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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): April 13, 2000
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Commission File Number 000 26039
eSAT, INC.
(Exact name of registrant as specified in its charter)
NEVADA 95-0344604
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
16520 HARBOR BLVD., BUILDING G, FOUNTAIN VALLEY, CA 92708
(Address of principal executive offices, including zip code)
(714) 418-3200
(Registrant's telephone number, including area code)
N/A
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(Former name or former address, if changed since last report.)
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ITEM 2: ACQUISITION OR DISPOSITION OF ASSETS
On April 13, 2000, eSat, Inc. ("eSat") acquired all of the outstanding
common stock of PacificNet Technologies, Inc. (the "PacificNet Shares"), a
provider of software support and managed Internet access to individuals and
businesses ("PacificNet"), through a merger with eSat's subsidiary, PN
Acquisition Co. ("PNAC"), pursuant to an Agreement and Plan of Merger and
Reorganization dated April 13, 2000 by and among eSat, PNAC, PacificNet and the
shareholders of PacificNet. The consideration for the PacificNet Shares was
2,750,000 shares of common stock of eSat. The amount of consideration was
determined through negotiation with Richard Elliot and David Pennells, the sole
shareholders of PacificNet. The source of the consideration was authorized but
unissued common stock of eSat.
On April 13, 2000, eSat also purchased all of the outstanding common
stock of InterWireless, Inc. (the "InterWireless Shares"), a wireless Internet
Service Provider that provides both traditional and broadband wireless Internet
access ("InterWireless"), pursuant to a Stock Purchase Agreement dated April 13,
2000 by and among eSat, InterWireless and the shareholders of InterWireless. The
InterWireless Shares were purchased from Richard Elliot and David Pennells, the
sole shareholders of InterWireless, for $4,000,000 cash. The consideration paid
for such shares was determined through negotiation with Mr. Elliot and Mr.
Pennells. The funds to consummate the InterWireless stock acquisition were
acquired through a sale of Series D 6% Convertible Preferred stock to Wentworth,
LLC (see Item 5 - Other Events).
Upon the closing, Mr. Elliot will be the President and a board member of
both PacificNet and InterWireless and Mr. Pennells will be Vice President and a
board member of both companies. Effective May 1, 2000, Messrs. Elliot and
Pennells will become Senior Vice Presidents of eSat.
eSat will continue to operate the business of PacificNet and
InterWireless from their offices in the Universal City section of Los Angeles,
California.
ITEM 5: OTHER EVENTS
Pursuant to a Securities Purchase Agreement (the "Purchase Agreement")
dated April 13, 2000 by and between eSat and Wentworth, LLC ("Wentworth"), eSat
sold 75,000 shares of Series D 6% Convertible Preferred Stock (the "Series D
Preferred Stock") for $7,5000,000, plus warrants to acquire one share of eSat
common stock for every two shares of eSat common stock to which Wentworth would
be entitled upon conversion of the Series D Preferred Stock. The issuance of the
Series D Preferred Stock followed an agreement between eSat and Wentworth
entered into on December 29, 1999, which was previously filed as an exhibit to
eSat's Registration Statement filed on Form SB-2, and which was modified in this
transaction to require that eSat offer to sell Wentworth an additional
$10,000,000 in common stock during the 15-month period following the date of the
Purchase Agreement.
2.
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ITEM 7: FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements. Will be filed by amendment not later than 60
days from the date hereof.
(b) Pro forma financial information. Will be filed by amendment not
later than 60 days from the date hereof.
(c) Exhibits
10.01 Agreement and Plan of Merger and Reorganization dated
April 13, 2000 by and among eSat, Inc., PN Acquisition
Co., PacificNet Technologies, Inc. and the shareholders of
PacificNet Technologies, Inc.
10.02 Stock Purchase Agreement dated April 13, 2000 by and among
eSat, Inc., InterWireless, Inc. and the shareholders of
InterWireless, Inc.
10.03 Securities Purchase Agreement dated April 13, 2000 by and
among eSat, Inc. and Wentworth, LLC.
10.04 Amended and Restated Certificate of Designations of Series
C 6% Convertible Preferred Stock of eSat, Inc.
10.05 Certificate of Designations Series D 6% Convertible
Preferred Stock of eSat, Inc.
10.06 Registration Rights Agreement dated April 13, 2000 by and
among eSat, Inc. and Wentworth, LLC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: April 19, 2000 eSat, Inc.
By: /s/ MARK BASILE
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Name: Mark Basile
Title: Chief Financial Officer
3.
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EXHIBIT 10.01
AGREEMENT AND PLAN OF MERGER
AND REORGANIZATION
BY AND AMONG
ESAT, INC.,
PN ACQUISITION CO.
AND
PACIFICNET TECHNOLOGIES, INC.
DATED AS OF APRIL 13, 2000
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TABLE OF CONTENTS
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ARTICLE 1 THE MERGER............................................................1
Section 1.1 The Merger..................................................1
Section 1.2 Consideration...............................................1
Section 1.3 Articles of Incorporation and Bylaws of the Surviving
Corporation................................................2
Section 1.4 Surrender and Exchange of PacificNet Common Stock...........2
Section 1.5 Fractional Shares...........................................3
Section 1.6 No Further Transfers........................................3
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF PACIFICNET..........................3
Section 2.1 Organization; Qualification.................................4
Section 2.2 Authority Relative to this Agreement........................4
Section 2.3 Capitalization..............................................4
Section 2.4 Subsidiaries; Absence of Certain Agreements.................5
Section 2.5 [Reserved]..................................................5
Section 2.6 Governmental Consents and Approvals.........................5
Section 2.7 No Violations...............................................6
Section 2.8 Financial Statements........................................6
Section 2.9 Title to and Condition of Assets and Property...............6
Section 2.10 Litigation..................................................7
Section 2.11 Absence of Changes..........................................7
Section 2.12 Undisclosed Liabilities; Commitments........................8
Section 2.13 Environmental Matters.......................................8
Section 2.14 Employee Benefit and Retirement Plans.......................9
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Section 2.15 Labor Matters...............................................9
Section 2.16 Information for Filings....................................10
Section 2.17 Taxes......................................................10
Section 2.18 Inventory..................................................11
Section 2.19 Proprietary Rights.........................................11
Section 2.20 Surety Obligations.........................................12
Section 2.21 No Brokers. Except as set forth on the PacificNet
Disclosure Schedule......................................12
Section 2.22 Records....................................................12
Section 2.23 Compliance With Law; Conduct...............................12
Section 2.24 Insurance..................................................12
Section 2.25 Receivables................................................13
Section 2.26 [RESERVED].................................................13
Section 2.27 Bank Accounts; Powers of Attorney..........................13
Section 2.28 Product and Service Warranties.............................13
Section 2.29 Transactions with Affiliates...............................13
Section 2.30 Price and Customer Lists...................................14
Section 2.31 Corrupt Practices..........................................14
Section 2.32 No Default.................................................14
Section 2.33 Additional Items Reflected in the PacificNet Disclosure
Schedule.................................................14
Section 2.34 Copies of Documents; Accuracy of Information Furnished.....15
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF ESAT AND PNAC......................15
Section 3.1 Organization; Qualification.................................15
Section 3.2 Authority Relative to this Agreement........................15
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Section 3.3 Common Stock................................................16
Section 3.4 Validity of Shares to be Issued.............................16
Section 3.5 Governmental Consents and Approvals.........................16
Section 3.6 No Violations...............................................16
Section 3.7 Financial Statements; SEC Reports...........................17
Section 3.8 Litigation..................................................17
Section 3.9 Information of Filings......................................17
Section 3.10 No Brokers.................................................17
Section 3.11 Copies of Documents; Accuracy of Information Furnished.....18
Section 3.12 Due Diligence of eSat......................................18
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF OWNERS.............................18
Section 4.1 Title to Shares.............................................18
Section 4.2 Authority Relative to this Agreement........................18
Section 4.3 Transfers to PacificNet.....................................19
Section 4.4 Certain Transactions or Arrangements........................19
Section 4.5 Investments in Competitors..................................19
Section 4.6 Representations.............................................19
Section 4.7 Investment Representation...................................19
Section 4.8 Copies of Documents; Accuracy of Information Furnished......20
ARTICLE 5 ADDITIONAL AGREEMENTS................................................20
Section 5.1 Conduct of Business of PacificNet...........................20
Section 5.2 Issuance of Options.........................................20
Section 5.3 Forbearances by PacificNet..................................20
Section 5.4 No Solicitation.............................................21
Section 5.5 Investigation of Business and Properties....................22
Section 5.6 Confidentiality.............................................22
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Section 5.7 Public Announcements........................................22
Section 5.8 Agreement to Consummate.....................................23
Section 5.9 Registration Rights.........................................23
Section 5.10 PacificNet Shareholders' Approval..........................23
Section 5.11 PNAC Shareholder's Approval................................23
Section 5.12 Agreement Regarding Brokers................................23
Section 5.13 Notice.....................................................23
Section 5.14 Representation, Warranties, and Agreements; Survival.......24
Section 5.15 Indemnification............................................24
Section 5.16 Resolution of Disputed Claims under Section 5.15...........25
Section 5.17 Tax Return Filings.........................................27
Section 5.18 Election to Board of Directors.............................27
Section 5.19 Section 368(a)(2)(D) Reorganization........................27
Section 5.20 Condition Subsequent.......................................27
ARTICLE 6 CONDITIONS PRECEDENT TO CLOSING AND POST-CLOSING COVENANTS...........28
Section 6.1 General Conditions..........................................28
Section 6.2 Conditions to Closing in Favor of PacificNet................28
Section 6.3 Conditions to Closing in Favor of eSat......................29
ARTICLE 7 TERMINATION, AMENDMENT AND WAIVER....................................31
Section 7.1 Termination.................................................31
Section 7.2 Effect of Termination.......................................31
Section 7.3 Amendment...................................................31
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Section 7.5 Dual Transactions...........................................32
ARTICLE 8 GENERAL PROVISIONS...................................................32
Section 8.1 Notices.....................................................32
Section 8.2 Fees and Expenses of the Transaction........................33
Section 8.3 Interpretation..............................................33
Section 8.4 Counterparts................................................33
Section 8.5 Miscellaneous...............................................33
Section 8.6 Survival....................................................34
Section 8.7 Mutual Cooperation..........................................34
ARTICLE A - InterWireless Disclosure Schedule...................................1
ARTICLE B - eSat Disclosure Schedule............................................1
ARTICLE C - Owners Disclosure Schedule..........................................1
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LIST OF EXHIBITS
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Exhibit A Articles of Merger..........................................................A-1
Exhibit B Form of Certificates of Approval of Agreement of Merger.....................B-1
Exhibit C Opinion of Counsel for eSat.................................................C-1
Exhibit D Shareholder Acknowledgments.................................................D-1
Exhibit E Opinion of Counsel for PacificNet...........................................E-1
Exhibit F Form of Noncompetition Agreement with Owners................................F-1
Exhibit G Registration Rights.........................................................G-1
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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
This AGREEMENT AND PLAN OF MERGER AND REORGANIZATION ("Agreement") is
made as of April 13, 2000, by and among eSat, Inc., a Nevada corporation,
("eSat"), PN Acquisition Co., a Nevada corporation and wholly-owned subsidiary
of eSat ("PNAC" or "Surviving Corporation"), PacificNet Technologies, Inc., a
California corporation ("PacificNet"), and the shareholders of PacificNet whose
names are set forth on the signature page of this Agreement ("Owners").
RECITALS OF THE PARTIES:
A. The respective Boards of Directors of eSat, PNAC and PacificNet have
approved the merger (the "Merger") of PacificNet with and into PNAC in
accordance with the laws of the States of Nevada and California and the
provisions of this Agreement.
B. For federal income tax purposes, it is intended that the Merger shall
qualify as a reorganization within the meaning of Section 368(a)(2)(D) of the
Internal Revenue Code of 1986, as amended.
C. eSat, PNAC, PacificNet and Owners desire to make certain
representations, warranties and agreements in connection with, and to establish
various conditions precedent to, the Merger.
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties and agreements contained herein, the parties hereto
agree as follows:
ARTICLE 1
THE MERGER
Section 1.1 The Merger. Pursuant to the terms and conditions of this
Agreement, PacificNet will be merged with and into PNAC pursuant to the Nevada
General Corporation Law ("NGCL") in the manner and with the effect set forth
herein. Subject to the conditions contained in Article 6 of this Agreement,
executed Articles of Merger, the form of which is attached as Exhibit A hereto,
together with an executed Certificate of Approval of Agreement of Merger from
eSat, PNAC and PacificNet, the forms of which are attached as Exhibit B hereto,
will be filed with the Secretary of State of the State of Nevada as soon as
practical following the time when the last of the conditions set forth in
Article 6 of this Agreement shall have been fulfilled or waived in writing in
accordance with such Article, or such earlier or later date as may be mutually
agreed to by eSat and PacificNet.
Section 1.2 Consideration. The total merger consideration payable to
PacificNet shall be 2,750,000 shares of eSat common stock. On the Effective
Date, each of the issued and
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outstanding shares of common stock of PacificNet ("PacificNet Common Stock"),
shall be converted into and become a right to receive 275 shares of duly
authorized, validly issued, fully paid and nonassessable shares of common stock
of eSat ("eSat Common Stock"). The number of shares of eSat Common Stock into
which the PacificNet Common Stock shall be converted shall be referred to as the
"Merger Consideration." Each share of PacificNet Common stock held in the
treasury of PacificNet or by a wholly-owned subsidiary of PacificNet shall be
canceled as of the Effective Date and no portion of the Merger Consideration
shall be payable with respect thereto.
Section 1.3 Articles of Incorporation and Bylaws of the Surviving
Corporation. The Articles of Incorporation of Surviving Corporation as in effect
on the Effective Date of the Merger shall remain the Articles of Incorporation
of the Surviving Corporation until same shall be amended in accordance with law
or the Articles of Incorporation except that, as part of the Merger, the
Surviving Corporation shall change its name to "PacificNet Technologies, Inc."
The Bylaws of Surviving Company as in effect on the Effective
Date of the Merger shall remain the Bylaws of the Surviving Corporation until
same shall thereafter be altered, amended or repealed in accordance with law,
the Articles of Incorporation of the Surviving Corporation or said Bylaws.
The directors of the Surviving Corporation at the Effective Date
of the Merger shall be as follows: Michael C. Palmer, Chester L. Noblett, Jr.,
Salvatore A. Piraino, David Pennells and Richard Elliot. The officers of the
Surviving Corporation at the Effective Date of the Merger shall be as follows:
President, Richard Elliot; Vice President, David Pennells; Vice President,
Michael C. Palmer; Secretary, David Pennells; and Chief Financial
Officer/Treasurer and Assistant Secretary, Mark Basile.
Section 1.4 Surrender and Exchange of PacificNet Common Stock.
(a) On the Effective Date, each holder of an outstanding
certificate or certificates theretofore representing shares of PacificNet Common
Stock (the "PacificNet Certificates") shall surrender such PacificNet
Certificates to eSat or to such agent or agents (the "Transfer Agent") as may be
designated by eSat and shall receive in exchange therefor, upon satisfaction of
customary delivery requirements, certificates representing the number of whole
shares of eSat Common Stock into which shares of PacificNet Common Stock have
been converted, using the conversion ratio of 275 shares of eSat Common Stock
for one share of PacificNet Common Stock, together with a check representing the
cash adjustments for fractional shares, if any.
(b) If any certificate evidencing shares of PacificNet Common
Stock is to be issued in a name other than that in which the PacificNet
Certificate surrendered in exchange therefor is registered, it shall be a
condition of the issuance thereof that the PacificNet Certificate so surrendered
shall be properly endorsed and otherwise be in proper form for transfer and that
the person requesting such exchange pay to the Transfer Agent any transfer or
other taxes required by reason of the issuance of a certificate for shares of
eSat Common Stock in any name
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other than that of the registered holder of the PacificNet Certificate
surrendered or establish to the satisfaction of the Transfer Agent that such tax
has been paid or is not payable.
(c) Until so surrendered and exchanged, each outstanding
PacificNet Certificate after the Effective Date shall be deemed for all
corporate purposes (other than voting and the payment of dividends or other
distributions as described below) to evidence the number of whole shares of eSat
Common Stock into which the shares of PacificNet Common Stock represented by
such PacificNet Certificates are to be converted pursuant to Section 1.4(a) of
this Agreement; provided, however, that no dividends or other distributions, if
any, in respect to such shares of eSat Common Stock, declared after the
Effective Date and payable to holders of record after the Effective Date, shall
be paid to the holders of any unsurrendered PacificNet Certificates until such
PacificNet Certificates are surrendered. Subject to the effect, if any, of
applicable law, after the surrender and exchange of PacificNet Certificates, the
record holders thereof on the date of exchange shall be entitled to receive any
such dividends or other distributions without interest thereon, which
theretofore have become payable with respect to the number of whole shares of
eSat Common Stock for which such PacificNet Certificate was exchangeable.
Holders of any unsurrendered PacificNet Certificates shall not be entitled to
vote until such unsurrendered PacificNet Certificates are exchanged pursuant to
this Section 1.4.
Section 1.5 Fractional Shares. No fractional share certificates of eSat
Common Stock shall be issued in connection with the conversion of shares of
PacificNet Common Stock in the Merger nor will any outstanding fractional share
interest entitle the owner thereof to vote, to receive dividends or to exercise
any other right of a stockholder of eSat. In lieu of any such fractional shares,
any holder of PacificNet Common Stock shall, upon surrender thereof, be paid in
cash the value of each such fraction, which for this purpose shall be the
product of such fraction multiplied by the average of the closing prices of eSat
Common Stock on the OTC Bulletin Board on the three previous trading dates
before the date of this Agreement, subject to appropriate adjustment in the
event of a stock split, stock dividend or recapitalization applicable to shares
of eSat Common Stock held of record on or before the Effective Date to the
extent not reflected in such closing price.
Section 1.6 No Further Transfers. On the Effective Date, the stock
transfer books of PacificNet shall be closed, and no further transfer of
PacificNet Common Stock shall thereafter be made.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF PACIFICNET
Except as expressly set forth in the disclosure schedule
delivered to eSat by PacificNet contemporaneously with the execution hereof (the
"PacificNet Disclosure Schedule"), for itself, and for each of its Subsidiaries,
PacificNet hereby represents and warrants to eSat and PNAC as follows, which
representations and warranties are made as of the date hereof and as of the
Effective Date and shall survive the Effective Date regardless of what
investigations, if any,
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eSat or PNAC shall have made prior hereto. Where any representation and warranty
is qualified as being "to the best knowledge of PacificNet," or with words of a
similar affect, such shall mean the actual knowledge of David Pennells and
Richard Elliot.
Section 2.1 Organization; Qualification. PacificNet is a corporation
duly organized, validly existing and in good standing under the laws of the
State of California. PacificNet has full corporate power and authority to own
and lease all of the properties and assets it now owns and leases and to carry
on its business as now being conducted. PacificNet is duly qualified as a
foreign corporation and is in good standing to do business in each jurisdiction
in which the property owned, leased or operated by it or the nature of the
business conducted by it makes such qualification necessary, except where the
failure so to qualify would not have a material adverse effect on the condition
(financial or otherwise), business, assets, liabilities, capitalization,
financial position, operations, results of operations or prospects (a "Material
Adverse Affect") on PacificNet. PacificNet has heretofore delivered to eSat
complete and correct copies of its Articles of Incorporation and Bylaws as such
are currently in effect.
Section 2.2 Authority Relative to this Agreement. PacificNet has full
corporate power and authority to execute, deliver and perform this Agreement
and, subject to stockholder approval, to consummate the transactions
contemplated hereby. The execution and delivery by PacificNet of this Agreement,
and the consummation of the transactions contemplated hereby, have been duly and
validly authorized by the Board of Directors of PacificNet and, except for
approval of the Merger by the shareholders of PacificNet, no other corporate
proceedings on the part of PacificNet are necessary with respect thereto. This
Agreement has been duly and validly executed and delivered by PacificNet and,
subject to shareholder approval, constitutes a legal, valid and binding
obligation of PacificNet, enforceable against it in accordance with its terms
except as may be limited by bankruptcy, insolvency, reorganization or similar
laws affecting creditors' rights generally and by general principles of equity.
Section 2.3 Capitalization. The authorized capital stock of PacificNet
consists of 100,000 shares of PacificNet Common Stock, of which, as of the date
hereof, 10,000 shares of PacificNet Common Stock are validly issued and
outstanding, fully paid and nonassessable. As of the date of this Agreement
there are no shares of PacificNet Common Stock held in the treasury of
PacificNet and there are no other shares of the capital stock of PacificNet. As
of the date hereof, except as disclosed in the PacificNet Disclosure Schedule,
there are no outstanding options, warrants, rights or other commitments to issue
or sell any shares of capital stock or any securities or obligations convertible
into or exchangeable for, or giving any person any right to acquire from
PacificNet, any shares of its capital stock. No shares of PacificNet' capital
stock have been issued in violation of any preemptive rights or applicable
federal or state securities laws. Except pursuant to the California General
Corporation Law, there are no restrictions, including but not limited to
self-imposed restrictions, on the retained earnings of PacificNet or on the
ability of PacificNet to declare and pay dividends. There are no outstanding
obligations of PacificNet to repurchase, redeem or otherwise acquire any capital
stock or other securities of PacificNet.
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Section 2.4 Subsidiaries; Absence of Certain Agreements. The PacificNet
Disclosure Schedule identifies all PacificNet Subsidiaries, and sets forth a
true and complete listing of the authorized, issued and outstanding capital
stock of each Subsidiary and the ownership of the capital stock of each
Subsidiary. Each of such Subsidiaries has full corporate power and authority to
own and lease all of the properties and assets it now owns and leases and to
carry on its business as now being conducted. Each is duly qualified as a
foreign corporation and is in good standing to do business in each jurisdiction
in which the property owned, leased or operated by it or the nature of the
business conducted by it makes qualification necessary , except where failure to
so quality, would not have a Material Adverse Affect on such Subsidiary. Except
as set forth in the PacificNet Disclosure Schedule, (a) PacificNet has good and
valid title to its equity interests in the Subsidiaries, respectively, in each
case free and clear of all liens, (b) there are no outstanding subscriptions,
warrants or other rights to purchase or otherwise acquire any equity securities
of any Subsidiary, (c) there are no securities of PacificNet or any of its
affiliates convertible into or exchangeable for equity securities of or voting
securities of any Subsidiary, and (d) there are no obligations of PacificNet or
any of its affiliates to issue, deliver or sell any capital stock, voting
securities or securities convertible into or exchangeable for equity securities
of or voting securities of any Subsidiary. The outstanding equity securities of
each Subsidiary are validly issued, fully paid and non-assessable. As used in
this Agreement, "Subsidiary" or "Subsidiaries," with respect to any corporation,
shall mean any other corporation of which at least a majority of the securities
having by their terms ordinary voting power to elect a majority of the Board of
Directors of such other corporation is at the time directly or indirectly owned
or controlled by such first corporation, or by such first corporation and one or
more of its Subsidiaries.
Except as set forth on the PacificNet Disclosure Schedule,
PacificNet does not own or hold any securities of, or any interest in, any other
person or entity nor is PacificNet subject to any joint venture, partnership or
other arrangement that is created as a partnership for federal income tax
purposes. Except as set forth in the PacificNet Disclosure Schedule, there are
no voting trusts or other agreements by and between or among PacificNet, or any
or all of its shareholders, whether or not PacificNet is a party thereto,
imposing any restrictions upon the transfer or voting of or otherwise pertaining
to the securities of PacificNet (including, but not limited to the PacificNet
Common Stock) or the ownership thereof. Any and all such restrictions set forth
in the PacificNet Disclosure Schedule shall be duly complied with or effectively
waived as of the Effective Date.
Section 2.5 [Reserved].
Section 2.6 Governmental Consents and Approvals. Except as disclosed on
the PacificNet Disclosure Schedule, the execution, delivery and performance by
PacificNet of this Agreement and the consummation of the transactions
contemplated hereby require no consent, approval, order or authorization of,
action by or in respect of, or registration or filing with, any federal, state,
municipal, foreign or other governmental department, commission, board, bureau,
agency, instrumentality, court, or authority ("Governmental Body"), other than
(a) the filing of the Articles of Merger, (b) any applicable filings with and
consents and/or approvals of state
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security commissions under state securities laws or similar laws and (c) such
other consents, approvals, permits, authorizations, notifications or filings,
the failure of which to obtain or make would have a Material Adverse Affect on
PacificNet or materially adversely affect the ability of PacificNet to perform
its obligations set forth herein or to consummate the transactions contemplated
hereby.
