<PAGE> 1
- -------------------------------------------------------------------------------
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): December 29, 1999
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., FOUNTAIN
VALLEY, CA 92708 (Address of principal
executive offices, including zip code)
(714) 418-3200
(Registrant's telephone number, including area code)
_______________N/A_______________
(Former name or former address, if changed since last report.)
- -------------------------------------------------------------------------------
<PAGE> 2
ITEM 5: OTHER EVENTS
On December 29, 1999 (the "Closing Date"), eSat, Inc., a Nevada
corporation ("eSat"), issued and sold 50,000 shares of its Series C 6%
Convertible Preferred Stock ("Series C Preferred Stock") to Wentworth LLC, a
limited liability company organized under the laws of the Grand Cayman Islands.
Grayson & Associates acted as the broker in connection with the private
placement under Section 506 of Regulation D, promulgated under the Securities
Act of 1933, as amended. The number of shares of common stock into which the
Series C Preferred Stock is convertible is 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 ($100 per share) and the
denominator of which is the Conversion Price (the lesser of 125% of the closing
bid price of the common stock on the trading day immediately preceding the date
of conversion or 85% of the 5 day average quoted price for the 5 trading days
immediately preceding the conversion notice date). The Series C Preferred Stock
becomes convertible according to the following schedule: (i) 16,666 shares of
Series C Preferred Stock may be converted at any time after the date (the
"Effective Date") that a registration statement becomes effective for common
stock into which the Series C Preferred Stock is convertible; (ii) an additional
16,666 shares of Series C Preferred Stock may be converted beginning on the 60th
day after the Effective Date; and (iii) the balance of the Series C Preferred
Stock may be converted beginning on the 90th day after the Effective Date;
provided that in no event may 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 5 consecutive trading days. If the closing bid price for the common stock of
eSat declines below $2 per share, eSat may suspend conversions once only for up
to 10 trading days. On or after the second anniversary of the issuance, eSat may
require conversion of the Series C Preferred Stock.
In addition to the Series C Preferred Stock, Wentworth LLC received
Warrants to acquire shares of eSat's common stock in an amount equal to 1 share
of common stock for each 6.66 shares into which the Series C Preferred Stock
were convertible on the Closing Date. The Warrants bear an exercise price equal
to 125% of the market price of the common stock on the Closing Date and expire
on the last day of the month in which the fifth anniversary of the Closing Date
occurs.
eSat entered into an additional agreement with Wentworth LLC which
provides that, during the one year following the Closing Date, Wentworth LLC
would buy from eSat and eSat would sell to Wentworth LLC additional shares of
eSat's common stock for a aggregate purchase price of not less than $2.5 million
and up to $20 million in the aggregate, at a per share price equal to 90% of the
5 lowest closing bid prices of the common stock for the 10 trading days prior to
eSat's offer to sell any particular tranche.
Both the Series C Preferred Stock and the Warrants and the shares into
which they are convertible have certain registration rights.
The net proceeds to eSat were $4,635,000 net of a broker's commission
of $340,000 and legal fees of $25,000. The broker also received warrants to
acquire 159,286 shares of eSat's common stock. Vantage Capital, Inc. and
Corporate Financial Enterprises are also entitled to receive a finder's fee of
$160,000 in connection with this sale of securities. Michael C. Palmer,
2.
<PAGE> 3
Chief Executive Officer of eSat, Inc., is also President of Vantage Capital,
Inc. eSat intends to use the proceeds of this sale of securities primarily for
working capital purposes.
ITEM 7: FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(c) Exhibits
10.01 Securities Purchase Agreement dated December 29, 1999 between
eSat and Wentworth LLC.
10.02 Form of Warrant dated December 29, 1999 issued to Grayson &
Associates.
SIGNATURES
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.
ESAT, INC.
By: /s/ Chester L. Noblett, Jr.
---------------------------
Chester L. Noblett, Jr.
Chairman of the Board
Dated: January 12, 2000
3.
<PAGE> 1
EXHIBIT 10.01
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, dated as of the date of
acceptance set forth below, is entered into by and between ESAT, INC., a Nevada
corporation, with headquarters located at 16520 Harbor Boulevard, Bldg. G,
Fountain Valley, California 92708(the "Company"), and each entity named on a
signature page hereto (each, a "Buyer") (each agreement with a Buyer being
deemed a separate and independent agreement between the Company and such Buyer,
except that each Buyer acknowledges and consents to the rights granted to each
other Buyer under such agreement and the Transaction Agreements, as defined
below, referred to therein).
W I T N E S S E T H:
WHEREAS, the Company and the Buyer are executing and delivering
this Agreement in accordance with and in reliance upon the exemption from
securities registration afforded, inter alia, by Rule 506 under Regulation D
("Regulation D") as promulgated by the United States Securities and Exchange
Commission (the "SEC") under the Securities Act of 1933, as amended (the "1933
Act"), and/or Section 4(2) of the 1933 Act; and
WHEREAS, the Buyer wishes to purchase, upon the terms and
subject to the conditions of this Agreement, Series C 6% Convertible Preferred
Stock of the Company (the "Convertible Preferred Stock") which will be
convertible into shares of Common Stock, $.001 par value per share, of the
Company (the "Common Stock"), upon the terms and subject to the conditions of
such Convertible Preferred Stock , together with the Warrants (as defined below)
exercisable for the purchase of shares of Common Stock, and subject to
acceptance of this Agreement by the Company;
NOW THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE.
a. PURCHASE.
(i) The undersigned hereby agrees to purchase from the Company
Convertible Preferred Stock in the principal amount set forth on the signature
page of this Agreement (the "Preferred Stock") out of a total offering of not
more than $5,000,000 of such Convertible Preferred Stock, and having the terms
and conditions and being in the form attached hereto as ANNEX I(A).
(ii) Subject to the terms and conditions of this Agreement and
the other Transaction Agreements, the Buyer will purchase (x) the Preferred
Stock on the Closing Date (as defined below).
-1-
<PAGE> 2
(iii) The purchase price to be paid by the Purchaser shall be
equal to the face amount of the Preferred Stock being purchased on the relevant
Closing Date (as defined below) and shall be payable in United States Dollars.
b. CERTAIN DEFINITIONS. As used herein, each of the following
terms has the meaning set forth below, unless the context otherwise requires:
(i) "Preferred Stock" means all or any portion of the Preferred
Stock.
(ii) "Securities" means the Preferred Stock, the Warrants and
the Common Stock issuable upon conversion of the Preferred Stock or the exercise
of the Warrants.
(iii) "Purchase Price" means the purchase price for the
Preferred Stock.
(iv) " Closing Date" means the date of the closing of the
purchase and sale of the Preferred Stock, as provided herein.
(v) "Closing Date" means the Closing Date.
(vi) "Effective Date" means the effective date of the
Registration Statement covering the Registrable Securities (as those terms are
defined in the Registration Rights Agreement defined below) for the Preferred
Stock and Warrants issued on the Closing Date.
(vii) "Market Price of the Common Stock" means (x) the closing
bid price of the Common Stock for the trading day ending on the trading day
immediately before the relevant date indicated in the relevant provision hereof
(unless a different relevant period is specified in the relevant provision), as
reported by Bloomberg, LP or, if not so reported, as reported on the
over-the-counter market or (y) if the Common Stock is listed on a stock
exchange, the closing price on such exchange on the trading day immediately
before the relevant date indicated in the relevant provision hereof (unless a
different relevant period is specified in the relevant provision), as reported
in The Wall Street Journal.
(xi) "Converted Shares" means the shares of Common Stock
issuable upon conversion of the Preferred Stock.
(xii) "Warrant Shares" means the shares of Common Stock issuable
upon exercise of the Warrants.
(xiii) "Shares" means the shares of Common Stock representing
any or all of the Converted Shares and the Warrant Shares.
(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.
-2-
<PAGE> 3
(xv) "Person" means any living person or any entity, such as,
but not necessarily limited to, a corporation, partnership or trust.
(xvi) "Affiliate" means, with respect to a specific Person
referred to in the relevant provision, another Person who or which controls or
is controlled by or is under common control with such specified Person.
(xvii) "Transaction Documents means the Securities Purchase
Agreement, the Registration Rights Agreement, the Warrant, and the Certificate
of Designations.
c. FORM OF PAYMENT; DELIVERY OF CERTIFICATES.
