Securities and Exchange Commission
Washington, D.C. 20549
Form 8-K
Current Report
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act Of 1934
Date of Earliest Reported Event - April 5, 1999
eNote.com Inc.
(Exact name of Registrant as specified in its charter)
Delaware 0-7349 59-3453153
(State or other jurisdiction of (Commission (IRS Employer
incorporation or organization) File Number) Identification Number)
One Lawson Lane, Third Floor
Burlington, Vermont 05402
(Address of Registrant's principal executive offices)
(802) 862-5100
(Registrant's telephone number, including area code)
(802) 862-1631
(Registrant's facsimile number, including area code)
1612 OSCEOLA
CLEARWATER, FLORIDA
(Former name or former address, if changed since last report)
<PAGE>
INTRODUCTORY NOTE
Unless otherwise indicated, all information in this Current Report on Form
8-K (the "Report") has been adjusted to reflect a 1-for-6-3/4 reverse stock
split effected on April 2, 1999 and a business combination transaction that
closed on April 5, 1999. References to "Webcor" shall refer to the company
before the business combination and references to "eNote," the "Company," "we,"
"us" and "our" shall refer to eNote.com, Inc. and our subsidiaries after the
business combination.
Our quarterly and annual operating results will be affected by a wide
variety of factors that could materially and adversely affect our actual
results. These factors include, but are not limited to:
o Changes in general economic conditions;
o Fluctuations in the securities markets;
o Changes in the demand for e-mail and online information services; o Changes in
the nature of our business resulting from the introduction of
new products and services;
o Competition from other firms who offer competitive products and services; o
Changes in regulatory requirements; and o Risks related to the year 2000.
As a result of these factors and others, our future operating results may
fluctuate on a quarterly or annual basis. Such fluctuations could materially and
adversely affect our business, financial condition, operating results, and stock
price.
This report and other documents that we file with the Securities and
Exchange Commission (the "SEC") contain forward-looking statements about our
business. These forward-looking statements are subject to many risks and
uncertainties. Therefore, our actual results may differ significantly from the
forward-looking statements. Except as specified in SEC regulations, we have no
duty to publicly release information that updates the forward-looking statements
contained in this Report. An investment in our stock involves various risks,
including those mentioned above and described elsewhere in this Report.
Additional risks will be disclosed from time to time in our future SEC filings.
Item 1.Change In Control of Registrant
General. eNote.com Inc. is a Delaware corporation that was formerly known
as Webcor Electronics, Inc. Webcor conducted an initial public offering in May
1982 pursuant to a Form S-1 Registration Statement under the Securities Act of
1933 (the "Securities Act"). In connection with an application to list its
Common Stock on the NASDAQ system, Webcor also registered its Common Stock
pursuant to Section 12(g) of the Securities Exchange Act of 1934 (the "Exchange
Act"). As a result of a 1989 bankruptcy proceeding, Webcor became an inactive
shell that had with no material assets, liabilities or business activities.
Webcor remained inactive until March 11, 1997, when its stockholders approved a
plan of reorganization proposed by Capston Network Company of Clearwater,
Florida ("Capston"). This plan of reorganization authorized Capston to seek a
suitable business combination opportunity for Webcor, authorized a series of
changes in Webcor's corporate structure, and provided for stock-based
compensation to Capston and others for services rendered and to be rendered in
connection with the implementation of the plan of reorganization. Capston and
its president Sally A. Fonner, who also serves as our sole director, began
actively seeking a business combination opportunity for Webcor in the spring of
1997. After investigating a number of opportunities, Capston negotiated an
agreement with the stockholders of Navis Technologies, Ltd. ("Navis") in March
of 1999. In connection with this transaction, the stockholders of Navis agreed
to contribute all of their Navis stock to Webcor in exchange for 8,000,000
shares of common stock (the "Navis Transaction"). At the same time, Capston
negotiated an agreement with Friedlander International Limited ("Friedlander")
where Friedlander agreed to contribute $5,000,000 in cash to eNote in exchange
for 5,000,000 shares of convertible preferred stock and 2,000,000 common stock
purchase warrants (the "Friedlander Transaction"). The Navis Transaction closed
on April 5, 1999, and the Friedlander Transaction closed on April 6, 1999.
The Navis Transaction. Webcor acquired Navis in a business combination
transaction that was structured as a reverse takeover, or "RTO." In connection
with the Navis Transaction, the stockholders of Navis exchanged their Navis
stock for newly issued stock of Webcor, and Navis became a wholly-owned
subsidiary of our company. Before the Navis Transaction, Webcor had no material
assets, liabilities or business operations. No relationship existed between
Webcor and Navis prior to the Navis Transaction and no funds of Webcor were
spent to acquire the stock of Navis. As consideration for the Navis Transaction,
Webcor issued shares of Common Stock to the former stockholders of Navis. The
number of shares issued by Webcor in the Navis Transaction was determined by
arms-length negotiation between the parties.
Until March 31, 1999, Webcor had 3,476,370 shares of common stock ("Old
Common") issued and outstanding. In preparation for the Navis Transaction,
Webcor changed its name to eNote.com, Inc. It also effected a "reverse split"
where the Old Common was consolidated in the ratio of one post-consolidation
share ("Common Stock") for every six and three-quarters (6-3/4) shares of Old
Common, provided, that no stockholder's ownership was reduced to fewer than 100
shares of Common Stock if that stockholder owned at least 100 shares of Old
Common on March 31, 1999. In connection with the Navis Transaction, Webcor
agreed to acquire all of the issued and outstanding shares of Navis in exchange
for 8,000,000 shares of Common Stock. In addition, Webcor agreed to issue
1,460,000 shares of Common Stock to certain consultants and advisors, including
540,000 shares of Common Stock that were issued to persons designated by
Capston, 270,000 shares of Common Stock that were issued to legal counsel for
the parties and 650,000 shares of Common Stock that were issued to certain
financial consultants as finders fees.
The Friedlander Transaction. On April 6, 1999, eNote sold 5,000,000 shares
of convertible preferred stock ("Preferred Stock") and 2,000,000 common stock
purchase warrants ("Warrants") to Friedlander for $5,000,000 in cash. The
Preferred Stock has a liquidation preference of $1 per share, or $5,000,000 in
the aggregate, and is convertible into Common Stock on a share-for-share basis.
The Warrants are exercisable for five years from the date of issuance at a price
of $1 per share, and are subject to voluntary redemption by eNote at a
redemption premium of $1 per Warrant over the spread between the exercise price
of the Warrant and the market price of the Common Stock on the redemption date.
Under the Friedlander agreements, the holders of Preferred Stock and Warrants
are protected against dilution resulting from certain post-closing stock
issuances and are entitled to certain demand and piggy-back registration rights.
New Management Team. In connection with the closing of the Navis
Transaction, Sally A. Fonner appointed three persons designated by Navis to
serve as executive officers of eNote. Our new executive officers, and the
positions held by such persons are set forth below. It is anticipated that our
new executive officers will continue to serve in such capacities for the
foreseeable future.
Name Age Positions
John R. Varsames....... 48 President, Chief Executive
Officer
Michael T. Grennan..... 45 Chief Financial Officer
James D. Richards...... 44 Director of Technology
Under the terms of the Friedlander and Navis transactions, Friedlander and
the former stockholders of Navis have the right to replace the current board of
directors with their own nominees (the "New Directors"). Two New Directors have
already been nominated by the former stockholders of Navis and two New Directors
will be nominated by Friedlander. The former stockholders of Navis have
nominated John R. Varsames and Michael T. Grennan to serve as New Directors of
eNote. The proposed changes in our board of directors will not become effective
and the New Directors will not assume office until 10 days after we file an
Information Statement and Notice of Change in the Majority of the Board of
Directors with the SEC and send copies of the Notice to our stockholders. At
that time, Sally A. Fonner will appoint the New Directors and then resign from
our board of directors. Thereafter, the New Directors will manage our business.
John R. Varsames was appointed President and Chief Executive Officer of our
Company on April 5, 1999. He will also be appointed to serve as a New Director.
Mr. Varsames founded Navis in June 1996 and has served as the president and
chief executive officer of Navis since that time. Before forming Navis, Mr.
Varsames served as a consultant and then as Vice President for AirMouse Remote
Controls and its AirMarket Interactive System, a company specializing in
interactive peripherals and television technology, where he was instrumental in
the deployment of two interactive television projects. Previously, Mr. Varsames
co-founded and served for 10 years as the president and chief executive officer
of Northshore Companies, a construction, development and real estate investment
firm that grew to become one of Vermont's larger development and residential
construction firm.
Mr. Varsames is a graduate of St. Michael's College (Business
Administration/Political Science), and a past chairman of the St. Michael's
College Associate Board of Trustees. He served in the United States Air
Force, Reserve and Guard, during the Vietnam conflict in classified
communication and intelligence. Mr. Varsames has also pursued postgraduate
education in engineering, marketing and business. He has served his community
as a director of several charitable organizations and also served as a
National Director for the National Association of Home Builders.
Michael T. Grennan was appointed Chief Financial Officer of our Company on
April 5, 1999. He will also be appointed to serve as a New Director. Before
joining our company, Mr. Grennan worked for seven years as a self-employed
business and financial consultant. Previously, Mr. Grennan worked for 14 years
in public accounting, first on the audit staff of Coopers and Lybrand, and then
as a staff member, manager and partner of the accounting firm of Urbach, Kahn,
and Werlin, PC. Mr. Grennan is a 1977 graduate of the University of Florida
(BSBA in Accounting with High Honors), a Certified Public Accountant and a
former member of the AICPA's Ethics Enforcement Committee. In addition to his
experience in public accounting Mr. Grennan has extensive consulting experience
for a variety of public and private corporations including banks, manufacturing
and operating companies.
James T. Richards was appointed Director of Technology on April 5, 1999.
Mr. Richards founded SolutioNet in 1987 and has served as the president and
chief executive officer of SolutioNet since that time. SolutioNet has developed
and patented a Two-Way Infrared Protocol ("TWIRP(TM)") for wireless TV web
browser peripherals and licensed the TWIRP technology to Acorn Computers and the
Oracle Corporation. Over the course of his career, Mr. Richards has built a
high-technology company from start-up through $18 million in profitable annual
sales and raised over $20 million in capital for four emerging technology firms.
He also has been involved in the editing and acceptance of six technical papers
for Institute of Electrical and Electronics Engineers ("IEEE") conferences. Mr.
Richards is a 1977 graduate of the Massachusetts Institute of Technology (BS in
Electrical Engineering) and a member of the Technical Committee which is a part
of the Consumer Electronics Society of the IEEE.
Principal Stockholders. Taking all of the stock issuances into account,
there are 10,000,000 shares of Common Stock, 5,000,000 shares of Preferred Stock
and 2,000,000 Warrants issued and outstanding on the date of this Report. After
giving pro forma effect to the conversion of the Preferred Stock and the
exercise of the Warrants, the following table sets forth the number of shares of
Common Stock owned by (i) each executive officer and director, (ii) all
executive officers and directors as a group, and (iii) each person who will own
of record or own beneficially, more than five percent (5%) of our outstanding
Common Stock.
Name and Address of Beneficial Owner Shares Percent
Owned of Class
John R. Varsames (1)(2)(3) 7,100,000 47.3% (6)
Michael T. Grennan (1) 250,000 1.7% (6)
James D. Richards (1) 250,000 1.7% (6)
Friedlander International Limited (4)(5) 7,000,000 41.2% (7)
c/o Morning Star Ireland Limited,
132 Custom House Harbour
Dublin 1, Ireland
Bert Friedlander (3)(4) 7,000,000 41.2% (7)
Greenwich, Connecticut
Executive Officers and Directors as a Group (4 persons)7,600,000 50.1% (6)
(1) c/o eNote.com, Inc., One Lawson Lane, Third Floor Burlington, Vermont
05402
(2)Mr. Varsames shares beneficial ownership and voting power with his wife
Heidi A. Varsames.
(3)Includes 20,000 shares of Common Stock held of record by the children of
John R. and Heidi A. Varsames.
(4)Includes 5,000,000 shares of Common Stock issuable upon conversion of the
Preferred Stock and 2,000,000 shares of Common Stock issuable upon full
exercise of immediately exercisable Warrants.
(5)Mr. Friedlander exercises sole voting and investment control over shares of
Common Stock held by Friedlander International Limited.
(6) Based on 15,000,000 shares of Common Stock outstanding. (7) Based on
15,000,000 shares of Common Stock and 2,000,000 presently
exercisable Warrants outstanding.
Compensation to Capston and Others. In connection with the plan of
reorganization approved by Webcor's stockholders, certain persons designated by
Capston received 540,000 shares of Common Stock for administrative and
management services. Ms. Fonner received 180,600 shares of Common Stock for her
personal account. In addition, to the shares issued to designees of Capston,
270,000 shares of Common Stock were issued to legal counsel for the parties for
services rendered and 650,000 shares of Common Stock were issued to two finders
who assisted in the identification of Navis as a potential business combination
candidate, the introduction of Navis to Webcor, the collection and analysis of
due diligence information on Navis, and other financial consulting and advisory
services. All shares of Common Stock issued to designees of Capston, legal
counsel for the parties and the finders were registered prior to issuance on a
Form S-8 Registration Statement under the Securities Act of 1933. We believe
that each of these transactions were on terms that were no less favorable than
we could have obtained in transactions with unrelated third parties.
ITEM 2. Acquisition or Disposition of Assets
Introduction and Overview.
After extensive demographic and market studies, tvemail has been developed
to service the needs of those groups and individuals that are currently not
served or under served by computers and the internet. Therefore, we intend to
finish the development and begin commercialization of a proprietary "tvemail"
system developed by Navis. The tvemail system is designed to function as a low
cost Internet alternative for customers who want access to e-mail and other
online services, but want to avoid the cost and complexity of a personal
computer ("PC") or network computer ("NC") based system. The tvemail system will
be easier to use and much less expensive than any available alternative,
including PCs, NCs and Web TV(TM). We believe this low cost combination of
television, e-mail and limited online services will appeal to a large segment of
the potential market and help transform advertising, electronic commerce and
information delivery for the consumer mass market.
The Internet has experienced rapid growth over the last few years. Despite
this growth, approximately 65% of U.S. households have no access to e-mail and
other online services. While there seems to be almost universal agreement that
e-mail and online services are desirable, a large segment of the population does
not intend to "get wired" in the foreseeable future. The principal reasons cited
for a lack of e-mail and access to online services include:
o The cost, complexity and size of PC and NC equipment; o The time and effort
required to learn about information equipment and
services;
o The time and effort required to use PC and NC equipment; o The inability to
access desired content without time consuming log-on
and navigation procedures;
o The high monthly cost of online information services; and o "Information
Overload" resulting from too many choices.
The tvemail system has been designed to overcome all of these objections.
We have designed a compact in-home information terminal that uses the customer's
television set as a monitor and connects directly to the customer's telephone
line for access to our servers. The terminal uses a wireless keyboard as an
input device and can either be placed on top of the television set or discretely
tucked away. While PCs, NCs and other information appliances require the
customer to boot-up, log-on and navigate, our tvemail system automatically
downloads and stores the customer's e-mail and other content every few hours. A
blinking "message received" indicator notifies the customer when e-mail or other
new content has been received and reviewing the new material is as simple as
turning on the television set and selecting a color-coded icon from our
graphical user interface ("GUI").
The tvemail system does not provide complete Internet access and we do not
intend to compete for customers who already have complex information retrieval
systems. Instead, we intend to provide basic e-mail and a limited array of
online services, such as news, sports, weather reports and online shopping, to
the 65% of U.S. households that do not have or desire full Internet access. Due
to the simplicity of the tvemail system, we expect to be able to provide both
the in-home equipment and the required online services for $9.95 per month.
Since the tvemail system is simple, inexpensive, automatic and instantly
accessible, we believe it will have significant mass market appeal.
Nevertheless, our business is subject to considerable risk and uncertainty and
there is no assurance that we will succeed in our efforts to finish the
development and effectively market our tvemail system.
History of Navis and the tvemail Technology.
Navis was founded in 1996 for the purpose of developing and commercializing
communication appliances, electronic point of sale devices and infrared
subsystems for NCs (Network Computer) and other "thin client" data retrieval and
storage systems, As a subcontractor to Acorn, the team develop for Oracle, IBM,
Apple, Netscape, and Sun the original reference design for the NC concept. The
NC concept was designed as an alternative to the PC and the companies formed the
NC Consortium to develop and commercialize the technology. In an NC environment,
memory and processing intensive computer tasks are performed on a remote
computer and the user relies on a small and relatively unsophisticated data
entry and retrieval device that is connected to the main computer. In 1996,
Navis was selected by the NC consortium to develop the infrared communications
("IR") protocol and input devices to be used by the NC Consortium members.
Working in conjunction with SolutioNet, Navis developed a series of peripherals
that rely on SolutioNet's TWIRP technology. These peripherals were adopted by
the NC licencees and were implemented in the first generation of NC products. At
the date of this Report, Navis provides remote controls to three NC
manufacturers. Navis receives royalty revenues from third party sales of
TWIRP(TM) chips, advanced remote control units, and wireless keyboards. It also
derives revenue from contract engineering and consulting work in the field of NC
input devices and wireless communications. Since 1996, Navis has supplied
infrared protocol and advanced input devices to NC manufacturers such as Acorn,
NCI, RCA, Akai, and NetProducts.
Navis' involvement in the NC Consortium gave it extensive experience in
developing, manufacturing, and marketing specialized information appliances. The
experience also convinced Navis' management that a substantial market exists for
simple, low cost information appliances that will give users easy access to
e-mail and a limited variety of online services. Therefore, Navis has developed
the tvemail hardware, software and related server systems and is prepared to
launch commercial sales of the tvemail system in late 1999.
The tvemail System.
The tvemail system has been designed to give users easy access to e-mail,
information gathering, and online shopping services in a format that is far less
expensive and complex than Internet access technologies that operate on PC or NC
platforms. We believe the principal competitive advantages of the tvemail system
include:
o Low Cost--The tvemail system, including hardware, wireless keyboard and
monthly online service fees is expected to cost less than $120 per year. We
believe these costs compare quite favorably with a first-year outlay of
approximately $500 for WebTV and approximately $1,200 for an entry level
PC.
o Simplicity of Operation--While PCs, NCs and other information appliances
require the customer to boot-up, log-on and navigate, our tvemail system
automatically downloads and stores the customer's e-mail and other content
every few hours. As a result, checking messages on the tvemail system is as
simple as turning on the television set and selecting a color-coded icon
from our GUI.
o Customized Content--The tvemail system gives users the ability to select
the particular online services they want without receiving content or
advertising that they don't want. We intend to continually upgrade our
content options to meet the particular requirements of our customers and
expect that expanded service options will also give rise to new revenue
opportunities.
o Speed--Since the tvemail system automatically downloads and stores the
customer's e-mail and other content every few hours, retrieval of stored
information is virtually instantaneous. In addition, if a customer wants to
manually check messages or update his other content, total retrieval time
normally is less than 30 seconds, the time required to dial up and log-on
to a local server.
o Efficiency--The tvemail system makes very efficient use of server,
telephone and modem resources because the information is collected on the
server and/or the in-home terminal and automatically transferred at
pre-determined intervals. Since the user is not online while composing or
reading messages, the connect time for each session is minimal, and a large
number of clients can be accommodated on a single server.
Technical Specifications.
General. The tvemail system is comprised of two principal elements: an
in-home terminal, including an IR receiver, IR keyboard and accessories (the
"Client Hardware"), and our proprietary back-end server systems (the "Server
Systems"). We have completed the initial design and "proof of concept" phases on
both the Client Hardware and the Server Systems and are now redesigning the
Client Hardware to take advantage of value engineering and recent declines in
the price of semi-conductors and memory chips. Beta versions of the Server
Systems have also been evaluated and final specifications have been relayed to
our product development team. At the date of this Report, our Server Systems are
being implemented and back-end processes such as billing and reporting are being
evaluated. We expect fully operational beta versions of our Server Systems to be
available for pilot deployment by the second quarter of 1999. We intend to
conduct field trials of the entire tvemail system in the third quarter of 1999
and expect that participant feed-back will lead to additional modifications of
the Client Hardware Server Systems. Depending on the success of our field
trials, we intend to commence full scale commercial deployment of the tvemail
system in the fourth quarter of 1999.
Client Hardware Features. Our first generation Client Hardware will
offer the following features:
o A blinking LED indicator prompts the user to check messages; o A color-coded
GUI to guide the user through e-mail and other content
functions
o On demand send and receive e-mail functions; o Up to 5 password protected user
mailboxes per subscriber; o Storage capacity for up to 250 e-mail messages; o A
common address book plus customized user address books; o Simple text input for
e-mail, letters, book reports and other documents; o Send fax capabilities; o
Customizable content with news, sports and weather reports, online
shopping and other services;
o Targeted banner and direct e-mail advertising; and
o Simple downloadable games such as Tetris, crossword puzzles, Jumbles and
Hocus Focus.
Due to the inherent flexibility of the Client Hardware and Server System
many of the features mentioned above can be implemented or enhanced after
initial installation. The tvemail Client Hardware has been designed to satisfy
the user's requirements while maintaining an efficient telephone and server
usage profile that maximizes the return on the service provider's investment.
Since the user cannot be online while creating an e-mail message or fax the
modem is utilized only during prearranged dial-ups, or when the user initiates a
manual connection. The Client Hardware can be configured to poll the server to
send and receive e-mail and other content between four and twelve times per day
depending on user preferences. Individual units can be configured to dial during
different time windows so the call load can be distributed throughout the day
and concentrated during non-peak usage times. This allows us to secure low cost
Point of Presence ("POP") access from multiple Internet Service Providers
("ISPs").
Server System Specifications. Our proprietary Server System has been
designed to be modular, flexible, and compatible with most relational database
products. These features will facilitate reporting, scheduling and batch
processing, and permit us to send targeted advertising, mass mailings, and
surveys to our customers based on their particular location or other demographic
information. Additional services such as custom news, stock quotes, games,
online banking, and other content will use separate servers to ensure the
integrity of the tvemail system and prevent system crashes in the event that a
particular feature goes offline. In addition, our Server System incorporates the
following technical features:
o C,C+ and Visual Basic programming;
o Online maintenance of subscriber information for log-in synchronization,
billing, account management and advertising management;
o Easy interface with other servers for optional content including games,
news services, and stock quotes;
o Automatic conversion of Internet communications protocols (SMTP, HTML, and
GIF) to tvemail format.
o Optional storage of non-compatible e-mail attachments on the server for
forwarding to another e-mail address;
o Form processing for online shopping and surveys; and
o Debit and credit card billing capabilities for account management and
online transactions.