Section 2.7 No Violations. Except as disclosed on the PacificNet
Disclosure Schedule, the execution, delivery and performance of this Agreement
by PacificNet, the consummation by PacificNet of the transactions contemplated
hereby or compliance by PacificNet with any of the provisions hereof does not
and will not (a) conflict with or result in any breach or violation of any
provision of the Articles of Incorporation or Bylaws (or similar charter
documents) of PacificNet, (b) result in a default, or give rise to any right of
termination, cancellation or acceleration or loss of any material benefit (with
or without the giving of notice or lapse of time or both), or require the
consent, approval, waiver or other action by any person under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license, trust
(constructive or otherwise), agreement, lease (of real or personal property) or
other instrument or obligation to which PacificNet is a party or by which
PacificNet may be bound, (c) result in the creation or imposition of any claim,
lien, pledge, security interest, obligation, restriction or other encumbrance on
any of the property of PacificNet, or (d) to the best knowledge of PacificNet,
violate any judgment, order, writ, injunction, decree, statute, rule or
regulation applicable to PacificNet, subject to actions required under certain
of PacificNet' existing credit arrangements. Reference to PacificNet in this
Section 2.7 includes any of its Subsidiaries.
Section 2.8 Financial Statements. The consolidated financial statements,
financial statement schedules and notes to such financial statements and
schedules of PacificNet for the year ended December 31, 1999, and the three
months ended March 31, 2000, for PacificNet and separately for each of its
Subsidiaries ("PacificNet Financial Statements"), are, to the best knowledge of
PacificNet, complete and correct and were prepared in accordance with generally
accepted accounting principles applied on a consistent basis except as noted in
the PacificNet Disclosure Schedule, and fairly present the information purported
to be shown therein. All such PacificNet Financial Statements have been prepared
from the books and records of PacificNet, which accurately and fairly reflect
the transactions and dispositions of the assets of PacificNet, to the best
knowledge of PacificNet. To the best knowledge of PacificNet, PacificNet does
not have any liabilities, contingent or otherwise, whether due or to become due,
other than as indicated on the latest balance sheet ("Latest PacificNet Balance
Sheet") included in the PacificNet Financial Statements or as otherwise
indicated in this Agreement or the PacificNet Disclosure Schedule. PacificNet
has accrued all employee benefit costs required to be accrued and such accrual
is reflected in the balance sheets included in the PacificNet Financial
Statements.
Section 2.9 Title to and Condition of Assets and Property. All property
used in the business of PacificNet that is listed on the PacificNet Disclosure
Schedule is, or will be at the Effective Date, reflected as assets on the books
and records of PacificNet or is leased by
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PacificNet. A list of all such property, real, personal or intangible, has been
provided to eSat. At the Effective Date, none of such property will be owned by
any Owner or any entity (other than PacificNet or a Subsidiary). PacificNet has,
or at the Effective Date will have, good and marketable title to any and all
assets reflected in the PacificNet Financial Statements or PacificNet' other
books and records which are currently, or will be at the Effective Date, owned
and used in the operation of its businesses, and such assets are, or will be at
the Effective Date, free and clear of all liens, claims, charges, security
interests, options, or other title defects or encumbrances, except as set forth
in the PacificNet Disclosure Schedule. The PacificNet Disclosure Schedule
further sets forth a description of all real and personal property currently
leased or otherwise occupied or used but not owned by PacificNet, true, correct
and complete copies of which leases and other agreements, including all
amendments and modifications thereto, have previously been delivered to eSat.
Each of the leases is a valid and binding obligation of PacificNet and neither
PacificNet nor, to the best knowledge of PacificNet, the lessor thereunder is in
default under, and no condition exists that with notice or lapse of time or both
would constitute a default under, any such lease. PacificNet enjoys peaceful and
undisturbed possession of its interests under all such leases. Except as set
forth in the PacificNet Disclosure Schedule, PacificNet does not own any real
property or any interest therein. To the actual knowledge of PacificNet, all
personal property set forth in the PacificNet Disclosure Schedule is owned by
PacificNet and, to the actual knowledge of PacificNet, except as set forth in
the PacificNet Disclosure Schedule, all property owned or leased by PacificNet
and reflected on the PacificNet Financial Statements or located on the premises
of PacificNet, is in good operating condition and repair, ordinary wear and tear
excepted, is suitable for the use to which it is put by PacificNet, is free from
defects other than minor defects that do not interfere with or detract from the
use or value thereof and is presently usable in the ordinary course of the
operation of the business of PacificNet.
Section 2.10 Litigation. Except as disclosed in the PacificNet
Disclosure Schedule, there is no action, order, claim, suit, proceeding,
litigation, investigation, inquiry, review or notice ("Proceeding") pending or
threatened in writing, or to the best knowledge of PacificNet, threatened
verbally, against, relating to or affecting PacificNet or its Subsidiaries, or
any of their respective properties or assets, or any officer or director of
PacificNet or any of its Subsidiaries relating to, or arising from such person's
activities as an officer or director of PacificNet or any of its Subsidiaries,
at law or in equity, before any Governmental Body nor, to the best of
PacificNet' knowledge, is there any basis for commencing a Proceeding that could
have a Material Adverse Affect on PacificNet or any of its Subsidiaries. Neither
PacificNet nor its Subsidiaries nor any of their respective properties or assets
is specifically by name subject to any currently existing order, judgment, writ,
decree or injunction. Except as disclosed in the PacificNet Disclosure Schedule,
neither PacificNet nor any of its Subsidiaries is subject to any currently
existing Proceeding by any Governmental Body.
Section 2.11 Absence of Changes. Since the date of the Latest PacificNet
Balance Sheet, except as disclosed in the PacificNet Disclosure Schedule, the
business of PacificNet has been operated in the ordinary course consistent with
past practice and there has not, to the actual knowledge of PacificNet, been
with regard to PacificNet or any of its Subsidiaries (a) any
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material adverse change in the business, operations, properties, condition
(financial or otherwise), prospects, assets or liabilities (contingent or
otherwise, whether due or to become due, known or unknown); (b) any dividend
declared or paid or distribution made on capital stock, or any capital stock
redeemed or repurchased; (c) any incurrence of debt with a maturity greater than
one year; (d) any salary, bonus or compensation increases to any officers,
employees or agents; (e) any pending or, to the best knowledge of PacificNet,
threatened litigation or disputes; or (f) any other change in the nature of, or
the manner of conducting, the business, other than changes that neither have
had, nor reasonably may be expected to have, a Material Adverse Affect on
PacificNet or any of its Subsidiaries.
Section 2.12 Undisclosed Liabilities; Commitments. Except as disclosed
in the PacificNet Disclosure Schedule, to the actual knowledge of PacificNet,
neither PacificNet nor any of its Subsidiaries has any debts, guaranties,
liabilities or obligations, whether accrued, absolute, contingent or otherwise,
and whether due or to become due, and, to the actual knowledge of PacificNet,
there is no basis for the assertion against PacificNet or any of its
Subsidiaries of any such debt, guaranty, liability or obligation, (a) that were
not accrued or reserved against in the PacificNet Financial Statements; (b) that
were incurred after the date of the Latest PacificNet Balance Sheet, other than
in the ordinary course of business; or (c) that in the aggregate have or can
reasonably be expected to have a Material Adverse Affect on PacificNet or any of
its Subsidiaries. PacificNet and any of its Subsidiaries have in all material
respects performed all contracts, agreements and commitments to which it is a
party, and there is not, to the actual knowledge of PacificNet, under any such
contracts, agreements or commitments any existing default or event of default or
event which with notice or lapse of time or both would constitute a default.
Section 2.13 Environmental Matters. Except as disclosed in the
PacificNet Disclosure Schedule, to the best knowledge of PacificNet, PacificNet
and each of its Subsidiaries have duly complied with, their respective business,
operations, assets, equipment, leaseholds and other facilities are in compliance
with the provisions of all federal, state, local and applicable foreign
environmental, health and safety laws, codes and ordinances and all rules and
regulations promulgated thereunder, governing (a) air emissions, (b) discharges
to surface water or ground water, (c) solid or liquid waste disposal, (d) the
use, storage, generation, handling, transport, discharge, release, or disposal
of toxic or hazardous substances or wastes, or (e) other environmental, health
or safety matters, including, without limitation, the Comprehensive
Environmental Response Compensation and Liability Act of 1980, 42 U.S.C.
Sections 601 et seq., as amended, the Resource Conservation and Recovery Act, 42
U.S.C. Sections 6901 et seq., as amended, the Federal Water Pollution Control
Act, 33 U.S.C. Sections 1251 et seq., as amended, the Clean Air Act, 42 U.S.C.
Sections 7401 et seq., as amended, the Occupational Safety and Health Act of
1970, as amended ("OSHA"), the Safe Drinking Water Act, as amended, the Toxic
Substances Control Act, as amended, the Superfund Amendments and Reauthorization
Act of 1986, as amended, and other environmental conservation or protection
laws, as well as similar environmental conservation and protection laws of the
foreign jurisdictions in which PacificNet or any of its Subsidiaries have
operations or facilities. There is no Proceeding pending or threatened in
writing or, to the best knowledge of PacificNet, threatened verbally, against
PacificNet or any of
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its Subsidiaries relating to the environment nor, to the best knowledge of
PacificNet, is there a basis for an assertion against PacificNet or any of its
Subsidiaries of any Proceeding.
Section 2.14 Employee Benefit and Retirement Plans. The PacificNet
Disclosure Schedule contains a list of all collective bargaining agreements, and
all pension, bonus, profit-sharing, stock option or employee welfare agreements
or arrangements to which PacificNet is a party or by which PacificNet is bound.
All are in full force and effect. Except as set forth in the PacificNet
Disclosure Schedule, during the past five years, PacificNet has not maintained
or contributed to any defined benefit pension plans (as defined in Section 3(2)
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) or
any multi-employer plans (as defined in Section 3(37)(A) of ERISA). Each
employee benefit plan (as defined in Section 3(3) of ERISA) (each, an "Employee
Benefit Plan" or "Plan") maintained for employees of PacificNet to which
PacificNet has contributed and any related trust agreement, annuity contract or
any other funding or implementing instrument complies currently in all material
respects, as to form, operation and administration, with the provisions of
ERISA, as amended, and all other applicable laws, rules and regulations and with
the Internal Revenue Code of 1986, as amended (the "Code"), where required in
order to be tax-qualified under Section 401(a) or 403(a) and 501(a) of the Code,
and, to the best knowledge of PacificNet, no event has occurred that will cause
disqualification of any such Plan under said Sections. All necessary
governmental approvals for the Employee Benefit Plans have been obtained; each
Employee Benefit Plan that is subject thereto meets the minimum funding
standards of Section 302 of ERISA, Section 412 of the Code and any other
applicable law, and no accumulated funding deficiency, whether or not waived,
exists with respect to any such Plan; each Employee Benefit Plan that is an
employee pension benefit plan (as defined in Section 3(2)(A) of ERISA) has been
duly authorized by the Board of Directors of PacificNet and a favorable
determination as to the qualification under the Code of each such employee
pension benefit plan has been made by the Internal Revenue Service. References
to PacificNet in this Section 2.14 include any of its Subsidiaries.
Section 2.15 Labor Matters. The PacificNet Disclosure Schedule contains
a list of all employment or consulting agreements, collective bargaining
agreements or other contracts with a labor union or other labor or employee
group, noncompetition agreements and confidentiality agreements binding on
PacificNet or any of its Subsidiaries and any of their respective employees. To
the actual knowledge of PacificNet, there are no efforts presently being made or
threatened by or on behalf of any labor union with respect to the employees of
PacificNet. To the actual knowledge of PacificNet, PacificNet is in compliance
with all federal, state or other applicable laws, domestic or foreign, regarding
employment and employment practices, terms and conditions of employment and
wages and hours, and has not and is not engaged in any unfair labor practice. No
unfair labor practice complaint against PacificNet is pending or, to the actual
knowledge of PacificNet is threatened in writing or verbally, before the
National Labor Relations Board or similar foreign agency. There is no labor
strike, dispute, slowdown or stoppage pending or threatened against or involving
PacificNet. No representation question exists respecting the employees of
PacificNet. No employment-related grievance or internal or informal complaint or
liability with respect to the termination of any employee, consultant or agent
exists or, to the actual knowledge of PacificNet, is threatened. No arbitration
proceeding
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arising out of or under any collective bargaining agreement is pending and no
claim therefor has been asserted. No collective bargaining agreement is
currently being negotiated by PacificNet, and PacificNet has not experienced any
material labor difficulty. There has not been any adverse change in relations
with employees of PacificNet as a result of any announcement or consummation of
the transactions contemplated by this Agreement. PacificNet has received no
notice that any employee of PacificNet is in violation of any term of any
employment contract, or any other contract or agreement with or any restrictive
covenant or any other common law obligation to a former employer relating to the
right of any such employee to be employed by PacificNet because of the nature of
the business conducted or to be conducted by PacificNet or to the use of trade
secrets or proprietary information of others, and the employment of PacificNet'
employees does not subject PacificNet to liability in connection with such
covenants or agreements. There is neither pending nor, to the actual knowledge
of PacificNet, threatened, nor, to the actual knowledge of PacificNet, is there
any basis for asserting, a material claim against PacificNet or any of its
Subsidiaries, or any of their respective employees, based on sexual harassment
or employment discrimination laws. There is neither pending nor, to the actual
knowledge of PacificNet, threatened Proceedings with respect to any contract,
agreement, covenant or obligation referred to above nor, to the actual knowledge
of PacificNet, is there any material basis for asserting the foregoing. Except
as set forth in the PacificNet Disclosure Schedule, PacificNet has not entered
into any severance or similar arrangement with any present or former employee
that will result in any obligation, absolute or contingent, of eSat or
PacificNet, to make any payment to any former employee following termination of
employment. References to PacificNet in this Section 2.15 include each of its
Subsidiaries.
Section 2.16 Information for Filings. Except for information that is the
subject of any section of this Article 2, which is expressly subject to any
knowledge qualifier that may be contained in any such section, none of the
information supplied or to be supplied by PacificNet for inclusion, or included,
in any documents to be filed with any regulatory authority in connection with
the transactions contemplated hereby will, at the respective times such
documents are filed with any such regulatory authority, be false or misleading
with respect to any material fact, or omit to state any material fact necessary
in order to make the statements therein not misleading.
Section 2.17 Taxes. For purposes of this Agreement, "Tax or Taxes" shall
mean any federal, state, local, foreign or provincial income, gross receipts,
property, sales, use, license, franchise, employment, payroll, withholding,
alternative or added minimum, transfer or excise tax, or any other governmental
fee or other like assessment or charge, together with any interest or penalties.
All Taxes that are due and payable, other than those presently payable without
penalty or interest, have been timely paid, and PacificNet has timely filed
(and, through the Effective Date, will timely file) all federal, state, foreign
and other tax returns required by law to be filed by it. All such Tax reports or
returns are true, complete and correct in all material respects with regard to
PacificNet for the periods covered thereby. PacificNet is not delinquent in the
payment of any material Tax, there is no Tax deficiency asserted against
PacificNet, and, except as provided above, there is no unpaid assessment,
deficiency or delinquency in the payment of any of the Taxes of PacificNet.
There are no Tax liens upon any properties or assets
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of PacificNet. No Internal Revenue Service, state, foreign or local, audit,
investigation or Proceeding against PacificNet is pending or, to the best
knowledge of PacificNet, threatened, and the results of any completed audits are
properly reflected in the PacificNet Financial Statements. PacificNet has not
granted any extension to any taxing authority of the limitation period during
which any Tax liability may be asserted. All monies required for the payment of
taxes not yet due and payable with respect to the operations of PacificNet
through and including the Merger date have been approved, reserved against and
entered upon the books and PacificNet Financial Statements. All monies required
to be withheld by PacificNet from employees or collected from customers for
income taxes, social security and unemployment insurance taxes and sales, excise
and use taxes, and the portion of any such taxes to be paid by PacificNet to
governmental agencies or set aside in accounts for such purpose have been
approved, reserved against and entered upon the books and PacificNet Financial
Statements. References to PacificNet in this Section 2.17 include each of its
Subsidiaries. The PacificNet Disclosure Schedule contains a list of, and
PacificNet has provided eSat with true copies of, the U.S., state and foreign
income tax returns for fiscal years ended December 31, 1999, 1998 and 1997 for
PacificNet and each of its Subsidiaries.
Section 2.18 Inventory. No item included in the inventories, materials
or supplies of PacificNet or any of its Subsidiaries is pledged as collateral or
held on consignment from others.
Section 2.19 Proprietary Rights. No item included in the inventories,
materials or supplies of PacificNet or any of its Subsidiaries is pledged as
collateral or held on consignment from others. Except as set forth on the
PacificNet Disclosure Schedule, PacificNet owns or validly licenses the right to
use all technology, proprietary information, know-how, ideas (patented or
unpatented), data, licenses, customer lists, processes, formulas, trade secrets,
telephone numbers, computer software, computer programs, designs, inventions,
trademarks, trademark registrations and applications therefor, registered and
common law copyrights, and registered copyright applications, trade names
(whether or not registered or registerable), service marks, service mark
registrations and applications therefor (collectively, the "Proprietary Rights")
necessary to conduct the business of PacificNet as the business is presently
being conducted. The PacificNet Disclosure Schedule sets forth a complete and
correct list (including, where applicable, registration or application numbers
and dates of filing, renewal and termination) of all Proprietary Rights which
have been protected by a filing or registration with a Governmental Body.
PacificNet shall have, after the Effective Date, the exclusive right to use the
Proprietary Rights as listed in the PacificNet Disclosure Schedule necessary to
continue to conduct the business of PacificNet as the business is presently
being conducted. No consent of any third party will be required for the use of
the Proprietary Rights by PacificNet after the Effective Date. No claim or
opposition has been asserted, or to the best knowledge of PacificNet,
threatened, by any person or entity to the ownership of or PacificNet' right to
use any of the Proprietary Rights or challenging or questioning the validity or
effect of any license or agreement relating thereto, and, to the best knowledge
of PacificNet, there is no basis for any such claim or assertion. PacificNet has
ownership of, or valid licenses to use all of, the Proprietary Rights. Each of
the Proprietary Rights is valid and subsisting, has not been canceled, abandoned
or otherwise terminated. The Proprietary Rights owned by PacificNet are owned
free
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and clear of all liens, charges, or encumbrances. Use by PacificNet of the
Proprietary Rights will not, and the conduct of the business as presently
conducted does not, infringe on or violate the rights of any other person or
entity. No Proceedings have been instituted, are pending or are, to the best
knowledge of PacificNet, threatened that challenge or oppose the rights of
PacificNet with respect to any of the Proprietary Rights. PacificNet has not
received any notice or inquiry from any person or entity of any alleged
infringement by PacificNet. PacificNet has not given and is not bound by any
agreement of indemnification in connection with any Proprietary Rights or,
except for standard product warranties, any product or service sold or performed
by PacificNet. PacificNet is not aware of any infringement by others of its
Proprietary Rights. Set forth in the PacificNet Disclosure Schedule is a list of
all confidentiality agreements entered into by PacificNet relating to the
Proprietary Rights and all such contracts are in full force and effect.
References to PacificNet in this Section 2.19 include each of its Subsidiaries.
Section 2.20 Surety Obligations. Neither PacificNet nor any of its
Subsidiaries is obligated as surety or indemnitor under any surety or similar
bond or other contract issued and none have entered into any agreement to assure
payment, performance or completion of performance of any undertaking or
obligation of any person or entity.
Section 2.21 No Brokers. Except as set forth on the PacificNet
Disclosure Schedule, PacificNet has not employed any broker, agent or finder or
incurred any liability for any brokerage fees, commissions or finders' fees in
connection with the transactions contemplated hereby.
Section 2.22 Records. The respective minute books, books of account,
stock record books and other records of PacificNet, all of which have been or
will be made available to eSat, contain accurate and complete records of all
corporate actions of the shareholders and Board of Directors (and committees
thereof) during the periods of time in which such minute books were maintained.
Section 2.23 Compliance With Law; Conduct. To the best knowledge of
PacificNet, neither PacificNet nor any of its Subsidiaries has violated or
failed to comply with any statute, law, ordinance, regulation, rule or order of
any foreign, federal, state or local government or agency or any other
Governmental Body, or any judgment, order, writ, injunction or decree of any
court or agency, applicable to its business or operation, except where such
violations or failure to comply would not have a Material Adverse Affect on
PacificNet or any of its Subsidiaries. To the best knowledge of PacificNet,
following the issuance of the FCC licenses set forth on the PacificNet
Disclosure Schedule, PacificNet and its Subsidiaries have all permits, licenses,
authorizations, consents, approvals and franchises from governmental agencies
required to conduct their respective business as now being conducted.
Section 2.24 Insurance. Contained in the PacificNet Disclosure Schedule
is a complete and accurate description of all insurance maintained with respect
to the assets, properties and business of PacificNet and each of its
Subsidiaries. All of the insurable properties of PacificNet and its Subsidiaries
are insured for PacificNet's benefit under valid and enforceable policies, and
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except as disclosed on the PacificNet Disclosure Schedule, are issued by
insurers rated A or better by A.M. Best Company. All premiums and brokerage
commissions owed by PacificNet or its Subsidiaries have been paid or properly
accrued on the PacificNet Financial Statements.
Section 2.25 Receivables. All accounts receivables at March 31, 2000,
and all account receivables since that date have arisen in the ordinary course
of business for products delivered or services rendered. PacificNet is not aware
of any event or condition with respect to a specific customer that causes it to
believe that any such receivable will not be collected in full in due course
without resort to litigation and will not be subject to counter claim or setoff.
The reserves for doubtful accounts reflected on the PacificNet Financial
Statements (if any) have been determined in accordance with generally accepted
accounting principles and past practice consistently applied.
Section 2.26 [RESERVED].
Section 2.27 Bank Accounts; Powers of Attorney. The PacificNet
Disclosure Schedule completely and accurately lists the name and address of each
bank, brokerage firm or other financial institution in which PacificNet or any
of its Subsidiaries has an account or possesses a safe deposit box and sets
forth the amount and nature of all cash and cash equivalents contained therein
at March 31, 2000. The PacificNet Disclosure Schedule also lists the names of
all persons authorized to draw thereon, or to have access thereto or to
authorize transactions therein, and the names of all parties, if any, holding
powers of attorney from PacificNet or any of its Subsidiaries with respect
thereto or with respect to any other matter, and the account number of any such
account. Neither PacificNet nor any of its Subsidiaries maintains any securities
or commodity trading account or other brokerage account.
Section 2.28 Product and Service Warranties. Except as disclosed on the
PacificNet Disclosure Schedule, to the best knowledge of PacificNet, there is no
claim against or liability of PacificNet or any of its Subsidiaries on account
of product or service warranties or with respect to the manufacture, sale or
lease of products or performance of services, and, to the best knowledge of
PacificNet, there is no basis for any such claim on account of products
heretofore manufactured, sold or leased or services performed.
Section 2.29 Transactions with Affiliates. Except as set forth in the
PacificNet Disclosure Schedule, neither PacificNet nor any of its Subsidiaries
has engaged in any loans, leases, contracts or other transactions with any
director, officer or key employee of PacificNet, or any member of any such
individual's immediate family or any other Affiliate of PacificNet. As used in
this Agreement, "Affiliate" shall mean, with respect to any person or entity,
any other person or entity directly or indirectly controlling, controlled by, or
under direct or indirect common control with, such person or entity. A person or
entity shall be deemed to control another person or entity if such person or
entity possesses, directly or indirectly, the power to direct or cause the
direction of the management and policies of such other person or entity, whether
through the ownership of voting securities, by contract or otherwise. Except for
the loans noted on the PacificNet Disclosure Schedule, immediately prior to the
Effective Date, all
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advances or loans made by PacificNet or any of its Subsidiaries to any
stockholder, officer, director, employee, Affiliate or agent of PacificNet or
any of its Subsidiaries will have been repaid in full, with accrued interest to
the date of repayment.
Section 2.30 Price and Customer Lists. The PacificNet Disclosure
Schedule sets forth (a) complete and accurate price lists of PacificNet and each
of its Subsidiaries used currently, and (b) a list of PacificNet' and each of
its Subsidiaries' current ten largest customers, as measured by annual sales
volume. To the best knowledge of PacificNet, no material customer listed in the
PacificNet Disclosure Schedule is seeking or presently intends to seek to
terminate its relationship or agreement with PacificNet or that any such
customer will not renew its existing agreement with PacificNet on the expiration
date thereof on terms at least as favorable to PacificNet as those currently in
effect.
Section 2.31 Corrupt Practices. Since the inception of PacificNet, to
the best knowledge of PacificNet, there have been no violations of the Foreign
Corrupt Practices Act or any similar state or federal statute relating to
bribery or similar offenses by PacificNet or any of its agents. To the best
knowledge of PacificNet, neither PacificNet nor any officer, director, employee
or agent of PacificNet (or any person acting on behalf of any of the foregoing)
has since the date of PacificNet' incorporation, given or agreed to give any
gift or similar benefit of more than nominal value to any customer, supplier,
governmental employee or official, or any other person or entity who is or may
be in a position to help or hinder PacificNet or assist PacificNet in connection
with any actual or proposed transaction, which gift or similar benefit, if not
given in the past, would have a Material Adverse Affect, or which would subject
PacificNet to material penalty in any private or governmental Proceeding.
References to PacificNet in this Section 2.31 include each of its Subsidiaries.
