(c) If the Common Stock is at the time neither listed nor admitted to
trading on any stock exchange, not traded on the Nasdaq National
Market System nor on the Nasdaq SmallCap Market, then such Fair
Market Value shall be determined by the Board of Directors of the
Corporation after taking into account such factors as the Board of
Directors of the Corporation shall deem appropriate.
1. Manner of Exercise.
(a) During the lifetime of the Recipient, only he may exercise the
Option or any portion thereof. After the death of the Recipient,
any exercisable portion of the Option may, prior to the time when
the Option becomes unexercisable under Paragraph 6 and/or 8, be
exercised by the Recipient's personal representative or by any
person empowered to do so under the Recipient's will or under the
then applicable laws of descent and distribution.
(b) The Option, or any exercisable portion thereof, may be exercised
solely by delivery to the Secretary or the Secretary's office of
all of the following prior to the time when such exercisable
Option or portion thereof becomes unexercisable:
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<PAGE> 13
i. Notice in writing signed by the Recipient, or such other
person then entitled to exercise the Option or portion
thereof, stating that the Option or portion thereof is
thereby exercised, such notice complying with all
applicable rules established by the Corporation; and
ii. (a) Full payment (in cash or by check) for the shares with
respect to which such Option or portion thereof is
exercised; or
(b) With the consent of the Corporation, shares of the
Company's Common Stock owned by the Recipient duly endorsed
for transfer to the Company with a Fair Market Value on the
date of delivery equal to the aggregate purchase price of
the shares with respect to which such Option or portion
thereof is exercised.
1. Term of Option. The term of the Option will be through October 6, 2009,
subject to Paragraphs 7 and 8 as provided in this Agreement.
The Recipient of the Option will not have any rights to dividends
or any other rights of a shareholder with respect to any shares of Common
Stock covered by the Option until such shares shall have been purchased
through the exercise of the Option and has been evidenced on the stock
transfer records of the Corporation maintained by the Corporation's
transfer agent.
2. Transferability Restriction. The Option may not be assigned, transferred
or otherwise disposed of, or pledged or hypothecated in any way (whether
by operation of law or otherwise); provided, however, that nothing herein
shall be construed as prohibiting Recipient from providing for the
disposition of the Option or his right, title and interest in it upon his
death (at anytime while he has the right to exercise the Option) by will
or testamentary device, or as prohibiting the transfer of the Option by
the laws of descent and distribution. Any assignment, transfer, pledge,
hypothecation or other disposition of the Option or any attempt to make
any such levy of execution, attachment or other process not in accordance
with the foregoing sentence shall cause the Option to terminate
immediately upon the happening of any such event, and the Recipient shall
lose all rights under this Agreement, provided, however, that any such
termination of the Option under the foregoing provisions of this
Paragraph 7, will not prejudice any rights or remedies which the
Corporation may have under this Option Agreement or otherwise.
3. Death, Disability or Retirement of Recipient. The Recipient's rights to
exercise this Option upon the death, disability or retirement of the
Recipient are set forth as follows:
(a) If the Recipient ceases to be in Service to the Corporation for a
reason other than Disability or death, the Option, to the extent
it has not yet been exercised, shall immediately terminate. If the
Recipient ceases to be in Service to the Corporation by reason of
Disability within the meaning of Section 7(a) of the Employment
Agreement (as determined by the Board of Directors), the Recipient
will have three (3) months after the date of termination of
Service, but in no event after the stated expiration date of the
Option (as provided in Paragraph 6), to exercise the Option to
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<PAGE> 14
the same extent the Recipient was entitled to exercise the Option
on the date the Recipient's Service terminated as a result of the
Disability.
(b) If a Recipient dies while in the Corporation's Service, the Option
or any portion thereof that the Recipient was entitled to exercise
on the date of death will be exercisable within the six-month
period following the date of issuance of letters testamentary or
letters of administration of a deceased Recipient, in the case of
the Recipient's death during his Service to the Corporation's
Board, but not later than one (1) year after the Recipient's death
or until the stated expiration date of the Option (as provided in
Paragraph 6), whichever occurs first, by the person or persons
("successors") to whom the Recipient's rights pass under a will or
by the laws of descent and distribution. As soon as practicable
after receipt by the Corporation of such notice and of payment in
full of the Option Price, a certificate or certificates
representing the Optioned Shares shall be registered in the name
or names specified by the successors in the written notice of
exercise and shall be delivered to the successors.
(c) The term "Service" means service as an employee pursuant to the
Employment Agreement or as an independent contractor.
1. No Registration Obligation. The Recipient understands that the Option is
not registered under the Securities Act of 1933, as amended (the
"Securities Act") and the Corporation has no obligation to register under
the Securities Act the Option or any of the shares of Common Stock
subject to and issuable upon the exercise of the Option. The Recipient
represents that the Option is being acquired by him for investment and
acknowledges that all certificates for the shares issued upon exercise of
the option will bear the following legend unless such shares are
registered under the Securities Act prior to their issuance:
The shares of Common Stock evidenced by this certificate have been
issued to the registered owner in reliance upon written representations
that these shares have been purchased solely for investment. These shares
may not be sold, transferred or assigned unless in the opinion of the
Corporation and its legal counsel such sales, transfer or assignment will
not be in violation of the Securities Act of 1933, as amended, and the
rules and regulations thereunder.
The Recipient further understands and agrees that the Option may
be exercised only if at the time of such exercise the Recipient and the
Corporation are able to establish the existence of an exemption from
registration under the Securities Act and applicable state laws.
2. Effect of Certain Changes.
(a) If there is any change in the number of shares of outstanding
Common Stock through the declaration of stock dividends, or
through a recapitalization resulting in stock
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<PAGE> 15
splits or combinations or exchanges of such shares, the number of
shares of Common Stock available for options and the number of
such shares covered by outstanding options, and the exercise price
per share of the outstanding options, shall be proportionately
adjusted by the Board to reflect any increase or decrease in the
number of issued shares of Common Stock; provided, however, that
any fractional shares resulting from such adjustment shall be
eliminated.
(b) In the event of the proposed dissolution or liquidation of the
Corporation, or any corporate separation or division, including,
but not limited to, split-up, split-off or spin-off, or a merger
or consolidation of the Corporation with another corporation, or
any sale or transfer by the Corporation of all or substantially
all its assets or any tender offer or exchange offer for or the
acquisition, directly or indirectly, by any person or group for
more than 50% of the then outstanding voting securities of the
Corporation, or an initial public offering of the common stock of
the Corporation, the Option shall become immediately exercisable
as to all or any portion of the shares of Common Stock covered by
the Option without regard to whether the Option is fully
exercisable in accordance with the exercise schedule provided in
Paragraph 2. The Recipient shall have the right to exercise such
Option (at its then current Option Price) solely for the kind and
amount of shares of stock and other securities, property, cash or
any combination thereof receivable upon such dissolution,
liquidation, corporate separation or division, merger or
consolidation, sale or transfer of assets or tender offer or
exchange offer, by a Recipient of the number of shares of Common
Stock for which such Option might have been exercised immediately
prior to such dissolution, liquidation, corporate separation or
division, or merger or consolidation; sales or transfer of assets
or tender offer or exchange offer, or in the alternative the Board
may provide that the Option granted herein shall terminate as of a
date fixed by the Board; provided, however, that not less than
thirty (30) day's written notice of the date so fixed shall be
given to the Recipient, who shall have the right, during the
period of thirty (30) days preceding such termination, to exercise
the Option.