Business Strategy.
Our business objective is to transform advertising, commerce and
information delivery for the consumer mass market through the tvemail system
which combines the convenience of television with e-mail and limited online
services. The principal elements of our business strategy include:
Provide easy to use and cost-effective e-mail and online service access. We
offer customers easy to use and cost-effective e-mail and online service access
that is designed to the specific demands of customers who have no prior
experience with e-mail or the Internet. Our tvemail system is designed to
function as a low cost Internet alternative for customers who want access to
e-mail and other online services, but want to avoid the cost and complexity of a
PC or NC based system. We intend to capitalize on our expertise in thin client
server platforms to develop new products and services based on our tvemail
platform that meet the specific requirements of individual consumers and private
communications networks. These products will offer higher performance and more
advanced functionality while continuing to offer a simple and cost effective
solution for our customers.
Provide compelling value for end-users. While many companies focus on
providing content to people who have enough technical knowledge and appropriate
equipment to access and use the Internet, eNote is focused on bringing the
convenience and utility of e-mail and other online services to the 65% of U.S.
households that do not have PCs or Internet access. We designed the tvemail
system to provide a simple, compact and cost effective alternative to PCs, NCs,
WebTV and other full scale Internet access products. In contrast to other online
services, eNote does not require consumers to purchase or install any in-home
equipment. To use the tvemail system, a consumer needs only her existing
television, a phone line and the tvemail Client Hardware, which will be provided
without up-front cost when the customer signs a one-year service contract.
Provide compelling value for advertisers and e-commerce merchants. Due to
the nature of the tvemail system and our ability to sort our customers on the
basis of location or other demographic information, advertisers, online
merchants and other providers of online services will be able to carefully
target their promotions and surveys.
Develop and expand multiple distribution channels. We intend to distribute
our products through direct advertising, retail merchants, resellers and our
field sales team. To quickly reach a broad, worldwide audience, we will seek to
establish a world-wide network of retailer merchants, wholesale distributors and
resellers. We intend to develop multiple distribution channels directed at the
specific needs of individual consumers and private networks.
Aggressively penetrate global markets. We believe that the market for the
tvemail system is global in scope and we will seek to rapidly deploy our Server
Systems in the United States, Canada, China, Europe, Latin America and Southeast
Asia. Due to the simplicity and low cost of the tvemail system, we believe it is
likely to become the technology of choice in less developed countries and we
intend to provide local content directories and user interfaces in multiple
languages for the tvemail system as the demand arises.
Create brand identity. eNote intends to create an identity for its tvemail
system under the brand name "tvemail" and has registered this service mark in
the United States and Canada. We also intend to file service mark applications
in several countries. eNote believes that the creation of a brand identity is
important to its strategy to become the preferred provider of e-mail and online
information services to households that do not presently have access to PC or NC
based information retrieval systems. By creating consumer awareness of the
tvemail system, eNote believes it will drive penetration in its potential
markets and increase the pace at which consumers, online service providers and
e-commerce merchants recognize the service benefits of the tvemail system.
Develop Closed Network Applications. While eNote developed the tvemail
system for use as a mass market consumer product that would give our customers
easy access to e-mail and other online services, we believe the underlying
technology platform has significant potential for use in captive commercial
systems where the collection, archiving and distribution of internally and
externally generated information is important. Examples of the potential
commercial applications for private networks based on the tvemail technology
include:
o Hospitals and other health care facilities that need to collect, archive
and distribute patient information;
o Nursing homes and other extended care facilities that need to communicate
with physicians, staff and residents;
o Hotels, resorts and other accommodations that need to effectively
communicate with guests;
o Colleges and universities that need to communicate effectively with
resident students;
o Community organizations that need to effectively communicate with
members; and
o Other organizations where televisions are common and the collection and
distribution of data is important.
Product Testing and Marketing.
As noted above, we expect fully operational beta versions of our Server
Systems to be available for pilot deployment by the second quarter of 1999 and
we intend to conduct field trials of the entire tvemail system in the third
quarter of 1999. Concurrently with our field testing of the consumer version of
the tvemail system, we will commence three field trials for closed private
networks based on the tvemail technology. These pilot scale closed network
studies, when combined with feedback from our larger field trials of the public
tvemail system, are expected to provide valuable user feedback that will enable
us to further refine the tvemail system before commencing general
commercialization in the fourth quarter of 1999.
eNote will rely on a multi-pronged marketing approach for the tvemail
system. The principal elements of our planned product roll-out to the consumer
market include:
o An extensive television infomercial campaign will be conducted; o Targeted
advertising directed at senior citizens who do not typically
have Internet access but would like to use e-mail for communicating with
friends and family;
o Targeted advertising directed at other affinity groups whose members do not
typically have Internet access but would like to use e-mail and other
online services;
o Targeted advertising to families of college-aged children who frequently do
not have Internet access but would like to use e-mail and other online
services;
o Targeted advertising to low income families who could not otherwise afford
access to e-mail and other online services;
In addition to our planned roll-out to the consumer market, we intend to
conduct a focused marketing campaign directed at potential commercial users of
private tvemail systems, including:
o A customized network system for hospitals, HMOs and other healthcare
providers, tentatively named "ecare," that will enable health care workers
to call up patient medical information on demand and add information to
patient records on a real time basis, thereby reducing required paperwork
and increasing efficiency in diagnosis;
o A customized network system for hotels and resorts, tentatively named
"eguest," for the management of guest communications and the distribution
of detailed information on upcoming events and local services; and
o A customized network system for colleges and universities, tentatively
named "ecampus," for the management of student communications and the
distribution of detailed information on campus services, upcoming events
and other material;
We intend to provide the Client Hardware and associated online service for
a flat fee of $9.95 per month. Our proposed service will include unlimited
e-mail access, daily news, weather, sports, catalog shopping, fast food
delivery, and other consumer services. We believe the principal factor that
distinguishes the tvemail system from traditional Internet service providers is
our ability to send and deliver the user's mail automatically without direct
user involvement.
eNote plans to aggressively pursue partnerships with local ISPs and online
service providers such as banks and utilities for co-marketing of the tvemail
system. In addition, traditional advertising via print, radio, and infomercials
will heighten brand and product awareness on a regional and national scale.
eNote also plans to mount an online marketing effort for the tvemail system via
banner ads, direct e-mails, and online promotions. Targets for the online effort
include people who have a PC but not at home, and friends and family of avid PC
users. Points of purchase will include a 1-800 number, the tvemail web-site,
infomercials, and retail distribution locations.
Research and Development.
Since 1996, Navis has been actively involved in the design, development and
testing of components, embedded software and server systems necessary for the
effective deployment of the tvemail system. Substantially all of our Client
Hardware and Server Systems are in the final Beta prototype stage. Because of
the high levels of technical expertise required for the development of our
products, we have established a close working relationship with the NC
Consortium and a number of strategic alliances described elsewhere herein.
Substantially all of our activities to date have been financed by capital
contributions from the founder of Navis, subordinated third-party debt that was
converted into equity in connection with the Navis Transaction, and cash flow
from operations. It is expected that we will be required to pay all future R&D
costs from our own resources and may require additional R&D funding to complete
the development and commercialization of our existing and proposed products.
Features being explored for inclusion in our second and third-generation tvemail
devices include:
o MSR and smart card capability, for online purchases and bill paying
o Voice mail capability
o Digital camera support
o Flash ROM for full portability
o Modular upgrade for full web browsing
o Universal control with input devices
o Voice recognition
o Spyglass or comparable thin client web browser for unrestricted browsing
Employees.
As of the date of this Report, we have nine full-time employees, including
our three executive officers, two part-time employees and several consultants
who are employed on a full-time basis by others. Within the next twelve months,
we expect to hire 20 additional employees in the technology and marketing
departments. eNote is not subject to any collective bargaining agreements and we
consider our relations with employees to be good. All of eNote employees in the
technical area are all highly experienced electrical engineers, advanced
computer programmers, internet specialists and product marketing people.
In addition to our executive officers, we also rely on the education and
experience of several key technical employees who have been instrumental in the
development of the tvemail system. Each of the technical employees identified
below has entered into an employment agreement with the Company that provides
for a negotiated annual salary, participation in our stock option plans, annual
incentive bonuses at the discretion of the Board of Directors, the fringe
benefits offered generally to our employees, and reimbursement for expenses
incurred for the benefit of the Company. The agreements also prohibit direct
competition for a period of two years after termination of employment. Under the
terms of these agreements, the employees identified below are required to devote
substantially all of their business time to the affairs of the Company.
Legal Proceedings.
As of the date of this Report, there are no legal proceedings involving the
Company or the tvemail system.
Certain Important Risk Factors.
We may experience difficulties implementing our marketing and business
plans. Navis began operations and has spent the last three years developing the
tvemail technology. We have not yet derived any revenues from the sale of our
tvemail product to consumers. As a result, our operating, sales and marketing
and other strategies are still being developed, and we do not have a history
which may give us or you an indication of how we may respond to situations
presented to us. If we are not successful in implementing our marketing and
business plans on a timely basis or otherwise effectively managing our
development, our business, operating results and financial condition will be
materially and adversely affected.
If we continue to incur losses, we may not be able to finance the
commercial deployment of the tvemail system. While Navis operated profitably in
1996 and 1997, it experienced losses and had negative cash flow in each quarter
of 1998, and we expect to continue to operate at a loss for the foreseeable
future. For us to make a profit, we need introduce the tvemail system to the
market and obtain sufficient levels of sales at a low enough cost to generate
and operating profit. If we are not able to do so, our losses may extend beyond
the foreseeable future and we may not be able to finance the commercial
deployment, development and enhancement of the tvemail system.
We may be unable to obtain necessary additional capital to fund operations
in the future. To date, we have funded operations primarily through private
sales of equity and convertible debt securities. If we are unable to obtain
additional financing on terms acceptable to us as needed, our business,
operating results and financial condition would be materially and adversely
affected. Our capital requirements in the future will depend on numerous
factors, including:
o the rate of acceptance of the tvemail system by consumers, advertisers,
e-commerce companies and online service providers,
o our ability to maintain and expand the number of subscribers, and o the
expansion of our marketing activities into foreign countries.
We cannot accurately predict the timing and amount of our capital
requirements. Any additional equity financing, if available, may be dilutive to
our stockholders, and debt financing, if available, may involve significant
restrictions on our financing and operating activities.
Because television-based e-mail and online service access is new, we cannot
be certain that a market or sustainable demand for the tvemail system will
develop. The market for television-based e-mail and online service access is new
and evolving, and no single technology or approach to providing this access has
yet been broadly adopted by consumers. As a result, we cannot guarantee that a
market for television-based e-mail and online service access in general, or for
the tvemail system in particular, will develop or that demand for the tvemail
system will be sustainable. If the market does not develop, develops more slowly
than expected or becomes saturated with competitors, our business, operating
results, and financial condition will be materially and adversely affected.
The competitive market for e-mail and online service access may limit
demand or pricing for the tvemail system. We expect to experience intense
competition. Many companies provide e-mail and online service access and other
services, which provide functionality superior to those included in the tvemail
system. As a result of this competition, demand for the tvemail system may
suffer, we may be restricted in the service rates we can charge for the tvemail
system and our business, financial condition and results of operations may be
adversely affected. Competitors provide their services through a variety of
technologies, which are in various stages of implementation and adoption. Many
of our competitors have significantly greater financial, technical, marketing,
distribution, customer support, other resources, name recognition, compelling
content and access to consumers, advertisers and online service providers than
we have.
We are subject to capacity constraints and system failures. The ability of
the tvemail system to accommodate a substantial number of users is not yet
known. We cannot assure you that we will be able to provide reliable performance
and error free service as the number of subscribers grows. In addition, as
subscriber penetration grows it may be necessary for our local ISPs to purchase
additional equipment, and we cannot assure you that they will do so.
The performance of the tvemail system is also subject to reduction in
performance and interruption from human errors, telecommunication failures,
computer viruses and similar events. Any of these problems in our systems or
those of our local ISPs could result in reduced subscriber demand. We expect to
experience performance reduction and service interruptions from time to time.
Our failure to provide uninterrupted service at a level of performance
acceptable to our customers would have a material adverse effect on our
business, financial condition and results of operations.
We may have liability for information retrieved and replicated on the
internet. Claims for negligence, copyright or trademark infringement or other
legal theories could be made against us because information can be downloaded
and redistributed by users of the tvemail system. Copyright and trademark laws
are evolving both domestically and internationally and we are uncertain as to
their applicability to the tvemail system. The imposition of liability for
information carried by us would have a material adverse effect on our business,
operating results and financial condition.
We may have liability for e-commerce transactions. As part of our business,
we are seeking to enter into agreements with content providers, advertisers and
e-commerce merchants under which we will receive a share of revenue from the
purchase of goods and services by users of the tvemail system. These
arrangements may expose us to additional legal risks and uncertainties,
including potential liabilities to consumers of these products and services. Our
insurance may not cover potential claims of this type or may not be adequate to
indemnify us for all liability that may be imposed.
We could become subject to burdensome government regulation which affects
our ability to offer our service or which affects demand for our service. We are
subject to varying degrees of federal, state, local and foreign regulation as
well as laws enacted by the U.S. Congress and other governments. The Federal
Communications Commission has established regulations that among things set
licensure, installation and equipment standards for communications systems. A
number of these regulations will apply to the tvemail system and compliance with
existing and future regulations may increase our cost of providing the tvemail
service, or otherwise damage the competitive position of the tvemail service.
It is also anticipated that due to the increasing popularity and use of the
Internet, it will be subject to increased attention and regulation. These laws
and regulations may regulate issues such as user privacy, defamation, network
access, pricing, taxation, content, quality of products and services and
intellectual property ownership and infringement. These laws and regulations
could expose us to liability, materially increase our cost of providing our
service, and decrease the growth and acceptance of the Internet in general and
access to the Internet over cable systems.
Our business would suffer if we were to lose the services of Messrs.
Varsames and Richards or other key personnel. Our success depends in significant
part upon the continued service of our key technical, sales and senior
management personnel, particularly Messrs. Varsames and Richards, who have
significant relevant experience in the development of thin client information
retrieval systems. Our future success will also depend on our ability to
attract, train, retain and motivate highly qualified senior management,
technical, marketing and sales personnel. Because competition for these
personnel is intense, we cannot assure you that we will be able to do so.
Your ability to influence the outcome of stockholder votes will be limited.
After giving proforma effect to the conversion of the Preferred Stock and the
exercise of the Warrants, Friedlander will beneficially own 7,000,000 shares of
Common Stock and John Varsames will beneficially own 7,100,000 shares of Common
Stock. These ownership positions will each account for approximately 41% of the
outstanding common stock. Accordingly, Friedlander and Mr. Varsames will each
have the voting power to exercise substantial control over the election of our
board of directors and all votes on matters requiring stockholder approval. This
concentration of ownership may also have the effect of delaying or preventing a
change in control of our company.
Year 2000 risks may adversely affect eNote and the demand for the tvemail
system. Year 2000 problems experienced by us or any third parties could
materially adversely affect our business. Additionally, demand for the tvemail
system would suffer if the Internet experiences serious disruptions arising from
the Year 2000 problem. We cannot guarantee you that our own systems will be Year
2000 compliant in a timely manner, that any of our local ISPs will be Year 2000
compliant in a timely manner, or that there will not be problems with technology
systems working together. We also cannot guarantee that the Internet generally,
and the tvemail system specifically, will continue without serious disruptions
arising from the Year 2000 problem. Given the pervasive nature of the Year 2000
problem, we cannot guarantee that disruptions in other industries and market
segments will not adversely affect our business. Moreover, the costs related to
Year 2000 compliance could be significant.
Anti-takeover provisions in our charter documents could discourage unwanted
takeover attempts and could reduce the opportunity for stockholders to get a
premium for their shares. We are subject to Delaware laws and to provisions of
our certificate of incorporation and by-laws that could have the effect of
delaying, deterring or preventing a change in control of eNote. As a result, our
management could attempt to utilize these laws and provisions to discourage or
reject unsolicited bids to acquire us, including bids that would have paid
stockholders a premium over the then current market price of their shares.
Substantial sales of our common stock could lower our stock price. The
market price for our common stock could drop as a result of sales of a large
number of our presently outstanding shares, or the perception that these sales
could occur. These factors also could make it more difficult for us to raise
funds through future offerings of our common stock.
Our results can materially differ from those forecasted or expressed in the
forward-looking statements contained in this Report. This Report contains
forward-looking statements that are not historical facts, but rather are based
on our current expectations, estimates and projections about eNote's industry
and our beliefs and assumptions. Words such as "anticipates," "expects,"
"intends," "plans," "believes," "seeks," "estimates" and similar expressions are
intended to identify forward-looking statements. These statements are not
guarantees of future performance and are subject to some risks, uncertainties
and other factors, many of which are beyond our control, are difficult to
predict and could cause actual results to differ materially from those expressed
or forecasted in the forward-looking statements. We caution you not to place
undue reliance on these forward-looking statements, which reflect our
management's view only as of the date of this Report. We are not obligated to
update these statements or publicly release the result of any revisions to them
to reflect events or circumstances after the date of this Report or to reflect
the occurrence of unanticipated events.
Item 5.
Other Events
The Friedlander Transaction. On April 6, 1999, the Registrant sold
5,000,000 shares of Preferred Stock and 2,000,000 Warrants to Friedlander for a
total cash consideration of $5,000,000.
Until the fifth anniversary of the date of the Friedlander transaction, or
until Friedlander is the beneficial owner of less than 10% of the issued and
outstanding voting securities of the Registrant, whichever occurs first,
Friedlander shall be entitled to appoint two members of the Registrant's Board
of Directors. For so long as Friedlander is entitled to appoint two members of
the Registrant's Board of Directors, the total number of members constituting
the entire Board of Directors shall not exceed seven.
Description of Preferred Stock
Class and Number of Shares. The authorized Preferred Stock of the
Registrant consists of 5,000,000 shares of $0.01 par value Preferred Stock. All
5,000,000 authorized shares of Preferred Stock were issued and sold to
Friedlander International Limited in connection with the Friedlander
transaction. The Preferred Stock has a stated value of $1 per share and ranks
senior to the Common Stock with respect to the distribution of assets upon
liquidation, dissolution or winding up.
Anti-dilution Protection. The Preferred Stock contains typical antidilution
provisions, and also provides that the number of shares of Common Stock issuable
upon conversion of the Preferred Stock shall be subject to adjustment in the
event that the Registrant shall, at any time prior to the completion of an
underwritten secondary offering of Common Stock which has been registered under
the Securities Act of 1933, effect a sale of Common Stock, securities
convertible into common stock, or rights to purchase Common Stock which has not
been expressly approved in writing by a majority in interest of the holders of
Preferred Stock.
Dividends. The holders of Preferred Stock are not entitled to any dividend
preference but will share ratably with the holders of Common Stock in all
dividends that may be declared by the Board of Directors. For purposes of
calculating the dividends, if any, payable to the holders of Preferred Stock,
the Registrant will determine the number of shares of Common Stock that would be
issuable if the Preferred Stock had been converted into Common Stock immediately
prior to the record date, and then determine the per share dividend payable to
holders of Preferred Stock.
Liquidation Preference. In the event of a voluntary or involuntary
liquidation, dissolution or winding up of the Registrant, the holders of
Preferred Stock are entitled to receive a liquidation preference of $1 per share
before any distribution of assets is made to holders of Common Stock. After
payment of the full liquidation preference, the holders of shares of the
Preferred Stock will share proportionally with the holders of shares of Common
Stock in any additional distribution of the Registrant's assets.
Voting Rights. The holders of Preferred Stock (a) are entitled to the
number of votes equal to the number of shares of Common Stock into which shares
of Preferred Stock could be converted as of the record date for the
determination of stockholders entitled to vote on such matters, and (b) have
voting rights and powers equal to the voting rights and powers of the Common
Stock. Except as required by law, the holders of Preferred Stock and the holders
of Common Stock shall vote together as a single class and not as separate
classes.
So long as any Preferred Stock is outstanding, the Registrant shall not,
without the affirmative vote of the holders of at least 66% of all outstanding
shares of Preferred Stock, voting separately as a class, (i) amend, alter or
repeal any provision of the Certificate of Incorporation or the Bylaws of the
Registrant so as to adversely affect the relative rights, preferences,
qualifications, limitations or restrictions of the Preferred Stock, or (ii)
effect any reclassification of the Preferred Stock.
Optional Conversion. The holders of Preferred Stock have the right, at any
time, to convert each share of Preferred Stock into one share of Common Stock.
The Conversion Ratio will be subject to adjustment in certain events, including:
(i) stock splits and subdivisions of the Common Stock; (ii) combinations or
consolidations of the Common Stock; and (iii) future sales of Common Stock,
securities convertible into Common Stock, or rights to purchase Common Stock
which have not been expressly approved in writing by a majority in interest of
the holders of Preferred Stock. No adjustment in the Conversion Ratio will be
required to be made until cumulative adjustments aggregate 1% or more of the
Conversion Ratio as last adjusted; however, any adjustment not made shall be
carried forward.
In case of any reclassification of the Common Stock, any consolidation of
the Registrant with, or merger of the Registrant into, any other person, any
merger of any person into the Registrant (other than a merger that does not
result in any reclassification of, or change in the outstanding shares of Common
Stock), any sale or transfer of all or substantially all of the assets of the
Registrant (other than a sale-lease back, collateral assignment, mortgage or
other similar financing transaction), or any compulsory share exchange whereby
the Common Stock is converted into other securities, cash or other properties,
then provision shall be made that the holders of Preferred Stock then
outstanding shall have the right thereafter to convert the Preferred Stock into
the kind and amount of securities, cash or other property receivable upon such
reclassification, consolidation, merger, sale, transfer or share exchange by a
holder of the number of shares of Common Stock into which such share of
Preferred Stock might have been converted immediately prior to such
reclassification, consolidation, merger, sale, transfer or share exchange.
No fractional shares of Common Stock will be issued upon conversion, but,
in lieu thereof, an appropriate amount will be paid in cash by the Registrant
based on the Closing Price for the shares of Common Stock on the trading day
before the date of conversion.
Automatic Conversion. If the Registrant successfully completes and closes
on an underwritten secondary offering of Common Stock which has been (a)
approved in writing by a majority in interest of the holders of Preferred Stock,
and (b) registered under the Securities Act of 1933, all shares of Preferred
Stock then outstanding shall immediately and automatically be converted into
shares of Common Stock.