Section 2.32 No Default. Neither PacificNet nor any of its Subsidiaries
is in default under, and no condition exists that with notice or lapse of time
or both would constitute a default under (a) their respective Articles of
Incorporation or Bylaws (or other similar charter documents); (b) any mortgage,
loan, agreement, contract, arrangement, lease, lease purchase, indenture or
other evidences of indebtedness for borrowed money or other instrument to which
PacificNet is now a party or by which PacificNet or any of its assets is bound;
or (c) to the best knowledge of PacificNet, any judgment, order, writ,
injunction, or decree, of any court, arbitrator, agency, official, authority or
other Governmental Body.
Section 2.33 Additional Items Reflected in the PacificNet Disclosure
Schedule. In addition to items and information specifically referred to in
previous sections of this Article 2, the PacificNet Disclosure Schedule contains
a complete and accurate list or brief description of (a) all current or pending
contracts or commitments not previously required to be described in the
PacificNet Disclosure Schedule, written or otherwise, between PacificNet and any
party that involve, in the aggregate, the payment or receipt by PacificNet of
more than $25,000, which cannot be canceled without penalty upon 30 days'
notice, or which otherwise are material to PacificNet; (b) any compensation,
noncompetition, severance, consulting, or confidentiality agreements between
PacificNet and any of its executive officers for the last two fiscal years and
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at present not previously required to be described in the PacificNet Disclosure
Schedule; (c) the number and job category of all current employees of
PacificNet, including with respect to key employees, their names, date of
employment, current compensation (including sales commissions) and date and
amount of last increase in compensation; (d) a list of all leases, contracts or
agreements for which consents of any private persons or public authorities would
be required (citing the section(s) thereof requiring such consents) for the
consummation of the transactions contemplated hereby, or for the preventing of
any termination of any material right, privilege, license or agreement of, or
any loss or disadvantage to, PacificNet or eSat upon consummation of the
transactions contemplated hereby; (e) all governmental licenses and permits
relating to the operations of PacificNet and any of its Subsidiaries; and (f)
any arrangements or agreements of PacificNet with its competitors. References to
PacificNet in this Section 2.33 include each of its Subsidiaries.
Section 2.34 Copies of Documents; Accuracy of Information Furnished.
PacificNet has delivered or made available to eSat complete and accurate copies
of all documents listed on the PacificNet Disclosure Schedule. All of the
exhibits and schedules provided by PacificNet are true, correct and complete in
all material respects and no written representation, warranty or statement made
by PacificNet in or pursuant to this Agreement contains or will contain any
untrue statement of a material fact or omits or will omit to state any material
fact necessary to make such representation, warranty or statement not misleading
to eSat which is seeking complete and accurate information with respect to
PacificNet.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF ESAT AND PNAC
Except as set forth in the disclosure schedule delivered to
PacificNet by eSat contemporaneously with the execution hereof (the "eSat
Disclosure Schedule"), eSat and PNAC (to the extent applicable) hereby represent
and warrant to PacificNet and the Owners as follows, which representations and
warranties are made as of the date hereof and as of the Effective Date and shall
survive the Effective Date regardless of what investigations, if any, PacificNet
or any of the Owners shall have made prior hereto:
Section 3.1 Organization; Qualification. Each of eSat and PNAC is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Nevada. Each has full corporate power and authority to own and
lease all of the properties and assets it now owns and leases and to carry on
its business as now being conducted. eSat is duly qualified as a foreign
corporation and is in good standing to do business in each jurisdiction in which
the property owned, leased or operated by it or the nature of the business
conducted by it makes such qualification necessary, except where the failure so
to qualify would not have a Material Adverse Affect on eSat.
Section 3.2 Authority Relative to this Agreement. Each of eSat and PNAC
has full corporate power and authority to execute, deliver and perform this
Agreement and, subject to
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approval by the shareholders of PNAC and PacificNet, to consummate the
transactions contemplated hereby. The execution and delivery by eSat and PNAC of
this Agreement, and the consummation of the transactions contemplated hereby,
have been duly and validly authorized by the Board of Directors of each and,
except for the approval of the Merger by the sole shareholder of PNAC, no other
corporate actions on the part of PNAC are necessary with respect thereto. eSat
and PNAC will take or cause to be taken all corporate action that is necessary
for each to execute and file the Articles of Merger with the Secretary of State
of Nevada, and to complete the transactions to be completed by PNAC pursuant to
this Agreement. This Agreement has been duly and validly executed and delivered
by eSat and PNAC and constitutes a legal, valid and binding obligation of both,
enforceable against each in accordance with its terms.
Section 3.3 Common Stock. The authorized common stock of eSat consists
of 40,000,000 shares of eSat Common Stock, $0.001 par value per share, of which,
as of April 12, 2000, 19,173,725 shares of eSat Common Stock are validly issued
and outstanding, fully paid and nonassessable.
Section 3.4 Validity of Shares to be Issued. The shares of eSat Common
Stock to be issued to the stockholders of PacificNet as a result of the Merger
have been duly authorized and, upon delivery thereof pursuant to the provisions
of this Agreement, will be validly issued and outstanding, fully paid and
non-assessable, not subject to any preemptive rights, and issued in compliance
with applicable securities laws. Such shares will be "restricted securities"
and, when delivered at the Effective Date, will not be registered with the SEC
under the Securities Act of 1933, as amended. Later registration of those shares
may be undertaken pursuant to Section 5.9.
Section 3.5 Governmental Consents and Approvals. Except as set forth on
the eSat Disclosure Schedule, the execution, delivery and performance by eSat
and PNAC of this Agreement and the consummation of the transactions contemplated
hereby by eSat and PNAC require no consent, approval, order or authorization of,
action by or in respect of, or registration or filing with, any Governmental
Body, court, agency, or authority, other than (a) the filing of the Articles of
Merger with the Secretary of State of Nevada, (b) any applicable filings with
and consents and/or approvals of the SEC and state securities commissions under
state securities laws and (c) consents, permits, authorizations, notifications
or filings the failure of which to obtain or make would have a Material Adverse
Affect on eSat or have a Material Adverse Affect the ability of eSat to perform
its obligations set forth herein or to consummate the transactions contemplated
hereby.
Section 3.6 No Violations. Except as set forth on the eSat Disclosure
Schedule, the execution, delivery and performance of this Agreement by eSat, the
consummation by eSat and PNAC of the transactions contemplated hereby or
compliance by eSat and PNAC with any of the provisions hereof does not and will
not (a) conflict with or result in any breach or violation of any provision of
the Articles of Incorporation or Bylaws of eSat, (b) result in a default, or
give rise to any right of termination, cancellation or acceleration, or loss of
any material benefit (with or without the giving of notice or lapse of time or
both), or require the consent, approval, waiver
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or other action of any person, under any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, license, trust (constructive or
otherwise) agreement, lease or other instrument or obligation to which eSat is a
party or by which eSat or any of its Subsidiaries may be bound other than that
which has been or will be obtained, (c) result in the creation or imposition of
any claim, lien, pledge, security interest, obligation, restriction or other
encumbrance on any of the property of eSat, or (d) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to eSat.
Section 3.7 Financial Statements; SEC Reports. Except as set forth on
the eSat Disclosure Schedule, the consolidated financial statements, financial
statement schedules and notes to such financial statements and schedules of eSat
("eSat Financial Statements") contained in eSat's Annual Report on Form 10-K for
the fiscal year ended December 31, 1999, as filed with the SEC ("eSat Form
10-K") are complete and correct and were prepared in accordance with generally
accepted accounting principles applied on a consistent basis except as noted
therein, and fairly present the information purported to be shown therein. All
eSat Financial Statements have been prepared from the books and records of eSat
and its subsidiaries, which accurately and fairly reflect the transactions and
dispositions of the assets of eSat and its subsidiaries. Neither eSat nor any of
its subsidiaries had any material liabilities, contingent or otherwise, whether
due or to become due, known or unknown, other than as indicated on the latest
balance sheets ("Latest eSat Balance Sheet") included in the eSat Financial
Statements. eSat and its subsidiaries have adequately funded all accrued
employee benefit costs and such funding is reflected in the balance sheets
included in the eSat Financial Statements. eSat's Form 10-K and eSat's other
public filings with the SEC are collectively referred to as the "eSat Filings."
Section 3.8 Litigation. Except as disclosed in the eSat Filings or in
the eSat Disclosure Schedule, there is no material Proceeding pending or, to the
knowledge of eSat, threatened against, relating to or affecting eSat, any of its
subsidiaries or any of their respective properties or assets or any officer or
director of eSat or its subsidiaries relating to eSat or its subsidiaries, at
law or in equity, before any Governmental Body nor, to the knowledge of eSat, is
there any basis for asserting the foregoing. Except as disclosed in the eSat
Disclosure Schedule, eSat is not subject to any material Proceeding by any
Governmental Body.
Section 3.9 Information of Filings. None of the information supplied or
to be supplied by eSat for inclusion or included in any documents to be filed
with any regulatory authority in connection with the transactions contemplated
hereby will, at the respective time such documents are filed with such
regulatory authority, be false or misleading with respect to any material fact,
or omit to state any material fact necessary in order to make the statements
therein in light of the circumstances under which they were made, not
misleading.
Section 3.10 No Brokers. Except for a finder's fee paid to Bob Hersh,
eSat has not employed any broker, agent or finder or incurred any liability for
any brokerage fees, commissions or finders' fees in connection with the
transactions contemplated hereby.
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Section 3.11 Copies of Documents; Accuracy of Information Furnished.
eSat has delivered or made available to PacificNet complete and accurate copies
of all documents listed on the eSat Disclosure Schedule. All of the exhibits and
schedules provided by eSat are true, correct and complete in all material
respects and no written representation, warranty or statement made by eSat in or
pursuant to this Agreement contains or will contain any untrue statement of a
material fact or omits or will omit to state any material fact necessary to make
such representation, warranty or statement not misleading to PacificNet or any
of the Owners, each of which is seeking complete and accurate information with
respect to eSat and its Subsidiaries.
Section 3.12 Due Diligence of eSat. eSat has not discovered any
information, facts or circumstances in the course of its due diligence with
respect to this Agreement which would lead it to believe that any of the
representations and warranties of PacificNet contained in Article 2 hereof or
the representations and warranties of Owners contained in Article 4 hereof are
inaccurate in any material way.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF OWNERS
Except as set forth in the disclosure schedule delivered to eSat
and PNAC by Owners contemporaneously with the execution hereof (the "Owners
Disclosure Schedule"), Owners hereby represent and warrant to eSat and PNAC as
follows, which representations and warranties are made as of the date hereof and
as of the Effective Date and shall survive the Effective Date regardless of what
investigations, if any, eSat or PNAC shall have made thereof prior thereto:
Section 4.1 Title to Shares. Immediately prior to the Effective Date,
collectively, Owners shall be the lawful owners and holders of an aggregate of
10,000 shares of PacificNet Common Stock, and, on the Effective Date, shall hold
all such shares. Each Owner's shares of PacificNet Common Stock are free and
clear of all liens and encumbrances of any kind.
Section 4.2 Authority Relative to this Agreement. This Agreement has
been duly and validly executed and delivered by the Owners and constitutes the
legal, valid and binding obligation of the Owners, enforceable against them in
accordance with its terms, except as enforcement hereof may be limited by
bankruptcy, insolvency, fraudulent conveyance, moratorium or other similar laws
affecting enforcement of creditors' rights generally. The execution, delivery
and performance by the Owners of this Agreement and the consummation of the
transactions contemplated hereby will not violate any provision of any law to
which the Owners are subject nor result in a breach or violation by the Owners
of any of the terms or provisions of, or constitute a default by the Owners
under any note, bond, mortgage, indenture, license, trust (constructive or
other), agreement, lease, or other instrument or obligation to which the Owners
are a party or by which the Owners are bound or by which any of the Owners may
be organized. The Owners are not a party to, or subject to, or bound by, any
currently existing order, judgment, injunction, writ or decree of any court or
governmental authority, or any
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arbitration award that would restrict performance by the Owners of this
Agreement or such other documents or instruments to be executed or delivered by
the Owners in conjunction herewith.
Section 4.3 Transfers to PacificNet. All assets, liabilities and
properties belonging to any of the Owners, any PacificNet Subsidiary, or any
affiliated partnership or limited liability company, that are to be transferred
to PacificNet between the date of this Agreement and the Effective Date are set
forth on the Owners Disclosure Schedule. Except as set forth in the Owners
Disclosure Schedule, such assets and properties will be transferred free and
clear of all liens and encumbrances of whatever kind and nature. The liens and
encumbrances, if any, on such assets or property reflected in the Owner's
Disclosure Schedule are, and at the Effective Date will be, the only liens or
encumbrances relating to such assets or property. The procedures for completing
the transfers are set forth on the Owners Disclosure Schedule.
Section 4.4 Certain Transactions or Arrangements. Except for agreements
and transactions entered into in connection with this Agreement and except as
set forth in the Owners Disclosure Schedule, the Owners are not presently,
directly or indirectly, a party to any transaction with PacificNet, including
without limitation: (a) any contract, agreement, understanding or commitment or
other arrangement providing for the furnishing of services by, rental of real or
personal property from or otherwise requiring payments to the Owners or any
Affiliate of the Owners; (b) any contract, agreement, understanding, commitment
or other arrangement relating to the employment of the Owners by the Company, or
any bonus, deferred compensation, pension, profit sharing, stock option,
employee stock purchase, retirement or other employee benefit plan; or (c) any
loans or advances to or from PacificNet.
Section 4.5 Investments in Competitors. Except as set forth in the
Owners Disclosure Schedule, the Owners do not own, directly or indirectly, any
interest or have any investment in any corporation, business or other person or
entity that is a competitor or potential competitor of, or that otherwise
directly or indirectly does business with, PacificNet or affiliated entities.
Section 4.6 Representations. The Owners have reviewed the
representations, warranties and statements made by PacificNet in this Agreement
and, subject to the knowledge of qualifiers (if any) made by PacificNet in those
representations and warranties, which shall be equally applicable to the Owners,
such representations and warranties do not contain any untrue statement of a
material fact or omit to state any material fact necessary to make any such
representation, warranty or statement not misleading.
Section 4.7 Investment Representation. Each Owner is receiving shares of
the eSat Common Stock for investment for the Owner's own account, not on behalf
of others and not with a view to sell or otherwise distribute such shares. Each
Owner acknowledges that such shares of eSat Common Stock have not been
registered under the Securities Act of 1933, as amended, or under any state
securities laws, and therefore, cannot be resold after the Effective Date unless
registered under the Securities Act and applicable state securities laws or
unless an exemption from registration is available and, as a result, each Owner
must bear the risk of an investment in the eSat Common Stock for an indefinite
period of time. Each Owner is aware of eSat's
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undertaking to register the shares set forth in Section 5.9 hereof. The
financial condition of each Owner is currently adequate to bear the economic
risk of an investment in the eSat Common Stock. Each Owner has sufficient
knowledge and experience in investment and business matters to understand the
economic risk of such an investment and the risk involved in a commercial
enterprise such as eSat. Each Owner has received and carefully read the eSat
Filings. Each Owner has had an opportunity to ask questions of, and receive
answers from officers of eSat, concerning eSat and the eSat Common Stock and to
obtain any additional information which each Owner reasonably requested and is
material to its investment decision.
Section 4.8 Copies of Documents; Accuracy of Information Furnished. The
Owners have delivered or made available to eSat and PNAC complete and accurate
copies of all documents listed in the Owners Disclosure Schedule. All the
exhibits and schedules provided by the Owners are true, correct and complete in
all material respects and no written representation, warranty or statement made
by the Owners in or pursuant to this Agreement contains or will contain any
untrue statement of a material fact or omits or will omit to state any material
fact necessary to make such representation, warranty or statement not misleading
to eSat or PNAC who are seeking complete and accurate information with respect
to the Owners.
ARTICLE 5
ADDITIONAL AGREEMENTS
Section 5.1 Conduct of Business of PacificNet. After the date hereof and
prior to the Effective Date, PacificNet shall conduct its operations according
to its normal course of business to preserve intact its business organization,
use reasonable efforts to keep available the services of their officers and
employees, use reasonable efforts to preserve and maintain satisfactory
relationships and goodwill with licensors, suppliers, dealers, customers and all
others having business relationships with them, pay the suppliers, vendors and
taxing authorities of PacificNet in accordance with its usual business practices
and in a timely fashion and continue to service and maintain all of its assets
in a manner consistent with past practice.
Section 5.2 Issuance of Options. eSat agrees to issue the Owners an
aggregate of 1,000,000 options to purchase eSat common stock to be issued in
connection with the Owners' employment by eSat after the Effective Date. Such
options shall contain such terms and shall vest as set forth in the vesting
schedule attached to the employment agreement by and between eSat and each
Owner.
Section 5.3 Forbearances by PacificNet. Except as contemplated by this
Agreement, neither PacificNet nor any of its Subsidiaries shall, after the date
hereof and prior to the Effective Date, without the prior written consent of
eSat;
(a) issue additional capital stock or any additional securities
or obligations convertible into or exchangeable for, or giving any person any
right to acquire, capital stock;
(b) acquire any shares of its capital stock;
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(c) declare or pay any dividend;
(d) issue any stock options, stock appreciation rights, warrants
or any other rights relating to their respective securities;
(e) sell (i) any assets not in the ordinary course of business or
(ii) any assets whether or not in the ordinary course of business for an amount
greater than $25,000 except for invoiced sales of inventory previously disclosed
in writing to eSat;
(f) issue or incur additional debt for borrowed money;
(g) mortgage, pledge or otherwise encumber any of their
respective properties or assets;
(h) make any investment in third parties or assets of a capital
nature either by purchasing stock, securities or assets, contributing to
capital, transferring property or otherwise making any investment;
(i) make any commitments in excess of $25,000 for capital
expenditures or other commitment or transaction;
(j) increase in any manner, whether by bonus or otherwise, the
compensation of any of their respective officers or employees;
(k) amend their respective Articles of Incorporation or Bylaws
(or similar charter documents) except as may be necessary to facilitate the
consummation of the transactions contemplated by this Agreement;
(l) undertake any action that will cause PacificNet to have
negative working capital, as determined by generally accepted accounting
principles; or
(m) enter into any agreement to do any of the things described in
clauses (a) through (l) above.
Section 5.4 No Solicitation. Through the Effective Date, PacificNet, its
officers and directors and the Owners will not, nor permit any of their
respective officers, employees, agents or representatives (including, without
limitation, investment bankers, attorneys and accountants) to, directly or
indirectly (a) solicit, initiate or encourage submission of proposals or offers
by, or (b) furnish any information with respect to or otherwise cooperate in any
way with, or participate in any discussions or negotiations with, any
corporation, partnership, person or other entity or group ("Person") with
respect to any proposal regarding the acquisition or purchase of all or a
material portion of the assets of, or any equity interest in, PacificNet, or any
business combination with PacificNet. PacificNet and/or the Owners shall
promptly notify eSat if any such proposal or offer, or any inquiry or contact
with any Person with respect thereto, is made
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and shall, in any such notice, indicate in reasonable detail the identity of the
offeror and the terms and conditions of any such proposal.
Section 5.5 Investigation of Business and Properties. Each party hereto
may make or cause to be made such investigation of the business and properties
of the other parties and of their financial and legal condition as such party
deems appropriate or advisable to familiarize himself/itself therewith, provided
such investigation shall not unreasonably interfere with the normal operations
of the other parties.
Section 5.6 Confidentiality. Each party agrees with respect to all
technical, commercial and other information that is furnished or disclosed by
the other parties, whether or not stamped "Confidential" or identified as such
in writing following disclosure, including, but not limited to, information
regarding such party's (and its subsidiaries' and affiliates') organization,
personnel, business activities, customers, subscribers, policies, assets,
finances, costs, sales, revenues, technology, rights, obligations, liabilities
and strategies (the "Information"), that, unless and until the transactions
contemplated hereby shall have been consummated, (a) such Information is
confidential and/or proprietary to the furnishing/disclosing party and entitled
to and shall receive treatment as such by the receiving party; (b) the receiving
party will hold in confidence and not disclose or use (except in respect of the
transactions contemplated hereby) any such Information, treating such
Information with the same degree of care and confidentiality as it accords its
own confidential and proprietary information; provided, however, that the
receiving party shall not have any restrictive obligation with respect to any
Information that (i) is contained in a printed publication available to the
general public, (ii) is or becomes publicly known through no wrongful act or
omission of the receiving party, (iii) is known by the receiving party without
any proprietary restrictions by the furnishing/disclosing party at the time of
receipt of such Information, (iv) the use of which is necessary or appropriate
in making any filing or obtaining any consent or approval required for
consummation of the Merger, or (iv) is required to be furnished or used in
connection with any Proceedings; and (c) all such Information furnished to a
party by another, unless otherwise specified in writing, shall remain the
property of the furnishing/disclosing party and, in the event this Agreement is
terminated, shall be returned to it, together with any and all copies made
thereof, upon written request for such return by it (except for documents
submitted to a governmental agency with the consent of the furnishing/disclosing
party or upon subpoena and that cannot be retrieved with reasonable effort), and
each party shall confirm in writing to the others compliance with any such
request. Each party hereto acknowledges that the remedy at law for any breach by
a party of its obligations under this section is inadequate and that the other
parties shall be entitled to equitable remedies, including injunctive relief, in
the event of breach by any other party.
Section 5.7 Public Announcements. eSat and PacificNet shall consult with
each other before issuing any press release or otherwise making any public
statements with respect to the Merger, this Agreement or transactions
contemplated hereby, shall not issue any such press release or make any such
public statement prior to such consultation, and shall consult with each other
as to form and substance of other public disclosures related thereto; provided
however, that nothing contained herein shall prohibit either party from making
any disclosure that is required
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by law. None of the Owners shall make any announcement with respect to the
Merger, this Agreement or transactions contemplated hereby, without the express
written consent of eSat.
Section 5.8 Agreement to Consummate. Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use reasonable efforts to
do all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective, as soon as reasonably practicable,
the transactions contemplated by this Agreement, including, but not limited to,
the obtaining of all consents, authorizations, orders and approvals of any
governmental commission, board or other regulatory body required in connection
therewith and initiating or defending any legal action that is necessary or
appropriate to permit the transactions contemplated hereby to be consummated.
Without limiting the foregoing, none of the Owners will take any action to
exercise any statutory appraisal rights that they may have with respect to the
Merger. At any time after the Effective Date, if any further action is
necessary, proper or advisable to carry out the purposes of this Agreement,
then, as soon as is reasonably practicable, each party to this Agreement shall
take, or cause its proper officers to take, such action. No party to this
Agreement shall take or cause to be taken any action that would cause the
representations or warranties expressed herein to be untrue or incorrect on the
Effective Date.
Section 5.9 Registration Rights. eSat will grant the Owners "piggyback"
registration rights with respect to the eSat Common Stock issued pursuant to
Section 1.2 (the "Piggyback Registration Rights"). The form of Registration
Rights Agreement setting forth the Piggyback Registration Rights is set forth on
Exhibit G hereto.
Section 5.10 PacificNet Shareholders' Approval. No later than the
Effective Date, PacificNet shall hold a meeting of its shareholders for the
purpose of voting upon the Merger. In connection with such meeting, PacificNet
shall mail all required notices and other materials to its shareholders, and the
Board of Directors of PacificNet shall recommend approval of the matters related
to the Merger to be voted upon at such shareholder meeting and shall use its
best efforts to obtain such shareholder approval. In lieu of such meeting, such
approval may be in the form of the unanimous written consent of the shareholders
of PacificNet.
Section 5.11 PNAC Shareholder's Approval. No later than the Effective
Date, PNAC shall obtain the written consent of its sole shareholder to the
Merger.
Section 5.12 Agreement Regarding Brokers. Each party agrees that it or
he will pay or dispute, and indemnify and hold the other parties harmless from,
any claims of brokers or others for finder's or brokerage fees asserted as a
result of representations by such party to such brokers or others, regardless of
whether the existence of such brokers or others are disclosed herein.
Section 5.13 Notice. PacificNet shall promptly give notice to eSat and
the Owners upon becoming aware of the occurrence or failure to occur, or the
impending or threatened occurrence or failure to occur, of any event that would
cause or constitute, any of PacificNet' representations or warranties being or
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becoming untrue. eSat will promptly give notice to PacificNet and the Owners
upon becoming aware of the occurrence or failure to occur, of any event that
would cause or constitute, any of eSat's representations or warranties being or
becoming untrue. Owners will promptly give notice to eSat and PacificNet upon
becoming aware of the occurrence or failure to occur, or the impending or
threatened occurrence or failure to occur, of any event that would cause or
constitute, any of the Owners' representations or warranties being or becoming
untrue.
