UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 1, 1999
---------------
Commission File Number 0-6072
EMS TECHNOLOGIES, INC.
----------------------
(Exact name of registrant as specified in its charter)
Georgia 58-1035424
------------------------------ ------------------------
(State or other jurisdiction of (IRS Employer ID Number)
incorporation of organization)
660 Engineering Drive
Norcross, Georgia 30092
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (770) 263-9200
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
The number of shares outstanding of each of the issuer's classes of common
stock, as of the close of business on November 1, 1999:
Class Number of Shares
----- ----------------
Common Stock, $.10 par Value 8,713,110
PART I
FINANCIAL INFORMATION
ITEM 1. Financial Statements
EMS Technologies, Inc.
Consolidated Statements of Earnings (Unaudited)
(In thousands, except net earnings per share data)
Quarter ended Nine months ended
--------------- -----------------
Oct. 1 Oct. 2 Oct. 1 Oct. 2
1999 1998 1999 1998
------ ------ ------- ------
Net sales $54,274 47,393 176,922 136,300
Cost of sales 36,143 29,847 118,704 86,517
Selling, general and
administrative expenses 10,760 9,692 33,201 29,025
Research and development expenses 5,760 3,682 16,049 9,544
------ ------ ------- ------
Operating income 1,611 4,172 8,968 11,214
Non-operating income(expense), net (138) 100 (218) 132
Interest expense (821) (441) (2,044) (1,341)
------ ------ ------ ------
Earnings before income taxes 652 3,831 6,706 10,005
Income tax expense (126) (1,480) (2,128) (3,873)
------ ------ ------ ------
Net earnings $ 526 2,351 4,578 6,132
====== ====== ====== ======
Net earnings per share:
Basic $ .06 .27 .53 .71
Diluted .06 .27 .52 .69
Weighted average number
of shares:
Common 8,709 8,675 8,702 8,654
Common and dilutive
common equivalent 8,809 8,843 9,109 8,874
See accompanying notes to interim consolidated financial statements.
EMS Technologies, Inc.
Consolidated Balance Sheets (Unaudited)
(In thousands)
October 1 December 31
1999 1998
--------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 11,772 4,384
Trade accounts receivable, net 59,543 57,455
Inventories:
Work in process 8,706 5,164
Parts and materials 22,012 19,657
------- -------
Total inventories 30,718 24,821
------- -------
Deferred income taxes 3,859 6,620
------- -------
Total current assets 105,892 93,280
------- -------
Property, plant and equipment:
Land 2,970 1,150
Building and leasehold improvements 25,311 15,493
Machinery and equipment 95,229 54,351
Furniture and fixtures 7,771 4,735
------- -------
Total property, plant and equipment 131,281 75,729
Less accumulated depreciation
and amortization 86,699 40,849
------- -------
Net property, plant and equipment 44,582 34,880
------- -------
Other assets 21,718 7,684
Goodwill, net of accumulated amortization 11,152 11,542
------- -------
$183,344 147,386
======= =======
See accompanying notes to interim consolidated financial statements.
EMS Technologies, Inc.
Consolidated Balance Sheets (Unaudited), continued
(In thousands except share data)
October 1 December 31
1999 1998
--------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt $ 8,318 2,197
Accounts payable 18,153 11,815
Income taxes 722 1,580
Accrued compensation costs 4,452 4,503
Accrued retirement costs 630 959
Deferred revenue 3,910 2,895
Other liabilities 1,436 1,154
------- -------
Total current liabilities 37,621 25,103
Long-term debt, excluding current installments 37,473 19,150
Deferred income taxes 2,473 2,473
------- -------
Total liabilities 77,567 46,726
------- -------
Stockholders' equity:
Preferred stock of $1.00 par value
per share. Authorized 10,000,000
shares; none issued - -
Common stock of $.10 par value per
share. Authorized 75,000,000 shares;
issued and outstanding 8,713,000 in
1999 and 8,695,000 in 1998 871 869
Additional paid-in capital 34,502 34,615
Accumulated other comprehensive income -
foreign currency translation adjustment (1,613) (2,263)
Retained earnings 72,017 67,439
------- -------
Total stockholders' equity 105,777 100,660
------- -------
$183,344 147,386
======= =======
See accompanying notes to interim consolidated financial statements.
EMS Technologies, Inc.
Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Nine Months Ended
---------------------
Oct. 1 Oct. 2
1999 1998
------ ------
Cash flows from operating activities:
Net earnings $ 4,578 6,132
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 6,004 4,400
Goodwill amortization 390 912
Changes in operating assets
and liabilities:
Trade accounts receivable 2,502 (3,907)
Inventories (4,471) (3,746)
Accounts payable (160) (1,126)
Income taxes 2,010 1,192
Accrued costs, deferred revenue
and other current liabilities (1,321) 2,278
Other (264) (894)
------ -----
Net cash provided by operating activities 9,268 5,241
------ -----
Cash flows from investing activities:
Purchase of property, plant and equipment (9,341) (5,380)
Payments for asset acquisition (9,622) -
------ -----
Net cash used in investing activities (18,963) (5,380)
------ -----
Cash flows from financing activities:
Borrowing of long-term debt 15,225 338
Proceeds from exercise of stock options,
net of withholding taxes paid (110) 32
------ -----
Net cash provided by financing activities 15,115 370
------ -----
Net change in cash and cash equivalents 5,420 231
Effect of exchange rates on cash 938 187
Cash and cash equivalents at
beginning of period 4,384 4,300
------ -----
Cash and cash equivalents at
end of period $10,742 4,718
====== =====
EMS Technologies, Inc.
Consolidated Statements of Cash Flows (Unaudited), continued
(In thousands)
Nine Months Ended
---------------------
Oct. 1 Oct. 2
1999 1998
------ ------
Supplemental disclosure of cash flow
information:
Cash paid for interest $ 1,632 1,341
Cash paid for income taxes $ 1,121 2,862
Noncash Investing and Financing:
In January 1999, the Company acquired (through its subsidiary, EMS
Technologies Canada, Ltd.) the Space Systems and Products Division of
Spar Aerospace Limited and Spar Holding, Inc. (a wholly-owned
subsidiary of Spar Aerospace Limited) located near Montreal, Quebec.
The transaction was accounted for as an asset purchase valued at
$17,353,000. The Company paid $6,227,000 of the purchase price at
closing and $3,395,000 for the first installment of the deferred portion of
the purchase price, with funds provided under the Company's credit line
with a U.S. bank. The remaining $7,731,000 of the purchase price is
financed by the seller in three additional installments over a three-year
period. See note 2 for further details of the acquisition and its
financing.
EMS Technologies, Inc.
Notes to Interim Consolidated Financial Statements (Unaudited)
(1) Basis of Presentation
The interim consolidated financial statements include the accounts of
EMS Technologies, Inc.(formerly known as Electromagnetic Sciences,
Inc.) and its wholly-owned subsidiaries LXE Inc. and EMS Technologies
Canada, Ltd. (formerly known as CAL Corporation) (collectively, "the
Company"). In the opinion of management, the interim consolidated
financial statements reflect all normal and recurring adjustments
necessary for a fair presentation of results for such periods. The
results of operations for any interim period are not necessarily
indicative of results for the full year. These consolidated financial
statements should be read in conjunction with the consolidated
financial statements and related notes contained in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998.
(2) Acquisition
In January 1999, the Company acquired (through its subsidiary, EMS
Technologies Canada, Ltd.) the Space Systems and Products Division of
Spar Aerospace Limited and Spar Holdings, Inc. (a wholly-owned
subsidiary of Spar Aerospace Limited) - collectively, the Space
Division, located near Montreal, Quebec. The transaction was accounted
for as an asset purchase valued at $17,353,000, representing the
$20,276,000 price per the purchase agreement, as adjusted for
$376,700 of debt owed by the seller and assumed by the Company, which
related to Canadian government support for Space Division research
activities, and a $2,547,000 adjustment for the amount by which the
Space Division's actual working capital at the closing date was less
than the working capital that had been projected in the purchase
agreement.
The Company paid $6,227,000 of the purchase price at closing and
$3,395,000 as the first installment of the deferred portion of the purchase
price, with funds provided under the Company's credit line with a U.S.
bank. The remainder of the purchase price was financed by the seller in
three additional equal installments, with the first installment to be
adjusted for actual-versus-projected working capital determined as of the
closing date. The remaining three installments are due, with annual
interest of 5.5%, on December 31, 1999 and the two subsequent years. These
installments are payable, at the Company's option, either in cash or
equivalent value of the Company's common stock.
The following schedule (in thousands, except per share data) presents
pro forma consolidated financial data, as though the acquisition had
occurred at the beginning of the period reported on:
Quarter ended Nine months ended
--------------- -----------------
Oct. 1 Oct. 2 Oct. 1 Oct. 2
1999 1998 1999 1998
------ ------ ------- -------
Pro Forma Consolidated Data:
Net sales $54,274 57,393 176,922 173,231
Net income 526 2,134 4,578 5,573
Earnings per share:
Basic .06 .25 .53 .64
Diluted .06 .24 .52 .62
(3) Agreement to Acquire Controlling Interest In Satellite Venture
On September 30, 1999, the Company entered into an agreement to acquire
controlling interest of NetSat28, LLC, based in Annapolis, Maryland.
NetSat28 has been licensed by the U.S. Federal Communications Commission
(FCC) to launch and operate a Ka-band satellite over the continental United
States. Once implemented, the NetSat28 system would provide high-speed
Internet access and other broadband services. The NetSat28 service would
target small businesses, as well as home office and high-end residential
users. The Company believes that NetSat28's patented approach to its
satellite architecture is complementary to the Company's advanced
communications technologies and systems-engineering capability.
Under the agreement, the Company would invest $3.8 million in exchange for
a 50.1 percent equity stake in NetSat28, and also would contribute
significant developmental efforts for the ground infrastructure. As
specified milestones are met, the Company would acquire an additional 45
percent of NetSat28 equity, in exchange for up to 1.25 million shares of
the Company's common stock. The transaction is contingent upon the FCC's
approval of the transfer of control of NetSat28, and several parties have
filed motions in opposition to the requested approval.
(4) Earnings per Share
Basic earnings per share is the per share allocation of income
available to common stockholders based only on the weighted average
number of common shares actually outstanding during the period.
Diluted earnings per share represents the per share allocation of
income attributable to common stockholders based on the weighted
Page 9
EMS Technologies, Inc.
Notes to Interim Consolidated Financial Statements (Unaudited), continued
average number of common shares actually outstanding plus all dilutive
potential common shares outstanding during the period.
The Company has granted stock options that are potentially dilutive to
basic earnings per share, summarized as follows (shares in thousands):
Outstanding as of
--------------------
Oct. 1 Oct. 2
1999 1998
------ ------
Dilutive stock options,
included in earnings per
share calculations:
Shares 484 598
Average price per share $ 9.33 9.78
Anti-dilutive stock options,
excluded from earnings per
share calculations:
Shares 736 312
Average price per share $ 19.33 21.41
The Company's earnings per share for the nine months were also diluted by
the effect of convertible debt, calculated as if the debt were converted on
the first day of the period, with net income adjusted for interest expense
(net of taxes) that would have been avoided if such conversion had
occurred.
Following is a reconciliation of the numerator and denominator for
basic and diluted earnings per share calculations for the second
quarter and first six months (in thousands, except earnings per share
data):
Net Common Earnings
Earnings Shares Per
(Numerator) (Denominator) Share
----------- ------------- ----------
1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ----
Third Quarter
- -------------
Basic $ 526 2,351 8,709 8,675 $.06 .27
Common equivalent shares:
From stock options 100 168
----- ----- ----- -----
Diluted $ 526 2,351 8,809 8,843 $.06 .27
===== ===== ===== =====
Nine Months
- -----------
Basic $4,578 6,132 8,702 8,654 $.53 .71
Common equivalent shares:
From stock options 82 220
From convertible debt 325 -
Add: Interest expense on
convertible debt, net
of income taxes 167 -
----- ----- ----- -----
Diluted $4,745 6,132 9,109 8,874 $.52 .69
===== ===== ===== =====
(5) Comprehensive Income
Beginning in fiscal 1998, the Company has adopted SFAS 130,
"Reporting Comprehensive Income," which establishes standards for the
reporting and display of comprehensive income and its components.