Registration Rights. The holders of Preferred Stock have been granted
unlimited "piggy-back" registration rights and two (2) demand registration
rights for the shares of Common Stock issued or issuable upon conversion of the
Preferred Stock. Notwithstanding the foregoing, the holders of Preferred Stock
may not exercise their demand registration rights until 180 days after the
effective date of any registration statement for a public offering of securities
by the Registrant where the holder was afforded an opportunity to sell shares of
Common Stock pursuant to the piggy-back registration rights.
Description of Warrants
Class and Number of Warrants. In connection with the Friedlander
transaction, the Registrant authorized and issued 2,000,000 Warrants. The
Warrants are exercisable, at a price of $1 per share, at any time prior to
3:30 p.m., E.S.T. on March 31, 2004.
Anti-dilution Protection. The Warrant Agreement contains typical
antidilution provisions and also provides that the number of shares of Common
Stock issuable upon exercise of the Warrants shall be subject to adjustment in
the event that the Registrant shall, at any time prior to the completion of an
underwritten secondary offering of Common Stock which has been registered under
the Securities Act of 1933, effect a sale of Common Stock, securities
convertible into common stock, or rights to purchase Common Stock which has not
been expressly approved in writing by a majority in interest of the holders of
Preferred Stock.
Redemption of Warrants. Until April 1, 2000, the Registrant may repurchase
up to 500,000 Warrants for a redemption price which is equal to the greater of
$3 per Warrant, or the average closing bid price of the Registrant's Common
Stock during the 30 calendar days immediately preceding the date of the notice
of redemption. During the period between April 2, 2000 and April 1, 2001, the
Registrant may repurchase up to 500,000 Warrants (or 1,000,000 Warrants if the
first redemption option was not exercised) for a redemption price which is equal
to the greater of $7 per Warrant, or the average closing bid price of the
Registrant's Common Stock during the 30 calendar days immediately preceding the
date of the notice of redemption. During the period between April 2, 2001 and
April 1, 2002, the Registrant may repurchase all remaining unexercised Warrants
for a redemption price which is equal to the greater of $10 per Warrant, or the
average closing bid price of the Registrant's Common Stock during the 30
calendar days immediately preceding the date of the notice of redemption.
Notwithstanding the generality of the foregoing, if the Registrant mails a
notice of redemption and the Warrantholder exercises the number of Warrants
called for redemption in such notice within 10 days of the date of such notice,
then notice of redemption shall be null and void and the number of Warrants
subject to redemption by the Registrant shall be reduced by the number of
Warrants so exercised.
Registration Rights. The holders of Warrants have been granted unlimited
"piggy-back" registration rights and two (2) demand registration rights for the
shares of Common Stock issued or issuable upon exercise of the Warrants.
Notwithstanding the foregoing, the holders of Warrants may not exercise their
demand registration rights until 180 days after the effective date of any
registration statement for a public offering of securities by the Registrant
where the holder was afforded an opportunity to sell shares of Common Stock
pursuant to the piggy-back registration rights.
Item 6.
Resignations of Directors and Executive Officers.
No director has resigned or declined to stand for re-election to the Board
of Directors since the date of the last annual meeting of stockholders because
of any disagreement with the Registrant on any matter relating to the
Registrant's operations, policies or practices.
Under the terms of the Transactions, Friedlander and the former
stockholders of Navis have the right to replace the current board of directors
with their own nominees. Three of the New Directors have been nominated by the
former stockholders of Navis and two New Directors will be nominated by
Friedlander. The former stockholders of Navis have nominated John R. Varsames
and Michael T. Grennan to serve as directors of eNote (the "New Directors"). The
proposed changes in our board of directors will not become effective and the New
Directors will not assume office until 10 days after we file an Information
Statement and Notice of Change in the Majority of the Board of Directors with
the SEC and send copies of the Notice to our stockholders. At that time, Sally
A. Fonner will appoint the New Directors and then resign as a director.
Thereafter, the New Directors will manage our business.
Our Board does not currently have any committees. After the appointment of
the New Directors, the Board intends to form an Audit Committee and a
Compensation Committee. The Audit Committee will review the services provided by
our independent accountants, consult with our independent accountants on audits,
review certain filings with the SEC, assess need for internal auditing
procedures and assess the adequacy of internal controls. The Compensation
Committee will determine executive compensation and review transactions between
the Company and our affiliates, including any associates of affiliates.
Compensation of Executive Officers and Directors. Ms. Fonner has not
received any cash compensation for services performed during the two years
prior to the Transaction. In connection with the plan of reorganization
approved by Webcor's stockholders, certain persons designated by Capston
received 540,000 shares of Common Stock for administrative and management
services. Ms. Fonner received 180,600 shares of Common Stock for her personal
account.
Executive Employment Contracts. There are no employment agreements
between the Registrant and any of its current or former officers. The
Registrant intends to enter into employment agreements with Messrs. Varsames,
Grennan, and Richards.
ITEM 7. Financial Statements and Exhibits
(a) Financial statements of acquired business.
As permitted by Item 7(a)(4) of Form 8-K, the audited financial statements
of the acquired business will be filed within 60 days after the date of
this Report
(b) Pro forma financial information.
As permitted by Item 7(a)(4) of Form 8-K, complete pro forma financial
statements of the Registrant and its recently acquired subsidiary will be
filed within 60 days after the date of this Report.
(c) Exhibits.
(2.1) Reorganization Agreement, dated April 5, 1999, between and among the
Registrant, Navis Technologies Limited, and the stockholders of Navis
Technologies, Limited
(4.1) Certificate of Powers, Designations, Preferences and Rights
of the Convertible Preferred Stock Par Value $0.01 Per
Share of eNote.com, Inc.
(4.2) Form of Certificate for the $0.01 par value Convertible Preferred Stock
eNote.com, Inc.
(4.3) Common Stock Purchase Warrant dated April 6, 1999 between
eNote.com, Inc. and Friedlander International Limited
(10.1)Purchase and Sale Agreement dated April 6, 1999 between eNote.com, Inc.
and Friedlander International Limited
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
eNote.com Inc., a Delaware corporation
(formerly known as Webcor Electronics, Inc.)
April 20, 1999
By: /s/
John R. Varsames, Chief Executive Officer
REORGANIZATION AGREEMENT
This Reorganization Agreement ("Agreement") is made and entered into this
5th day of April, 1999, between and among eNote.Com, Inc., a Delaware
corporation formerly known as Webcor Electronics Inc. (the "Company"), Navis
Technologies, Ltd., a Delaware corporation, ("Navis") and the persons identified
in Exhibit "A" (the "Shareholders").
WHEREAS, the Shareholders own, and have the unrestricted right to sell,
transfer and convey, one hundred percent (100%) of the issued and outstanding
common stock of Navis (the "Securities"); and
WHEREAS, the Company wishes to acquire the Securities, solely in
exchange for Company Securities; and
WHEREAS, immediately after the closing of this Agreement the Company
intends to enter into a Purchase and Sale Agreement with Friedlander
International Limited, a copy of which is attached hereto as Exhibit "B" and
incorporated herein by this reference, pursuant to which Friedlander
International will purchase 5,000,000 shares of preferred stock and 2,000,000
common stock purchase warrants for an aggregate consideration of $5,000,000; and
WHEREAS, the Company's Shareholders previously approved, subject only to
the closing of this Reorganization Agreement, a reverse stock split which has
positioned the Company to complete the transactions contemplated by this
Agreement; and
WHEREAS, the shareholders of the Company have previously approved, subject
only to the closing of this Reorganization Agreement, a change in the name of
the Company to eNote.Com, Inc.
NOW, THEREFORE, in consideration of the mutual covenants, obligations and
benefits hereinafter set forth, the parties hereto agree as follows:
1. REPRESENTATIONS AND WARRANTIES BY NAVIS AND ITS' SHAREHOLDERS. Navis and
its Shareholders jointly and severally represent and warrant to the Company:
a. Organization and Qualification; Subsidiaries. Navis is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, has all requisite corporate or other power and authority to
own, lease and operate its properties and to carry on its business as it is now
being conducted, and is duly qualified and in good standing to do business in
the State of Vermont and each other jurisdiction in which the nature of the
business conducted by it or the ownership or leasing of its properties makes
such qualification necessary. Navis has no directly or indirectly owned
subsidiaries other than eNote Communications, Inc., a newly formed Delaware
corporation that has no assets, liabilities or business activities.
b. Articles of Incorporation and By-Laws. Navis has heretofore furnished to
the Company complete and correct copies of its' Articles of Incorporation and
By-Laws, including all amendments thereto or restatements thereof. Navis is not
in violation of any of the provisions of its Articles of Incorporation, By-Laws.
All original documents and other information relating to Navis' affairs has
been made available to all parties to the transactions contemplated hereby.
Included within the documents made available have been at least the Articles of
Incorporation and any Amendments, By-laws and any amendments thereto, Minutes of
all of the meetings of the Incorporators, Directors and Shareholders, all
financial statements and copies of all contracts, leases, patents, copyrights,
licenses, trademarks or agreements to which Navis is a party or in which Navis
has an interest.
c. Capitalization. The authorized capital stock of Navis consists of 1,000
shares of common stock, $0.01 par value ("Navis Common"). As of the date hereof
536 shares of Navis Common are issued and outstanding, all of the issued and
outstanding shares of Navis Common are duly authorized, validly issued, fully
paid and nonassessable and not subject to preemptive rights created by statute,
Navis' Articles of Incorporation or By-Laws or any agreement to which Navis is a
party or bound. There are no bonds, debentures, notes or other indebtedness
issued or outstanding having the right to vote on any matters on which Navis'
Shareholders may vote. All holders of outstanding Navis Common are identified in
Schedule A-1 to this Agreement and there are no options, warrants, calls or
other rights, agreements, arrangements or commitments presently outstanding
obligating Navis to issue, deliver or sell shares of its capital stock or debt
securities, or obligating Navis to grant, extend or enter into any such option,
warrant, call or other such right, agreement, arrangement or commitment.
Schedule A-1 sets forth a true and complete list of all holders of Navis Common,
showing for each holder the number of shares of Navis Common owned by such
holder as of the date hereof.
In addition to the Navis Common, Navis has previously sold $810,147
aggregate principal amount of Debentures ("Navis Debentures"). The Navis
Debentures are held by the holders of Navis Debentures ("Debentureholders")
identified in Schedule A-1 and immediately prior to the closing of the
transactions contemplated hereby, the holders of $400,000 aggregate principal
amount of Debentures intend to convert the Navis Debentures held by them into
400,000 shares of Navis Common. Immediately after the closing of this Agreement,
the Company intends to repay $410,147 aggregate principal amount of Navis
Debentures, together with accrued interest thereon, in full and final
satisfaction of the rights of the holders of such Navis Debentures.
All outstanding Navis Securities and Navis Debentures are duly authorized,
validly issued, fully paid and nonassessable and are owned by the Shareholders
and Debentureholders specified in Schedule A-1 free and clear of any security
interests, liens, claims, pledges, agreements, limitations on voting rights,
charges or other encumbrances of any nature whatsoever ("Encumbrances").
d. Authority. Navis has all requisite corporate power and authority to
execute and deliver this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated herein. The execution and delivery of
this Agreement and the consummation of the transactions contemplated herein have
been duly authorized by all necessary corporate action and no other corporate
proceeding on the part of Navis is necessary to authorize this Agreement or to
consummate the transactions contemplated herein. This Agreement has been duly
executed and delivered by Navis and, assuming the due authorization, execution
and delivery thereof by the Company, constitutes the legal, valid and binding
obligation of Navis enforceable in accordance with its terms.
e. No Conflict; Required Filings and Consent. The execution and delivery of
this Agreement by Navis does not, and the performance of this Agreement by Navis
will not (i) conflict with or violate the Articles of Incorporation or By-Laws
of Navis, (ii) conflict with or violate any federal, state, or local law,
statute, ordinance, rule, regulation, order, judgment or decree (collectively,
"Laws") in effect as of the date of this Agreement and applicable to Navis or by
which its properties are bound or subject, or (iii) result in any breach of or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or require payment under, or result
in the creation of an Encumbrance on, any of the properties or assets of Navis
pursuant to any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which Navis is a
party or by which Navis or its properties are bound or subject except for
breaches, defaults, events, rights of termination, amendment, acceleration or
cancellation, payment obligations or liens or Encumbrances that would not have a
material adverse effect on the business, properties, assets, condition
(financial or otherwise) operations or prospects of Navis, taken as a whole
("Navis Material Adverse Effect").
The execution and delivery of this Agreement by Navis does not, and the
performance of this Agreement by Navis will not, require Navis to obtain any
consent, approval, authorization or permit of, or to make any filing with or
notification to, any governmental or regulatory authority ("Governmental
Entities") based on laws, rules, regulations and other requirements of
Governmental Entities in effect as of the date of this Agreement, except for
applicable requirements, if any, of (i) federal or state securities laws and the
filing and recordation of certain corporate documents as required by applicable
State law and (ii) where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would not,
either individually or in the aggregate, prevent Navis from performing its
obligations under this Agreement or have a Navis Material Adverse Effect.
f. Permits; Compliance. Navis is in possession of all franchises, grants,
authorizations, licenses, permits, easements, variances, exemptions, consents,
certificates, approvals and orders necessary to own, lease and operate its
properties and to carry on its business as it is now being conducted
(collectively, the "Navis Permits"), and there is no action, proceeding or
investigation pending or, to the knowledge of Navis, threatened, regarding
suspension or cancellation of any of Navis Permits. Navis is not in conflict
with, or in default or violation of (a) any Law applicable to Navis or by which
any of its properties is bound or subject or (b) any of the Navis Permits,
except for any such conflicts, defaults or violations which would not have a
Navis Material Adverse Effect.
g. Financial Statements. Attached hereto as Exhibit "C", the text of which
is hereby incorporated herein by reference, are the audited financial statements
of Navis as of December 31, 1998 containing the balance sheet of Navis and the
related statements of operations, cash flows and shareholders' equity for the
period then ended, together with unaudited interim financial statements for the
period ended March 31, 1999 (the "Navis Financial Statements"). The Navis
Financial Statements have been prepared in accordance with generally accepted
accounting principles and practices consistently followed by Navis throughout
the period indicated, and fairly present the consolidated financial position of
Navis as of the date thereof. Except as described in the notes to the Navis
Financial Statements, Navis has not
(1) issued any shares of its capital stock, or any options or rights to
acquire such securities, to any person other than the persons listed in
Schedule A-1;
(2) paid or declared any dividends or distributions of capital, surplus, or
profits with respect to any of its issued and outstanding shares of capital
stock;
(3) paid or agreed to pay any consideration in redemption of any of its
issued and outstanding capital stock; or
(4) entered into any other transaction or agreement which would, or might,
materially impair its shareholders' equity as reflected in such financial
statements.
h. No Undisclosed Liabilities. There are no liabilities of Navis of any
kind whatsoever, whether accrued, contingent, absolute, determined, determinable
or otherwise, and there is no existing condition, situation or set of
circumstances which could reasonably be expected to result in such a liability,
other than liabilities fully reflected or reserved against on the Navis
Financial Statements; and liabilities which, individually or in the aggregate,
would not have a Navis Material Adverse Effect.
i. Absence of Certain Changes or Events. Except as and to the extent
disclosed herein since March 31, 1999, there has not been any significant change
by Navis in its accounting methods, principles or practices or any circumstance
which would constitute a Navis Material Adverse Effect.
j. Absence of Litigation. There is no claim, action, suit, litigation,
proceeding, arbitration or investigation of any kind, at law or in equity
(including actions or proceedings seeking injunctive relief), pending or
threatened against Navis or any properties or rights of Navis and Navis is not
subject to any continuing order of, consent decree, settlement agreement or
other similar written agreement with, or continuing investigation by, any
Governmental Entity, or any judgment, order, writ, injunction, decree or award
of any Governmental Entity or arbitrator, including, without limitation,
cease-and-desist or other orders.
k. Taxes. Navis has filed all federal, state and local tax returns required
by law, or has filed proper extensions, and has paid all Taxes, assessments and
penalties due and payable. The provisions for Taxes, if any, reflected in the
most recent balance sheet included in the Navis Financial Statements are
adequate for any and all federal, state, county and local taxes for the period
ending on the date of that balance sheet and for all prior periods, whether or
not disputed. There are no present disputes as to Taxes of any nature payable by
Navis or any Subsidiary.
l. Brokers. No broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated in this Agreement based upon arrangements made by or
on behalf of Navis except for fees consisting of an 650,000 shares of the
Company's common stock that will be issued to certain financial consultants and
other professionals as payment for services rendered in connection with the
transaction contemplated hereby.
m. Navis Corporate Action. The Board of Directors of Navis has by the
unanimous vote of all directors present (a) determined that the transaction
contemplated hereby is advisable and fair and in the best interests of Navis and
its Shareholders, (b) approved the transaction contemplated hereby in accordance
with the applicable provisions of the General Corporation Law of Delaware, (c)
recommended the approval of this Agreement by the Shareholders and (d) obtained
the unanimous approval of all holders of Navis Securities, of a resolution
approving the transactions contemplated in this Agreement.
n. Environmental Laws and Regulations. (a) Navis is in material compliance
with all applicable federal, state and local laws and regulations and common law
relating to pollution or protection of human health or the environment
(including, without limitation, ambient air, surface water, ground water, land
surface or subsurface strata (collectively, "Environmental Laws")), which
compliance includes, but is not limited to, the possession by Navis of all
material permits and other governmental authorizations required under applicable
Environmental Laws, and compliance with the terms and conditions thereof and
compliance with notification, reporting and registration provisions under
applicable Environmental Laws; Navis has not received notice of, or, to the
knowledge of Navis, is the subject of, any action, cause of action, claim,
investigation, demand or notice by any person or entity alleging liability under
or noncompliance with any Environmental Law ("Environmental Claim"); and to the
knowledge of Navis, there are no circumstances that are reasonably likely to
prevent or interfere with such material compliance in the future, or to require
material expenditures to maintain such material compliance in the future.
There are no Environmental Claims that are pending or, to the knowledge of
Navis, threatened against Navis, or, to the knowledge of Navis, against any
person or entity whose liability for any Environmental Claim Navis has or may
have retained or assumed either contractually or by operation of law.
To the knowledge of Navis, there are no circumstances that could form the
basis for an Environmental Claim against Navis, or against any person or entity
whose liability for any Environmental Claim Navis or any Subsidiary has or may
have retained or assumed either contractually or by operation of law.
o. Intellectual Property Rights. Navis has good and marketable title to all
patents, know-how, trade secrets, trademarks and other intellectual properties
required for the development and commercialization of the TVe-mail system as
described in the Confidential Business Plan of eNote Communications Inc. dated
February 1999, a copy of which is attached hereto as Exhibit "D" and
incorporated herein by this reference. Such intellectual properties are free and
clear of all liens, charges, encumbrances, or restrictions, however
characterized. All of the contracts, leases, subleases, patents, copyrights,
licenses and agreements, however characterized, under which Navis holds such
intellectual properties are in full force and effect. Navis is not in default
under any of the material terms or provisions of any contracts, leases,
subleases, patents, copyrights, licenses or agreements under which Navis holds
its intellectual properties. There are no known claims against Navis concerning
its rights under the leases, subleases, patents, copyrights, licenses and
agreements and concerning its right to continued possession of the intellectual
properties.
p. Survival of Representations and Warranties. All of the representations
and warranties set forth above are true as of the date of this Agreement, shall
be true at the Closing Date and shall survive the closing for a period of three
(3) years from the Closing Date.
2. Affirmative Covenants.
(a) SEC Reporting Obligations. For so long as the Company's common stock is
registered under the Securities Exchange Act of 1934, as amended (said Act and
rules and regulations promulgated thereunder being hereinafter referred to as
the "Exchange Act")., the Company (i) will file all forms, reports, statements
and other documents required to be filed with (A) the Securities and Exchange
Commission ("SEC"), including, without limitation (1) all Annual Reports on Form
10-KSB, (2) all Quarterly Reports on Form 10-QSB, (3) all proxy statements
relating to meetings of stockholders (whether annual or special), (4) all
Reports on Form 8-K, (5) all other reports or registration statements and (6)
all amendments and supplements to all such reports and registration statements
and (B) any state, local or other governmental authority pursuant to applicable
laws regulating the offer and sale of securities (the "Blue Sky Laws") and (C)
all forms, reports, statements and other documents required to be filed with any
other applicable federal or state regulatory authorities. The Company Reports
shall be prepared in all material respects in accordance with the requirements
of applicable Law (including, the Securities Act and Exchange Act, as the case
may be, and the rules and regulations of the SEC thereunder applicable to such
Company Reports) and shall not at the time they are filed contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they are made, not misleading.
(b) Reports to Stockholders. For so long as the Company's common stock is
registered under the Exchange Act, the Company will hold an annual meeting of
shareholders for the election of directors within 180 days after the end of each
of the Company's fiscal years and, within 180 days after the end of each of the
Company's fiscal years, will provide the Company's shareholders with the audited
financial statements of the Company as of the end of the fiscal year just
completed prior thereto. Such financial statements shall be those required by
Rule 14a-3 under the Exchange Act and shall be included in an annual report
meeting the requirements of the Rule. Further, the Company agrees to make
available to the Company's shareholders in printable form within 60 days after
the end of each fiscal quarter of the Company (other than the last fiscal
quarter in any fiscal year) reasonably itemized financial statements of the
Company and its subsidiaries, if any, for the fiscal quarter just ended and a
narrative discussion of such financial statements and the business conducted by
the Company and its subsidiaries, if any, during such quarter.
3. REPRESENTATIONS AND WARRANTIES BY THE SHAREHOLDERS. The Shareholders
hereby jointly and severally warrant to the Company:
a. The Shareholders have full power and authority to exchange the Navis
Securities which are held by them upon the terms and conditions provided for in
this Agreement, and when delivered to the Company in accordance with the terms
of this agreement, the Navis Securities will be free and clear of any lien or
other encumbrance on the Closing Date specified herein.
b. The Shareholders are acquiring the Common Stock of the Company solely
for their own account, for investment, and not with a view to any subsequent
"distribution" thereof within the meaning of that term as defined in the
Securities Act of 1933, as amended (said Act and rules and regulations
promulgated thereunder being hereinafter referred to as the "Securities Act").