Section 5.14 Representation, Warranties, and Agreements; Survival. The
representations, warranties and indemnities of PacificNet, eSat and Owners,
contained in this Agreement and any related documents, shall survive for a
period of two years from the Effective Date; provided, however, that the
representations and warranties relating to Section 2.19 shall only survive for a
period of one year from the Effective Date, and the representations and
warranties relating to any Claims (as defined below) relating to the subject
matter of Sections 2.13 and 2.17 shall survive for a period of time equal to the
applicable statute of limitations underlying any action brought by a local,
state or federal agency which gives rise to such Claims. At the end of the
survival period of the representations and warranties of PacificNet and Owners,
eSat shall, without further action, be deemed to have fully released PacificNet
and Owners from any and all responsibility with respect to a breach of such
representations and warranties (including any obligation under the
indemnification provisions contained in Section 5.15) unless during such
survival period eSat shall have given PacificNet and Owners notice of the nature
and reasonable particulars under the then existing circumstances of any claimed
breach by PacificNet and/or Owners. At the end of the survival period of
representations and warranties of eSat, Owners shall, without further action, be
deemed to have fully released eSat from any and all responsibility with respect
to a breach of such representations and warranties (including any obligation
under the indemnification provisions contained in Section 5.15) unless during
such survival period Owners shall have given eSat notice of the nature and
reasonable particulars under the then existing circumstances of any claimed
breach by eSat and the basis therefor. The obligations, covenants and agreements
of PacificNet, Owners and eSat contained in this Agreement and any related
documents shall survive the Closing. The representations, warranties,
obligations, covenants, indemnities and agreements shall not be affected by, and
shall remain in full force and effect notwithstanding, any investigation at any
time made by or on behalf of any party hereto or any information any party may
have with respect thereto.
Section 5.15 Indemnification.
(a) Owners Indemnify eSat. To the extent provided in Sections
5.15(d) and (e), Owners, jointly and severally, shall indemnify and hold eSat
harmless from and against, and promptly reimburse eSat for, any and all loss,
expense, damage, deficiency, liability or obligation, including investigative
and settlement costs and attorneys' fees (collectively, "Claims"), arising out
of or in connection with any breach of representation or warranty of PacificNet
or Owners contained in Article 2 hereof or in any certificate delivered pursuant
hereto, regardless of whether eSat relied upon the truth of such representation
or warranty; provided that in connection with any Claim pertaining to tax
liabilities of PacificNet, eSat shall, prior to asserting such Claim: (i) notify
the Owners promptly upon receipt by eSat and/or PacificNet of the demand, levy
or assertion of claim from the applicable tax authority which
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gives rise to the eSat Claim, and (ii) exercise best efforts to contest such
demand, levy or assertion of claim. To the extent provided in Sections 5.15(d),
each Owner, individually, shall indemnify and hold eSat harmless from and
against, and promptly reimburse eSat for any Claim arising our out of or in
connection with any breach of representation or warranty of Owner contained in
Article 4 hereof or in any certificate delivered pursuant hereto, regardless of
whether eSat relied upon the truth of such representation or warranty or had
knowledge of any breach thereof. In computing the amount to be paid by Owners
under this Section 5.15(a), there shall be deducted an amount equal to any tax
benefits actually received by eSat, PacificNet or any of its Subsidiaries,
taking into account the income tax treatment of the receipt of such indemnity
payment.
(b) eSat Indemnifies Owners. eSat shall indemnify and hold each
of the Owners harmless from and against, and promptly reimburse each of the
Owners for, any and all loss, expense, damage, deficiency, liability or
obligation, including investigative and settlement costs and attorneys' fees,
arising out of or in connection with any breach of representation or warranty of
eSat contained in Article 3 hereof or in any certificate delivered pursuant
hereto, regardless of whether any of the Owners relied upon the truth of such
representation or warranty.
(c) Procedure for Indemnification. Upon receipt by a party
entitled to indemnification hereunder (the "Indemnified Party") of notice of any
situation, event or occurrence that might give rise to a claim for
indemnification of such Indemnified Party against any of another party pursuant
to this Section 5.15, the Indemnified Party shall give prompt written notice
thereof to the other party (an "Indemnifying Party"), indicating with reasonable
specificity the nature and amount of such indemnification. Failure to give any
notice provided under this Section 5.15(c) shall in no way be deemed a
forfeiture of the Indemnified Party's rights to be indemnified under Section
5.15. A claim for indemnity may, at the option of the Indemnified Party, be
asserted as soon as any situation, event, or occurrence has been noticed by the
Indemnified Party, regardless of whether actual harm has been suffered or
out-of-pocket expenses incurred. Disputed claims will be resolved pursuant to
Section 5.16.
(d) Indemnification Threshold. eSat will not be eligible to
obtain any indemnification from the Owners hereunder until the aggregate amount
of all losses, expenses, damages, deficiencies, liabilities and other
obligations arising out of or in connection with any breach of representation or
warranty of PacificNet or Owners exceeds $100,000 in the aggregate and then only
for the amount of such excess; provided, however, that, notwithstanding this
Section 5.15(d), eSat shall be immediately indemnified for: (i) all amounts in
excess of $5,000 sustained in connection with the Aquafauna Biomarine, Inc.
litigation listed in Section 2.10 of the PacificNet Disclosure Schedule; and
(ii) all amounts in excess of $20,000 sustained in connection with the
unlicensed use of software described in Section 2.19 of the PacificNet
Disclosure Schedule.
Section 5.16 Resolution of Disputed Claims under Section 5.15. All
disputed claims for indemnification by eSat under Section 5.15 ("Claims") shall
be resolved in accordance with this Section 5.16. All such Claims shall be
resolved under this Section 5.16 upon written notice
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of each such Claim given by eSat to the party or parties from whom
identification is sought and to the Los Angeles office of the American
Arbitration Association (the "Arbitration Notice").
(a) Mutual Agreement or Arbitration. In the event of an
Arbitration Notice, the parties agree to first endeavor in good faith to settle
the Claims described therein by mutual agreement, by means of discussions
between David Pennells (or, in his absence or unavailability, another
representative of the Owners selected by a majority in interest of the Owners as
of the Effective Date) and a senior executive of eSat . If the parties cannot
mutually agree on the resolution of such Claims within ten days after the
Arbitration Notice, then the Claims shall be resolved by arbitration by a single
arbitrator in accordance with Title 9, Section 1280 et seq. of the California
Code of Civil Procedure, subject to the further conditions and provisions set
forth in Sections 5.16(b) through (d).
(b) Qualifications for Arbitrator. The neutral arbitrator
selected to hear such Claim shall be a neutral businessperson, accountant,
lawyer or judge (active or retired) who lives or works within Los Angeles or
Orange County, California and is experienced in resolving disputes under
acquisition agreements and who will arbitrate the Claims at a reasonable cost
("Experienced Person").
(c) Selection of Arbitrator. Such Experienced Person shall be
selected by the parties within 15 days after delivery of an Arbitration Notice.
If the parties are unable to agree on a single arbitrator, each party will pick
an Experienced Person within 20 days of the delivery of the Arbitration Notice.
Within ten days of being selected, those two Experienced Persons shall select a
third Experienced Person, which third Experienced Person shall be the single
arbitrator.
(d) Schedule for Arbitration; Location of Arbitration. Within
five business days after his or her selection, the arbitrator shall schedule an
arbitration hearing in Los Angeles County, California to be held not later than
40 days after the Arbitration Notice (or as soon as reasonably practicable
thereafter). The purpose of the hearing shall be to receive testimony and
evidence from the parties with respect solely to the Claims in dispute and to
determine whether such Claims are valid and the amount thereof, if such is in
dispute. The arbitrator shall exercise his or her best efforts to render a
decision within 15 days after the conclusion of the hearing. Such decision shall
be evidenced by an order and shall be issued in writing and shall specify in
reasonable detail the nature of the Claims and the arbitrator's determination as
to the amount thereof. Any decision of the arbitrator shall be final,
non-appealable, binding and conclusive upon the parties hereto and all of the
parties who have been joined in such matter, and a judgment may be entered upon
such decision in accordance with the laws of any applicable jurisdiction.
(e) Discovery. The provisions of Section 1283.5 of the California
Code of Civil Procedure, which provide for discovery, are expressly incorporated
into this Agreement; provided, however, that the arbitrator shall be empowered
to limit discovery for good cause shown and in the interests of justice in order
to assure that the arbitration of the Claim will
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proceed within the applicable time period. In that regard, the parties agree to
work together in good faith to arrive at mutually acceptable procedures, and in
the event that the parties are unable to agree, such issues shall be submitted
to the arbitrator for his determination.
(f) Fees and Costs. Each party shall bear its own costs, fees and
expenses of arbitration, including without limitation attorneys' fees and costs
of transcripts, and each party agrees to pay one-half of the compensation to be
paid to the arbitrator in any such arbitration; provided, however, that the
arbitrator shall have the authority to award costs and expenses to the
prevailing party.
Section 5.17 5.17 Tax Return Filings.
(a) Owners' Obligations. Owners shall file, or cause to be filed,
on a timely basis and at their sole cost and expense, all tax returns with
respect to PacificNet and its Subsidiaries for tax periods ending prior to or on
March 31, 2000. The Owners agree that, prior to filing any tax returns for tax
periods ending prior to or on March 31, 2000, they will provide copies of such
returns (and all schedules thereto) to eSat and shall permit eSat sufficient
time to review such returns prior to filing.
(b) eSat Obligations. eSat and its subsidiaries shall file, or
cause to be filed, on a timely basis and at their sole cost and expense all tax
return with respect to PacificNet and its Subsidiaries for tax periods ending
after March 31, 2000.
Section 5.18 Election to Board of Directors. eSat and the Owners
understand and agree that as long as David Pennells and Richard Elliot shall
remain employed by eSat, eSat shall cause a sufficient number of shares of
Surviving Corporation common stock to be voted such that David Pennells and
Richard Elliot shall be members of Surviving Corporation's Board of Directors.
Section 5.19 Section 368(a)(2)(D) Reorganization. eSat and PNAC hereby
agree that, if the Merger otherwise qualifies as a "reorganization" within the
meaning of Section 368(a)(2)(D) of the Internal Revenue Code of 1986, as amended
("Code"), they will not take any action that will cause the Merger to be
disqualified under Code Section 368(a)(2)(D).
Section 5.20 Condition Subsequent. All parties hereto agree that, as a
condition to the effectiveness of the transactions contemplated hereby, both of
the following must occur: (a) the Merger must be effective according to the laws
of the State of Nevada, and (b) the Purchase (as defined in the Stock Purchase
Agreement of even date herewith by and between eSat, InterWireless, Inc. and the
shareholders thereof) must have been fully consummated with the payment of all
funds and the transfer of all stock required thereby. The parties agree not to
take any action that would interfere with the successful satisfaction of these
conditions. If either or both of the above-referenced conditions are not
satisfied by April 19, 2000, at 5:00 p.m., then, absent mutual agreement to
extend such deadline by all parties hereto, the transactions contemplated by the
Stock Purchase Agreement and the Merger Agreement shall be rescinded.
27
<PAGE> 35
ARTICLE 6
CONDITIONS PRECEDENT TO CLOSING AND POST-CLOSING COVENANTS
Section 6.1 General Conditions. Consummation of the Merger shall be
subject to the fulfillment at the Effective Date of each of the following
conditions.
(a) No Injunction. No court having jurisdiction shall have
issued, to the knowledge of eSat, PacificNet or Owners, an injunction preventing
the consummation of the Merger that shall not have been stayed or dissolved at
the Effective Date.
(b) Securities Law. eSat shall have filed all applicable federal
and state securities law notices of issuance of eSat Common Stock in connection
with the Merger.
(c) Corporate and Other Actions. All actions taken or to be taken
in connection with the transactions contemplated hereby, and all documents
incident thereto shall be reasonably satisfactory in form and substance to the
parties and their counsel, and the parties and their counsel shall have received
all such counterpart originals or certified or other copies of such documents as
the parties or their counsel may reasonably request.
(d) Preparation of PacificNet Budget. eSat and PacificNet shall
agree on an operating budget for PacificNet for the 12 months following the
Effective Date. Such budget shall include an estimate of capital needs for such
time period, and the approximate timing for eSat to fund such capital needs.
Section 6.2 Conditions to Closing in Favor of PacificNet. Consummation
of the Merger shall be subject to the fulfillment, to the satisfaction of
PacificNet, or written waiver, at or before the Effective Date, of each of the
following conditions:
(a) Copies of Resolutions of eSat and PNAC. eSat shall have
furnished PacificNet with copies of resolutions duly adopted by the Board of
Directors and stockholders of PNAC and the Board of Directors of eSat approving
the execution and delivery of this Agreement and consummation of the
transactions contemplated hereby, certified as of the Effective Date by the
Secretary or an Assistant Secretary of eSat and the Secretary or Assistant
Secretary of PNAC.
(b) Opinion of Counsel for eSat. eSat shall have furnished
PacificNet with an opinion dated the Effective Date of Arter & Hadden LLP,
counsel for eSat, in the form attached hereto as Exhibit C.
(c) Representations and Warranties of eSat. The representations,
warranties and statements of eSat contained in this Agreement, the exhibits
hereto and the eSat Disclosure Schedule, shall be complete and accurate as of
the date of this Agreement and shall also be complete and accurate at and as of
the Effective Date, except for changes contemplated by this Agreement, as if
made on the Effective Date; and eSat shall have performed or complied with all
28
<PAGE> 36
agreements and covenants required by this Agreement to be performed or complied
with by it at or prior to the Effective Date.
(d) eSat Officers' Certificate. eSat shall have delivered to
PacificNet an Officer's Certificate, dated the Effective Date, to the effect
that (i) such officer is familiar with the provisions of this Agreement and (ii)
the conditions specified in Section 6.1 and in paragraph (c) of this Section 6.2
have been satisfied in all material respects.
(e) Governmental Consents, Authorizations, Etc. All material
consents, authorizations, orders or approvals of, and filings or registrations
with, and any permits, licenses or other authorizations required by, any
applicable Governmental Body that are required for, or in connection with, the
execution and delivery of this Agreement by eSat and PNAC and the consummation
by eSat and PNAC of the transactions contemplated hereby shall have been
obtained or made.
(f) Legislation. No law or legally binding regulation shall have
been enacted that does or would prohibit, restrict or delay consummation of the
Merger or any of the conditions to the consummation of the Merger or that does
or would have a Material Adverse Affect on eSat.
(g) PNAC Shareholder Approval. The sole shareholder of PNAC shall
have voted in favor of the Merger.
(h) Consents. On or before the Effective Date, eSat shall have
obtained all necessary or required consents to the transactions contemplated by
this Agreement or otherwise necessary.
(i) Employment Agreement. eSat or PacificNet shall have entered
into employment agreements with David Pennells and Richard Elliot in form and
substance mutually satisfactory to eSat, David Pennells and Richard Elliot.
Section 6.3 Conditions to Closing in Favor of eSat. Consummation of the
Merger shall be subject to the fulfillment, to the satisfaction of eSat, or
written waiver, at or before the Effective Date of the following conditions:
(a) Inspection of Proprietary Rights. PacificNet shall have
furnished eSat for inspection and review all items described or referenced in
the first sentence of Section 2.19 hereof not furnished during eSat's due
diligence investigation.
(b) Shareholder Acknowledgments. PacificNet shall have furnished
eSat with acknowledgment agreements by all PacificNet shareholders in the form
attached hereto as Exhibit D.
(c) Copies of Resolutions of PacificNet. PacificNet shall have
furnished eSat with copies of resolutions duly adopted by the Board of Directors
and shareholders of PacificNet
29
<PAGE> 37
approving the execution and delivery of this Agreement, and the consummation of
the transactions contemplated hereby, certified as of the Effective Date by the
Secretary or an Assistant Secretary of PacificNet.
(d) Opinion of Counsel for PacificNet. PacificNet shall have
furnished eSat with an opinion dated the Effective Date of Schneider & Warren,
LLP, counsel for PacificNet, in form attached hereto as Exhibit E.
(e) Representations and Warranties of PacificNet and Owners. The
representations, warranties and statements of PacificNet and Owners contained in
this Agreement, the exhibits hereto, the PacificNet Disclosure Schedule and the
Owners Disclosure Schedule shall be complete and accurate as of the date of this
Agreement and shall also be complete and accurate at and as of the Effective
Date, except for changes contemplated by this Agreement, as if made at and as of
the Effective Date; and PacificNet and Owners shall have performed or complied
with all agreements and covenants required by this Agreement to be performed or
complied with by it at or prior to the Effective Date.
(f) PacificNet Officers' and Owners Certificates. PacificNet
shall have delivered to eSat an Officer's Certificate, dated the Effective Date,
to the effect that (i) such officer is familiar with the provisions of this
Agreement and (ii) the conditions specified in Section 6.1 have been fully
satisfied. The Owners shall have delivered to eSat a Certificate, dated the
Effective Date, to the effect that (i) they are familiar with the provisions of
the Agreement and (ii) the conditions specified in Section 6.1 and in paragraph
(e) of this Section 6.3 have been fully satisfied.
(g) Governmental Consents, Authorizations, Etc. All material
consents, authorizations, orders or approvals of, and filings or registrations
with, and any permits, licenses or other authorizations required by, any
applicable Governmental Body that are required for or in connection with, the
execution and delivery of this Agreement by PacificNet and the consummation by
PacificNet of the transactions contemplated hereby shall have been obtained or
made.
(h) No Dissenters. No Owner has exercised dissenters' rights
under applicable law.
(i) Legislation. No law or legally binding regulation shall have
been enacted that does or would prohibit, restrict or delay consummation of the
Merger or any of the conditions to the consummation of the Merger or that does
or would have a Material Adverse Affect on PacificNet.
(j) Owners Noncompetition Agreements. Each Owner shall have
entered into a noncompetition agreement with eSat in the form attached as
Exhibit F.
30
<PAGE> 38
ARTICLE 7
TERMINATION, AMENDMENT AND WAIVER
Section 7.1 Termination. This Agreement may be terminated at any time
prior to the Effective Date, whether or not stockholder approval has been
received:
(a) by mutual consent of the Boards of Directors of PacificNet
and eSat;
(b) by PacificNet if any representation or warranty of eSat, or
by eSat if any representation or warranty of PacificNet or Owners, contained
herein shall have been incorrect or breached in any material respect, as to
which notice shall have been given to such party, and shall not have been cured
or otherwise resolved to the reasonable satisfaction of the other party on or
before the Effective Date, or by either PacificNet or eSat if any condition to
the consummation of the Merger that must be fulfilled to its satisfaction has
(in the good faith judgment of its Board of Directors) become impractical to be
fulfilled;
(c) by either PacificNet or eSat if any permanent injunction or
other order of a court or other competent authority preventing the consummation
of the Merger shall have become final and non-appealable; or
(d) by PacificNet or eSat if the Merger has not become effective
by April 19, 2000, unless otherwise agreed by both parties; provided, however,
that no party shall be permitted to terminate hereunder if such party is in
violation of this Agreement.
Section 7.2 Effect of Termination. In the event of the termination of
this Agreement as provided herein, this Agreement shall become wholly void and
have no further force and effect except as hereinafter provided; and there shall
be no liability on the part of PacificNet or eSat (or their respective officers
of directors) except to comply with the confidentiality provisions of Section
5.6 hereof, and except as otherwise provided herein. Nothing contained herein
shall relieve any party from liability for its breach of this Agreement.
Section 7.3 Amendment. This Agreement and the exhibits and schedules
hereto may be amended by the parties hereto at any time prior to the Effective
Date; provided, however, that any amendment must be by an instrument or
instruments in writing signed and delivered on behalf of each of the parties
hereto.
Section 7.4 Extension; Waiver. At any time prior to the Effective Date,
any corporate party hereto that is entitled to the benefits hereof, by action
taken by its Board of Directors or a duly authorized officer, may (a) extend the
time for the performance of any of the obligations or other acts of any of the
other parties hereto, (b) in whole or in part, waive any inaccuracy in the
representations and warranties of any of the other parties hereto contained
herein or in any exhibit or schedule hereto or in any document delivered
pursuant hereto, and (c) in whole or in part, waive compliance with any of the
agreements of any of the other parties hereto or conditions contained herein.
Any agreement on the part of any party hereto to any such
31
<PAGE> 39
extension or waiver shall be valid as set forth in an instrument in writing
signed and delivered on behalf of such party.
Section 7.5 7.5 Dual Transactions. Reference is made to that certain
Stock Purchase Agreement of even date by and between InterWireless, Inc., an
affiliate of PacificNet, as seller, and eSat, as buyer (the "Stock Agreement").
The parties agree that the two agreements and transactions contemplated
thereunder, including all ancillary agreements, are intended to be indivisible
with neither transaction occurring in the absence of the other. Therefore, a
rescission of the transaction contemplated by the Stock Agreement shall
automatically result in a rescission of the transaction contemplated by this
Agreement, and a rescission of the transaction contemplated by this Agreement
shall automatically result in a rescission of the transaction contemplated in
the Stock Agreement.
ARTICLE 8
GENERAL PROVISIONS
Section 8.1 8.1 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if and when delivered personally
or transmitted by telex, telecopy or telegram, mailed by registered or certified
mail (return receipt requested) or sent by a recognized next business day
courier to the persons at the following addresses (or at such other address for
a party as shall be specified by like notice):
If to eSat: eSat, Inc.
16520 Harbor Boulevard, Building G
Fountain Valley, California 92708
Attention: Michael C. Palmer
Fax: (714) 418-3200
with a copy to: Arter & Hadden LLP
725 S. Figueroa Street, Suite 3400
Los Angeles, California 90017-5434
Attention: David Decker, Esq.
Fax: (213) 617-9255
If to PacificNet: PacificNet, Inc.
10 Universal City Plaza, No. 1130
Los Angeles, California 91680
Attention: Mr. David Pennells
Fax: (818) 464-2799
with a copy to: Schneider & Warren, LLP
9100 Wilshire Boulevard
Seventh Floor - West Tower
32
<PAGE> 40
Beverly Hills, California 90212
Attention: Mitchell I. Burger, Esq.
Fax: (310) 274-2330
If to Owners: David Pennells
c/o PacificNet, Inc.
10 Universal City Plaza, No. 1130
Los Angeles, California 91680
Attention: Mr. David Pennells
Fax: (818) 464-2799
Richard Elliot
c/o PacificNet, Inc.
10 Universal City Plaza, No. 1130
Los Angeles, California 91680
Attention: Mr. Richard Elliot
Fax: (818) 464-2799
with a copy to: Schneider & Warren, LLP
9100 Wilshire Boulevard
Seventh Floor - West Tower
Beverly Hills, California 90212
Attention: Mitchell I. Burger, Esq.
Fax: (310) 274-2330
Section 8.2 Fees and Expenses of the Transaction. eSat shall bear its
own tax, accounting and legal expenses in negotiating, executing and delivering
this Agreement and any related documents and in preparing for the consummation
of the merger (collectively, "Transaction Expenses"). The individual Owners
shall bear the balance of all Transaction Expenses incurred by PacificNet, any
of its Subsidiaries, or any of the Owners, regardless of whether those
Transaction Expenses are invoiced to PacificNet.
Section 8.3 Interpretation. The headings contained in this Agreement are
for reference purposes only and shall not affect the meaning or interpretation
of this Agreement. Terms such as "herein," "hereof," "hereinafter" refer to this
Agreement as a whole and not to the particular sentence or paragraph where they
appear, unless the context otherwise requires. Terms used in the plural include
the singular, and vice versa, unless the context otherwise requires.
Section 8.4 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 8.5 Miscellaneous. This Agreement, including the Exhibits and
Schedules hereto, (a) constitutes the entire agreement and supersedes all other
prior agreements and understandings, both written and oral, among the parties,
or any of them, with respect to the
33
<PAGE> 41
subject matter hereof; (b) is not intended to and shall not confer upon any
other person any rights or remedies hereunder or otherwise with respect to the
subject matter hereof, except for rights that may expressly arise as a
consequence of the Merger; (c) shall not be assigned by operation of law or
otherwise; (d) has been drafted by all of the parties to this Agreement and
should not be construed against any of the parties hereto; and (e) shall be
governed in all respects, including validity, interpretation and effect by the
substantive laws of the State of California without regard to conflict of law
provisions.
Section 8.6 Survival. No investigation by the parties hereto made
heretofore or hereafter shall affect the representations and warranties of the
parties that are contained herein, and each such representation and warranty
shall survive such investigation for the period set forth in Section 5.14.
Section 8.7 Mutual Cooperation. After the Effective Date, the Owners,
PacificNet and its Subsidiaries and eSat and its subsidiaries shall, and shall
cause their agents and employees to, cooperate with each party as reasonably
requested by such party in connection with the prosecution or defense of any
claims or matters relating to PacificNet and its Subsidiaries. Such cooperation
shall include but is not limited to tax matters involving PacificNet, its
Subsidiaries and the Owners. Cooperation shall include making books and records
available and permitting access to employees, the Owners and other persons. The
requesting party shall reimburse the other party for any out-of-pocket expenses
incurred by it in connection with such request.
[BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK.]
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<PAGE> 42
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement or have caused this Agreement to be executed by their duly authorized
officers.
ESAT, INC.
By /s/ MICHAEL C. PALMER
-------------------------------------
Michael C. Palmer, President
PN ACQUISITION CO.
By /s/ MICHAEL C. PALMER
-------------------------------------
Michael C. Palmer, President
"PNAC"
PACIFICNET TECHNOLOGIES, INC.