(c) Subparagraph (b) of this Paragraph 10 shall not apply to a merger
or consolidation in which the Corporation is the surviving
corporation and shares of Common Stock are not converted into or
exchanged for stock, securities of any other corporation, cash or
any other thing of value. Notwithstanding the preceding sentence,
in case of any consolidation or merger of another corporation into
the Corporation in which the Corporation is the surviving
corporation and in which there is a reclassification or change
(including a change which results in the right to receive cash or
other property) of the shares of Common Stock (other than a change
in par value, or from no par value to par value, or as a result of
a subdivision or combination, but including any change in such
shares into two or more classes or series of shares), the Board
shall provide that the Recipient shall have the right to exercise
such Option solely for the kind and amount of shares of stock and
other securities (including those of any direct or indirect Parent
of the Corporation), property, cash or any combination thereof
receivable upon such reclassification, change consolidation or
15
<PAGE> 16
merger by the Recipient of the number of shares of Common Stock
for which Option might have been exercised.
(d) If there is a change in the Common Stock of the Corporation as
presently constituted, which is limited to a change of all of its
authorized shares with par value into the same number of shares
with a different par value or without par value, the shares
resulting from any such change shall be deemed to be the Common
Stock within the meaning of this Stock Option Agreement.
(e) To the extent that the foregoing adjustments relate to stock or
securities of the Corporation, such adjustments shall be made by
the Board.
(f) Except as expressly provided in this Paragraph 10, the Recipient
shall have no rights by reason of any subdivision or consolidation
of shares of stock of any class or the payment of any stock
dividend or any other increase in the number of shares of stock of
any class or by reason of any dissolution, liquidation, merger, or
consolidation or split-up, split-off, or spin-off of assets or
stock of another corporation; and any issue by the Corporation of
shares of stock of any class, or securities convertible into
shares of stock of any class, shall not effect, and no adjustment
by reason thereof shall be made with respect to, the number or
price of shares of Common Stock subject to this Option. The grant
of this Option shall not affect in any way the right or power of
the Corporation to make adjustments, reclassifications,
reorganizations or changes of its capital or business structures
or to merge or consolidate or to dissolve, liquidate or sell or
transfer all or any part of its business or assets.
1. Notices. Each notice relating to this Agreement will be in writing and
delivered in person or by certified mail to the proper address. Notices
to the Corporation shall be addressed to the Corporation, c/o Chief
Executive Officer, Global Media Technology, Inc., 16520 Harbor Blvd.,
Bldg. G, Fountain, Valley, CA 92708. Notices to the Recipient or other
person or persons then entitled to exercise the option shall be addressed
to the Recipient or such other person or persons at the Recipient's
address specified below. Anyone to whom a notice may be given under this
Agreement may designate a new address by notice to that effect given
pursuant to this Paragraph 11.
2. Approval of Consent. The exercise of the Option and the issuance and
delivery of shares of Common Stock pursuant thereto shall be subject to
approval by the Corporation's counsel of all legal matters in connection
therewith, including compliance with the requirements of the Securities
Act, the Securities Exchange Act of 1934, as amended, applicable state
securities laws, the rules and regulations thereunder, and the
requirements of any national securities exchange or association upon
which the Common Stock than may be listed.
3. Benefits of Agreement. This Agreement will inure to the benefit of and be
binding upon each successor and assign of the Corporation. All
obligations imposed upon the Recipient and all rights granted to the
Corporation under this Agreement will be binding upon the Recipient's
heirs, legal representatives and successors.
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<PAGE> 17
4. Governmental and other Regulations. The exercise of the Option and the
Corporation's obligation to sell and deliver shares upon the exercise of
rights to purchase shares is subject to all applicable federal and state
laws, rules and regulations, and to such approvals by the regulatory or
governmental agency which, in the opinion of counsel for the Corporation,
may be required.
5. Conditions to Exercise. The shares of stock deliverable upon the exercise
of the Option, or any portion thereof, may be either previously
authorized but unissued shares or issued shares which have then been
reacquired by the Company. Such shares shall be fully paid and
non-assessable. The Company shall not be required to issue or deliver any
certificate or certificates for shares of Common Stock purchased upon the
exercise of the Option or portion thereof prior to fulfillment of all of
the following conditions:
i. The admission of such shares to listing on all stock exchanges, if
any, on which such class of stock is then listed;
ii. The completion of any registration or other qualification of such
shares under any state or federal law or under the rulings or
regulations of the Securities and Exchange Commission or any other
governmental regulatory body, which the Corporation shall, in its
absolute discretion, deem necessary or advisable;
iii. The obtaining of any approval or other clearance from any state or
federal governmental agency which the Corporation shall, in its
absolute discretion, determine to be necessary or advisable;
iv. The payment to the Company of all amounts which it is required to
withhold under federal, state or local law in connection with the
exercise of the Option; and
v. The lapse of such reasonable period of time following the exercise
of the Option as the Corporation may from time to time establish
for reasons of administrative convenience.
This Stock Option Agreement is executed in the name and on behalf of the
corporation by one of its duly authorized officers and by the Recipient all as
of the date first above written.
GLOBAL MEDIA TECHNOLOGY, INC.
By
--------------------------------------
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<PAGE> 18
The undersigned Recipient understands the terms of this Stock Option
Agreement. The undersigned agrees to comply with the terms and conditions of
this Stock Option Agreement.
Date , 1999 Signature:
--------------- ----------------------------------
Printed Name:
-------------------------------
Tax ID # (SSN):
----------------------------------
Address:
------------------------------------
------------------------------------
------------------------------------
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Addendum B
Contracts with T. P. EG/IATR
19
<PAGE> 1
Exhibit 10.22
EMPLOYERS
RESOURCE
CO-EMPLOYMENT AGREEMENT
Co-Employer
Employers Resource Management Company, Inc., hereinafter referred to as
Employers Resource, and Co-Employer, herein named above, wish to enter into a
Contract for the provision of employment services by Employers Resource for
Co-Employer. Both parties understand and agree that Employers Resource will not
assume the responsibility of providing employment services without adequate
security by Co-Employer. Thus, Co-Employer's payment of Employers Resource's
initial Service Fee. Administrative Fee and Account Reserve, is regarded as a
CONDITION PRECEDENT to the parties' dirty to perform and right to receive the
obligations and benefits set forth below. Co-Employer's failure to satisfy the
condition precedent abrogates the parties' rights and liabilities under the
terms of this Agreement. Co-Employer retains the obligation to provide worker's
compensation insurance, payroll, and all other employee benefits if: (1) it
fails to disclose any employee to Employers Resource; or (2) it fails to make
any payment to Employers Resource as required under the Agreement.
TERMS AND CONDITIONS
1. PURPOSE
Employers Resource agrees to provide employment services as described
herein and Co-Employer agrees to accept such service, and both parties,
jointly and severally, agree to abide by the covenants and terms
hereinafter set forth.
2. TERM OF AGREEMENT
This Agreement shall remain in effect from pay period to pay period. At the
conclusion of each pay period, Co-Employer's payment of Employers
Resource's Service Fee and Account Reserve, and any applicable
Administrative Fee, is a CONDITION PRECEDENT to the parties' continued duty
to perform and right to receive the obligations and benefits under the
Agreement. Co-Employers failure to satisfy tire condition precedent
abrogates the parties' rights and liabilities under the terms of the
Agreement. However, Co-Employer's failure to satisfy the condition
precedent shall not affect the financial obligations of the parties which
have accrued prior to such failure.
3. SERVICES
By this Agreement, Employers Resource agrees to assume certain of
Co-Employer's common law Employer responsibilities and liabilities.
Employers Resource further agrees to hold Co-Employer harmless, subject to
the terms of this Agreement, with respect to all such responsibilities and
liabilities assumed. In that regard, Employers Resource and Co-Employer
shall act as joint Co-employers with respect to the employees of
Co-Employer. Employers Resource is specifically responsible for payment of
employee payroll; employer federal, state and local taxes; specified
employee benefits; and all required federal, state and local employee
payments or withholdings from wages.
Co-Employer and Employers Resource agree to the extent that Employers
Resource has established and maintained an employee welfare benefit plan as
defined by the Employee Retirement Income Security Act of 1974 as amended
(ERISA), and to the extent that Co-Employer elects to provide, through such
plan, welfare benefits for its employees; and that Employers Resource is to
act in the interest of Co-Employer with respect to the benefits provided
under such plan. Employers Resource agrees it will so act in the interest
of Co-Employer with regard to Co-Employer's co-sponsorship of such welfare
benefit plan.