Under SFAS 130, all items that are recognized under accounting
standards as components of comprehensive income must be reported in
the notes to financial statements. The only element of comprehensive
income that is applicable to the Company is the change in the foreign
currency translation adjustment.
Following is a summary of comprehensive income (in thousands):
Quarter ended Nine months ended
--------------- -----------------
Oct 1 Oct 2 Oct 1 Oct 2
1999 1998 1999 1998
------ ------ ------ ------
Net income (as reported in the
consolidated statements of
earnings) $ 526 2,351 4,578 6,132
Other comprehensive income
(expense) - foreign currency
translation adjustment (283) 50 650 (235)
----- ----- ----- -----
Comprehensive income $ 243 2,401 5,228 5,897
===== ===== ===== =====
(6) Other Assets
Other assets increased to $21.7 million at October 1, 1999 compared with
$7.7 million at December 31, 1998, mainly because of the acquisition of the
Montreal operations.
The most significant of these other acquired assets was a 5% equity
investment in a limited partnership, valued at $9.7 million. The
general partner in this venture is a large, international aerospace
firm. The investment's objective is to enable the Montreal operations
to participate in the development and implementation of a satellite
network that will provide high-data-rate wireless services.
Another significant asset acquired with the Montreal operations was a
$4.0 million net pension asset, representing the excess of pension
assets compared with pension liabilities under defined plans for the
Montreal operation's employees. This net pension asset will be used
to fund future benefit obligations arising from the plans.
Following is a summary of other assets:
Oct 1 December 31
1999 1998
------- -----------
Other assets $ 8,021 7,684
Investment in limited partnership 9,719 -
Net pension assets 3,978 -
------ -----
Total other assets $21,718 7,684
====== =====
(7) Interim Segment Disclosures
The Company is organized into two reportable segments: Space and
Electronics, and Wireless Products. Each segment is separately
managed and encompasses a range of products and services that share
distinct operating characteristics. The Company evaluates each
segment primarily upon operating profit.
These were the same two reportable segments disclosed as of the end of
the preceding fiscal year; however, effective for 1999, the Company has
reclassified its satellite communications (SATCOM) product lines
(comprising earth based terminal products for communicating via satellite)
from Space and Electronics to Wireless Products.
The Company reported a significant increase in net sales and assets for
Space and Electronics as a result of the acquisition of the Montreal
operations.
Following is a summary of the Company's interim segment data (in
thousands):
Quarter ended Nine months ended
--------------- -----------------
Oct. 1 Oct. 2 Oct. 1 Oct. 2
1999 1998 1999 1998
------ ------ ------- -------
Net sales:
Space and electronics $24,307 15,631 88,200 47,202
Wireless products 29,967 31,762 88,722 89,098
------ ------ ------- -------
Total $54,274 47,393 176,922 136,300
====== ====== ======= =======
Operating income (loss):
Space and electronics $ 374 (212) 4,470 624
Wireless products 1,237 4,384 4,498 10,590
------ ------ ------- -------
Total $ 1,611 4,172 8,968 11,214
====== ====== ======= =======
Net earnings (loss):
Space and electronics $ (58) (290) 2,389 (104)
Wireless products 574 2,533 2,128 5,863
Corporate 10 108 61 373
------ ------ ------- -------
Total $ 526 2,351 4,578 6,132
====== ====== ======= =======
Oct 1 December 31
1999 1998
------- -----------
Assets:
Space and electronics $ 98,450 61,781
Wireless products 78,168 77,803
Corporate 6,726 7,802
------- -------
Total $183,344 147,386
======= =======
ITEM 2. Management's Discussion And Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS
In January 1999, the Company acquired the Space Systems and Products
Division of Spar Aerospace Limited and Spar Holdings, Inc. (a wholly-owned
subsidiary of Spar Aerospace Limited) located near Montreal, Quebec. The
transaction was accounted for as an asset purchase valued at $17 million,
and no goodwill resulted.
Consolidated net sales for the third quarter and first nine months of 1999
were $54.3 million and $176.9 million respectively, compared with $47.4
million and $136.3 million for the same respective periods in 1998. This
net growth was attributable to the space and electronics segment, which
benefited from acquisition of the Montreal operations. Revenues in the
wireless products segment were slightly lower in 1999 compared with 1998
due to schedule deferrals by certain large customers that had ordered
wireless networks, and due to lower sales of healthcare products.
Cost of sales, as a percentage of consolidated net sales, was 67% for both
the third quarter and the first nine months of 1999, compared with 63% for
the same periods in 1998. These increases were due to the significant
growth of the Company's space operations, which on average have a higher
cost of sales percentage than the remainder of the Company's operations.
The Company also had lower absorption of overhead costs than in 1998 at the
Company's Atlanta facilities; this resulted from lower-than-expected sales
caused by customer delays in initiation of major new satellite programs in
which the Company expects to participate.
Selling, general and administrative expenses, as a percentage of net sales,
was 20% for the third quarter and 19% for the first nine months of 1999,
compared with 20% and 21% for the same respective periods in 1998. The
decrease in the first nine months of 1999 compared with 1998 was
attributable to the growth in the Company's space operations, which
generally had a lower selling, general and administrative expense
percentage than the remainder of the Company's operations.
Research and development expenses represent the cost of the Company's
internally funded efforts. In the Company's space and electronics segment,
significant research and development effort also occurs under specific
customer orders and, accordingly, is reflected in cost of sales. The
increase in research and development expenses is related to products being
developed for new wireless applications in space, satellite communications,
and private local area networks.
Interest expense increased in 1999 compared with 1998 due to increased debt
associated with the assets purchased in Montreal.
The year-to-date effective income tax rate for 1999 was 32%, compared with
39% for 1998. This decrease related to a comparatively higher proportion of
1999 pre-tax profits being derived from the Company's Canadian operations,
which benefit from research-related income tax incentives.
Liquidity and Capital Resources
- -------------------------------
The increase in cash was mainly a result of cash provided by operating
activities. Management believes that the Company's present liquidity,
together with cash from operations and sources of external financing, will
support its current business activities and near-term capital investment
plans. However, additional sources of liquidity will be needed over the
next few years if the Company and its markets continue to grow, and
particularly if the Company completes the acquisition of a controlling
interest in NetSat28, LLC and proceeds with the proposed design,
construction and launch of a geostationary Ka-band satellite for broadband
communications.
Long-term debt increased in the first nine months of 1999 mainly due to the
financing of the assets purchased in Montreal. One-third of the purchase
price was financed at closing through the Company's credit line with a U.S.
bank. The remainder of the purchase price was financed by the seller in
four equal installments, with the second installment being adjusted for
actual versus projected working capital determined as of the closing date.
In the second quarter of 1999, the Company paid the first installment in
cash, with funds drawn from the Company's credit line with a U.S. bank. The
other three installments, totaling $7,731,000, are due, with annual
interest of 5.5%, on December 31 of 1999 and the two subsequent years.
These installments are payable, at the Company's option, either in cash or
equivalent value of the Company's common stock.
In January 1999, the Company entered into a $7.5 million term loan
agreement with an insurance company, secured by a mortgage on one of the
Company's owned buildings. The loan is payable in equal monthly
installments over 15 years with a fixed interest rate of 7.1%. In addition,
in February 1999, the Company amended its existing revolving credit
agreement with a bank in Canada to fund Canadian operations, increasing
available borrowings to $24 million on a demand note, under a credit
agreement extending through February, 2001.
Year 2000
- ---------
For the past two years, the Company has pursued a plan to modify existing
information systems or implement new systems, as necessary, to become Year
2000-compliant in a timely manner. This plan involved identification and
remediation of potential problems, as well as testing of new systems and
processes and the development of contingency plans. Efforts encompassed not
only the hardware and software that support the Company's information
technologies, but also manufacturing hardware and other equipment and
processes that may rely on embedded software. The Company has completed the
main phase of the plan, which focused on internal operations. The Company's
Year 2000 efforts are currently focused on communications with suppliers,
to confirm that the Year 2000 issue will not have a significant effect on
the Company's supply chain.
The Company believes that neither (1) the cost of addressing Year 2000, nor
(2) the consequences of untimely resolution of remaining Year 2000 issues,
will have a material effect on the Company's results of operations;
however, management believes that the Company could be affected,
particularly in the fourth quarter of 1999, if potential customers for the
Company's wireless network products delay purchases until after the end of
the year due to the Year 2000 efforts required of their own information
technology personnel.
Risk Factors and Forward-Looking Statements
- -------------------------------------------
Forward looking statements with respect to expected program participation,
cash flows and tax rates are included in management's discussion and
analysis of financial condition and results of operations. Actual results
could differ materially from those suggested in any forward-looking
statements as a result of a variety of factors. Such factors include, but
are not limited to:
- - the Company's ability to achieve product development and manufacturing
objectives within the cost and timing parameters created by customers and
end-users;
- - the timeliness of orders and payments from customers;
- - the availability of funding for major new space programs;
- - the strength and timing of end-user demand for new communications
services, such as broadband services;
- - the effects of technology and communications systems that may be
developed by competitors; and,
- - the outcome of Federal Communications Commission proceedings in which
several parties have filed opposing motions related to the Company's
proposed control of NetSat28 LLC.
In addition, actual results could be affected by the Company's ability to
achieve expected levels of research efforts that qualify for tax
incentives, and apportionment of pre-tax income among various tax
jurisdictions.
PART II
OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits - The following exhibits are filed as part of this report:
2.1 Member Interest Purchase Agreement, dated September 30, 1999,
by and among EMS Technologies, Inc., NetSat28, LLC and NationNet LLC.
3.1 Second Amended and Restated Articles of Incorporation of EMS
Technologies, Inc. effective March 22, 1999 (Incorporated by reference to
the Company's Annual Report on Form 10-K for the year ended December 31,
1998.)
3.2 Bylaws of EMS Technologies, Inc., as amended through March 15,
1999 (Incorporated by reference to the Company's annual Report on Form 10-K
for the year ended December 31, 1998).
27.1 Financial Data Schedule
(b) Reports on Form 8-K - No Reports on Form 8-K were filed during the
quarter ended October 1, 1999
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
EMS TECHNOLOGIES, INC.
By: /s/ Thomas E. Sharon Date: 11/12/99
----------------------------- --------
Thomas E. Sharon
President and Chief Executive
Officer
By: /s/ Don T. Scartz Date: 11/12/99
----------------------------- --------
Don T. Scartz
Treasurer and Chief Financial
Officer
MEMBER INTEREST PURCHASE AGREEMENT
By and Among
EMS TECHNOLOGIES, INC.,
NETSAT 28, L.L.C.
and
NATION NET, L.L.C.
Dated
September 30, 1999
MEMBER INTEREST PURCHASE AGREEMENT
THIS MEMBER INTEREST PURCHASE AGREEMENT (the "Agreement") is made
and entered into the 30th day of September, 1999, by and among EMS
Technologies, Inc., a Georgia corporation ("EMS"), NetSat 28 Company,
L.L.C., a Delaware limited liability company ("NetSat"), and Nation
Net, L.L.C., a Delaware limited liability company ("Nation Net").