(i) The Buyer shall pay the Purchase Price for the relevant
Preferred Stock by delivering immediately available good funds in United States
Dollars to the escrow agent (the "Escrow Agent") identified in the Joint Escrow
Instructions attached hereto as ANNEX II (the "Joint Escrow Instructions") on
the date prior to the relevant Closing Date.
(ii) No later than the relevant Closing Date, but in any event
promptly following payment by the Buyer to the Escrow Agent of the relevant
Purchase Price, the Company shall deliver the relevant Certificates to the
Escrow Agent.
(iii) By signing this Agreement, each of the Buyer and the
Company, subject to acceptance by the Escrow Agent, agrees to all of the terms
and conditions of, and becomes a party to, the Joint Escrow Instructions, all of
the provisions of which are incorporated herein by this reference as if set
forth in full.
d. METHOD OF PAYMENT. Payment into escrow of the Purchase Price
shall be made by wire transfer of funds to:
Bank of New York
350 Fifth Avenue
New York, New York 10001
ABA# 021000018
For credit to the account of Krieger & Prager, Esqs.
Account No.: [To be provided by Krieger & Prager]
Re: ESAT, Inc.
Not later than 5:00 p.m., New York time, on the date which is seven (7) New York
Stock Exchange trading days after the Company shall have accepted this Agreement
and returned a signed counterpart of this Agreement to the Escrow Agent by
facsimile, the Buyer shall deposit 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.
-3-
<PAGE> 4
e. ESCROW PROPERTY. The Purchase Price and the Certificates
delivered to the Escrow Agent as contemplated by Sections 1(c) and (d) hereof
are referred to as the "Escrow Property."
2. BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO
INFORMATION; INDEPENDENT INVESTIGATION.
The Buyer represents and warrants to, and covenants and agrees
with, the Company as follows:
a. Without limiting Buyer's right to sell the Common Stock
pursuant to the Registration Statement, the Buyer is purchasing the Preferred
Stock and the Warrants and will be acquiring the Shares for its own account for
investment only and not with a view towards the public sale or distribution
thereof and not with a view to or for sale in connection with any distribution
thereof.
b. The Buyer is (i) an "accredited investor" as that term is
defined in Rule 501 of the General Rules and Regulations under the 1933 Act by
reason of Rule 501(a)(3), (ii) experienced in making investments of the kind
described in this Agreement and the related documents, (iii) able, by reason of
the business and financial experience of its officers (if an entity) and
professional advisors (who are not affiliated with or compensated in any way by
the Company or any of its affiliates or selling agents), to protect its own
interests in connection with the transactions described in this Agreement, and
the related documents, and (iv) able to afford the entire loss of its investment
in the Securities.
c. All subsequent offers and sales of the Preferred Stock and
the Shares by the Buyer shall be made pursuant to registration of the Shares
under the 1933 Act or pursuant to an exemption from registration.
d. The Buyer understands that the Preferred Stock is being
offered and sold to it in reliance on specific exemptions from the registration
requirements of United States federal and state securities laws and that the
Company is relying upon the truth and accuracy of, and the Buyer's compliance
with, the representations, warranties, agreements, acknowledgments and
understandings of the Buyer set forth herein in order to determine the
availability of such exemptions and the eligibility of the Buyer to acquire the
Preferred Stock.
e. The Buyer and its advisors, if any, have been furnished with
or have been given access to all materials relating to the business, finances
and operations of the Company and materials relating to the offer and sale of
the Preferred Stock and the offer of the Shares which have been requested by the
Buyer, including ANNEX V hereto. The Buyer and its advisors, if any, have been
afforded the opportunity to ask questions of the Company and have received
complete and satisfactory answers to any such inquiries. Without limiting the
generality of the foregoing, the Buyer has also had the opportunity to obtain
and to review the Company's Form 10-SB Registration Statement (the "Company's
SEC Documents").
-4-
<PAGE> 5
f. The Buyer understands that its investment in the Securities
involves a high degree of risk.
g. The Buyer understands that no United States federal or state
agency or any other government or governmental agency has passed on or made any
recommendation or endorsement of the Securities.
h. This Agreement has been duly and validly authorized, executed
and delivered on behalf of the Buyer and is a valid and binding agreement of the
Buyer enforceable in accordance with its terms, subject as to enforceability to
general principles of equity and to bankruptcy, insolvency, moratorium and other
similar laws affecting the enforcement of creditors' rights generally.
i. The Buyer is a corporation duly organized, validly existing
and in good standing under the laws of the Cayman Islands and has the requisite
corporate power to own its properties and to carry on its business as now being
conducted. The Buyer is duly qualified as a foreign corporation to do business
and is in good standing in each jurisdiction where the nature of the business
conducted or property owned by it makes such qualification necessary, other than
those jurisdictions in which the failure to so qualify would not have a material
adverse effect on the business, operations or condition (financial or otherwise)
or results of operations of the Company and its subsidiaries taken as a whole.
j. Buyer is a "sophisticated investor" (as described in Rule
506(b)(2)(ii) of Regulation D) and an "accredited investor" (as defined in Rule
501(a) of Regulation D), and Purchaser has such knowledge and experience in
business and financial matters that it is capable of evaluating the merits and
risks of an investment in the Company's securities.
k. The Buyer expressly agrees that that until all of the
Preferred Stock shall have been converted, the Buyer shall not engage in short
sales of the Common Stock of the Company. The Buyer acknowledges that purchases,
sales and other transactions may be subject to various federal and state
securities laws and agrees to comply with all such applicable securities laws.
3. COMPANY REPRESENTATIONS, ETC. The Company represents and
warrants to the Buyer that, except as provided in ANNEX V hereto:
a. CONCERNING THE PREFERRED STOCK AND THE SHARES. There are no
preemptive rights of any stockholder of the Company, as such, to acquire the
Preferred Stock, the Warrants or the Shares.
b. REPORTING COMPANY STATUS. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the requisite corporate power to own its properties and to
carry on its business as now being conducted. The Company is duly qualified as a
foreign corporation to do business and is in good standing in each
-5-
<PAGE> 6
jurisdiction where the nature of the business conducted or property owned by it
makes such qualification necessary, other than those jurisdictions in which the
failure to so qualify would not have a material adverse effect on the business,
operations or condition (financial or otherwise) or results of operation of the
Company and its subsidiaries taken as a whole. The Company has filed a Form
10-SB to register its Common Stock pursuant to Section 12 of the 1934 Act, and
the Common Stock is listed and traded on The NASDAQ/Bulletin Board Market. The
Company has received no notice, either oral or written, with respect to the
continued eligibility of the Common Stock for such listing, and the Company has
maintained all requirements for the continuation of such listing.
c. AUTHORIZED SHARES. The authorized capital stock of the
Company consists of (i)_50,000,00 shares of Common Stock, $.001 par value per
share, of which approximately18,191,062 had been issued as of December 20, 1999
and (ii)10,000,000 shares of Preferred Stock with rights, preferences and
limitations to be determined by the Board of Directors of the Company, of which
the Series A and Series B have been authorized for a total of 2,000,000 shares.
As of the date of this Agreement, there are no shares of Preferred Stock issued.
All issued and outstanding shares of Common Stock have been duly authorized and
validly issued and are fully paid and nonassessable. The Company has sufficient
authorized and unissued shares of Common Stock as may be necessary to effect the
issuance of the Shares. The Shares have been duly authorized and, when issued
upon conversion of, or as interest on, the Preferred Stock or upon exercise of
the Warrants, each in accordance with its respective terms, will be duly and
validly issued, fully paid and non- assessable and will not subject the holder
thereof to personal liability by reason of being such holder.
d. SECURITIES PURCHASE AGREEMENT; REGISTRATION RIGHTS AGREEMENT
AND STOCK. This Agreement and the Registration Rights Agreement, the form of
which is attached hereto as ANNEX IV (the "Registration Rights Agreement"), and
the transactions contemplated thereby, have been duly and validly authorized by
the Company, this Agreement has been duly executed and delivered by the Company
and this Agreement is, and the Preferred Stock, the Warrants and the
Registration Rights Agreement, when executed and delivered by the Company, will
be, valid and binding agreements of the Company enforceable in accordance with
their respective terms, subject as to enforceability to general principles of
equity and to bankruptcy, insolvency, moratorium, and other similar laws
affecting the enforcement of creditors' rights generally.