The Shareholders understand that the Common Stock of the Company has not been
registered under the Act or securities laws of any State ("State Act") by reason
of the specific exemptions therefrom, which exemptions depend in part upon the
Shareholders subjective investment intent as expressed herein. In furtherance of
the foregoing, each Shareholder shall be required to execute and deliver to the
Company an Investment Letter, in the form attached hereto as Exhibit "E," as a
condition precedent to the issuance of a certificate for the Common Stock of the
Company that will be issued to him.
c. The Shareholders hereby jointly acknowledge that they:
(1) are "Accredited Investors" as such term is defined in Regulation D
promulgated under the Act; and
(2) That they have such knowledge and experience in financial and business
matters that they are capable of evaluating the merits and risks of the
proposed exchange of Navis's and eNote `s securities, respectively, for
Common Stock of the Company; and that they are able to bear the economic
risks of the investment and are able to protect their own interests in an
investment of this nature.
The Shareholders further represent and warrant that all of the representations
and warranties set forth above are true as of the date of this Agreement, shall
be true at the Closing Date and shall survive the closing for a period of three
(3) years from the Closing Date.
4. REPRESENTATIONS AND WARRANTIES BY THE COMPANY. The Company hereby
represents and warrants to Navis and the Shareholders:
a. Organization and Qualification. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, has all requisite corporate or other power and authority to own, lease
and operate its properties and to carry on its business as it is now being
conducted, and is duly qualified and in good standing to do business in each
jurisdiction in which the nature of the business conducted by it or the
ownership or leasing of its properties makes such qualification necessary. The
Company has no directly or indirectly owned subsidiaries.
b. Articles of Incorporation and By-Laws. The Company has heretofore
furnished to the Navis and the Shareholders complete and correct copies of its'
Articles of Incorporation and By-Laws, including all amendments thereto or
restatements thereof. The Company is not in violation of any of the provisions
of its Articles of Incorporation, By-Laws.
c. Capitalization. The Company has the corporate authority to issue a total
of 25,000,000 shares of $0.01 par value Common Stock and 5,000,000 shares of
$0.01 par value Preferred Stock, of which 3,439,247 shares are presently issued
and outstanding. The beneficial owners of such shares, as reflected on the
records of the Company, are identified in Exhibit "F" to this Agreement.
Prior to the closing of this Reorganization Agreement, the Company will
effect a reverse split of all issued and outstanding shares of the Common Stock
in the ratio of one (1) share of new Common Stock for each six and
three-quarters (6 3/4) shares presently outstanding; provided, however, that (a)
no fractional shares shall be issued and all calculations that would result in
the issuance of a fractional share shall be rounded up to the nearest whole
number and (b) no Shareholder who was the beneficial owner of at least 100
shares of old Common Stock shall receive fewer than 100 shares of new Common
Stock and all calculations that would result in the issuance of fewer than 100
shares of new Common Stock to such a Shareholder will be rounded up to 100
shares; so that immediately thereafter the Company will have approximately
540,000 shares of new Common Stock issued and outstanding, all of which are
fully paid, validly issued and nonassessable. Except as specifically provided
herein and in certain agreements between the parties and their respective legal
counsel, no other capital stock of the Company or any rights whatsoever to
purchase additional capital stock of the Company will be outstanding on the
Closing Date. Except as specifically provided herein, in agreements with legal
counsel, and in agreements with Friedlander International, no Shareholder of the
Company will have or obtain any registration rights with respect to any shares
of the Company's capital stock that are issued and outstanding on the Closing
Date.
Immediately after the completion of the reverse split described above, the
Company will issue a total of 540,000 shares of Common Stock to certain
individual designees of Capston Network Company of Clearwater, Florida
("Capston"), subject to the following forfeiture provisions:
(1) in the event that the reverse split results in the issuance of fewer
than 540,000 shares of Common Stock to the existing shareholders of
the Company, then Capston's designees shall be obligated to return
to the Company for cancellation an indeterminate number of shares of
Common Stock so that immediately after such surrender and
cancellation, the total number of shares issuable to Capston's
designees shall not exceed 100% of the number of shares of Common
Stock issued to the existing shareholders of the Company, and
(2) in the event that the reverse split set forth above results in the
issuance of more than 540,000 shares of Common Stock to the existing
shareholders of the Company, then Capston shall be obligated to
return to the Company for cancellation an indeterminate number of
shares so that immediately after such surrender and cancellation,
the total number of shares issued to Capston, legal counsel and the
holders of Common Stock shall not exceed 1,350,000 shares.
Immediately after the closing of this Agreement, the Company will have not
more than 10,000,000 shares of Common Stock issued and outstanding which will be
held beneficially and of record by the following classes of persons:
(1) 8,000,000 shares held by the Shareholders;
(2) 540,000 shares, more or less, which will be held by the original public
shareholders of the Company;
(3) 540,000 shares, more or less, which will be held by Capston or its
designees;
(4) 270,000 shares which will be held by legal counsel for the parties hereto;
and
(5) 650,000 shares which will be held by certain financial consultants and
other professionals who introduced Navis to the Company and assisted in the
negotiation and documentation of the transactions contemplated hereby.
d. Authority. Each of the Company, Capston and Sally A. Fonner has all
requisite corporate power and authority to execute and deliver this Agreement,
to perform its obligations hereunder and to consummate the transactions
contemplated herein. The execution and delivery of this Agreement and the
consummation of the transactions contemplated herein have been duly authorized
by all necessary corporate action and no other corporate proceeding on the part
of the Company (including, without limitation, any approval by the shareholders
of the Company of this Agreement or the transactions contemplated herein) is
necessary to authorize this Agreement or to consummate the transactions
contemplated herein. This Agreement has been duly executed and delivered by the
Company, Capston and Sally A. Fonner and, assuming the due authorization,
execution and delivery hereof by Navis and the Shareholders, constitutes the
legal, valid and binding obligation of the Company enforceable in accordance
with its terms.
e. No Conflict; Required Filings and Consents. The execution and delivery
of this Agreement by the Company does not, and the performance of this Agreement
by the Company will not (i) conflict with or violate the Certificate of
Incorporation or By-Laws, as amended or restated, of the Company, (ii) conflict
with or violate any Laws in effect as of the date of this Agreement applicable
to the Company or by which any of its properties is bound, or (iii) result in
any breach of or constitute a default (or an event that with notice or lapse of
time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or require payment
under, or result in the creation of a lien or Encumbrance on, any of the
properties or assets of the Company pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which the Company is a party or by which the Company
or any of its properties is bound or subject except for breaches, defaults,
events, rights of termination, amendment, acceleration or cancellation, payment
obligations or liens or Encumbrances that would not have a material adverse
effect on the business, properties, assets, condition (financial or otherwise)
operations or prospects of the Company, taken as a whole, or on the transactions
herein contemplated ("Company Material Adverse Effect").
The execution and delivery of this Agreement by the Company and the
performance of this Agreement by the Company does not require the Company to
obtain any consent, approval, authorization or permit of, or to make any filing
with or notification to, any Governmental Entities, except for applicable
requirements, if any, of (i) the Securities Act, the Exchange Act, the Blue Sky
Laws, the National Association of Securities Dealers, and the filing and
recordation of appropriate such documents as required by General Corporation Law
of Delaware and (ii) where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would not,
either individually or in the aggregate, prevent the Company from performing its
obligations under this Agreement or have a Company Material Adverse Effect.
f. Permits; Compliance. The Company is in possession of all franchises,
grants, authorizations, licenses, permits, easements, variances, exemptions,
consents, certificates, approvals and orders necessary to own, lease and operate
its properties and to carry on its business as it is now being conducted
(collectively, the "Company Permits"), and there is no action, proceeding or
investigation pending or, to the knowledge of the Company, threatened, regarding
suspension or cancellation of any of the Company Permits. The Company is not in
conflict with, or in default or violation of (a) any Law applicable to the
Company or by which any of its properties is bound or subject or (b) any of the
Company Permits, except for any such conflicts, defaults or violations which
would not have a the Company Material Adverse Effect. The Company has not
received from any Governmental Entity any written notification with respect to
possible conflicts, defaults or violations of Laws.
g. Reports; Financial Statements. The Company filed a voluntary petition
under Chapter 11 of the Bankruptcy Act on February 1, 1989, in the U.S.
Bankruptcy Court for the Eastern District of New York (Brooklyn) (Case #
89-10328). On October 16, 1990, the Company's Chapter 11 case was voluntarily
converted to a case in Chapter 7 which subsequently closed on November 13, 1996.
As a result of the Bankruptcy, the Company was inactive and engaged in no
business activities until December 26, 1996, when its corporate charter was
restored. On December 31, 1996, the Company filed with the Securities and
Exchange Commission an omnibus Annual Report on Form 10-K for the fiscal years
ended March 31, 1988, through March 31, 1996, together with quarterly reports
for the periods ended June 30 and September 30, 1996. Since December 31, 1996,
the Company has filed (i) all forms, reports, statements and other documents
required to be filed with (A) the Securities and Exchange Commission ("SEC"),
including, without limitation (1) all Annual Reports on Form 10-KSB, (2) all
Quarterly Reports on Form 10-QSB, (3) all proxy statements relating to meetings
of stockholders (whether annual or special), (4) all Reports on Form 8-K, (5)
all other reports or registration statements and (6) all amendments and
supplements to all such reports and registration statements (collectively, the
"Company SEC Reports") and (B) any applicable Blue Sky Laws and (ii) all forms,
reports, statements and other documents required to be filed with any other
applicable federal or state regulatory authorities (all such forms, reports,
statements and other documents being referred to herein, collectively, as the
"Company Reports"). The Company Reports were prepared in all material respects
in accordance with the requirements of applicable Law (including, with respect
to the Company SEC Reports, the Securities Act and Exchange Act, as the case may
be, and the rules and regulations of the SEC thereunder applicable to such
Company SEC Reports) and did not at the time they were filed contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
Each of the financial statements (including, in each case, any related
notes thereto) contained in the Company SEC Reports filed prior to or on the
date of this Agreement (i) have been prepared in accordance with, and complied
as to form with, the published rules and regulations of the SEC and generally
accepted accounting principles applied on a consistent basis throughout the
periods involved (except as otherwise noted therein) and (ii) fairly present the
financial position of the Company as of the respective dates thereof and the
results of its operations and cash flows for the periods indicated.
The Company's auditors have issued no management letters in connection with
the Company's financial statements.
Attached hereto as Exhibit "G", the text of which is hereby incorporated
herein by reference, are the audited financial statements of the Company as of
December 31, 1998, containing the balance sheet of the Company and the related
statements of operations, cash flow and shareholders' equity for the period then
ended (the "Company Financial Statements"). To the best of the Company's
knowledge, the Company Financial Statements have been prepared in accordance
with generally accepted accounting principles and practices consistently
followed by the Company throughout the period indicated, and fairly present the
consolidated financial position of the Company as of the date thereof. Except as
described in the notes to the Company Financial Statements, the Company has not
(1) issued any shares of its capital stock, or any options or rights to
acquire such securities, to any person other than the persons listed in
Schedule A-2;
(2) paid or declared any dividends or distributions of capital, surplus, or
profits with respect to any of its issued and outstanding shares of capital
stock;
(3) paid or agreed to pay any consideration in redemption of any of its
issued and outstanding capital stock; or
(4) entered into any other transaction or agreement which would, or might,
materially impair its shareholders' equity as reflected in such financial
statements.
h. No Undisclosed Liabilities. There are no liabilities of any kind
whatsoever, whether accrued, contingent, absolute, determined, determinable or
otherwise, and there is no existing condition, situation or set of circumstances
which could reasonably be expected to result in such a liability, other than (a)
liabilities fully reflected or reserved against on the balance sheet contained
in the Company's 1997 Annual Report on Form 10-KSB for the fiscal year ended
March 31, 1998, or in the unaudited consolidated balance sheet contained in the
Quarterly Reports on Form 10-QSB for the fiscal quarters ended June 30,
September 30, or December 31, 1998; (b) liabilities under this Agreement and
fees and expenses related thereto; and (c) liabilities which, individually or in
the aggregate, would not have a Company Material Adverse Effect.
i. Absence of Certain Changes or Events. Except as disclosed in SEC Reports
filed prior to or on the date of this Agreement, there has not been any
significant change by the Company in its accounting methods, principles or
practices.
j. Absence of Litigation. There is no claim, action, suit, litigation,
proceeding, arbitration or investigation of any kind, at law or in equity
(including actions or proceedings seeking injunctive relief), pending or
threatened against the Company or any properties or rights of the Company and
the Company is not subject to any continuing order of, consent decree,
settlement agreement or other similar written agreement with, or continuing
investigation by, any Governmental Entity, or any judgment, order, writ,
injunction, decree or award of any Governmental Entity or arbitrator, including,
without limitation, cease and desist or other orders.
k. Taxes. The Company has filed all federal, state and local tax returns
required by law, or has filed proper extensions, and has paid all Taxes,
assessments and penalties due and payable. The provisions for Taxes, if any,
reflected in the most recent balance sheet included in the Company Financial
Statements are adequate for any and all federal, state, county and local taxes
for the period ending on the date of that balance sheet and for all prior
periods, whether or not disputed. There are no present disputes as to Taxes of
any nature payable by the Company.
l. Brokers. Except as specifically disclosed to Navis and the Shareholders,
no broker, finder or investment banker is entitled to any brokerage, finder's or
other fee or commission in connection with the transactions contemplated in this
Agreement based upon arrangements made by or on behalf of the Company.
m. Company Corporate Action. The stockholders of the Company have approved
the transaction contemplated hereby in accordance with the applicable provisions
of the General Corporation Law of Delaware.
n. Environmental Laws and Regulations. The Company is in material
compliance with all applicable Environmental Laws, which compliance includes,
but is not limited to, the possession by the Company of all material permits and
other governmental authorizations required under applicable Environmental Laws,
and compliance with the terms and conditions thereof and compliance with
notification, reporting and registration provisions under applicable
Environmental Laws; the Company has not received notice of, or, to the knowledge
of the Company, is the subject of any Environmental Claim; and to the knowledge
of the Company, there are no circumstances that are reasonably likely to prevent
or interfere with such material compliance in the future, or to require material
expenditures to maintain such material compliance in the future.
There are no Environmental Claims that are pending or, to the knowledge of
the Company, threatened against the Company or, to the knowledge of the Company,
against any person or entity whose liability for any Environmental Claim the
Company has or may have retained or assumed either contractually or by operation
of law.
To the knowledge of the Company, there are no circumstances that could form
the basis for an Environmental Claim against the Company, or against any person
or entity whose liability for any Environmental Claim the Company has or may
have retained or assumed either contractually or by operation of law.
o. Contract Rights. Except for this Agreement and the agreements
contemplated herein, the Company is not a party to or bound by any contract or
agreement, whether written or oral, including, without limitation, any contract
or agreement for employment, consulting or similar services, for capital
expenditures or the acquisition or construction of fixed assets, which
constitutes any note, bond, indenture or other evidence of indebtedness or
guaranty or security for indebtedness of others, for the sale of any asset, or
the grant of any right or option to purchase such asset, which constitutes a
lease, which purports to limit the freedom of the Company to compete in any line
of business or in any geographic area or to borrow money or incur indebtedness.
p. Employee Benefit Plans.
Except for its' 1997 Incentive Stock Plan, the Company does not have, and
has not had any employee benefit plan (including, without limitation, any
"employee benefit plan," as defined in Section 3(3) of the ERISA), or any bonus,
pension, profit sharing, deferred compensation, incentive compensation, stock
ownership, stock purchase, stock option, phantom stock, retirement, vacation,
severance, disability, death benefit, hospitalization, insurance or other plan,
arrangement or understanding (whether or not legally binding). No incentive
grants of any type or nature are outstanding under the Company's Incentive Stock
Plan and no person has any right to require the Company to issue any such
incentive grant in the future.
The Company is not party to any collective bargaining agreement.
The Company has no obligation for retiree health, medical or life
insurance benefits under any plan or arrangement. The Company has no
employees other than Sally A. Fonner.
q. Public Offering. The initial public offering of the Company was a bona
fide offering to the "public" as such term is used and defined in connection
with offerings of securities subject to the Securities Act in material
compliance with the Securities Act and the rules and regulations promulgated
thereunder. The Common Stock of the Company which was issued and outstanding
prior to the Closing Date of this Agreement has been (a) issued pursuant to a
valid claim of exemption under Section 4(2) of the Securities Act, (b) issued
pursuant to an effective registration statement under the Securities Act, or (c)
issued in violation of the applicable registration requirements of the
Securities Act, but at a date sufficiently remote from the Closing Date that
that purchasers of such shares are precluded from initiating or maintaining an
action in law or in equity based on the sale and issuance of such share
r. Transfer Agent. The Company has appointed American Stock Transfer &
Trust Company, New York, New York as the Company's transfer agent. The Company
will continue to retain a transfer agent reasonably satisfactory to Navis and
the Shareholders for so long as the Company is subject to the reporting
requirements under Section 12(g) or Section 15(d) of the Exchange Act. The
Company will make arrangements to have available at the office of the transfer
agent sufficient quantities of the Company's common stock certificates as may be
needed for the quick and efficient transfer of the Shares.
s. Survival of Representations and Warranties. All of the representations
and warranties set forth above are true as of the date of this Agreement, shall
be true at the Closing Date and shall survive the closing for a period of three
(3) years from the Closing Date.
5. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The obligations of the
Company hereunder shall be subject to the following conditions:
a. The Company shall not have discovered any material error, misstatement
or omission in any of the representations and warranties made by Navis or the
Shareholders herein and all the terms and conditions of this Agreement to be
performed and complied with have been performed and complied with.
b. There shall have been no material adverse changes in the financial
condition, business or operations of Navis taken as a whole from March 31, 1999
until the Closing Date, except for changes resulting from operations in the
usual and ordinary course of its business, and between such dates no business
and assets of Navis shall have been materially adversely affected as the result
of any fire, explosion, earthquake, flood, accident, strike, lockout,
combination of the workmen, condemnation of any assets by any governmental
authorities, riot, activities of armed forces, or Acts of God or of the public
enemies.
c. There shall have been no material adverse changes in the financial
condition, business or operations of Navis, except for immaterial changes
resulting from operations in the usual ordinary course of the business.
d. The Company shall have received the opinion of Doremus Associates, legal
counsel for Navis, to the effect that:
(1) Navis is a corporation duly organized, validly existing and in good
standing under the laws of Delaware and has the power and authority to own
its properties and to carry on its business in the State of Vermont as of
the Closing Date;
(2) The outstanding Navis Securities are validly issued, fully paid and
nonassessable;
(3) This Agreement has been duly executed and delivered by Navis and the
Shareholders and constitutes a legal, valid and binding obligation of Navis
and the Shareholders enforceable in accordance with its terms.
6. CONDITIONS TO THE OBLIGATIONS OF NAVIS AND THE SHAREHOLDERS. The
obligations of the Navis and the Shareholders hereunder are subject to the
following conditions:
a. Navis and the Shareholders shall not have discovered any material error
or misstatement in any of the representations and warranties made by the Company
herein and all the terms and conditions of this Agreement to be performed and
complied with by the Company have been performed and complied with.
b. There shall have been no material adverse changes in the financial
condition, business or operations of the Company, from December 31, 1998 until
the Closing Date, except for changes resulting from those operations in the
usual ordinary course of the business.
c. Navis and the Shareholders shall have received the opinion of John L.
Petersen, legal counsel for the Company, to the effect that:
(1) The Company is a corporation duly organized and validly existing under
the laws of the State of Delaware and has the power to own and operate its
properties wherever the same shall be located as of the Closing Date;
(2) The execution, delivery and performance of this Agreement by the
Company has been duly authorized by all necessary corporate action and
constitutes a legal, valid and binding obligation of the Company
enforceable in accordance with its terms;
(3 When delivered to the Shareholders, the Common Stock to be delivered to
the Shareholders pursuant to the terms of this Agreement will be validly
issued, fully paid and nonassessable;
(4) The Common Stock of the Company which was issued and outstanding prior
to the Closing Date of this Agreement has been (a) issued pursuant to a
valid claim of exemption under Section 4(2) of the Securities Act, (b)
issued pursuant to an effective registration statement under the Securities
Act, or (c) issued in violation of the applicable registration requirements
of the Securities Act, but at a date sufficiently remote from the Closing
Date that that purchasers of such shares are precluded from initiating or
maintaining an action in law or in equity based on the sale and issuance of
such shares;
(5) The transaction contemplated qualifies as a tax-free reorganization
under ss.368(a)(1)(B) of the Internal Revenue Code and related regulations
thereunder and the receipt of Company stock by the Shareholders at the
Closing will not give rise to a taxable event; and
(6) The Common Stock of the Company is fully registered under the Exchange
Act and the Company has, for the preceding 12 months, filed all reports
required to be filed under Sections 12 and 15 of the Exchange Act.
7. CLOSING DATE. The final closing of this Agreement shall take place in
New York, New York on April 5, 1999, or at such other reasonable time and place
as the parties hereto shall agree upon.
8. EXCHANGE OF SECURITIES. Subject to the terms and conditions set forth
herein, and at the time of the closing set forth in Section 7 and the conditions
to which are specified in Sections 5 and 6, the Company will issue and deliver
to the Shareholders share certificates evidencing the ownership of a total of
8,000,000 shares of the Company's Common Stock as specified in Schedule A-3.
Concurrently therewith the Shareholders shall deliver to the Company
certificates evidencing the ownership of all issued and outstanding Navis
Securities, duly endorsed to the Company.
9. ISSUANCE OF SECURITIES. At or subsequent to the Closing, the Company
will issue and deliver share certificates evidencing the ownership of the
Company's Common Stock in the following amounts to the following parties:
a. 540,000 Company's Common Shares to Ms. Sally Fonner as compensation for
Ms. Fonner's services rendered in connection with the Company and the
transaction contemplated by this Agreement. Such shares shall be registered
under the Securities Act prior to issuance.
b. 650,0000 Company's Common Shares to be issued in lieu of a Finder's Fee.
Such shares shall be registered under the Securities Act prior to issuance.
Notwithstanding the foregoing, no finder's fees will be paid to Capston, Sally
A. Fonner or any of their respective employees, agents or affiliates without the
prior consent of the Shareholders.
c. 270,0000 Company's Common Shares to be issued to legal counsel for the
parties as compensation for services rendered in connection with the transaction
contemplated hereby. Such shares shall be registered under the Securities Act
prior to issuance. Notwithstanding the foregoing, no finder's fees will be paid
to Capston, Sally A. Fonner or any of their respective employees, agents or
affiliates without the prior consent of the Shareholders.
10. ACTIONS AT THE CLOSING. At the final closing of this Agreement, the
Company and the Shareholders will each deliver, or cause to be delivered to the
other, the shares of stock to be exchanged in accordance with Section 8 of this
Agreement and each party shall pay any and all federal and state taxes required
to be paid in connection with the issuance and the delivery of their own
securities. All stock certificates shall be in the name of the party to which
the same are deliverable, as specified herein. In addition to the
above-mentioned exchange of certificates, the following transactions will take
place at the final closing.