Employers Resource will hold harmless and indemnify Co-Employer for direct,
out-of-pocket Costs which result from Employers Resource's failure to pay
any required benefit or other payment specified. Direct out-of-pocket Costs
as hereinabove set forth shall riot include, nor shall Employers Resource
be responsible for, Co-Employer's loss of profit, business goodwill,
consequential, special or incidental damages.
4. ADMINISTRATION
Employers Resource may exercise the right to control and direct certain
management functions including but not limited to, recruiting, hiring,
training, evaluation, supervision, discipline, replacement, termination of
employees and the conducting of safely programs. Co-Employer agrees to hold
harmless,
defend and indemnify Employers Resource for any expenses including court
costs and legal fees incurred in defending any claims resulting from the
willful misconduct of criminal activities of employees co-employed with
Employers Resource and which occurred in the course of the co-employee's
employment. Co-Employer will:
a. periodically review and evaluate performance and wages of employees and
recommend to Employers Resource adjustments to wages and employee job
functions and titles.
b. verify all employee time submissions and assume responsibility for
correct wage and hour submissions made to Employers Resource.
c. assist Employers Resource in administering unemployment claims and
labor complaints. Such assistance will include, but not be limited to,
the providing of all pertinent information and the appearance at trials
and/or hearings, as needed.
d. comply with all local, state and federal guidelines for taxes, wages,
work rules, Fair Labor Standards Act, Equal Employment Opportunities,
discrimination rules and such directives as Employers Resource may
issue.
<PAGE> 2
5. INSURANCE
Employers Resource shall furnish and keep in full force and effect during
the term of this Agreement, Workers' Compensation insurance covering all
employees which Employers Resource co-employs with Co-Employer under this
Agreement.
If any employee is to drive a vehicle of any kind in the Context of
covered employment, Co-Employer shall furnish liability insurance. The
policy shall insure against public liability for bodily injury and
property damage with a minimum combined single limit (CSL) of five hundred
thousand dollars ($500,000). In states where "no fault" laws apply,
Personal Injury Protection Insurance (P.I.P.) or equivalent coverage shall
apply.
Co-Employer agrees to keep in full force and effect at all times during
the term of this Agreement a comprehensive general liability insurance
policy in the minimum combined single limit (CSL) of five hundred thousand
dollars ($500,000), insuring Co-Employer against bodily injury and
property damage liability caused by Co-Employer's premises-operations,
completed operations and/or products. Said policy shall also include
blanket contractual liability.
Co-Employer shall provide evidence of the insurance coverages required by
this Section by causing the insurance carrier to issue a certificate of
insurance to Employers Resource, allowing not less than thirty (30) days
advance notice of cancellation or material change.
6. APPROVAL OF EMPLOYEES
Employers Resource shall have no obligations under this Agreement to
Co-Employer or to employees co-employed with Co-Employer unless
Co-Employer obtains and delivers to Employers Resource all documentation
required:
a. under the terms arid conditions set forth in the Immigration and
Naturalization Laws of the United States;
b. by the Internal Revenue Service, including a properly completed W-4;
c. under the laws or regulations of any agency or jurisdiction;
d. by Employers Resource, the administrator of any Employers Resource
Employee Welfare Benefit Plan, or any workers' compensation carrier
which may insure Employers Resource.
Employers Resource reserves the right to reject any person for employment
if, in its opinion, that person's record for safety Constitutes an
unreasonable risk.
7. SAFE WORK ENVIRONMENT
Co-Employer agrees to comply, at its expense, with any laws, regulations,
ordinances, rules or directives imposed by any controlling federal, state
or local government agency having jurisdiction over the work place, health
and safety, by Employers Resource or any worker's compensation carrier
which may insure Employers Resource.
Co-Employer further agrees to:
a. Provide or ensure the rise of all safety equipment and/or personal
protective equipment;
b. Allow the inspection of its premises to examine whether employees are
exposed to air unsafe work place or a peculiar risk (if harm;
c. Report immediately all employee accidents and injuries to Employers
Resource.
Nothing in this section shall constitute a release of Co-Employer's dirties
under the laws of any jurisdiction or as set forth in this Agreement.
Further, by this section, Employers Resource assumes no dirty to monitor
workplace conditions, remedy unsafe conditions, or otherwise ensure the
safety of employees.
8. HOLD HARMLESS
Co-Employer agrees to indemnify, defend, and told Employers Resource
harmless from and against any and all liability, expense (including Court
costs and attorney fees) and claims for damage of any nature whatsoever,
whether known or unknown as though expressly set forth and described
herein, which Employers Resource may incur, stiffer, become liable for, or
which may be asserted or claimed against Employers Resource as a result of
the acts, errors, or omissions of the Co-Employer or employees of
Co-Employer including, without limitation, any violation or breach of
Section 7 by Co-Employer. This Section 8 shall be inclusive and not
exclusive of any other part of this Agreement.
In the event of any payment by Employers Resource of any liability of
Co-Employer, Employers Resource shall be subrogated to the extent of such
payment to all rights of recovery thereof, and Co-Employer shall execute
all papers required and shall do everything that may be necessary to
secure such rights including the execution of such documents necessary to
enable Employers Resource to effectively bring suit in the name of
Co-Employer.
9. MISCELLANEOUS CHARGES
EMPLOYERS RESOURCE RESERVES the right to establish charges for returned
checks or hank items, freight or delivery charges and/or miscellaneous
charges incurred in the normal course of business.
10. MATERIAL BREACH
The following actions or failure to act either singularly or jointly shall
constitute material breach of this Agreement;
a. Failure to pay the Service Fees when due or to comply with any payment
of fee requirement of this Agreement;
b. Failure to provide insurance required by Section 5 of this Agreement;
c. Failure to comply with any local, state or federal regulation or
directive for wages, work rules, discrimination or employment
opportunity as required by Section 4 of the Agreement;
d. Failure to provide a safe work environment or comply with any
directive regarding the health and safety of employees as required by
Section 7 of this Agreement;
e. Failure to comply with any other provision in this Agreement.
<PAGE> 3
11. ASSIGNMENT
No rights or obligations under this Agreement may be assigned by
Co-Employer without prior written consent of Employers Resource.
12. ENTIRE AGREEMENT
This Agreement and attached proposal and/or addendums constitute the
entire agreement between the parties as to this subject matter and may be
executed by any representative of Employers Resource. Any modification,
addition or deletion of this Agreement must be approved by an Officer of
Employers Resource.
13. WAIVER
Failure by either party to require performance or to claim a breach of the
Agreement shall so constitute a waiver of any provision of this Agreement,
any subsequent breach, not prejudice either with regard to action for a
subsequent breach.
14. NOTICES
Any notice or demand required under this Agreement shall be given by
personal delivery in writing, or registered or certified mail. The notice
or demand shall be sent to the address specified by the recipient party
and shall be effective 48 hours after mailing. In matters which require
immediate communication, telephone communication may be used with written
confirmation.
15. GOVERNING LAW
This Agreement shall be governed by the laws of the state in which the
Co-Employer resides.
16. PARTIAL INVALIDITY
Should any term, warrant, covenant, condition or provision of this
Agreement be held to lie invalid or unenforceable, the balance of this
Agreement shall remain in full force and shall stand as if the
unenforceable provision did not exist.
17. DISPUTE RESOLUTION
Employers Resource and Co-Employer mutually contract and agree that any
and all claims, disputes or Controversies, whether based on contract,
quasi-contract, tort, offenses, quasi-offenses or otherwise arising out of
or in any way relating to this contract or the breach or termination of
same, whether based on the Constitution, statutes, Code(s), or common law
of the United States or of any State, including the arbitrability of any
claim, dispute or controversy, shall be exclusively resolved by the
parties first trying to settle in a Mediation under the Mediation Rules
of, administered by and conducted by the Neutrals of the National
Association for Dispute Resolution, Inc., failing which, settlement of the
dispute shall be by binding arbitration conducted under the commercial
Arbitration Rules of, administered by and conducted before an Arbitration
Tribunal of Neutrals of the National Association for Dispute Resolution,
Inc.