By /s/ RICHARD ELLIOT
-------------------------------------
Richard Elliot, President
"OWNERS"
/s/ DAVID PENNELLS By /s/ RICHARD ELLIOT
- -------------------------------- -------------------------------------
David Pennells Richard Elliot
35
<PAGE> 43
SCHEDULE A
PacificNet Disclosure Schedule
A-1
<PAGE> 44
SCHEDULE B
eSat Disclosure Schedule
None
C-1
<PAGE> 45
SCHEDULE C
Owners Disclosure Schedule
<PAGE> 1
EXHIBIT 10.02
STOCK PURCHASE AGREEMENT
BY AND AMONG
eSAT, INC.,
AND
INTERWIRELESS, INC.
DATED AS OF APRIL 13, 2000
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 THE PURCHASE...................................................................1
Section 1.1 The Purchase.........................................................1
Section 1.2 Consideration........................................................1
Section 1.3 Board of Directors; Officers of InterWireless Following the
Purchase...........................................................1
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF INTERWIRELESS...............................2
Section 2.1 Organization; Qualification..........................................2
Section 2.2 Authority Relative to this Agreement.................................2
Section 2.3 Capitalization.......................................................2
Section 2.4 Subsidiaries; Absence of Certain Agreements..........................3
Section 2.5 [Reserved]...........................................................4
Section 2.6 Governmental Consents and Approvals..................................4
Section 2.7 No Violations........................................................4
Section 2.8 Financial Statements.................................................4
Section 2.9 Title to and Condition of Assets and Property........................5
Section 2.10 Litigation...........................................................5
Section 2.11 Absence of Changes...................................................6
Section 2.12 Undisclosed Liabilities; Commitments.................................6
Section 2.13 Environmental Matters................................................6
Section 2.14 Employee Benefit and Retirement Plans................................7
Section 2.15 Labor Matters........................................................7
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 2.16 Information for Filings..............................................8
Section 2.17 Taxes................................................................9
Section 2.18 Inventory............................................................9
Section 2.19 Proprietary Rights...................................................9
Section 2.20 Surety Obligations...................................................10
Section 2.21 No Brokers...........................................................10
Section 2.22 Records..............................................................10
Section 2.23 Compliance With Law; Conduct.........................................11
Section 2.24 Insurance............................................................11
Section 2.25 Receivables..........................................................11
Section 2.26 [Reserved]...........................................................11
Section 2.27 Bank Accounts; Powers of Attorney....................................11
Section 2.28 Product and Service Warranties.......................................11
Section 2.29 Transactions with Affiliates.........................................12
Section 2.30 Price and Customer Lists.............................................12
Section 2.31 Corrupt Practices....................................................12
Section 2.32 No Default...........................................................12
Section 2.33 Additional Items Reflected in the InterWireless Disclosure
Schedule...........................................................13
Section 2.34 Copies of Documents; Accuracy of Information Furnished...............13
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF ESAT.........................................13
Section 3.1 Organization; Qualification...........................................14
Section 3.2 Authority Relative to this Agreement..................................14
Section 3.3 Common Stock..........................................................14
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 3.4 [Reserved]............................................................14
Section 3.5 Governmental Consents and Approvals...................................14
Section 3.6 No Violations.........................................................14
Section 3.7 Financial Statements; SEC Reports.....................................15
Section 3.8 Litigation............................................................15
Section 3.9 Information of Filings................................................15
Section 3.10 No Brokers...........................................................16
Section 3.11 Copies of Documents; Accuracy of Information Furnished...............16
Section 3.12 Due Diligence of eSat................................................16
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF OWNERS.......................................16
Section 4.1 Title to Shares.......................................................16
Section 4.2 Authority Relative to this Agreement..................................16
Section 4.3 Transfers to InterWireless............................................17
Section 4.4 Certain Transactions or Arrangements..................................17
Section 4.5 Investments in Competitors............................................17
Section 4.6 Representations.......................................................17
Section 4.7 [Reserved]............................................................17
Section 4.8 Copies of Documents; Accuracy of Information Furnished................17
ARTICLE 5 ADDITIONAL AGREEMENTS..........................................................18
Section 5.1 Conduct of Business of InterWireless..................................18
Section 5.2 Issuance of Options...................................................18
Section 5.3 Forbearances by InterWireless.........................................18
Section 5.4 No Solicitation.......................................................19
Section 5.5 Investigation of Business and Properties..............................19
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 5.6 Confidentiality.......................................................19
Section 5.7 Public Announcements..................................................20
Section 5.8 Agreement to Consummate...............................................20
Section 5.9 [Reserved]............................................................21
Section 5.10 InterWireless Shareholders' Approval.................................21
Section 5.11 [Reserved]...........................................................21
Section 5.12 Agreement Regarding Brokers..........................................21
Section 5.13 Notice...............................................................21
Section 5.14 Representation, Warranties, and Agreements; Survival.................21
Section 5.15 Indemnification......................................................22
Section 5.16 Resolution of Disputed Claims under Section 5.15.....................23
Section 5.17 Tax Return Filings...................................................24
Section 5.18 Election to Board of Directors.......................................25
Section 5.19 Condition Subsequent.................................................25
ARTICLE 6 CONDITIONS PRECEDENT TO CLOSING AND POST-CLOSING COVENANTS.....................25
Section 6.1 General Conditions....................................................25
Section 6.2 Conditions to Closing in Favor of InterWireless.......................26
Section 6.3 Conditions to Closing in Favor of eSat................................27
ARTICLE 7 TERMINATION, AMENDMENT AND WAIVER..............................................28
Section 7.1 Termination...........................................................28
Section 7.2 Effect of Termination.................................................28
Section 7.3 Amendment.............................................................28
Section 7.4 Extension; Waiver.....................................................29
</TABLE>
iv
<PAGE> 6
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 7.5 Dual Transactions.....................................................29
ARTICLE 8 GENERAL PROVISIONS.............................................................29
Section 8.1 Notices...............................................................29
Section 8.2 Fees and Expenses of the Transaction..................................30
Section 8.3 Interpretation........................................................31
Section 8.4 Counterparts..........................................................31
Section 8.5 Miscellaneous.........................................................31
Section 8.6 Survival..............................................................31
Section 8.7 Mutual Cooperation....................................................31
ARTICLE A - InterWireless Disclosure Schedule.............................................1
ARTICLE B - eSat Disclosure Schedule......................................................2
ARTICLE C - Owners Disclosure Schedule....................................................3
</TABLE>
v
<PAGE> 7
LIST OF EXHIBITS
<TABLE>
<S> <C> <C>
Exhibit A Opinion of Counsel for eSat.................................................A-1
Exhibit B Shareholder Acknowledgments.................................................B-1
Exhibit C Opinion of Counsel for InterWireless........................................C-1
Exhibit D Form of Noncompetition Agreement with Owners................................D-1
</TABLE>
<PAGE> 8
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT ("Agreement") is made as of April
13, 2000, by and among eSat, Inc., a Nevada corporation, ("eSat"),
InterWireless, Inc., a California corporation ("InterWireless"), and the
shareholders of InterWireless whose names are set forth on the signature page of
this Agreement ("Owners").
RECITALS OF THE PARTIES:
A. The respective Boards of Directors of eSat and InterWireless,
as well as the Owners, have approved the purchase and sale of the outstanding
common stock of InterWireless as provided herein (the "Purchase").
B. eSat, InterWireless and Owners desire to make certain
representations, warranties and agreements in connection with, and to establish
various conditions precedent to, the Purchase.
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties and agreements contained herein, the parties hereto
agree as follows:
ARTICLE 1
THE PURCHASE
Section 1.1 The Purchase. Pursuant to the terms and conditions of this
Agreement, eSat will purchase from the Owners all of the outstanding common
stock of InterWireless (the "InterWireless Common Stock").
Section 1.2 Consideration. The total consideration payable to the Owners
in exchange for the InterWireless Common Stock shall be $400 per share or a
total of $4,000,000. Such consideration shall be paid no later than two business
days following the execution hereof (the "Effective Date").
Section 1.3 Board of Directors; Officers of InterWireless Following the
Purchase. As soon as practicable following the Effective Date, eSat shall elect
the following persons as directors of InterWireless: Michael C. Palmer, Chester
L. Noblett, Jr., Salvatore A. Piraino, David Pennells and Richard Elliot.
Following the Effective Date the officers of InterWireless shall remain as
follows: President, Richard Elliot; Vice President, David Pennells; Vice
President, Michael C. Palmer; and Secretary, David Pennells; and Chief Financial
Officer/Treasurer and Assistant Secretary, Mark Basile.
1
<PAGE> 9
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF INTERWIRELESS
Except as expressly set forth in the disclosure schedule delivered to
eSat by InterWireless contemporaneously with the execution hereof (the
"InterWireless Disclosure Schedule"), for itself, and for each of its
Subsidiaries, InterWireless hereby represents and warrants to eSat as follows,
which representations and warranties are made as of the date hereof and as of
the Effective Date and shall survive the Effective Date regardless of what
investigations, if any, eSat shall have made prior hereto. Where any
representation and warranty is qualified as being "to the best knowledge of
InterWireless," or with words of a similar affect, such shall mean the actual
knowledge of David Pennells and Richard Elliot.
Section 2.1 Organization; Qualification. InterWireless is a corporation
duly organized, validly existing and in good standing under the laws of the
State of California. InterWireless has full corporate power and authority to own
and lease all of the properties and assets it now owns and leases and to carry
on its business as now being conducted. InterWireless is duly qualified as a
foreign corporation and is in good standing to do business in each jurisdiction
in which the property owned, leased or operated by it or the nature of the
business conducted by it makes such qualification necessary, except where the
failure so to qualify would not have a material adverse effect on the condition
(financial or otherwise), business, assets, liabilities, capitalization,
financial position, operations, results of operations or prospects (a "Material
Adverse Affect") on InterWireless. InterWireless has heretofore delivered to
eSat complete and correct copies of its Articles of Incorporation and Bylaws as
such are currently in effect.
Section 2.2 Authority Relative to this Agreement. InterWireless has full
corporate power and authority to execute, deliver and perform this Agreement
and, subject to stockholder approval, to consummate the transactions
contemplated hereby. The execution and delivery by InterWireless of this
Agreement, and the consummation of the transactions contemplated hereby, have
been duly and validly authorized by the Board of Directors of InterWireless and
no other corporate proceedings on the part of InterWireless are necessary with
respect thereto. This Agreement has been duly and validly executed and delivered
by InterWireless and, subject to shareholder approval, constitutes a legal,
valid and binding obligation of InterWireless, enforceable against it in
accordance with its terms except as may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally and by
general principles of equity.
Section 2.3 Capitalization. The authorized capital stock of
InterWireless consists of 100,000 shares of InterWireless Common Stock, of
which, as of the date hereof, 10,000 shares of InterWireless Common Stock are
validly issued and outstanding, fully paid and nonassessable. As of the date of
this Agreement there are no shares of InterWireless Common Stock held in the
treasury of InterWireless and there are no other shares of the capital stock of
InterWireless. As of the date hereof, except as disclosed in the InterWireless
Disclosure Schedule, there are no
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outstanding options, warrants, rights or other commitments to issue or sell any
shares of capital stock or any securities or obligations convertible into or
exchangeable for, or giving any person any right to acquire from InterWireless,
any shares of its capital stock. No shares of InterWireless' capital stock have
been issued in violation of any preemptive rights or applicable federal or state
securities laws. Except pursuant to the California General Corporation Law,
there are no restrictions, including but not limited to self-imposed
restrictions, on the retained earnings of InterWireless or on the ability of
InterWireless to declare and pay dividends. There are no outstanding obligations
of InterWireless to repurchase, redeem or otherwise acquire any capital stock or
other securities of InterWireless.
Section 2.4 Subsidiaries; Absence of Certain Agreements. The
InterWireless Disclosure Schedule identifies all InterWireless Subsidiaries, and
sets forth a true and complete listing of the authorized, issued and outstanding
capital stock of each Subsidiary and the ownership of the capital stock of each
Subsidiary. Each of such Subsidiaries has full corporate power and authority to
own and lease all of the properties and assets it now owns and leases and to
carry on its business as now being conducted. Each is duly qualified as a
foreign corporation and is in good standing to do business in each jurisdiction
in which the property owned, leased or operated by it or the nature of the
business conducted by it makes qualification necessary , except where failure to
so quality, would not have a Material Adverse Affect on such Subsidiary. Except
as set forth in the InterWireless Disclosure Schedule, (a) InterWireless has
good and valid title to its equity interests in the Subsidiaries, respectively,
in each case free and clear of all liens, (b) there are no outstanding
subscriptions, warrants or other rights to purchase or otherwise acquire any
equity securities of any Subsidiary, (c) there are no securities of
InterWireless or any of its affiliates convertible into or exchangeable for
equity securities of or voting securities of any Subsidiary, and (d) there are
no obligations of InterWireless or any of its affiliates to issue, deliver or
sell any capital stock, voting securities or securities convertible into or
exchangeable for equity securities of or voting securities of any Subsidiary.
The outstanding equity securities of each Subsidiary are validly issued, fully
paid and non-assessable. As used in this Agreement, "Subsidiary" or
"Subsidiaries," with respect to any corporation, shall mean any other
corporation of which at least a majority of the securities having by their terms
ordinary voting power to elect a majority of the Board of Directors of such
other corporation is at the time directly or indirectly owned or controlled by
such first corporation, or by such first corporation and one or more of its
Subsidiaries.
Except as set forth on the InterWireless Disclosure Schedule,
InterWireless does not own or hold any securities of, or any interest in, any
other person or entity nor is InterWireless subject to any joint venture,
partnership or other arrangement that is created as a partnership for federal
income tax purposes. Except as set forth in the InterWireless Disclosure
Schedule, there are no voting trusts or other agreements by and between or among
InterWireless, or any or all of its shareholders, whether or not InterWireless
is a party thereto, imposing any restrictions upon the transfer or voting of or
otherwise pertaining to the securities of InterWireless (including, but not
limited to the InterWireless Common Stock) or the ownership thereof. Any and all
such restrictions set forth in the InterWireless Disclosure Schedule shall be
duly complied with or effectively waived as of the Effective Date.
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Section 2.5 [Reserved].
Section 2.6 Governmental Consents and Approvals. Except as disclosed on
the InterWireless Disclosure Schedule, the execution, delivery and performance
by InterWireless of this Agreement and the consummation of the transactions
contemplated hereby require no consent, approval, order or authorization of,
action by or in respect of, or registration or filing with, any federal, state,
municipal, foreign or other governmental department, commission, board, bureau,
agency, instrumentality, court, or authority ("Governmental Body"), other than
(a) any applicable filings with and consents and/or approvals of state security
commissions under state securities laws or similar laws and (b) such other
consents, approvals, permits, authorizations, notifications or filings, the
failure of which to obtain or make would have a Material Adverse Affect on
InterWireless or materially adversely affect the ability of InterWireless to
perform its obligations set forth herein or to consummate the transactions
contemplated hereby.
Section 2.7 No Violations. Except as disclosed on the InterWireless
Disclosure Schedule, the execution, delivery and performance of this Agreement
by InterWireless, the consummation by InterWireless of the transactions
contemplated hereby or compliance by InterWireless with any of the provisions
hereof does not and will not (a) conflict with or result in any breach or
violation of any provision of the Articles of Incorporation or Bylaws (or
similar charter documents) of InterWireless, (b) result in a default, or give
rise to any right of termination, cancellation or acceleration or loss of any
material benefit (with or without the giving of notice or lapse of time or
both), or require the consent, approval, waiver or other action by any person
under any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, license, trust (constructive or otherwise), agreement, lease (of real
or personal property) or other instrument or obligation to which InterWireless
is a party or by which InterWireless may be bound, (c) result in the creation or
imposition of any claim, lien, pledge, security interest, obligation,
restriction or other encumbrance on any of the property of InterWireless, or (d)
to the best knowledge of InterWireless, violate any judgment, order, writ,
injunction, decree, statute, rule or regulation applicable to InterWireless,
subject to actions required under certain of InterWireless' existing credit
arrangements. Reference to InterWireless in this Section 2.7 includes any of its
Subsidiaries.
Section 2.8 Financial Statements. The consolidated financial statements,
financial statement schedules and notes to such financial statements and
schedules of InterWireless for the year ended December 31, 1999, and the three
months ended March 31, 2000, for InterWireless and separately for each of its
Subsidiaries ("InterWireless Financial Statements"), are, to the best knowledge
of InterWireless, complete and correct and were prepared in accordance with
generally accepted accounting principles applied on a consistent basis except as
noted in the InterWireless Disclosure Schedule, and fairly present the
information purported to be shown therein. All such InterWireless Financial
Statements have been prepared from the books and records of InterWireless, which
accurately and fairly reflect the transactions and dispositions of the assets of
InterWireless, to the best knowledge of InterWireless. To the best knowledge of
InterWireless, InterWireless does not have any liabilities, contingent or
otherwise, whether due
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or to become due, other than as indicated on the latest balance sheet ("Latest
InterWireless Balance Sheet") included in the InterWireless Financial Statements
or as otherwise indicated in this Agreement or the InterWireless Disclosure
Schedule. InterWireless has accrued all employee benefit costs required to be
accrued and such accrual is reflected in the balance sheets included in the
InterWireless Financial Statements.
Section 2.9 Title to and Condition of Assets and Property. All property
used in the business of InterWireless that is listed on the InterWireless
Disclosure Schedule is, or will be at the Effective Date, reflected as assets on
the books and records of InterWireless or is leased by InterWireless. A list of
all such property, real, personal or intangible, has been provided to eSat. At
the Effective Date, none of such property will be owned by any Owner or any
entity (other than InterWireless or a Subsidiary). InterWireless has, or at the
Effective Date will have, good and marketable title to any and all assets
reflected in the InterWireless Financial Statements or InterWireless' other
books and records which are currently, or will be at the Effective Date, owned
and used in the operation of its businesses, and such assets are, or will be at
the Effective Date, free and clear of all liens, claims, charges, security
interests, options, or other title defects or encumbrances, except as set forth
in the InterWireless Disclosure Schedule. The InterWireless Disclosure Schedule
further sets forth a description of all real and personal property currently
leased or otherwise occupied or used but not owned by InterWireless, true,
correct and complete copies of which leases and other agreements, including all
amendments and modifications thereto, have previously been delivered to eSat.
Each of the leases is a valid and binding obligation of InterWireless and
neither InterWireless nor, to the best knowledge of InterWireless, the lessor
thereunder is in default under, and no condition exists that with notice or
lapse of time or both would constitute a default under, any such lease.
InterWireless enjoys peaceful and undisturbed possession of its interests under
all such leases. Except as set forth in the InterWireless Disclosure Schedule,
InterWireless does not own any real property or any interest therein. To the
actual knowledge of InterWireless, all personal property set forth in the
InterWireless Disclosure Schedule is owned by InterWireless and, to the actual
knowledge of InterWireless, except as set forth in the InterWireless Disclosure
Schedule, all property owned or leased by InterWireless and reflected on the
InterWireless Financial Statements or located on the premises of InterWireless,
is in good operating condition and repair, ordinary wear and tear excepted, is
suitable for the use to which it is put by InterWireless, is free from defects
other than minor defects that do not interfere with or detract from the use or
value thereof and is presently usable in the ordinary course of the operation of
the business of InterWireless.
Section 2.10 Litigation. Except as disclosed in the InterWireless
Disclosure Schedule, there is no action, order, claim, suit, proceeding,
litigation, investigation, inquiry, review or notice ("Proceeding") pending or
threatened in writing, or to the best knowledge of InterWireless, threatened
verbally, against, relating to or affecting InterWireless or its Subsidiaries,
or any of their respective properties or assets, or any officer or director of
InterWireless or any of its Subsidiaries relating to, or arising from such
person's activities as an officer or director of InterWireless or any of its
Subsidiaries, at law or in equity, before any Governmental Body nor, to the best
of InterWireless' knowledge, is there any basis for commencing a Proceeding that
could have a Material Adverse Affect on InterWireless or any of
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its Subsidiaries. Neither InterWireless nor its Subsidiaries nor any of their
respective properties or assets is specifically by name subject to any currently
existing order, judgment, writ, decree or injunction. Except as disclosed in the
InterWireless Disclosure Schedule, neither InterWireless nor any of its
Subsidiaries is subject to any currently existing Proceeding by any Governmental
Body.
Section 2.11 Absence of Changes. Since the date of the Latest
InterWireless Balance Sheet, except as disclosed in the InterWireless Disclosure
Schedule, the business of InterWireless has been operated in the ordinary course
consistent with past practice and there has not, to the actual knowledge of
InterWireless, been with regard to InterWireless or any of its Subsidiaries (a)
any material adverse change in the business, operations, properties, condition
(financial or otherwise), prospects, assets or liabilities (contingent or
otherwise, whether due or to become due, known or unknown); (b) any dividend
declared or paid or distribution made on capital stock, or any capital stock
redeemed or repurchased; (c) any incurrence of debt with a maturity greater than
one year; (d) any salary, bonus or compensation increases to any officers,
employees or agents; (e) any pending or, to the best knowledge of InterWireless,
threatened litigation or disputes; or (f) any other change in the nature of, or
the manner of conducting, the business, other than changes that neither have
had, nor reasonably may be expected to have, a Material Adverse Affect on
InterWireless or any of its Subsidiaries.
Section 2.12 Undisclosed Liabilities; Commitments. Except as disclosed
in the InterWireless Disclosure Schedule, to the actual knowledge of
InterWireless, neither InterWireless nor any of its Subsidiaries has any debts,
guaranties, liabilities or obligations, whether accrued, absolute, contingent or
otherwise, and whether due or to become due, and, to the actual knowledge of
InterWireless, there is no basis for the assertion against InterWireless or any
of its Subsidiaries of any such debt, guaranty, liability or obligation, (a)
that were not accrued or reserved against in the InterWireless Financial
Statements; (b) that were incurred after the date of the Latest InterWireless
Balance Sheet, other than in the ordinary course of business; or (c) that in the
aggregate have or can reasonably be expected to have a Material Adverse Affect
on InterWireless or any of its Subsidiaries. InterWireless and any of its
Subsidiaries have in all material respects performed all contracts, agreements
and commitments to which it is a party, and there is not, to the actual
knowledge of InterWireless, under any such contracts, agreements or commitments
any existing default or event of default or event which with notice or lapse of
time or both would constitute a default.
Section 2.13 Environmental Matters. Except as disclosed in the
InterWireless Disclosure Schedule, to the best knowledge of InterWireless,
InterWireless and each of its Subsidiaries have duly complied with, their
respective business, operations, assets, equipment, leaseholds and other
facilities are in compliance with the provisions of all federal, state, local
and applicable foreign environmental, health and safety laws, codes and
ordinances and all rules and regulations promulgated thereunder, governing (a)
air emissions, (b) discharges to surface water or ground water, (c) solid or
liquid waste disposal, (d) the use, storage, generation, handling, transport,
discharge, release, or disposal of toxic or hazardous substances or wastes, or
(e) other environmental, health or safety matters, including, without
limitation, the Comprehensive
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Environmental Response Compensation and Liability Act of 1980, 42 U.S.C.
Sections 601 et seq., as amended, the Resource Conservation and Recovery Act, 42
U.S.C. Sections 6901 et seq., as amended, the Federal Water Pollution Control
Act, 33 U.S.C. Sections 1251 et seq., as amended, the Clean Air Act, 42 U.S.C.
Sections 7401 et seq., as amended, the Occupational Safety and Health Act of
1970, as amended ("OSHA"), the Safe Drinking Water Act, as amended, the Toxic
Substances Control Act, as amended, the Superfund Amendments and Reauthorization
Act of 1986, as amended, and other environmental conservation or protection
laws, as well as similar environmental conservation and protection laws of the
foreign jurisdictions in which InterWireless or any of its Subsidiaries have
operations or facilities. There is no Proceeding pending or threatened in
writing or, to the best knowledge of InterWireless, threatened verbally, against
InterWireless or any of its Subsidiaries relating to the environment nor, to the
best knowledge of InterWireless, is there a basis for an assertion against
InterWireless or any of its Subsidiaries of any Proceeding.
Section 2.14 Employee Benefit and Retirement Plans. The InterWireless
Disclosure Schedule contains a list of all collective bargaining agreements, and
all pension, bonus, profit-sharing, stock option or employee welfare agreements
or arrangements to which InterWireless is a party or by which InterWireless is
bound. All are in full force and effect. Except as set forth in the
InterWireless Disclosure Schedule, during the past five years, InterWireless has
not maintained or contributed to any defined benefit pension plans (as defined
in Section 3(2) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")) or any multi-employer plans (as defined in Section 3(37)(A)
of ERISA). Each employee benefit plan (as defined in Section 3(3) of ERISA)
(each, an "Employee Benefit Plan" or "Plan") maintained for employees of
InterWireless to which InterWireless has contributed and any related trust
agreement, annuity contract or any other funding or implementing instrument
complies currently in all material respects, as to form, operation and
administration, with the provisions of ERISA, as amended, and all other
applicable laws, rules and regulations and with the Internal Revenue Code of
1986, as amended (the "Code"), where required in order to be tax-qualified under
Section 401(a) or 403(a) and 501(a) of the Code, and, to the best knowledge of
InterWireless, no event has occurred that will cause disqualification of any
such Plan under said Sections. All necessary governmental approvals for the
Employee Benefit Plans have been obtained; each Employee Benefit Plan that is
subject thereto meets the minimum funding standards of Section 302 of ERISA,
Section 412 of the Code and any other applicable law, and no accumulated funding
deficiency, whether or not waived, exists with respect to any such Plan; each
Employee Benefit Plan that is an employee pension benefit plan (as defined in
Section 3(2)(A) of ERISA) has been duly authorized by the Board of Directors of
InterWireless and a favorable determination as to the qualification under the
Code of each such employee pension benefit plan has been made by the Internal
Revenue Service. References to InterWireless in this Section 2.14 include any of
its Subsidiaries.