Navis and the Shareholders will deliver to the Company:
(1) The opinion of Doremus Associates legal counsel for Navis, as provided for
in Section 5(d) hereof;
(2) A certificate of corporate good standing for Navis from the Secretary of
State of the State of Delaware which shall be dated no more than sixty (60)
days prior to the Closing Date;
(3) A certificate of corporate good standing for eNote from the Delaware
Secretary of State which shall be dated no more than sixty (60) days prior
to the Closing Date;
(4) A certificate by a principal officer of each of Navis that each of the
representations and warranties of Navis and the Shareholders, respectively,
are true and correct as of the Closing Date and that all of the conditions
to the obligations of the Company which are to be performed by Navis and
the Shareholders have been performed as of the Closing Date.
The Company will deliver to Navis and the Shareholders:
(1) Duly certified copies of corporate resolutions and other corporate
proceedings taken by the Company to authorize the execution, delivery and
performance of this Agreement;
(2) The opinion of John L. Petersen, legal counsel for the Company, as
provided for in Section 6(c) hereof;
(3) A certificate executed by a principal officer of the Company attesting
that the foregoing representations and warranties of the Company are true
and correct as of the Closing Date and that all of the conditions to the
obligations of the Shareholders which are to be performed by the Company
have been performed as of the Closing Date;
(4) A certificate of corporate good standing for the Company from the
Delaware Secretary of State which shall be dated no more than 60 days prior
to the Closing Date; and
(5) Duly executed resignations of all existing officers and directors of
the Company, effective as of 8:00 a.m. on the Closing Date.
11. CONDUCT OF BUSINESS. Between the date hereof and the Closing Date, the
Company, Navis shall conduct its business in the same manner in which it has
heretofore been conducted and the Shareholders will not permit Navis to (1)
enter into any contract, other than in the ordinary course of business, or (2)
declare or make any distribution in the nature of a dividend or return of
capital to the Shareholders without first obtaining the written consent of the
Company. Likewise, the Company will not (1) enter into any contract, other than
in the ordinary course of business, or (2) declare or make any distribution in
the nature of a dividend or return of capital to its shareholders without first
obtaining the written consent of the Shareholders.
12. BOARD OF DIRECTORS. Promptly after compliance with Section 14(f) of the
Exchange Act, the Board of Directors of the Company shall have a meeting, at
which all of the present directors of the Company shall resign, and they shall
elect as members of the Company's Board of Directors, in accordance with the
By-Laws of the Company and the Purchase and Sale Agreement, such individuals as
the Shareholders shall designate to the Company in writing.
13. FUTURE REGISTRATION OF COMMON STOCK. The Shareholders understand that
because the Common Stock has not been registered under the Act or any state Act,
they must hold the Common Stock indefinitely, and cannot dispose of any or all
of the Common Stock unless such Common Stock is subsequently registered under
the Act and any applicable State Act, or exemptions from registration are
available. The Shareholders acknowledge and understand that they have no
independent right to require the Company to register the shares of Common Stock.
The Shareholders further understand that the Company may, as a condition to the
transfer of any of Common Stock, require that the request for transfer by a
Shareholder be accompanied by an opinion of counsel, in form and substance
satisfactory to the Company, provided at such Shareholder's expense, to the
effect that the proposed transfer does not result in violation of the Act or any
applicable State Act, unless such transfer is covered by an effective
registration statement under the Act and is in compliance with all applicable
State Acts.
14. TRANSFERABILITY. All certificates for shares of Common Stock which are
issued to the Shareholders pursuant to the terms of this Agreement shall be
restricted securities within the meaning of Regulation D promulgated under
Section 4(2) of the Securities Act. The Company shall issue stop transfer
instructions to the transfer agent for its Common Stock with respect to the of
Common Stock and shall place the following legend on the certificates
representing such of Common Stock:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED PURSUANT TO
A TRANSACTION EFFECTED IN RELIANCE UPON AN EXEMPTION UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), AND HAVE NOT BEEN THE SUBJECT TO A
REGISTRATION STATEMENT UNDER THE ACT OR ANY STATE SECURITIES ACT. THE
SECURITIES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR APPLICABLE EXEMPTION THEREFROM UNDER THE ACT OR ANY
APPLICABLE STATE SECURITIES ACT."
15. ACCESS TO INFORMATION. Either previously or concurrently herewith, the
Company has delivered to the Shareholders correct and complete copies of all
documents and records requested by the Shareholders. In addition, the
Shareholders have had the opportunity to ask questions of, and receive answers
from, officers and directors of the Company, and persons acting on its behalf
concerning the terms and conditions of the Agreement, and has received
sufficient information relating to the Company to enable them to make an
informed decision with respect to the acquisition of the Common Stock.
16. NO SOLICITATION. At no time were the Shareholders presented with or
solicited by any leaflet, public promotion meeting, circular, newspaper or
magazine article, radio or television advertisement, or any other form of
general advertising in connection with its acquisition of the Common Stock.
17. EXPENSES. The Shareholders, Navis and the Company shall each pay their
respective expenses incident to this Agreement and the transactions contemplated
hereby, including all fees of their counsel and accountants, whether or not such
transactions shall be consummated; provided that Navis may pay the reasonable
fees and expenses of legal counsel for Capston and Friedlander International
Limited in connection with the Purchase and Sale Agreement and the proposed
transactions contemplated hereby, up to a maximum of Forty Thousand Dollars
($40,000). The Shareholders shall pay all other fees and expenses incurred by
them or by Navis by reason of this Agreement and the proposed transactions
contemplated hereby.
18. ATTORNEYS FEES. In the event of any litigation among the parties
related to this Agreement, the prevailing party shall be entitled to reasonable
attorneys fees and costs to be fixed by the Court, said fees to include appeal
and collection of judgment.
19. ARBITRATION. All disputes concerning this Agreement or the transactions
contemplated herein will be submitted to binding arbitration in New York, New
York, in accordance with the rules of the American Arbitration Association. The
decisions of the Arbitrator must be delivered in writing accompanied by written
findings of fact and conclusions of law. Any court of competent jurisdiction may
enter judgment upon the Arbitrator's awards. The prevailing party, as part of
its damages, shall be entitled to recover its reasonable attorneys fees and
expenses incurred in such arbitration from the losing party.
20. MISCELLANEOUS.
a. This Agreement shall be controlled, construed and enforced in accordance
with the laws of the State of Delaware without giving effect to conflict of laws
principles thereof.
b. This Agreement shall not be assignable by any party without prior
written consent of the others.
c. All Section headings herein are inserted for convenience only. This
Agreement may be executed in several counterparts, each of which shall be deemed
an original, which together shall constitute one and the same instrument.
Facsimile signatures shall constitute original signatures.
d. This Agreement incorporates the term of all prior agreements and sets
forth the entire understanding between the parties. No amendments hereto shall
be valid unless made in writing and signed by the parties hereto.
e. This Agreement shall be binding upon and shall inure to the benefit of
the heirs, executors, administrators and assigns of Navis and the Shareholders
and upon the successors and assigns of the Company.
f. All notices, requests, instructions, or other documents to be given
hereunder shall be in writing and sent by registered mail:
If to the Company or Navis: with copies to:
eNote.com, Inc. Peter Doremus, esq.
One Lawson Lane, Third Floor Doremus Associates
P.O. Box 388 112 Lake Street, Suite 3
Burlington, Vermont 05402 Burlington, Vermont 05401
Fax: (802) 862-1631 Fax: (802) 658-5675
If to the Shareholders: with copies to:
eNote.com, Inc. Peter Doremus, esq.
One Lawson Lane, Third Floor Doremus Associates
P.O. Box 388 112 Lake Street, Suite 3
Burlington, Vermont 05402 Burlington, Vermont 05401
Fax: (802) 862-1631 Fax: (802) 658-5675
If to Capston or Fonner: with copies to:
Capston Network Company John L. Petersen, esq.
1612 Osceola Chateau de Barbereche
Clearwater, Florida CH-1783 Barbereche Switzerland
Fax: (727) 443-5240 Fax: (4126) 684-0505
<PAGE>
In addition, copies of all notices to any of the parties hereto shall be
sent to:
Milton Gleit, esq.
McCarthy, Fingar, Donovan, Drazen & Smith
11 Maritime Avenue, 12th Floor
White Plains, New York 10606
Fax: (914) 946-0134
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
eNote.com, Inc. Navis Technologies, Ltd..
Sally A. Fonner, President John A. Varsames, President
STOCKHOLDERS LISTED IN EXHIBIT A
<PAGE>
John R. Varsarmes and
Heidi A. Varsames
Michael T. Grennan
James D. Richards
Peter D. Swift, M.D
Peter Stern, M.D.
Robert L. Jones
Lori Ann Varsames and
Kristen Varsames
By:
ADDENDUM NUMBER ONE
Paragraph 1(c) of that certain Reorganization Agreement between and among
eNote.Com, Inc., a Delaware corporation formerly known as Webcor Electronics
Inc. (the "Company"), Navis Technologies, Ltd., a Delaware corporation,
("Navis") and the persons identified in Exhibit "A" to the Reorganization
Agreement (the "Shareholders").is hereby amended to read in
its entirety as follows:
c. Capitalization. The authorized capital stock of Navis consists of 1,000
shares of common stock, $0.01 par value ("Navis Common"). As of the date hereof
536 shares of Navis Common are issued and outstanding, all of the issued and
outstanding shares of Navis Common are duly authorized, validly issued, fully
paid and nonassessable and not subject to preemptive rights created by statute,
Navis' Articles of Incorporation or By-Laws or any agreement to which Navis is a
party or bound. There are no bonds, debentures, notes or other indebtedness
issued or outstanding having the right to vote on any matters on which Navis'
Shareholders may vote. All holders of outstanding Navis Common are identified in
Schedule A-1 to this Agreement and there are no options, warrants, calls or
other rights, agreements, arrangements or commitments presently outstanding
obligating Navis to issue, deliver or sell shares of its capital stock or debt
securities, or obligating Navis to grant, extend or enter into any such option,
warrant, call or other such right, agreement, arrangement or commitment.
Schedule A-1 sets forth a true and complete list of all holders of Navis Common,
showing for each holder the number of shares of Navis Common owned by such
holder as of the date hereof.
In addition to the Navis Common, Navis has previously sold $810,147
aggregate principal amount of Debentures ("Navis Debentures"). The Navis
Debentures are held by the holders of Navis Debentures ("Debentureholders")
identified in Schedule A-1 and immediately prior to the closing of the
transactions contemplated hereby, the holders of $500,000 aggregate principal
amount of Debentures intend to convert the Navis Debentures held by them into
500,000 shares of Navis Common. Immediately after the closing of this Agreement,
the Company intends to repay $310,147 aggregate principal amount of Navis
Debentures, together with $58,325 of accrued interest, in full and final
satisfaction of the rights of the holders of such Navis Debentures.
All outstanding Navis Securities and Navis Debentures are duly authorized,
validly issued, fully paid and nonassessable and are owned by the Shareholders
and Debentureholders specified in Schedule A-1 free and clear of any security
interests, liens, claims, pledges, agreements, limitations on voting rights,
charges or other encumbrances of any nature whatsoever ("Encumbrances").
IN WITNESS WHEREOF, the parties hereto have duly executed this Addendum
Number One as of the day and year first above written.
eNote.com, Inc. Navis Technologies, Ltd..
Sally A. Fonner, President John A. Varsames, President
STOCKHOLDERS LISTED IN EXHIBIT A
<PAGE>
John R. Varsarmes and
Heidi A. Varsames
Michael T. Grennan
James D. Richards
Peter D. Swift, M.D
Peter Stern, M.D.
Robert L. Jones
Lori Ann Varsames and
Kristen Varsames
By:
CERTIFICATE OF POWERS, DESIGNATIONS,
PREFERENCES AND RIGHTS OF THE
CONVERTIBLE PREFERRED STOCK
PAR VALUE $0.01 PER SHARE
OF
e-Notes.Com, Inc.
e-Notes.Com, Inc., a corporation organized and existing under the laws and
State of Delaware (the "Corporation"), hereby certifies that the Sole Director
of the Corporation by written consent dated March 24, 1999 duly adopted the
following resolutions:
WHEREAS, the Sole Director of the Corporation is authorized, within the
limitations and restrictions set forth in the Certificate of Incorporation of
the Corporation ("Certificate of Incorporation"), to fix by resolution or
resolutions the designation of each series of preferred stock, $0.01 par value
per share ("Preferred Stock"), the number of shares constituting such series and
the relative rights, preferences and limitations thereof, including, without
limiting the generality of the foregoing, such provisions as may be desired
concerning voting, redemption, dividends, dissolution or the distribution of
assets, conversion or exchange, and such other subjects or matters as may be
fixed by resolution or resolutions of the Board of Directors under the General
Corporation Law of the State of Delaware;
WHEREAS, it is the desire of the Sole Director of the Corporation to
authorize a series of Preferred Stock to be designated "Convertible Preferred
Stock" and the number of shares constituting such series.
NOW, THEREFORE, BE IT RESOLVED that pursuant to the authority vested in the
Board of Directors by the Certificate of Incorporation there is created a series
of Preferred Stock consisting of Five Million (5,000,000) shares of Convertible
Preferred Stock, par value $0.01 per share.
1. Designation and Number of Shares. The designation of such series of
Preferred Stock, par value $0.01 per share, authorized by this resolution shall
be Convertible Preferred Stock (the "Preferred Stock"). The maximum number of
shares of the Preferred Stock shall be Five Million (5,000,000), which number
may be decreased (but not increased) by the Board of Directors without a vote of
the stockholders; provided, however, that such number may not be decreased below
the number of then currently outstanding shares of Preferred Stock and shares of
Preferred Stock issuable on exercise of existing options or other rights to
purchase Preferred Stock or otherwise acquire shares of Preferred Stock from the
Corporation. The Preferred Stock shall have a stated value of $1 per share (the
"Issue Price") and shall rank senior to the $0.01 par value common stock
("Common Stock") of the Corporation with respect to the distribution of assets
upon liquidation, dissolution or winding up.
2. Dividends. The holders of Preferred Stock shall not be entitled to any
dividend preference but shall instead share ratably with the holders of the
Corporation's Common Stock in all dividends that are or may be declared by the
Board of Directors at a time when shares of Preferred Stock remain outstanding.
For purposes of calculating the dividends, if any, payable to the holders of
Preferred Stock, the Corporation shall, as of the record date for the
determination of the shareholders entitled to receive such dividend, determine
the number of shares of Common Stock that would be issuable if the Preferred
Stock had been converted into Common Stock immediately prior to the record date,
and then determine the per share dividend payable to holders of Preferred Stock.
3. Liquidation Preference. In the event of a voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, the holders of shares
of the Preferred Stock are entitled to receive out of the assets of the
Corporation available for distribution to stockholders, before any distribution
of assets is made to holders of Common Stock or any other stock ranking junior
to shares of the Preferred Stock as to liquidation, a liquidating distribution
as to each share in an amount equal to the Issue Price. If upon voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, the
amounts payable with respect to shares of the Preferred Stock are not paid in
full, the holders of shares of the Preferred Stock will share ratably in such
distribution of assets of the Corporation in proportion to the full respective
preferential rights to which they are entitled. After payment of the full amount
of the liquidating distribution to which they are entitled, the holders of
shares of the Preferred Stock will share proportionally with the holders of
shares of Common Stock in any additional distribution of Corporation assets.
4. Voting Rights. The holders of Preferred Stock shall (a) be entitled to
the number of votes equal to the number of shares of Common Stock into which
such shares of Preferred Stock could be converted pursuant to the provisions
hereof as of the record date for the determination of stockholders entitled to
vote on such matters or, if no such record date is established, at the date such
vote is taken or any written consent of the stockholders is solicited, (b) have
voting rights and powers equal to the voting rights and powers of the Common
Stock, and (c) be entitled to notice of any stockholders' meeting in accordance
with the by-laws of the Corporation. Fractional votes shall not be permitted and
any fractional voting rights resulting from the above formula (after aggregating
all shares into which shares of Preferred Stock held by each holder could be
converted) shall be rounded to the nearest whole number (with one-half being
rounded upward). Except as otherwise provided herein or required by law, the
holders of Preferred Stock and the holders of Common Stock shall vote together
as a single class and not as separate classes.
5. Conversion of Preferred Stock. Subject to the following provisions, each
share of Preferred Stock shall be convertible at any time after the initial
issuance of the Preferred Stock into one share of Common Stock:
(a) No fractional shares of Common Stock shall be issued upon conversion
of shares of Preferred Stock and in lieu thereof, the holder shall be paid
cash for the value of the fractional Share, based upon the last reported
sale price of one share of Common Stock on the business day immediately
preceding the date of conversion. Before any holder of Preferred Stock
shall be entitled to convert the same into full shares of Common Stock, he
shall surrender the certificate or certificates therefor, duly endorsed for
each Share to be converted, at the office of the Corporation or of any
transfer agent for the Corporation and he shall give at least three (3)
business days prior written notice to the Corporation at such office that
he elects to convert the same, and shall state therein his name or the name
or names of his nominees in which he wishes the certificate or certificates
for shares of Common Stock, to be issued. The Corporation shall, as soon as
practicable thereafter, issue and deliver at such office to such holder of
Shares, or to his nominee or nominees, a certificate or certificates for
the number of shares of Common Stock to which he shall be entitled as
aforesaid. Except as set forth in this Section 5, such conversion shall be
deemed to have been made immediately prior to the close of business on the
day of the delivery of the certificate for the Preferred Stock and the
person or persons entitled to receive the shares of Common Stock issuable
upon such conversion shall be treated for all purposes as the record holder
or holders of such shares of Common Stock on such date. Upon conversion of
only a portion of the number of shares of Preferred Stock represented by a
certificate so surrendered for conversion, the Corporation shall issue and
deliver to the holder a new certificate representing the number of
unconverted Shares.
In the case of any share of Preferred Stock which is converted at a time
when any dividend on the Preferred Stock has been declared but not paid,
such dividend shall be payable on the date of conversion and shall not be
convertible as otherwise provided herein.
If more than one certificate representing shares of Preferred Stock shall
be surrendered for conversion at one time by the same holder, the number of
full shares issuable upon conversion thereof shall be computed on the basis
of the aggregate number of shares of Preferred Stock represented by such
certificates, or the specified portions thereof to be converted, so
surrendered.
(b) Adjustments to Conversion Ratio.
(i) Stock Splits and Subdivisions. If, after the date of the first
issuance of shares of Preferred Stock, the Corporation issues
additional shares of Common Stock, by reason of a split in the number
of outstanding shares of Common Stock into a greater number of shares
of Common Stock or by reason of a subdivision of the outstanding shares
of Common Stock into a greater number of shares of Common Stock, the
Conversion Ratio in effect immediately prior to such split or
subdivision shall, currently with the effectiveness of such split or
subdivision, be proportionately increased.
(ii) Adjustments for Combinations or Consolidation of Common Stock. In
the event that the outstanding shares of Common Stock are combined or
consolidated, by reclassification, reverse stock split or otherwise,
into a lesser number of shares of Common Stock, the Conversion Ratio in
effect immediately prior to such combination or consolidation shall,
concurrently with the effectiveness of such combination or
consolidation, be proportionately decreased.
(iii) Adjustments for Merger or Reorganization, etc. In the case of any
merger of the Corporation with or into another corporation or the
conveyance of all or substantially all of the assets of the Corporation
into another corporation in which the shareholders of the Corporation
are to receive cash, securities or other consideration for their
shares, each share of Preferred Stock shall thereafter be convertible
into the number of shares of stock or other securities or property to
which a holder of the number of shares of Common Stock into which such
share of Preferred Stock might have been converted immediately prior to
such merger or conveyance would have been entitled upon such merger or
conveyance.
(iv) Adjustments for Unauthorized Stock Issuances. In the event that
the Corporation shall, subsequent to the date hereof and at any time
prior to the completion of an underwritten secondary offering of Common
Stock which has been registered under the Securities Act of 1933, as
amended, effect a sale of Common Stock, securities convertible into
common stock, or rights to purchase Common Stock which has not been
expressly approved in writing by a majority in interest of the holders
of Preferred Stock or their elected representatives, then the number of
shares of Common Stock issuable upon conversion of the Preferred Stock
after the date of such unauthorized issuance shall be determined by (a)
dividing the number of shares of Common Stock outstanding after such
issuance (assuming full exercise of any and all conversion rights
associated therewith) by the number of shares of Common Stock
outstanding immediately before such issuance, and (b) multiplying the
product so calculated by the Conversion Ratio in effect immediately
before such issuance.
(v) Conversion Price Adjustment Cap. Notwithstanding the foregoing
provisions, no adjustment in the Conversion Price will be made until
all accumulated adjustments to the Conversion Price are equal to 1% or
more of the Conversion Price immediately preceding the date of the most
recent prior adjustment. Any adjustments to the Conversion Price not
made effective shall be carried forward and added to the next
adjustment to the Conversion Price.
(vi) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this
Section 5, the Corporation at its expense shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and
furnish to each holder of shares of Preferred Stock a certificate
setting forth such adjustment or readjustment and showing in detail the
facts upon which such adjustment or readjustment is based. The
Corporation shall, upon the written request at any time of any holder
of Shares, furnish or cause to be furnished to such holder a like
certificate setting forth (i) such adjustments and readjustments, (ii)
the Conversion Price in effect, and (iii) the number of shares of
Common Stock and Warrants, if any, which would be received by the
holder upon conversion of shares of Preferred stock.
(c) The Corporation shall pay any and all documentary stamp and other
transactional taxes attributable to the issuance or delivery of shares of
Common Stock upon conversion of any shares of Preferred Stock.
(d) The Corporation shall reserve and keep available out of its authorized
but unissued Common Stock such number of shares of Common Stock as shall
from time to time be sufficient to effect conversion of the shares of
Preferred Stock.
(e) All shares of Common Stock which may be issued upon conversion of the
shares of Preferred Stock will upon issuance by the Corporation be validly
issued, fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issuance thereof.
(f) Upon conversion of any shares of Preferred Stock into Common Stock,
said converted shares shall not thereafter be reissued by the Corporation
as shares of Preferred Stock but shall instead be restored to the status of
authorized but unissued shares of preferred stock of the Corporation
undesignated as to series.
6. Automatic Conversion Preferred Stock. If, at any time after the first
issuance of the Preferred Stock, the Corporation successfully completes and
closes on an underwritten secondary offering of Common Stock which has been (a)
approved in writing by a majority in interest of the holders of Preferred Stock
or their elected representatives, and (b) registered under the Securities Act of
1933, as amended, all shares of Preferred Stock then outstanding shall
immediately and automatically without further notice be converted into shares of
Common Stock with the same effect and the same result as if an optional
conversion occurred as described in Section 5.
7. Registration Rights.
(a) If at any time or times after the date hereof, the Corporation
determines to file a registration statement under the Securities Act
relating to a proposed sale to the public by the Corporation of shares of
Common Stock (but excluding registrations on Form S-4 or Form S-8 or
similar forms hereafter in effect), the Corporation shall:
(i) promptly give to each holder of Preferred Stock a written notice
thereof (which will include a list of the jurisdictions in which the
Corporation intends to attempt to qualify such securities under the
applicable blue sky or other state securities laws, the proposed
offering price, and the plan of distribution);
(ii) include in such registration (and any related qualification under
blue sky laws or other compliance), and in any underwriting involved
therein, all the Common Stock specified in a written notice to the
Corporation by any holder of Preferred Stock; and
(iii) use its best efforts to cause the managing underwriter or
underwriters of such proposed underwritten offering to permit the
Common Stock requested to be included in the Registration Statement
for such offering to be included on the same terms and conditions as
any similar securities of the Corporation included therein.
Notwithstanding the foregoing, if the managing underwriter or
underwriters of such offering deliver a written opinion to the
holders of Preferred Stock that marketing considerations require a
limitation in the number of shares of Common Stock offered pursuant
to any Registration Statement filed under this Section, then,
subject to the advice of said managing underwriter or underwriters
as to the size and composition of the offering, such limitation
shall be imposed ratably among the holders of Preferred Stock
requesting registration.
(b) The Corporation hereby agrees that upon the written request of a holder
or holders of 50% or more of the aggregate number of Shares, which have
been or could be issued or are issuable upon conversion of the Preferred
Stock, it will use its best efforts to effect the registration under the
Act of any such shares; provided, however, that such request shall not be
made until 180 days after the effective date of any registration statement
for a public offering of securities by the Corporation where the holder was
afforded an opportunity to sell shares of Preferred Stock pursuant to the
Piggy-back Registration rights set forth in sub-paragraph (a) of this
Section 7. Such registration is herein sometimes referred to as the "Demand
Registration." In connection with such Demand Registration, the Corporation
will give written notice (a "Notice of Registration") to all of the
holders, of its intent to effect the Demand Registration under the Act of
the Shares. The holders shall then provide the Corporation, within 15 days
after the giving of the Notice of Registration, a written response which
shall specify the number of Shares to be registered and the intended method
of disposition thereof. The Corporation shall not be required to effect
more than two Demand Registrations under this Section 8. It is understood
and agreed that the Corporation's obligation to register the Shares
hereunder may be fulfilled by either a Corporation-sponsored "shelf"
registration or through an underwritten public offering and that if
participation in either one of such types of registration is offered to the
holders, and that if a holder shall be offered the ability to, and shall
decline to participate in such Registration, such offer and declination
shall be deemed to constitute a waiver of one of the two registration
rights granted hereunder.
(c) All references to Preferred Stock in this Section 7 shall include the
shares of Common Stock and other securities issued or issuable upon
conversion thereof or with respect thereto.
8. Status of Reacquired Shares of Preferred Stock. Shares of Preferred
Stock issued and reacquired by the Corporation (including shares of Preferred
Stock which have been converted into shares of Common Stock) shall have the
status of authorized and unissued shares of Preferred Stock, undesignated as to
series, subject to later issuance.
9. Fractional Shares. In the event the holder of Preferred Stock shall be
entitled to receive a fractional interest in a share of Preferred Stock or a
fractional interest in a share of Common Stock, except as otherwise provided
herein, the Corporation shall deliver cash in the amount of the fair market
value of such fractional interest.
10. Preemptive Rights. The holders of Preferred Stock are not entitled to
any preemptive or subscription rights in respect of any securities of the
Corporation unless such rights are granted to holders of Common Stock.
11. Notices. Any notice required by the provisions of the foregoing
paragraphs to be given to the holders of Preferred Stock shall be deemed given
if deposited in the United States mail, postage prepaid, and addressed to each
holder of record at his address appearing on the books of the Corporation.
12. Amendments. Upon receiving the consent of the holders of at least
two-thirds of the Preferred Stock then outstanding, the Corporation may amend or
modify any of the foregoing rights, privileges and preferences with respect to
the shares of Preferred Stock.
THE UNDERSIGNED president and Secretary of e-Notes.Com, Inc., hereby make
this certificate, declaring and certifying that this is the duly authorized act
and deed of the Corporation and the facts herein stated are true, and
accordingly have hereunto set their hand this 5th day of April, 1999.
e-Notes.Com, Inc.
a Delaware corporation
By:
Sally A. Fonner, President Secretary
CERTIFICATE PREFERRED STOCK CERTIFICATE
NUMBER SHARES
0001 5,000,000
CONVERTIBLE ENOTE.COM, INC. CONVERTIBLE
PREFERRED STOCK (Incorporated Under the Laws PREFERRED STOCK
of the State of Delaware)
This certifies that friedlander international limited is the registered owner
of five million (5,000,000) fully paid and nonassessable shares of the $1.00
stated value convertible preferred stock of ENOTE.COM, INC. (the "Corporation").
The total authorized Convertible Preferred Stock of the Corporation is
represented by a single class consisting of five million shares. Each share of
Convertible Preferred Stock has a liquidation preference of $1.00 per share. The
holders of Convertible Preferred Stock shall not be entitled to any dividend
preference but shall instead share ratably with the holders of the Corporation's
Common Stock in all dividends that are or may be declared by the Board of
Directors. The Convertible Preferred Stock is convertible into Common Stock at
any time on a share for share basis, subject to adjustment for certain events
including certain future sale of securities. Except in cases where class voting
is required under Delaware law, the holders of Convertible Preferred Stock have
voting rights and powers equal to the voting rights and powers of the
Corporation's Common Stock.
The shares of Convertible Preferred Stock represented by hereby have certain
other rights, privileges and preferences which are set forth in their entirety
in the Certificate of Powers, Designations, Preferences and Rights relating
thereto which has been filed with the Secretary of State of the State of
Delaware. A complete copy of the Certificate of Designation will be provided
without charge to any person who requests such a copy from the Secretary of the
Company at its principal office One Lawson Lane, Burlington, Vermont 05402.
This certificate is not valid until countersigned by the Transfer Agent and
Registrar.
WITNESS the signatures of its duly authorized officers.
Dated: April 5, 1999
Secretary President
Countersigned:
American Stock Transfer & Trust Co.
New York, New York
By ___________________________?
Authorized Officer
<PAGE>
ASSIGNMENT OF CONVERTIBLE PREFERRED STOCK
FOR VALUE RECEIVED, the undersigned registered owner sells, assigns and
transfers unto _____________________________ a total of ________________ shares
of Convertible Preferred Stock represented by the within certificate and does
hereby irrevocably make constitute and appoint ________________________________
Attorney to transfer said stock on the books of the Corporation with full power
of substitution in the premesis.
Dated:____________________
Signature of Stockholder
Signature Guaranteed:
Note: The above signature must correspond with the name written upon the face of
this Certificate in every particular, without alteration or enlargement or
any change whatever unless this Preferred Stock Certificate has been
assigned.
ELECTION TO CONVERT PREFERRED STOCK
The undersigned registered owner hereby irrevocably elects to exercise his
right to convert _________________ shares of Convertible Preferred Stock
represented by the within certificate into Common Stock of the Company, and
requests that certificates for such shares be issued in the name of:
- ------------------------------------------
(Name and Taxpayer Identification Number)
- ------------------------------------------
(Street Address)
- ------------------------------------------
(City, State, Zip Code)
and if said number of shares shall not be all the shares represented by the
within certificate, that a new certificate for the balance remaining of the
Preferred Stock be registered in the name of the undersigned.
Dated:____________________
Signature of Stockholder
Signature Guaranteed:
Note: The above signature must correspond with the name written upon the face of
this Certificate in every particular, without alteration or enlargement or
any change whatever unless this Preferred Stock Certificate has been
assigned.
Page 1
ENOTE.COM, INC.
COMMON STOCK PURCHASE WARRANT
DATED APRIL 2, 1999
EXERCISABLE AT ANY TIME AT OR PRIOR TO
3:30 P.M. EASTERN STANDARD TIME ON MARCH 31, 2004
To Purchase the number of Shares Determined in Section 1
THESE SECURITIES (THE "SECURITIES") HAVE BEEN (I) ACQUIRED FOR INVESTMENT; (II)
ISSUED AND SOLD IN RELIANCE UPON THE EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES LAWS OF VARIOUS STATES; AND (III) ISSUED AND SOLD IN RELIANCE UPON
THE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933 (THE "ACT")
PROVIDED BY SECTION 4(2) OF THE 1933 ACT. THE SECURITIES CANNOT BE OFFERED FOR
SALE, SOLD OR TRANSFERRED OTHER THAN PURSUANT TO (A) AN EFFECTIVE REGISTRATION
UNDER THE ACT OR ANY TRANSACTION WHICH IS OTHERWISE IN COMPLIANCE WITH THE ACT;
AND (B) EVIDENCE SATISFACTORY TO THE ISSUER OF COMPLIANCE WITH THE APPLICABLE
SECURITIES LAWS OF ANY OTHER JURISDICTION. THE ISSUER SHALL BE ENTITLED TO RELY
UPON AN OPINION OF COUNSEL SATISFACTORY TO IT WITH RESPECT TO COMPLIANCE WITH
THE ABOVE LAWS.
This Common Stock Warrant ("Warrant") is issued as of the date set forth
above by eNote.Com, Inc., a Delaware corporation (the "Company"), to Friedlander
International Limited or registered assigns (the "Holder"). This Warrant is part
of a series of 2,000,000 Common Stock Warrants ("Warrants") issued in connection
with the offer and sale by the Company of $5,000,000 in convertible preferred
stock.
WITNESSETH:
1. Issuance of Warrant: Term. For good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company hereby
grants to the Holder, subject to the provisions hereinafter set forth, the right
to purchase 2,000,000 shares of common stock, par value $.01 per share ("Common
Stock"), of the Company,subject to adjustment as provided herein.
2. Exercise Price. The exercise price (the "Exercise Price") per share for
the Shares that may be purchased pursuant to the terms of this Warrant shall be
$1 per share, subject to adjustment as provided herein.
3. Exercise of Warrants.
(a)Exercise Procedures. Prior to the Expiration Date, this Warrant may be
exercised at any time, from time to time, by the Holder hereof, subject
to the conditions set forth herein, by (i) delivering to the Company the
written notice on the Form of Election to purchase attached hereto as
Exhibit "A," specifying the number of Shares that the Holder has elected
to purchase, (ii) surrendering this Warrant to the Company, and (iii)
delivering to the Company payment (in the manner set forth in Section
3(b) hereof) of the aggregate Exercise Price for the Shares to be
purchased. The date of the exercise of the purchase of any Shares to be
purchased pursuant to this Warrant shall be deemed to be the date of
receipt by the Company of the Form of Exercise duly completed and signed
by the Holder, this Warrant and the appropriate aggregate Exercise Price.
(b)Payment of Exercise Price; Expenses. The aggregate Exercise Price for the
Shares to be purchased pursuant to the exercise of this Warrant shall be
paid to the Company at the Company Office in cash, by wire transfer or by
certified or official bank check. The Company shall pay all expenses,
taxes and other charges payable in connection with the preparation,
execution and delivery of stock certificates pursuant to this Section 3,
except that, in the case of stock certificates that have been registered
in a name or names other than the names of the registered holder of this
Warrant, funds sufficient to pay all stock transfer taxes which shall be
payable upon the execution and delivery of such stock certificate or
certificates, shall be paid by the registered holder hereto to the
Company at the time of delivering this Warrant to the Company as
mentioned above.
(c)Exercise of Fewer Than All Warrants. If the Holder exercises this Warrant
with respect to fewer than all of the Shares that may be purchased
hereunder, then upon surrender of this Warrant at the Company Office by
the registered Holder hereof in person or by attorney and the Form of
Exercise duly authorized in writing, this Warrant will be exchanged for a
similar Warrant, representing the right to purchase the remaining number
of Shares subject to purchase hereunder.
(d)Denominations of Warrants. This Warrant may be exchanged for new Warrants
in different denominations at the option of the Holder by the surrender
of this Warrant to the Company at the Company Office accompanied by
written instructions setting forth the denominations of the new Warrants.
(e)Fractional Shares. No fractional shares of Common Stock will be issued
upon the exercise of this Warrant, but in lieu thereof, a cash payment
will be made to the Holder in an amount equal to any fractional share
resulting from the calculation of the number of Shares to be purchased in
accordance with the provisions in Section 1 hereof multiplied by the
Exercise Price determined in Section 2 hereof.
4. Anti-dilution Protection. The applicable Exercise Price per share
determined in Section 2 hereof and the number of Shares issuable upon exercise
of this Warrant determined in Section 1 hereof are subject to weighted average
adjustment from time to time upon the occurrence hereafter of certain
transactions by the Company, including unauthorized sales of securities as
described in Section 5(b)(iv) of the Certificate of Powers, Designations,
Preferences And Rights Of The Convertible Preferred Stock of the Company dated
April 5, 1999, dividends of stock or other securities or property, (stock
splits, reverse stock splits, subdivisions, combinations, recapitalizations,
reorganizations, reclassifications, consolidations, mergers or sales of
properties and assets and dissolution (collectively, "Reorganization"). In the
event that the outstanding Common Stock of the Company is at any time increased
or decreased solely by reason of such an event, appropriate adjustments in the
number and kind of such securities then subject to this Warrant shall be made
effective as of the date of such occurrence so that the interest of the Holder
upon exercise will be the same as it would have been had such Holder owned the
underlying securities immediately prior to the occurrence of such event. Such
adjustment shall be made successively whenever any Reorganization shall occur.
Notwithstanding the foregoing, no adjustment shall be required under this
Section 4 until the cumulative adjustments result in a dilution to the Holder of
1 % or more.
5. Transferability. The Warrants are transferable on the books of the Company at
the Company Office by the registered Holder hereof in person or by attorney duly
authorized in writing, upon surrender of this Warrant to the Company for
transfer. Upon any such transfer, a new Warrant to purchase a like number of
Shares will be issued to the transferee or transferees in exchange for this
Warrant. Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of this Warrant, and, in case of
loss, theft or destruction, of an agreement of indemnity (without security
therefor, and upon surrender and cancellation of this Warrant, if mutilated),
the Company will make and deliver a new Warrant of like tenor, in lieu of this
Warrant. This Warrant shall be promptly canceled by the Company upon the
surrender hereof in connection with any exchange, transfer or replacement. The
Company shall pay all expenses, taxes (other than stock transfer taxes) and
other charges payable in connection with the preparation, execution and delivery
of this Warrant pursuant to this Section.
6. Holder Not a Shareholder. No Holder of this Warrant shall, solely by reason
of being a Holder hereof, possess any right or privilege as a shareholder of the
Company, including without limitation, the right to vote or receive dividends or
be deemed for any purpose the holder of Common Stock or of any other securities
of the Company which may at any time be issuable on the exercise hereof, until
the Holder shall have exercised all or any part of this Warrant in accordance
with the provisions set forth in Section 3 hereof. Nothing contained herein
shall be construed to confer upon the Holder, as such, any of the rights of a
shareholder of the Company or any right to vote upon any matter submitted to
shareholders at any meeting thereof, or to give or withhold consent to any
corporate action (whether upon any recapitalization, issue of stock,
reclassification of stock, change of par value, consolidation, merger,
conveyance, or otherwise) or, to receive notice of the meetings, until the
Warrant shall have been exercised as provided in Section 3 hereof.
7. Covenants and Conditions. The provisions of this Warrant are subject to the
following covenants and conditions:
(a)Restricted Shares. Neither this Warrant nor the Shares have been registered
under the Act or the securities laws of any state (the "Blue Sky Laws"). By
receiving this Warrant, the Holder hereof acknowledges that the Holder is
acquiring this Warrant for investment purposes only, for his own account and not
with a view to the distribution or resale of this Warrant without an effective
registration for this Warrant under the Act and applicable Blue Sky Laws or an
opinion of counsel reasonably satisfactory to the Company and its counsel that
registration is not required under the Act or any applicable Blue Sky Laws. The
Shares issued upon exercise of this Warrant shall be restricted securities under
the Act and applicable Blue Sky Laws, and the certificates representing the
Shares shall bear a restrictive legend in substantially the same form as set
forth on the cover page of this Warrant.
Other legends as required under federal or state laws may be placed on the
certificates evidencing any Shares purchased hereunder. The Holder hereof agrees
to execute such other documents and instruments as counsel for the Company
reasonably deems necessary to effect the compliance of the issuance of this
Warrant and any Shares issued upon exercise hereof with applicable federal and
state securities laws.
(b)Reservation of Shares. The Company covenants and agrees that the Shares to be
issued upon the exercise of this Warrant shall, upon issuance and payment
therefor in accordance with the terms hereof be legally and validly authorized,
issued and outstanding, fully paid and nonassessable and free from preemptive
rights. The Company shall at all times reserve and keep available for issuance
upon the exercise of this Warrant such number of authorized but unissued shares
of Common Stock as will be sufficient to permit the exercise in full of this
Warrant and all other outstanding Warrants, taking into account for this
purpose, any adjustments to the Shares purchasable under this Warrant as
provided under Section 4 hereof.
(c)Affirmative and Restricted Covenants. The Company will at all times take such
action in good faith as may be necessary or appropriate in order to preserve the
rights of the Holder. The Company will not, by amendment of its certificate of
incorporation, enter into any reorganization, transfer of assets, consolidation,
merger, issue or sale of securities or otherwise avoid or take any action which
would have the effect of avoiding the observance or performance of any of the
terms to be observed or performed hereunder by the Company, but will at all
times in good faith assist in carrying out all of the provisions of this Warrant
and in taking all such action as may be necessary or appropriate in order to
protect the rights of the holders of this Warrant against dilution or other
impairment.
(d)Financial information. So long as this Warrant or any part hereof remains
outstanding, the Company shall furnish to the Holder: (i) unaudited, quarterly
financial statements of the Company within forty-five (45) days after the end of
each fiscal quarter; (ii) financial statements of the Company for each fiscal
year within ninety (90) days after the end of the fiscal year, audited by a
national accounting firm; and (iii) such other financial information of the
Company as the Holder may reasonably request in writing, provided that such
other financial information is prepared by the Company in the ordinary course.
8. Registration Rights.
(a)Piggy-back Registration. If at any time after the date hereof, the Company
determines to file a registration statement under the Securities Act relating to
a proposed sale to the public by the Company of shares of Common Stock (but
excluding registrations on Form S-4 or Form S-8 or similar forms hereafter in
effect), the Company shall:
(i) promptly give to each Warrantholder written notice thereof (which will
include a list of the jurisdictions in which the Company intends to attempt to
qualify such securities under the applicable blue sky or other state securities
laws, the proposed offering price, and the plan of distribution);
(ii) include in such registration (and any related qualification under blue sky
laws or other compliance), and in any underwriting involved therein, all the
Common Stock specified in a written notice to the Company by any Warrantholder;
and
(iii) use its best efforts to cause the managing underwriter or underwriters of
such proposed underwritten offering to permit the Common Stock requested to be
included in the Registration Statement for such offering to be included on the
same terms and conditions as any similar securities of the Company included
therein. Notwithstanding the foregoing, if the managing underwriter or
underwriters of such offering deliver a written opinion to the Warrantholders
that marketing considerations require a limitation in the number of shares of
Common Stock offered pursuant to any Registration Statement filed under this
Section, then, subject to the advice of said managing underwriter or
underwriters as to the size and composition of the offering, such limitation
shall be imposed among the Warrantholders.
(b) Demand Registration. The Company hereby agrees that upon the written request
of a majority in interest of the holders of Warrants or the shares of Common
Stock which have been or could be issued or are issuable upon exercise of the
Warrants, it will use its best efforts in accordance with the terms of this
Section 8 to effect the registration under the Act of any Shares purchased
pursuant to the terms of this Warrant; provided, however, that such request
shall not be made until 180 days after the effective date of any registration
statement for a public offering of securities by the Company where the Holder
was afforded an opportunity to sell shares of Common Stock pursuant to the
Piggy-back Registration rights set forth in sub-paragraph (a) of this Section 8.
Such registration is herein sometimes referred to as the "Demand Registration."
In connection with such Demand Registration, the Company will give written
notice (a "Notice of Registration") to all of the Holders, of its intent to
effect the Demand Registration under the Act of the Shares. The Holders shall
then provide the Company, within 15 days after the giving of the Notice of
Registration, a written response which shall specify the number of Shares to be
registered and the intended method of disposition thereof. The Company shall not
be required to effect more than two Demand Registrations under this Section 8.
It is understood and agreed that the Company's obligation to register the Shares
hereunder may be fulfilled by either a Company-sponsored "shelf" registration or
through an underwritten public offering and that if participation in either one
of such types of registration is offered to the Holders, and that if a Holder
shall be offered the ability to and shall decline to participate in such Demand
Registration, such offer and declination shall be deemed to constitute a waiver
of one of the Demand Registration rights granted hereunder.
(c)Registration Statement Form. The Demand Registration shall be on such
appropriate registration form promulgated by the Commission as shall be selected
by the Company, and shall permit the disposition of the Shares covered thereby
in accordance with the intended method or methods specified by the Holders in
their request for such registration.
(d)Registration Expenses. The Company will pay all Registration Expenses
incurred in connection with the Demand Registration.
(e)Right to Include Shares in Registration. The Company may include in the
registration statement related to the Demand Registration securities on its own
behalf. The amount of securities that the Company may include in the
registration statement relating to such Demand Registration on its own behalf
shall be determined at the Company's sole discretion, taking into consideration
all contractual registration rights then outstanding to all parties.
(f)Delay of Company's Registration Obligations. Notwithstanding the foregoing,
the Company may postpone taking action with respect to the Demand Registration
for a reasonable period if, in the good faith opinion of the Company's Board of
Directors, effecting the registration would adversely affect a material
financing, acquisition, disposition of assets or stock, merger or other
comparable transaction or would require the Company to make public disclosure of
information, the public disclosure of which would have a materially adverse
effect upon the Company, provided that the Company shall not delay such action
pursuant to this sentence more than once in any 6- month period.