W I T N E S S E T H
WHEREAS, the Board of Directors of EMS and the Executive
Committee of NetSat have each concluded that it is advisable and for
the benefit of each such entity and their respective shareholders and
members that EMS become a member of NetSat, and have certain
continuing rights to increase its ownership of the issued and
outstanding NetSat membership interests on the basis set forth in
Article 2 hereof; and
WHEREAS, Nation Net, as a holder of NetSat membership interests,
desires to join in this Agreement for the purposes of the rights and
obligations specified herein with respect to future transfers by it of
NetSat Interests, and for the purposes of the representations,
warranties, indemnification and other undertakings on its part set
forth herein.
NOW THEREFORE, in consideration of the premises and the mutual
covenants, agreements, representations, and warranties contained
herein, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
For the purpose of this Agreement, any amendments hereto, and any
schedules or exhibits attached hereto, the following terms shall have
the following meanings:
1.1 "Closing" and "Closing Date" mean the purchase by EMS of the
Initial Interests as provided herein, and the date on which each
purchase occurs, respectively.
1.2 "EMS Consideration" has the meaning specified in Section 2.1.
1.3 "EMS IP Rights" means the technologies and related technical data
to be licensed to NetSat under the License Agreement attached hereto
as Annex 2.1(c).
1.4 "EMS Stock" means the common stock, $.10 par value per share, of
EMS.
1.5 "EMS Loan" has the meaning specified in Section 7.2.
1.6 FCC" means the United States Federal Communications Commission.
1.7 "FCC License" means a license from the FCC, issued to NetSat, to
operate the Satellite, for a period expiring not earlier than ten
years from the date NetSat notifies the FCC that the Satellite has
been placed into orbit and has initiated operations, for the purpose
of providing fixed satellite commercial communications services based
on EMS holding a controlling ownership interest in NetSat.
1.8 "Initial Interests" means the 1,002,000 units of NetSat Interests
to be acquired at Closing by EMS as provided herein.
1.9 "Intellectual Property" has the meaning specified in paragraph
4.8(a).
1.10 "ITU Filings" has the meaning specified in paragraph 2.2(b).
1.11 "NetSat Interests" means the ownership interest in NetSat of its
members, expressed for the purposes of this agreement as all or a
portion of a total of 2,000,000 units, each representing 0.00005% of
the aggregate of all outstanding member ownership interests.
1.12 NetSat Members" means the current and future permitted holders
of NetSat Interests.
1.14 "1933 Act" means the United States Securities Act of 1933, as
amended.
1.15 "Person" means any natural person, corporation, limited
liability company, partnership, proprietorship, association, trust or
other legal entity.
1.16 "Recapitalization" has the meaning specified in Section 7.1.
1.17 "Satellite" means a Ka-band commercial communications satellite
located in geostationery orbit at approximately 95? West longitude,
together with any spare or replacement for such satellite, and also
together with any additional Ka-band satellites from time to time
operating in a coordinated manner, and in substantially identical
orbit, with such satellite to increase system capacity.
1.18 "Successor" means, in respect of NetSat, any entity which
acquires, or succeeds to, the business of NetSat, whether by
assignment or sublicense of Intellectual Property or by merger,
consolidation, sale of assets or other business combination, but does
not include EMS or other party solely by virtue of holding the equity
interests in NetSat or any such successor entity.
ARTICLE 2
TERMS OF TRANSACTION
2.1 Purchase of the Initial Interests. The Initial Interests shall
be issued and transferred to EMS in consideration of the following
(collectively, the EMS Consideration"):
(a) The payment by EMS to NetSat, by wire transfer to an account
designated by NetSat, of $2,150,000;
(b) The delivery to NetSat of the note evidencing the EMS Loan,
together with the note dated June 22, 1999, in the principal amount of
$150,000, in each case, marked "Cancelled"; and
(c) The delivery to NetSat of the Licensing Agreement, substantially
in the form of Annex 2.1(c), setting forth and granting to NetSat
license rights in the EMS IP Rights.
2.2 Contingent Acquisition of NetSat Units and Issuance of Shares.
(a) Performance Milestones. Upon achievement by NetSat, EMS or their
Successors of the following performance milestones, or of their
substantial equivalents accepted in writing by EMS, EMS shall acquire
from Nation Net, and Nation Net shall transfer and deliver to EMS, the
specified number of NetSat Interests, and EMS shall deliver to Nation
Net the specified number of shares of fully paid and nonassessable EMS
Stock:
1st - NetSat enters prime contract for in-orbit delivery of the
Satellite with a qualified vendor providing vendor financing with
insurance-based security, all on terms reasonably satisfactory to EMS
2nd - The first to occur of any of the following:
(i) One or more service providers enter agreements with NetSat
committing to the cash investment in NetSat of an aggregate of not
less than $30,000,000;
(ii) Agreements are entered with NetSat under which one or more third
parties having adequate financial resources are committed to the cash
investment in NetSat of an aggregate of not less than $60,000,000; and
(iii) Agreements are entered with NetSat under which one or more
third parties having adequate financial resources are committed to
purchase, on terms reasonably satisfactory to EMS, an aggregate of not
less than 20% of NetSat's anticipated data transmission capacity
3rd - Initiation of commercial Ka-band data communications services
provided by NetSat through the Satellite
4th - Cumulative revenues received by NetSat for Ka-band communications
services provided through the Satellite first equal at least
$250,000,000
Performance
Milestone and No. of
Last Date to Achieve No. of Units of Shares
(if applicable) NetSat Interests of EMS Stock
1st (May 31, 2000) 500,000 500,000
2nd (December 31, 2001) 400,000 500,000
3rd 125,000
4th 125,000
(b) Revenues from ITU Filings. Schedule 2.2(b) sets forth orbit
locations for which the government of Mexico has advanced, published
and sought coordination through the International Telecommunications
Union for satellites operating in the Ka band (the "ITU Filings").
NetSat represents that the terms of the ITU Filings are such that
satellites operating thereunder are effectively designed utilizing
intellectual property proprietary to or licensed by NetSat. While the
parties understand that the ITU Filings may not generate any revenue
for NetSat or its Successor, the parties believe that NetSat could in
the future recognize significant revenues from the operation of
satellites based on the architecture and technology also set forth on
Schedule 2.2(b), under the ITU Filings. In the event such revenues
received (net of reasonable bad debt or currency conversion reserves)
by NetSat or its Successor, as determined in accordance with generally
accepted accounting principles consistently applied, shall exceed, on
a cumulative basis and in the aggregate for all such satellites, (i)
$500,000,000, over a period not exceeding three years, EMS shall issue
125,000 shares, and (ii) $800,000,000 over a period not exceeding five
years, EMS shall issue 125,000 shares (for an aggregate of 250,000
shares) of fully paid and non-assessable EMS Stock to Nation Net.
(c) Adjustments. The number and kind of shares of EMS Stock to be
issued pursuant to this Agreement shall be appropriately adjusted to
take into account any stock split, stock dividend, reverse stock
split, recapitalization, or other similar change in the capitalization
of EMS occurring between the date of this Agreement and the date such
shares are so issued.
(d) Option to Pay Cash Value of EMS Stock. In lieu of delivering
shares of EMS Stock to Nation Net pursuant to this Section 2.2, EMS
may, at its option, pay to Nation Net cash, by wire transfer or other
payment method acceptable to Nation Net, equal to the Fair Market Value
of such shares as of the date such shares would otherwise be so
delivered. For these purposes, "Fair Market Value" per share shall be
the average of the closing sales prices of the EMS Stock on the ten
trading days preceding such date of delivery, as reported on the NASDAQ
National Market System or successor thereto, or if not so reported, on
the principal securities exchange on which the EMS Stock shall at that
time be traded.
(e) Option to Acquire NetSat Interests if Milestones Are Not
Achieved. EMS may, by notice to NetSat delivered at any time after
the Closing and prior to expiration of this option as specified below,
elect at its option to acquire the NetSat Interests specified in
paragraph 2.2(a), upon delivery of the specified shares of EMS Stock
(or cash as provided in paragraph 2.2(d)) to Nation Net,
notwithstanding that either of the applicable performance milestones
shall not have been achieved. This option may be exercised as to
either or both of the 500,000 and 400,000 unit tranches, but may not
be exercised as to less than all of either such tranche. This option
shall expire as to a particular tranche one year after either party
shall have given written notice of its determination, which shall be
reasonable in light of existing facts and circumstances, that the
performance milestone relevant to such tranche cannot reasonably be
expected to be achieved prior to its specified last date for
achievement.
(f) Optional Surrender of Units By EMS. If, (i)(x) on or prior to
May 31, 2000, EMS and NetSat have failed to obtain such understandings
and agreements as provide a reasonable basis for the expectation that
NetSat will achieve the first milestone identified in paragraph 2.2(a)
on or prior to July 31, 2000, or (y) EMS and NetSat have failed to
achieve such first milestone on or prior to July 31, 2000, and (ii)
EMS has failed to exercise its option with respect to the 500,000-unit
tranche, as provided in provided in paragraph 2.2(e), then EMS shall,
upon demand of Nation Net, surrender to NetSat 340,000 units of NetSat
Interests, or at EMS's option exercised by notice to NetSat EMS may
surrender to NetSat 620,000 units of NetSat Interests. In the event
either party exercises its rights under this paragraph, EMS shall not
thereafter have any further rights to acquire NetSat Interests or
obligations to deliver shares of EMS Stock or cash pursuant to this
Section 2.2. The parties agree, upon request of any other party, to
cooperate and act in good faith, including the execution of any
document and the provision of any assurances that is reasonably
required to obtain FCC approval of either such transfer of units of
NetSat Interests.
ARTICLE 3
CLOSING
Time and Place of Closing. The Closing shall be consummated at the
offices of NetSat on or before the thirtieth day after the condition
of Section 8.6 (concerning the FCC License) has been satisfied, the
date and time of such closing to be mutually agreed upon by EMS and
NetSat. At the Closing, NetSat shall deliver to EMS appropriate
evidence of the Recapitalization and of the issuance and transfer to
EMS of the Initial Interests, and EMS shall deliver to NetSat the EMS
Consideration. Each of the parties shall also deliver the closing
certificates, documents and opinions of counsel required herein to be
so delivered.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES CONCERNING NETSAT
As an inducement to EMS to enter into this Agreement and to
consummate the transactions contemplated hereby, NetSat and Nation
Net, jointly and severally, represent and warrant as follows:
4.1. Organization, etc. NetSat is a limited liability company
duly organized, validly existing, and in good standing under the laws
of the State of Delaware. NetSat has all requisite power to own or
lease its properties and to carry on its business as and in the places
where such properties are now owned, leased or operated and such
business is now conducted, and has fully complied in all material
respects with all federal, state, local and foreign laws with respect
to its operations and the conduct of its business, except for any such
failures to so comply (none of which are now known to NetSat or Nation
Net) that will not, singly or in the aggregate, have a material
adverse effect on the business, assets or financial condition of
NetSat. NetSat is duly qualified and in good standing as a foreign
business entity for the transaction of business under the laws of each
jurisdiction in which it owns or leases property, or conducts
business, so as to require such qualification. Copies of the Limited
Liability Company Agreement and all amendments thereto, certificates
of authority or qualification to transact business as a foreign
corporation in each jurisdiction where such is required, membership
records, and minutes and other records of NetSat and its Executive
Committee heretofore made available to EMS are true, complete and
correct at the date hereof.
4.2 Capitalization. All of the issued and outstanding NetSat
Interests are duly authorized and validly issued, fully paid and
nonassessable, were offered, issued, and sold in accordance with
applicable federal and state securities laws, and there are no
preemptive rights in respect thereof. As of the date of this
Agreement, the ownership of NetSat Interests is as set forth on
Schedule 4.2. As of the Closing, and subject to EMS's funding of the
EMS Loan as set forth in Section 7.2, the NetSat Interests owned by
Hellman & Friedman Capital Partners III, L.P. and DBX Second
Corporation, as set forth on Schedule 4.2, will have been redeemed
pursuant to that certain Amended and Restated Interest Purchase
Agreement among such parties, NetSat, and Nation Net, dated December
23, 1998, as modified by letter dated July 16, 1999, on terms
relieving NetSat of any further liability, contingent or otherwise, to
the other parties to such Agreement. As a result of such redemption,
immediately prior to the Closing the sole NetSat Member shall be
Nation Net.