e. NON-CONTRAVENTION. The execution and delivery of this
Agreement and the Registration Rights Agreement by the Company, the issuance of
the Securities, and the consummation by the Company of the other transactions
contemplated by this Agreement, the Registration Rights Agreement, and the
Preferred Stock do not and will not conflict with or result in a breach by the
Company of any of the terms or provisions of, or constitute a default 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
-6-
<PAGE> 7
regulatory body, administrative agency, or other governmental body having
jurisdiction over the Company or any of its properties or assets, or (iv) the
Company's listing agreement for its Common Stock, except such conflict,
breach or default which would not have a material adverse effect on the
business, operations or condition (financial or otherwise) or results of
operations of the Company and its subsidiaries, taken as a whole, or on the
transactions contemplated herein.
f. APPROVALS. No authorization, approval or consent of any
court, governmental body, regulatory agency, self-regulatory organization, or
stock exchange or market or the stockholders of the Company is required to be
obtained by the Company for the issuance and sale of the Securities to the Buyer
as contemplated by this Agreement, except such authorizations, approvals and
consents that have been obtained.
g. SEC FILINGS. None of the Company's SEC Documents contained,
at the time they were filed, any untrue statement of a material fact or omitted
to state any material fact required to be stated therein or necessary to make
the statements made therein in light of the circumstances under which they were
made, not misleading. The Company has since November 1, 1999 timely filed all
requisite forms, reports and exhibits thereto with the SEC.
h. ABSENCE OF CERTAIN CHANGES. Since December 31, 1998, there
has been no material adverse change and no material adverse development in the
business, properties, operations, condition (financial or otherwise), or results
of operations of the Company, except as disclosed in the Company's SEC
Documents. Since December 31, 1998, except as provided in the Company's SEC
Documents, the Company has not (i) incurred or become subject to any material
liabilities (absolute or contingent) except liabilities incurred in the ordinary
course of business consistent with past practices; (ii) discharged or satisfied
any material lien or encumbrance or paid any material obligation or liability
(absolute or contingent), other than current liabilities paid in the ordinary
course of business consistent with past practices; (iii) declared or made any
payment or distribution of cash or other property to stockholders with respect
to its capital stock, or purchased or redeemed, or made any agreements to
purchase or redeem, any shares of its capital stock; (iv) sold, assigned or
transferred any other tangible assets, or canceled any debts or claims, except
in the ordinary course of business consistent with past practices; (v) suffered
any substantial losses or waived any rights of material value, whether or not in
the ordinary course of business, or suffered the loss of any material amount of
existing business; (vi) made any changes in employee compensation, except in the
ordinary course of business consistent with past practices; or (vii) experienced
any material problems with labor or management in connection with the terms and
conditions of their employment.
i. FULL DISCLOSURE. There is no fact known to the Company (other
than 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,
-7-
<PAGE> 8
including this Agreement, the "Transaction Agreements"), or (iii)
would reasonably be expected to materially and adversely affect the value of the
rights granted to the Buyer in the Transaction Agreements.
j. ABSENCE OF LITIGATION. Except as set forth in the Company's
SEC Documents, there is no action, suit, proceeding, inquiry or investigation
before or by any court, public board or body pending or, to the knowledge of the
Company, threatened against or affecting the Company, wherein an unfavorable
decision, ruling or finding would have a material adverse effect on the
properties, business or financial condition, or results of operation of the
Company and its subsidiaries taken as a whole or the transactions contemplated
by any of the Transaction Agreements or which would adversely affect the
validity or enforceability of, or the authority or ability of the Company to
perform its obligations under, any of the Transaction Agreements.
k. ABSENCE OF EVENTS OF DEFAULT. Except as set forth in Section
3(e) hereof, no Event of Default (or its equivalent term), as defined in the
respective agreement to which the Company is a party, and no event which, with
the giving of notice or the passage of time or both, would become an Event of
Default (or its equivalent term) (as so defined in such agreement), has occurred
and is continuing, which would have a material adverse effect on the business,
operations or the condition (financial or otherwise) or results of operations of
the Company and its subsidiaries, taken as a whole.
l. PRIOR ISSUES. During the twelve (12) months preceding the
date hereof, the Company has not issued any convertible securities or, except as
provided in the Company's SEC Documents, any shares of the Common Stock or
Preferred Stock.
m. NO UNDISCLOSED LIABILITIES OR EVENTS. The Company has no
liabilities or obligations other than those disclosed in the Company's SEC
Documents or those incurred in the ordinary course of the Company's business
since December 31, 1998, and which individually or in the aggregate, do not or
would not have a material adverse effect on the properties, business, condition
(financial or otherwise), or results of operations of the Company and its
subsidiaries, taken as a whole. No event or circumstances has occurred or exists
with respect to the Company or its properties, business, condition (financial or
otherwise), or results of operations, which, under applicable law, rule or
regulation, requires public disclosure or announcement prior to the date hereof
by the Company but which has not been so publicly announced or disclosed. Except
for mergers or acquisitions requiring the issuance of common stock and/or
preferred stock, there are no proposals currently under consideration or
currently anticipated to be under consideration by the Board of Directors or the
executive officers of the Company which proposal would (x) 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,
-8-
<PAGE> 9
mortgage, deed of trust or other material instrument or agreement to which it is
a party or by which it or its property is bound.
o. NO INTEGRATED OFFERING. Neither the Company nor any of its
affiliates nor any person acting on its or their behalf has, directly or
indirectly, at any time since November 1, 1999, made any offer or sales of any
security or solicited any offers to buy any security under circumstances that
would eliminate the availability of the exemption from registration under Rule
506 of Regulation D in connection with the offer and sale of the Securities as
contemplated hereby.
p. DILUTION. The number of Shares issuable upon conversion of
the Preferred Stock and the exercise of the Warrants may increase substantially
in certain circumstances, including, but not necessarily limited to, the
circumstance wherein the trading price of the Common Stock declines prior to the
conversion of the Preferred Stock. The Company's executive officers and
directors have studied and fully understand the nature of the Securities being
sold hereby and recognize that they have a potential dilutive effect. The board
of directors of the Company has concluded, in its good faith business judgment,
that such issuance is in the best interests of the Company. The Company
specifically acknowledges that its obligation to issue the Shares upon
conversion of the Preferred Stock and upon exercise of the Warrants is binding
upon the Company and enforceable regardless of the dilution such issuance may
have on the ownership interests of other shareholders of the Company.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
a. TRANSFER RESTRICTIONS. The Buyer acknowledges that (1) the
Preferred Stock have not been and are not being registered under the provisions
of the 1933 Act and, except as provided in the Registration Rights Agreement,
the Shares have not been and are not being registered under the 1933 Act, and
may not be transferred unless (A) subsequently registered thereunder or (B) the
Buyer shall have delivered to the Company an opinion of counsel, reasonably
satisfactory in form, scope and substance to the Company, to the effect that the
Securities to be sold or transferred may be sold or transferred pursuant to an
exemption from such registration; (2) any sale of the Securities made in
reliance on Rule 144 promulgated under the 1933 Act may be made only in
accordance with the terms of said Rule and further, if said Rule is not
applicable, any resale of such Securities under circumstances in which the
seller, or the person through whom the sale is made, may be deemed to be an
underwriter, as that term is used in the 1933 Act, may require compliance with
some other exemption under the 1933 Act or 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
-9-
<PAGE> 10
shall bear a restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of any such Securities):
THESE SECURITIES (THE "SECURITIES") HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE
SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OFFERED FOR SALE IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES OR AN OPINION
OF COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO THE CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED.
c. REGISTRATION RIGHTS AGREEMENT. The parties hereto agree to
enter into the Registration Rights Agreement on or before the Closing Date.
d. FILINGS. The Company undertakes and agrees to make all
necessary filings in connection with the sale of the Securities to the Buyer
under any United States laws and regulations applicable to the Company, or by
any domestic securities exchange or trading market, and to provide a copy
thereof to the Buyer promptly after such filing.
e. REPORTING STATUS. So long as the Buyer beneficially owns any
of the Securities, the Company shall file all reports required to be filed with
the SEC pursuant to Section 13 or 15(d) of the 1934 Act, and the Company shall
not terminate its status as an issuer required to file reports under the 1934
Act even if the 1934 Act or the rules and regulations thereunder would permit
such termination. The Company will take all reasonable action under its control
to obtain and to continue the listing and trading of its Common Stock
(including, without limitation, all Registrable Securities) on The
NASDAQ/Bulletin Board Market and will comply in all material respects with the
Company's reporting, filing and other obligations under the by-laws or rules of
the National Association of Securities Dealers, Inc. ("NASD") or The
NASDAQ/Bulletin Board Market.
f. USE OF PROCEEDS. The Buyer acknowledges that the Company
intends to make acquisitions or effect mergers subsequent to the execution of
this Agreement. Accordingly, the Company will use the proceeds from the sale of
the Preferred Stock (excluding amounts paid by the Company for legal fees,
finder's fees and escrow fees in connection with the sale of the Preferred
Stock) for cash deposits associated with such acquisitions or mergers and for
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.