Section 2.15 Labor Matters. The InterWireless Disclosure Schedule
contains a list of all employment or consulting agreements, collective
bargaining agreements or other contracts with a labor union or other labor or
employee group, noncompetition agreements and confidentiality agreements binding
on InterWireless or any of its Subsidiaries and any of their respective
employees. To the actual knowledge of InterWireless, there are no efforts
presently
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being made or threatened by or on behalf of any labor union with respect to the
employees of InterWireless. To the actual knowledge of InterWireless,
InterWireless is in compliance with all federal, state or other applicable laws,
domestic or foreign, regarding employment and employment practices, terms and
conditions of employment and wages and hours, and has not and is not engaged in
any unfair labor practice. No unfair labor practice complaint against
InterWireless is pending or, to the actual knowledge of InterWireless is
threatened in writing or verbally, before the National Labor Relations Board or
similar foreign agency. There is no labor strike, dispute, slowdown or stoppage
pending or threatened against or involving InterWireless. No representation
question exists respecting the employees of InterWireless. No employment-related
grievance or internal or informal complaint or liability with respect to the
termination of any employee, consultant or agent exists or, to the actual
knowledge of InterWireless, is threatened. No arbitration proceeding arising out
of or under any collective bargaining agreement is pending and no claim therefor
has been asserted. No collective bargaining agreement is currently being
negotiated by InterWireless, and InterWireless has not experienced any material
labor difficulty. There has not been any adverse change in relations with
employees of InterWireless as a result of any announcement or consummation of
the transactions contemplated by this Agreement. InterWireless has received no
notice that any employee of InterWireless is in violation of any term of any
employment contract, or any other contract or agreement with or any restrictive
covenant or any other common law obligation to a former employer relating to the
right of any such employee to be employed by InterWireless because of the nature
of the business conducted or to be conducted by InterWireless or to the use of
trade secrets or proprietary information of others, and the employment of
InterWireless' employees does not subject InterWireless to liability in
connection with such covenants or agreements. There is neither pending nor, to
the actual knowledge of InterWireless, threatened, nor, to the actual knowledge
of InterWireless, is there any basis for asserting, a material claim against
InterWireless or any of its Subsidiaries, or any of their respective employees,
based on sexual harassment or employment discrimination laws. There is neither
pending nor, to the actual knowledge of InterWireless, threatened Proceedings
with respect to any contract, agreement, covenant or obligation referred to
above nor, to the actual knowledge of InterWireless, is there any material basis
for asserting the foregoing. Except as set forth in the InterWireless Disclosure
Schedule, InterWireless has not entered into any severance or similar
arrangement with any present or former employee that will result in any
obligation, absolute or contingent, of eSat or InterWireless, to make any
payment to any former employee following termination of employment. References
to InterWireless in this Section 2.15 include each of its Subsidiaries.
Section 2.16 Information for Filings. Except for information that is the
subject of any section of this Article 2, which is expressly subject to any
knowledge qualifier that may be contained in any such section, none of the
information supplied or to be supplied by InterWireless for inclusion, or
included, in any documents to be filed with any regulatory authority in
connection with the transactions contemplated hereby will, at the respective
times such documents are filed with any such regulatory authority, be false or
misleading with respect to any material fact, or omit to state any material fact
necessary in order to make the statements therein not misleading.
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Section 2.17 Taxes. For purposes of this Agreement, "Tax or Taxes" shall
mean any federal, state, local, foreign or provincial income, gross receipts,
property, sales, use, license, franchise, employment, payroll, withholding,
alternative or added minimum, transfer or excise tax, or any other governmental
fee or other like assessment or charge, together with any interest or penalties.
All Taxes that are due and payable, other than those presently payable without
penalty or interest, have been timely paid, and InterWireless has timely filed
(and, through the Effective Date, will timely file) all federal, state, foreign
and other tax returns required by law to be filed by it. All such Tax reports or
returns are true, complete and correct in all material respects with regard to
InterWireless for the periods covered thereby. InterWireless is not delinquent
in the payment of any material Tax, there is no Tax deficiency asserted against
InterWireless, and, except as provided above, there is no unpaid assessment,
deficiency or delinquency in the payment of any of the Taxes of InterWireless.
There are no Tax liens upon any properties or assets of InterWireless. No
Internal Revenue Service, state, foreign or local, audit, investigation or
Proceeding against InterWireless is pending or, to the best knowledge of
InterWireless, threatened, and the results of any completed audits are properly
reflected in the InterWireless Financial Statements. InterWireless has not
granted any extension to any taxing authority of the limitation period during
which any Tax liability may be asserted. All monies required for the payment of
taxes not yet due and payable with respect to the operations of InterWireless
through and including the Purchase date have been approved, reserved against and
entered upon the books and InterWireless Financial Statements. All monies
required to be withheld by InterWireless from employees or collected from
customers for income taxes, social security and unemployment insurance taxes and
sales, excise and use taxes, and the portion of any such taxes to be paid by
InterWireless to governmental agencies or set aside in accounts for such purpose
have been approved, reserved against and entered upon the books and
InterWireless Financial Statements. References to InterWireless in this Section
2.17 include each of its Subsidiaries. The InterWireless Disclosure Schedule
contains a list of, and InterWireless has provided eSat with true copies of, the
U.S., state and foreign income tax returns for fiscal years ended December 31,
1999, 1998 and 1997 for InterWireless and each of its Subsidiaries.
Section 2.18 Inventory. No item included in the inventories, materials
or supplies of InterWireless or any of its Subsidiaries is pledged as collateral
or held on consignment from others.
Section 2.19 Proprietary Rights. No item included in the inventories,
materials or supplies of InterWireless or any of its Subsidiaries is pledged as
collateral or held on consignment from others. Except as set forth on the
InterWireless Disclosure Schedule, InterWireless owns or validly licenses the
right to use all technology, proprietary information, know-how, ideas (patented
or unpatented), data, licenses, customer lists, processes, formulas, trade
secrets, telephone numbers, computer software, computer programs, designs,
inventions, trademarks, trademark registrations and applications therefor,
registered and common law copyrights, and registered copyright applications,
trade names (whether or not registered or registerable), service marks, service
mark registrations and applications therefor (collectively, the "Proprietary
Rights") necessary to conduct the business of InterWireless as the business is
presently being conducted. The InterWireless Disclosure Schedule sets forth a
complete and
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correct list (including, where applicable, registration or application numbers
and dates of filing, renewal and termination) of all Proprietary Rights which
have been protected by a filing or registration with a Governmental Body.
InterWireless shall have, after the Effective Date, the exclusive right to use
the Proprietary Rights as listed in the InterWireless Disclosure Schedule
necessary to continue to conduct the business of InterWireless as the business
is presently being conducted. No consent of any third party will be required for
the use of the Proprietary Rights by InterWireless after the Effective Date. No
claim or opposition has been asserted, or to the best knowledge of
InterWireless, threatened, by any person or entity to the ownership of or
InterWireless' right to use any of the Proprietary Rights or challenging or
questioning the validity or effect of any license or agreement relating thereto,
and, to the best knowledge of InterWireless, there is no basis for any such
claim or assertion. InterWireless has ownership of, or valid licenses to use all
of, the Proprietary Rights. Each of the Proprietary Rights is valid and
subsisting, has not been canceled, abandoned or otherwise terminated. The
Proprietary Rights owned by InterWireless are owned free and clear of all liens,
charges, or encumbrances. Use by InterWireless of the Proprietary Rights will
not, and the conduct of the business as presently conducted does not, infringe
on or violate the rights of any other person or entity. No Proceedings have been
instituted, are pending or are, to the best knowledge of InterWireless,
threatened that challenge or oppose the rights of InterWireless with respect to
any of the Proprietary Rights. InterWireless has not received any notice or
inquiry from any person or entity of any alleged infringement by InterWireless.
InterWireless has not given and is not bound by any agreement of indemnification
in connection with any Proprietary Rights or, except for standard product
warranties, any product or service sold or performed by InterWireless.
InterWireless is not aware of any infringement by others of its Proprietary
Rights. Set forth in the InterWireless Disclosure Schedule is a list of all
confidentiality agreements entered into by InterWireless relating to the
Proprietary Rights and all such contracts are in full force and effect.
References to InterWireless in this Section 2.19 include each of its
Subsidiaries.
Section 2.20 Surety Obligations. Neither InterWireless nor any of its
Subsidiaries is obligated as surety or indemnitor under any surety or similar
bond or other contract issued and none have entered into any agreement to assure
payment, performance or completion of performance of any undertaking or
obligation of any person or entity.
Section 2.21 No Brokers. Except as set forth on the InterWireless
Disclosure Schedule, InterWireless has not employed any broker, agent or finder
or incurred any liability for any brokerage fees, commissions or finders' fees
in connection with the transactions contemplated hereby.
Section 2.22 Records. The respective minute books, books of account,
stock record books and other records of InterWireless, all of which have been or
will be made available to eSat, contain accurate and complete records of all
corporate actions of the shareholders and Board of Directors (and committees
thereof) during the periods of time in which such minute books were maintained.
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Section 2.23 Compliance With Law; Conduct. To the best knowledge of
InterWireless, neither InterWireless nor any of its Subsidiaries has violated or
failed to comply with any statute, law, ordinance, regulation, rule or order of
any foreign, federal, state or local government or agency or any other
Governmental Body, or any judgment, order, writ, injunction or decree of any
court or agency, applicable to its business or operation, except where such
violations or failure to comply would not have a Material Adverse Affect on
InterWireless or any of its Subsidiaries. To the best knowledge of
InterWireless, following the issuance of the FCC licenses set forth on the
InterWireless Disclosure Schedule, InterWireless and its Subsidiaries have all
permits, licenses, authorizations, consents, approvals and franchises from
governmental agencies required to conduct their respective business as now being
conducted.
Section 2.24 Insurance. Contained in the InterWireless Disclosure
Schedule is a complete and accurate description of all insurance maintained with
respect to the assets, properties and business of InterWireless and each of its
Subsidiaries. All of the insurable properties of InterWireless and its
Subsidiaries are insured for InterWireless' benefit under valid and enforceable
policies, and except as disclosed on the InterWireless Disclosure Schedule, are
issued by insurers rated A or better by A.M. Best Company. All premiums and
brokerage commissions owed by InterWireless or its Subsidiaries have been paid
or properly accrued on the InterWireless Financial Statements.
Section 2.25 Receivables. All accounts receivables at March 31, 2000,
and all account receivables since that date have arisen in the ordinary course
of business for products delivered or services rendered. InterWireless is not
aware of any event or condition with respect to a specific customer that causes
it to believe that any such receivable will not be collected in full in due
course without resort to litigation and will not be subject to counter claim or
setoff. The reserves for doubtful accounts reflected on the InterWireless
Financial Statements (if any) have been determined in accordance with generally
accepted accounting principles and past practice consistently applied.
Section 2.26 [Reserved].
Section 2.27 Bank Accounts; Powers of Attorney. The InterWireless
Disclosure Schedule completely and accurately lists the name and address of each
bank, brokerage firm or other financial institution in which InterWireless or
any of its Subsidiaries has an account or possesses a safe deposit box and sets
forth the amount and nature of all cash and cash equivalents contained therein
at March 31, 2000. The InterWireless Disclosure Schedule also lists the names of
all persons authorized to draw thereon, or to have access thereto or to
authorize transactions therein, and the names of all parties, if any, holding
powers of attorney from InterWireless or any of its Subsidiaries with respect
thereto or with respect to any other matter, and the account number of any such
account. Neither InterWireless nor any of its Subsidiaries maintains any
securities or commodity trading account or other brokerage account.
Section 2.28 Product and Service Warranties. Except as disclosed on the
InterWireless Disclosure Schedule, to the best knowledge of InterWireless, there
is no claim against or liability
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of InterWireless or any of its Subsidiaries on account of product or service
warranties or with respect to the manufacture, sale or lease of products or
performance of services, and, to the best knowledge of InterWireless, there is
no basis for any such claim on account of products heretofore manufactured, sold
or leased or services performed.
Section 2.29 Transactions with Affiliates. Except as set forth in the
InterWireless Disclosure Schedule, neither InterWireless nor any of its
Subsidiaries has engaged in any loans, leases, contracts or other transactions
with any director, officer or key employee of InterWireless, or any member of
any such individual's immediate family or any other Affiliate of InterWireless.
As used in this Agreement, "Affiliate" shall mean, with respect to any person or
entity, any other person or entity directly or indirectly controlling,
controlled by, or under direct or indirect common control with, such person or
entity. A person or entity shall be deemed to control another person or entity
if such person or entity possesses, directly or indirectly, the power to direct
or cause the direction of the management and policies of such other person or
entity, whether through the ownership of voting securities, by contract or
otherwise. Except for the loans noted on the InterWireless Disclosure Schedule,
immediately prior to the Effective Date, all advances or loans made by
InterWireless or any of its Subsidiaries to any stockholder, officer, director,
employee, Affiliate or agent of InterWireless or any of its Subsidiaries will
have been repaid in full, with accrued interest to the date of repayment.
Section 2.30 Price and Customer Lists. The InterWireless Disclosure
Schedule sets forth (a) complete and accurate price lists of InterWireless and
each of its Subsidiaries used currently, and (b) a list of InterWireless' and
each of its Subsidiaries' current ten largest customers, as measured by annual
sales volume. To the best knowledge of InterWireless, no material customer
listed in the InterWireless Disclosure Schedule is seeking or presently intends
to seek to terminate its relationship or agreement with InterWireless or that
any such customer will not renew its existing agreement with InterWireless on
the expiration date thereof on terms at least as favorable to InterWireless as
those currently in effect.
Section 2.31 Corrupt Practices. Since the inception of InterWireless, to
the best knowledge of InterWireless, there have been no violations of the
Foreign Corrupt Practices Act or any similar state or federal statute relating
to bribery or similar offenses by InterWireless or any of its agents. To the
best knowledge of InterWireless, neither InterWireless nor any officer,
director, employee or agent of InterWireless (or any person acting on behalf of
any of the foregoing) has since the date of InterWireless' incorporation, given
or agreed to give any gift or similar benefit of more than nominal value to any
customer, supplier, governmental employee or official, or any other person or
entity who is or may be in a position to help or hinder InterWireless or assist
InterWireless in connection with any actual or proposed transaction, which gift
or similar benefit, if not given in the past, would have a Material Adverse
Affect, or which would subject InterWireless to material penalty in any private
or governmental Proceeding. References to InterWireless in this Section 2.31
include each of its Subsidiaries.
Section 2.32 No Default. Neither InterWireless nor any of its
Subsidiaries is in default under, and no condition exists that with notice or
lapse of time or both would constitute a default
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under (a) their respective Articles of Incorporation or Bylaws (or other similar
charter documents); (b) any mortgage, loan, agreement, contract, arrangement,
lease, lease purchase, indenture or other evidences of indebtedness for borrowed
money or other instrument to which InterWireless is now a party or by which
InterWireless or any of its assets is bound; or (c) to the best knowledge of
InterWireless, any judgment, order, writ, injunction, or decree, of any court,
arbitrator, agency, official, authority or other Governmental Body.
Section 2.33 Additional Items Reflected in the InterWireless Disclosure
Schedule. In addition to items and information specifically referred to in
previous sections of this Article 2, the InterWireless Disclosure Schedule
contains a complete and accurate list or brief description of (a) all current or
pending contracts or commitments not previously required to be described in the
InterWireless Disclosure Schedule, written or otherwise, between InterWireless
and any party that involve, in the aggregate, the payment or receipt by
InterWireless of more than $25,000, which cannot be canceled without penalty
upon 30 days' notice, or which otherwise are material to InterWireless; (b) any
compensation, noncompetition, severance, consulting, or confidentiality
agreements between InterWireless and any of its executive officers for the last
two fiscal years and at present not previously required to be described in the
InterWireless Disclosure Schedule; (c) the number and job category of all
current employees of InterWireless, including with respect to key employees,
their names, date of employment, current compensation (including sales
commissions) and date and amount of last increase in compensation; (d) a list of
all leases, contracts or agreements for which consents of any private persons or
public authorities would be required (citing the section(s) thereof requiring
such consents) for the consummation of the transactions contemplated hereby, or
for the preventing of any termination of any material right, privilege, license
or agreement of, or any loss or disadvantage to, InterWireless or eSat upon
consummation of the transactions contemplated hereby; (e) all governmental
licenses and permits relating to the operations of InterWireless and any of its
Subsidiaries; and (f) any arrangements or agreements of InterWireless with its
competitors. References to InterWireless in this Section 2.33 include each of
its Subsidiaries.
Section 2.34 Copies of Documents; Accuracy of Information Furnished.
InterWireless has delivered or made available to eSat complete and accurate
copies of all documents listed on the InterWireless Disclosure Schedule. All of
the exhibits and schedules provided by InterWireless are true, correct and
complete in all material respects and no written representation, warranty or
statement made by InterWireless in or pursuant to this Agreement contains or
will contain any untrue statement of a material fact or omits or will omit to
state any material fact necessary to make such representation, warranty or
statement not misleading to eSat which is seeking complete and accurate
information with respect to InterWireless.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF ESAT
Except as set forth in the disclosure schedule delivered to
InterWireless by eSat contemporaneously with the execution hereof (the "eSat
Disclosure Schedule"), eSat hereby
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represents and warrants to InterWireless and the Owners as follows, which
representations and warranties are made as of the date hereof and as of the
Effective Date and shall survive the Effective Date regardless of what
investigations, if any, InterWireless or any of the Owners shall have made prior
hereto:
Section 3.1 Organization; Qualification. ESat is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Nevada. eSat has full corporate power and authority to own and lease all of the
properties and assets it now owns and leases and to carry on its business as now
being conducted. eSat is duly qualified as a foreign corporation and is in good
standing to do business in each jurisdiction in which the property owned, leased
or operated by it or the nature of the business conducted by it makes such
qualification necessary, except where the failure so to qualify would not have a
Material Adverse Affect on eSat.
Section 3.2 Authority Relative to this Agreement. eSat has full
corporate power and authority to execute, deliver and perform this Agreement and
to consummate the transactions contemplated hereby. The execution and delivery
by eSat of this Agreement, and the consummation of the transactions contemplated
hereby, have been duly and validly authorized by the Board of Directors and no
other corporate actions on the part of eSat is necessary with respect thereto.
eSat will take or cause to be taken all corporate action that is necessary to
complete the transactions to be completed by this Agreement. This Agreement has
been duly and validly executed and delivered by eSat and constitutes a legal,
valid and binding obligation of eSat, enforceable against eSat in accordance
with its terms.
Section 3.3 Common Stock. The authorized common stock of eSat consists
of 40,000,000 shares of eSat Common Stock, $0.001 par value per share, of which,
as of April 12, 2000, 19,173,725 shares of eSat Common Stock are validly issued
and outstanding, fully paid and nonassessable.
Section 3.4 [Reserved].
Section 3.5 Governmental Consents and Approvals. Except as set forth on
the eSat Disclosure Schedule, the execution, delivery and performance by eSat of
this Agreement and the consummation of the transactions contemplated hereby by
eSat require no consent, approval, order or authorization of, action by or in
respect of, or registration or filing with, any Governmental Body, court,
agency, or authority, other than (a) any applicable filings with and consents
and/or approvals of the SEC and state securities commissions under state
securities laws and (b) consents, permits, authorizations, notifications or
filings the failure of which to obtain or make would have a Material Adverse
Affect on eSat or have a Material Adverse Affect the ability of eSat to perform
its obligations set forth herein or to consummate the transactions contemplated
hereby.
Section 3.6 No Violations. Except as set forth on the eSat Disclosure
Schedule, the execution, delivery and performance of this Agreement by eSat, the
consummation by eSat of the transactions contemplated hereby or compliance by
eSat with any of the provisions hereof does not and will not (a) conflict with
or result in any breach or violation of any provision of the
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Articles of Incorporation or Bylaws of eSat, (b) result in a default, or give
rise to any right of termination, cancellation or acceleration, or loss of any
material benefit (with or without the giving of notice or lapse of time or
both), or require the consent, approval, waiver or other action of any person,
under any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, license, trust (constructive or otherwise) agreement, lease or other
instrument or obligation to which eSat is a party or by which eSat or any of its
Subsidiaries may be bound other than that which has been or will be obtained,
(c) result in the creation or imposition of any claim, lien, pledge, security
interest, obligation, restriction or other encumbrance on any of the property of
eSat, or (d) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to eSat.
Section 3.7 Financial Statements; SEC Reports. Except as set forth on
the eSat Disclosure Schedule, the consolidated financial statements, financial
statement schedules and notes to such financial statements and schedules of eSat
("eSat Financial Statements") contained in eSat's Annual Report on Form 10-K for
the fiscal year ended December 31, 1999, as filed with the SEC ("eSat Form
10-K") are complete and correct and were prepared in accordance with generally
accepted accounting principles applied on a consistent basis except as noted
therein, and fairly present the information purported to be shown therein. All
eSat Financial Statements have been prepared from the books and records of eSat
and its subsidiaries, which accurately and fairly reflect the transactions and
dispositions of the assets of eSat and its subsidiaries. Neither eSat nor any of
its subsidiaries had any material liabilities, contingent or otherwise, whether
due or to become due, known or unknown, other than as indicated on the latest
balance sheets ("Latest eSat Balance Sheet") included in the eSat Financial
Statements. eSat and its subsidiaries have adequately funded all accrued
employee benefit costs and such funding is reflected in the balance sheets
included in the eSat Financial Statements. eSat's Form 10-K and eSat's other
public filings with the SEC are collectively referred to as the "eSat Filings."
Section 3.8 Litigation. Except as disclosed in the eSat Filings or in
the eSat Disclosure Schedule, there is no material Proceeding pending or, to the
knowledge of eSat, threatened against, relating to or affecting eSat, any of its
subsidiaries or any of their respective properties or assets or any officer or
director of eSat or its subsidiaries relating to eSat or its subsidiaries, at
law or in equity, before any Governmental Body nor, to the knowledge of eSat, is
there any basis for asserting the foregoing. Except as disclosed in the eSat
Disclosure Schedule, eSat is not subject to any material Proceeding by any
Governmental Body.
Section 3.9 Information of Filings. None of the information supplied or
to be supplied by eSat for inclusion or included in any documents to be filed
with any regulatory authority in connection with the transactions contemplated
hereby will, at the respective time such documents are filed with such
regulatory authority, be false or misleading with respect to any material fact,
or omit to state any material fact necessary in order to make the statements
therein in light of the circumstances under which they were made, not
misleading.
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Section 3.10 No Brokers. Except for a finder's fee paid to Bob Hersh,
eSat has not employed any broker, agent or finder or incurred any liability for
any brokerage fees, commissions or finders' fees in connection with the
transactions contemplated hereby.
Section 3.11 Copies of Documents; Accuracy of Information Furnished.
eSat has delivered or made available to InterWireless complete and accurate
copies of all documents listed on the eSat Disclosure Schedule. All of the
exhibits and schedules provided by eSat are true, correct and complete in all
material respects and no written representation, warranty or statement made by
eSat in or pursuant to this Agreement contains or will contain any untrue
statement of a material fact or omits or will omit to state any material fact
necessary to make such representation, warranty or statement not misleading to
InterWireless or any of the Owners, each of which is seeking complete and
accurate information with respect to eSat and its Subsidiaries.
Section 3.12 Due Diligence of eSat. eSat has not discovered any
information, facts or circumstances in the course of its due diligence with
respect to this Agreement which would lead it to believe that any of the
representations and warranties of InterWireless contained in Article 2 hereof or
the representations and warranties of Owners contained in Article 4 hereof are
inaccurate in any material way.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF OWNERS
Except as set forth in the disclosure schedule delivered to eSat Owners
contemporaneously with the execution hereof (the "Owners Disclosure Schedule"),
Owners hereby represent and warrant to eSat as follows, which representations
and warranties are made as of the date hereof and as of the Effective Date and
shall survive the Effective Date regardless of what investigations, if any, eSat
shall have made thereof prior thereto:
Section 4.1 Title to Shares. Immediately prior to the Effective Date,
collectively, Owners shall be the lawful owners and holders of an aggregate of
10,000 shares of InterWireless Common Stock, and, on the Effective Date, shall
hold all such shares. Each Owner's shares of InterWireless Common Stock are free
and clear of all liens and encumbrances of any kind.