18. ATTORNEY FEES
If suit is brought by either party regarding a breach, default, or to
enforce the terms of this Agreement, the prevailing party in such action
shall receive reasonable attorney's fees and costs, interest and such other
relief as a court may determine.
19. SECTION HEADINGS
Tie Section headings of this Agreement are for reference only and shall not
be considered in the interpretation of this Agreement.
20. TERMINATION OF THE AGREEMENT
This Agreement may be terminated by either party upon thirty (30) days
notice to the other party. Employers Resource may terminate this Agreement
at any time in the event of a "material breach," as described in Section
10, by Co-Employer.
Termination of the Agreement shall terminate the co-employment relationship
between Employers Resource, Co-Employer and their co-employees. This
includes, but is not limited to, any and all benefits provided under the
Agreement. Termination of this Agreement shall not affect the financial
obligations of the parties which have accrued prior to such termination.
21. FEES FOR SERVICE AND RESERVES
a. Fees are as outlined in the Proposal for Services which is hereby
attached to and made a part of this Co-Employment Agreement. Fees and
charges for benefits are subject to changes in Employers Resource's
cost of taxes and insurance.
b. Set-Up Fees for initial enrollment of employees will be as specified in
the Proposal for Services. The set-up fee for each subsequent new hire
will be $25
<PAGE> 4
c. Account reserves will be as specified in the Proposal for Services.
Said reserves may be adjusted at the discretion of Employers Resource
to reflect current estimated payroll charges for each pay period and
to ensure performance of the terms of this Agreement.
EMPLOYERS RESOURCE MANAGEMENT COMPANY, INC.
Signature ____ /s/ Richard Bonzer _______________________________
Name _____________ Richard Bonzer ___________________
Title ____________ Account Executive ________________
CO-EMPLOYER
Signature ____ /s/ David B. Coulter ____________________________
Name _____________ David B. Coulter _________________
Title ____________ President/CEO_____________________
Date: __________ 09-29-98__________________________
Executed at: ____ Westminster, California _______________________
[This agreement covers all executive officers of the Company, except Michael
Palmer and Terry Herbeck, as well as all other employees of the Company]
<PAGE> 1
EXHIBIT 10.23
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (the "Agreement") is entered into as of the 6th
day of December, 1999 ("Effective Date"), between eSat, Inc., a Nevada
corporation (the "Company"), and Herbeck Consulting Group, Inc. specifically
Terry Herbeck (the "Consultant").
WITNESSETH:
WHEREAS, it is the desire of the Company to use the services of the
Consultant upon the terms and subject to the conditions set forth herein; and
WHEREAS, it is the desire of the Consultant to accept the Company's offer
for services upon the terms and subject to the conditions set forth herein.
NOW THEREFORE, in consideration of the premises and mutual covenants,
conditions and agreements contained herein and for such other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto, each intending to be legally bound hereby, agree as follows:
1. Consulting Terms. The Company hereby agrees to retain the Consultant
and the Consultant hereby agrees to be retained by the Company upon the terms
and subject to the conditions set forth herein for the period of service as set
forth in Section 2 hereof (the "Period of service").
2. Period of Service. Subject to extension or termination as hereinafter
provided, the Period of Service hereunder shall be from the date hereof (the
"Effective Date") through the third anniversary of the Effective Date.
Thereafter, the Period of Service may be extended for successive one (1) year
periods (each, a "Renewal Period") at the option of the Company upon delivery of
written notice by the Company to the Consultant, subject to acceptance by the
Consultant, not less than three (3) months prior to the expiration of the Period
of Service, as previously extended. The phrase "Period of Service" as used
herein shall, unless otherwise indicated: (a) specifically include any
extensions permitted hereunder or provided herein, except as otherwise noted;
and (b) be deemed to have terminated as of the date of any notice provided to
the Consultant pursuant to Section 9 hereof, notwithstanding the Company's
obligation to pay the Consultant pursuant to Subsections 9(b) and 9(c) hereof.
3. Office and Duties. During the Period of Service:
(a) The Consultant shall be retained to act as the Chief Operating
Officer of the Company, having the authority and duties attendant to such
position as set forth in the bylaws of the Company (the "Bylaws") and having
such responsibilities as may reasonably be prescribed for such position by the
board of directors of the Company (the "Board of Directors") in accordance with
the Bylaws:
(b) the Consultant shall devote substantially all of his time to the
business and affairs of the Company except for vacations, illness or
incapacity, as herein after set forth.
Notwithstanding the preceding sentence, nothing in this Agreement shall
preclude the Consultant from devoting reasonable amounts of time:
1
<PAGE> 2
(i) to serving as a director, officer or member of a committee
of any organization or entity involving no conflict of interest with the
Company; or
(ii) engaging in charitable and community activities;
provided, however, that such activities do not interfere with the performance
by the Consultant of his duties hereunder. In consideration of such service,
the Consultant agrees that he shall not, directly or indirectly, individually
or as a member of any partnership or joint venture, or as an officer, director,
stockholder, Consultant or agent of any other person, firm, corporation,
business organization or other entity, engage in any trade or business activity
or pursuit for his own account or for or on behalf of any other person, firm,
corporation, business organization or other entity, irrespective of whether the
same competes, conflicts or interferes with that of the Company or the
performance of the Consultant's obligations hereunder. Notwithstanding the
foregoing, nothing contained herein shall be construed to prevent the
Consultant from: (x) investing in the stock of any corporation which does not
compete with the Company, which is listed on a national securities exchange
or traded in the over-the-counter market if the Consultant does not and will
not, as a result of such investment, own more than five percent (5%) of the
stock of such corporation ("Permitted Investments"); or (y) engaging in
personal business ventures to which the Consultant devotes time outside of the
time required to be devoted to the business of the Company hereunder.
(c) the Consultant shall be entitled to three (3) weeks of vacation
per year, subject to adjustment at the discretion of the Board of Directors.
4. Compensation and Benefits. In exchange for the services rendered by the
Consultant pursuant hereto in any capacity during the Period of Service, the
Consultant shall be compensated as follows:
(a) Compensation. Commencing on the Effective Date of this Agreement,
the Company shall pay the Consultant a salary equal to One Hundred Seventy Five
Thousand Dollars ($175,000) per annum at a rate of Fourteen Thousand Five
Hundred Eighty Three Dollars and Thirty Three Cents ($14,583.33) per month.
(b) Discretionary Bonuses. In addition to any bonus set forth above,
the Consultant shall be entitled to receive a bonus from time to time if, in
the sole judgment of the Board of Directors, the financial performance of the
Company or the services rendered by the Consultant merit such a bonus.
(c) Options. In consideration of the Consultant's agreement to render
the services provided herein, the Company shall grant to the Consultant an
option exercisable to purchase an aggregate of 300,000 shares of the Company's
(Section 144) common stock at an exercise price of Three Dollars and Fifty
Cents ($3.50) per share. Such options shall vest and become exercisable in
accordance with the terms and conditions set forth in the Stock Option
Agreement, which is attached hereto as Addendum A of this Agreement.
5. Business Expenses. The Company shall reimburse the Consultant for all
reasonable travel or other expenses incurred by the Consultant in connection
with the performance of his duties under this Agreement, provided that the same
are previously authorized by the Company in accordance with such procedures as
the Company may from time to time establish for Consultants and as required to
preserve any deductions for federal income taxation purposes to which the
Company may be entitled.
2
<PAGE> 3
6. Automobile Allowance. The Consultant shall not be entitled to a
monthly automobile allowance.
7. Group Medical and Dental Insurance for the Consultant and his Family.
Group medical and dental insurance will be provided by the Company for the
Consultant and his immediate family members, pursuant to the terms and
conditions of the Company's group medical and dental policies.