-10-
<PAGE> 11
(ii) The provisions of subparagraph (g)(i) will not apply to (w)
Common Stock issued pursuant to an exemption from registration under the
Securities Act of 1933 other than pursuant to Regulation S; (x) an underwritten
public offering of shares of Common Stock or Preferred Stock; (y) an offering of
convertible Preferred Stock at market or above; or (z) the issuance of
securities (other than for cash) in connection with an acquisition, merger,
consolidation, sale of assets, disposition or the exchange of the capital stock
for assets, stock or other joint venture interests.
(iii) By the Closing Date, the Company shall obtain the
agreement (each, a "Principal's Agreement") of each of its Principals (as
defined below) that, without the prior written consent of the Buyer in each
instance, such Principal will not sell or otherwise transfer or offer to sell or
otherwise transfer any shares of Common Stock directly or indirectly held by
such Principal prior to one hundred twenty (120) days after the Effective Date.
Each such Principal's Agreement shall (w) specify that it is entered into as an
inducement to the Buyer's execution, delivery and performance of this Agreement,
(x) name the Buyer as a third party beneficiary thereof, (y) acknowledge that
the Company's transfer agent will be provided with instructions that transfers
by a Principal require the consent of the Company and the Buyer, and (z)
contemplate that, in addition to any other damages or remedies that may be
appropriate, the Principal's Agreement shall be enforceable by injunction sought
by the Company and the Buyer or any one or more of them. A "Corporate Principal"
is a person who meets any one or more of the following criteria: (A) a person
who is a director or principal officer of the Company (each, a "Company
Principal") and who, directly or indirectly, holds in excess of five (5%)
percent of any shares of Common Stock of the Company (each, a "Company
Principal"); (B) a spouse of a Company Principal (a "Principal's Spouse") who,
directly or indirectly, holds any shares of Common Stock of the Company, (C) a
parent or child of a Company Principal who resides in the household of a Company
Principal or of a Principal's Spouse (each, a "Principal's Relative") and who,
directly or indirectly, holds any shares of Common Stock, or (D) any other
person or entity, including, without limitation, for profit or non-profit
corporations, partnerships and trusts, whose voting rights regarding Common
Stock of the Company is subject to the direction, control or other influence of
any Company Principal, Principal's Spouse, or Principal's Relative.
(iv) In the event the Company breaches the provisions of this
Section 4(g), the 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.
-11-
<PAGE> 12
i. WARRANTS. The Company agrees to issue to the Buyer on each
Closing Date transferable, divisible warrants with cashless exercise rights (the
"Warrants") for the purchase of one (1) share of Common Stock for every 6.66
shares into which the Preferred Stock purchased by the Buyer are convertible
into on the Closing Date. Fractional shares shall be rounded up to the next
highest share. The Warrants shall bear an exercise price equal to one hundred
twenty-five percent (125%) of the Market Price of the Common Stock on the
relevant Closing Date. The Warrants will expire on the last day of the month in
which the fifth anniversary of the relevant Closing Date occurs. The Warrants
shall be in the form annexed hereto as ANNEX VI, together with registration
rights as provided in the Registration Rights Agreement and piggy-back
registration after the expiration of the effectiveness of the Registration
Statement contemplated by the Registration Rights Agreement.
j. LIMITATION ON ISSUANCE OF SHARES. The Company may be limited
in the number of shares of Common Stock it may issue by virtue of (i) the number
of authorized shares or (ii) the applicable rules and regulations of the
principal securities market on which the Common Stock is listed or traded,
including, but not necessarily limited to, NASDAQ Rule 4310(c)(25)(H)(i)(d)(2)
(collectively, the "Cap Regulations"). Without limiting the other provisions
thereof, the Certificate of Designations shall provide that (i) the Company will
take all steps reasonably necessary to be in a position to issue shares of
Common Stock on conversion of the Preferred Stock without violating the Cap
Regulations and (ii) if, despite taking such steps, the Company still can not
issue such shares of Common Stock without violating the Cap Regulations, the
holder of a Preferred Stock which can not be converted as result of the Cap
Regulations (each such Preferred Stock, an "Unconverted Preferred Stock") shall
have the option, exercisable in such holder's sole and absolute discretion, to
elect either of the following remedies:
(x) if permitted by the Cap Regulations, require the
Company to issue 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.
-12-
<PAGE> 13
(i) The Company covenants and agrees that if during the period
from the date hereof through and including the date which is thirty (30) days
after the first closing of the purchase of Common Stock pursuant to the Letter
of Intent dated December 27, 1999 between the Company and the Buyer, the Company
offers to enters into any transaction (a "New Transaction") for the sale of New
Common Stock, the Company shall notify the Buyer in writing of all of the terms
of such offer (a "New Transaction Offer"). The Buyer shall have the right (the
"Right of First Refusal"), exercisable by written notice given to the Company by
the close of business on the fifth business day after the Buyer's receipt of the
New Transaction Offer (the "Right of First Refusal Expiration Date"), to
participate in all or any part of the New Transaction Offer on the terms so
specified.
(ii) If, and only if, the Buyer does not exercise the Right of
First Refusal in full, the Company may consummate the remaining portion of the
New Transaction with any New Investor on the terms specified in the New
Transaction Offer within thirty (30) days of the Right of First Refusal
Expiration Date.
(iii) If the terms of the New Transaction to be consummated with
such other party differ from the terms specified in the New Transaction Offer so
that the terms are more beneficial in any respect to the New Investor, the
Company shall give the Buyer a New Transaction Offer relating to the terms of
the New Transaction, as so changed, and the Buyer's Right of First Refusal and
the preceding terms of this paragraph (l) shall apply with respect to such
changed terms.
(iv) If there is more than one Buyer signatory to this
Agreement, the preceding provisions of this paragraph (l) shall apply pro rata
among them (based on their relative Buyer's Allocable Shares), except that, to
the extent any such Buyer does not exercise its Right of First Refusal in full
(a "Declining Buyer"), the remaining Buyer or Buyers who or which have exercised
their own Right of First Refusal in full, shall have the right (pro rata among
them based 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
-13-
<PAGE> 14
consummation of the transactions contemplated by the Transaction Agreements, or
if such Buyer is impleaded in any such action, proceeding or investigation by
any Person, or (ii) any Buyer, other than by reason of its gross negligence or
willful misconduct or by reason of its trading of the Common Stock in a manner
that is illegal under the federal securities laws, becomes involved in any
capacity in any action, proceeding or investigation brought by the SEC against
or involving the Company or in connection with or as a result of the
consummation of the transactions contemplated by the Transaction Agreements, or
if such Buyer is impleaded in any such action, proceeding or investigation by
any Person, then in any such case, the Company will reimburse such Buyer for its
reasonable legal and other expenses (including the cost of any investigation and
preparation) incurred in connection therewith, as such expenses are incurred. In
addition, other than with respect to any matter in which such Buyer is a named
party, the Company will pay such Buyer the charges, as reasonably determined by
such Buyer, for the time of any officers or employees of such Buyer devoted to
appearing and preparing to appear as witnesses, assisting in preparation for
hearings, trials or pretrial matters, or otherwise with respect to inquiries,
hearing, trials, and other proceedings relating to the subject matter of this
Agreement. The reimbursement obligations of the Company under this paragraph
shall be in addition to any liability which the Company may otherwise have,
shall extend upon the same terms and conditions to any Affiliates of the Buyers
who are actually named in such action, proceeding or investigation, and
partners, directors, agents, employees and controlling persons (if any), as the
case may be, of the Buyers and any such Affiliate, and shall be binding upon and
inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Buyers and any such Affiliate and any such
Person. The Company also agrees that neither any Buyer nor any such Affiliate,
partners, directors, agents, employees or controlling persons shall have any
liability to the Company or any person asserting claims on behalf of or in right
of the Company in connection with or as a result of the consummation of the
Transaction Agreements except to the extent that any losses, claims, damages,
liabilities or 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
-14-
<PAGE> 15
Securities in accordance with clause (1)(B) of Section 4(a) of this Agreement is
not required under the 1933 Act, the Company shall (except as provided in clause
(2) of Section 4(a) of this Agreement) permit the transfer of the Securities
and, in the case of the Converted Shares or the Warrant Shares, as the case may
be, promptly instruct the Company's transfer agent to issue one or more
certificates for Common Stock without legend in such name and in such
denominations as specified by the Buyer.
b. (i) The Company will permit the Buyer to exercise its
right to convert the Preferred Stock by telecopying or delivering an executed
and completed Notice of Conversion to the Company and delivering, within five
(5) business days thereafter, the original Preferred Stock being converted to
the Company by express courier, with a copy to the transfer agent.