(g)Termination of Rights. The registration rights granted hereunder shall not
terminate until they are waived in writing by the Holder.
9. Registration Procedures. If and whenever the Company is required to use its
best efforts to effect the Demand Registration of any Shares under the Act
pursuant to Section 8, the Company will use its best efforts to effect the
Demand Registration and sale of such Shares in accordance with the intended
methods of disposition thereof specified by the Holders. Without limiting the
foregoing, the Company will, as expeditiously as possible:
(a)prepare and file with the Commission as soon as practicable, unless delayed
pursuant to Section 8(f), the requisite registration statement to effect such
Registration and use its best efforts to cause such registration statement to
become effective, provided that as far in advance as practical before filing
such registration statement or any amendment thereto, the Company will furnish
to the Holders who have elected to participate in such Registration. copies of
reasonably complete drafts of all such documents proposed to be filed (including
exhibits), and any such Holder shall have the opportunity to object to any
information pertaining solely to such Holder that is contained therein, and the
Company will make the corrections reasonably requested by such Holder with
respect to such information prior to filing any such registration statement or
amendment;
(b)prepare and file with the Commission such amendments and supplements to such
registration statements, financial statements and any prospectus used in
connection therewith as may be necessary to maintain the effectiveness of such
registration statement and to comply with the provisions of the Act with respect
to the disposition of all Shares covered by such registration statement, in
accordance with the intended methods of disposition thereof, until the earlier
of (i) such time as all of such Shares have been disposed of in accordance with
the intended methods of disposition by the Holder or Holders thereof set forth
in such registration statement and (ii) one year after such registration
statement becomes effective;
(c)promptly notify each Holder of Shares who has elected to participate in such
Registration and the underwriter or underwriters, if any:
(i) when such registration statement or any prospectus used in connection
therewith, or any amendment or supplement thereto, has been filed and, with
respect to such registration statement or any post-effective amendment thereto.
when the same has become effective;
(ii) of the notification to the Company by the Commission of its initiation of
any proceeding with respect to the issuance by the Commission of, or of the
issuance by the Commission of, any stop order suspending the effectiveness of
such registration statement; and
(iii) of the receipt by the Company of any notification with respect to the
suspension of the qualification of any Shares for sale under the applicable Blue
Sky Laws of any jurisdiction;
(d)furnish to each Holder of Shares covered by such registration statement such
number of conformed copies of such registration statement and of each amendment
and supplement thereto (in each case including all exhibits and documents
incorporated by reference), such number of copies of the prospectus contained in
such registration statement (including each preliminary prospectus and any
summary prospectus) and any other prospectus filed under Rule 424 promulgated
under the Act relating to such Holder's Shares, and such other documents, as
such Holder may reasonably request to facilitate the disposition of its Shares;
(e)use its best efforts to register or qualify all Shares covered by such
registration statement under the Blue Sky Laws of such jurisdictions as each
Holder thereof shall reasonably request, to keep such registration or
qualification in effect for so long as such registration statement remains in
effect, and take any other action which may be reasonably necessary or advisable
to enable such Holder to consummate the disposition in such jurisdictions of the
Shares owned by such Holder, except that the Company shall not for any such
purpose be required (i) to qualify generally to do business as a foreign
corporation in any jurisdiction wherein it would not but for the requirements of
this Section 9(e) be obligated to be so qualified, or (ii) to subject itself to
taxation in any such jurisdiction;
(f)use its best efforts to cause all Shares covered by such registration
statement to be registered with or approved by such other governmental agencies
or authorities as may be necessary to enable each holder thereof to consummate
the disposition of such Shares;
(g)notify each Holder of Shares covered by such registration statement, at any
time when a prospectus relating thereto is required to be delivered under the
Act, of the happening of any event as a result of which any prospectus included
in such registration statement, as then in effect, includes 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, in the light of the
circumstances under which they were made, not misleading, and at the request of
any such holder promptly prepare and furnish to such Holder a reasonable number
of copies of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such securities,
such prospectus shall not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading;
(h)otherwise use its best efforts to comply with all applicable rules and
regulations of the Commission, and make available to its security holders, as
soon as reasonably practicable, an earnings statement covering the period of at
least 12 months, but not more than 18 months, beginning with the first full
calendar month after the effective date of such registration statement, which
earnings statement shall satisfy the provisions of Section 11(a) of the Act and
Rule 158 promulgated thereunder;
(i)make available for inspection by any Holder who has elected to participate in
such registration statement, any underwriter participating in any disposition
pursuant to such registration statement and any attorney, accountant or other
agent retained by any such Holder or underwriter (collectively, the
"Inspectors"), all financial and other records, pertinent corporate documents
and properties of the Company (collectively, the "Records") as shall be
reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company's officers, directors and employees to
supply all information reasonably requested by any such Inspector in connection
with such registration statement, and permit the Inspectors to participate in
the preparation of such registration statement and any prospectus contained
therein and any amendment or supplement thereto. Records which the Company
determines, in good faith, to be confidential and which it notifies the
Inspectors are confidential shall not be disclosed by the Inspectors unless (i)
the disclosure of such Records is necessary to avoid or correct a misstatement
or omission in the registration statement, (ii) the release of such Records is
ordered pursuant to a subpoena or other order from a court of competent
jurisdiction or (iii) the information in such Records has been made generally
available to the public. The Holder of Shares agrees by acquisition of such
Shares that it will, upon learning that disclosure of such Records is sought in
a court of competent jurisdiction, give notice to the Company and allow the
Company, at the Company's expense, to undertake appropriate action to prevent
disclosure of the Records deemed confidential;
(j)provide a transfer agent and registrar for all Shares covered by such
registration statement not later than the effective date of such registration
statement; and
(k)use its best efforts to cause all Shares covered by such registration
statement to be listed, upon official notice of issuance, on any securities
exchange on which any of the securities of the same class as the Shares are then
listed.
The Company may require each Holder of Shares as to which any registration is
being effected to, and each such Holder, as a condition to including Shares in
such Registration, shall, furnish the Company with such information and
affidavits regarding such Holder and the distribution of such securities as the
Company may from time to time reasonably request in writing in connection with
such Registration.
Each Holder of Shares agrees by acquisition of such Shares that upon receipt of
any notice from the Company of the happening of any event of the kind described
in Section 9(g), such Holder will forthwith discontinue such Holder's
disposition of Shares pursuant to the registration statement relating to such
Shares until such Holder's receipt of the copies of the supplemented or amended
prospectus contemplated by Section 9(g) and, if so directed by the Company, will
deliver to the Company (at the Company's expense) all copies, other than
permanent file copies, then in such Holder's possession of the prospectus
relating to such Shares current at the time of receipt of such notice.
10.Underwritten Offerings. In the case of an underwritten Public Offering, the
Lead Underwriter, if any, shall be any underwriter or underwriters as shall be
selected by the Company, in its sole discretion. The Company shall enter into an
underwriting agreement in customary form with such underwriter or underwriters,
which shall include, among other provisions, indemnities to the effect and to
the extent provided in Section 11 unless otherwise agreed to by the Lead
Underwriter and a Holder or Holders of Shares to be distributed by such
underwriters. The Holders of Shares to be distributed by such underwriters shall
be parties to such underwriting agreement and may, at their option, require that
any or all of the representations and warranties by, and the other agreements on
the part of, the Company to and for the benefit of such underwriters also be
made to and for their benefit and that any or all of the conditions precedent to
the obligations of such underwriters under such underwriting agreement also be
conditions precedent to their obligations. Unless otherwise agreed to by the
Lead Underwriter and a Holder or Holders of Shares to be distributed by such
underwriters, no Holder of Shares shall be required to make any representations
or warranties to or agreements with the Company or the underwriters other than
representations, warranties or agreements regarding such Holder and its
ownership of the securities being registered on its behalf and such Holder's
intended method of distribution and any other representation required by law. No
Holder may participate in such underwritten offering unless such Holder agrees
to sell its Shares on the basis provided in such underwriting agreement and
completes and executes all questionnaires, powers of attorney, indemnities and
other documents reasonably and customarily required under the terms of such
underwriting agreement. If any Holder disapproves of the terms of an
underwriting prior to the effectiveness of the registration statement, such
Holder may elect to withdraw therefrom and from such registration by notice to
the Company and the Lead Underwriter.
11.Indemnification.
(a)Indemnification by the Company. The Company shall, to the full extent
permitted by law, indemnify and hold harmless each Holder of Shares included in
any registration statement filed in connection with a registration under
Sections 8, 9 or 10 hereof, its directors and officers, and each other Person,
if any, who controls any such Holder within the meaning of the Act, against any
losses, claims, damages, expenses or liabilities, joint or several (together,
"Losses"), to which such Holder or any such director or officer or controlling
Person may become subject under the Act or otherwise, insofar as such Losses (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in any such registration statement, any
preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein (in the case of a prospectus, in the
light of the circumstances under which they were made) not misleading, and the
Company will reimburse such Holder and each such director, officer and
controlling Person for any legal or any other expenses reasonably incurred by
them in connection with investigating or defending any such Loss (or action or
proceeding in respect thereof); provided that the Company shall not be liable in
any such case to the extent that any such Loss (or action or proceeding in
respect thereof) arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in any such registration
statement, preliminary prospectus, final prospectus, summary prospectus,
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company through an instrument duly executed by such
Holder specifically stating that it is for use in the preparation thereof. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such Holder or any such director, officer or controlling
Person, and shall survive the transfer of Shares by such Holder. The Company
shall also indemnify each other Person who participates (including as an
underwriter) in the offering or sale of Registrable Securities, their officers
and directors and each other Person, if any, who controls any such participating
Person within the meaning of the Act to the same extent as provided above with
respect to Holders of Shares.
(b)Indemnification by the Holders. Each Holder of Shares which are included or
are to be included in any registration statement filed in connection with any
registration under Sections 8, 9 or 10 hereof, as a condition to including
Shares in such registration statement, shall, to the full extent permitted by
law, indemnify and hold harmless the Company, its directors and officers, and
each other Person, if any, who controls the Company within the meaning of the
Act, against any Losses to which the Company or any such director or officer or
controlling Person may become subject under the Act or otherwise, insofar as
such Losses (or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any such registration
statement, any preliminary prospectus, final prospectus or summary prospectus
contained therein, or any amendment or supplement thereto, or any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein (in the case of a prospectus, in the
light of the circumstances under which they were made) not misleading, if such
untrue statement or alleged untrue statement or omission or alleged omission was
made in reliance upon and in conformity with written information furnished to
the Company through an instrument duly executed by such Holder specifically
stating that it is for use in the preparation of such registration statement,
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement; provided, however, that the obligation to provide indemnification
pursuant to this Section 11(b) shall be several, and not joint and several,
among such indemnifying Parties on the basis of the number of Shares included in
such registration statement and the aggregate amount which may be recovered from
any Holder of Shares pursuant to the indemnification provided for in this
Section 11(b) in connection with any registration and sale of Shares shall be
limited to the total proceeds (including commissions and underwriting discounts)
received by such Holder from the sale of such Shares. Such indemnity shall
remain in full force and effect regardless of any investigation made by or on
behalf of the Company or any such director, officer or controlling Person and
shall survive the transfer of such Shares by such Holder. Such Holders shall
also indemnify each other Person who participates (including as an underwriter)
in the offering or sale of Registrable Securities, their officers and directors
and each other Person, if any, who controls any such participating Person within
the meaning of the Act to the same extent as provided above with respect to the
Company.
(c)Notices of Claims, etc. Promptly after receipt by an Indemnified Party of
notice of the commencement of any action or proceeding involving a claim
referred to in Section 11(a) or 11(b), such Indemnified Party will, if a claim
in respect thereof is to be made against an indemnifying Party pursuant to such
subsections, give written notice to the latter of the commencement of such
action, provided that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the indemnifying Party of its obligations
under the preceding paragraphs of this Section 11, except to the extent that the
indemnifying Party is actually prejudiced by such failure to give notice. In
case any such action is brought against an Indemnified Party, the indemnifying
Party shall be entitled to participate in and, unless, in the reasonable
judgment of any Indemnified Party, a conflict of interest between such
Indemnified Party and any indemnifying Party exists with respect to such claim,
to assume the defense thereof, jointly with any other indemnifying Party
similarly notified to the extent that it may wish, with counsel reasonably
satisfactory to such Indemnified Party, and after notice from the Indemnifying
Party to such Indemnified Party of its election so to assume the defense
thereof, the indemnifying Party shall not be liable to such Indemnified Party
for any legal or other expenses subsequently incurred by the latter in
connection with the defense thereof other than reasonable costs of
investigation; provided that the indemnified Party or Indemnified Parties shall
have the right to employ one counsel to represent it or them if, in the
reasonable judgment of the Indemnified Party or Indemnified Parties, it is
advisable for it or them to be represented by separate counsel by reason of
having legal defenses which are different from or in addition to those available
to the indemnifying Party, and in that event the reasonable fees and expenses of
such one counsel shall be paid by the indemnifying Party. If the indemnifying
Party is not entitled to, or elects not to, assume the defense of a claim, it
will not be obligated to pay the fees and expenses of more than one counsel for
the Indemnified Parties with respect to such claim, unless in the reasonable
judgment of any Indemnified Party a conflict of interest may exist between such
Indemnified Party and any other indemnified Parties with respect to such claim,
in which event the indemnifying Party shall be obligated to pay the fees and
expenses of such additional counsel for the Indemnified Parties or counsels. No
indemnifying Party shall consent to entry of any judgment or enter into any
settlement without the consent of the Indemnified Party which does not include
as an unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. No indemnifying Party shall be subject to any liability for any
settlement made without its consent, which consent shall not be unreasonably
withheld.
(d)Contribution. If the indemnity and reimbursement obligation provided for in
any subsection of this Section 11 is unavailable or insufficient to hold
harmless an Indemnified Party in respect of any Losses (or actions or
proceedings in respect thereof) referred to therein, then the indemnifying Party
shall contribute to the amount paid or payable by the Indemnified Party as a
result of such Losses (or actions or proceedings in respect thereof) in such
proportion as is appropriate to reflect the relative fault of the indemnifying
Party, on the one hand, and the Indemnified Party, on the other hand, in
connection with statements or omissions which resulted in such Losses, as well
as any other relevant equitable considerations. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the indemnifying Party or the
Indemnified Party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. The parties hereto agree that it would not be just and equitable if
contributions pursuant to this paragraph were to be determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the first sentence of this
paragraph. The amount paid by an Indemnified Party as a result of the Losses
referred to in the first sentence of this Section 11(d) shall be deemed to
include any legal and other expenses reasonably incurred by such Indemnified
Party in connection with investigating or defending any Loss which is the
subject of this Section 11(d).
No Indemnified Party guilty of fraudulent misrepresentation (within the meaning
of Section 1 l(f) of the Act) shall be entitled to contribution from the
Indemnifying Party if the indemnifying Party was not guilty of such fraudulent
misrepresentation.
(e)Other Indemnification. Indemnification similar to that specified in the
preceding paragraphs of this Section 11 (with appropriate modifications) shall
be given by the Company and each Holder of Shares with respect to any required
registration or other qualification of securities under any federal or state law
or regulation of any governmental authority other than the Act reasonable and
customary in scope and effect. The provisions of this Section 11 shall be in
addition to any other rights to indemnification or contribution which an
Indemnified Party may have pursuant to law, equity, contract or otherwise.
(f)Indemnification Payments. The indemnification required by this Section 11
shall be made by periodic payments of the amount thereof during the course of
the investigation or defense, as and when bills are received or Losses are
incurred.
12.Covenants Relating to Rule 144. The Company will file reports in compliance
with the Exchange Act, will comply with all rules and regulations of the
Commission applicable in connection with the use of Rule 144 and take such other
actions and furnish any Holder with such other information as such Holder may
request in order to avail itself of such rule or any other rule or regulation of
the Commission allowing such Holder to sell any Shares without registration, and
will, at its expense, forthwith upon the request of any Holder, deliver to such
Holder a certificate, signed by the Company's principal financial officer,
stating (a) the Company's name, address and telephone number (including area
code), (b) the Company's Internal Revenue Service identification number, (c) the
Company's Commission file number, (d) the number of shares of each class of
stock outstanding as shown by the most recent report or statement published by
the Company, and (e) whether the Company has filed the reports required to be
filed under the Exchange Act for a period of at least 90 days prior to the date
of such certificate and in addition has filed the most recent annual report
required to be filed thereunder. If at any time the Company is not required to
file reports in compliance with either Section 13 or Section l5(d) of the
Exchange Act, the Company at its expense will, forthwith upon the written
request of the Holder of any Shares, make available adequate current public
information with respect to the Company within the meaning of paragraph (c)(2)
of Rule 144.
13.Redemption of Warrants. The Warrants shall be subject to redemption by
the Company, in whole or in part, on the following terms and conditions.
(a) During the period between the date of this Warrant Agreement and April 1,
2000, the Company may repurchase up to 500,000 Warrants for a redemption price
which is equal to the greater of (i) $3 per Warrant, or (ii) the average closing
bid price of the Company's Common Stock, as reported on the Nasdaq market or
other principal trading market on which the Common Stock is then traded, during
the 30 calendar days immediately preceding the date of the notice of redemption.
Notwithstanding the generality of the foregoing, if the Company mails a notice
of redemption and the Warrantholder exercises the number of Warrants called for
redemption in such notice within 10 days of the date of such notice, then notice
of redemption shall be null and void and the number of Warrants subject to
redemption by the Company pursuant to the terms of this Section 13(a) shall be
reduced by the number of Warrants so exercised.
(b) During the period between April 2, 2000 and April 1, 2001, the Company may
repurchase up to 500,000 Warrants (or 1,000,000 Warrants if the redemption
option set forth in subparagraph (a) has not been exercised) for a redemption
price which is equal to the greater of (i) $7 per Warrant, or (ii) the average
closing bid price of the Company's Common Stock, as reported on the Nasdaq
market or other principal trading market on which the Common Stock is then
traded, during the 30 calendar days immediately preceding the date of the notice
of redemption. Notwithstanding the generality of the foregoing, if the Company
mails a notice of redemption and the Warrantholder exercises the number of
Warrants called for redemption in such notice within 10 days of the date of such
notice, then notice of redemption shall be null and void and the number of
Warrants subject to redemption by the Company pursuant to the terms of this
Section 13(b) shall be reduced by the number of Warrants so exercised.
(c) During the period between April 2, 2001 and April 1, 2002, the Company may
repurchase all remaining unexercised Warrants for a redemption price which is
equal to the greater of (i) $10 per Warrant, or (ii) the average closing bid
price of the Company's Common Stock, as reported on the Nasdaq market or other
principal trading market on which the Common Stock is then traded, during the 30
calendar days immediately preceding the date of the notice of redemption.
Notwithstanding the generality of the foregoing, if the Company mails a notice
of redemption and the Warrantholder exercises the number of Warrants called for
redemption in such notice within 10 days of the date of such notice, then notice
of redemption shall be null and void and the number of Warrants subject to
redemption by the Company pursuant to the terms of this Section 13(c) shall be
reduced by the number of Warrants so exercised.
(d) Notwithstanding any other provision of this Section 13, the Company shall
not have any right of redemption with respect to any Warrants that have been
exercised by the Holder, and after April 1, 2002 all redemption rights set forth
herein shall terminate.
14.Definitions. Unless the context otherwise requires, (i) words of any gender
include each other gender; (ii) words using the singular or plural number also
include the plural or singular number, respectively; (iii) the terms "hereof, "
"herein, " "hereby" and derivative or similar words refer to this entire
Warrant; and (iv) the term "Section" refers to the specified Section of this
Warrant. Whenever this Warrant refers to a number of days, such number shall
refer to calendar days unless Business Days are specified. Except as otherwise
specifically indicated, the following terms will have the following meanings for
all purposes of this Warrant:
(a)"Business Day " means a day other than Saturday, Sunday or any other day on
which banks located in the State of New York are authorized or obligated to
close.
(b)"Common Stock" means shares of the Company's common stock, par value $.01 per
share, as constituted on the date of this Warrant, and any stock into which such
Common Stock shall have been changed or any stock resulting from any
reclassification of such Common Stock.
(c)"Commission" means the United States Securities and Exchange Commission, or
any successor governmental agency or authority.
(d)"Company" means eNote.Com, inc.
(e)"Exchange Act " means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
(f)"Holder" means the initial Holder of this Warrant and any transferee,
successors or assigns.
(g)"Holders" means the initial Holders of the Warrants and any transferee,
successors or assigns.
(h)"Indemnified Party" means a party entitled to indemnity in accordance with
Section 11.
(i)"Indemnifying Party" means a party obligated to provide indemnity in
accordance with Section 11.
(j)"Inspectors" has the meaning ascribed to it in Section 9(i).
(k)"Lead Underwriter" means, with respect to any Public Offering, the
underwriter managing such Public Offering.
(1)"Losses" has the meaning ascribed to it in Section 11(a).
(m)"NASD" means the National Association of Securities Dealers, inc.
(n)"Person" means any natural person, corporation, general partnership, limited
partnership, proprietorship, other business organization, trust, union or
association.
(o) Public Offering" means any offering of Common Stock to the public, either on
behalf of the Company or any of its security Holders, pursuant to an effective
registration statement under the Act.
(p)"Registration Expenses" means all expenses incident to the Company's
performance of or compliance with its obligations under this Warrant to effect
the registration of Shares in a registration under Sections 8, 9 or 10 hereof,
including, without limitation, all registration, filing, securities exchange
listing and NASD fees, all registration, filing, qualification and other fees
and expenses of complying with state securities laws, all word processing,
duplicating and printing expenses, messenger and delivery expenses, the fees and
disbursements of counsel for the Company and of its independent public
accountants, premiums and other costs of policies of insurance against
liabilities arising out of the Public Offering of the Shares being registered
and any fees and disbursements of underwriters customarily paid by issuers or
Holders of securities, but excluding underwriting discounts and commissions or
brokerage fees and transfer taxes, if any, in respect of Shares, which shall be
payable by each Holder thereof.
(q)"Rule 144" means Rule 144 promulgated by the Commission under the Act, and
any successor provision thereto.
(r)"Act" means the Act of 1933, as amended. and the rules and regulations
promulgated thereunder.
(s)"Shares" means the shares of Common Stock issuable to the Holders of the
Warrants upon the exercise thereof, and any additional shares of Common Stock
issued or distributed by way of a dividend, stock split or other distribution in
respect of the Shares.
(t) "Warrant" means this Warrant.
(u) "Warrantholder" means the purchaser of this Warrant or any assingee therof.
(v)"Warrants" means the series of Warrants being granted by the Company in
connection with the offering and sale of the preferred stock.
15.Miscellaneous.
(a)Notices. All notices, requests and other communications hereunder must be in
writing and will be deemed to have been duly given only if delivered personally
or by facsimile transmission or mailed (first class postage prepaid) to the
parties at the following addresses or facsimile numbers: (i) if to the Holder,
to the name, address and facsimile number set forth in the Purchase and Sale
Agreement executed in connection with the purchase of this Warrant or any other
address or facsimile number delivered to the Company in writing or to the name,
address and facsimile number of any transferee of this Warrant as set forth on
the form of Assignment attached hereto; and (ii) if to the Company, to
eNote.Com, Inc., One Lawson, Lane, Third Floor, Burlington, Vermont 054402.
With respect to any other Holder of Shares, such notices, requests and other
communications shall be sent to the addresses set forth in the stock transfer
records regularly maintained by the Company. All such notices, requests and
other communications will (i) if delivered personally to the address as provided
in this Section, be deemed given upon delivery, (ii) if delivered by facsimile
transmission to the facsimile number as provided in this Section, be deemed
given upon receipt, and (iii) if delivered by mail in the manner described above
to the address as provided in this Section, be deemed given upon receipt (in
each case regardless of whether such notice, request or other communication is
received by any other Person to whom a copy of such notice is to be delivered
pursuant to this Section l5(a)). Any party from time to time may change its
address, facsimile number or other information for the purpose of notices to
that party by giving notice specifying such change to the other parties hereto.
(b)Waiver. Any term or condition of this Warrant may be waived at any time by
the Holder, but no such waiver shall be effective unless set forth in a written
instrument duly executed by or on behalf of the Holder. No waiver by the Holder
of any term or condition of this Warrant, in any one or more instances, shall be
deemed to be or construed as a waiver of the same term or condition of this
Warrant on any future occasion.
(c)Successors and Assigns. This Warrant inures to the benefit of and is
enforceable by the Holder hereof and the Holder's respective successors
and assigns.
(d)Headings. The headings used in this Warrant have been inserted for
convenience of reference only and do not define or limit the provisions hereof.
(e)Invalid Provisions. If any provision of this Warrant is held to be illegal,
invalid or unenforceable under any present or future law, and if the rights or
obligations of the Holder hereof will not be materially and adversely affected
thereby, (i) such provision will be fully severable, (ii) this Warrant will be
construed and enforced as if such illegal, invalid or unenforceable provision
had never comprised a part hereof, (iii) the remaining provisions of this
Warrant will remain in full force and effect and will not be affected by the
illegal, invalid or unenforceable provision or by its severance herefrom and
(iv) in lieu of such illegal, invalid or unenforceable provision, there will be
added automatically as a part of this Warrant a legal, valid and enforceable
provision as similar in terms to such illegal, invalid or unenforceable
provision as may be possible.
(g)Governing Law. This Warrant shall be governed by and construed in accordance
with the laws of the State of Delaware, without giving effect to the conflicts
of laws principles thereof.
IN WITNESS WHEREOF, this Warrant has been duly executed and delivered by the
duly authorized officer of the Company as of the date first above written.
eNote.Com, Inc. Attest:
John A. Varsames, President Secretary
<PAGE>
eNote.Com, Inc.
WARRANT EXERCISE FORM
Number of Warrants Exercised ______________
The undersigned hereby irrevocably elects to exercise the right to purchase
represented by the within Warrant for, and to purchase thereunder, __________
shares of the stock provided for therein, and requests that certificates for
such shares be issued in the name of:
- ------------------------------------------
(Name and Social Security Number)
- ------------------------------------------
(Street Address)
- ------------------------------------------
(City, State, Zip Code)
and if said number of shares shall not be all the shares purchasable thereunder,
that a new Warrant for the balance remaining of the shares purchasable under the
within Warrant be registered in the name of the undersigned Warrantholder or his
Assignee as below indicated and delivered to the address stated below.
Dated:__________________, 19__
- ------------------------------------------
(Name of Warrantholder or Assignee)
- ------------------------------------------
(Street Address)
- ------------------------------------------
(City, State, Zip Code)
- ------------------------------------------
(Signature of Warrantholder)
- ------------------------------------------
(Signature of Warrantholder)
ASSIGNMENT
(To Be Executed Only Upon the Assignment of the Warrant)
For Value Received, the undersigned hereby sells assigns and transfers unto
- ------------------------------------------
(Name and Social Security Number of Assignee)
- ------------------------------------------
(Street Address)
- ------------------------------------------
(City, State, Zip Code)
the within Warrant, hereby irrevocably constituting and appointing
________________________ as his true and lawful attorney in fact to transfer
said Warrant on the books of the Company, with full power of substitution in the
premises.
Dated:__________________, 19__
- ------------------------------------------
(Signature of Warrantholder)
- ------------------------------------------
(Signature of Warrantholder)
Note: The above signature must correspond with the name written upon the face of
this Warrant in every particular, without alteration or enlargement or any
change whatever unless this Warrant has been assigned.
PURCHASE AND SALE AGREEMENT
This Purchase Agreement (the "Agreement") is made, entered into and
effective the 6th day of April 1999, between and among eNote.Com, Inc, a
Delaware corporation having an office at One Lawson, Lane, Third Floor,
Burlington, Vermont 05402 (the "Company"), and Friedlander International
Limited, a corporation organized under the laws of the Commonwealth of the
Bahamas and having an office at c/o Morning Star Ireland Limited, 132 Custom
House Harbour, Dublin 1, Ireland (the "Purchaser"). The parties hereto agree as
follows.
1. Sale and Purchase of Securities.
(a) Agreement to Purchase and Sell. The Company agrees to sell to the
Purchaser and, in reliance on the representations, warranties and covenants made
herein by the Company, the Purchaser agrees to purchase from the Company,
5,000,000 shares of the Company's $.01 par value Convertible Preferred Stock
(the "Preferred Stock") and 2,000,000 common stock purchase warrants (the
"Warrants"). The Preferred Stock is more particularly described in the
"Certificate Of Powers, Designations, Preferences And Rights" which is attached
hereto as Exhibit "A" and the Warrants are more particularly described in the
"Common Stock Purchase Warrant" attached hereto as Exhibit "B," both of which
are incorporated herein by reference.
(b) Purchase Price of Securities. The purchase price payable by the Purchaser
for the securities shall be $5,000,000. Such Purchase Price shall be paid by
bank wire transfer upon the Company's delivery to Bear Stearns & Co., or another
agent designated in writing by Purchaser, of certificates for the Preferred
Stock and Warrants, together with a certificate signed by the President and
Secretary of the Company that the Reorganization Agreement attached hereto as
Exhibit "C" has been closed and that all conditions precedent to the closing of
this Agreement have been satisfied.
(c) Repayment of Debenture. Friedlander Capital Management Corporation, an
affiliate of the Purchaser, has previously purchased a $100,000 debenture from
certain corporations that will be acquired by the Company. It is hereby agreed
that immediately upon Closing, the Purchaser's agent will repay such debenture
from the proceeds of this stock purchase and remit the $4,900,000 balance to the
Company as full performance of the Purchaser's obligations hereunder.
2A. Representations and Warranties. To induce the Purchaser to enter into
and perform its obligations under this Agreement, the Company hereby represents
and warrants to the Purchaser as follows:
(a) Organization and Existence. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of Delaware;
it has obtained all licenses and permits and has filed all registrations in all
jurisdictions that are necessary to the operation of its present business. The
Company is duly qualified as a foreign corporation in all jurisdictions where
such qualification is required.
(b) Authorization and Non-Contravention. The execution and delivery of this
Agreement by the Company and the performance of the duties of the Company set
forth herein are within the Company's corporate powers, have been duly
authorized by all necessary corporate action, have been approved by the
Company's Board of Directors, do not require the approval of the Company's
stockholders and do not contravene (i) the Company's Certificate of
Incorporation or Bylaws or (ii) any statute, rule, regulation or other law or
any contractual restriction binding on or affecting the Company, and do not
result in or require the creation of any lien, security interest or other charge
or encumbrance upon or with respect to any of its properties.
(c) Fully-Paid and Nonassessable Securities. The Preferred Stock and
Warrants which will be delivered to the Purchaser pursuant to the terms of this
Agreement and the Common Stock issuable to the Purchaser upon conversion of the
Preferred Stock and/or exercise of the Warrants will, on delivery in accordance
with the terms hereof and thereof, be duly authorized, validly issued, fully
paid, nonassessable and free and clear of any and all liens, encumbrances or
restrictions, other than the express restrictions on resale described elsewhere
herein.
(d) Enforceability of Obligations. This Agreement is the legal, valid and
binding obligation of the Company, enforceable against it in accordance with its
terms.
(e) Claims and Litigation. There are no claims, actions or proceedings,
pending or threatened, by or against or affecting the Company, including actions
before a court, governmental agency or arbitrator, other than those arising or
instituted after the date of this Agreement and prior to Closing in which the
amount claimed as loss or damage (or if no specific amount is claimed, then the
Company's good faith reasonable estimate of the amount that will be claimed)
exceeds $20,000 in the aggregate. Furthermore, the Company has no knowledge of
any conflict between its rights respecting the tvemail technologies and the
rights of others or of the basis for any claim that has not yet been asserted.
(f) Taxes. The Company has filed all required federal, state and other tax
returns and paid any and all income, sales, property or other taxes due pursuant
thereto or pursuant to any assessment received by the Company, except such
taxes, if any, as are being contested in good faith and as to which adequate
reserves have been provided. All such tax returns filed by the Company
accurately reflect the tax due by the Company for the fiscal periods for which
such returns were filed.
(g) Closing of Reorganization. Prior to the closing of this Agreement, the
Company will have held a closing under the Reorganization Agreement attached
hereto as Exhibit "C" and will have acquired good and marketable title to all of
the Transaction Properties specified therein.
(h) Stock and Records. All outstanding capital stock of the Company was and is
properly issued, duly paid and non-assessable, and all books and records of the
Company, including but not limited to its minute books, bylaws, and books of
account, are accurate and complete; the Company's authorized capital on the date
of this Agreement consists of 25,000,000 shares of $0.0l par value common stock
and 5,000,000 shares of $0.01 par value preferred stock; after giving effect to
the reorganization transactions described herein the Company's outstanding
capital stock will consist of not more than 10,000,000 shares of Common Stock
which are owned beneficially and of record by not less than 750 holders.
(i) Convertible Securities and Stock Purchase Rights. No shares of the Company's
unissued capital stock are reserved for any purpose other than for issuance upon
conversion of the Preferred Stock and/or exercise of the Warrants. Except for
the common stock issuable upon conversion of the Preferred Stock and/or exercise
of the Warrants purchased hereby, there are no outstanding commitments,
warrants, options, securities convertible into the Company's stock or other
rights to acquire any shares of the Company's capital stock; there are no
preemptive or similar rights with respect to the issuance or sale of the
Company's capital stock; there is no commitment of the Company to issue or sell
any shares of its capital stock; there are no agreements that now or in the
future require the Company to repurchase, redeem, retire or otherwise acquire
any shares of its capital stock; and there are no agreements (other than
agreements designed to require compliance with federal or state securities laws)
restricting the transfer of any shares of the Company's capital stock .
(j) Title to Property. The Company has good and marketable title to all
property and assets purported to be owned by it including, without limitation,
all of the Intellectual Property and all assets shown in the Company's December
31, 1998 balance sheet, free of all liens, encumbrances, pledges and security
interests.
(k) Investments. The Company has no ownership interest or other investment
in any other person, corporation, partnership or other entity.
(l) Outstanding Guaranties. The Company has no outstanding guaranties or
other agreements relating to the debts or liabilities of any other Person.
(m) SEC Filings. The Company filed a voluntary petition under Chapter 11 of
the Bankruptcy Act on February 1, 1989 in the U.S. Bankruptcy Court for the
Eastern District of New York (Brooklyn) (Case # 89-10328). On October 16, 1990,
the Company's Chapter 11 case was voluntarily converted to a case in Chapter 7
which subsequently closed on November 13, 1996. As a result of the Bankruptcy,
the Company was inactive and engaged in no business activities until December
26, 1996 when its corporate charter was restored. On December 31, 1996 the
Company filed with the Securities and Exchange Commission an omnibus Annual
Report on Form 10-K for the fiscal years ended March 31, 1988 through March 31,
1996, together with quarterly reports for the periods ended June 30 and
September 30, 1996. Since December 31, 1996, the Company has filed (i) all
forms, reports, statements and other documents required to be filed with (A) the
Securities and Exchange Commission ("SEC"), including, without limitation (1)
all Annual Reports on Form 10-KSB, (2) all Quarterly Reports on Form 10-QSB, (3)
all proxy statements relating to meetings of stockholders (whether annual or
special), (4) all Reports on Form 8-K, (5) all other reports or registration
statements and (6) all amendments and supplements to all such reports and
registration statements (collectively, the "the Company SEC Reports") and (B)
any applicable Blue Sky Laws and (ii) all forms, reports, statements and other
documents required to be filed with any other applicable federal or state
regulatory authorities (all such forms, reports, statements and other documents
being referred to herein, collectively, as the "the Company Reports"). The the
Company Reports were prepared in all material respects in accordance with the
requirements of applicable Law (including, with respect to the the Company SEC
Reports, the Securities Act and Exchange Act, as the case may be, and the rules
and regulations of the SEC thereunder applicable to such the Company SEC
Reports) and (y) did not at the time they were filed contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(n) Survival of Representations and Warranties. The representations and
warranties made in sub-paragrraphs (a) through (l) of this Paragraph 2 are true
and correct on the date of this Agreement and shall be true and correct on the
date of the Closing, (ii) shall survive the sale of Common Stock for a period of
three years after the date of the Closing, except to the extent that such
representations and warranties are determined to have been untrue as of the date
hereof or the date of the Closing because of claims or actions (whether based on
alleged violations of securities laws, fraud, preemptive rights or otherwise) by
current or former stockholders of the Company based on events which occurred
prior to the date of this Agreement. All of such representations and warranties
are deemed to be material.
2B. Affirmative Covenants.
(a) Designation of Directors. Until the fifth anniversary of the date of
this Agreement, or until the Purchaser is the beneficial owner of less than 10%
of the issued and outstanding voting securities of the Company, whichever occurs
first, the Purchaser shall be entitled to appoint two members of the
Corporation's Board of Directors and the Corporation shall promptly take such
action as may be required to amend its By-laws to provide that for so long as
the Purchaser has a right to appoint two members of the Board of Directors, the
total number of members constituting the entire Board of Directors shall not
exceed seven.
(b) SEC Reporting Obligations. For so long as the Company's common stock is
registered under the Securities Exchange Act of 1934, as amended, the Company
(i) will file all forms, reports, statements and other documents required to be
filed with (A) the Securities and Exchange Commission ("SEC"), including,
without limitation (1) all Annual Reports on Form 10-KSB, (2) all Quarterly
Reports on Form 10-QSB, (3) all proxy statements relating to meetings of
stockholders (whether annual or special), (4) all Reports on Form 8-K, (5) all
other reports or registration statements and (6) all amendments and supplements
to all such reports and registration statements and (B) any applicable Blue Sky
Laws and (ii) all forms, reports, statements and other documents required to be
filed with any other applicable federal or state regulatory authorities. The
Company Reports shall be prepared in all material respects in accordance with
the requirements of applicable Law (including, the Securities Act and Exchange
Act, as the case may be, and the rules and regulations of the SEC thereunder
applicable to such Company Reports) and shall not at the time they are filed
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they are made, not
misleading.
(c) Reports to Stockholders. For so long as the Company's common stock is
registered under the Securities Exchange Act of 1934, as amended, the Company
will hold an annual meeting of shareholders for the election of directors within
180 days after the end of each of the Company's fiscal years and, within 180
days after the end of each of the Company's fiscal years, will provide the
Company's shareholders with the audited financial statements of the Company as
of the end of the fiscal year just completed prior thereto. Such financial
statements shall be those required by Rule 14a-3 under the Securities Exchange
Act of 1934, as amended, and shall be included in an annual report meeting the
requirements of the Rule. Further, the Company agrees to make available to the
Company's shareholders in printable form within 60 days after the end of each
fiscal quarter of the Company (other than the last fiscal quarter in any fiscal
year) reasonably itemized financial statements of the Company and its
subsidiaries, if any, for the fiscal quarter just ended and a narrative
discussion of such financial statements and the business conducted by the
Company and its subsidiaries, if any, during such quarter.
3. Closing. The Purchaser shall not be obligated to perform its obligations
hereunder unless all of the following conditions which the Company is hereby
obligated to satisfy and perform shall have been satisfied and performed on or
prior to the Closing.
(a) Authorization. Execution and performance of all terms and conditions
hereof by the Company shall have been approved by its Board of Directors and the
Company's shareholders, if necessary, in resolutions in a manner satisfactory in
form and substance to the Purchaser, and the Company shall have duly executed
and delivered this Agreement and stock certificates evidencing the Preferred
Stock and Warrants purchased hereunder.
(b) Performance. The Company shall have delivered to Bear Stearns & Co., or
another agent designated in writing by Purchaser, all of the schedules,
certificates and other papers required to be delivered on or before the date of
this Agreement. None of the Company's representations and warranties set forth
in this Agreement or any information contained in any schedule, attachment or
exhibit hereto or in any writing delivered to the Purchaser shall be or shall
have been discovered by the Purchaser or its attorneys, accountants, employees
or other personnel to be untrue or incorrect in any material respect on the date
of the Closing.
(c) Closing Papers. The Company shall have delivered to the Purchaser all
of the following: (i) an officers' certificate dated the date of the Closing
satisfactory in form and substance to the Purchaser stating that the
representations in Paragraph 2 are true and correct as of such date; (ii)
certified copies satisfactory in form and substance to the Purchaser of the
resolutions described in sub-paragraph 3(a); (iii) certified copies of the
Company's articles of incorporation and bylaws, as amended through the Closing,
certified by the Company's President as true, accurate, correct and complete;
(iv) an authenticated copy of the Company's Registration Statement on Form S-8
for the securities specified in Section 3(d) below, certified by the Company's
President as true, accurate, correct and complete and (v) such other materials
as the Purchaser shall reasonably require.
(d) Certain Expenses. The Company shall pay the fees of Purchaser's legal
counsel in connection with the transactions contemplated by this agreement in
the amount of $40,000. The first $20,000 of such expenses shall be payable in
cash at closing and the $20,000 balance shall be paid through the issuance of
20,000 shares of the Company's common stock at an agreed value of $1 per share.
Prior to issuance, such shares shall be registered under the Securities Act of
1933, as amended, by means of a Registration Statement on Form S-8 which may
include up to 1,440,000 shares issuable to other employess of and consultants to
the Company.
(e) Waiver. Any Closing condition or covenant specified in this Paragraph 3
may be waived by the Purchaser, provided that no such waiver shall be effective
unless it shall be set forth in writing.
4. Investor Representations; Transfer. The Purchaser represents and
warrants that it: (i) is an "accredited investor" as defined under federal
securities laws; (ii) has its principal place of business in the Republic of
Ireland; (iii) acknowledges and understands that subject to the registration
rights provided for elsewhere herein the Preferred Stock and Warrants purchased
pursuant hereto are unregistered securities and must be held indefinitely unless
subsequently registered under the Securities Act of 1933, as amended (the
"Securities Act") and all applicable state securities laws or exemptions from
registration are available. The Purchaser further represents and warrants: (i)
that the Preferred Stock and Warrants are being acquired by the Purchaser for
its own account, (ii) that such acquisition is made without any present
intention of reoffering, reselling or distributing such Preferred Stock and
Warrants, (iii) prior to making such acquisition, the Purchaser was given
unrestricted access to all of the Company's books and records for the purpose of
personally examining any such documents as the Purchaser deemed material to his
investment decision, (iv) prior to making such acquisition, the Purchaser was
given an opportunity to ask questions of and receive answers from the Company's
officers, directors, attorneys and accountants respecting any matter which the
Purchaser deemed material to its investment decision and all such questions have
been answered to the full satisfaction of the Purchaser. The Purchaser further
understands that all certificates representing shares of the Preferred Stock and
Warrants shall bear the following legend:
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT AND
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAW, AND THEY MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND UNDER ALL
APPLICABLE STATE SECURITIES LAWS.
The foregoing restrictions on the transferability of Preferred Stock and
Warrants shall cease and terminate (i) when such securities shall have been
effectively registered under the Securities Act and all applicable state
securities laws, or otherwise disposed of in accordance with the the
requirements of the Securities Act, or (ii) the Company shall have received an
opinion of counsel reasonably acceptable to the Company to the effect that such
restrictions are no longer required in order to ensure compliance of any future
transfer with the Securities Act and all applicable state securities laws.
Whenever such restrictions shall terminate as to any Preferred Stock, Warrants
or Common Stock issued upon the conversion of Preferred Stock or the exercise of
Warrants, the holder thereof shall be entitled to receive from the Company,
without expense, new certificates of like tenor not bearing the legend set forth
above.
5. Notice. All notices, requests, demands and other communications relating
to this Agreement shall be in writing, including by facsimile or e-mail,
addressed to the address set forth herein or such other address as any party
shall notify the other party in writing, and shall be effective, in the case of
written notice by mail, upon placement into the mails (first class, postage
prepaid), and in the case of notice by facsimile or e-mail, on the day sent.
6. Other Provisions. This Agreement shall be binding upon, inure to the
benefit of and be enforceable by the original parties hereto and their
respective heirs, personal representatives, successors and assigns. This
Agreement shall be governed by the laws of the State of Delaware except to the
extent such laws are preempted by federal law. If any of the provisions
contained in this Agreement are invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
shall not in any way be affected or impaired thereby. Any provision of this
Agreement may be waived by the person entitled to the benefit thereof; provided,
no delay or failure on the part of any person in exercising any right hereunder,
and no partial or single exercise thereof, shall constitute a waiver of any
other rights hereunder. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. This Agreement may only
be modified in a writing signed by all the parties hereto. All rights granted in
this Agreement to holders of Preferred Stock and Warrants, or common stock
issuable upon conversion or exercise thereof, shall inure to and be to the
benefit of subsequent holders of such securities until such securities have been
registered under the Securities Act or sold pursuant to Rule 144 or any other
applicable exemption promulgated under the Securities Act.
IN WITNESS WHEREOF, the parties have executed this Stock Purchase and Sale
Agreement, effective as of the date first above written.
eNote.Com. Inc.
(Signature of Investor).
(Name Printed) By: John A. Varsames, President
(Street Address)
(City, State, Zip)