4.3 Options, Rights, etc. to Acquire NetSat Interests. Except as
contemplated in Section 4.2, there are no outstanding options,
warrants, rights, calls, commitments, conversion rights, plans or
other agreements of any character providing for the purchase or
issuance of any NetSat Interests.
4.4 Authority. NetSat has full power and authority to make, execute
and deliver this Agreement and to perform its obligations hereunder
and in connection with the transactions contemplated hereby, and the
making, execution and delivery of this Agreement by NetSat and the
performance of its obligations in compliance with its terms have been
duly authorized by all necessary action of NetSat, except that this
Agreement has not been, as of the date hereof, approved by the NetSat
Members in accordance with the laws of the State of Delaware.
4.5 No Default Resulting from Agreement. Except as set forth on
Schedule 4.5, neither the making, execution and delivery of this
Agreement, nor the performance by NetSat of its obligations in
compliance with its terms, will result in a breach or violation of any
term or condition of, or constitute a default under, the Limited
Liability Company Agreement of NetSat, as amended to date, or
constitute a default that may reasonably be expected to have a
material adverse effect on NetSat under any agreement, instrument,
undertaking, judgment, decree, governmental order, or other
restriction or obligation to which NetSat is a party or by which it or
any of its properties or assets may be bound or affected. No consent
of any federal, state or local authority is required in connection
with the valid making, execution or delivery of this Agreement or the
Plan of Merger by NetSat, or the performance by it of its obligations
in compliance with their respective terms.
4.6 Financial Statements. Set forth as Schedule 4.6 are true,
correct and complete copies of the unaudited financial statements of
NetSat for the fiscal year ended December 31, 1998, and for the fiscal
quarters ended March 31 and June 30, 1999, including the notes and any
schedules thereto (collectively, the "Financial Statements"). The
Financial Statements have been prepared in conformity with generally
accepted accounting principles, applied on a consistent basis, and
present fairly the financial position of NetSat at each of the dates
indicated and the results of its operations and the changes in its
financial position for each of the periods indicated.
4.7 Absence of Undisclosed Liabilities. Except as fully reflected in
the Financial Statements or as set forth on Schedule 4.7, NetSat does
not have any debt, liability or obligation of any kind (whether
accrued, absolute, contingent or otherwise), including without
limitation any liability or obligation on account of taxes or any
governmental charge, penalty, interest or fine, or any "loss
contingencies" considered "probable" or "reasonably possible" within
the meaning of the Financial Accounting Standards Board's Statement of
Financial Accounting Standards No. 5, except (i) liabilities incurred
in the ordinary course of business since June 30, 1999, none of which
have, individually or in the aggregate, materially and adversely
affected the business, assets, results of operations, financial
condition, or prospects of NetSat, and (ii) liabilities incurred in
connection with the transactions provided for in this Agreement. All
reserves and allowances reflected in the Financial Statements are
adequate, appropriate and reasonable. NetSat is not in default with
respect to any term or condition of any indebtedness; and except as
set forth on Schedule 4.7, no notice has been given by any holder of
any debt claiming that any default or breach exists that has not been
remedied by NetSat or waived in writing by such holder.
4.8 Intellectual Property.
(a) As used herein, the term "Intellectual Property" means U. S.
Patents Nos. 5,552,920 and 5,680,240 together with all other patent
rights, trademarks, tradenames, service marks, copyrights, trade
secrets and know-how developed prior to the Closing by NetSat, Nation
Net or either of its employees, contractors or consultants, or by
Thomas W. Glynn or his affiliates, with respect to the proposed
architecture of the Satellite or the technology for building and
operating the Satellite. As of the Closing, NetSat will hold an
irrevocable, fully paid and royalty-free (except as otherwise payable
as set forth in this Agreement) license, unlimited as to use in
satellite-based systems, and including the right to sublicense, under
U. S. Patents Nos. 5,552,920 and 5,680,240, substantially in the form
of Annex 4.8. Except as set forth on Schedule 4.8, all other
Intellectual Property will as of the Closing be owned by NetSat free
and clear of any encumbrances, or is part of the public domain.
NetSat and Nation Net have no knowledge that either NetSat or such
Licensed Technology infringes or has infringed upon or unlawfully or
wrongfully used any other patent, trademark, tradename, service mark
or copyright owned or claimed by another person, and has not received
any notice of any claim of infringement or any other claim or
proceeding, with respect to any Intellectual Property. Except for
such Licensed Technology or as set forth on Schedule 4.8, no current
or former employee, officer, Member, or member of the Executive
Committee of NetSat owns or has any proprietary, financial or other
interest, direct or indirect, in whole or in part, including any right
to royalties or other compensation, in any of the Intellectual
Property, or in any application therefor.
(b) Except as set forth on Schedule 4.8, (i) all of the employees,
contractors or consultants of NetSat who have contributed to the
development of Intellectual Property have executed and delivered to
NetSat agreements that assign to NetSat any of their rights in or
disclaim any rights to Intellectual Property developed in the course
of their employment or consulting duties or with NetSat assets, or
that is related to the architecture, manufacture or operation of the
Satellite; (iii) no employee, contractor or consultant of NetSat has
used any proprietary information of any other Person in the course of
his or her work for NetSat, except with the consent of any such
Person; (iv) no government funding was utilized in the development of
the Intellectual Property; (v) and NetSat has not received any
communication alleging that manufacture or operation of the Satellite
would violate any rights of any Person. Other than as set forth on
Schedule 4.8, NetSat has not granted to any other Person any license,
option or other right in or to any of the Intellectual Property.
Except as set forth on Schedule 4.8, NetSat has used reasonable
procedures to maintain the secrecy and physical security of its
Intellectual Property consisting of trade secrets or other
confidential information, including source codes for any computer
software, and has not disclosed such Information to any Person other
than those who had a reasonable need to know such information in the
course of their responsibilities as employees, contractors or
consultants of NetSat and who are subject to obligations to maintain
the confidentiality of such information.
(c) Maintenance. Except as specified on Schedule 4.8, NetSat has no
obligation owing to any Person to maintain, modify, improve or upgrade
any Intellectual Property.
4.9 Other Property.
(a) NetSat has good and marketable title to all other personal
property owned by it, free and clear of all liens, encumbrances and
defects, except such as do not materially affect the value of such
property and do not interfere with the uses made or reasonably
anticipated to be made of such property. No material personal
property is held under any lease by NetSat, and such as may be so held
are held under valid lease of which NetSat is not in default or in
breach or violation of any term or condition thereof in a manner that
may reasonably be expected to have a material adverse effect on the
business, assets, results of operation, financial condition, or
prospects of NetSat.
(b) All material personal property owned or leased by NetSat is
suitable for its present or intended use, and NetSat has not received
notice of any claimed violation of any law, order, regulation or
requirement relating to any such property as presently used or
reasonably anticipated to be used that would materially detract from
the value, or materially interfere with the present or reasonable
anticipated future use, of such property.
(c) NetSat has not assigned or otherwise transferred in whole or in
part, to any Person, or in any other manner encumbered, released or
waived, any interests or rights, if any, that it has held or obtained
in respect of the design or operation of satellites to be operated
under the ITU Filings.
4.10 Notes and Accounts Receivable. All notes and accounts
receivable reflected in the Financial Statements (net of reserves
stated therein) were, and all such receivables held by NetSat on the
date hereof are, valid obligations of the makers thereof. NetSat has
not received any notice from any of the makers of such receivables of
any alleged offsets or counterclaims, nor does NetSat have any reason
to believe that any of such receivables are not collectible.
4.11 Actions, Suits, etc. Except as set forth on Schedule 4.11,
there are no actions, suits, claims or proceedings (either pending or
threatened) against, by or (to the best of its knowledge) affecting
NetSat in any court or before any arbitrator or governmental agency or
authority, domestic or foreign, that might have a material adverse
effect on its business, assets, results of operations, financial
condition, or prospects or that might prevent or impede the
transactions contemplated in this Agreement. NetSat has not been
charged with, and to the best of its knowledge is not under
investigation with respect to, any charge concerning any violation of
any provision of any federal, state or other applicable law or
administrative order or regulation in respect to its business, except
as set forth on Schedule 4.11. There are no judgments unsatisfied
against NetSat, and no consent decrees to which NetSat is subject.
NetSat is not involved in or threatened with any labor dispute.
4.12 Tax Status. All required federal, state and local tax returns
of NetSat have been completed and filed for all fiscal years to and
including December 31, 1998, and all payments shown thereon to be due
have been paid. Accruals for the payment of all unpaid state and
local taxes for periods through the date hereof have been entered on
NetSat's books. The federal income tax returns of NetSat have never
been audited by the Internal Revenue Service. At all times since its
inception, NetSat has been taxable as a partnership for federal and
state income tax purposes. There is not now any proposed assessment of
additional state or federal income or franchise taxes, nor to the best
of NetSat's knowledge any other taxes, and there are no waivers or
agreements by NetSat for the extension of time for the assessment of
any taxes.
4.13 Material Contracts. Set forth on Schedule 4.13, with respect
to NetSat, is a list of all presently outstanding (i) bonus, deferred
compensation, pension, profit-sharing, and retirement plans and
arrangements; (ii) employment agreements, contracts and commitments
that by their express terms cannot be terminated by NetSat without
material penalty or liability on thirty days' or less notice; (iii)
guaranties of indebtedness or indemnification agreements; (iv)
agreements, contracts and commitments relating to the acquisition of
assets or capital stock of any business enterprise, other than assets
acquired for use in the ordinary course of business of NetSat; (v)
loan agreements and related documents; (vi) licenses, franchises,
options or other rights of any nature whatsoever to sell, distribute
or otherwise deal in or with the property of NetSat other than in the
ordinary course of business or to use any patent, trade name,
trademark, service mark, copyright, pending applications therefor,
trade secrets, or other proprietary rights of NetSat; (vii) licenses,
franchises, options or other rights of any nature whatsoever
obligating NetSat to pay royalties, franchise fees or any other
amounts to any other party for the right to sell, distribute or
otherwise deal in or with the property of such other party or for the
use of any patent, trade name, trademark, service mark, copyright,
pending applications therefor, trade secrets, or other proprietary
rights of any such other party; (viii) agreements, contracts or
commitments containing any covenant materially limiting the freedom of
NetSat to engage in any line of business or to compete with any
person; and (ix) agreements, contracts and commitments not made in the
ordinary course of business and providing for remaining payments or
receipts aggregating in excess of $5,000 for a single such agreement,
contract or commitment, or $25,000 in the aggregate for all such
agreements, contracts or commitments. A true copy of each of the
contracts set forth on Schedule 4.13 has been or will be made
available to EMS for examination prior to the Closing. Except as set
forth on Schedule 4.13, no material default by NetSat exists or has
been claimed to exist with respect to any such contract or commitment,
and no material default by any other party thereto is known or claimed
by NetSat to exist.
4.14 Licenses; No Infringement. Except for the FCC License and
any Department of State export licenses needed for the construction or
launch of the Satellite or other satellites referred to herein, NetSat
holds all material licenses, certificates and permits from
governmental authorities that are necessary to conduct of the business
activities contemplated in this Agreement.
4.15 Certain Employees; Bank Accounts; Insurance Policies. Set
forth on Schedule 4.15, with respect to NetSat, are:
(a) true and complete list of the names and compensation arrangements
of all salaried employees;
(b) the name and address of each bank with which NetSat has an
account or a safe deposit box, and the names of all persons authorized
to draw thereon or to have access thereto; and
(c) a true and complete list and brief description of all policies of
fire, liability, life and all other forms of insurance owned or held
by NetSat, all of which are in full force and effect; NetSat is not
aware of any condition or fact that would lead it to believe that such
policies would not insure NetSat in a manner that is fully adequate at
all times to protect it against risks customarily insured against by
others in the same location and engaged in the same or similar
business and that may reasonably be expected to have a material
adverse effect upon the business, assets, results of operations,
financial condition, or prospects of NetSat.
4.16 Union Agreements and Employee Relations. NetSat is not a party
to any union or collective bargaining agreement, nor does NetSat have
knowledge of any pending or potential attempt to unionize any of the
employees of NetSat. NetSat has no reason to believe that its
continuing relations with its employees will vary in any way that
would have a material adverse effect on the business, assets, results
of operations, financial condition, or prospects of NetSat.
4.17 Obligations for Indemnification. Except as set forth on
Schedule 4,17, no person has any claim for indemnification by NetSat
and no basis for any such claim exists.
4.18 Brokers or Finders. No broker or finder has acted on NetSat's
behalf in connection with this Agreement or any transaction
contemplated hereby.
4.19 Material Changes. Since June 30, 1999:
4.20
(a) there has been no material adverse change in the business,
assets, results of operations, financial condition, or prospects of
NetSat, or in NetSat's relationship with its lenders or other current
or potential material business relations, whether occurring in the
ordinary course of business or otherwise;
(b) there has been (i) no declaration, setting aside, or payment of
any dividend or other distribution on or in respect of the NetSat
Interests, (ii) no direct or indirect redemption, retirement, purchase
or other acquisition of any NetSat Interests; (iii) no issuance of any
NetSat Interests;
(c) there has been no increase in the compensation or in the rate of
compensation or commissions payable or to become payable by NetSat to
any manager, officer or salaried employee, and no payment of or
commitment to pay any bonus, profit-sharing, or other extraordinary
compensation to any employee;
(d) there has been no damage, destruction or loss (whether or not
covered by insurance) that would, in the absence of coverage by
insurance, materially and adversely affect the business, assets,
results of operations, financial condition, or prospects of NetSat;
(e) there has been (i) no (A) material disposition or encumbrance of,
or agreement to dispose of or to encumber, or (B) pledge or grant of a
security interest in, or agreement to pledge or grant a security
interest in, any of the properties or assets of NetSat, and (ii) no
increase or agreement to increase any indebtedness of NetSat;
(f) there has been no merger or consolidation involving NetSat and no
agreement to merge or consolidate with any other corporation or
entity; and no acquisition of or agreement to acquire any stock or
business, or property or assets (other than in the ordinary course of
business), of any other person, firm, corporation, or other business
organization;
(g) there has been no labor dispute that adversely affects the
business, assets, results of operations, financial condition, or
prospects of NetSat;
(h) there has been no settlement in respect of any action, suit or
proceeding at law or in equity involving any payment by NetSat;
(i) there has been no loan or advance, except reasonable advances in
respect of normal and ordinary travel or other business related
expenses, to any officer, employee or member of NetSat;
(j) there has been no cancellation by NetSat, without payment in
full, of any note, loan or other obligation receivable from any
manager, officer or member of NetSat (or any member of their
respective families), or any corporation, partnership, firm or other
entity in which any manager, officer or member of NetSat (or any
member of their respective families) has any direct or indirect
interest;
(k) there has been no sale or grant to any party or parties of any
license, franchise, option or other right of any nature to sell,
distribute or otherwise deal in or with the property of NetSat, and no
sale or grant to any party of any license, franchise, option or other
right of any nature to use any patent, trade name, trademark, service
mark, copyright, pending application therefor, trade secret, or other
proprietary right of NetSat;
(l) there has been no change in the accounting methods or practices
of NetSat, including with respect to depreciation or amortization
policies or rates;
(m) there has been no contract entered into for services or otherwise
with any manager, officer or member of NetSat (or any member of their
respective families), or with any corporation, partnership, firm or
other entity in which any manager, officer or member of NetSat (or any
member of their respective families) has any direct or indirect
interest; and
(n) there has been no agreement or commitment by NetSat to do or take
any of the actions referred to in subsections (a) through (m) of this
Section 4.19.
4.20 Securities Law Representations. NetSat has executed and
delivered the form of Stock Acquisition Representations set forth as
Annex 4.20, and hereby incorporates herein the representations, and
agreements set forth therein.
4.21 Representations and Warranties. No representation, warranty,
or covenant contained in this Agreement or in any written statement
delivered pursuant hereto or in connection with the transactions
contemplated hereby contains or shall contain any untrue material
statement, or omits or shall omit to state a material fact necessary
in order to make the statements made, in the light of the
circumstances under which they were made, not misleading. Copies of
all documents furnished to EMS in connection with this Agreement or
pursuant hereto are true and complete in all material respects.
NetSat and Nation Net do not know of any fact that NetSat has not
disclosed in writing to EMS that materially and adversely affects or,
so far as NetSat can reasonably foresee, will materially and adversely
affect, the business, assets, results of operations, financial
condition, or prospects of NetSat or the ability of NetSat to perform
its obligations under this Agreement.
ARTICLE 5
CONDUCT OF NETSAT PENDING CLOSING
The following covenants and agreements of NetSat shall be
effective from the date hereof to the Closing, unless EMS shall
consent in writing to the waiver of any such covenant or agreement:
5.1 General. NetSat shall not take any action that would result in,
or fail to take any action required to prevent, the material
inaccuracy or breach of any of the representations and warranties of
NetSat set forth in Article 4.
5.2 Use of Proceeds. The cash proceeds received by NetSat from the
EMS Loan shall be used only for the following purposes:
(a) Payment of debts, liabilities and obligations identified on
Schedule 5.2;
(b) Payment of invoices for services of Glynn Scientific, Inc., as
approved from time to time by EMS, not exceeding $60,000 per month;
(c) Payment of legal, accounting and other expenses incidental to the
transactions provided for herein, and the regulatory approvals related
thereto;
(d) Payment of operating expenses incurred in the ordinary course of
business and not exceeding $20,000 per month; and
(e) With respect to the second $750,000 tranche of the EMS Loan,
interest and principal owed to Hellman & Friedman Capital Partners
III, L.P. and DBX Second Corporation in connection with the redemption
of the NetSat Interests held by such Persons.
5.3 Management Participation. The President of NetSat shall
regularly and actively consult with representatives of EMS, as
designated by EMS from time to time with respect to the business
affairs of NetSat, including business planning, satellite and system
design, manufacturing and launch relationships, service provider
relationships, potential investors, and other matters material to the
future development and operation of NetSat. The Executive Committee
of NetSat will designate as a Vice President of NetSat, with authority
to represent NetSat in relationships with third parties appropriate
for a senior officer, Jeffrey A. Leddy or other individual mutually
acceptable to EMS and such Executive Committee.
5.4 Creation of Indebtedness. Except as contemplated in this
Agreement, the business of NetSat shall be conducted only in the
ordinary course, without the creation of any indebtedness for borrowed
money.
5.5 Maintenance of Properties. NetSat shall maintain its properties
and assets in good operating condition, with the exception of ordinary
wear and tear.
5.6 Change in Capitalization. Except as contemplated in this
Agreement, NetSat shall make no change in its authorized or issued
ownership interests, and shall not issue or grant any right or option
to purchase or otherwise acquire any NetSat Interests.
5.7 Sales or Encumbrances of Assets. NetSat shall not sell or
transfer, mortgage, pledge or subject to any lien, charge or other
encumbrance any of its tangible or intangible assets.
5.8 Banking Relationships. NetSat shall make no change in the
banking arrangements referred to in Section 4.15 hereof.
5.9 Maintenance of Books. NetSat shall maintain its books and
records in the usual, regular and ordinary course, on a basis
consistent with prior years.
5.10 Preservation of Business. NetSat shall use its best efforts
to preserve its business organization, to keep available the services
of its present employees, and to preserve the goodwill of its
suppliers, customers and others having any business relation with it.
5.11 Approval of NetSat Members . NetSat shall hold a special meeting
of the NetSat Members for the purpose of submitting the
Recapitalization and issuance of Member Interests to EMS for approval
by such members, or NetSat shall have obtained written waivers of
notice and consents of such members adequate to approve the
Recapitalization and such issuance. In connection with such meeting
or consents, NetSat shall prepare and submit to the NetSat Members
materials necessary to fully disclose the terms of the
Recapitalization and such issuance as set forth in this Agreement, and
shall comply with respect to the conduct of such meeting or the
obtaining of such consents in all material respects with any
applicable requirements of any other federal or state law.
5.12 Consents. NetSat shall obtain the consent of the following
persons to the transactions contemplated by this Agreement, where such
consent is required in the opinion of EMS for effective consummation
of the transactions contemplated herein: (i) the holders of its
outstanding indebtedness; (ii) the lessors of all leases; and (iii)
the parties to any other agreements to which NetSat is a party or by
which it or any of its property is bound or affected. Any consent
obtained under this Section 5.12 shall not result in a material
modification of the terms or conditions of the indebtedness, lease or
other agreement to which it pertains.
5.13 Access to Properties, Books, etc. NetSat shall allow EMS and
its authorized representatives full access during normal business
hours to all of its properties, books, contracts, commitments and
records, and shall furnish EMS or its authorized representatives such
information concerning its affairs as may reasonably be requested.
However, no investigation made heretofore or hereafter by EMS shall
affect the representations and warranties of NetSat and Nation Net.
5.14 Monthly Financial Statements. NetSat shall deliver to EMS, as
soon as possible after each month ending between July 31, 1999 and the
Closing, true and correct copies of monthly financial statements of
NetSat for each such month. Such monthly financial statements shall
reflect all material adjustments necessary to be reflected therein
(subject to normal year-end adjustments to accrued bonuses and taxes)
in order to present fairly NetSat's financial position and results of
operations at the end of each such period on a basis consistent with
the Financial Statements. Such monthly financial statements need not
be audited nor need they be prepared in accordance with generally
accepted accounting principles.
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF EMS
As an inducement to NetSat and Nation Net to enter into this
Agreement and to consummate the transactions contemplated hereby, EMS
represents and warrants as follows:
6.1 Good Standing, Capital Structure. EMS is a corporation duly
organized, validly existing, and in good standing under the laws of
the State of Georgia. EMS has adequate power (corporate or otherwise)
to own or lease its properties and to carry on its business as and in
the places where such properties are now owned, leased or operated and
such business is now conducted, and has fully complied in all material
respects with all federal, state, local and foreign laws with respect
to its operations and the conduct of its business, except for any such
failures to so comply that will not, singly or in the aggregate, have
a material adverse effect on the business, assets or financial
condition of EMS. EMS is duly qualified and in good standing as a
foreign corporation for the transaction of business under the laws of
each jurisdiction in which it owns or leases property, or conducts
business, so as to require such qualification, except for any
jurisdiction in which the failure to so qualify would not have a
material adverse effect on the business or financial condition of EMS.
Copies of the Amended and Restated Articles of Incorporation and the
ByLaws of EMS, each as amended and currently in force, heretofore made
available to NetSat are true, complete and correct at the date hereof.
6.2 Capitalization. As of the date hereof, EMS has authorized
capital stock consisting of 75,000,000 shares of EMS Stock, of which
8,711,860 shares are issued and outstanding, and 10,000,000 shares of
Preferred Stock, $1.00 par value per share, none of which are
outstanding. Each outstanding share of EMS Stock is duly authorized
and validly issued, is fully paid and nonassessable, was offered,
issued and sold in accordance with applicable federal and state
securities laws, and there are no preemptive rights in respect
thereof.
6.3 Options, Rights, etc. to Acquire EMS Stock. Except for shares
issuable under stock incentive plans for employees and non-employee
directors, and for shares issuable under this Agreement, as of the
date of this Agreement there are no outstanding options, warrants,
rights, calls, commitments, conversion rights, plans, or other
agreements or arrangements of any character providing for the purchase
or issuance of any authorized but unissued shares of EMS Stock.
6.4 EMS Stock Issued Pursuant to this Agreement. The shares of EMS
Stock to be issued pursuant to this Agreement, when so issued, will be
duly authorized and validly issued, fully paid and non-assessable, and
there will be no preemptive rights in respect thereof.
6.5 Corporate Authority of EMS. EMS has full corporate power and
authority to make, execute and deliver this Agreement, and to perform
its obligations hereunder and thereunder and in connection with the
transactions contemplated hereby and thereby, and the making,
execution and delivery of this Agreement by EMS, and the performance
by EMS of its obligations in compliance with their respective terms,
have been duly authorized by all necessary corporate action of EMS.
6.6 No Default Resulting from Agreement. Neither the making,
execution and delivery of this Agreement by EMS, nor the performance
by EMS of its obligations in compliance with the terms hereof, will
result in any material breach of the terms and conditions of, or
constitute a default under, the Amended and Restated Articles of
Incorporation or Bylaws of EMS, or any material agreement, instrument,
undertaking, judgment, decree, governmental order, or other
restriction or obligation to which EMS is a party or by which it or
any of its properties or assets may be bound or affected.
6.7 Financial Statements. EMS has previously furnished to NetSat a
true and complete copy of its Annual Report on Form 10-K for its
fiscal year ended December 31, 1998 (the "Annual Report"), which
includes, among other things, EMS' audited financial statements at
December 31, 1998, and for the three years then ended. The financial
statements contained in the Annual Report have been prepared in
conformity with generally accepted accounting principles, applied on a
consistent basis, and present fairly the financial position of EMS at
the date indicated and the results of its operations and changes in
its financial position for each of the periods indicated.
6.8 Actions, Suits, etc. Except as set forth in the Annual Report,
(i) there are no actions, suits, claims or proceedings (pending or
threatened) against, by or affecting EMS in any court or before any
arbitrator or governmental agency or authority, domestic or foreign,
that might have a material adverse effect on its assets, financial
condition or the operation of its business, or that might prevent or
impede the transactions contemplated by this Agreement; (ii) EMS has
not been charged with, and, to the best of its knowledge, is not under
investigation with respect to, any charge concerning any violation of
any provision of any federal, state or other applicable law or
administrative order or regulation in respect to its business; and
(iii) there are no judgments unsatisfied against EMS, and no consent
decrees to which EMS is subject.
6.9 Representations and Warranties. No representation, warranty or
covenant contained in the Agreement or in any written statement
delivered pursuant hereto or in connection with the transactions
contemplated hereby contains or shall contain any untrue material
statement, or omits or shall omit to state a material fact necessary
in order to make the statements made, in the light of the
circumstances under which they were made, not misleading. Copies of
all documents furnished to NetSat in connection with this Agreement or
pursuant hereto are true and complete in all material respects.
6.10 Securities Filings. EMS's Annual Report on Form 10-K for the
year ended December 31, 1998, did not, on the later of the date of
filing of such report or any subsequent amendment thereof, contain 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, in light of the circumstances under which they were made, not
misleading. Copies of such Report have been furnished to Nation Net
by EMS, and such copies are accurate and complete copies thereof
(excluding exhibits). Since January 1, 1998, EMS has filed all
documents required to be filed by it with the Securities and Exchange
Commission pursuant to Section 13 and 14 (a) of the Securities
Exchange Act of 1934, and all such documents complied in all material
respects as to form with applicable requirements of law.
6.11 EMS IP Rights. Except as set forth on Schedule 3 to Annex
2.1(c):
(a) EMS has no knowledge that the EMS IP Rights infringe or have
infringed upon or unlawfully or wrongfully used any patent, trademark,
tradename, service mark or copyright owned or claimed by another
person, and has not received any notice of any claim of infringement
or any other claim or proceeding, with respect to any EMS IP Rights.
No current or former employee, officer, stockholder, or director of
the EMS owns or has any proprietary, financial or other interest,
direct or indirect, in whole or in part, including any right to
royalties or other compensation, in any of the EMS IP Rights, or in
any application therefor.
(b) (i) All of the employees, contractors or consultants of EMS who
have contributed to the development of EMS IP Rights have executed and
delivered to EMS agreements that assign to EMS any of their rights in
or disclaim any rights to the EMS IP Rights; (iii) no employee,
contractor or consultant of EMS has used any proprietary information
of any other Person in the course of developing the EMS IP Rights,
except with the consent of any such Person; (iv) no government funding
was utilized in the development of the EMS IP Rights; (v) EMS has not
received any communication alleging that use of the EMS IP Rights in
the manufacture or operation of the Satellite would violate any rights
of any Person; and (vi) EMS has not granted to any other Person any
license, option or other right in or to any of the EMS IP Rights.
EMS has used reasonable procedures to maintain the secrecy and
physical security of the EMS IP Rights consisting of trade secrets or
other confidential information, including source codes for any
computer software, and has not disclosed such Information to any
Person other than those who had a reasonable need to know such
information in the course of their responsibilities as employees,
contractors or consultants of EMS and who are subject to obligations
to maintain the confidentiality of such information.
(c) Maintenance. EMS has no obligation owing to any Person to
maintain, modify, improve or upgrade the EMS IP Rights.
ARTICLE 7
OTHER AGREEMENTS
7.1 Recapitalization. The members and Executive Committee of NetSat
shall take all such actions and execute and deliver all such documents
as shall reasonably be required to accomplish the following (the
"Recapitalization") prior to the Closing Date:
(a) Amendment of the Limited Liability Company Agreement of NetSat to
divide the Member Interests into 2,000,000 units, of which (following
the transactions specified in (b) below) 998,000 will be outstanding
and held by Nation Net, and 1,002,000 will be reserved for issuance to
EMS in the Closing;
(b) Redemption of the Member Interests held by Hellman & Friedman
Capital Partners III, L.P. and DBX Second Corporation, on the terms
set forth in the Amended and Restated Interest Purchase Agreement
dated December 23, 1998, among such parties, NetSat, Nation Net and
World Links Incorporated, as modified by letter dated July 16, 1999,
except that the terms of such redemption shall, to the reasonable
satisfaction of EMS's counsel, relieve NetSat of any further
liability, contingent or otherwise, to the other parties to such
Agreement; and
(c) Amendment of the NetSat Limited Liability Company Agreement to
incorporate the provisions set forth on Annex 7.1(c).
7.2 The EMS Loan. Contemporaneous with the execution of this
Agreement, NetSat shall execute and deliver the form of promissory
note attached hereto as Annex 7.2(a), to evidence its obligations of
repayment of a loan (the "EMS Loan") from EMS, and EMS shall fund the
initial $750,000 of the EMS Loan. The $750,000 balance of the EMS
Loan shall be funded within five business days after NetSat shall have
notified EMS that the FCC has granted all such approvals as are
required under applicable law for the Recapitalization (including
redemption of certain NetSat Interests) to occur. Contemporaneously
with the execution of this Agreement, Nation Net shall execute and
deliver the form of guarantee attached hereto as Annex 7.2(b) as
security for repayment of the EMS Loan.
7.3 Registration of EMS Stock.
(a) On or before the thirtieth day following any issuance of EMS
Stock pursuant to this Agreement, EMS shall file with the United
States Securities and Exchange Commission a registration statement on
an appropriate form under the 1933 Act (the "Registration Statement")
to register for resale by Nation Net or its members, in ordinary
brokers' transactions or in transactions with any market maker with
respect to EMS Stock, up to 50% of the shares of EMS Stock so issued
to them, and EMS shall use its best efforts (i) to cause the
Registration Statement to become effective, and (ii) to register,
qualify or obtain an exemption from such registration or qualification
of such shares of EMS Stock under the applicable blue sky or other
securities laws of such states as Nation Net shall reasonably request,
as soon as practicable thereafter. EMS shall use its best efforts to
maintain the currency of the prospectus filed as part of the
Registration Statement (the "Prospectus") for a period expiring one
year after each such issuance, and shall file as necessary amendments
to the Registration Statement or supplements to the prospectus,
including without limitation any necessary to satisfy the requirements
of Section 10(a) (3) of the 1933 Act, or any succeeding provision.
The performance by EMS of its obligations under this paragraph 7.3(a)
shall be subject to compliance by Nation Net and it members with all
reasonable requests by EMS or its counsel for information, documents
and certificates necessary for such performance by EMS. EMS shall pay
all expenses it incurs in connection with the preparation, printing
and filing of the Registration Statement, the Prospectus, and all
amendments and supplements thereto, and EMS shall furnish Nation Net
and its members (without charge) such number of copies thereof as they
shall reasonably request.
(b) Notwithstanding any other provision hereof, (i) until the
Registration Statement has become effective, Nation Net and its
members will not sell, contract to sell, or offer to sell any of the
EMS Stock in any transaction requiring registration under the 1933 Act
or under the securities or blue sky laws of any jurisdiction, and (ii)
after the Registration Statement shall become effective, upon receipt
of notice from EMS (A) that the Prospectus, as then in effect,
contains an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then
existing, or (B) that the Prospectus otherwise requires amendment or
supplementation in order to comply with any applicable provision of
the 1933 Act or the applicable securities or blue sky law of any
relevant jurisdiction, Nation Net and its members shall cease making
offers and sales of any EMS Stock pursuant to such Prospectus, and
shall return to EMS any remaining copies of the Prospectus; EMS shall
promptly notify Nation Net and its members of any event that results
in such a situation or requires any such amendment or supplementation.
7.4 Royalties Payable to Nation Net. In consideration of
intellectual property rights assigned or licensed by Nation Net to
NetSat, which rights form a material part of the valuable assets of
NetSat, following the Closing NetSat shall pay to Nation Net the
following royalties as earned based on revenues (net of reasonable bad
debt or currency conversion reserves) received by NetSat from the
operation of the Satellite in the specified time periods, in all cases
as determined in accordance with generally accepted accounting
principles consistently applied:
% of Revenues
Payable to
Time Period Nation Net
First 18 months following 5%
the initiation of commercial
operations of the Satellite
Next 12 months 4%
Subsequent 12 months 3%
Remaining operational
life of the Satellite 2%
provided, however, that in the event a spare or replacement satellite
at any time becomes the operational Satellite, the period during which
royalties shall be payable shall not exceed 15 years from the date the
initial satellite was launched. EMS hereby guarantees the payment to
Nation Net of the foregoing royalties, except that EMS shall not be
responsible for, and does not so guarantee, any such royalty payment
that is not made by NetSat by virtue of any filing by or against
NetSat under the federal bankruptcy laws or other statute or procedure
providing for general relief from creditors, the pendency of any such
proceeding, or the terms of any judgment or settlement rendered or
entered in resolution of such filing or proceeding.
7.5 Royalties Payable to EMS. In partial consideration of the
license to NetSat of the EMS IP Rights at the Closing, NetSat shall
pay to EMS the following royalties as earned based on revenues (net of
reasonable bad debt or currency conversion reserves) received by
NetSat from the operation of the Satellite in the specified time
periods, in all cases as determined in accordance with generally
accepted accounting principles consistently applied:
% of Revenues
Payable to
Time Period EMS
First 18 months following 1%
the initiation of commercial
operations of the Satellite
Next 12 months 2%
Remaining operational 3%
life of the Satellite
In addition, in the event the EMS IP Rights are utilized by NetSat in
connection with satellites operated under the ITU Filings, EMS will be
entitled to royalties determined as set forth in Annex 2.1(c).
Cooperation. NetSat, Nation Net and EMS shall cooperate fully with
each other and their respective counsel, accountants and other
authorized representatives in connection with any steps required to be
taken as part of their respective obligations under this Agreement.
7.7 Expenses. Each of the expenses incurred by EMS, NetSat and
Nation Net in connection with the authorization, preparation,
execution and delivery of this Agreement, and the performance of their
respective obligations hereunder or thereunder, including without
limitation all fees and expenses of agents, representatives, counsel
and accountants, and all expenses incurred in connection with
materials furnished to NetSat and its members, shall be paid by the
party that incurred such expenses whether or not the transactions
contemplated hereby are consummated, except that if such transactions
are consummated any such expenses of NetSat in excess of an aggregate
of $50,000 shall not be paid by NetSat but instead shall be the sole
responsibility of Nation Net; provided however, that the parties agree
that the limitation on expenses payable by NetSat will only apply to
expenses incurred by NetSat after June 30, 1999 and will not apply to
expenses that would be incurred by NetSat in the ordinary course of
its business (as examples and not as an exclusive listing, such
limitation will not apply to expenses incurred in connection with the
protection of Intellectual Property or the consulting agreement
between NetSat and EMS's subsidiary, EMS Technologies Canada, Ltd.).
7.8 Confidentiality. Each party understands that certain
information that it has been furnished and will be furnished in
connection with the transactions contemplated by this Agreement is
confidential and proprietary, and each party agrees that it will
maintain the confidentiality of such information and will not disclose
it to others or use it except in connection with such transactions,
without the consent of the party furnishing such information.
Information that is generally known in the industry of a party or has
been disclosed to the other party by third parties who have a right to
do so, shall not be deemed confidential or proprietary information for
these purposes. In the event that the Closing does not occur, each
party agrees to promptly return to the other all materials (and all
copies thereof) that have been furnished to it regarding the business
and financial condition of the other party, including without
limitation all financial statements, reports, contracts, customer
lists, accounts, records, tax returns, data, plans, processes and
trade secrets.
7.9 Personal Guarantee. As soon as reasonably practicable following
the Closing Date, EMS shall take all reasonable steps to either
jointly guarantee or obtain the release of Thomas W. Glynn as
guarantor of the $1 million indebtedness of NetSat under that certain
Continuing Guaranty in favor of Banker's Trust dated January 27, 1999,
and from and after the Closing EMS shall indemnify and hold Thomas W.
Glynn harmless from any liability arising under said Guaranty, except
for any liability arising out of Glynn's fraud, gross negligence or
willful misconduct, or out of any breach (other than failure to have
repaid such Indebtedness) of such Guaranty or the underlying loan
documents existing at the Closing Date.
7.10 Consulting Agreement. Effective upon the Closing, NetSat will
enter into a technical services consulting agreement reasonably
satisfactory to EMS, incorporating the terms set forth in Annex 7.10,
with Glynn Scientific, Inc. ("GSI"), under which NetSat shall
compensate GSI for technical services, within the professional
competence of GSI, thereafter reasonably required by NetSat and
provided by GSI.
7.11 Licensing Agreement. Effective upon the Closing, Nation Net and
NetSat will execute and deliver the Licensing Agreement contemplated
in Section 4.8.
7.12 A Certain Patent. The parties are aware of US Patent No.
4,813,036, "Fully Interconnected Spot Beam Satellite Communications
System" (the "Spot Beam Patent"), and acknowledge that it includes
claims which are similar in certain respects to concepts incorporated
in the Licensed Technology. However, following review it is believed
by Nation Net and NetSat that the Licensed Technology does not
infringe on the Spot Beam Patent. Nation Net agrees to indemnify and
hold harmless NetSat from and against any and all reasonable expenses
(including attorneys' fees) of investigation and defense of any claims
against NetSat based on the Spot Beam Patent and arising from NetSat's
use of the Licensed Technology, but such indemnity amounts shall not
include royalties or other payments to the holder of the Spot Beam
Patent, and shall be payable only from royalty payments otherwise due
to Nation Net under this Agreement, and only to the extent that such
royalty payments shall from time to time be otherwise payable to
Nation Net. No compromise or other settlement of any such claim may
be made without NetSat's prior consent.
ARTICLE 8
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF EMS
All of the obligations of EMS under this Agreement are subject to
the fulfillment or waiver prior to or at the Closing of each of the
following conditions:
8.1 Accuracy of Representations and Warranties. The representations
and warranties of NetSat and Nation Net contained herein or in any
certificate, schedule or other document delivered pursuant to the
provisions hereof or in connection herewith shall be true and correct
as of the Closing Date with the same effect as though such
representations and warranties had been made at the Closing Date,
except to the extent such representations and warranties expressly
relate only to an earlier date or are affected by transactions
contemplated herein, and except for changes expressly approved by EMS.
8.2 Compliance with Conditions. NetSat and Nation Net shall have
performed each of its obligations and complied with all agreements and
conditions required by this Agreement to be performed or complied with
by it prior to or at the Closing.
8.3 Closing Documents. NetSat shall have delivered to EMS:
(a) Certificates executed by the President and Treasurer of NetSat,
and by the Chairman of Nation Net, dated the Closing Date, and
certifying in such detail as EMS may reasonably request to the
fulfillment of the conditions specified in Sections 8.1 and 8.2
hereof;
(b) Duly adopted resolutions of the members and Executive Committee
of NetSat, and of the appropriate governing body of Nation Net, each
certified by such entity's Secretary or an Assistant Secretary as of
the Closing Date, (i) authorizing and approving the execution and
delivery of this Agreement and the consummation of the transactions
contemplated herein in accordance with their terms, and (ii)
authorizing and approving all other necessary and proper actions to
enable NetSat and Nation Net to comply with the terms hereof;
(c) Certificate(s) from the Secretary of State of the State of
Delaware, dated not more than five days prior to the Closing Date, as
to the legal existence and good standing of NetSat under the laws of
Delaware;
(d) A copy of the Limited Liability Company Agreement of NetSat as
amended and restated to reflect the Recapitalization and other matters
contemplated herein, in form reasonably satisfactory to counsel to EMS
and Nation Net, together with copies of the consents and approvals of
the Executive Committee and Members of NetSat to such amendments and
restatement, all certified by the Secretary of NetSat as being true,
correct and currently in effect;
(f) An opinion of counsel for NetSat, dated the Closing Date, in form
reasonably acceptable to legal counsel for EMS; and
(g) A copy of the form of Licensing Agreement contemplated in Section
4.8, executed on behalf of the parties thereto.
8.4 Consents. NetSat shall have obtained any consents required
under Section 5.12 hereof with respect to any indebtedness, leases or
agreements that are material to the business, assets, results of
operations, financial condition, or prospects of NetSat.
8.5 Governmental Approvals. EMS shall have received from any and
all governmental authorities, bodies or agencies having jurisdiction
over the transactions contemplated by this Agreement, or any part
thereof, such other consents, authorizations, and approvals as are
necessary for the consummation thereof.
8.6 FCC License. The FCC shall have granted such amendments of and
consents with respect to the Ka-band fixed satellite service license
currently held by NetSat as are necessary for such license to conform
to the terms of the FCC License as defined in Section 1.7, all without
limitation, restriction or condition, other than those that are
routine and incidental to such licenses as generally granted by the
FCC.
8.7 Non-Compete Agreement. Thomas W. Glynn shall have executed and
delivered to EMS an agreement in substantially the form set forth as
Annex 8.7 agreeing not to provide, for a period of three years
following the Closing, technical or managerial services in any
capacity to or with respect to any satellite-based system for high
data-rate transmission of digital data. EMS will not, for federal or
state income tax purposes, treat any of the EMS Stock issued pursuant
hereto as having been issued in consideration for such agreements.
ARTICLE 9
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF NETSAT AND NATION NET
All of the obligations of NetSat and Nation Net under this
Agreement are subject to the fulfillment or waiver prior to or at the
Closing of each of the following conditions:
9.1 Accuracy of Representations and Warranties. The representations
and warranties of EMS contained herein or in any certificate, schedule
or other document delivered pursuant to the provisions hereof, or in
connection herewith, shall be true and correct as of the Closing Date
with the same effect as though such representations and warranties had
been made at the Closing Date, except to the extent such
representations and warranties expressly relate only to an earlier
date or are affected by transactions contemplated herein, and except
for changes contemplated by this Agreement or approved by NetSat.
9.2 Compliance with Conditions. EMS shall have performed each of its
obligations and complied with all agreements and conditions required
by this Agreement to be performed or complied with by it prior to or
at the Closing.
9.3 Closing Documents. EMS shall have delivered to NetSat:
(a) A certificate executed by the President or any Vice President of
EMS, dated the Closing Date, and certifying in such detail as NetSat
may reasonably request to the fulfillment of the conditions specified
in Sections 9.1 and 9.2 hereof;
(b) Duly adopted resolutions of the Board of Directors of EMS,
certified by the Secretary or an Assistant Secretary of EMS as of the
Closing Date, (i) authorizing and approving the execution and delivery
of this Agreement on behalf of EMS, and the consummation of the
transactions contemplated herein in accordance with their respective
terms, and (ii) authorizing and approving all other necessary and
proper corporate actions to enable EMS to comply with the terms
hereof;
(c) An opinion of William S. Jacobs, General Counsel for EMS, dated
the Closing Date, in form reasonably acceptable to legal counsel for
NetSat; and
(d) The Guaranty Agreement dated June 22, 1999, executed by Thomas W.
Glynn with respect to $150,000 principal amount of indebtedness of
NetSat to EMS, marked "Canceled."
9.4 Consents. EMS shall have obtained the consent of any person to
the transactions contemplated by this Agreement, where such consent is
required for effective consummation of such transactions.
ARTICLE 10
SURVIVAL OF WARRANTIES AND REPRESENTATIONS
All representations and warranties made by the respective parties
in this Agreement or pursuant hereto shall survive the Closing.
ARTICLE 11
TERMINATION
11.1 Termination. To the extent and under the circumstances set
forth in this Article 11, this Agreement may be terminated, at any
time prior to the Closing, upon written notice to the other party:
(a) Material Adverse Change. By EMS or NetSat, if a material
adverse change in the business, prospects or financial condition of
the other party, considered as a whole, shall have occurred, or the
other party shall have suffered a material loss or damage to any of
its properties or assets.
(b) Non-Compliance by NetSat. By EMS, if the terms, covenants or
conditions of this Agreement to be complied with or performed by
NetSat at or before the Closing shall not by that time have been
complied with or performed and such non-compliance or non-performance
shall not have been waived in writing by EMS.
(c) Non-Compliance by EMS. By NetSat, if the terms, covenants or
conditions of this Agreement to be complied with or performed by EMS
at or before the Closing shall not by that time have been complied
with or performed and such non-compliance or non-performance shall not
have been waived in writing by NetSat.
(d) Litigation Regarding Transactions. By EMS or NetSat if there
shall be pending against NetSat or EMS, or threatened in a writing
received by either party, any litigation or governmental proceeding
seeking or threatening to seek to enjoin the transactions contemplated
herein, or to obtain material damages or the payment of material
penalties if such transactions are consummated; provided, however,
that the party seeking to terminate this Agreement on that basis (i)
shall have received a written opinion of its counsel, within thirty
days after the institution or threat of such litigation or proceeding
(whether directed at it or the other party) that the litigation or
proceeding has a reasonable probability of success, and (ii) shall
have on a reasonable basis determined that the payment of such damages
or penalties would materially and adversely affect the business,
assets, results of operations, financial condition, or prospects of
the party against whom such damages or penalties would be assessed.
NetSat and EMS each shall notify the other of any litigation or
proceeding of the type that is the subject of this paragraph 11.1(d),
that is commenced or threatened against such party.
(e) Extended Delay. By EMS or NetSat if the condition set forth in
Section 8.6 (concerning the FCC License) shall not have been satisfied
on or before January 31, 2000, or if any other condition to its
obligations under this Agreement shall not have been fulfilled on or
before February 29, 2000.
11.2 Requirements and Effect of Termination. Upon any termination
of this Agreement pursuant to Section 11.1, no party hereto shall have
any liability or further obligation to the other party except (i) for
repayment of the EMS Loan, (ii) to the extent provided in Sections 7.7
and 7.8, and (iii) to the extent that such termination is based upon a
breach of any representation, warranty, covenant or agreement of a
party. In addition, EMS shall thereafter be obligated to license, on
a non-exclusive basis without right to transfer or sublicense, the EMS
IP Rights for use by NetSat in Ka-band satellite applications, subject
to payment by NetSat of commercially reasonable royalties and
execution by NetSat of a commercially reasonable license agreement.
11.3..Election to Close Despite Failure to Satisfy Conditions. If
any of the conditions specified in Article 8 hereof has not been
satisfied, EMS may nevertheless, at the election of EMS, proceed with
the transactions contemplated hereby; and, if any of the conditions
specified in Article 9 hereof has not been satisfied, NetSat may
nevertheless, at its election, proceed with the transactions
contemplated hereby. An election to proceed with the Closing despite
a failure by the other party to satisfy the conditions to this
Agreement shall not constitute a waiver by the electing party of any
right it may have as a result of the other party's breach of any
representation, warranty, covenant or agreement contained in this
Agreement.
ARTICLE 12
MISCELLANEOUS
12.1 Notices, Etc. All notices, requests, demands and other
communications required or permitted hereunder shall be in writing and
shall be deemed to have been duly given when delivered in person or by
courier or express mail service, or if mailed first class, certified
mail, postage prepaid on the fifth business day following such
mailing, to the following address:
(a) If to NetSat or Nation Net:
73 Franklin Street
Annapolis, Maryland 21401
Attention: Thomas W. Glynn, President
(b) If to EMS:
660 Engineering Drive
Norcross, Georgia 30092
Attention: Thomas E. Sharon, President
With a Copy to: General Counsel
or to such different address as any of the above may designate in
accordance with the provisions of this Section 12.1.
12.2 Entire Agreement. This Agreement supersedes all prior
discussions and agreements by and between EMS and NetSat with respect
to the matters contained herein, and constitutes the sole and entire
agreement by and between EMS and NetSat with respect to the
transactions contemplated herein.
12.3 Amendments; Modifications; Waivers. This Agreement may be
amended or modified, or its conditions waived, only by an instrument
in writing executed by the Chief Executive Officer, Chairman,
President, any Vice President, or other duly authorized representative
of the party against whom enforcement of the amendment or modification
is sought.
12.4 Counterparts; Headings. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
The headings herein set out are for convenience of reference only and
shall not be deemed a part of this Agreement.
12.5 Binding Effect. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective
successors, but it may not be assigned by any party without the
consent of the other.
12.6 Governing Law. This Agreement is made under, and shall be
governed by and construed and enforced in accordance with, the laws of
the State of Delaware.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized corporate officers and their
corporate seals to be affixed, all as of the day and year first above
written.
NATION NET, L.L.C. NETSAT28 COMPANY, L.L.C.
------------------------ ----------------------------
Thomas W. Glynn Thomas W. Glynn
Chairman President
EMS TECHNOLOGIES, INC.
----------------------------
Thomas E. Sharon
CEO and President
Annex 7.2(a)
Promissory Note
Principal Norcross, Georgia
$1,500,000
FOR VALUE RECEIVED, the undersigned, NetSat 28 Company, L.L.C., a
Delaware limited liability company (hereafter referred to as
"Borrower"), promises to pay to the order of EMS Technologies, Inc., a
Georgia corporation (hereinafter, together with any holder hereof,
referred to as "Lender"), the principal sum of One Million Five
Hundred Thousand Dollars ($1,500,000), or so much thereof as shall
have been advanced and not repaid, said sum being payable, without
interest, in lawful money of the United States on February 1, 2000.
Amounts due hereunder are payable to Lender at the Lender's
offices at 660 Engineering Drive, Norcross, Georgia 30092, or at such
other place as the Lender may designate in writing.
The entire unpaid principal balance of this Promissory Note, or
partial payments in even thousands of dollars, may be paid at any time
prior to maturity without penalty.
If for any reason the principal balance together with all accrued
interest is not paid promptly on or before the due date, the Borrower
shall be in default hereunder. The Borrower shall also be in default
hereunder if the Borrower (i) files a voluntary petition in
bankruptcy, (ii) is adjudicated as bankrupt or insolvent, (iii) files
a petition or answer seeking or acquiescing in any reorganization or
arrangement under the bankruptcy laws, (iv) seeks or acquiesces in the
appointment of a trustee or receiver, (v) makes a general assignment
for the benefit of creditors, (vi) admits in writing of its inability
to pay debts generally as they become due, or (vii) is the subject of
an involuntary petition in bankruptcy that is not withdrawn or
dismissed within thirty days from the filing thereof.
Upon default and at any time thereafter, the Lender may declare
the entire unpaid balance of this Promissory Note immediately due and
payable without presentment, demand, protest, notice of default,
notice of intent to accelerate, notice of acceleration, or any other
notice of any kind, all of which are hereby expressly waived. Upon
default, said principal sum, or so much thereof as may remain unpaid
at the time of such default, shall thereafter bear interest at the
lesser of the maximum rate allowed by applicable law or the rate of
12% per annum.
If this Promissory Note is placed in the hands of an attorney for
collection, the borrower shall pay all costs of collection incurred by
the Lender, including reasonable attorneys' fees.
This Promissory Note is to be construed in all respects and
enforced according to the laws of the State of Georgia.
Notwithstanding any provision contained in this Note or any other
document executed or delivered in connection with this Note, the
Lender shall never be deemed to have contracted for or be entitled to
receive, collect or apply as interest on this Note any amount in
excess of the maximum rate of interest permitted to be charged by
applicable law, and, if the Lender ever receives, collects or applies
as interest any such excess, then the amount that would be excessive
interest shall be applied to reduce the unpaid principal balance of
this Note, and, if the principal balance of this Note is paid in full
by that application, then any remaining excess shall promptly be paid
to Borrower.
Executed this ____th day of September, 1999.
Signed, sealed and delivered BORROWER
in the presence of:
NETSAT 28 COMPANY, L.L.C.
By: __________________________
Thomas L. Glynn
President
Annex 4.20
Stock Acquisition Representations
The undersigned has executed and delivered this document to set
forth its representations, warranties and agreements, in connection
with and as a condition to the closing of the Member Interest Purchase
Agreement (the "Agreement") by and among EMS Technologies, Inc.
("EMS"), NetSat 28 Company, L.L.C. ("NetSat"), and Nation Net, L.L.C.
("Nation Net"), dated of even date herewith, as follows:
1. The undersigned will acquire shares of EMS delivered pursuant to
the Agreement (the "EMS Shares") to hold for investment, for its own
account, with no present intention of dividing such shares with others
or reselling or otherwise participating, directly or indirectly, in a
distribution thereof, except as may otherwise be approved by EMS based
on reasonable procedures and restrictions to assure compliance with
applicable state and federal securities laws.
2. The undersigned acknowledges that the EMS Shares are being issued
in a transaction that is not registered under the Securities Act of
1933, as amended (the "1933 Act"), or under the securities law of any
state, and they may not be resold or otherwise distributed other than
in a transaction registered under the 1933 Act or any applicable state
securities laws, or pursuant to an exemption from registration
thereunder.
3. The undersigned acknowledges and agrees that EMS is not under any
obligation to register any of the EMS Shares for resale or other
transfer, except to the extent set forth in the Agreement.
4. The undersigned acknowledges and agrees that the certificates
evidencing the EMS Shares will bear a legend stating, in substance, as
follows:
"The securities evidenced by this certificate have been issued without
registration under the Securities Act of 1933, as amended (the "1933
Act"), or the securities laws of any state, pursuant to exemptions
thereunder. Such shares may not be transferred other than in a
transaction that is registered under the 1933 Act and any applicable
state securities laws, or as to which it is established to the
satisfaction of counsel to the issuer that such transaction is exempt
from registration thereunder."
5. The undersigned has received copies of EMS's Annual Report on Form
10-K for the year ended December 31, 1999, its Annual Report to
Shareholders for that year, its proxy statement for the Annual Meeting
held on April 30, 1999, its Quarterly Reports on Form 10-Q for the
quarters ended April 2 and July 2, 1999, its Reports on Form 8-K dated
January 29, 1999 (as amended April 14, 1999), March 15, 1999, and
April 6, 1999 (as amended April 9, 1999), its press releases dated
January 28, February 1 and 16, March 22, April 20 and 27, June 2, July
27 and September 5, 1999, and the description of EMS's Common Stock
contained in its Registration Statement on Form 8-A, as amended April
12, 1999.
6. Through its General Manager, who maintains and personally manages
a portfolio of equity investments having a current value of not less
than $________, the undersigned is experienced in evaluating the
merits and risks of investments in technology-based companies such as
EMS.
7. The undersigned acknowledges and agrees that EMS, its officers,
counsel and transfer agent will rely upon the truthfulness of the
undersigned's representations set forth herein in issuing the EMS
Shares pursuant to the Agreement, and further acknowledges that it has
had full opportunity to inquire of EMS, through its officers,
concerning the business affairs of EMS, and has received responses to
his or its satisfaction to all such questions.
IN WITNESS WHEREOF, the undersigned has executed this document on the
date indicated:
Nation Net L.L.C.
By:_______________________
Manager
Date: September 30, 1999
Annex 8.7
Non-Competition Agreement
This Non-Competition Agreement is made and entered into by Thomas
W. Glynn ("Glynn"), and is executed and delivered by Glynn for the
benefit of EMS Technologies, Inc. ("EMS") and NetSat 28 Company,
L.L.C. ("NetSat"), pursuant to the terms of, and as a condition to
closing of the transactions (the "Transactions") contemplated in, that
certain Member Interest Purchase Agreement dated the date hereof (the
"Agreement") by and among EMS, NetSat and Nation Net, L.L.C. ("Nation
Net").
1. Glynn acknowledges and represents that he is the principal holder
of member interests in Nation Net, and as such will obtain and enjoy
substantial benefits as a result of the Transactions, and further
acknowledges that his execution and delivery of this Non-Competition
Agreement is ancillary to the sale of a business and is a condition
precedent to the obligations of EMS to close the Transactions.
2. In consideration of the benefits being derived by Glynn under, and
of EMS's closing, the Transactions, Glynn hereby agrees that, for a
period ending on the later of the fifth anniversary of the date hereof
or the date on which royalties shall no longer be accruing and payable
to Nation Net and/or its members under the terms of the Agreement,
Glynn will not, directly or indirectly, as an individual, officer,
director, employee, agent, consultant or other contractor, or through
any person or business entity controlled by or under common control
with Glynn, provide services to any company or other organization
providing or seeking to provide high-speed satellite communications
services to private or governmental users located anywhere in the
world, or to design or manufacture satellite hardware to provide such
services, except with the prior written consent of NetSat.
3. Glynn acknowledges and agrees that the restrictions set forth in
this Agreement are reasonable and necessary to protect the interests
of EMS in connection with its acquisition of member interests in
NetSat, and are consistent with the scope of business intended to be
conducted by NetSat, and with the royalties payable to Nation Net
and/or its members based on the conduct of such operations.
IN WITNESS WHEREOF, this Non-Competition Agreement has been executed
and delivered this ___ day of___________, 1999.
_____________________________
Thomas W. Glynn
Acknowledged and accepted:
EMS Technologies, Inc. NetSat 28 Company, L.L.C.
By: ________________________ By:_______________________
Jeffrey A. Leddy, Vice President Thomas W. Glynn, President
24
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