Section 4.2 Authority Relative to this Agreement. This Agreement has
been duly and validly executed and delivered by the Owners and constitutes the
legal, valid and binding obligation of the Owners, enforceable against them in
accordance with its terms, except as enforcement hereof may be limited by
bankruptcy, insolvency, fraudulent conveyance, moratorium or other similar laws
affecting enforcement of creditors' rights generally. The execution, delivery
and performance by the Owners of this Agreement and the consummation of the
transactions contemplated hereby will not violate any provision of any law to
which the Owners are subject nor result in a breach or violation by the Owners
of any of the terms or provisions of, or constitute a default by the Owners
under any note, bond, mortgage, indenture, license, trust (constructive or
other), agreement, lease, or other instrument or obligation to which the Owners
are a party or by which the Owners are bound or by which any of the Owners may
be
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organized. The Owners are not a party to, or subject to, or bound by, any
currently existing order, judgment, injunction, writ or decree of any court or
governmental authority, or any arbitration award that would restrict performance
by the Owners of this Agreement or such other documents or instruments to be
executed or delivered by the Owners in conjunction herewith.
Section 4.3 Transfers to InterWireless. All assets, liabilities and
properties belonging to any of the Owners, any InterWireless Subsidiary, or any
affiliated partnership or limited liability company, that are to be transferred
to InterWireless between the date of this Agreement and the Effective Date are
set forth on the Owners Disclosure Schedule. Except as set forth in the Owners
Disclosure Schedule, such assets and properties will be transferred free and
clear of all liens and encumbrances of whatever kind and nature. The liens and
encumbrances, if any, on such assets or property reflected in the Owner's
Disclosure Schedule are, and at the Effective Date will be, the only liens or
encumbrances relating to such assets or property. The procedures for completing
the transfers are set forth on the Owners Disclosure Schedule.
Section 4.4 Certain Transactions or Arrangements. Except for agreements
and transactions entered into in connection with this Agreement and except as
set forth in the Owners Disclosure Schedule, the Owners are not presently,
directly or indirectly, a party to any transaction with InterWireless, including
without limitation: (a) any contract, agreement, understanding or commitment or
other arrangement providing for the furnishing of services by, rental of real or
personal property from or otherwise requiring payments to the Owners or any
Affiliate of the Owners; (b) any contract, agreement, understanding, commitment
or other arrangement relating to the employment of the Owners by the Company, or
any bonus, deferred compensation, pension, profit sharing, stock option,
employee stock purchase, retirement or other employee benefit plan; or (c) any
loans or advances to or from InterWireless.
Section 4.5 Investments in Competitors. Except as set forth in the
Owners Disclosure Schedule, the Owners do not own, directly or indirectly, any
interest or have any investment in any corporation, business or other person or
entity that is a competitor or potential competitor of, or that otherwise
directly or indirectly does business with, InterWireless or affiliated entities.
Section 4.6 Representations. The Owners have reviewed the
representations, warranties and statements made by InterWireless in this
Agreement and, subject to the knowledge of qualifiers (if any) made by
InterWireless in those representations and warranties, which shall be equally
applicable to the Owners, such representations and warranties do not contain any
untrue statement of a material fact or omit to state any material fact necessary
to make any such representation, warranty or statement not misleading.
Section 4.7 [Reserved].
Section 4.8 Copies of Documents; Accuracy of Information Furnished. The
Owners have delivered or made available to eSat complete and accurate copies of
all documents listed in the Owners Disclosure Schedule. All the exhibits and
schedules provided by the Owners are true, correct and complete in all material
respects and no written representation, warranty or statement made by the Owners
in or pursuant to this Agreement contains or will contain any
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untrue statement of a material fact or omits or will omit to state any material
fact necessary to make such representation, warranty or statement not misleading
to eSat who are seeking complete and accurate information with respect to the
Owners.
ARTICLE 5
ADDITIONAL AGREEMENTS
Section 5.1 Conduct of Business of InterWireless. After the date hereof
and prior to the Effective Date, InterWireless shall conduct its operations
according to its normal course of business to preserve intact its business
organization, use reasonable efforts to keep available the services of their
officers and employees, use reasonable efforts to preserve and maintain
satisfactory relationships and goodwill with licensors, suppliers, dealers,
customers and all others having business relationships with them, pay the
suppliers, vendors and taxing authorities of InterWireless in accordance with
its usual business practices and in a timely fashion and continue to service and
maintain all of its assets in a manner consistent with past practice.
Section 5.2 Issuance of Options. eSat agrees to issue the Owners an
aggregate of 1,000,000 options to purchase eSat common stock to be issued in
connection with the Owners' employment by eSat after the Effective Date.
Section 5.3 Forbearances by InterWireless. Except as contemplated by
this Agreement, neither InterWireless nor any of its Subsidiaries shall, after
the date hereof and prior to the Effective Date, without the prior written
consent of eSat;
(a) issue additional capital stock or any additional securities
or obligations convertible into or exchangeable for, or giving any person any
right to acquire, capital stock;
(b) acquire any shares of its capital stock;
(c) declare or pay any dividend;
(d) issue any stock options, stock appreciation rights, warrants
or any other rights relating to their respective securities;
(e) sell (i) any assets not in the ordinary course of business or
(ii) any assets whether or not in the ordinary course of business for an amount
greater than $25,000 except for invoiced sales of inventory previously disclosed
in writing to eSat;
(f) issue or incur additional debt for borrowed money;
(g) mortgage, pledge or otherwise encumber any of their
respective properties or assets;
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(h) make any investment in third parties or assets of a capital
nature either by purchasing stock, securities or assets, contributing to
capital, transferring property or otherwise making any investment;
(i) make any commitments in excess of $25,000 for capital
expenditures or other commitment or transaction;
(j) increase in any manner, whether by bonus or otherwise, the
compensation of any of their respective officers or employees;
(k) amend their respective Articles of Incorporation or Bylaws
(or similar charter documents) except as may be necessary to facilitate the
consummation of the transactions contemplated by this Agreement;
(l) undertake any action that will cause InterWireless to have
negative working capital, as determined by generally accepted accounting
principles; or
(m) enter into any agreement to do any of the things described in
clauses (a) through (l) above.
Section 5.4 No Solicitation. Through the Effective Date, InterWireless,
its officers and directors and the Owners will not, nor permit any of their
respective officers, employees, agents or representatives (including, without
limitation, investment bankers, attorneys and accountants) to, directly or
indirectly (a) solicit, initiate or encourage submission of proposals or offers
by, or (b) furnish any information with respect to or otherwise cooperate in any
way with, or participate in any discussions or negotiations with, any
corporation, partnership, person or other entity or group ("Person") with
respect to any proposal regarding the acquisition or purchase of all or a
material portion of the assets of, or any equity interest in, InterWireless, or
any business combination with InterWireless. InterWireless and/or the Owners
shall promptly notify eSat if any such proposal or offer, or any inquiry or
contact with any Person with respect thereto, is made and shall, in any such
notice, indicate in reasonable detail the identity of the offeror and the terms
and conditions of any such proposal.
Section 5.5 Investigation of Business and Properties. Each party hereto
may make or cause to be made such investigation of the business and properties
of the other parties and of their financial and legal condition as such party
deems appropriate or advisable to familiarize himself/itself therewith, provided
such investigation shall not unreasonably interfere with the normal operations
of the other parties.
Section 5.6 Confidentiality. Each party agrees with respect to all
technical, commercial and other information that is furnished or disclosed by
the other parties, whether or not stamped "Confidential" or identified as such
in writing following disclosure, including, but not limited to, information
regarding such party's (and its subsidiaries' and affiliates') organization,
personnel, business activities, customers, subscribers, policies, assets,
finances, costs, sales, revenues, technology, rights, obligations, liabilities
and strategies (the
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"Information"), that, unless and until the transactions contemplated hereby
shall have been consummated, (a) such Information is confidential and/or
proprietary to the furnishing/disclosing party and entitled to and shall receive
treatment as such by the receiving party; (b) the receiving party will hold in
confidence and not disclose or use (except in respect of the transactions
contemplated hereby) any such Information, treating such Information with the
same degree of care and confidentiality as it accords its own confidential and
proprietary information; provided, however, that the receiving party shall not
have any restrictive obligation with respect to any Information that (i) is
contained in a printed publication available to the general public, (ii) is or
becomes publicly known through no wrongful act or omission of the receiving
party, (iii) is known by the receiving party without any proprietary
restrictions by the furnishing/disclosing party at the time of receipt of such
Information, (iv) the use of which is necessary or appropriate in making any
filing or obtaining any consent or approval required for consummation of the
Purchase, or (iv) is required to be furnished or used in connection with any
Proceedings; and (c) all such Information furnished to a party by another,
unless otherwise specified in writing, shall remain the property of the
furnishing/disclosing party and, in the event this Agreement is terminated,
shall be returned to it, together with any and all copies made thereof, upon
written request for such return by it (except for documents submitted to a
governmental agency with the consent of the furnishing/disclosing party or upon
subpoena and that cannot be retrieved with reasonable effort), and each party
shall confirm in writing to the others compliance with any such request. Each
party hereto acknowledges that the remedy at law for any breach by a party of
its obligations under this section is inadequate and that the other parties
shall be entitled to equitable remedies, including injunctive relief, in the
event of breach by any other party.
Section 5.7 Public Announcements. eSat and InterWireless shall consult
with each other before issuing any press release or otherwise making any public
statements with respect to the Purchase, this Agreement or transactions
contemplated hereby, shall not issue any such press release or make any such
public statement prior to such consultation, and shall consult with each other
as to form and substance of other public disclosures related thereto; provided
however, that nothing contained herein shall prohibit either party from making
any disclosure that is required by law. None of the Owners shall make any
announcement with respect to the Purchase, this Agreement or transactions
contemplated hereby, without the express written consent of eSat.
Section 5.8 Agreement to Consummate. Subject to the terms and
conditions herein provided, each of the parties hereto agrees to use reasonable
efforts to do all things necessary, proper or advisable under applicable laws
and regulations to consummate and make effective, as soon as reasonably
practicable, the transactions contemplated by this Agreement, including, but not
limited to, the obtaining of all consents, authorizations, orders and approvals
of any governmental commission, board or other regulatory body required in
connection therewith and initiating or defending any legal action that is
necessary or appropriate to permit the transactions contemplated hereby to be
consummated. At any time after the Effective Date, if any further action is
necessary, proper or advisable to carry out the purposes of this Agreement,
then, as soon as is reasonably practicable, each party to this Agreement shall
take, or cause its proper officers to take, such action. No party to this
Agreement shall take or cause to be taken any action that
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would cause the representations or warranties expressed herein to be untrue or
incorrect on the Effective Date.
Section 5.9 [Reserved].
Section 5.10 InterWireless Shareholders' Approval. No later than the
Effective Date, InterWireless shall hold a meeting of its shareholders for the
purpose of voting upon the Purchase. In connection with such meeting,
InterWireless shall mail all required notices and other materials to its
shareholders, and the Board of Directors of InterWireless shall recommend
approval of the matters related to the Merger to be voted upon at such
shareholder meeting and shall use its best efforts to obtain such shareholder
approval. In lieu of such meeting, such approval may be in the form of the
unanimous written consent of the shareholders of InterWireless.
Section 5.11 [Reserved].
Section 5.12 Agreement Regarding Brokers. Each party agrees that it or
he will pay or dispute, and indemnify and hold the other parties harmless from,
any claims of brokers or others for finder's or brokerage fees asserted as a
result of representations by such party to such brokers or others, regardless of
whether the existence of such brokers or others are disclosed herein.
Section 5.13 Notice. InterWireless shall promptly give notice to eSat
and the Owners upon becoming aware of the occurrence or failure to occur, or the
impending or threatened occurrence or failure to occur, of any event that would
cause or constitute, any of InterWireless' representations or warranties being
or becoming untrue. eSat will promptly give notice to InterWireless and the
Owners upon becoming aware of the occurrence or failure to occur, of any event
that would cause or constitute, any of eSat's representations or warranties
being or becoming untrue. Owners will promptly give notice to eSat and
InterWireless upon becoming aware of the occurrence or failure to occur, or the
impending or threatened occurrence or failure to occur, of any event that would
cause or constitute, any of the Owners' representations or warranties being or
becoming untrue.
Section 5.14 Representation, Warranties, and Agreements; Survival. The
representations, warranties and indemnities of InterWireless, eSat and Owners,
contained in this Agreement and any related documents, shall survive for a
period of two years from the Effective Date; provided, however, that the
representations and warranties relating to Section 2.19 shall only survive for a
period of one year from the Effective Date, and the representations and
warranties relating to any Claims (as defined below) relating to the subject
matter of Sections 2.13 and 2.17 shall survive for a period of time equal to the
applicable statute of limitations underlying any action brought by a local,
state or federal agency which gives rise to such Claims. At the end of the
survival period of the representations and warranties of InterWireless and
Owners, eSat shall, without further action, be deemed to have fully released
InterWireless and Owners from any and all responsibility with respect to a
breach of such representations and warranties (including any obligation under
the indemnification provisions contained in Section 5.15) unless during such
survival period eSat shall have given InterWireless
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and Owners notice of the nature and reasonable particulars under the then
existing circumstances of any claimed breach by InterWireless and/or Owners. At
the end of the survival period of representations and warranties of eSat, Owners
shall, without further action, be deemed to have fully released eSat from any
and all responsibility with respect to a breach of such representations and
warranties (including any obligation under the indemnification provisions
contained in Section 5.15) unless during such survival period Owners shall have
given eSat notice of the nature and reasonable particulars under the then
existing circumstances of any claimed breach by eSat and the basis therefor. The
obligations, covenants and agreements of InterWireless, Owners and eSat
contained in this Agreement and any related documents shall survive the Closing.
The representations, warranties, obligations, covenants, indemnities and
agreements shall not be affected by, and shall remain in full force and effect
notwithstanding, any investigation at any time made by or on behalf of any party
hereto or any information any party may have with respect thereto.
Section 5.15 Indemnification.
(a) Owners Indemnify eSat. To the extent provided in Sections
5.15(d) and (e), Owners, jointly and severally, shall indemnify and hold eSat
harmless from and against, and promptly reimburse eSat for, any and all loss,
expense, damage, deficiency, liability or obligation, including investigative
and settlement costs and attorneys' fees (collectively, "Claims"), arising out
of or in connection with any breach of representation or warranty of
InterWireless or Owners contained in Article 2 hereof or in any certificate
delivered pursuant hereto, regardless of whether eSat relied upon the truth of
such representation or warranty; provided that in connection with any Claim
pertaining to tax liabilities of InterWireless, eSat shall, prior to asserting
such Claim: (i) notify the Owners promptly upon receipt by eSat and/or
InterWireless of the demand, levy or assertion of claim from the applicable tax
authority which gives rise to the eSat Claim, and (ii) exercise best efforts to
contest such demand, levy or assertion of claim. To the extent provided in
Sections 5.15(d), each Owner, individually, shall indemnify and hold eSat
harmless from and against, and promptly reimburse eSat for any Claim arising our
out of or in connection with any breach of representation or warranty of Owner
contained in Article 4 hereof or in any certificate delivered pursuant hereto,
regardless of whether eSat relied upon the truth of such representation or
warranty or had knowledge of any breach thereof. In computing the amount to be
paid by Owners under this Section 5.15(a), there shall be deducted an amount
equal to any tax benefits actually received by eSat, InterWireless or any of its
Subsidiaries, taking into account the income tax treatment of the receipt of
such indemnity payment.
(b) eSat Indemnifies Owners. eSat shall indemnify and hold each
of the Owners harmless from and against, and promptly reimburse each of the
Owners for, any and all loss, expense, damage, deficiency, liability or
obligation, including investigative and settlement costs and attorneys' fees,
arising out of or in connection with any breach of representation or warranty of
eSat contained in Article 3 hereof or in any certificate delivered pursuant
hereto, regardless of whether any of the Owners relied upon the truth of such
representation or warranty.
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(c) Procedure for Indemnification. Upon receipt by a party
entitled to indemnification hereunder (the "Indemnified Party") of notice of any
situation, event or occurrence that might give rise to a claim for
indemnification of such Indemnified Party against any of another party pursuant
to this Section 5.15, the Indemnified Party shall give prompt written notice
thereof to the other party (an "Indemnifying Party"), indicating with reasonable
specificity the nature and amount of such indemnification. Failure to give any
notice provided under this Section 5.15(c) shall in no way be deemed a
forfeiture of the Indemnified Party's rights to be indemnified under Section
5.15. A claim for indemnity may, at the option of the Indemnified Party, be
asserted as soon as any situation, event, or occurrence has been noticed by the
Indemnified Party, regardless of whether actual harm has been suffered or
out-of-pocket expenses incurred. Disputed claims will be resolved pursuant to
Section 5.16.
(d) Indemnification Threshold. eSat will not be eligible to
obtain any indemnification from the Owners hereunder until the aggregate amount
of all losses, expenses, damages, deficiencies, liabilities and other
obligations arising out of or in connection with any breach of representation or
warranty of InterWireless or Owners exceeds $100,000 in the aggregate and then
only for the amount of such excess; provided, however, that, notwithstanding
this Section 5.15(d), eSat shall be immediately indemnified for: (i) all amounts
in excess of $5,000 sustained in connection with the Aquafauna Biomarine, Inc.
litigation listed in Section 2.10 of the InterWireless Disclosure Schedule; and
(ii) all amounts in excess of $20,000 sustained in connection with the
unlicensed use of software described in Section 2.19 of the InterWireless
Disclosure Schedule.
Section 5.16 Resolution of Disputed Claims under Section 5.15. All
disputed claims for indemnification by eSat under Section 5.15 ("Claims") shall
be resolved in accordance with this Section 5.16. All such Claims shall be
resolved under this Section 5.16 upon written notice of each such Claim given by
eSat to the party or parties from whom identification is sought and to the Los
Angeles office of the American Arbitration Association (the "Arbitration
Notice").
(a) Mutual Agreement or Arbitration. In the event of an
Arbitration Notice, the parties agree to first endeavor in good faith to settle
the Claims described therein by mutual agreement, by means of discussions
between David Pennells (or, in his absence or unavailability, another
representative of the Owners selected by a majority in interest of the Owners as
of the Effective Date) and a senior executive of eSat . If the parties cannot
mutually agree on the resolution of such Claims within ten days after the
Arbitration Notice, then the Claims shall be resolved by arbitration by a single
arbitrator in accordance with Title 9, Section 1280 et seq. of the California
Code of Civil Procedure, subject to the further conditions and provisions set
forth in Sections 5.16(b) through (d).
(b) Qualifications for Arbitrator. The neutral arbitrator
selected to hear such Claim shall be a neutral businessperson, accountant,
lawyer or judge (active or retired) who lives or works within Los Angeles or
Orange County, California and is experienced in resolving disputes under
acquisition agreements and who will arbitrate the Claims at a reasonable cost
("Experienced Person").
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<PAGE> 31
(c) Selection of Arbitrator. Such Experienced Person shall be
selected by the parties within 15 days after delivery of an Arbitration Notice.
If the parties are unable to agree on a single arbitrator, each party will pick
an Experienced Person within 20 days of the delivery of the Arbitration Notice.
Within ten days of being selected, those two Experienced Persons shall select a
third Experienced Person, which third Experienced Person shall be the single
arbitrator.
(d) Schedule for Arbitration; Location of Arbitration. Within
five business days after his or her selection, the arbitrator shall schedule an
arbitration hearing in Los Angeles County, California to be held not later than
40 days after the Arbitration Notice (or as soon as reasonably practicable
thereafter). The purpose of the hearing shall be to receive testimony and
evidence from the parties with respect solely to the Claims in dispute and to
determine whether such Claims are valid and the amount thereof, if such is in
dispute. The arbitrator shall exercise his or her best efforts to render a
decision within 15 days after the conclusion of the hearing. Such decision shall
be evidenced by an order and shall be issued in writing and shall specify in
reasonable detail the nature of the Claims and the arbitrator's determination as
to the amount thereof. Any decision of the arbitrator shall be final,
non-appealable, binding and conclusive upon the parties hereto and all of the
parties who have been joined in such matter, and a judgment may be entered upon
such decision in accordance with the laws of any applicable jurisdiction.
(e) Discovery. The provisions of Section 1283.5 of the California
Code of Civil Procedure, which provide for discovery, are expressly incorporated
into this Agreement; provided, however, that the arbitrator shall be empowered
to limit discovery for good cause shown and in the interests of justice in order
to assure that the arbitration of the Claim will proceed within the applicable
time period. In that regard, the parties agree to work together in good faith to
arrive at mutually acceptable procedures, and in the event that the parties are
unable to agree, such issues shall be submitted to the arbitrator for his
determination.
(f) Fees and Costs. Each party shall bear its own costs, fees and
expenses of arbitration, including without limitation attorneys' fees and costs
of transcripts, and each party agrees to pay one-half of the compensation to be
paid to the arbitrator in any such arbitration; provided, however, that the
arbitrator shall have the authority to award costs and expenses to the
prevailing party.
Section 5.17 Tax Return Filings.
(a) Owners' Obligations. Owners shall file, or cause to be filed,
on a timely basis and at their sole cost and expense, all tax returns with
respect to InterWireless and its Subsidiaries for tax periods ending prior to or
on March 15, 2000. The Owners agree that, prior to filing any tax returns for
tax periods ending prior to or on March 15, 2000, they will provide copies of
such returns (and all schedules thereto) to eSat and shall permit eSat
sufficient time to review such returns prior to filing.
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<PAGE> 32
(b) eSat Obligations. eSat and its subsidiaries shall file, or
cause to be filed, on a timely basis and at their sole cost and expense all tax
return with respect to InterWireless and its Subsidiaries for tax periods ending
after March 15, 2000.
Section 5.18 Election to Board of Directors. eSat and the Owners
understand and agree that as long as David Pennells and Richard Elliot shall
remain employed by eSat, eSat shall cause a sufficient number of shares of
InterWireless common stock to be voted such that David Pennells and Richard
Elliot shall be members of InterWireless' Board of Directors.
Section 5.19 Condition Subsequent. All parties hereto agree that, as a
condition to the effectiveness of the transactions contemplated hereby, both of
the following must occur: (a) the Merger (as defined in the Agreement and Plan
of Merger and Reorganization of even date herewith by and between eSat, PN
Acquisition Co., PacificNet Technologies, Inc., and the shareholders thereof)
must be effective according to the laws of the State of Nevada; and (b) the
Purchase must have been fully consummated with the payment of all funds and the
transfer of all stock required thereby. The parties agree not to take any action
that would interfere with the successful satisfaction of these conditions. If
either or both of the above-referenced conditions are not satisfied by April 19,
2000, at 5:00 p.m., then, absent mutual agreement to extend such deadline by all
parties hereto, the transactions contemplated by the Stock Purchase Agreement
and the Merger Agreement shall be rescinded.
ARTICLE 6
CONDITIONS PRECEDENT TO CLOSING AND POST-CLOSING COVENANTS
Section 6.1 General Conditions. Consummation of the Purchase shall be
subject to the fulfillment at the Effective Date of each of the following
conditions.
(a) No Injunction. No court having jurisdiction shall have
issued, to the knowledge of eSat, InterWireless or Owners, an injunction
preventing the consummation of the Purchase that shall not have been stayed or
dissolved at the Effective Date.
(b) Corporate and Other Actions. All actions taken or to be taken
in connection with the transactions contemplated hereby, and all documents
incident thereto shall be reasonably satisfactory in form and substance to the
parties and their counsel, and the parties and their counsel shall have received
all such counterpart originals or certified or other copies of such documents as
the parties or their counsel may reasonably request.
(c) Preparation of InterWireless Budget. eSat and InterWireless
shall agree on an operating budget for InterWireless for the 12 months following
the Effective Date. Such budget shall include an estimate of capital needs for
such time period, and the approximate timing for eSat to fund such capital
needs.
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<PAGE> 33
Section 6.2 Conditions to Closing in Favor of InterWireless.
Consummation of the Purchase shall be subject to the fulfillment, to the
satisfaction of InterWireless, or written waiver, at or before the Effective
Date, of each of the following conditions:
(a) Copies of Resolutions of eSat. eSat shall have furnished
InterWireless with copies of resolutions duly adopted by the Board of Directors
of eSat approving the execution and delivery of this Agreement and consummation
of the transactions contemplated hereby, certified as of the Effective Date by
the Secretary or an Assistant Secretary of eSat.
(b) Opinion of Counsel for eSat. eSat shall have furnished
InterWireless with an opinion dated the Effective Date of Arter & Hadden LLP,
counsel for eSat, in the form attached hereto as Exhibit A.
(c) Representations and Warranties of eSat. The representations,
warranties and statements of eSat contained in this Agreement, the exhibits
hereto and the eSat Disclosure Schedule, shall be complete and accurate as of
the date of this Agreement and shall also be complete and accurate at and as of
the Effective Date, except for changes contemplated by this Agreement, as if
made on the Effective Date; and eSat shall have performed or complied with all
agreements and covenants required by this Agreement to be performed or complied
with by it at or prior to the Effective Date.
(d) eSat Officers' Certificate. eSat shall have delivered to
InterWireless an Officer's Certificate, dated the Effective Date, to the effect
that (i) such officer is familiar with the provisions of this Agreement and (ii)
the conditions specified in Section 6.1 and in paragraph (c) of this Section 6.2
have been satisfied in all material respects.