8. Other Benefits. The Consultants shall be entitled to participate in
fringe benefit, deferred compensation and stock option plans or programs of the
Company, if any, to the extent that his position, tenure, salary, age, health
and other qualifications make him eligible to participate, subject to the rules
and regulations applicable thereto. Such additional benefits shall include, but
not be limited to, paid sick leave and disability and term life insurance (all
in accordance with the group policies of the Company) and professional dues
and association memberships,
9. Termination of Service. Notwithstanding any other provision of this
Agreement, service hereunder may be terminated:
(a) By the Company, in the event of the Consultant's death or
Disability (as hereinafter defined) or for Just Cause (as hereinafter defined).
"Just Cause" shall mean: (i) the Consultant's indictment for, conviction of or
the entering into of a plea of guilty to a crime involving a felonious act or
acts, including dishonesty, fraud or moral turpitude by the Consultant; (ii)
prolonged or repeated absence from duty without the consent of the Company (for
reasons other than the Consultant's health or incapacity); (iii) habitual
engaging in any activity which is competitive with the business of the Company;
and (iv) willful misconduct, gross negligence or dishonesty on the part of the
Consultant relating to the performance of his duties hereunder. The Consultant
shall be deemed to have a "Disability" for purposes of this Agreement if he is
unable to perform with reasonable accommodation, by reason of physical or mental
incapacity, a material portion of his duties or obligations under this Agreement
for a period of one hundred twenty (120) consecutive days in any 365-day period.
The Board of Directors shall determine whether and when the Disability of the
Consultant has occurred and such determination shall not be arbitrary or
unreasonable. The Company shall provide written notice to the Consultant within
thirty (30) days after discovery of the occurrence of an event or circumstance
which constitutes "Just Cause," specify the event or circumstance giving rise to
the Company's exercise of its right hereunder and, with respect to Just Cause
arising under either Subsection 9(a)(i), (iii) or (iv), the Consultant's service
hereunder shall be deemed terminated as of the date of such notice. With respect
to Just Cause arising under Subsection 9(a)(ii), the Company shall provide the
Consultant with thirty (30) days written notice of such violation and the
Consultant shall be given reasonable opportunity during such thirty (30) day
period to cure the subject violation;
(b) By the Company, in its sole and absolute discretion, provided that in
such event the Company shall, as liquidated damages or severance pay, or both,
pay the Consultant an amount equal to the Consultant's then Monthly
Compensation (as defined in Section 4(a) hereof) for six (6) months; and
(c) By the Consultant (i) upon any material violation of any material
provision of this Agreement by the Company, which violation remains unremedied
for a period of thirty (30) days after written notice of the same is delivered
to the Company by the Consultant, and (ii) upon any material change in
the responsibilities of the Consultant, without the Consultant's prior consent;
provided that, in such event the Company shall, as liquidated damages or
severance pay, or both, pay to the Consultant an amount equal to the
Consultant's Monthly Compensation for six (6) months.
3
<PAGE> 4
Nothing set forth in this section shall: (i) require the Consultant in the
event of termination pursuant to Subsections 9(b) or 9(c) above to mitigate
damages during the period in which the Consultant is receiving payment
thereunder (the "Severance Period"); or (ii) entitle the Company to offset the
amounts owed by the Company to the Consultant pursuant to Subsections 9(b) or
9(c) by any income or amounts owed by the Company to the Consultant pursuant to
Subsections 9(b) or 9(c) by any income or compensation received by the
Consultant from sources other than the Company during such Severance Period. In
addition, the Company shall not be entitled to withhold or otherwise offset any
amounts payable to the Consultant under Subsections 9(b) or 9(c) above in
response to any alleged violation by the Consultant of any of the obligations
which are imposed under this Agreement and survive termination hereof until
such time as court of competent jurisdiction or other appropriate governing
body has rendered judgment or otherwise made a determination with respect to
whether such violation has occurred.
10. Non-Solicitation. Notwithstanding any earlier termination, during the
Period of Service (including any Renewal Period) and for one (1) year
thereafter, the Consultant shall not: (i) solicit or induce any Consultant of
the Company to terminate his or her service or otherwise leave the Company's
employ or hire any such Consultant (unless the board of Directors shall have
authorized such service and the Company shall have consented thereto in
writing); or (ii) contact or solicit any clients or customers of the Company,
either as an individual or as a member of any partnership or joint venture, or
as an officer, director, stockholder, investor, Consultant or agent of any
other person, person, corporation, business organization or other entity.
11. Confidential Information. The parties hereto recognize that it is
fundamental to the business and operation of the Company, its affiliates,
subsidiaries and divisions to preserve the specialized knowledge, trade secrets,
and confidential information of the foregoing concerning the fields of
advertising, marketing and interactive solutions. The strength and good will of
the Company is derived from the specialized knowledge, trade secrets, and
confidential information generated from experience through the activities
undertaken by the Company, its affiliates, subsidiaries and divisions thereof.
The disclosure of any of such information and the knowledge thereof on the part
of competitors would be beneficial to such competitors and detrimental to the
Company, its affiliates, subsidiaries and divisions thereof, as would the
disclosure of information about the marketing practices, pricing practices,
costs, profit margins, design specifications, analytical techniques, concepts,
ideas, process developments (whether or not patentable), customer and client
agreements, vendor and supplier agreements and similar items or technologies. By
reason of his being a Consultant of the Company, (in the course of his service,
the Consultant has or shall have access to, and has obtained or shall obtain,
specialized knowledge, trade secrets and confidential information such as that
described herein about the business and operation of the Company, its
affiliates, subsidiaries and divisions thereof. Therefore, the Consultant hereby
agrees as follows, recognizing and acknowledging that the Company is relying on
the following in entering into this Agreement:
(a) The Consultant hereby sells, transfers and assigns to the
Company, or to any person or entity designated by the Company, any and all
right, title and interest of the Consultant in and to all creations, designs,
inventions, ideas, disclosures and improvements, whether patented or
unpatented, and copyrightable material, made or conceived by the Consultant
solely or jointly, in whole or in part, during or before the term hereof
(commencing with the date of the Consultant's service with the Company) which:
(i) relate to methods, apparatus, designs, products, processes or devices
created, promoted, marketed, distributed, sold, leased used, developed, relied
upon or otherwise provided by the Company or any affiliate, subsidiary or
division thereof; or (ii) otherwise relate to or pertain to the business,
operations or affairs of the Company or any affiliate, subsidiary or division
thereof. Whether during the Period of Service or thereafter, the Consultant
shall execute and deliver to the Company such formal transfers and assignments
and such other papers and documents as may be required of the Consultant to
4
<PAGE> 5
permit the Company or any person or entity designated by the Company to file,
enforce and prosecute the patent applications to any of the foregoing and, as
to copyrightable material, to obtain copyright thereon; and
(b) Notwithstanding any earlier termination, during the Period of
Service (including any Renewal Period) and for a period of one (1) year
thereafter, the Consultant shall, except as otherwise required by or compelled
by law, keep secret and retain in strict confidence, and shall not use,
disclose to others, or publish any information, other than information which is
in the public domain or becomes publicly available through no wrongful act on
the part of the Consultant, which information shall be deemed not to be
confidential information, relating to the business, operation or other affairs
of the Company, its affiliates, subsidiaries and divisions thereof, including
but not limited to confidential information concerning the design and marketing
practices, pricing practices, costs, profit margins, products, methods,
guidelines, procedures, engineering designs and standards, design
specifications, analytical techniques, technical information, customer, client,
vendor or supplier information, Consultant information, and any and all other
confidential information acquired by him in the course of his past or future
services for the Company or any affiliate, subsidiary or division or division
thereof. The Consultant shall hold as the Company's property all notes,
memoranda, books, records, papers, letters, formulas and other data and all
copies thereof and therefrom in any way relating to the business, operation or
other affairs of the Company, its affiliates, subsidiaries and divisions
thereof, whether made by him or otherwise coming into his possession. Upon
termination of his service or upon the demand of the Company, at any time, the
Consultant shall deliver the same to the Company within twenty-four (24) hours
of such termination or demand.
12. Reasonableness of Restrictions. The Consultant hereby agrees that the
restrictions in this Agreement, including without limitation, those relating to
the duration of the provisions hereof and the territory to which such
restrictions apply, are necessary and fundamental to the protection of the
business and operation of the Company, its affiliates, subsidiaries and
divisions thereof, and are reasonable and valid.
13. Reformation of Certain Provisions. In the event that a court of
competent jurisdiction determines that the non-solicitation or the
confidentiality provisions hereof are unreasonably broad or otherwise
unenforceable because of the length of their respective terms or the breadth of
their territorial scope, of for any other reason, the parties hereto agree that
such court may reform the terms and/or scope of such covenants so that the same
are reasonable and, as reformed, shall be enforceable.
14. Arbitration. Subject to Section 15 below, any controversy, dispute
and/or claim in any manner arising out of or relating to this Agreement; any
claim, including but not limited to any claim of race, age, national origin,
religion, sex, pregnancy, family leave, harassment, sexual orientation,
disability discrimination, defamation, infliction of emotional distress, breach
of contract, violation of public policy or statute, or wrongful termination
arising out of the voluntary or involuntary termination of the service, shall
be settled solely by final and binding arbitration in accordance with the
Service Dispute Resolution Rules of the American Arbitration Association. Any
arbitration proceeding shall take place in Orange County, California. Judgment
on any decision rendered by the arbitrator may be entered in any court having
jurisdiction thereof.
15. Certain Provisions; Specific Performance. In the event of a breach by
the Consultant of the non-solicitation or confidentiality provisions hereof,
such breach shall not be subject to the arbitration provision of Section 14
above and the Company shall be entitled to seek immediate injunctive relief and
a decree of specific performance against the Consultant. Such remedy is
non-exclusive and shall be in
5
<PAGE> 6
addition to any other remedy to which the Company or any affiliate,
subsidiary or division thereof may be entitled.
16. Consolidation; Merger; Sale of Assets. Nothing in this Agreement shall
preclude the Company from combining, consolidating or merging with or into,
transferring all or substantially all of its assets to, or entering into a
partnership or joint venture with, another corporation or other entity, or
effecting any other kind of corporate combination, provided that, the
corporation resulting from or surviving such combination, consolidation or
merger, or to which such assets are transferred, or such partnership or joint
venture assumes this Agreement and all obligations and undertakings of the
Company hereunder. Upon such a consolidation, merger, transfer or assets or
formation of such partnership or joint venture, this Agreement shall inure to
the benefit of, be assumed by, and be binding upon such resulting or surviving
transferee corporation or such partnership or such joint venture, and the term
"Company," as used in this Agreement, shall mean such corporation, partnership
or joint venture, or other entity and this Agreement shall continue in full
force and effect and shall entitle the Consultant and his heirs, beneficiaries
and representatives to exactly the same compensation, benefits, perquisites,
payments and other rights as would have been their entitlement had such
combination, consolidation, merger, transfer of assets or formation of such
partnership or joint venture not occurred.
17. Survival. Sections 9 through 15 shall survive the termination for any
reason of this Agreement (whether such termination is by the Company, by the
Consultant, upon the expiration of this Agreement by its terms or otherwise).
18. Severability. The provisions of this Agreement shall be considered
severable in the event that any of such provisions are held by a court of
competent jurisdiction to be invalid, void or otherwise unenforceable. Such
invalid, or otherwise enforceable provisions shall be automatically replaced by
other provisions which are valid and unenforceable and which are as similar as
possible in term and intent to those provisions deemed to be invalid, void or
otherwise unenforceable. Notwithstanding the foregoing, the remaining
provisions hereof shall remain enforceable to the fullest extent permitted by
law.
19. Entire Agreement; Amendment. This Agreement contains the entire
agreement between the Company and the Consultant with respect to the subject
matter hereof. This Agreement may not be amended, changed, modified or
discharged, nor may any provision hereof be waived, except by an instrument in
writing, executed by or on behalf of the party against whom enforcement of any
amendment, waiver, change, modification or discharge is sought. No course of
conduct or dealing shall be construed to modify, amend or otherwise affect any
of the provisions hereof.
20. Notices. All notices, request, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
physically delivered, delivered by express mail or other expedited service or
upon receipt if mailed, postage prepaid, via first mail as follows:
a) To the Company: ESat, Inc.
16520 Harbor Boulevard, Bldg. G
Fountain Valley, California 92708
Attention: President
b) To the Consultant: Terry Herbeck
30902 Clubhouse Dr. #24D
Laguna Niguel, CA 92677
6
<PAGE> 7
(949) 388-9280
and/or to such other persons and addresses as any party hereto shall have
specified in writing to the other.
21. Assignability. This Agreement shall not be assignable by the
Consultant, but shall be binding upon and shall inure to the benefit of his
heirs, executors, administrators and legal representatives. This Agreement shall
be assignable by the Company to any affiliate, subsidiary or division thereof
and to any successor interest.
22. Governing Law. This Agreement shall be governed by and construed
under the laws of the State of California, without regard to the principles of
conflicts of laws thereof.
23. Waiver and Further Agreement. Any waiver or any breach of any terms or
conditions of this Agreement shall not operate as a waiver of any other breach
of such terms or conditions or any other term or condition hereof, nor shall any
failure to enforce any provision hereof operate as a waiver of such provision or
of any other provision hereof. Each of the parties hereto agrees to execute all
such further instruments and documents and to take all such further action as
the other party may reasonably require in order to effectuate the terms and
purposes of this Agreement.
24. Headings of No Effect. The headings contained in this Agreement are
for reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
eSAT, INC.
By /s/ MIKE PALMER
-------------------------------------
Mike Palmer, CEO
THE CONSULTANT:
By: /s/ TERRY HERBECK
------------------------------------
Terry Herbeck
7
<PAGE> 1
EXHIBIT 21
ESAT INC. SUBSIDIARIES
Global Media Technologies, Inc. Incorporated in the State of Nevada
August 11, 1999
SkyFrame, Inc. Incorporated in the State of Texas
February 19, 1999 as Cyber Village
Networks
Name changed to "SkyFrames"
April 19, 1999
d/b/a SkySP
i.Xposure, Inc. Incorporated in the State of Delaware
November 1, 1999
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
To the Stockholders and Directors of eSat, Inc.
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement on Form SB-2 of our report dated August 12, 1999, revised
October 22, 1999, relating to the financial statements of eSat, Inc., for the
years ended December 31, 1997 and 1998.
We also consent to the reference to us under the caption "Experts" in the
Prospectus
Lichter & Company
/s/ Lichter & Company
Los Angeles, California
January 26, 2000
<PAGE> 1
EXHIBIT 99
UNITED STATES OF AMERICA
FEDERAL COMMUNICATIONS COMMISSION
---------------------------------
RADIO STATION AUTHORIZATION
[FEDERAL COMMUNICATIONS
COMMISSION SEAL]
NAME: eSAT, INC. CALL SIGN: E990237
AUTHORIZATION TYPE: License FILE NUMBER: SES-LIC-19990616-00970
Non Common Carrier GRANT DATE: 08/25/1999 EXPIRATION DATE: 08/25/2009
- --------------------------------------------------------------------------------
NATURE OF SERVICE: Domestic Fixed Satellite Service
CLASS OF STATION: Fixed Earth Stations
A) SITE LOCATION(S)
<TABLE>
<CAPTION>
ELEVATION SPECIAL PROVISIONS
# SITE ID ADDRESS LATITUDE LONGITUDE (METERS) NAD (REFER TO SECTION M)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1) HUB 3100 HIGHWOODS BLVD (7.6M. HUB) 35" 49' 10.0" N 78" 36' 0.9"W 88.4 27
RALEIGH, WAKE, NC 27604
Licensee certifies antenna(s) comply with gain patterns specified in Section 25.209
2) REMOT VSAT (500 1.2M.) 27
1
CONUS, AK, HI, PR, VI.
Licensee certifies antenna(s) do not comply with Section 25.209. Please refer to Section
E for special conditions placed upon antennas at this site.
3) REMOT VSAT (200 1.8M.) 27
2
CONUS, AK, HI, PR, V.
Licensee certifies antenna(s) do not comply with Section 25.209. Please refer to Section
E for special conditions placed upon antennas at this site.
4) REMOT VSAT (50 2.4M.) 27
3
CONUS, AK, HI, PR, V.
Licensee certifies antenna(s) do not comply with Section 25.209. Please refer to Section
E for special conditions placed upon antennas at this site.
</TABLE>
Subject to the provisions of the Communications Act of 1934, The Communications
Satellite Act of 1962, subsequent acts and treaties, and all present and future
regulations made by this Commission, and further subject to the conditions and
requirements set forth in this license, the grantee is authorized to construct,
use and operate the radio facilities described below for radio communications
for the term beginning August 25, 1999 (3 AM Eastern Standard Time) and ending
August 25, 2009 (3 AM Eastern Standard Time). The required date of completion of
construction and commencement of operation is August 25, 2000 (3 AM Eastern
Standard Time). Grantee must file with the Commission a certification upon
completion of construction and commencement of operation.
B) PARTICULARS OF OPERATIONS
The General Provision 1010 applies to all receiving frequency bands.
The General Provision 1900 applies to all transmitting frequency bands.
For the text of these provisions, refer to Section H.
[FEDERAL COMMUNICATIONS COMMISSION SEAL]
<TABLE>
<CAPTION>
MAX MAX EIRP
EIRP DENSITY
FREQUENCY /CARRIER /CARRIER ASSOCIATED SPECIAL PROVISIONS MODIFICATION/
# (MH2) POLARIZATION EMISSION (dBW) (dBW/4kHz) ANTENNA (REFER TO SECTION H) SERVICES
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1) 14000.0000-14500.0000 H.V 51K2G7D 40.30 29.20 2.2M QP5K DIGITAL, 3/4
FBC, 64 KBPS
</TABLE>
FCC FORM 488
(page 1 of 5)
<PAGE> 2
[FEDERAL COMMUNICATIONS COMMISSION SEAL]
UNITED STATES OF AMERICA
FEDERAL COMMUNICATIONS COMMISSION
RADIO STATION AUTHORIZATION
Name: eSAT,INC. CALL SIGN: E990237
AUTHORIZATION TYPE: License FILE NUMBER: SES-LIC-19990616-00970
Non Common Carrier GRANT DATE: 08/25/1999 EXPIRATION DATE: 08/25/2009
- --------------------------------------------------------------------------------
B) PARTICULARS OF OPERATIONS
The General Provision 1010 applies to all receiving frequency bands.
The General Provision 1900 applies to all transmitting frequency bands.
For the text of these provisions, refer to Section H.
<TABLE>
<CAPTION>
MAX MAX EIRP
EIRP DENSITY
FREQUENCY /CARRIER /CARRIER ASSOCIATED SPECIAL PROVISIONS MODULATION/
# (MHz) POLARIZATION EMISSION (dBW) (dBW/4k/Hz) ANTENNA (REFER TO SECTION H) SERVICES
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
2) 11700.0000-12200.0000 H,V 12MSG7D 1.2M QPSK DIGITAL, 3/4
FEC, 16 MBPS
3) 14000.0000-14500.0000 H,V 102KG7D 46.60 32.50 1.8M QPSK DIGITAL, 3/4
FEC, 128 KBPS
4) 11700.0000-12200.0000 H,V 12MSG7D 1.8M QPSK DIGITAL, 3/4
FEC, 16 MBPS
5) 14000.0000-14500.0000 H,V 307KG7D 52.20 33.30 2.4M QPSK DIGITAL, 3/4
FEC, 384 KBPS
6) 11700.0000-12200.0000 H,V 12MSG7D 2.4M QPSK DIGITAL, 3/4
FEC, 16 MBPS
7) 14000.0000-14500.0000 H,V 12MSG7D 76.40 41.30 7.6M QPSK DIGITAL, 3/4
FEC, 16 MBPS
8) 11700.0000-12200.0000 H,V 51K2G7D 7.6M QPSK DIGITAL, 3/4
FEC, 64 KBPS
9) 11700-0000-12200.0000 H,V 102KG7D 7.6M QPSK DIGITAL, 3/4
FEC, 128 KBPS
10) 11700.0000-12200.0000 H,V 307KG7D 7.6M QPSK DIGITAL, 3/4
FEC, 384 KBPS
</TABLE>
C) FREQUENCY COORDINATION LIMITS
<TABLE>
<CAPTION>
SATELLITE ARC ELEVATION AZIMUTH
(DEG. (DEGREES) (DEGREES) MAX EIRP
LONG.) DENSITY TOWARD
FREQUENCY LIMITS EAST WEST EAST WEST EAST WEST HORIZON ASSOCIATED
# (MHz) LIMIT LIMIT LIMIT LIMIT LIMIT LIMIT (dbW/4kHz) ANTENNA(s)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1) 14000.0000-14500.0000 60.0W-143.DW 44.0-12.0 150.1-254.3 -12.8 7.6M
2) 11700.0000-12200.0000 60.0W-143.DW 44.0-12.0 150.1-254.3 7.6M
3) 14000.0000-14500.0000 60.0W-143.DW 05.0-05.0 -2 1.2M
4) 11700.0000-12200.0000 60.0W-143.DW 05.0-05.0 1.2M
5) 14000.0000-14500.0000 60.0W-143.DW 05.0-05.0 -2 1.8M
6) 11700.0000-12200.0000 60.0W-143.DW 05.0-05.0 1.8M
7) 14000.0000-14500.0000 60.0W-143.DW 05.0-05.0 -2 2.4M
8) 11700.0000-12200.0000 60.0W-143.DW 05.0-05.0 2.4M
</TABLE>
(page 2 of 5) FCC FORM 488
<PAGE> 3
UNITED STATES OF AMERICA
FEDERAL COMMUNICATIONS COMMISSION
RADIO STATION AUTHORIZATION
[FEDERAL COMMUNICATIONS COMMISSION SEAL]
NAME: eSAT, INC. CALL SIGN: E990237
AUTHORIZATION TYPE: License FILE NUMBER: SES-LIC-199906-00970
Non Common Carrier
GRANT DATE: 08/25/1999 EXPIRATION DATE: 08/25/2009
- --------------------------------------------------------------------------------
D) POINTS OF COMMUNICATIONS
The following stations located in the Satellite orbits consistent with
Sections B and C of this License:
- --------------------------------------------------------------------------------
1) HUB to All authorized U.S. Domestic (ALSAT) Satellites.
E) ANTENNA FACILITIES
SITE/ELEVATION:
<TABLE>
<CAPTION>
SITE ANTENNA DIAMETER MAX ANTENNA HEIGHT SPECIAL PROVISION
ID ID UNITS (METERS) MANUFACTURER MODEL NUMBER (METERS) (REFER TO SECTION)
- ---------- ------- ----- -------- ------------ -------------- ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
REMOTE 1.2M 500 1.2 PRODELIN 1123
1
Max Gains(s): 41.7 dBi @ 12,0000 GHz 43.2 dBi @ 14,0000 GHz
Maximum total input power at antenna flange (Watts) = 2.00
Maximum aggregate output EIRP for all carriers (dBW) = 46.20
REMOTE 1.8M 200 1.8 PRODELIN 1184
2
Max Gains(s): 45.0 dBi @ 12,0000 GHz 46.5 dBi @ 14,0000 GHz
Maximum total input power at antenna flange (Watts) = 2.00 [FEDERAL COMMUNICATIONS COMMISSION SEAL]
Maximum aggregate output EIRP for all carriers (dBW) = 49.50
REMOTE 2.4M 50 2.4 PRODELIN 1251
3
Max Gains(s): 47.6 dBi @ 12,0000 GHz 49.2 dBi @ 14,0000 GHz
Maximum total input power at antenna flange (Watts) = 2.00
Maximum aggregate output EIRP for all carriers (dBW) = 52.20
HUB 7.6M 1 7.6 ANDREW CORP. 7.6KU 7.8 ALG/96.2 AMSL
Max Gains(s): 58.0 dBi @ 12,0000 GHz 59.4 dBi @ 14,0000 GHz
Maximum total input power at antenna flange (Watts) = 50.00
Maximum aggregate output EIRP for all carriers (dBW) = 76.40
</TABLE>
F) REMOTE CONTROL POINT:
- --------------------------------------------------------------------------------
HUB 16520 HARBOR BLVD., BLDG. G CALL SIGN: E990237
FOUNTAIN VALLEY, ORANGE, CA 92708
888-895-0007
G) ANTENNA STRUCTURE MARKING AND LIGHTING REQUIREMENTS:
None unless otherwise specified under Special and General Provisions
(page 3 of 5) FCC FORM 488
<PAGE> 4
UNITED STATES OF AMERICA
FEDERAL COMMUNICATIONS COMMISSION
[FEDERAL
COMMUNICATIONS ---------------------------
COMMISSION RADIO STATION AUTHORIZATION
SEAL] ---------------------------
NAME: eSAT, INC. CALL SIGN: E990237
AUTHORIZATION TYPE: License FILE NUMBER: SES-LIC-19990616-00970
Non Common Carrier GRANT DATE: 08/25/1999 EXPIRATION DATE: 08/25/2009
- --------------------------------------------------------------------------------
H) SPECIAL AND GENERAL PROVISIONS
A) This RADIO STATION AUTHORIZATION is granted subject to the following
special provisions and general conditions:
1010 -- Applicable to all receiving frequency bands. Emission designator
indicates the maximum bandwidth of received signal at associated
station(s). Maximum EIRP and maximum EIRP density are not
applicable to receive operations.
1900 -- Applicable to all transmitting frequency bands. Authority is
granted to transmit any number of RF carriers with the specified
parameters on any discrete frequencies within associated band in
accordance with the other terms and conditions of this
authorization, subject to any additional limitations that may be
required to avoid unacceptable levels of inter-satellite
interference.
2010 -- This authorization is issued pursuant to the Commission's
Second Report and Order adopted June 16, 1972 (35 FCC 2d 844)
and Memorandum, Opinion and Order adopted December 21, 1972 (38
FCC 2d 665) in Docket No. 16495 and is subject to the policies
adopted in that proceeding.
2300 -- Authority is granted to operate this station by remote control
provided that: (1) The parameters of the transmissions of this
station monitored at the remote control point, and the
operational functions sufficient to insure that the operations
of this station are in full compliance with the station
authorization at all times; (2) upon detection by the grantee,
or upon notification from the Commission, of a deviation of the
operation of this station shall be immediately suspended until
the deviation is corrected, except the transmissions concerning
the immediate safety of life or property may be conducted for
the duration of such emergency; and (3) the grantee shall have
available, at all times, the technical personnel necessary to
perform the technical servicing and maintenance of this station
expeditiously.
2810 -- The grantee shall maintain on file with the Commission's
current list or plan of the precise frequencies in actual use
at this station, specifying for each such frequency: the r.f.
center frequency, polarization, emission designator, EIRP
(dBW), EIRP density (dBW/4kHz), and receiving earth station(s).
This list or plan may be submitted either on a
station-by-station basis or on a system-wide basis, and shall
be updated within seven days of any changes in frequency usage
at this station. Temporary usage of frequencies for periods of
less than seven days need not be notified to the Commission if
accurate station records are maintained of the times and
particulars of such temporary frequency usage.
2916 -- The transmitter(s) must be turned off during antenna maintenance
so that the FCC-specified safety guidelines for human exposure
to radiofrequency radiation are complied within the region
between the feed and the reflector. Appropriate measures must
also be taken to restrict access to other regions in which the
earth station's power flux density levels exceed the specified
guidelines.
2939 -- Upon completion of construction each licensee must file with
the Commission a certification including the following
information: name of the licensee, file number of the
application, call sign of the antenna, date of the license and
certification that the facility as authorized as has been
completed, that each antenna facility has been tested and is
within 2 dB of the pattern specified in Section 25.209, and
that the station is operational including the date of
commencement of service, and will remain operational during the
license period unless the license is submitted for
cancellation. In addition, each licensee must file a
certification once the network is put into operation.
(page 4 of 5) FCC FORM 488
<PAGE> 5
UNITED STATES OF AMERICA
[FEDERAL FEDERAL COMMUNICATIONS COMMISSION
COMMUNICATIONS
COMMISSION SEAL] RADIO STATION AUTHORIZATION
NAME: eSAT, INC. CALL SIGN: E990237
AUTHORIZATION TYPE: License FILE NUMBER: SES-LIC-19990616-00970
Non Common Carrier GRANT DATE: 08/25/1999 EXPIRATION DATE: 08/25/2009
- --------------------------------------------------------------------------------
B) This RADIO STATION AUTHORIZATION is granted subject to the additional
conditions specified below:
This authorization is issued on the grantee's representation that the
statements contained in the application are true and that the undertakings
described will be carried out in good faith.
This authorization shall not be construed in any manner as a finding by
the Commission on the question of marking or lighting of the antenna
system should future conditions require. The grantee expressly agrees to
install such marking or lighting as the Commission may require under the
provisions of Section 303(q) of the Communications Act. 47 U.S.C. Section
303(q).
Neither this authorization nor the right granted by this authorization
shall be assigned or otherwise transferred to any person, firm, company or
corporation without the written consent of the Commission. This
authorization is subject to the right of use or control by the government
of the United States conferred by Section 706 of the Communications Act 47
U.S.C. Section 706. Operation of this station is governed by Part 25 of
the Commission's Rules. 47 C.F.R. Part 25.
This authorization shall not vest in the licensee any right to operate
this station nor any right in the use of the designated frequencies beyond
the term of this license, nor in any other manner than authorized herein.
This authorization is issued on the grantee's representation that the
station is in compliance with environmental requirements set forth in
Section 1.1307 of the Commission's Rules. 47 C.F.R. Section 1.1307.
This authorization is issued on the grantee's representation that the
station is in compliance with the Federal Aviation Administration (FAA)
requirements as set forth in Section 17.4 of the Commission's Rules. 47
C.F.R. Section 17.4.
The following condition applies when this authorization permits
construction of or modifies the construction permit of a radio station.
This authorization shall be automatically forfeited if the station is not
ready for operation by the required date of completion of construction
unless an application for modification of construction permit for
additional time to complete construction is filed by that date, together
with a showing that failure to complete construction by the required date
was due to factors not under control of the grantee.
LICENSEES ARE REQUIRED TO PAY ANNUAL REGULATORY FEES RELATED TO THIS
AUTHORIZATION. THE REQUIREMENT TO COLLECT ANNUAL REGULATORY FEES FROM
REGULATES IS CONTAINED IN PUBLIC LAW 103-66, "THE OMNIBUS BUDGET
RECONCILIATION ACT OF 1993". THESE REGULATORY FEES, WHICH ARE LIKELY TO
CHANGE EACH FISCAL YEAR, ARE USED TO OFFSET COSTS ASSOCIATED WITH THE
COMMISSION'S ENFORCEMENT, PUBLIC SERVICE, INTERNATIONAL AND POLICY AND
RULEMAKING ACTIVITIES. THE COMMISSION ISSUES A REPORT AND ORDER EACH YEAR,
SETTING THE NEW REGULATORY FEE RATES. RECEIVE ONLY EARTH STATIONS ARE
EXEMPT FROM PAYMENT OF REGULATORY FEES.
FCC FORM 488
(page 5 of 5)