(ii) The term "Conversion Date" means, with respect to
any conversion elected by the holder of the Preferred Stock, the date specified
in the Notice of Conversion, provided the copy of the Notice of Conversion is
telecopied to or otherwise delivered to the Company in accordance with the
provisions hereof so that it is received by the Company on or before such
specified date.
(iii) The Company will transmit the certificates
representing the Converted Shares issuable upon conversion of any Preferred
Stock (together, unless otherwise instructed by the Buyer, with Preferred Stock
not being so converted) to the Buyer at the address specified in the Notice of
Conversion (which may be the Buyer's address for notices as contemplated by
Section 11 hereof or a different address) via express courier , by electronic
transfer or otherwise, within three (3) business days if the address for
delivery is in the United 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
-15-
<PAGE> 16
electronically transmit the Common Stock issuable upon conversion to the Buyer
by crediting the account of Buyer's Prime Broker with DTC through its Deposit
Withdrawal Agent Commission system.
e. The Company will authorize its transfer agent to give
information relating to the Company directly to the Buyer or the Buyer's
representatives upon the request of the Buyer or any such representative. The
Company will provide the Buyer with a copy of the authorization so given to the
transfer agent.
f. The Company will authorize its transfer agent to give
information relating to the Company directly to the Buyer or the Buyer's
representatives upon the request of the Buyer or any such representative. The
Company will provide the Buyer with a copy of the authorization so given to the
transfer agent.
g If, at any time (i) the Company challenges, disputes or denies
the right of a holder of Preferred Stock to effect a conversion of the Preferred
Stock into Common Stock or otherwise dishonors or rejects any Conversion Notice
delivered in accordance with the terms of this Agreement or the Certificate of
Designations or any exercise of any Warrant in accordance with its terms
("Warrant Exercise"), or (ii) any third party who is not and has never been an
Affiliate of such holder commences any lawsuit or proceeding or otherwise
asserts any claim before any court or public or governmental authority, which
lawsuit, proceeding or claim seeks to challenge, deny, enjoin, limit, modify,
delay or dispute the right of such holder to effect the conversion of the
Preferred Stock into Common Stock, and the Company refuses to honor any such
Conversion Notice or Warrant Exercise, then such holder shall have the right, by
written 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. Section101 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. Section362 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. Section362 in
respect of the conversion of the Preferred Stock. The Company agrees, without
cost or expense
-16-
<PAGE> 17
to such holder, to take or to consent to any and all action necessary to
effectuate relief under 11 U.S.C. Section362.
6. CLOSING DATES.
a. The Closing Date shall occur on the date which is the first
NYSE trading day after each of the conditions contemplated by Sections 7 and 8
hereof shall have either been satisfied or been waived by the party in whose
favor such conditions run.
b. The closing of the purchase and issuance of Preferred Stock
shall occur on the relevant Closing Date at the offices of the Escrow Agent and
shall take place no later than 3:00 P.M., New York time, on such day or such
other time as is mutually agreed upon by the Company and the Buyer.
c. Notwithstanding anything to the contrary contained herein,
the Escrow Agent will be authorized to release the Escrow Funds to the Company
and to others and to release the other Escrow Property on the relevant Closing
Date upon satisfaction of the conditions set forth in Sections 7 and 8 hereof
and as provided in the Joint Escrow Instructions.
7. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The Buyer understands that the Company's obligation to sell the
relevant Preferred Stock to the Buyer pursuant to this Agreement on the relevant
Closing Date is conditioned upon:
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.
-17-
<PAGE> 18
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;
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
-18-
<PAGE> 19
reimburse the Buyer for any reasonable legal fees and disbursements incurred by
the Buyer in enforcement of or protection of any of its rights under any of the
Transaction Agreements.
b. Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
c. This Agreement shall inure to the benefit of and be binding
upon the successors and assigns of each of the parties hereto.
d. All pronouns and any variations thereof refer to the
masculine, feminine or neuter, singular or plural, as the context may require.
e. A facsimile transmission of this signed Agreement shall be
legal and binding on all parties hereto.
f. This Agreement may be signed in one or more counterparts,
each of which shall be deemed an original.
g. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
h. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
i. This Agreement may be amended only by an instrument in
writing signed by the party to be charged with enforcement thereof.
j. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof.
10. NOTICES. Any notice required or permitted hereunder shall be
given in writing (unless otherwise specified herein) and shall be deemed
effectively given on the earliest of
(a) the date delivered, if delivered by personal delivery as
against written receipt therefor or by confirmed facsimile
transmission,
(b) the seventh business day after deposit, postage prepaid, in
the United States Postal Service by registered or certified
mail, or
(c) the third business day after mailing by international
express courier, with delivery costs and fees prepaid,
-19-
<PAGE> 20
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
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: $5,000,000
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 29th day of December, 1999.
WENTWORTH LLC
- ------------------------------------ ------------------------------------
Address Printed Name of Subscriber
- ------------------------------------ By:
---------------------------------
Telecopier No. (Signature of Authorized Person)
----------------------
------------------------------------
- ------------------------------------ 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: /s/ MICHAEL C. PALMER
------------------------------
Title: Chief Executive Officer and Secretary
------------------------------
Date: December 29, 1999
------------------------------
-21-
<PAGE> 22
<TABLE>
<S> <C>
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
</TABLE>
-22-
<PAGE> 1
EXHIBIT 10.02
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUED UPON THE
EXERCISE ARE SUBJECT TO THE RESTRICTIONS ON
TRANSFER SET FORTH IN SECTION 4 OF THIS WARRANT
Warrant No. 129906 Number of Shares: 25,000
(subject to adjustment)
Date of Issuance: December 29, 1999
ESAT, INC.
Common Stock Purchase Warrant
(Void after December 29, 2004)
eSat, Inc., a Nevada corporation (the "Company"), for value received,
hereby certifies that Grayson & Associates, Inc. or its registered assigns (the
"Registered Holder"), is entitled, subject to the terms set forth below, to
purchase from the Company, at any time or from time to time on or after the date
of issuance and on or before December 29, 2004 at not later than 5:00 pm at
Fountain Valley, California, 25,000 shares of Common Stock, $.001 par value per
share (the "Common Stock"), of the Company. The shares purchasable upon exercise
of this Warrant, and the Purchase Price per share (defined below), each as
adjusted from time to time pursuant to the provisions of this Warrant, are
hereinafter referred to as the "Warrant Shares" and the "Purchase Price,"
respectively.
1. Exercise.
a. This Warrant may be exercised on or before the expiration date
of December 29, 1999 by the Registered Holder, in whole or in part, by
surrendering this Warrant, with the purchase form appended hereto as Exhibit I
duly executed by such Registered Holder or by such Registered Holder's duly
authorized attorney, at the principal office of the Company, or at such other
office or agency as the Company may designate, accompanied by payment in full,
in lawful money of the United States, of the Purchase Price payable in respect
of the number of Warrant Shares purchased upon such exercise. For purposes
hereof, the Purchase Price per share shall be $3.139.
b. Notwithstanding any provisions herein to the contrary, if the
Fair Market Value of one share of Common Stock is greater than the Purchase
Price (at the date of calculation as set forth below), in lieu of exercising
this Warrant for cash, the Registered Holder may elect to receive shares equal
to the value (as determined below) of this Warrant (or the portion thereof being
canceled) by surrender of this Warrant at the principal office of the Company
together with the properly endorsed Notice of Exercise and notice of such
election in which event the Company shall issue to the Registered Holder the
number of shares of Common Stock computed using the following formula:
<PAGE> 2
Y (A-B)
X = -------
A
Where X = the number of shares of Common Stock to be issued
to the Registered Holder
Y = the number of shares of Common Stock purchasable
under the Warrant or, if only a portion of the
Warrant is being exercised, the portion of the
Warrant being canceled (at the date of such
calculation)
A = the Fair Market Value of one share of the
Company's Common Stock (at the date of such
calculation)
B = Purchase Price (as adjusted to the date of such
calculation)
For purposes of the above calculation, if the Common Stock is listed or
quoted on a national securities exchange, the Nasdaq Stock Market, or another
nationally recognized exchange or trading system as of the Exercise Date, the
Fair Market Value per share of the Common Stock shall be deemed to be the
average of the last reported sales price per share of Common Stock thereon for
the five trading days immediately preceding the Exercise Date; provided,
however, that if no such price is reported during such five-day period, or if
the Common Stock is not listed or quoted on a national securities exchange, the
Nasdaq Stock Market, or another nationally recognized exchange or trading system
as of the Exercise Date, the Fair Market Value per share of Common Stock shall
be deemed to be the amount most recently determined by the Board of Directors to
represent the fair market value per share of the Common Stock (including without
limitation a determination for purposes of granting Common Stock options or
issuing Common Stock under an employee benefit plan of the Company); and upon
request of the Registered Holder, the Board of Directors (or a representative
thereof) shall promptly notify the Registered Holder of the Fair Market Value
per share of Common Stock. Notwithstanding the foregoing, if the Board of
Directors has not made such a determination within the three-month period prior
to the Exercise Date, then (A) the Fair Market Value per share of Common Stock
shall be the amount next determined by the Board of Directors to represent the
fair market value per share of the Common Stock (including without limitation a
determination for purposes of granting Common Stock options or issuing Common
Stock under an employee benefit plan of the Company), (B) the Board of Directors
shall make such a determination within 10 days of a request by the Registered
Holder that it do so, and (C) the exercise of this Warrant pursuant to
subsection 1.b. shall be delayed until such determination is made.
c. Each exercise of this Warrant shall be deemed to have been
effected immediately prior to the close of business on the day on which this
Warrant shall have been surrendered to the Company as provided in subsections
1.a. and 1.b. above. At such time, the person or persons in whose name or names
any certificates for Warrant Shares shall be issuable upon such exercise as
provided in subsection 1.d. below shall be deemed to have become the holder or
holders of record of the Warrant Shares represented by such certificates.
d. As soon as practicable after the exercise of this Warrant in
full or in part, and in any event within 10 days thereafter, the Company, at its
expense, will cause to be issued in the name of, and delivered to, the
Registered Holder, or as such Holder (upon payment by such Holder of any
applicable transfer taxes) may direct:
(i) a certificate or certificates for the number of full
Warrant Shares to which such Registered Holder shall be entitled upon such
exercise plus, in lieu of any fractional share to which such Registered Holder
would otherwise be entitled, cash in an amount determined pursuant to Section 3
hereof; and
(ii) in case such exercise is in part only, a new warrant or
warrants (dated
2
<PAGE> 3
the date hereof) of like tenor, calling in the aggregate on the face or faces
thereof for the number of Warrant Shares equal (without giving effect to any
adjustment therein) to the number of such shares called for on the face of this
Warrant minus the number of such shares purchased by the Registered Holder upon
such exercise (and in the case of exercise under the net exercise provision of
Subsection 1.b., minus the number of shares underlying the Warrant which were
surrendered in accordance therewith).
2. Adjustments.
a. If outstanding shares of the Company's Common Stock shall be
subdivided into a greater number of shares or a dividend in Common Stock shall
be paid in respect of Common Stock, the Purchase Price in effect immediately
prior to such subdivision or at the record date of such dividend shall
simultaneously with the effectiveness of such subdivision or immediately after
the record date of such dividend be proportionately reduced. In the event of a
financing of the Company within 2 years of the date of this warrant, for a
consideration per share on a fixed price or a formula basis, less than the
Purchase Price, the Purchase Price of any shares not yet exercised under this
warrant shall be reduced to such fixed price or an approximation at the date of
the financing of the common stock equivalent to the formula price. If
outstanding shares of Common Stock shall be combined into a smaller number of
shares, the Purchase Price in effect immediately prior to such combination
shall, simultaneously with the effectiveness of such combination, be
proportionately increased. When any adjustment is required to be made in the
Purchase Price, the number of Warrant Shares purchasable upon the exercise of
this Warrant shall be changed to the number determined by dividing (i) an amount
equal to the number of shares issuable upon the exercise of this Warrant
immediately prior to such adjustment multiplied by the Purchase Price in effect
immediately prior to such adjustment, by (ii) the Purchase Price in effect
immediately after such adjustment.
b. If there shall occur any capital reorganization or
reclassification of the Company's Common Stock (other than a change in par value
or a subdivision or combination as provided for in subsection 2.a. above), or
any consolidation or merger of the Company with or into another corporation, or
a transfer of all or substantially all of the assets of the Company, then, as
part of any such reorganization, reclassification, consolidation, merger or
sale, as the case may be, lawful provision shall be made so that the Registered
Holder of this Warrant shall have the right thereafter to receive upon the
exercise hereof the kind and amount of shares of stock or other securities or
property which such Registered Holder would have been entitled to receive if,
immediately prior to any such reorganization, reclassification, consolidation,
merger or sale, as the case may be, such Registered Holder had held the number
of shares of Common Stock which were then purchasable upon the exercise of this
Warrant. In any such case, appropriate adjustment (as reasonably determined in
good faith by the Board of Directors of the Company) shall be made in the
application of the provisions set forth herein with respect to the rights and
interest thereafter of the Registered Holder of this Warrant such that the
provisions set forth in this Section 2 (including provisions with respect to
adjustment of the Purchase Price) shall thereafter be applicable, as nearly as
is reasonably practicable, in relation to any shares of stock or other
securities or property thereafter deliverable upon the exercise of this Warrant.
c. When any adjustment is required to be made in the Purchase
Price, the Company shall promptly mail to the Registered Holder a certificate
setting forth the Purchase Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment. Such certificate shall also
set forth the kind and amount of stock or other securities or property into
which this Warrant shall be exercisable following the occurrence of any of the
events specified in subsection 2.a or b. above.
d. In the event that the Company shall make any distribution of
its assets upon or with respect to its Common Stock, as a liquidating or partial
liquidating dividend, or other than as a dividend payable out of earnings or any
surplus legally available for dividends under the laws of the state of
incorporation of the Company, the Registered Holder shall be entitled to receive
upon exercise of this Warrant the amount of such assets (or, at the option of
the Company, an amount equal to the value thereof at the time of distribution,
as determined by the Company's Board of Directors in its sole discretion) which
would have been distributed to such Registered Holder if it had exercised its
right to exercise immediately prior to the record date for such distribution or,
in the absence of a record date, immediately prior to the
3
<PAGE> 4
date of such distribution.
3. Fractional Shares. The Company shall not be required upon the
exercise of this Warrant to issue any fractional shares, but shall make an
adjustment therefor in cash on the basis of the Fair Market Value per share of
Common Stock. For purposes hereof, Fair Market Value shall be determined as set
forth in subsection 1.b. above.
4. Requirements for Transfer.
a. This Warrant and the Warrant Shares shall not be sold or
transferred unless either (i) they first shall have been registered under the
Securities Act of 1933, as amended (the "Act"), or (ii) the Company first shall
have been furnished with an opinion of legal counsel, reasonably satisfactory to
the Company, to the effect that such sale or transfer is exempt from the
registration requirements of the Act.
b. Notwithstanding the foregoing, no registration or opinion of
counsel shall be required for (i) a transfer by a Registered Holder which is a
partnership to a partner of such partnership, a retired partner of such
partnership who retires after the date hereof, or to the estate of any such
partner or retired partner, if the transferee agrees in writing to be subject to
the terms of this Section 4, or (ii) a transfer made in accordance with Rule 144
under the Act.
c. Each certificate representing Warrant Shares shall bear a
legend substantially in the following form:
The securities represented by this certificate have
not been registered under the Securities Act of
1933, as amended, or applicable state securities
laws, and may not be offered, sold or otherwise
transferred, pledged or hypothecated unless and
until such securities are registered or qualified
under such Act, or applicable state securities laws,
or an exemption is available therefrom and
established satisfactory to the Company.
The foregoing legend shall be removed from the certificates representing any
Warrant Shares, at the request of the holder thereof, at such time as they
become eligible for resale pursuant to Rule 144(k) under the Act.
5. Company Registration.
a. If the Company shall determine to register any of its
securities either for its own account or the account of a security holder or
holders exercising their respective demand registration rights, other than a
registration relating solely to employee benefit plans, or a registration
relating to a corporate reorganization or other transaction under Rule 145, or a
registration on any registration form that does not permit secondary sales, the
Company will:
(i) promptly give to each Registered Holder written notice
thereof; and
(ii) use its best efforts to include in such registration
(and any related qualification under blue sky laws or other compliance), except
as set forth in Section 6.b. below, and in any underwriting involved therein,
all the Warrant Shares specified in a written request or requests, made by any
Registered Holder and received by the Company within twenty (20) days after the
written notice from the Company described in clause (i) above is received by the
Registered Holder. Such written request may specify all or a part of a Holder's
Warrant Shares.
b. If the registration of which the Company gives notice is for a
registered public offering involving an underwriting, the Company shall so
advise the Registered Holders as a part of the written notice given pursuant to
Section 6.a. In such event the right of any Registered Holder to registration
pursuant to this Section 6 shall be conditioned upon such Registered Holder's
participation in such underwriting and the inclusion of such Registered Holder's
Warrant Shares in the underwriting to the
4
<PAGE> 5
extent provided herein. All Registered Holders proposing to distribute their
securities through such underwriting shall (together with the Company and the
other holders of securities of the Company with registration rights to
participate therein distributing their securities through such underwriting)
enter into an underwriting agreement in customary form with the representative
of the underwriter or underwriters selected by the Company.
Notwithstanding any other provision of this Section 6, if the representative of
the underwriters advises the Company in writing that marketing factors require a
limitation on the number of shares to be underwritten, the representative may
(subject to the limitations set forth below) exclude all Warrant Shares from, or
limit the number of Warrant Shares to be included in, the registration and
underwriting. The Company shall so advise all holders of securities requesting
registration, and the number of shares of securities that are entitled to be
included in the registration and underwriting shall be allocated first to the
Company for securities being sold for its own account. If any person does not
agree to the terms of any such underwriting, such person shall be excluded
therefrom by written notice from the Company or the underwriter. Any Warrant
Shares or other securities excluded or withdrawn from such underwriting shall be
withdrawn from such registration.
6. The Company Covenants.
a. In the event of a registration pursuant to the provisions of
Sections 5, the Company shall use all reasonable efforts to cause the Warrant
Shares so registered to be registered or qualified for sale under the securities
or blue sky laws of such jurisdictions as the Registered Holder may reasonably
request; provided, however, that the Company shall not be required to qualify to
do business in any state by reason of this Section 7.a. in which it is not
otherwise required to qualify to do business.
b. The Company shall notify the Registered Holder promptly when
such registration statement has become effective or a supplement to any
prospectus forming a part of such registration statement has been filed.
c. The Company shall advise the Registered Holder, promptly after
it shall receive notice or obtain knowledge of the issuance of any stop order by
the Commission suspending the effectiveness of such registration statement, or
the initiation or threatening of any proceeding for that purpose, and promptly
use all reasonable efforts to prevent the issuance of any stop order or to
obtain its withdrawal if such stop order should be issued.
d. The Company shall promptly notify the Registered Holder, at
any time when a prospectus relating thereto is required to be delivered under
the Securities Act, of the happening of any event of which it has knowledge as a
result of which the prospectus included in such registration statement, as then
in effect, would include an 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 not misleading in the light of the circumstances then
existing, and at the reasonable request of each Registered Holder prepare and
furnish to them such number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Warrant Shares or securities, such prospectus shall not
include an 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 not
misleading in light of the circumstances under which they were made.
e. If requested by the underwriter for any underwritten offering
of Warrant Shares on behalf of the Registered Holder pursuant to a registration
requested under Sections 5, the Company and the Registered Holder will enter
into an underwriting agreement with such underwriter for such offering, which
shall be reasonably satisfactory in substance and form to the Company, the
Registered Holder, and the underwriter, and such agreement shall contain such
representations and warranties by the Company and each Registered Holder and
such other terms and provisions as are customarily contained in an underwriting
agreement with respect to secondary distributions solely by selling
stockholders, including, without limitation, indemnities substantially to the
effect and to the extent provided in Section 8.
5
<PAGE> 6
To the extent requested by the underwriter, the Registered Holder agrees
not to sell or otherwise transfer or dispose of any Warrant Shares held by it
during the period commencing on its receipt of written notice from the Company
of such underwritten public offering and ending 180 days following the effective
date of a registration statement of the Company filed under the Act in
connection with such firmly underwritten public offering of the Company's Common
Stock, provided that all executive officers and directors of the Company enter
into similar agreements.
7. Indemnification: Miscellaneous Operative Provisions.
a. Subject to the conditions set forth below, the Company agrees
to indemnify and hold harmless the Registered Holder, its respective officers,
directors, partners, employees, agents, shareholders and counsel, and each
person, if any, who controls any such person within the meaning of Section 15 of
the Securities Act or Section 20(a) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") from and against any and all loss, liability,
charge, claim, damage, and expense whatsoever (which shall include, for all
purposes of this Section 8, but not be limited to, reasonable attorneys' fees
and any and all reasonable expenses whatsoever incurred in investigating,
preparing, or defending against any litigation, commenced or threatened, or any
claim whatsoever), arising out of, based upon, or in connection with any untrue
statement or alleged untrue statement of a material fact contained (A) in any
registration statement, preliminary prospectus, or final prospectus (as from
time to time amended and supplemented) or any amendment or supplement thereto,
relating to the sale of any of the Warrant Shares, or (B) in any application or
other document or communication (in this Section 8 collectively called an
"application") executed by or on behalf of the Company or based upon written
information furnished by or on behalf of the Company filed in any jurisdiction
in order to register or qualify any of the Warrant Shares under the securities
or blue sky laws thereof or filed with the Commission, the Nasdaq Stock Market
or any securities exchange, or (C) in any reports or documents filed under the
Exchange Act; or any omission or alleged omission to state a material fact
required to be stated therein or necessary to make the statements made therein
not misleading, unless (x) such statement or omission was made in reliance upon
and in conformity with written information furnished to the Company by or on
behalf of such Registered Holder for inclusion in any registration statement,
preliminary prospectus, or final prospectus, or any amendment or supplement
thereto, or in any application, as the case may be, or (y) such loss, liability,
charge; claim, damage or expense arises out of the Registered Holder's failure
to comply with the terms and provisions of this Agreement. The foregoing
agreement to indemnify shall be in addition to any liability the Company may
otherwise have, including liabilities arising under this Agreement.
If any action is brought against the Registered Holders or any of
their respective officers, directors, partners, employees, agents, shareholders,
or counsel, or any controlling persons of such person (an "indemnified party")
in respect of which indemnity may be sought against the Company pursuant to the
foregoing paragraph, such indemnified party or parties shall promptly notify the
Company in writing of the institution of such action (but the failure to so
notify shall not relieve the Company from any liability other than pursuant to
this Section 8.a. unless, the failure to so notify shall prejudice any rights or
defenses with respect to such claim) and the Company shall promptly assume the
defense of such action, including the employment of counsel (reasonably
satisfactory to such indemnified party or parties) provided that the indemnified
party shall have the right to employ its or their own counsel in any such case,
but the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless:
(i) the employment of such counsel shall have been
authorized in writing by the Company in connection with the defense of such
action; or
(ii) such indemnified party or parties shall have reasonably
concluded, based on an opinion of counsel, that there may be one or more legal
defenses available to it or them or to other indemnified parties which are
different from or additional to those available to the Company, in any material
respect, and that as a result thereof a conflict of interest would arise absent
separate representation of the parties.
6
<PAGE> 7
In the event of clauses (i) or (ii) above, such fees and expenses shall be born
by the Company and the Company shall not have the right to direct the defense of
such action on behalf of the indemnified party or parties. Anything in this
Section 8 to the contrary notwithstanding, the Company shall not be liable for
any settlement of any such claim or action affected without its written consent,
which shall not be unreasonably withheld. The Company shall not, without the
prior written consent of each indemnified party that is not released as
described in this sentence, settle or compromise any action, or permit a default
or consent to the entry of judgment in or otherwise seek to terminate any
pending or threatened action, in respect of which indemnity may be sought
hereunder in which any indemnified party is or could have been a party unless
such settlement compromise, consent, or termination includes an unconditional
release of each indemnified party from all liability in respect of such action.
The Company agrees promptly to notify each Registered Holder of the commencement
of any litigation or proceedings against the Company or any of its officers or
directors in connection with the sale of any Warrant Shares or any preliminary
prospectus, prospectus, registration statement, or amendment or supplement
thereto, or any application relating to any sale of any Warrant Shares.
b. Each Registered Holder agrees to indemnify and hold harmless
the Company, each director of the Company, each officer of the Company who shall
have signed any registration statement covering Warrant Shares by the Registered
Holder, each other person, if any, who controls the Company within the meaning
of Section 15 of the Securities Act or Section 20(a) of the Exchange Act, and
its or their respective counsel, to the same extent as the foregoing indemnity
from the Company to the Registered Holder in Section 8.a. but only with respect
to statements or omissions, if any, made in any registration statement,
preliminary prospectus, or final prospectus (as from time to time amended and
supplemented) or any amendment or supplement thereto, or in any application, in
reliance upon and in conformity with written information furnished to the
Company with respect to the Registered Holder by or on behalf of the Registered
Holder, expressly for inclusion in any registration statement, preliminary or
final prospectus, or application, as the case may be. If any action shall be
brought against the Company or any other person so indemnified based on any such
registration statement, preliminary prospectus, or final prospectus, or any
amendment or supplement thereto, or in any application, and in respect of which
indemnity may be sought against the Registered Holder pursuant to this Section
8.b., the Registered Holder shall have the rights and duties given to the
Company, and the Company and each other person so indemnified shall have the
rights and duties given to the indemnified parties, by the provisions of Section
8.a.
c. If the indemnification provided for in this Section 8 is held
by a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
d. In the event of a breach by any party of its obligations under
this Warrant, the other party, in addition to being entitled to exercise all
rights granted by law, including recovery of damages, will be entitled to
specific performance of its rights under this Warrant. Such rights shall be in
addition to, and not in lieu of, the Registered Holder's right to receive
monetary damages.
e. The provisions of this Warrant, including the provisions of
this sentence, may not be amended, modified or supplemented, unless such
amendment, modification or supplement is in writing and signed by the parties
hereto.
f. All notices and other communications provided for or permitted
hereunder shall be
7
<PAGE> 8
made in writing by hand delivery, reputable overnight courier, registered
first-class mail, telex, or telecopied, initially to the address set forth
below, and thereafter at such other address, notice of which is given in
accordance with the provisions of this Section 8.f.
(i) if to the Company:
eSat, Inc.
165 Harbor Blvd., Bldg. G
Fountain Valley, CA 92708
Attention: Chief Executive Officer
Telephone: (714) 418-3200
Facsimile: (714) 418-3220
(ii) if to the Registered Holder at the address specified
from time to time by the Registered Holder.
All such notices and communications shall be deemed to have been duly given:
when delivered by hand, if personally delivered or by reputable overnight
courier; three business days after being deposited in the mail, postage prepaid,
if mailed; when answered back, if telexed; and when receipt is acknowledged, if
telecopied.
g. The Registered Holder shall cooperate in all reasonable
respects with the filing of the registration statement contemplated hereby.
Without limiting the foregoing, the Registered Holder shall furnish to the
Company (or any regulatory authority) such written information and
representations that the Company may reasonably request in order to facilitate
any registration of the Warrant Shares hereunder.
8. No Impairment. The Company will not, by amendment of its charter
documents or through reorganization, consolidation, merger, dissolution, sale of
assets or any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, and will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
holder of this Warrant against impairment.
9. Notices of Record Date, Etc. In case:
a. the Company shall take a record of the holders of its Common
Stock (or other stock or securities at the time deliverable upon the exercise of
this Warrant) for the purpose of entitling or enabling them to receive any
dividend or other distribution, or to receive any right to subscribe for or
purchase any shares of stock of any class or any other securities, or to receive
any other right; or
b. of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the surviving entity), or any
transfer or series of transfers of at least 30% of the assets of the Company; or
c. of the voluntary or involuntary dissolution, spin-off,
liquidation or winding-up of the Company, then, and in each such case, the
Company will mail or cause to be mailed to the Registered Holder of this Warrant
a notice specifying, as the case may be, (i) the date on which a record is to be
taken for the purpose of such dividend, distribution or right, and stating the
amount and character of such dividend, distribution or right, or (ii) the
effective date on which such reorganization, reclassification, consolidation,
merger, transfer, dissolution, liquidation or winding-up is to take place, and
the time, if any is to be fixed, as of which the holders of record of Common
Stock (or such other stock or securities at the time deliverable upon the
exercise of this Warrant) shall be entitled to exchange their shares of Common
Stock (or such other stock or securities) for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
- -transfer, dissolution, liquidation or winding-up.
8
<PAGE> 9
Such notice shall be mailed at least twenty (20) days prior to the record date
or effective date for the event specified in such notice.
10. Reservation of Shares. The Company will at all times reserve and
keep available, solely for issuance and delivery upon the exercise of this
Warrant, such number of Warrant Shares and other stock, securities and property,
as from time to time shall be issuable upon the exercise of this Warrant.
11. Exchange of Warrants. Upon the surrender by the Registered Holder of
any Warrant or Warrants, properly endorsed, to the Company at the principal
office of the Company, the Company will, subject to the provisions of Section 4
hereof; issue and deliver to or upon the order of such Registered Holder, at the
Company's expense, a new Warrant or Warrants of like tenor, in the name of such
Registered Holder or as such Registered Holder (upon payment by such Registered
Holder of any applicable transfer taxes) may direct, representing in the
aggregate on the face or faces thereof for the number of shares of Common Stock
represented for on the face or faces of the Warrant or Warrants so surrendered.
12. Replacement of Warrants. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
unsecured indemnity agreement in an amount reasonably satisfactory to the
Company, or (in the case of mutilation) upon surrender and cancellation of this
Warrant the Company will issue, in lieu thereof, a new Warrant of like tenor.
13. Transfers, etc.
a. The Company will maintain a register containing the names and
addresses of the Registered Holders of this Warrant. Any Registered Holder may
change its or his address as shown on the warrant register by written notice to
the Company requesting such change.
b. Subject to the provisions of Section 4 hereof; this Warrant
and all rights hereunder are transferable, in whole or in part, upon surrender
of this Warrant with a properly executed assignment (in the form of Exhibit II
hereto) at the principal office of the Company.
c. Until any transfer of this Warrant is made in the warrant
register, the Company may treat the Registered Holder of this Warrant as the
absolute owner hereof for all purposes; provided, however, that if and when this
Warrant is properly assigned in blank, the Company may (but shall not be
obligated to) treat the bearer hereof as the absolute owner hereof for all
purposes, notwithstanding any notice to the contrary.
14. No Rights as Stockholder. Until the exercise of this Warrant, the
Registered Holder of this Warrant shall not have or exercise any rights by
virtue hereof as a stockholder of the Company.
15. Change or Waiver. Any term of this Warrant may be changed or waived
only by an instrument in writing signed by the party against which enforcement
of the change or waiver is sought.
16. Headings. The headings in this Warrant are for purposes of reference
only and shall not limit or otherwise affect the meaning of any provision of
this Warrant.
17. Governing Law. This Warrant will be governed by and construed in
accordance with the laws of the State of California.
ESAT, INC
By /s/ MICHAEL C. PALMER
-------------------------------------
Chief Executive Officer and Secretary
Print Name and Title
9
<PAGE> 10
[Corporate Seal]
ATTEST:
- ----------------------
NOTE: ESAT ISSUED SEVEN (7) WARRANT AGREEMENTS FOR A TOTAL OF 159,286 SHARES OF
COMMON STOCK.
10
<PAGE> 11
EXHIBIT I
PURCHASE FORM
To: ________________________ Dated: _______________________
The undersigned, pursuant to the provisions set forth in the attached
Warrant (No.______), hereby irrevocably elects to purchase ___________ shares of
Common Stock covered by such Warrant. The undersigned herewith makes payment of
$____________ representing the full purchase price for such shares at the price
per share provided for in such Warrant. Such payment takes the form of
$_____________ in lawful money of the United States.
Signature:
--------------------------
Address:
-----------------------------
-----------------------------
11
<PAGE> 12
EXHIBIT II
ASSIGNMENT FORM
FOR VALUE RECEIVED,_______________________________________________________
hereby sells, assigns and transfers all of the rights of the undersigned under
the attached Warrant (No.____) with respect to the number of shares of Common
Stock covered thereby set forth below, unto:
Name of Assignee Address No. of Shares
Dated: ______________ Signature: ______________________
Dated: ______________ Signature: ______________________
12