(e) Governmental Consents, Authorizations, Etc. All material
consents, authorizations, orders or approvals of, and filings or registrations
with, and any permits, licenses or other authorizations required by, any
applicable Governmental Body that are required for, or in connection with, the
execution and delivery of this Agreement by eSat and the consummation by eSat of
the transactions contemplated hereby shall have been obtained or made.
(f) Legislation. No law or legally binding regulation shall have
been enacted that does or would prohibit, restrict or delay consummation of the
Purchase or any of the conditions to the consummation of the Purchase or that
does or would have a Material Adverse Affect on eSat.
(g) Consents. On or before the Effective Date, eSat shall have
obtained all necessary or required consents to the transactions contemplated by
this Agreement or otherwise necessary.
(h) Employment Agreement. eSat shall have entered into employment
agreements with David Pennells and Richard Elliot in form and substance mutually
satisfactory to eSat, David Pennells and Richard Elliot.
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<PAGE> 34
Section 6.3 Conditions to Closing in Favor of eSat. Consummation of the
Purchase shall be subject to the fulfillment, to the satisfaction of eSat, or
written waiver, at or before the Effective Date of the following conditions:
(a) Inspection of Proprietary Rights. InterWireless shall have
furnished eSat for inspection and review all items described or referenced in
the first sentence of Section 2.19 hereof not furnished during eSat's due
diligence investigation.
(b) Shareholder Acknowledgments. InterWireless shall have
furnished eSat with acknowledgment agreements by all InterWireless shareholders
in the form attached hereto as Exhibit B.
(c) Copies of Resolutions of InterWireless. InterWireless shall
have furnished eSat with copies of resolutions duly adopted by the Board of
Directors and shareholders of InterWireless approving the execution and delivery
of this Agreement, and the consummation of the transactions contemplated hereby,
certified as of the Effective Date by the Secretary or an Assistant Secretary of
InterWireless.
(d) Opinion of Counsel for InterWireless. InterWireless shall
have furnished eSat with an opinion dated the Effective Date of Schneider &
Warren, LLP, counsel for InterWireless, in form attached hereto as Exhibit C.
(e) Representations and Warranties of InterWireless and Owners.
The representations, warranties and statements of InterWireless and Owners
contained in this Agreement, the exhibits hereto, the InterWireless Disclosure
Schedule and the Owners Disclosure Schedule shall be complete and accurate as of
the date of this Agreement and shall also be complete and accurate at and as of
the Effective Date, except for changes contemplated by this Agreement, as if
made at and as of the Effective Date; and InterWireless and Owners shall have
performed or complied with all agreements and covenants required by this
Agreement to be performed or complied with by it at or prior to the Effective
Date.
(f) InterWireless Officers' and Owners Certificates.
InterWireless shall have delivered to eSat an Officer's Certificate, dated the
Effective Date, to the effect that (i) such officer is familiar with the
provisions of this Agreement and (ii) the conditions specified in Section 6.1
have been fully satisfied. The Owners shall have delivered to eSat a
Certificate, dated the Effective Date, to the effect that (i) they are familiar
with the provisions of the Agreement and (ii) the conditions specified in
Section 6.1 and in paragraph (e) of this Section 6.3 have been fully satisfied.
(g) Governmental Consents, Authorizations, Etc. All material
consents, authorizations, orders or approvals of, and filings or registrations
with, and any permits, licenses or other authorizations required by, any
applicable Governmental Body that are required for or in connection with, the
execution and delivery of this Agreement by InterWireless and the consummation
by InterWireless of the transactions contemplated hereby shall have been
obtained or made.
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<PAGE> 35
(h) No Dissenters. No Owner has exercised dissenters' rights
under the CGCL.
(i) Legislation. No law or legally binding regulation shall have
been enacted that does or would prohibit, restrict or delay consummation of the
Purchase or any of the conditions to the consummation of the Purchase or that
does or would have a Material Adverse Affect on InterWireless.
(j) Owners Noncompetition Agreements. Each Owner shall have
entered into a noncompetition agreement with eSat in the form attached as
Exhibit D.
ARTICLE 7
TERMINATION, AMENDMENT AND WAIVER0
Section 7.1 Termination. This Agreement may be terminated at any
time prior to the Effective Date, whether or not stockholder approval has been
received:
(a) by mutual consent of the Boards of Directors of InterWireless
and eSat;
(b) by InterWireless if any representation or warranty of eSat,
or by eSat if any representation or warranty of InterWireless or Owners,
contained herein shall have been incorrect or breached in any material respect,
as to which notice shall have been given to such party, and shall not have been
cured or otherwise resolved to the reasonable satisfaction of the other party on
or before the Effective Date, or by either InterWireless or eSat if any
condition to the consummation of the Purchase that must be fulfilled to its
satisfaction has (in the good faith judgment of its Board of Directors) become
impractical to be fulfilled;
(c) by either InterWireless or eSat if any permanent injunction
or other order of a court or other competent authority preventing the
consummation of the Purchase shall have become final and non-appealable; or
(d) by InterWireless or eSat if the Purchase has not become
effective by April 19, 2000, unless otherwise agreed by both parties; provided,
however, that no party shall be permitted to terminate hereunder if such party
is in violation of this Agreement.
Section 7.2 Effect of Termination. In the event of the termination of
this Agreement as provided herein, this Agreement shall become wholly void and
have no further force and effect except as hereinafter provided; and there shall
be no liability on the part of InterWireless or eSat (or their respective
officers of directors) except to comply with the confidentiality provisions of
Section 5.6 hereof, and except as otherwise provided herein. Nothing contained
herein shall relieve any party from liability for its breach of this Agreement.
Section 7.3 Amendment. This Agreement and the exhibits and schedules
hereto may be amended by the parties hereto at any time prior to the Effective
Date; provided, however, that
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<PAGE> 36
any amendment must be by an instrument or instruments in writing signed and
delivered on behalf of each of the parties hereto.
Section 7.4 Extension; Waiver. At any time prior to the Effective Date,
any corporate party hereto that is entitled to the benefits hereof, by action
taken by its Board of Directors or a duly authorized officer, may (a) extend the
time for the performance of any of the obligations or other acts of any of the
other parties hereto, (b) in whole or in part, waive any inaccuracy in the
representations and warranties of any of the other parties hereto contained
herein or in any exhibit or schedule hereto or in any document delivered
pursuant hereto, and (c) in whole or in part, waive compliance with any of the
agreements of any of the other parties hereto or conditions contained herein.
Any agreement on the part of any party hereto to any such extension or waiver
shall be valid as set forth in an instrument in writing signed and delivered on
behalf of such party.
Section 7.5 Dual Transactions. Reference is made to that certain
Agreement and Plan of Merger and Reorganization of even date by and between
eSat, PN Acquisition Co. and PacificNet Technologies, Inc. (the "Merger
Agreement"). The parties agree that the two agreements and transactions
contemplated thereunder, including all ancillary agreements, are intended to be
indivisible with neither transaction occurring in the absence of the other.
Therefore, a rescission of the transaction contemplated by the Merger Agreement
shall automatically result in a rescission of the transaction contemplated by
this Agreement, and a rescission of the transaction contemplated by this
Agreement shall automatically result in a rescission of the transaction
contemplated in the Merger Agreement.
ARTICLE 8
GENERAL PROVISIONS
Section 8.1 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if and when delivered personally
or transmitted by telex, telecopy or telegram, mailed by registered or certified
mail (return receipt requested) or sent by a recognized next business day
courier to the persons at the following addresses (or at such other address for
a party as shall be specified by like notice):
If to eSat: eSat, Inc.
16520 Harbor Boulevard, Building G
Fountain Valley, California 92708
Attention: Michael C. Palmer
Fax: (714) 418-3200
with a copy to: Arter & Hadden LLP
725 S. Figueroa Street, Suite 3400
Los Angeles, California 90017-5434
Attention: David Decker, Esq.
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<PAGE> 37
Fax: (213) 617-9255
If to InterWireless: InterWireless, Inc.
10 Universal City Plaza, No. 1130
Los Angeles, California 91680
Attention: Mr. David Pennells
Fax: (818) 464-2799
with a copy to: Schneider & Warren, LLP
9100 Wilshire Boulevard
Seventh Floor - West Tower
Beverly Hills, California 90212
Attention: Mitchell I. Burger, Esq.
Fax: (310) 274-2330
If to Owners: David Pennells
InterWireless, Inc.
10 Universal City Plaza, No. 1130
Los Angeles, California 91680
Attention: Mr. David Pennells
Fax: (818) 464-2799
Richard Elliot
InterWireless, Inc.
10 Universal City Plaza, No. 1130
Los Angeles, California 91680
Attention: Mr. David Pennells
Fax: (818) 464-2799
with a copy to: Schneider & Warren, LLP
9100 Wilshire Boulevard
Seventh Floor - West Tower
Beverly Hills, California 90212
Attention: Mitchell I. Burger, Esq.
Fax: (310) 274-2330
Section 8.2 Fees and Expenses of the Transaction. eSat shall bear its
own tax, accounting and legal expenses in negotiating, executing and delivering
this Agreement and any related documents and in preparing for the consummation
of the merger (collectively, "Transaction Expenses"). The individual Owners
shall bear the balance of all Transaction Expenses incurred by InterWireless,
any of its Subsidiaries, or any of the Owners, regardless of whether those
Transaction Expenses are invoiced to InterWireless.
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<PAGE> 38
Section 8.3 Interpretation. The headings contained in this Agreement are
for reference purposes only and shall not affect the meaning or interpretation
of this Agreement. Terms such as "herein," "hereof," "hereinafter" refer to this
Agreement as a whole and not to the particular sentence or paragraph where they
appear, unless the context otherwise requires. Terms used in the plural include
the singular, and vice versa, unless the context otherwise requires.
Section 8.4 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 8.5 Miscellaneous. This Agreement, including the Exhibits and
Schedules hereto, (a) constitutes the entire agreement and supersedes all other
prior agreements and understandings, both written and oral, among the parties,
or any of them, with respect to the subject matter hereof; (b) is not intended
to and shall not confer upon any other person any rights or remedies hereunder
or otherwise with respect to the subject matter hereof, except for rights that
may expressly arise as a consequence of the Purchase; (c) shall not be assigned
by operation of law or otherwise; (d) has been drafted by all of the parties to
this Agreement and should not be construed against any of the parties hereto;
and (e) shall be governed in all respects, including validity, interpretation
and effect by the substantive laws of the State of California without regard to
conflict of law provisions.
Section 8.6 Survival. No investigation by the parties hereto made
heretofore or hereafter shall affect the representations and warranties of the
parties that are contained herein, and each such representation and warranty
shall survive such investigation for the period set forth in Section 5.14.
Section 8.7 Mutual Cooperation. After the Effective Date, the Owners,
InterWireless and its Subsidiaries and eSat and its subsidiaries shall, and
shall cause their agents and employees to, cooperate with each party as
reasonably requested by such party in connection with the prosecution or defense
of any claims or matters relating to InterWireless and its Subsidiaries. Such
cooperation shall include but is not limited to tax matters involving
InterWireless, its Subsidiaries and the Owners. Cooperation shall include making
books and records available and permitting access to employees, the Owners and
other persons. The requesting party shall reimburse the other party for any
out-of-pocket expenses incurred by it in connection with such request.
[BALANCE OF THIS PAGE INTENTIONALLY LEFT BLANK.]
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IN WITNESS WHEREOF, the parties hereto have executed this
Agreement or have caused this Agreement to be executed by their duly authorized
officers.
ESAT, INC.
By /s/ MICHAEL C. PALMER
-------------------------------------
Michael C. Palmer, President
INTERWIRELESS, INC.
By /s/ RICHARD ELLIOT
-------------------------------------
Richard Elliot, President
"OWNERS"
/s/ DAVID PENNELLS By /s/ RICHARD ELLIOT
- -------------------------------- -------------------------------------
David Pennells Richard Elliot
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<PAGE> 40
SCHEDULE A
InterWireless Disclosure Schedule
<PAGE> 41
SCHEDULE B
eSat Disclosure Schedule
None
2
<PAGE> 42
SCHEDULE C
Owners Disclosure Schedule
3
<PAGE> 1
EXHIBIT 10.03
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 D 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") 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
Transaction Documents, 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.
<PAGE> 2
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.
(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.
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<PAGE> 3
(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 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:
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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 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 and all Exchange
Act reports filed subsequent thereto (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
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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.
b. REPORTING COMPANY STATUS. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Nevada 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) 19,173,725 shares of Common Stock, $.001 par value per share, of
which approximately 19,173,725 shares had been issued as of April 12, 2000, and
(ii) 50,000 shares of
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<PAGE> 6
Series C Preferred Stock with rights, preferences and limitations to be
determined by the Board of Directors of the Company. As of the date of this
Agreement, there are no shares of Preferred Stock outstanding except for Series
C Preferred Stock. 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 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
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<PAGE> 7
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, 1999, 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, 1999, 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
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 Documents"), or (iii) would reasonably be expected to materially
and adversely affect the value of the rights granted to the Buyer in the
Transaction Documents.
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 Documents 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 Documents.
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,
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<PAGE> 8
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, 1999, 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) 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
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<PAGE> 9
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 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.
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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 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. Additionally, a
Registration Statement for the Common Stock registrable on behalf of any other
shareholder except Grayson & Associates shall not be filed until at least 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
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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 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 2 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
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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 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 notice of conversion; or
(y) require the Company to redeem each Unconverted Preferred
Stock 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
Effective Date, 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.
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(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 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 Documents, 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 Documents, 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
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<PAGE> 14
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 Documents except to the
extent that any losses, claims, damages, liabilities or 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.
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<PAGE> 15
(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 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
15
<PAGE> 16
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 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.
16
<PAGE> 17
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:
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 shall not have been obtained;
17
<PAGE> 18
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 Documents.
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.
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.
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<PAGE> 19
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.
Suite 1440
39 Broadway
New York, New York 10006
Attn: Samuel Krieger, Esq.
Telephone No.: (212) 363-2900
Telecopier No. (212) 363-2999
19
<PAGE> 20
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.]
20
<PAGE> 21
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: $7,500,000.00
------------
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 13th day of April
2000.
__________________________________ WENTWORTH, LLC
Address Printed Name of Subscriber
By: /s/
Telecopier No.
__________________________________ Printed Name and Title
Jurisdiction of Incorporation
or Organization
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:
Title:
Date:
21
<PAGE> 22
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
<PAGE> 23
ANNEX V
TO
SECURITIES PURCHASE AGREEMENT
COMPANY DISCLOSURE
NONE
<PAGE> 1
EXHIBIT 10.04
AMENDED AND RESTATED
CERTIFICATE OF DESIGNATIONS
OF
SERIES C 6% CONVERTIBLE PREFERRED STOCK
OF
ESAT, INC.
Pursuant to Section 78-1955 of the General Corporation Law of Nevada
(the "NGCL), the undersigned duly authorized officers of ESAT, INC., a Nevada
corporation (the "Company"), hereby certify that (i) the following resolution to
amend and restate the Certificate of Designations of the Company's Series C 6%
Convertible Preferred Stock was duly adopted on April 7, 2000, 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 NGCL; (ii) said resolution
was approved on April 12, 2000, by written consent of all holders of the
Company's Series C 6% Convertible Preferred Stock in accordance with Section
78-1955(3) of the NGCL; (iii) there are no securities senior to the Series C 6%
Convertible Preferred Stock which must approve said resolution; and (iv) 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 has created as of
December 29, 1999 a series of the Corporation's authorized but unissued
preferred stock, $.001 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, $.01 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 $.01 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.
<PAGE> 2
(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.
(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; provided however, that for a
period ending 15 months from the Issue Date, the Conversion Price shall not be
less than $2.50 per share.
(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.
2
<PAGE> 3
(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 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
3
<PAGE> 4
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 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.
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(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 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
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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 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,
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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.
(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, at any time after the Effective Date, 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 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,
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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
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
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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, 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 older 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 rincipal 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
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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 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.
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(l) Delivery of Common Stock. In the event that entirely 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
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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 the greater of (i) an amount sufficient to yield to
holders of the Series C Preferred Stock a 17.5% annualized rate of return on the
Original Issue Price per share from the Issue Date to the date of the Redemption
Notice ("Redemption Notice Date"), or (ii) an amount 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.
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;
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(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 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.
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(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 _____ day of April 2000.
ESAT, INC.
By _____________________________________
Michael C. Palmer President, Chief
Executive Officer and Secretary
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EXHIBIT 10.05
CERTIFICATE OF DESIGNATIONS
OF
SERIES D 6% CONVERTIBLE PREFERRED STOCK
OF
ESAT, INC.
Pursuant to Section 78-1955 of the General Corporation Law of Nevada,
the undersigned duly authorized officer of ESAT, INC., a Nevada corporation (the
"Company"), hereby certifies that the following resolution was duly adopted on
April 7, 2000, 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, $.001 par
value per share, to be designated "Series D 6% Convertible Preferred Stock" and
to consist of 75,000 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 75,000 shares of the Corporation's
previously undesignated Preferred Stock, $.001 par value, shall be designated as
the "Series D Preferred Stock" (hereafter "Series D Preferred Stock"). The
original issue price per share of the Series D 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 D 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 D Preferred Stock that such holder elects to
convert shares of its Series D Preferred Stock, or (ii) the date on which the
Corporation gives by telecopy written notice to holders of Series D Preferred
Stock to convert shares of Series D Preferred Stock.
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(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; provided however, that for a
period ending 15 months from the Issue Date, the Conversion Price shall not be
less than $2.50 per share.
(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 D 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
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before the consummation or closing of such merger or consolidation, holders of
outstanding 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 D
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 D 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 July 15, 2000. If July 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 D 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
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Series D 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 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 D 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 D
Preferred Stock, or any other period shorter or longer than a full Dividend
Period on the Series D 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 D Preferred Stock which are in arrears.
(d) Priority and Dividend Participation/Parity Stock.
(i) So long as any shares of the Series D 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 D
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 D 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 D 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 D 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 D Preferred Stock and on such other stock bear to each other.
(ii) So long as any shares of the Series D Preferred Stock are
outstanding, no other stock of the Corporation ranking on a parity with the
Series D 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 D Preferred Stock as to dividends and upon
liquidation, dissolution or winding up) unless (a) the full cumulative
dividends, if any, accrued on all
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outstanding shares of the Series D Preferred Stock shall have been paid 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 D Preferred Stock.
(e) Priority and Dividend Participation/Junior Stock. So long as any
shares of the Series D 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 D 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 D 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 D 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 D 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 D Preferred Stock and any other stock of the
Corporation ranking on a parity with the Series D 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 D Preferred Stock and for
the current dividend period with respect to any other stock of the Corporation
ranking on a parity with the Series D 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 D 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 D
Preferred Stock with respect to liquidation preferences, the holder of each
share of Series D 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 D Preferred Stock held by any holder (the "Liquidation Value"). For
purposes hereof, the Series D Preferred Stock shall rank on liquidation senior
to the Corporation's Series A Preferred Stock and Series B Preferred Stock.
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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 D Preferred
Stock the full amount to which they otherwise would be entitled, the holders of
Series D 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 D 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 D Preferred Stock then
outstanding.
After such payment shall have been made in full to the holders of
the Series D 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 D 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 D 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 D 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 D 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 D 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 D 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 D 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
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shares of Series D Preferred Stock held by each holder, not upon each share of
Series D Preferred Stock so held by the holder.
(b) Amendments to Charter. For so long as there are any shares of
Series D 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 D Preferred Stock, voting together as a
class, each share of Series D Preferred Stock to be entitled to one vote in each
instance, if such amendment would adversely affect the rights of the holders of
Series D 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 D Preferred Stock either as to dividends or upon
liquidation shall not be deemed to adversely affect the rights of the holders of
Series D 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 D Preferred Stock shall have the right, at
such holder's option, to convert any of the shares of Series D 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 D 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) 25,000 shares of Series D
Preferred Stock 30 days after the Effective Date; (ii) an additional 25,000
shares of Series D Preferred Stock commencing on the 60th day after the
Effective Date; and (iii) the balance of the Series D Preferred Stock commencing
on the 90th day after the Effective Date; provided that in no event shall any
holder of Series D Preferred Stock convert more than 20% of such holder's shares
of Series D 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 D Preferred Stock to be converted, convert all
outstanding shares of Series D 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 D 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 D Preferred
Stock shall be entitled to convert Series D Preferred Stock into shares of
Common Stock to the extent that such conversions when taken together with all
other conversions of shares of Series D Preferred Stock shall exceed 5% of
the issued and outstanding shares of Common Stock of the Corporation on the date
hereof, provided that if such conversion is to exceed 5%, the Corporation
shall redeem any shares of Series D Preferred Stock submitted for conversion in
excess of 19.9% for an amount equal to (x)
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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 D Preferred Stock shall have the
right, and the Corporation shall not have the obligation, to convert all or any
portion of the Series D Preferred Stock if and to the extent that the issuance
to such holder of shares of Series D 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 D 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 D 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 D 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 D 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 D 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 D Preferred Stock
might have been converted immediately prior to such reorganization,
recapitalization, reclassification or change, all subject to further adjustment
as provided herein.
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(f) Mandatory Conversion - Fundamental Change. If any Fundamental
Change shall occur, then each share of Series D Preferred Stock outstanding as
of the date of the consummation or closing thereof shall be (and be deemed to
have been) converted automatically, 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 D 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 D 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 D Preferred Stock
as of the date of such closing or consummation. Each holder of Series D
Preferred Stock shall thereupon promptly surrender for conversion, to the
Corporation at its principal office or to any transfer agent for the Series D
Preferred Stock or the Common Stock, all certificates representing all shares of
Series D 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 D 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 D 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 D 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 D 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 D 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 D 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
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the conversion of such shares of Series D 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 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 D 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 D Preferred Stock. Instead of any fractional
shares of Common Stock that would otherwise be issuable upon conversion of
Series D Preferred Stock, the Corporation shall pay to the holder of the share
of Series D 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 D Preferred Stock being
converted at any one time by any holder thereof, not upon each share of Series D
Preferred Stock being converted.
(j) Partial Conversion. In the event some but not all of the shares
of Series D 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 D 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 D 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 D Preferred Stock (including any shares of Series D
Preferred Stock represented by any warrants, options, subscription or purchase
rights for the Series D 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 D Preferred Stock
(including any shares of Series D Preferred Stock represented by any warrants,
options, subscriptions or purchase rights for the Series D 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.
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(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 D
Preferred Stock by giving written notice to the holders of shares of Series D
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 D 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 D Preferred Stock or the Common Stock all certificates representing all
shares of Series D 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 D 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
D Preferred Stock shall remain outstanding, and the Corporation shall lose its
right to redeem any further shares of Series D Preferred Stock.
The price per share of Series D Preferred Stock to be redeemed, the
Redemption Price shall be the greater of (i) an amount sufficient to yield to
holders of the Series D Preferred Stock a 17.5% annualized rate of return on the
Original Issue Price per share from the Issue Date to the date of the Redemption
Notice ("Redemption Notice Date"), or (ii) an amount equal to the economic
benefit a holder of Series D Preferred Stock would realize (before taxes and
brokerage commissions) from converting the Series D Preferred Stock to Common
Stock and selling it on the Redemption Notice Date.
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;
12
<PAGE> 13
(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 D 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 D 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 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 D Preferred Stock pursuant to this Certificate of Designations. If the
Corporation, pursuant to a notice from a holder of any shares of Series D
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.
13
<PAGE> 14
(c) Status of Redeemed or Converted Shares. Shares of Series D
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 7th day of April 2000.
ESAT, INC.
By _____________________________________
Michael C. Palmer President, Chief
Executive Officer and Secretary
14
<PAGE> 1
EXHIBIT 10.06
ANNEX IV
TO
SECURITIES PURCHASE
AGREEMENT
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of April 13, 2000 (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).
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of the Securities
Purchase Agreement, dated as of April 13, 2000, 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 D 6% Convertible Preferred Stock of the Company, in an aggregate
liquidation amount not exceeding $7,500,000 (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;
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
<PAGE> 2
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) "Other Registrable Securities" means the Conversion Shares and
Warrant Shares issuable to the Series C Preferred Stockholders, and the Warrant
Shares issuable to Grayson & Associates.
(e) "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.
(f) "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, but no later than May 10, 2000 (the _Required
Filing Date), either a Registration Statement on Form SB-2, if the Company is
then eligible to file using such
<PAGE> 3
form, and if not so eligible, on Form S-1 or other appropriate form, 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.
(b) PAYMENTS BY THE COMPANY.
<PAGE> 4
(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 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.
<PAGE> 5
(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 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;
<PAGE> 6
(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 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
<PAGE> 7
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 Investors 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 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,
<PAGE> 8
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 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
<PAGE> 9
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) [INTENTIONALLY OMITTED]
(c) 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
otherwise conflicts with the provisions hereof.. 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 Series D 6% Convertible Preferred Stock,, 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
<PAGE> 10
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 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
<PAGE> 11
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.
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
<PAGE> 12
(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 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
<PAGE> 13
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).
(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.
<PAGE> 14
(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 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.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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:
Name: Michael C. Palmer
Title: Chief Executive Officer & Secretary
WENTWORTH, LLC
By:
Name:
Title:
